NORTH COAST ENERGY INC / DE/, S-1, 1999-02-05

NORTH COAST ENERGY INC / DE/
S-1, 1999-02-05
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1999

REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------

NORTH COAST ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(State or other jurisdiction of
incorporation or organization)
1311
(Primary Standard Industrial
Classification Code No.)
34-1594000
(I.R.S. Employer
Identification Number)

1993 CASE PARKWAY
TWINSBURG, OHIO 44087
(330) 425-2330
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------

GARRY REGAN
PRESIDENT
1993 CASE PARKWAY
TWINSBURG, OHIO 44087
(330) 425-2330
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------

COPIES TO:
MICHAEL D. PHILLIPS
CALFEE, HALTER & GRISWOLD LLP
MCDONALD INVESTMENT CENTER, SUITE 1400
CLEVELAND, OHIO 44114
(216) 622-8200
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share(1)................................ 15,532,721 $0.63(3) $9,785,614.23 $2,886.76
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Warrants and
options(2).............................. 6,115,126 $0.63(3) $3,852,529.38 $1,136.50
- ---------------------------------------------------------------------------------------------------------------------------
Total..................................... 21,647,847 $0.63(3) $13,638,143.61 $4,023.26
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The 15,532,721 shares consist of Common Stock previously issued in private
placements, upon exercise of warrants issued in private placements, for
payment of director fees and payment of other fees in lieu of cash.

(2) Represents shares of Common Stock issuable upon exercise of the Warrants and
options.

(3) Estimated solely for the purpose of calculating the registration fee
pursuant to paragraph (c) of Rule 457 under the Securities Act of 1933.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

INFORMATION CONTAINED IN THIS PROSPECTUS IS SUBJECT TO COMPLETION AND AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR WILL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH THAT OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.

SUBJECT TO COMPLETION
PROSPECTUS DATED FEBRUARY 5, 1999

PROSPECTUS

21,647,847 SHARES

NORTH COAST ENERGY, INC.
COMMON STOCK

This prospectus relates to the offer and sale of 15,532,721 shares of Common
Stock, $.01 par value (the "Common Stock"), of North Coast Energy, Inc., a
Delaware corporation (the "Company"), which are currently issued and outstanding
and 6,115,126 shares of Common Stock issuable upon the exercise of outstanding
stock warrants (the "Warrants") and options to purchase shares of Common Stock.
All of the Common Stock being registered hereby may be offered and sold from
time to time by certain selling stockholders of the Company. See "Principal and
Selling Stockholders" and "The Offering." The Company will receive approximately
$5,322,000 in proceeds if the Warrants and options are exercised. The Company
will receive no proceeds from the sale of the Common Stock.

Shares of the Company's Common Stock are traded on the Nasdaq Small Cap Market
under the symbol "NCEB." On February 4, 1999, the last reported sales price for
the Common Stock was $0.66 per share.

Information contained in this prospectus is subject to completion and amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. The securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy nor will there be any sale of these securities
in any state in which that offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.

No person has been authorized to give any information or to make any
representations other than those contained in this prospectus (including the
material incorporated herein by reference) and, if given or made, that
information or representation must not be relied upon as having been authorized
by the Company or by any other person deemed to be an underwriter. Neither the
delivery of this prospectus nor any sale made hereunder will under any
circumstances create an implication that there has been no change in the affairs
of the Company since the date hereof.

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
YOU SHOULD CONSIDER BEFORE MAKING AN INVESTMENT DECISION ABOUT THE COMMON STOCK
OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this prospectus is , 1999
<PAGE> 3

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's annual report on Form 10-K for the fiscal year ended March 31,
1998, the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1998, and the Company's current report on Form 8-K, dated July 14,
1998, are incorporated herein by reference. Statements contained in the
foregoing documents incorporated by reference should be considered to be
modified or superseded for purposes of this prospectus to the extent that
statements contained herein modify, supersede or replace such statements. Any
statement so modified should not be considered, except as so modified or
superseded, to constitute a part of this prospectus.

Upon written or oral request, the Company will furnish, without charge to each
person to whom this prospectus is delivered, a copy of any or all of the
documents described above, other than exhibits thereto not incorporated by
reference into those documents. Requests should be addressed to: North Coast
Energy, Inc., 1993 Case Parkway, Twinsburg, Ohio 44087-2343, Attention: Garry
Regan, telephone: (330) 425-2330.

1
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this prospectus.

THE COMPANY

North Coast Energy, Inc. ("North Coast" or the "Company") is an independent
natural gas and oil company engaged in exploration, development and production
activities primarily in the Appalachian Basin region of Ohio and Pennsylvania.
The Company's strategy focuses primarily on its acquisition of proved
undeveloped natural gas and oil properties and on the turnkey (fixed price)
drilling and development of these properties in conjunction with drilling
partnerships managed and sponsored by the Company ("Drilling Programs").
Drilling Programs are funded through the sale of partnership interests to
non-industry investors and by contributions from the Company.

As of September 30, 1998, the Company served as the managing general partner of
27 Drilling Programs and operated 1,495 wells, 381 of which are operated for
Drilling Programs. In connection with the drilling and development of the wells
it operates, North Coast currently transports gas from 1,225 Company-operated
wells through its pipelines. At March 31, 1998, the Company had estimated net
proved reserves of approximately 18 Bcf of natural gas and 136,000 barrels of
oil, not including the reserves associated with approximately 760 producing oil
and gas properties acquired from Kelt Ohio, Inc. ("Kelt") on April 8, 1998. Kelt
had proved reserves of 236,900 barrels of oil and 25.4 Bcf of natural gas at
December 31, 1997.

The Company focuses its exploration and development activities in the
Appalachian Basin, where wellhead prices for natural gas have, in recent years,
generally averaged higher than in the Gulf Coast and mid-continent regions of
the country due to the area's proximity to major commercial and industrial
markets.

RECENT DEVELOPMENTS

The Company acquired the assets of Kelt pursuant to a purchase and sale
agreement dated April 8, 1998 and subsequently amended on May 12, 1998. The Kelt
acquisition closed on May 29, 1998, with an effective date of April 8, 1998. The
purchase price for the acquired assets was $16.0 million. The acquired assets
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
Company funded the acquisition using cash and an increase in its existing line
of credit. Approximately $15.0 million of the $16.0 million purchase price was
financed under a recently amended credit facility, which increased the Company's
borrowing base to $25.0 million. See "Description of Certain Indebtedness."

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

The Company was incorporated in Delaware on August 30, 1988 as a successor to
the business carried on by its predecessor since 1981. Its principal executive
offices are located at 1993 Case Parkway, Twinsburg, Ohio 44087 and its
telephone number is (330) 425-2330.

2
<PAGE> 5

THE OFFERING

COMMON STOCK.................... Common Stock was issued to several parties
through private transactions by the issuance
of Warrants and options. The following is a
summary of the shares to be registered.

- Common Stock was issued to NUON
International bv, a limited liability
company organized under the laws of the
Netherlands ("NUON"), pursuant to a
private offering at the then current price
of $0.87. NUON purchased 11,494,254 shares
of Common Stock in two separate
transactions on September 4, 1997, and
September 30, 1998. NUON also has an
option to purchase an additional 5,747,127
shares of Common Stock prior to September
30, 1999 for $0.87 per share.

- Range Resources Corporation ("Range"),
formerly Lomak Petroleum, Inc., owns
3,959,874 shares of Common Stock to be
registered.

- The directors of the Company received
Common Stock in lieu of cash compensation
for director's fees between the dates of
October 1996 and December 1997 in the
amounts to be registered listed below. Mr.
Bradley received a Warrant to purchase
99,999 shares of Common Stock of which one
third vested on April 16, 1998 and one
third vests on the one year anniversary
for each of the following two years. The
issuance of this Warrant was also in lieu
of cash compensation for director fees.

<TABLE>
<S> <C>
John Pinkerton 8,464 shares
Steve Grose 8,971 shares
C. Rand Michaels 8,094 shares
Ralph Bradley 99,999 shares
George Begley 16,715 shares
Dale Wegrich 12,403 shares
Charles Ebinger 11,973 shares
Robert Bauman 11,973 shares
</TABLE>

- The Company issued Warrants to purchase
134,000 shares of Common Stock each to
Messrs. Berns and Siegel associated with
the NUON investment transactions of
September 4, 1997 and September 30, 1998
for their work as consultants.

USE OF PROCEEDS................. The Company will not receive any proceeds
from the sale of Common Stock offered by the
selling

3
<PAGE> 6

stockholders. The net proceeds from the
exercise of any Warrant or option is
anticipated to be utilized to repay
indebtedness and for general corporate
purposes.

NASDAQ SYMBOL FOR COMMON
STOCK......................... "NCEB"

COMMON STOCK OUTSTANDING PRIOR
TO OFFERING................... 22,757,168 (1)

COMMON STOCK OUTSTANDING AFTER
THE EXERCISE OF WARRANTS AND
OPTIONS....................... 28,872,294 (1)
- ---------------

(1) Does not reflect 1,704,425 shares of Common Stock issuable upon conversion
of the Preferred Stock or 504,950 shares issuable upon exercise of options
and warrants outstanding as of September 30, 1998 but does reflect the
shares of Common Stock issuable to NUON and Messrs. Bradley, Siegel and
Berns upon the exercise of their currently exercisable options and Warrants.
See "Capitalization" and "Description of Securities."

RISK FACTORS

You should carefully consider the risk factors set forth under the caption "Risk
Factors" and any other information included in the prospectus prior to making an
investment decision.

4
<PAGE> 7

SUMMARY OIL AND GAS PRODUCTION AND RESERVE INFORMATION

Set forth below is a summary of information regarding the Company's gas and oil
production and proved gas and oil reserves. See "Business--Gas and Oil Reserves"
and the Company's consolidated financial statements and the notes thereto
appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
------------------------------------ ---------------------
1996 1997 1998 1997 1998
---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OIL AND GAS DATA:
Production:
Gas (Mcf)............... 1,166,000 1,153,000 1,116,000 569,000 1,262,000
Oil (Bbls).............. 14,100 16,200 13,900 7,400 13,500
Equivalent Mcf @ 6 Mcf/
Bbl.................. 1,250,600 1,250,200 1,199,400 613,400 1,343,000
Average Sales Price:
Gas, per Mcf............ $ 2.24 $ 2.43 $ 2.50 $ 2.30 $ 2.59
Oil, per Bbl............ $ 17.01 $ 20.65 $ 16.18 $ 17.53 $ 11.32
Average Lifting Cost per
Mcf..................... $ .64 $ .62 $ .70 $ .69 $ .89
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
PROVED RESERVE DATA (1)(2):
Gas (Mcf).................................. 20,048,000 16,959,000 17,802,000
Oil (Bbls)................................. 195,200 120,200 135,700
Equivalent Mcf @ 6 Mcf/Bbl................. 21,219,200 17,680,200 18,616,200
Estimated Future Net Revenues (Before
Income Taxes)............................ $39,818,000 $28,937,000 $31,174,000
Discounted Present Value (Before Income
Taxes)................................... $19,267,000 $14,164,000 $14,765,000
</TABLE>

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

(1) See "Business--Oil and Gas Reserves."

(2) Does not include the reserves purchased from Kelt with an effective date of
April 8, 1998.

5
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth summary consolidated financial information of the
Company as of the dates and periods indicated. The summary consolidated
financial data should be read in conjunction with the financial statements and
the notes thereto of the Company appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
(UNAUDITED)
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
------------------------- -----------------
1996 1997 1998 1997 1998
------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Revenues:
Oil and gas production............. $ 2,849 $3,137 $3,014 $1,415 $3,428
Drilling revenues.................. 5,490 3,784 2,988 739 327
Well operating, transportation and
other........................... 1,610 1,860 1,622 823 934
Administrative, management and
agency fees..................... 911 884 966 426 418
------- ------ ------ ------ ------
Total...................... 10,860 9,665 8,590 3,403 5,107
Costs and Expenses:
Oil and gas production expenses.... 796 777 840 433 1,197
Drilling costs..................... 4,161 2,877 2,517 630 572
Oil and gas operations............. 881 977 653 306 445
General and administrative
expenses........................ 2,879 2,308 2,216 1,048 1,011
Depreciation, depletion,
amortization, impairment and
other........................... 3,298 1,385 1,242 552 1,012
Abandonment of oil and gas
properties...................... 60 74 89 3 --
Interest expense................... 773 1,055 839 505 999
Other income, net.................. (96) (80) (68) (29) (44)
------- ------ ------ ------ ------
12,752 9,373 8,328 3,448 5,192
------- ------ ------ ------ ------
Income (Loss) Before Income Taxes.... (1,892) 292 262 (45) (85)
Provision (Credit) For Income
Taxes.............................. (638) -- -- -- --
------- ------ ------ ------ ------
Net Income (Loss).................... $(1,254) $ 292 $ 262 $ (45) $ (85)
======= ====== ====== ====== ======
Net Income (Loss) Applicable to
Common Stock (1)................... $(1,904) $ (167) $ (6) $ (179) $ (210)
======= ====== ====== ====== ======
Net Income (Loss) Per Share.......... $ (.24) $ (.02) $ (.00) $(0.02) $(0.01)
======= ====== ====== ====== ======
</TABLE>

6
<PAGE> 9

<TABLE>
<CAPTION>
(UNAUDITED)
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
------------------------- -----------------
1996 1997 1998 1997 1998
------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Net income (loss).................... $(1,254) $ 292 $ 262 $ (45) $ (85)
Depreciation, depletion, amortization
and other.......................... 3,298 1,385 1,242 552 1,012
Abandonment of oil and gas
properties......................... 60 74 89 3 --
Loss (gain) on sale of property and
equipment.......................... (18) 20 (2) (2) 2
Deferred income taxes................ (555) 5 (12) -- --
------- ------ ------ ------ ------
Subtotal............................. 2,785 1,484 1,317 553 1,014
Changes in working capital, net...... (482) (614) (403) (600) (1,347)
------- ------ ------ ------ ------
Total adjustments.......... 2,303 870 914 (47) (333)
------- ------ ------ ------ ------
Net cash provided by operating
activities......................... $ 1,049 $1,162 $1,176 $ (92) $ (418)
======= ====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED(2)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital........................................... $3,487 $3,487
Property and Equipment (net).............................. 34,787 34,787
Total Assets.................................... 42,389 42,389
Long-Term Debt (3)........................................ 21,672 16,747
Total Stockholders' Equity...................... 17,094 22,019
</TABLE>

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

(1) Dividends paid or in arrears on the Preferred Stock for the years ended
March 31, 1996, 1997 and 1998 and the six months ended September 30, 1997
and 1998 in the amounts of $650, $459, $268, $134 and $125, respectively.

(2) Adjusted for the exercise of the option held by NUON for Common Stock and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."

(3) Long-term debt does not include that portion of indebtedness classified as
current.

7
<PAGE> 10

RISK FACTORS

You should carefully consider the following factors, in addition to the other
information contained in this prospectus, in evaluating an investment in the
Common Stock offered by this prospectus. This prospectus contains
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below and in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as those discussed elsewhere in this prospectus.

DEPENDENCE ON DRILLING PROGRAMS

A substantial portion of the Company's revenues historically have been realized
from drilling, well operating, gas gathering and transportation, gas marketing
and other services performed under contract to Drilling Programs. To date, the
Company has organized 49 Drilling Programs, of which 28 are still active and
operating. The Company's ability to continue to market Drilling Programs to
investors, and the amount of capital raised through these Drilling Programs,
will depend upon a number of factors, including:

- the performance of the Company's gas and oil development activities,

- the continued availability of certain federal income tax benefits for
investors,

- the absence of adverse changes in federal and state securities
regulations,

- factors affecting natural gas and oil prices and markets,

- the Company's ability to maintain good working relationships with the
broker-dealer group which sells partnership interests in Drilling Programs
and

- general economic conditions.

If the Company is unable to continue successfully sponsoring Drilling Programs,
the size, scope and diversification of the Company's operations could be
limited. See "Business--Drilling Programs."

ACQUISITION AND DEVELOPMENT OF ADDITIONAL RESERVES

The Company's future growth depends on its ability to develop or acquire
additional natural gas and oil properties and reserves that can be operated or
developed on a basis which is profitable enough to provide attractive rates of
return. Unless the Company is successful developing and acquiring additional
reserves, its reserves will be depleted as they are produced. Although the
Company emphasizes development drilling in the Clinton/Medina formation in the
Appalachian Basin where drilling results are generally more predictable than in
other geological areas, there can be no assurance that the Company will be able
to economically find or acquire additional gas and oil reserves or that it will
be able to economically develop its current or any future reserves. See
"--Capital Availability," "--Dependence on Drilling Programs,"
"Business--Appalachian Basin" and "--Acquisition of Properties."

CAPITAL AVAILABILITY

The Company's strategy of finding, acquiring and developing natural gas and oil
properties depends upon its ability to obtain financing for these activities.
Although the Company may be able to issue Common Stock or other securities for
such purposes (subject to market
8
<PAGE> 11

conditions and certain restrictions under the Company's existing reducing
revolving credit facility on the issuance of debt and preferred stock), it also
intends to utilize the credit facility and internally generated funds to finance
these activities, including its investment in Drilling Programs. Also, NUON has
the option to acquire 5,747,127 shares of Common Stock for $5,000,000. Although
NUON has opted to purchase 11,494,254 shares of Common Stock for $10,000,000,
there is no assurance when or if NUON will exercise the remaining option. In
addition, the Company intends to continue to utilize Drilling Programs as part
of its acquisition, drilling and development strategy. See "--Dependence on
Drilling Programs."

The credit facility limits the Company's outstanding borrowings to those
amounts, determined by the bank in its sole discretion, based upon several
factors including the discounted present value of the Company's estimated future
net cash flow from oil and gas production.

Any future acquisition or development activities by the Company requiring bank
financing in excess of the amount then available under the credit facility will
depend upon the bank's evaluation of the properties proposed to be acquired or
developed. In the event funds are not available under the credit facility and
cannot be obtained from alternative sources, the scope of the Company's
operations would be limited. The credit facility will convert to a term loan on
September 30, 1999, the principal amount of which is scheduled to be amortized
over five years. Although there can be no assurance, the Company believes the
credit facility can be renewed on substantially similar terms. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

COMPETITION

The gas and oil industry is highly competitive in many respects, including:

- identification of attractive gas and oil properties for acquisition,

- drilling and development,

- marketing,

- securing financing for such activities and

- obtaining the necessary equipment and personnel to conduct such
activities.

Many other gas and oil companies in the industry have financial resources,
personnel and facilities substantially greater than those of the Company and
there can be no assurance that the Company will be able to compete effectively
with these larger entities. See "Business--Competition."

DEPENDENCE ON NATURAL GAS

During fiscal 1998, 89% of the Company's gas and oil production revenues (or 35%
of total revenues) were derived from the sale of natural gas. In addition,
approximately 95% of the Company's March 31, 1998 proved developed reserves (on
an equivalent Mcf basis) are attributable to natural gas. Consequently, the
Company is highly dependent upon both the markets and prices paid for its
natural gas production. See "Business--Markets."

9
<PAGE> 12

UNCERTAIN MARKETS AND PRICES FOR GAS AND OIL

The revenues generated from the oil and gas operations of the Company are highly
dependent upon the prices at which gas and oil can be sold. Various factors
beyond the control of the Company affect prices of oil and natural gas,
including:

- worldwide and domestic supplies,

- actions by members of the Organization of Petroleum Exporting Countries
("OPEC"),

- political instability or armed conflict in oil producing regions,

- a significant decline in crude oil prices since March 31, 1998,

- the level of consumer demand,

- weather,

- the price and availability of alternative fuels,

- the availability of pipeline capacity and

- changes in existing federal regulation and price controls.

Historically, prices have been subject to considerable fluctuation. Any
significant decline in the price of natural gas or oil would materially
adversely affect the Company's revenues and operating income and its financial
condition, and would result in a write down in the carrying value of the
Company's oil and gas properties which would affect the availability of funds
and the Company's ability to repay borrowed funds under the credit facility. See
"Business--Markets."

LIMITATIONS ON ACCURACY OF RESERVE ESTIMATES

There are numerous uncertainties in estimating quantities of proved reserves and
in projecting future rates of production and the timing of development
expenditures. The reserve data set forth in this prospectus represents only
estimates. In addition, the estimates of future net revenues from proved
reserves and their discounted present value are based upon assumptions about
future production levels, prices and costs that may not be accurate. The
estimates of the future net cash flows as of March 31, 1998 reflect average oil
and gas prices, on that date, of $16.18 per Bbl and $2.50 per Mcf, respectively.
There can be no assurance that these prices will be realized or that the
projected volumes will be produced. See "Business--Oil and Gas Reserves." At
September 30, 1998, the prevailing field price for crude oil in the Appalachian
Basin was $11.32 per barrel. The average price of natural gas for the six months
ended September 30, 1998 was $2.59. If the current estimate of proved reserves
is materially inaccurate, it could materially adversely affect production, cash
flow and net income.

DRILLING AND OPERATING RISKS

Drilling carries the risk that commercial production will not be obtained. The
cost of drilling, completing and operating wells is uncertain and drilling
and/or production may be curtailed or delayed as a result of many factors. The
business is also subject to all of the operating risks normally associated with
the exploration for and production of gas and oil, including, but not limited
to, unexpected formations or pressures, uncontrollable flows of gas, oil, brine
or well fluids into the environment (including groundwater contamination),
blowouts, cratering, fires, explosions, pollution and other risks, any of which
could result in personal injuries, loss of life, damage to properties and
substantial losses. Although the Company
10
<PAGE> 13

carries insurance which it believes is reasonable, it is not fully insured
against all risks. Losses and liabilities arising from uninsured or
under-insured events could have a materially adverse effect on the financial
condition and operations of the Company. See "Business--Operating Hazards and
Uninsured Risks."

PARTICIPATION IN DRILLING PROGRAMS

As managing general partner of the Drilling Programs, the Company is subject to
full liability for the obligations of the Drilling Programs although it is
indemnified by each program to the extent of the assets of Drilling Programs
under certain circumstances. To maintain the marketability of its Drilling
Programs, the Company also agrees to indemnify the investors under certain
circumstances against liabilities in excess of their capital contributions. The
partnership interests in Drilling Programs constitute securities and the Company
is subject to potential liability for failure to comply with applicable federal
and state securities laws and regulations.

LAWS AND REGULATIONS

The Company's operations are affected from time to time in varying degrees by
political developments and federal and state laws and regulations. In
particular, oil and gas production, operations and economics are or have been
affected by changes in price controls, taxes and other laws relating to the oil
and gas industry. The Company cannot predict how existing laws and regulations
may be interpreted by enforcement agencies or court rulings, whether additional
laws and regulations will be adopted, or the effect such changes may have on its
business or financial condition. See "Business--Regulation" and
"Business--Markets."

ENVIRONMENTAL REGULATIONS

The discharge of oil, gas or other pollutants into the air, soil or water may
give rise to liabilities to the government and third parties and may require the
Company to incur costs to remedy discharges. The Company may be unable to insure
against these potential liabilities either because insurance is not available or
is not available on reasonably economic terms. The Company believes its present
activities substantially comply in all material aspects with existing
environmental laws and regulations.

OBLIGATIONS UNDER DRILLING CONTRACTS

For fiscal 1998, approximately 35% of the Company's revenues were received from
its drilling contracts with Drilling Programs. The Company enters into these
drilling contracts on a turnkey (fixed price) basis and in turn subcontracts
with drilling contractors to drill and complete the wells. The Company is
obligated to conduct all operations necessary for the drilling and completion of
Drilling Program wells regardless of actual costs incurred and consequently is
subject to the risks of cost overruns, increased prices for goods and services,
or other unanticipated costs. See "Business--Drilling Services."

CONTROL OF THE COMPANY

The officers, directors and holders of ten percent (10%) or more of the
outstanding Common Stock of the Company beneficially own approximately 76% of
the Company's voting capital stock. Furthermore, pursuant to an August 1, 1997
stock purchase agreement between the Company and NUON, NUON is entitled to
designate a majority of the members of the board of directors until such time as
NUON's ownership of the Company's outstanding Common
11
<PAGE> 14

Stock falls below 33 1/3 %. Accordingly, such stockholders may remain in a
position to control future corporate actions requiring stockholder approval by
reason of their ownership of such a substantial percentage of the Company's
voting securities. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. See "Management,"
"Principal and Selling Stockholders" and "Description of Securities."

LIQUIDATION PREFERENCES

As of September 30, 1998, there were 74,491 shares of 6% Series A Noncumulative
Convertible Preferred Stock outstanding (the "Series A Preferred Stock") and
233,864 shares of Series B Cumulative Convertible Preferred Stock outstanding
(the "Series B Preferred Stock", and together with the Series A Preferred Stock,
the "Preferred Stock"). In addition, the board of directors is authorized to
create and issue, in one or more series, 811,730 additional shares of preferred
stock. The outstanding Preferred Stock is entitled to receive liquidation
preferences of $3,083,550, in the aggregate, prior to any distribution on the
Common Stock in the event of liquidation or dissolution of the Company. See
"Description of Securities." There can be no assurance that the assets of the
Company would be sufficient to satisfy such liquidation preferences or, if such
preferences are satisfied, as to the extent of assets remaining for distribution
to holders of Common Stock.

The Company has dividends in arrears on its Series B Preferred Stock of $375,570
at September 30, 1998. See "Price Range of Common Stock and Dividend Policy."

DIVIDEND RESTRICTIONS

The credit facility currently prohibits the payment of cash dividends. In
addition, holders of Preferred Stock are entitled to receive dividends before
any cash dividends are paid on Common Stock. See "Price Range of Common Stock
and Dividend Policy" and "Description of Securities."

CREDIT FACILITY RESTRICTIONS AND COLLATERAL

The Company's credit facility contains certain financial and negative covenants
which limit the ability of the Company to take certain actions, including the
payment of dividends. There can be no assurance that the Company will not
experience difficulty meeting the financial covenants. In addition, the credit
facility is 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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Future sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock and Warrants and could
impair the Company's ability to raise additional capital through the public sale
of its equity securities. Of the Company's stockholders, NUON owns approximately
50.5% of the Common Stock and Range owns approximately 17.4% of the Common
Stock. See "Principal and Selling Stockholders." In addition, certain
stockholders, including Range, have rights requiring the Company to register
their shares of Common Stock for resale.

12
<PAGE> 15

OUTSTANDING OPTIONS AND WARRANTS AND CONVERSION RIGHTS

At September 30, 1998, the Company had outstanding options and warrants to
purchase an aggregate of 6,620,076 shares of Common Stock. The Preferred Stock
is currently convertible into an aggregate of 1,704,425 shares of Common Stock.
See "Description of Securities." Although the exercise of options or Warrants
may raise capital for the Company, such amounts may be less than could be
received by the Company in a public offering at the time of exercise.

ANTI-TAKEOVER PROTECTION

The Company's certificate of incorporation and by-laws include several
provisions that may inhibit a change of control of the Company. These include
super-majority voting requirements for certain transactions, a classified board
of directors serving staggered terms and the authorization of additional classes
of preferred stock. In addition, certain of the Company's officers have entered
into employment contracts providing for certain payments to be made if a change
of control of the Company occurs. These provisions may discourage a tender offer
for or an attempt to obtain control of the Company. See "Description of
Securities--Certain Anti-Takeover Provisions."

DELISTING OF SECURITIES

The Common Stock is currently listed on the Nasdaq Small Cap Market. Nasdaq has
established certain minimum criteria for the continued listing of the Common
Stock on the Small Cap Market, including a minimum price of $1.00 per share.
Since September 29, 1998, the Common Stock has traded at prices less than this
minimum criteria. As a result, on November 5, 1998, the Company received a
notice from Nasdaq indicating that the Common Stock would be delisted if the
Common Stock could not meet the minimum criteria for ten consecutive days before
a period of ninety calendar days after the date of the notice had lapsed. The
Company is preparing to present an appeal to Nasdaq in which the Company will
request an extension of this ninety day period. The delisting of the Common
Stock, or the perception that the delisting of the Common Stock could occur,
could adversely affect the prevailing market price for the Common Stock.

13
<PAGE> 16

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the Nasdaq Small Cap Market under the symbol
"NCEB." The following table sets forth, for the fiscal periods indicated, the
high and low bid and ask prices for the Common Stock.

COMMON STOCK
(amounts rounded to the nearest 32nd)

<TABLE>
<CAPTION>
HIGH LOW
------------------ ------------------
BID ASK BID ASK
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL 1996
First Quarter.............................. $ 1 1/4 $ 1 7/16 $ 1/2 $ 7/8
Second Quarter............................. 1 3/8 1 1/2 9/16 7/8
Third Quarter.............................. 1 3/8 1 1/2 7/8 1 1/16
Fourth Quarter............................. 1 1 3/8 1/2 3/4
FISCAL 1997
First Quarter.............................. $ 1 1/16 $ 1 3/16 $ 1/2 $ 3/4
Second Quarter............................. 1 7/16 1 5/8 5/8 3/4
Third Quarter.............................. 1 5/16 1 1/2 7/8 1 1/16
Fourth Quarter............................. 1 3/16 1 3/8 5/8 3/4
</TABLE>

<TABLE>
<CAPTION>
HIGH LOW
------------------ ------------------
BID ASK BID ASK
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL 1998
First Quarter............................. $ 1 $ 1 31/32 $ 11/16 $ 3/4
Second Quarter............................ 1 3/16 1 5/16 13/16 27/32
Third Quarter............................. 31/32 1 1/32 17/32 11/16
Fourth Quarter............................ 1 1 1/32 17/32 5/8
FISCAL 1999
First Quarter............................. $ 1 3/16 $ 1 1/4 $ 3/4 $ 27/32
Second Quarter............................ 1 1/16 1 1/8 7/16 9/16
Third Quarter............................. 15/16 1 1/2 9/16
Fourth Quarter (through January 28,
1999).................................. 13/16 7/8 1/2 9/16
</TABLE>

As of September 30, 1998, there were approximately 22,757,168 shares of Common
Stock outstanding which were held by approximately 1,300 holders of record.

Holders of Series A Preferred Stock (convertible into 2.3 shares of Common
Stock) are entitled to receive semi-annual non-cumulative cash dividends at an
annual rate of $.60 per share. Such dividends are payable on June 1 and December
1 of each year. Holders of Series B Preferred Stock (convertible into 6.55
shares of Common Stock) are entitled to receive quarterly cumulative cash
dividends at an annual rate of $1.00 per share. For the six months ended
September 30, 1998, the Company paid $85,292 in aggregate cash dividends on its
Series B Preferred Stock. The Company has dividends in arrears on its Series B
Preferred Stock of $375,570 at September 30, 1998.

The Company has never paid any cash dividends on its Common Stock and is
currently restricted from paying cash dividends on any of its capital stock
under the terms of its reducing revolving credit facility. The Company currently
intends to retain future earnings in order to provide funds for use in the
operation of its business.
14
<PAGE> 17

CAPITALIZATION

The following table sets forth the capitalization of the Company as of September
30, 1998 and as adjusted to give effect only to the issuance of Common Stock
that would be issued upon the exercise of the NUON option (at $0.87 per share of
Common Stock) and the application of the net proceeds of the offering as set
forth under "Use of Proceeds." This table should be read in conjunction with the
financial statements and the notes related thereto of the Company included
elsewhere in this prospectus. See "Description of Securities."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
<S> <C> <C>
Short-term debt (current portion of long-term
debt)............................................. $ 72,300 $ 72,300
=========== ===========
Long-term debt...................................... 21,672,473 16,747,473
Stockholders' equity:
Series A 6% Non-Cumulative Convertible Preferred
Stock, par value $.01 per share; 563,270 shares
authorized; 74,491 issued and outstanding
(aggregate liquidation value of
$744,910) (1).................................. 745 745
Series B Cumulative Convertible Preferred Stock,
par value $.01 per share; 625,000 shares
authorized, 233,864 issued and outstanding
(aggregate liquidation value of $2,338,640)
(2)............................................ 2,339 2,339
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; 22,757,168 issued and
outstanding, 28,504,295 as adjusted (3)........ 227,572 285,043
Additional paid-in capital........................ 21,723,150 26,590,679
Retained deficit.................................. (4,859,352) (4,859,352)
----------- -----------
Total stockholders' equity................ $17,094,454 $22,019,454
----------- -----------
Total capitalization...................... $38,766,927 $38,766,927
=========== ===========
</TABLE>

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

(1) Each share of Series A Preferred Stock is currently convertible into 2.3
shares of Common Stock.

(2) Each share of Series B Preferred Stock is currently convertible into 6.55
shares of Common Stock.

(3) Does not include 872,949 shares of Common Stock reserved for issuance
pursuant to stock options and warrants to purchase shares of Common Stock
granted to certain Directors, employees of the Company and third parties and
the shares of Common Stock issuable upon exercise of the Warrants.

15
<PAGE> 18

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of Common Stock offered
by the selling stockholders. The Company intends to use the net proceeds, if
any, from the exercise of the Warrants or options for general corporate
purposes.

16
<PAGE> 19

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following unaudited pro forma combined financial data for the year ended
March 31, 1998 and the six months ended September 30, 1998 reflects the effect
of the Kelt acquisition and the effect of only the issuance of Common Stock that
would be issued upon the exercise of the NUON option as if they had occurred at
the beginning of the period. The unaudited pro forma combined financial data and
accompanying notes should be read in conjunction with the financial statements
and the notes thereto contained elsewhere in this prospectus. The unaudited pro
forma combined financial data are provided for informational purposes only and
should not be construed to be indicative of the Company's results of operations
had the Kelt acquisition been consummated on the dates assumed and are not
intended to constitute projections with regard to the Company's results of
operations for any future period.

NORTH COAST ENERGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED MARCH 31, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(2) PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
TOTAL REVENUE........................ $ 8,590,632 $4,620,970 $13,211,602
COSTS AND EXPENSE.................... 7,556,714 3,303,347 10,860,061
----------- -----------
INCOME FROM OPERATION................ 1,033,918 1,317,623 2,351,541
----------- -----------
OTHER INCOME......................... 67,562 -- 67,562
INTEREST EXPENSE..................... 839,342 1,116,250 1,955,592
----------- -----------
NET INCOME........................... $ 262,138 $ 463,511
=========== ===========
NET LOSS, applicable to common stock
(after preferred stock dividends
paid or in arrears of $268,264).... $ (6,126) $ 195,247
=========== ===========
BASIC AND DILUTED EARNINGS, per
common share....................... $ (0.00) $ 0.01
=========== ===========
BASIC WEIGHTED AVERAGE SHARES,
outstanding........................ 14,106,492 19,853,619
=========== ===========
</TABLE>

17
<PAGE> 20

NORTH COAST ENERGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS

SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(3) PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
TOTAL REVENUE........................ $ 5,107,380 $ 5,107,380
COSTS AND EXPENSE.................... 4,237,957 4,237,957
----------- -----------
INCOME FROM OPERATION................ 869,423 869,423
----------- -----------
OTHER INCOME......................... 45,558 -- 45,558
INTEREST EXPENSE..................... 999,519 (209,000) 790,519
----------- -----------
NET INCOME (LOSS).................... $ (84,538) $ 124,462
=========== ===========
NET LOSS, applicable to common stock
(after preferred stock dividends
paid or in arrears of $125,532).... $ (210,070) $ (1,070)
=========== ===========
BASIC AND DILUTED EARNINGS, per
common share....................... $ (0.01) $ (0.00)
=========== ===========
BASIC WEIGHTED AVERAGE SHARES,
outstanding........................ 16,742,269 22,489,396
=========== ===========
</TABLE>

NORTH COAST ENERGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET

SEPTEMBER 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(3) PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
ASSETS
Cash................................. $ 3,330,079 $ 209,000 $ 3,539,079
Current assets....................... 2,543,906 2,543,906
Property and equipment, net.......... 34,787,236 34,787,236
Other assets......................... 1,727,771 1,727,771
----------- -----------
Total assets............... 42,388,992 42,597,992
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.................. 2,386,865 2,386,865
Long-term debt, net of current
portion............................ 21,672,473 (4,925,000) 16,747,473
Other liabilities.................... 1,235,200 1,235,200
Stockholders' equity:................ 17,094,454 5,134,000 22,228,454
----------- -----------
Total liability and
stockholders' equity.... $42,388,992 $42,597,992
=========== ===========
</TABLE>

18
<PAGE> 21

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

(1) Adjustments to the pro forma combined statement of operations were made to
reflect events relating to Kelt for the period April 1, 1997 to March 31,
1998 including, but not limited to, revenues and direct operating expenses,
additional general and administrative expenses, depreciation, depletion,
amortization, impairment and other adjustments, and additional interest
expense on the purchase price of $16 million.

(2) Adjustments to the pro forma consolidated balance sheet were made to reflect
the issuance of the 5,747,127 shares of Common Stock that would be issued
upon the exercise of the NUON option. Interest expense was assumed reduced
by $492,500 associated with the payment of long-term debt.

(3) Adjustments to the pro forma consolidated balance sheet were made to reflect
the issuance of the 5,747,127 shares of Common Stock that would be issued
upon the exercise of the NUON option. Interest expense was assumed reduced
by $209,000 associated with the payment of long-term debt.

19
<PAGE> 22

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PRODUCTION DATA)

The following selected consolidated financial data for the Company for the years
ended March 31, 1994, 1995, 1996, 1997 and 1998 are derived from the Company's
audited consolidated financial statements. Operating results for the six months
ended September 30, 1997 and 1998 are derived from the unaudited consolidated
financial statements of the Company included elsewhere and incorporated by
reference in this prospectus. In the opinion of management, these unaudited
consolidated financial statements include all adjustments necessary for a fair
presentation of the financial data for each period. Results for the six months
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the entire fiscal year ending March 31, 1999. The selected
consolidated financial data below should be read in conjunction with the
financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained elsewhere
in this prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------------- ----------------
1994 1995 1996 1997 1998 1997 1998(4)
------- ------ ------- ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
REVENUES:
Oil and Gas Production..... $ 3,116 $2,846 $ 2,849 $3,137 $3,014 $1,415 $3,428
Drilling Revenues.......... 7,407 8,802 5,490 3,784 2,988 739 327
Well Operating,
Transportation, and
Other................... 1,661 2,814 1,610 1,860 1,622 823 934
Administrative,
Management and Agency
Fees.................. 650 813 911 884 966 426 418
------- ------ ------- ------ ------ ------ ------
Total Revenues............. 12,834 15,275 10,860 9,665 8,590 3,403 5,107
EXPENSES:
Oil and Gas Production
Expenses................ 548 561 796 777 840 433 1,197
Drilling Costs............. 5,892 7,178 4,161 2,877 2,517 630 572
Oil and Gas Operations....... 829 1,943 881 977 653 306 445
General and Administrative
Expenses................ 3,020 2,949 2,879 2,308 2,216 1,048 1,011
Depreciation, Depletion,
Amortization, and
Other................... 1,529 1,711 3,298 1,385 1,242 552 1,012
Abandonment of Oil and Gas
Properties.............. 73 147 60 74 89 3 --
Interest................... 185 529 773 1,055 839 505 999
Other income, net.......... (65) (87) (96) (80) (68) (29) (44)
------- ------ ------- ------ ------ ------ ------
Total Expenses............. 12,011 14,931 12,752 9,373 8,328 3,448 5,192
------- ------ ------- ------ ------ ------ ------
</TABLE>

20
<PAGE> 23

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
-------------------------------------------- ----------------
1994 1995 1996 1997 1998 1997 1998(4)
------- ------ ------- ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital............ $(1,005) $ (482) $ (360) $ 325 $ 782 $ 960 $3,487
Property and Equipment
(net)................... 12,754 16,386 16,736 17,901 18,789 17,837 34,787
Total Assets............... 15,796 21,135 20,243 21,229 22,311 20,880 42,389
Long-Term Debt (2)......... 3,626 6,197 8,955 10,721 7,171 10,635 21,672
Total Stockholders'
Equity.................. 7,688 9,223 7,319 7,310 12,339 7,263 17,094
</TABLE>

21
<PAGE> 24

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------ ---------------------
1996 1997 1998 1997 1998
---------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Production:
Gas (Mcf)............. 1,166,000 1,153,000 1,116,000 569,000 1,262,000
Oil (Bbls)............ 14,100 16,200 13,900 7,400 13,500
Equivalent Mcf @ 6
Mcf/Bbl............. 1,250,600 1,250,200 1,199,400 613,400 1,343,000
Average Sales Prices:
Gas (Mcf)............. $ 2.24 $ 2.43 $ 2.50 $ 2.30 $ 2.59
Oil (Bbls)............ $ 17.01 $ 20.65 $ 16.18 $ 17.53 $ 11.32
Average Lifting Cost
per Mcf............. $ .64 $ .62 $ .70 $ .69 $ .89
Producing Wells:
Gross (3)............. 631 690 725 688 1,688
Net................... 298.83 344.14 348.13 343.38 1,269.01
Average Working
Interest............ 47.36% 49.88% 48.02% 50.59% 75.18%
Operated Wells........ 657 654 691 652 1,495
</TABLE>

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

(1) Dividends paid on the arrears on the Preferred Stock for the years ended
March 31, 1994, 1995, 1996, 1997 and 1998 and the six months ended September
30, 1997 and 1998 in the amounts of $680, $654, $650, $459, $268, $134 and
$125, respectively

(2) Long-term debt does not include that portion of indebtedness classified as
current.

(3) Gross producing wells include 35, 32, 45, 45 and 92 wells at March 31, 1996,
1997 and 1998 and September 30, 1997 and 1998, respectively, in which the
Company owns a royalty interest.

(4) Includes the operations of the Kelt acquisition.

22
<PAGE> 25

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

GENERAL

The Company is engaged in the exploration, development and production of natural
gas and oil, primarily in conjunction with Drilling Programs it sponsors and
manages. The Company derives its revenues from its own oil and gas production
and turnkey drilling, well operations, gas gathering, transportation and gas
marketing services performed under contract with Drilling Programs.

Since inception, the Company has raised approximately $85,000,000 from the sale
of partnership interests, which has resulted in the formation of 49
partnerships.

The Company's growth depends on a number of factors, including its continued
ability to raise Drilling Program funds, drilling results for corporate wells,
contract drilling and service-related revenues and the Company's ability to
maintain adequate liquidity to provide its contributions to new Drilling
Programs and to acquire additional proved undeveloped or proved producing
properties. The Company's growth is also dependent on several external factors,
including the price at which gas, and to a lesser extent oil, can be found and
sold.

RECENT DEVELOPMENTS

The Company acquired the assets of Kelt pursuant to a purchase and sale
agreement dated April 8, 1998 and amended on May 12, 1998. The Kelt acquisition
closed on May 29, 1998, with an effective date of April 8, 1998. The purchase
price for the acquired assets was $16.0 million. The acquired assets 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
Company funded the acquisition using cash and an increase in its existing line
of credit. Approximately $15.0 million of the $16.0 million purchase price was
financed under a recently amended credit facility, which expands the Company's
credit line to $25.0 million. See "Description of Certain Indebtedness."

RESULTS OF OPERATIONS

The following table is a review of the results of operations of the Company for
the fiscal years ended March 31, 1996, 1997 and 1998 and the six months ended
September 30, 1997 and 1998. All items in the table are calculated as a
percentage of total revenues.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER
YEAR ENDED MARCH 31, 30,
-------------------- ------------
1996 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas production................... 26% 32% 35% 41% 67%
Drilling revenues........................ 50 39 34 22 6
Well operating, transportation and
other................................. 15 19 19 24 18
Administrative, management and agency
fees.................................. 8 9 11 12 8
Other income............................. 1 1 1 1 1
--- --- --- --- ---
Total Revenues................... 100% 100% 100% 100% 100%
--- --- --- --- ---
</TABLE>

23
<PAGE> 26

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER
YEAR ENDED MARCH 31, 30,
-------------------- ------------
1996 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Expenses:
Oil and gas production expenses.......... 7% 8% 10% 13% 23%
Drilling costs........................... 38 29 29 18 11
Oil and gas operations................... 8 10 7 9 9
General and administrative expenses...... 26 24 26 30 20
Depreciation, depletion, amortization,
impairment and other.................. 30 14 14 16 20
Abandonment of oil and gas properties.... 1 1 1 0 0
Provision (credit) for income taxes...... (6) 0 0 0 0
Other Expenses (Income) Net.............. 7 11 10 15 19
--- --- --- --- ---
Total Expenses................... 111% 97% 97% 101% 102%
--- --- --- --- ---
Net Income (Loss).......................... (11)% 3% (3)% (1)% (2)%
=== === === === ===
</TABLE>

The following discussion and analysis reviews the financial condition and
results of operations of the Company for the six months ended September 30, 1997
and 1998 and for the years ended March 31, 1996, 1997 and 1998. This review
should be read in conjunction with the financial statements and the notes
thereto appearing elsewhere in this prospectus.

SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1997

Revenues. Oil and gas production revenues increased 142.2% to $3,428,000 for the
six months ended September 30, 1998 compared to $1,415,000 for the prior
corresponding period. This increase in oil and gas revenue is due to the
increase of production related to approximately 760 producing oil and gas
properties acquired from Kelt. The sale of gas production from the Kelt wells
was contracted with a third party at a 4% higher price than its previous
contract on June 15, 1998, for a period of one year. Management believes that
the value of this contract will comprise approximately 50% of the Company's oil
and gas revenue during the contract period. The Company received an average
price of $11.32 and $17.53 per barrel of oil for the six months ended September
30, 1998 and 1997, respectively, and $2.59 and $2.30 per Mcf of natural gas for
the six months ended September 30, 1998 and 1997, respectively.

Drilling revenues for the period decreased by 55.7% to $327,000 for the six
months ended September 30, 1998 from $739,000 for the prior corresponding period
due to the decrease in the number of wells recognized in revenue for the period.
This decline is a direct consequence of the reduced capital raised through
Drilling Programs. Drilling revenues were recognized on 2 wells for the six
months ended September 30, 1998 compared to 4 wells for the prior corresponding
period.

For the six months ended September 30, 1998, well operating, transportation and
other revenues increased 13.5% to $934,000 compared to $823,000 for the prior
corresponding period, largely due to a third party sale of $64,000 coupled with
increases in transportation and well operating revenues.

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<PAGE> 27

Expenses. Oil and gas production expenses increased 176.6% to $1,197,000 for the
six months ended September 30, 1998 compared to $433,000 for the prior
corresponding period, primarily due to the acquisition of Kelt.

Drilling costs for the six months ended September 30, 1998 decreased 9.2% to
$572,000 compared to $630,000 for the prior corresponding period. This decrease
between comparable periods was due to the fewer number of wells drilled during
the six months ended September 30, 1998. However, the overall decrease was
offset by a higher per well overhead allocation the Company experienced during
the six months ended September 30, 1998.

Oil and gas operations expenses increased 45.4% to $445,000 for the six months
ended September 30, 1998 compared to $306,000 for the prior corresponding
period. This increase was primarily due to increased costs arising from the Kelt
acquisition as well as an increase in gas purchases related to unaffiliated
third party gas sales for the six months ended September 30, 1998.

Interest expense increased 98.1% to $999,000 for the six months ended September
30, 1998 compared to $505,000 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 six months ended September 30, 1998 increased
101.4% to $870,000 compared to $431,000 for the prior corresponding period. The
increase in income from operations was primarily due to the Kelt acquisition.
The Company's net loss increased 89.2% to $85,000 for the six months ended
September 30, 1998 compared to $45,000 for the prior corresponding period. The
increase in the net loss was primarily a result of the increased interest
expense related to the Kelt acquisition.

FISCAL 1998 COMPARED TO FISCAL 1997

Revenues. Oil and gas production revenues decreased 3.9% to $3,014,000 for
fiscal 1998 compared to $3,137,000 for the prior corresponding period. The
decrease in oil and gas production revenues was a result of a decrease in oil
revenues of approximately $110,000 due to a decrease in the oil production and
in the average price received for oil by the Company between comparable periods.
For fiscal 1998 the Company received an average price of $16.18 per barrel of
oil and $2.50 per Mcf of natural gas compared to an average price of $20.65 per
barrel of oil and $2.43 per Mcf of natural gas received for the prior
corresponding period.

Drilling revenues for the period decreased 21.0% to $2,988,000 for fiscal 1998
compared to $3,784,000 for the prior corresponding period due to the decrease in
the number of wells recognized in revenue. This decline is a direct consequence
of the reduced capital raised through Drilling Programs for fiscal 1997 and
1998. Management believes that these declines were a result of investor and
broker uncertainty as to the control and strategic direction of the Company
occasioned by Range's acquisition of Common Stock in 1996 and NUON's initial
investment in 1997. The Company recognized revenues for fiscal 1998 on 20 wells
as compared to 29 wells for fiscal 1997. The decrease in the number of wells
recognized in drilling revenues was also due to the higher number of carryover
wells at the end of fiscal 1996. The Company has 2 wells in work-in-progress at
the end of fiscal 1998 compared to 5 at the end of fiscal 1997.

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<PAGE> 28

Revenues generated from well operating, transportation and other decreased 12.8%
to $1,622,000 for fiscal 1998 compared to $1,860,000 for the prior corresponding
period. This decrease was primarily due to a decrease in unaffiliated third
party gas sales. Unaffiliated third party gas sales fluctuate from year to year
based upon the availability of these types of transactions.

Revenue from administrative, management and agency fees, which are based on a
percentage of the total investor capital raised in Drilling Programs, increased
9.3% to $966,000 for fiscal 1998 compared to $884,000 for the prior
corresponding period due to the formation of Drilling Programs in fiscal 1998.
The administrative fees derived from fiscal 1998 Drilling Programs were charged
a rate equal to 4.5% of total capital raised compared to the prior year's
programs, which are charged an annual fee equal to 2% of total capital raised.

Expenses. Oil and gas production expense increased 8.1% to $840,000 for fiscal
1998 compared to $777,000 for the prior corresponding period. This increase was
primarily due to additional costs incurred with relocation of certain production
facilities in the Gulf Coast area and costs associated with reworking wells in
Pennsylvania.

Drilling costs for fiscal 1998 decreased 12.5% to $2,517,000 compared to
$2,877,000 for the prior corresponding period due to the decreased number of
wells completed between comparable periods. The profit margin on drilling
revenue decreased to 16% for fiscal 1998 compared to 24% for fiscal 1997. The
decrease in the drilling profit margin was due to actual completion costs in
excess of the estimated costs for wells recognized in drilling income coupled
with increased general and administrative costs allocated to drilling
activities. Net drilling income decreased approximately $435,000 between fiscal
year ends due to the fewer number of wells drilled and completed.

Oil and gas operations expense decreased 36.2% to $653,000 for fiscal 1998
compared to $977,000 for the prior corresponding period. This decrease was
primarily due to reduced natural gas purchases associated with unaffiliated
third party gas sales.

Interest expense decreased 20.5% to $839,000 for fiscal 1998 compared to
$1,055,000 for the prior corresponding period. This decrease was primarily due
to the reduction of the borrowings under the Company's credit facility and other
debt by utilizing funds received from the sale of Common Stock. At March 31,
1998, $6,565,265 was outstanding under the Company's credit facility compared to
$8,640,000 at March 31, 1997.

Net income for fiscal 1998 decreased 10.1% to $262,000 compared to $292,000 for
the prior corresponding period. The decrease reflects the decreased drilling
activity and production revenues between comparable periods.

FISCAL 1997 COMPARED TO FISCAL 1996

Revenues. Oil and gas production revenues increased 10.1% to $3,137,000 for
fiscal 1997 compared to $2,849,000 for the prior corresponding period. Oil and
gas production was relatively constant between years. The increase in production
revenues was primarily attributable to an average increase in gas prices of 8.5%
and an increase of oil prices of 21%. For fiscal 1997 the Company received an
average price of $20.65 per barrel of oil and $2.43 per Mcf of natural gas
compared to an average price of $17.01 per barrel of oil and $2.24 per Mcf of
natural gas received during fiscal 1996.

Drilling revenues for the period decreased 31.1% to $3,784,000 for fiscal 1997
compared to $5,490,000 for the prior corresponding period due to the decrease in
the number of wells

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<PAGE> 29

recognized in revenue. The Company recognized revenues for fiscal 1997 on 29
wells as compared to 45 wells for fiscal 1996. The decrease in the number of
wells recognized in drilling revenues was due to the decrease of $3,444,500 in
the amount of funds raised in fiscal 1997 Drilling Programs compared to
$6,460,000 for fiscal 1996 Drilling Programs. Management believes that this
reduction was caused by the uncertainties arising from the purchase of Common
Stock by Range, a stockholder of the Company. The Company had 5 wells in
work-in-progress at the end of 1997 compared to 14 at the end of 1996.

Revenues generated from well operating, transportation and other increased 15.5%
to $1,860,000 for fiscal 1997 compared to $1,610,000 for the prior corresponding
period. This increase was primarily due to an increase in unaffiliated third
party gas sales. Unaffiliated third party gas sales fluctuate from year to year
based upon the availability of these types of transactions and Company
resources. The increase was also due to increases in well operating revenue and
compression revenue from the Company's 5 compressor stations.

Expenses. Drilling costs for fiscal 1997 decreased 30.9% to $2,877,000 compared
to $4,161,000 in the prior corresponding period due to the lower number of wells
completed between comparable periods. The gross profit margin was 24% for both
fiscal periods presented. Net drilling income decreased approximately $423,000
between fiscal year ends due to the fewer number of wells drilled and completed.

Oil and gas operations expense increased 10.9% to $977,000 for fiscal 1997
compared to $881,000 in the prior corresponding period. This increase was
primarily due to the increase in gas purchases related to unaffiliated third
party gas sales discussed above.

General and administrative expenses decreased 19.8% to $2,308,000 for fiscal
1997 compared to $2,879,000 for the prior corresponding period despite incurring
$311,000 in expenses associated with the litigation associated with Range and
the Company's offer to convert the Company's Preferred Stock. The Range
litigation was settled on November 12, 1996. The decrease in general and
administrative expenses was primarily due to costs savings derived from reduced
salaries and employee benefits when the Company reduced the size of its staff.
Also, the staff reductions resulted in changes in job responsibility resulting
in additional general and administrative costs being allocated to production
expense and oil and gas operations.

Depreciation, depletion, amortization, impairment and other decreased 58.0% to
$1,385,000 for fiscal 1997 compared to $3,298,000 for the prior corresponding
period. This decrease was primarily due to the implementation of the Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" during fiscal
1996 which resulted in an impairment of $1,561,776 for fiscal 1996 without a
corresponding impairment for fiscal 1997. Also, the adoption of SFAS No. 121
resulted in a decreased basis of existing properties being depleted for future
periods.

Interest expense increased 36.6% to $1,055,000 for fiscal 1997 compared to
$773,000 for the prior corresponding period. This increase was primarily due to
the Company's additional borrowings on its revolving credit facility. At March
31, 1997, $8,640,000 was outstanding under the credit facility, compared to
$7,560,000 at March 31, 1996.

Operating income for fiscal 1997 increased to $1,267,000 compared to an
operating loss of $1,215,000 for the prior corresponding period. Net income
increased to $292,000 for fiscal 1997 compared to a net loss of $1,254,000 for
the prior corresponding period. These

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<PAGE> 30

increases in operating income and net income were primarily due to the decrease
in general and administrative expenses, depreciation, depletion, amortization,
impairment and other as well as increases in oil and gas production and well
operating, transportation and other.

INFLATION AND CHANGES IN PRICES

The Company received an average price of $11.32 and $17.53 per barrel for the
six months ended September 30, 1998 and 1997, respectively, and $2.59 and $2.30
per Mcf of natural gas for the six months ended September 30, 1998 and 1997,
respectively. On average, natural gas prices decreased $0.121 per Mcf for the
six months ended September 30, 1998 compared to the six months ended September
30, 1997 based on major price indices used in the Appalachian Basin. However,
the Company experienced a $0.29 per 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 Basin prices, Nymex-based
contracts and turnkey 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 been experienced industry-wide due to a surplus in storage
during the summer of 1998. Storage figures reached record levels by the end of
the summer. 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. 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 turnkey 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.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital was $3,487,000 at September 30, 1998 compared to
$782,000 at March 31, 1998. The increase of $2,705,000 in working capital from
September 30, 1998 reflects the funds received from NUON when NUON exercised its
option to purchase $5.0 million of Common Stock on September 29, 1998. The
Company has also drilled several wells using its drilling rig acquired in the
Kelt acquisition. The Company intends to invest in both corporately owned wells
and in Drilling Programs. As of September 30, 1998, the Company had $21,027,635
outstanding under its credit facility. The Company's current ratio was 2.46 to
1.0 at September 30, 1998 and 1.32 to 1.0 at March 31, 1998.

The Company's cash used by operating activities increased by approximately
$326,000 for the six months ended September 30, 1998 compared to the period
ended September 30, 1997. This increase reflects the working capital changes in
accounts receivable and other current assets. A certain amount of working
capital was utilized to fund the operations of the 760 producing wells for a 60
to 90 day period until the revenue on those wells are collected.

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<PAGE> 31

Also, the Company recorded other assets of approximately $1,000,000 in
connection with the Kelt acquisition, which represents the net present value of
approximately $4,000,000 of prepaid well royalties.

Net cash used for investing activities increased to approximately $17,006,000
for the six months ended September 30, 1998 from approximately $459,000 for the
six months ended September 30, 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 generate additional revenues by servicing the
Company's wholly owned wells at a reduced cost and by servicing Drilling Program
wells which generate revenue for the Company. The purchase of property and
equipment also reflects the completion of 3 corporately owned wells and the
drilling of 2 corporately owned wells during the six months September 30, 1998.

Net cash from financing activities increased by approximately $18,706,000 for
the six months ended September 30, 1998 compared to the six months ended
September 30, 1997. This increase reflects the Company's borrowings under its
credit facility to finance the Kelt acquisition and the receipt of $5.0 million
from NUON on September 29, 1998 for the issuance of Common Stock 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 (U.S.)
Capital Corporation ("ING") to replace the $20.0 million revolving credit
facility with its previous lender. The Company's amended credit facility, dated
May 29, 1998, expanded the Company's $20.0 million revolving credit facility
with ING to a $25.0 million revolving credit facility. The credit agreement also
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 September 30, 1998). The credit
agreement requires payment of an agent fee of 0.75% on amounts available and a
0.50% commitment fee on amounts not borrowed up to the available credit line. At
September 30, 1998, the Company's borrowing base was $25.0 million subject to
reduction for the outstanding letters of credit. Available borrowings under the
facility at September 30, 1998 were $3,822,365 and may change based upon the
semi-annual 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 is prohibited. As of
September 30, 1998, the Company had $21,027,635 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
0.75% or LIBOR plus 2.50%. 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 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 September 30, 1998, the Company had approximately $48,518
outstanding under a mortgage note payable for its facility in Youngstown. The
mortgage note bears interest at the rate of 8% and requires the Company to make
monthly payments of

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<PAGE> 32

approximately $1,019 through July 2003. The Company entered into a mortgage note
for its headquarters on May 13, 1996 for $540,000 with a 15-year term and an
interest rate of 8.58%. The mortgage note may be renegotiated every five years.
The amount outstanding under the mortgage note at September 30, 1998 was
$497,808.

On September 29, 1998 the Company sold an additional 5,747,127 shares of its
Common Stock for $5.0 million to NUON, pursuant to the terms of a stock purchase
agreement between the Company and NUON dated August 1, 1997 (the "Agreement").
By exercising its option to purchase additional shares by September 30, 1998,
NUON's stock ownership increased to 51% of the outstanding Common Stock and NUON
gained the ability to appoint additional directors at the Company's next annual
meeting. The Company also 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 and if 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.

Effective on April 8, 1998, the Company acquired certain assets and assumed
certain obligations of Kelt, headquartered in Cambridge, Ohio. The Kelt
acquisition was made pursuant to a purchase and sale agreement. The purchase
price for the acquired assets was approximately $16.0 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 $15.0 million of the total purchase price
was financed under an expanded credit facility with the remaining amount paid in
cash.

Management 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.

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

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<PAGE> 33

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 on
the Company's financial condition and results of operations.

FORWARD-LOOKING STATEMENTS

This prospectus 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 the fiscal 1999 Drilling
Programs, and the ability to locate productive oil and gas prospects for
development by the Company.

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BUSINESS

GENERAL

North Coast is an independent natural gas and oil company engaged in
exploration, development and production activities primarily in the Appalachian
Basin region of Ohio and Pennsylvania. The Company's strategy focuses primarily
on the acquisition of proved undeveloped natural gas and oil properties and the
turnkey drilling and development of such properties by the Company in
conjunction with Drilling Programs. Drilling Programs are funded through the
sale of partnership interests to non-industry investors and by contributions
from the Company. Typically, the Company obtains leases or other drilling rights
to these properties and assigns specific drill sites to Drilling Programs for
drilling and development. The Company also engages in well operating, gas
gathering and transportation and gas marketing, primarily for Drilling Program
wells.

STRATEGY

The Company's strategy focuses on increasing its natural gas and oil reserves,
as well as production, drilling and oilfield service revenues, by acquiring
undeveloped oil and gas properties in the Appalachian Basin and financing and
conducting the drilling and developing of these properties in conjunction with
Drilling Programs.

Drilling Programs have permitted the Company to broaden its exploration,
development and production activities by participating in a greater number of
wells than would be possible for the Company to do by drilling solely for its
own account. Additionally, Drilling Programs have allowed the Company to
diversify its activities and sources of revenues into related oilfield services
by providing such services under contract to Drilling Programs. As of September
30, 1998, the Company served as the managing general partner of 27 Drilling
Programs and operated 1,495 wells in Ohio and Pennsylvania, of which 381 wells
are operated for Drilling Programs.

While the Company is pursuing its strategy of increasing reserves through
drilling and development in conjunction with Drilling Programs and more recently
acquisitions, it continues to review potential acquisitions, including other gas
and oil companies or partnerships and producing properties. Although potential
acquisitions outside the Appalachian Basin are also reviewed, the Company
anticipates continuing its focus on the Appalachian Basin.

EXPLORATION AND DEVELOPMENT

Exploration and development activities conducted by the Company have involved
the acquisition of proved undeveloped oil and gas properties and the drilling
and development of such properties in conjunction with Drilling Programs and
joint ventures. Management has chosen to sponsor limited partnerships and joint
ventures to increase the funds available to the Company and enable it to engage
in a greater number of drilling opportunities. In addition, Drilling Programs
add to the Company's reserves and produce additional sources of income for the
Company, including revenues from serving as general contractor for drilling
operations, management services, oilfield service operations and gas-gathering,
and marketing services which are provided to Drilling Programs.

The Company's strategy focuses on increasing its natural gas and oil reserves,
as well as production, drilling and oil field service revenues, by acquiring
undeveloped oil and gas

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<PAGE> 35

properties in the Appalachian Basin and financing and conducting the drilling
and development of these properties in conjunction with Drilling Programs. While
the Company is pursuing its strategy of increasing reserves through drilling and
development in conjunction with Drilling Programs, it continues to review
potential acquisitions, including other gas and oil companies or partnerships
and producing properties.

AREAS OF OPERATION

The Appalachian Basin is located in close proximity to major natural gas markets
in the northeastern United States. This proximity to a substantial number of
large commercial and industrial gas markets, coupled with the relatively stable
nature of Appalachian Basin production and the availability of transportation
facilities, has resulted in generally higher wellhead prices for Appalachian
Basin natural gas than those prices available in the Gulf Coast and
Mid-continent regions. The Appalachian Basin is the oldest gas and oil producing
region in the United States and includes portions of Ohio, Pennsylvania, New
York, West Virginia, Kentucky and Tennessee. Historically, most production in
the Appalachian Basin has been from wells drilled to a number of relatively
shallow blanket formations at depths of 1,000 to 7,500 feet. These formations
are generally characterized as long-lived reserves which generally produce for
more than 20 years.

To date, the Company's drilling operations in the Appalachian Basin have
principally involved drilling to the Clinton/Medina sandstone geologic
formation. This formation is an oil and gas bearing sandstone formation which
underlies a large section of eastern Ohio and western Pennsylvania in varying
thickness and at depths ranging generally from 2,800 to 7,500 feet.
Substantially all of the wells which the Company drills in this area have
estimated depths of between 3,500 and 6,700 feet. The Clinton/Medina formation
is generally characterized by low permeability and low porosity. Generally, in a
productive well, both oil and gas initially are produced at rates which rapidly
decline after the first one or two years. Although Clinton/Medina wells
generally produce for many years, a substantial portion of the total well
production can be expected within the first several years of full production.

Certain of the Company's leaseholds are in the Upper Devonian age sandstone
geological formations of Washington, Warren, McKean, Potter and Clearfield
counties in Pennsylvania, which are a series of oil and gas bearing sands
underlying eastern Ohio, western Pennsylvania and northern West Virginia. The
Balltown, Cooper, and Bradford Sandstones, among others, are sandstone
formations of the Upper Devonian age. Common productive depths range between
approximately 1,000 feet and 5,000 feet. The Company's target zones typically
range from 1,600 feet to 4,500 feet in depth. Historically, Upper Devonian wells
generally have long production lives, and many wells drilled in these formations
near the turn of the century are still in production.

The Company also maintains leasehold acreage in portions of Pennsylvania and
West Virginia with other potential producing formations. Although there are
variances in the nature and characteristics of these producing formations, they
are generally typical of the Appalachian Basin area.

ACQUISITION OF PROPERTIES

The Company continually evaluates undeveloped prospects originated by its staff
or other independent geologists as well as other gas and oil companies. If
review of a prospect

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indicates that it may be geologically and economically attractive, the Company
will attempt to obtain a lease of the mineral rights on the acreage.

Typically, the Company will acquire the entire working interest in a lease in
consideration of paying a lease bonus and annual rentals subject to a
landowner's royalty and, where the property is acquired through a third party,
possibly an overriding royalty interest. After obtaining these drilling rights,
the Company continues to evaluate the property for potential drilling.
Substantially all of the Company's drilling operations are currently conducted
in conjunction with Drilling Programs. If a prospect is selected for drilling
through a Drilling Program, the Company assigns the minimum required acreage for
a well to such entity. In such a case, the Company retains the balance of the
leasehold acreage for future drilling.

In 1994, the Company acquired certain oil and gas interests in Erie and Crawford
Counties in northwestern Pennsylvania previously owned by a private company.
These properties include the entire working interest in 163 producing wells, 43
miles of gas gathering lines and drilling locations.

In 1997, the Company acquired additional interests in its Drilling Programs by
extending an offer to the partners in certain of these Drilling Programs. Recent
Drilling Programs give each investor the ability to present his interest to the
Company to be purchased by the Company at a predetermined calculated price. In
an effort to provide liquidity to investors in Drilling Programs which did not
include this provision in their partnership agreements, the Company has
continued to extend offers to certain of its investors in certain of its older
Drilling Programs. Typically, the Company will not extend an offer to those
Drilling Programs that have been in existence for less than three years. The
Company acquired interests in several of its Drilling Programs in December 1997
for approximately $136,000. The Company recently made additional offers to
purchase interests in its Drilling Programs and anticipates purchasing
additional interests in its Drilling Programs in the estimated amount of
approximately $435,000 in the near future.

In 1998, the Company acquired certain assets and assumed certain obligations of
Kelt, headquartered in Cambridge, Ohio. The Kelt acquisition was made pursuant
to a purchase and sale agreement. The purchase price for the acquired assets was
approximately $16.0 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 continues to review potential acquisitions of oil and gas
properties, but has no commitment with respect to any material acquisition.

DRILLING PROGRAMS

Since the Company's inception in 1981, North Coast has sponsored 49 Drilling
Programs to engage in oil and gas drilling and development operations. Public
Drilling Programs accounted for 7 of these programs, while 41 were sold through
private placements. As a result of an exchange offer, 21 of the 22 partnerships
were dissolved. The Company currently manages 28 Drilling Programs.

Each Drilling Program has been conducted as a separate limited partnership with
the Company serving as managing general partner of each. To maintain the
marketability of its Drilling Programs, the Company continually reviews program
structure and performance and makes modifications from program to program, as it
deems appropriate. These modifications

34
<PAGE> 37

have included changes to the compensation arrangements between the Company and
Drilling Programs, including charges for its drilling and administrative
services, and changes in the Company's interest in Drilling Programs.

The Company acts as operator and general contractor for drilling and production
operations, undertaking to drill and complete Drilling Program wells and to
serve as operator for producing wells for producing well operations. In Drilling
Programs, typically the entire working interest in the leasehold is acquired by
the program, although only the minimum required acreage for a well is assigned
by the Company to each Drilling Program.

As managing general partner, the Company is subject to full liability for the
obligations of Drilling Programs although it is indemnified by each program to
the extent of the assets of Drilling Programs under certain circumstances. The
partnership interests in Drilling Programs constitute securities and the Company
is subject to potential liability for failure to comply with applicable federal
and state securities laws and regulations.

Typically, each Drilling Program is structured as a "functional allocation"
program whereby the non-industry investors contribute cash in an aggregate
amount equal to the intangible drilling and development costs to be incurred for
Drilling Program wells. The Company contributes the drill sites to each Drilling
Program and agrees to contribute all tangible equipment necessary to drill,
complete and produce each well, as well as organizational and syndication costs
of each Drilling Program. The allocation of partnership revenues in each
Drilling Program may vary depending upon the structure chosen by the Company,
with the Company's percentage interest ranging from 20% to 40%.

Interests in Drilling Programs are sold to investors through securities dealers
registered with the NASD. In each program, NCE Securities, Inc. ("NCE") acts as
placement agent and enters into selling agreements with a number of
broker-dealers to assist it in selling the interests.

Drilling Programs raised $3.5 million during fiscal 1999, $2.7 million during
fiscal 1998 and $3.0 million during fiscal 1997. The Company intends to continue
its efforts to market its Drilling Programs and increase the number of wells
drilled and operated. If these efforts are unsuccessful, the Company would
anticipate seeking alternatives including joint ventures with industry partners
and the financing of drilling activity through internal cash flow and other
financing alternatives.

DRILLING SERVICES

The Company enters into turnkey drilling contracts with Drilling Programs to
drill wells. From time to time, the Company also performs a limited amount of
drilling and other services for unaffiliated third parties. Pursuant to these
drilling contracts, the Company is responsible for the drilling and development
of wells. The Company acquired a drilling rig in its acquisition of Kelt and has
drilled several corporately owned wells. However, the Company intends to
subcontract with third parties for the performance of a substantial portion of
the operations required to drill, complete and equip these wells for production.
Although the Company manages and supervises all necessary drilling and related
service and equipment operations on these wells, there are a number of third
party services to obtain, including contract drilling, fracturing, logging and
pipeline construction which are performed by subcontractors who specialize in
those operations.

35
<PAGE> 38

Since the Company contracts with Drilling Programs on a turnkey basis, the
Company is responsible for drilling and completing the wells, regardless of the
actual cost. Consequently, the Company is subject to the risk that costs
incurred in the actual drilling and development operations could increase beyond
the contract price, thereby rendering its drilling contracts less profitable or
unprofitable. Moreover, difficulties encountered in drilling and completion
operations can substantially increase costs without recourse for the Company.
The Company continually monitors the cost incurred in drilling, completion and
production operations and reviews its turnkey contract prices for each Drilling
Program in order to reduce the risk of unprofitable drilling operations. These
turnkey drilling prices are subject to change based on competition, the return
sought by Drilling Program investors, the Company's revenue and profit
considerations and other industry conditions.

OIL FIELD SERVICE OPERATIONS

As of September 30, 1998, the Company operated 1,495 wells, all of which were
located in Ohio and Pennsylvania. As the operator of producing wells, the
Company is responsible for the maintenance and verification of all production
records, contracting for oil and gas sales, distribution of production proceeds
and information, and compliance with various state and federal regulations.
Generally, the Company provides the routine production operations for producing
wells and is paid for such services on a monthly per well basis. The Company
also subcontracts certain oil field operations.

The Company receives a monthly operating fee for each producing well it operates
and is reimbursed for most third party costs associated with operations and
production of the wells. Drilling Programs each pay the Company their specified
operating fee based upon the investors' aggregate interest in Drilling Program
wells, exclusive of the Company's ownership interest.

GAS GATHERING ACTIVITIES

In connection with the drilling and development of the wells which it operates,
the Company has constructed and owns natural gas gathering pipelines in various
counties throughout eastern Ohio and western Pennsylvania. These pipelines carry
natural gas from the wellhead to the gas transmission systems of various
utilities for sale to such utilities, to natural gas brokers purchasing gas for
resale to others or to industrial purchasers pursuant to self-help gas purchase
arrangements. These systems gathered gas from 1,225 wells as of September 30,
1998. Since early calendar 1992, the Company has increased its construction of
new pipelines and the establishment of compressor facilities in order to expand
the number of purchasers available to the Company.

For such gas gathering services, the Company collects certain allowances from
public utilities, end-users or other natural gas purchasers (including natural
gas brokers). These gathering fees or transportation allowances averaged
approximately $.20 per Mcf of natural gas at September 30, 1998.

36
<PAGE> 39

GAS AND OIL RESERVES

Proved Reserves. The following table summarizes estimates of the Company's
Proved Reserves, as prepared by the Company.

<TABLE>
<CAPTION>
AT MARCH 31,
------------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- --------------------
GAS OIL GAS OIL GAS OIL
(Mcf) (Bbls) (Mcf) (Bbls) (Mcf) (Bbls)
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Proved developed
reserves............... 16,303,000 151,800 14,472,000 120,200 15,087,000 126,700
Proved undeveloped
reserves............... 3,745,000 43,400 2,487,000 -- 2,715,000 9,000
---------- ------- ---------- ------- ---------- -------
Total reserves........... 20,048,000 195,200 16,959,000 120,200 17,802,000 135,700
========== ======= ========== ======= ========== =======
</TABLE>

Reservoir engineering is a subjective process of estimating underground
accumulations of gas and oil that cannot be measured in an exact way. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. As a result,
estimates made by different engineers often vary. In addition, results of
drilling, testing and production subsequent to the date of an estimate may
justify revision of such estimates, and such revisions may be material.
Accordingly, reserve estimates are generally different from the quantities of
gas and oil that are ultimately recovered.

Estimated Future Net Revenues. The following table summarizes, as of March 31,
1998, the estimated future net revenues attributable to the properties of the
Company after deducting future capital costs, production and ad valorem taxes
and operating expenses, but before consideration of federal income taxes. The
future net revenues have been discounted at an annual rate of 10% to determine
their "present value." The present value is shown to indicate the effect of time
on the value of the revenue stream and should not be construed as being the fair
market value of the properties. These estimates do not include information
reflecting the Kelt acquisition, which was consummated with an effective date of
April 8, 1998. Estimates have been made in accordance with current Commission
guidelines concerning the use of constant oil and gas prices and operating costs
in reserve evaluations.

<TABLE>
<CAPTION>
ESTIMATED FUTURE NET REVENUES (BEFORE INCOME TAXES)
(in thousands)
TOTAL
TOTAL PROVED
PROVED DEVELOPED
RESERVES RESERVES
YEAR ENDING MARCH 31, ------------ ------------
<S> <C> <C>
1999................................................. $ 859 $ 2,428
2000................................................. 3,033 2,162
2001................................................. 2,536 1,922
Thereafter........................................... 24,746 20,910
------- -------
Total........................................ $31,174 $27,422
======= =======
Discounted Present Value............................... $14,765 $13,452
======= =======
</TABLE>

DRILLING ACTIVITY

The following table sets forth the results of drilling activities on the
Company's properties. This information and the results of prior drilling
activities should not be considered as necessarily indicative of future
performance, nor should it be assumed that there is

37
<PAGE> 40

necessarily any correlation between the number of productive wells drilled and
the oil and gas reserves generated thereby.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED
-------------------- SEPTEMBER 30,
1996 1997 1998 1998
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Development Wells
Productive
Gross................................. 52 20 17 2
Net................................... 9.80 3.88 4.72 2
Dry
Gross................................. 0 0 0 0
Net................................... 0 0 0 0
Exploratory Wells
Productive
Gross................................. 0 0 0 0
Net................................... 0 0 0 0
Dry
Gross................................. 0 0 0 0
Net................................... 0 0 0 0
Total Wells
Productive
Gross................................. 52 20 17 2
Net................................... 9.80 3.88 4.72 2
Dry
Gross................................. 0 0 0 0
Net................................... 0 0 0 0
</TABLE>

PRODUCING WELLS

The following table sets forth the number of gross and net productive oil and
gas wells in which the Company owned an interest directly or through Drilling
Programs as of September 30, 1998. Wells are classified as gas or oil according
to their predominant product stream.

<TABLE>
<CAPTION>
TYPE OF GROSS AVERAGE WORKING
PRODUCTIVE WELL WELLS(1) NET WELLS INTEREST
--------------- -------- --------- ---------------
<S> <C> <C> <C>
Natural Gas...................... 1,662 1,259.25 76%
Oil.............................. 26 9.76 38%
</TABLE>

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

(1) Gross producing wells include 92 wells at September 30, 1998 in which the
Company owned a royalty interest.

Substantially all of the Company's oil and gas properties are working interests
under industry-standard natural gas and oil leases, rather than mineral
ownership or fee title.

38
<PAGE> 41

LEASEHOLD ACREAGE

The following table sets forth the developed and undeveloped acreage of the
Company, on both a gross and net basis, as of March 31, 1998:

<TABLE>
<CAPTION>
GROSS ACRES NET ACRES
----------- ---------
<S> <C> <C>
Developed Acreage.............................. 39,400 19,700
Undeveloped Acreage............................ 1,300 700
</TABLE>

PRODUCTION SUMMARY

The annual net production of the Company's interests in gas and oil wells for
the past three fiscal years and the six months ended September 30, 1998 was as
follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED
----------------------------------- SEPTEMBER 30,
1996 1997 1998 1998
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Natural Gas (Mcf)
Total Production............ 1,166,000 1,153,000 1,116,000 1,262,000
Average Daily Production.... 3,195 3,159 3,058 6,915
Crude Oil (Bbls)
Total Production............ 14,100 16,200 13,900 13,500
Average Daily Production.... 39 44 38 74
</TABLE>

The price of gas and oil may vary from region to region. The average weighted
prices and the lifting costs per equivalent Mcf for the past three years and the
six months ended September 30, 1998, were as follows:

<TABLE>
<CAPTION>
1998
SIX MONTHS
YEAR ENDED MARCH 31, ENDED
-------------------------- SEPTEMBER 30,
1996 1997 1998 1998
------ ------ ------ -------------
<S> <C> <C> <C> <C>
Natural Gas Average Weighted Price
per Mcf............................ $ 2.24 $ 2.43 $ 2.50 $ 2.59
Crude Oil Average Weighted Price per
Bbl................................ $17.01 $20.65 $16.18 $11.32
Average Lifting Cost per Mcf......... .64 .62 .70 .89
</TABLE>

MARKETS

The ability of the Company to market oil and gas depends to a certain extent, on
factors beyond its control. The potential effects of governmental regulation and
market factors including alternative domestic and imported energy sources,
available pipeline capacity, and general market conditions are not entirely
predictable.

Natural Gas. Natural gas is generally sold pursuant to individually negotiated
gas purchase contracts, which vary in length from spot market sales of a single
day to term agreements that may extend several years. Customers of the Company
purchasing natural gas include marketing affiliates of the major pipeline
companies, natural gas marketing companies, and a variety of commercial and
public authorities, industrial, and institutional end-users who ultimately
consume the gas. Gas purchase contracts define the terms and conditions unique
to

39
<PAGE> 42

each of these sales. The price received for natural gas sold on the spot market
may vary daily, reflecting changing market conditions.

The deliverability and price of natural gas are subject to both governmental
regulation and supply and demand forces. During the past several years, regional
surpluses and shortages of natural gas have occurred resulting in wide
fluctuations in prices achieved.

The lengths of the contracts vary widely. Additionally, several of the Company's
contracts provide for monthly pricing which are derived from published price
indexes. The Columbia Transmission ("TCO") and Consolidated Natural Gas ("CNG")
Index prices, which create a basis for spot sales prices in the Mid-Atlantic and
northeastern United States, ranged from $1.77 to $2.50 per Mcf during the first
two quarters of fiscal 1999. As of September 30, 1998, approximately one-third
of the Company's natural gas contracts are fixed price contracts with industrial
end-users. The prices received from these contracts range between $1.97 and
$4.43 per Mcf. The remainder of the Company's natural gas contracts are with
utilities and marketers. Approximately 90% of the wells operated by the Company,
which produce gas to fulfill the contractual obligations to utilities and
marketers during the summer months, contain fixed prices ranging from $1.75 to
$3.15 per Mcf. In addition, one-third of these wells contain market sensitive
provisions during the winter months. The range of Appalachian Basin unit pricing
during the winter of 1997 was from $2.12 to $3.59 per Mcf. For the six months
ended September 30, 1998, the Company received an average price of $2.59 per Mcf
of gas sold.

Due to the seasonal supply and demand market pressures, prices paid by
purchasers will continue to fluctuate for the next several years. The Company
has pursued a strategy of varying the length and pricing provisions of its gas
purchase contracts so as to maintain flexibility to react to those fluctuating
prices. Due to rising market conditions, the duration of recently renegotiated
fixed price contracts has been limited to a year or less. Should market trends
change, the Company will endeavor to commit a larger portion of its natural gas
to longer-term arrangements to optimize revenues derived from these sales.

During the past several years, an overabundance of natural gas supplies and the
promulgation of state and federal regulations pertaining to the sale,
transportation, and marketing of natural gas resulted in increasing competition
and declining prices. It is likely that supply and demand factors will continue
to be the driving force in the changing marketplace.

Crude Oil. Oil produced from the Company's properties is generally sold at the
prevailing field price to one or more of a number of unaffiliated purchasers in
the area. Generally, purchase contracts for the sale of oil are cancelable on 30
days notice. The price paid by these purchasers is generally an established, or
"posted," price that is offered to all producers. The Company received an
average price of $16.18 per barrel for its oil during fiscal 1998. However,
during the last several years prices paid for crude oil have fluctuated
substantially. The price posted for purchase contracts for the sale of oil at
September 30, 1998 was $11.25. Future oil prices are difficult to predict due to
the impact of worldwide economic trends, coupled with supply and demand
variables, and such non-economic factors as the impact of political
considerations on OPEC pricing policies and the possibility of supply
interruptions. To the extent that the prices which the Company receives for its
crude oil, decline from current levels, revenues from oil production will be
reduced accordingly.

COMPETITION

The gas and oil industry is highly competitive in all phases. The Company
encounters strong competition from other independent oil companies in acquiring
economically desirable

40
<PAGE> 43

properties as well as in marketing production therefrom and obtaining external
financing. Many of the Company's competitors may have financial resources,
personnel and facilities substantially greater than those of the Company.

REGULATION

Exploration and Production. The exploration, production and sale of natural gas
and oil are subject to various types of local, state and federal laws and
regulations. These laws and regulations govern a wide range of matters,
including the drilling and spacing of wells, allowable rates of production,
restoration of surface areas, plugging and abandonment of wells and requirements
for the operation of wells. These regulations may adversely affect the rate at
which the Company's wells produce gas and oil. In addition, legislation and new
regulations concerning gas and oil exploration and production operations are
constantly being reviewed and proposed. Most of the states in which the Company
owns and operates properties have laws and regulations governing several of the
matters mentioned above. Compliance with the laws and regulations affecting the
gas and oil industry generally increases the Company's cost of doing business
and consequently affects the Company's profitability.

Environmental Matters. The discharge of oil, gas or other pollutants into the
air, soil or water may give rise to liabilities to the government and third
parties and may require the Company to incur costs to remedy discharges. Natural
gas, oil or other pollutants (including salt water brine) may be discharged in
many ways, including from a well or drilling equipment at a drill site, leakage
from pipelines or other gathering and transportation facilities, leakage from
storage tanks and sudden discharges from damage or explosion at natural gas
facilities or gas and oil wells. Discharged hydrocarbons may migrate through
soil to water supplies or adjoining property, giving rise to additional
liabilities. A variety of federal and state laws and regulations govern the
environmental aspects of natural gas and oil production, transportation and
processing and may, in addition to other laws, impose liability in the event of
discharges (whether or not accidental), failure to notify the proper authorities
of a discharge, and other noncompliance with those laws. Compliance with such
laws and regulations may increase the cost of gas and oil exploration,
development and production, although the Company does not currently anticipate
that compliance will have a material adverse effect on capital expenditures or
earnings of the Company.

The Company does not believe that its environmental risks are materially
different from those of comparable companies in the oil and gas industry. The
Company believes its present activities substantially comply, in all material
respects, with existing environmental laws and regulations. Nevertheless, no
assurance can be given that environmental laws will not, result in a curtailment
of production or material increase in the cost of production, development or
exploration or otherwise adversely affect the Company's financial condition and
results of operations. Although the Company maintains liability insurance
coverage for certain liabilities from pollution, environmental risks generally
are not fully insurable. The amount of such coverage is currently $1,000,000 and
is provided on a "claims made" basis.

Marketing and Transportation. The interstate transportation and sale for resale
of natural gas is regulated by the Federal Energy Regulatory Commission (the
"FERC") under the Natural Gas Act of 1938 ("NGA"). The sale and transportation
of natural gas also is subject to regulation by various state agencies. The
Natural Gas Wellhead Decontrol Act of 1989 (the "Decontrol Act"), eliminated all
gas price regulation effective January 1, 1993. In addition, FERC recently has
proposed several rules and orders concerning transportation and marketing of
natural gas. The impact of these rules and other regulatory developments on the
Company

41
<PAGE> 44

cannot be predicted. In 1992, FERC finalized Order 636, and also has promulgated
regulations pertaining to the restructuring of the interstate transportation of
natural gas. Pipelines serving this function have since been required to
"unbundle" the various components of their service offerings, which include
gathering, transportation, storage, and balancing services. In their current
capacity, pipeline companies must provide their customers with only the specific
service desired, on a non-discriminatory basis. Although the Company is not an
interstate pipeline, the Company believes the changes brought about by Order 636
have increased competition in the marketplace, resulting in greater market
volatility.

Various rules, regulations and orders, as well as statutory provisions may
affect the price of natural gas production and the transportation and marketing
of natural gas.

OPERATING HAZARDS AND UNINSURED RISKS

The Company's gas and oil operations are subject to all operating hazards and
risks normally incident to drilling for and producing gas and oil, such as
encountering unusual formations and pressures, blow-outs, environmental
pollution, and personal injury. The Company will maintain such insurance
coverage as it believes to be appropriate, taking into account the size of the
Company and its proposed operations. The Company currently does not maintain
insurance coverage for physical loss or damage to equipment located on the wells
or for selected properties (such as crude oil stored in tanks). The Company's
insurance policies also have standard exclusions. Losses can occur from an
uninsurable risk or in amounts more than existing insurance coverage. The
occurrence of an event which is not insured or not fully insured could have an
adverse impact on the Company's revenues and earnings.

EMPLOYEES

At September 30, 1998, the Company had 87 employees, including 57 field
employees. None of these employees is represented by a union and the Company
believes that it maintains good relations with its employees.

FACILITIES

The Company owns a 12,000 square foot building, its corporate headquarters, in
Twinsburg, Ohio. The office facility is in a centralized location, which during
fiscal 1997 allowed the Company to relocate certain operations and its personnel
from its Cleveland and Youngstown offices. The Youngstown facility owned by the
Company is used for field operations. As part of the Kelt acquisition, the
Company held a six month lease on Kelt's facility in Cambridge, Ohio, with an
option to purchase the property for $27,187. The Company recently exercised this
option, although the formal purchase of this former Kelt property has not yet
closed. The facility is used in the Company's field operations.

LEGAL PROCEEDINGS

The Company is involved from time to time in various legal and administrative
proceedings and threatened legal and administrative proceedings incidental to
the ordinary course of its business. The Company is not now involved in any
litigation, individually or in the aggregate, which could have a material
adverse effect on the Company's business, financial condition, results of
operations, or cash flows.

42
<PAGE> 45

MANAGEMENT

The following table sets forth the names and ages of each of the current
directors and executive officers of the Company and the principal offices and
positions with the Company held by each such person. The officers of the Company
are elected annually by the board of directors. Subject to rights, if any, under
employment contracts, each officer serves a term of one year and thereafter
until his successor is elected and qualified or until his death, resignation or
removal.

<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Garry Regan (1) 49 President and Director
Leo J. M. J. Blomen (1) 43 Director
Dominic A. Visconsi (1) 73 Director
Carel W. J. Kok (1) 31 Director
S. F. E. Bas Rosenbaum (2) 49 Director
Charles M. Lombardy, Jr. (2) 48 Chief Executive Officer and Director
C. Rand Michaels (2) 61 Director
John H. Pinkerton (2) 45 Director
Saul Siegel (3) 68 Chief Operating Officer and Director
Jos J. M. Smits (3) 49 Director
Ralph L. Bradley (3) 57 Director
Thomas A. Hill 40 Secretary and General Counsel
Timothy Wagers 39 Chief Financial Officer and Treasurer
</TABLE>

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

(1) Term as director expires in 2001.

(2) Term as director expires in 1999.

(3) Term as director expires in 2000.

Garry Regan is President and a director. Mr. Regan served as an executive
officer and a director of the Company's predecessor since 1981 and has been
President and a director of the Company since August 1988. He received his B.S.
from The Ohio State University and his Masters from Indiana University. Mr.
Regan is a member of the Independent Petroleum Association of America. Mr. Regan
also serves as President of NCE, a wholly owned subsidiary of the Company and a
registered broker-dealer.

Leo J.M.J. Blomen is a director. Mr. Blomen was appointed to the board of
directors in September 1997. He has been Director of the International Division
of NUON Energy Group since March 1997. Since July 1996, Mr. Blomen has been
Managing Director of NUON Projects International bv. Mr. Blomen is also the
founder and, from January 1993 to July 1996, the Managing Director of Blomenco
b.v. Mr. Blomen is also on the Boards of DATTEL a.s, a cable company in Prague;
Calortex, Ltd., a gas company in the United Kingdom; and the Sino-foreign
company Shantou Da Nan Windpower Development Company, Ltd., a joint venture
which is currently constructing the largest windfarm in China. Mr. Blomen holds
a degree in Chemical Engineering and a Ph.D. in Medicine.

Dominic A. Visconsi is a director. Mr. Visconsi was appointed to the board of
directors in January 1999. Mr. Visconsi is the senior member of Cleveland-based,
and nationally recognized, Visconsi Companies, Ltd., which acquires and develops
commercial properties, and now manages more than two million square feet of
retail space. In 1956, he and Richard E. Jacobs formed a partnership, Jacobs,
Visconsi & Jacobs Company, that would eventually grow to become the nation's
fifth-largest developer of shopping malls, The Richard E. Jacobs

43
<PAGE> 46

Group. A recognized community leader, Mr. Visconsi is very involved in many
philanthropic, charitable and social organizations primarily in the greater
Cleveland area.

Carel W. J. Kok is a director. Mr. Kok has been Manager of Business Development
with the International Division of the NUON Energy Group since October 1996.
From 1990 to 1995 he was with the Royal Dutch Shell Group working in a variety
of downstream commercial, trading and new business development functions in East
Asia, the Middle East, and Western and Eastern Europe. Mr. Kok was co-founder of
Lone Star Europe Holding, a U.S.-Dutch joint venture with the American chain
Lone Star Steakhouse & Saloon. Mr. Kok is also on the Boards of Calortex Ltd., a
retail gas distribution company in the United Kingdom serving nearly 500,000
customers and is Chairman of the Board of the Sino-foreign joint venture company
Shantou Dan Nan Windpower Development Company, Ltd., a joint venture now
operating the largest windfarm in China. Mr. Kok holds a B.A. from Princeton
University and an M.B.A. from the Rotterdam School of Management at Erasmus
University.

S. F. E. Rosenbaum is a director. Mr. Rosenbaum has been BU-manager Olefins for
Tolson Holland BV. He is responsible for global coverage, turnover and results.
From 1990 until 1993 Mr. Rosenbaum was Managing Director Europe/Partner for JLM
Industries, where he founded branches in France and the Netherlands. He was
responsible for all trading activities in NEW on hydrocarbons and other
petrochemicals. Mr. Rosenbaum received his B.A. from HEAO-CE in Holland.

Charles M. Lombardy, Jr. is Chief Executive Officer and a director. Mr. Lombardy
has served as an executive officer and as a director of the Company's
predecessor since 1981 and has been Chief Executive Officer and a director of
the Company since August 1988. Mr. Lombardy holds a B.B.A. from Kent State
University and is a member of the Ohio Oil & Gas Association and the Independent
Petroleum Association of America. Mr. Lombardy also serves as
Secretary/Treasurer of NCE, a wholly owned subsidiary of the Company and a
registered broker-dealer.

C. Rand Michaels is a director. Mr. Michaels was elected as a director of the
Company in 1996. Mr. Michaels retired from the office of Vice Chairman of Range
in 1998 and is a Director of Range. He served as President and Chief Executive
Officer of Lomak from 1976 through 1988 and Chairman of the Board from 1984
through 1988, when he became Vice Chairman of Lomak. Mr. Michaels is also a
director of American Business Computers Corporation of Akron, Ohio, a public
company serving the beverage dispensing and fast foods industries.

John H. Pinkerton is a director. Mr. Pinkerton was appointed to the board of
directors of the Company in 1996. Mr. Pinkerton is President, Chief Executive
Officer and a Director of Range and joined Lomak in 1988. He was appointed
President of Lomak in 1990 and Chief Executive Officer of Lomak in 1992.
Previously, Mr. Pinkerton was Senior Vice President-Acquisitions of SOCO. Prior
to joining SOCO in 1980, Mr. Pinkerton was with Arthur Andersen & Co. Mr.
Pinkerton received his B.A. from Texas Christian University and his M.B.A. from
the University of Texas. Mr. Pinkerton will serve out the unexpired term of
Steven L. Grose, a Vice President of Range Resources Corporation, who resigned
his position as director in 1998.

Saul Siegel is Chief Operating Officer and a director. Mr. Siegel was appointed
as a director and Chief Operating Officer of the Company in September 1997.
Since July 1996, Mr. Siegel has been President and owner of Clark Engineering
Services, Inc., a Buchanan, Michigan testing facility for off-road vehicles. In
addition, for more than five years Mr. Siegel has been

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<PAGE> 47

President of Metalworking International Corporation, a Cleveland, Ohio company
that purchases manufacturing plants and new and used metalworking equipment.
Since May 1996, Mr. Siegel has also been Treasurer of Precision Rebuilders,
Inc., a New Orleans, Louisiana company which is engaged in the remanufacturing
of oil and gas valves.

Jos J. M. Smits is a director. Mr. Smits was appointed to the board of directors
in September 1997. Mr. Smits has been Manager-Purchasing and Trade for NUON
Energy Group since July 1994. From October 1992 until July 1994, Mr. Smits was
Managing Director of Fels B.V., a Dutch manufacturer of building materials. Mr.
Smits holds a degree in Economics from the University of Amsterdam.

Ralph L. Bradley is a director. Mr. Bradley was elected to the board of
directors on December 5, 1997. Mr. Bradley is currently President of Bradley
Energy International, which provides energy solutions for the world market, and
Bradley Energy USA, which provides individuals with the opportunity to own
various aspects of natural gas production. Prior to forming these entities, Mr.
Bradley was chief executive officer of The Eastern Group, Inc., and its
predecessor, Eastern States Exploration Company, Inc.

Thomas A. Hill is Secretary and General Counsel. Mr. Hill was elected Secretary
and General Counsel of the Company in August 1987. Mr. Hill joined Capital Oil &
Gas, Inc. in 1984, prior to its acquisition by the Company. He graduated from
Hiram College with a B.A. in History and Political Science and from George
Washington University National Law Center with a J.D. Mr. Hill is a member of
the Mahoning County Bar Association and Eastern Mineral Law Foundation.

Timothy Wagers is Treasurer and Chief Financial Officer. Mr. Wagers joined the
Company in 1983 and currently is Treasurer and Chief Financial Officer. Mr.
Wagers is also responsible for overseeing the accounting for partnership
distributions, oil and gas production and tax reporting, and monitoring well
costs. He received a B.S. in Accounting from the University of Akron. From 1982
through 1983, Mr. Wagers was employed by Hausser + Taylor, independent certified
public accountants, as a staff accountant auditing various entities including
oil and gas partnerships. Mr. Wagers is a certified public accountant, a member
of the Ohio Society of Certified Public Accountants, the Ohio Petroleum
Accountants Society, and the American Institute of Certified Public Accountants.

TERMS OF DIRECTORS

The board of directors currently consists of eleven directors. The board of
directors is divided into three classes. With the approval of an amendment to
the certificate of incorporation at its annual meeting of stockholders on
December 16, 1998, the first two classes now consist of four directors each and
the third class consists of three directors. One class of directors is elected
annually by the Company's stockholders to serve a three-year term.

COMMITTEES OF THE BOARD OF DIRECTORS

The Audit Committee, of which Messrs. Blomen, Michaels, Pinkerton, Bradley, Kok
and Smits are currently members, oversees the accounting functions of the
Company, including matters related to the appointment and activities of the
Company's auditors.

The Compensation and Stock Option Committee, of which Messrs. Blomen and Smits
are members, reviews and makes recommendations concerning the salaries of the
Company's

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<PAGE> 48

executive officers, reviews and makes recommendations concerning the Company's
Stock Option Plan and Stock Bonus Plan and administers the Company's Profit
Sharing Plan.

The Executive Committee, of which Messrs. Blomen, Siegel, Pinkerton, Smits and
Regan are currently members, exercises the powers and authority of the full
board of directors during the periods between meetings of the board of
directors.

EXECUTIVE COMPENSATION

The following tables sets forth the annual and long-term compensation for the
Company's Chief Executive Officer and the two other executives (the "Named
Executive Officers") earning in excess of $100,000 for fiscal 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
NUMBER OF
COMPENSATION
ANNUAL COMPENSATION ------------------------------
-------------------------------------- NUMBER OF
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (1)
--------------------------- ---- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Lombardy, Jr. 1998 $173,740 $0 N/A -- $9,576
Chief Executive Officer; 1997 166,350 0 N/A -- 7,148
Director 1996 165,000 0 N/A -- 6,308
Garry Regan 1998 173,740 0 N/A -- 8,616
President; Director 1997 166,350 0 N/A -- 6,188
1996 165,000 0 N/A -- 5,348
Saul Siegel 1998 102,733 0 N/A -- 0
Chief Operating Officer;
Director
</TABLE>

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

No Named Executive Officer received personal benefits or perquisites during
fiscal year 1998 in excess of the lesser of $50,000 or 10% of his aggregate
salary and bonus.

(1) The amounts set forth in the table include, with respect to Messrs. Lombardy
and Regan, $2,810 and $1,850, respectively, for fiscal years 1998, 1997, and
1996 in life insurance premiums paid by the Company pursuant to the terms of
employment agreements between the Company and such persons. See
"Management -- Employment Agreements." With respect to all of the Named
Executive Officers, the amounts set forth in the table reflect the following
contributions under the Company's Profit Sharing Plan and matching funds
through the 401(K) Plan: Mr. Lombardy, $6,766, $4,338 and $3,498 and Mr.
Regan, $6,766, $4,338 and $3,498 for fiscal years 1998, 1997 and 1996,
respectively. Mr. Siegel was not eligible under the terms of the plan.

STOCK OPTION PLAN

The Company has a stock option plan (the "Option Plan") to provide incentives to
stimulate interest in the development and financial success of the Company. The
Option Plan provides for the granting of stock options to purchase Common Stock
at an option price determined by the Compensation Committee. The Compensation
Committee determines the expiration date, but no option is exercisable for a
period of more than 10 years. The aggregate fair market value of the Common
Stock exercisable for the first time during any calendar year shall not exceed
$100,000. Options granted under the Option Plan terminate upon the

46
<PAGE> 49

employee leaving the Company. Currently, the Company has issued options
representing 57,450 shares of Common Stock with the ability to issue options
representing up to 379,200 shares of Common Stock. The Option Plan expires on
August 17, 1999. The Company, from time to time, may issue additional options
outside the plan. The Company has options outstanding representing 214,000
shares of Common Stock that were not issued under the Option Plan.

OPTION GRANTS IN FISCAL 1998

No options were granted to the Named Executive Officers in fiscal 1998.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUES

The following table summarizes options exercised during fiscal 1998 and presents
the value of unexercised options held by the Named Executive Officers at fiscal
year end:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Lombardy, Jr.... -- $0 115,000 0 $0 $0
Garry Regan................ -- 0 115,000 0 0 0
Saul Siegel................ -- 0 67,000 0 0 0
</TABLE>

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

(1) Based upon the closing bid price of a share of Common Stock as reported on
the Nasdaq system on March 31, 1998. None of the options were in the money
at March 31, 1998.

EMPLOYMENT CONTRACTS

Messrs. Lombardy and Regan each have an employment agreement running through May
3, 2001, unless terminated earlier pursuant to the terms of these agreements.
These agreements provide for current base annual compensation of $178,623 to
each of Messrs. Lombardy and Regan, with increases for cost of living based upon
the Consumer Price Index. Additional bonuses may be awarded from time to time by
the board of directors. Each agreement provides that for a period of two years
from the date of the termination of the executive's employment the executive
will not, directly or indirectly, engage in any business competitive with that
of the Company or otherwise interfere with the Company's business.

The board of directors approved the award of an employment contract with Mr.
Siegel at its meeting on March 16, 1998, with the terms and conditions to be
substantially the same as those contained in the employment agreements with
Messrs. Lombardy and Regan. The agreement was to commence May 3, 1998, for a
three-year period, but was referred to the Executive Committee for review and
final approval. Mr. Siegel is currently receiving a base annual compensation of
$182,230 which also includes payment in lieu of health and life insurance
benefits. The Executive Committee has yet to approve the contract, but Mr.
Siegel is receiving a salary commensurate with that provided for in the
contract.

Each of the employment agreements contains provisions addressing a possible
change in control of the Company (the "Change in Control Provisions"). The
purchase of Common Stock by NUON was exempted by a separate agreement. The
Change in Control Provisions

47
<PAGE> 50

provide certain conditions which continue to exist. The Change in Control
Provisions require the payment of certain benefits to these executive officers
upon the termination of their employment, other than for good cause, after the
occurrence of a Change in Control of the Company. A "Change in Control of the
Company" includes a change in the securities ownership of the Company's
securities which would be required to be reported as a change in control in a
proxy statement filed under the Securities Exchange Act of 1934, the Company's
ceasing to have a class of equity securities registered under Section 12 of the
Securities Exchange Act of 1934, or the acquisition by any person or entity of
50% or more of the outstanding shares of Common Stock (or its equivalent in
voting power of any class or classes of the Company's securities).

Under the Change in Control Provisions, any of these three executive officers
who remain in the employ of the Company following the date of the occurrence of
a Change in Control of the Company and whose employment is subsequently
terminated other than for good cause would be entitled to receive a lump sum
payment from the Company, regardless of whether such executive officer continues
in the employ of the Company (the "Change in Control Payment"). After the
occurrence of a Change in Control of the Company, "termination" includes
relocation of the principal place at which the executive is to perform his
duties to a location outside the Cleveland, Ohio metropolitan area, a
substantial reduction in the benefits provided to the executive, a substantial
reduction in the executive's responsibilities or functions or a substantial
adverse change in the executive's working conditions. It should be noted that
the Change in Control Provisions provide for the payment of the Change in
Control Payment in the event of a termination of the executive's employment
after any change in control of the Company, regardless of whether such change in
control is approved by the board of directors and/or stockholders of the
Company.

Under the Change in Control Provisions, in the event of a termination of
employment after a Change in Control in the Company, other than for good cause,
each of the three executive officers would be entitled to Change in Control
Payments in the amount equal either to 2.99 times the average annual salary,
bonus, and incentive compensation amounts paid during the three year period
immediately preceding the termination after a Change in Control in the Company,
payable in 36 equal monthly installments, or a lump sum equal to the aggregate
of the monthly amounts payable discounted to present value at a discount rate of
7% per annum.

The Change in Control Provisions will make more difficult or may discourage a
proxy contest, the assumption of control of the Company by a substantial
shareholder or shareholder group, or the removal of incumbent management.
Additionally, the Change in Control Provisions may have the effect of
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. Accordingly, stockholders of the Company
may be deprived of certain opportunities to sell their shares of Common Stock at
temporarily higher market prices often associated with actual or rumored
takeover attempts.

DIRECTORS COMPENSATION

During fiscal 1998, the board of directors voted to discontinue the payment of
any director fees to any board member. However, the board made a grant of
options to purchase 99,999 shares at $.875 per share to Ralph L. Bradley during
the year ending March 31, 1998. These options vest over a three-year period.

48
<PAGE> 51

CERTAIN TRANSACTIONS

The Company believes that the terms of the following transactions were as
favorable to the Company as could have been obtained from unaffiliated third
parties. All future transactions between the Company and its affiliates will be
on terms no less favorable to the Company than those that could be obtained from
unaffiliated parties and all loans to Company officers, affiliates and
stockholders will be approved by a majority of disinterested directors, if any.

In connection with the sale of shares of Common Stock to NUON, Mr. Siegel
received cash payment of $112,500 and five-year Warrants to purchase 134,000
shares of Common Stock at a price of $0.875 per share. In addition, upon the
exercise by NUON of its right to purchase additional shares of Common Stock, Mr.
Siegel will receive an additional $37,500 and five year Warrants to purchase an
additional 67,000 shares of Common Stock at a price of $0.875 per share.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with respect to the Common Stock,
Series A Preferred Stock and Series B Preferred Stock owned on October 31, 1998
by: each person known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock and Preferred Stock at that date; each
director of the Company; each of the executive officers listed in the Summary
Compensation Table included elsewhere herein; and all directors and executive
officers as a group, and the percentage of the outstanding shares represented
thereby.

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------
AMOUNT AND PERCENT
NATURE AND ADDRESS (1) NATURE OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
---------------------- ----------------------- -------
<S> <C> <C>
Charles M. Lombardy, Jr.................. 665,242 Shares(2)(3) 2.91%
Garry Regan.............................. 685,424 Shares(2) 3.00%
Saul Siegel.............................. 358,600 Shares(2) 1.57%
Leo J. M. J. Blomen...................... 0 Shares *%
Jos J. M. Smits.......................... 0 Shares *%
NUON..................................... 11,494,254 Shares(4) 50.51%
Ralph L. Bradley......................... 33,333 Shares(2) *%
C. Rand Michaels......................... 8,094 Shares *%
John H. Pinkerton........................ 8,464 Shares *%
Range Resources Corporation.............. 3,959,874 Shares(5) 17.40%
All directors and executive officers as a
group (11 persons)..................... 1,832,631 Shares(6) 8.01%
</TABLE>

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

* Less than one percent

(1) The address of NUON is Utrechtsweg 68, 6812 AH Arnhem, The Netherlands. The
address of Range Resources Corporation is 125 State Route 43, Hartville,
Ohio 44632.

(2) Includes 330,333 shares of Common Stock, in the aggregate, which could be
acquired by Messrs. Regan (115,000 shares), Lombardy (115,000 shares),
Siegel (134,000 shares) and Bradley (33,333 shares) upon the exercise of
immediately exercisable stock options or warrants which they hold. Does not
include 67,000 shares of Common Stock that may be acquired through the
exercise of a warrant which may be issued upon the purchase of additional
Common Stock by NUON.

49
<PAGE> 52

(3) The share ownership figures for Mr. Lombardy include 13,738 shares of Common
Stock owned by a trust for which Mr. Lombardy is the trustee and as to which
he disclaims any beneficial interest.

(4) Does not include 5,747,127 shares of Common Stock that may be immediately
acquired by NUON upon exercise of an outstanding option for $0.87 per share.

(5) Does not include 200,000 shares of Common Stock which may be acquired upon
the exercise of certain Warrants to purchase Common Stock.

(6) Includes 440,858 shares of Common Stock, which may be acquired by all
directors and executive officers as a group upon the exercise of immediately
exercisable stock options or warrants.

DESCRIPTION OF SECURITIES

The Company is authorized to issue 60,000,000 shares of Common Stock, $.01 par
value and 2,000,000 shares of Preferred Stock, $.01 par value.

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders of the Company. Except as
required by applicable law, holders of shares of Common Stock do not vote
separately as a class, but vote together with the holders of outstanding shares
of capital stock of all other classes and series. Certain actions require the
affirmative vote of holders of more than a majority of the voting capital stock.
See " -- Certain Anti-Takeover Provisions." There is no cumulative voting for
the election of Directors.

Holders of shares of Common Stock are entitled to receive dividends, if, as, and
when declared by the Board of Directors out of funds legally available therefor,
after payment of dividends required to be paid on outstanding shares of any
series of Preferred Stock (if any). Upon liquidation of the Company, holders of
shares of Common Stock are entitled to share ratably in all assets of the
Company remaining after payment of liabilities, subject to the prior
distribution rights of any outstanding shares of Preferred Stock which have a
liquidation preference. Holders of shares of Common Stock have no conversion,
redemption or preemptive rights. The rights of the holders of Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
Preferred Stock.

The Common Stock is traded on the Nasdaq Small Cap Market under the symbol
"NCEB."

PREFERRED STOCK

The Company's certificate of incorporation authorizes the issuance of 2,000,000
shares of Preferred Stock, which may be divided into one or more series of
shares. The board of directors has the authority to issue Preferred Stock in one
or more series and to fix the rights, preferences, privileges, designations and
limitations, including the dividend rights, dividend rate, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences, designations and the
authorized number of shares constituting any series, without any further vote or
action by the stockholders. The rights of any series of Preferred Stock may, if
provided by the board of directors, be senior to and have preference over the
rights of the shares of Common Stock and/or shares of other series of Preferred
Stock. The Series A Preferred Stock and the Series B Preferred Stock constitute
series of Preferred Stock. See " -- Series A Preferred Stock" and " -- Series B

50
<PAGE> 53

Preferred Stock." No other shares of the remaining Preferred Stock (equal to
811,730 authorized shares) are issued or outstanding.

The Company has no current plans to issue any shares of other series of
Preferred Stock. The issuance of additional shares of Preferred Stock in the
future could adversely affect the rights of the holders of any class of the
Company's capital stock, including Common Stock. Also, the issuance of
additional shares of Preferred Stock could have the effect of hindering or
deterring an acquisition of the Company or potential tender offers. See
" -- Certain Anti-Takeover Provisions."

SERIES A PREFERRED STOCK

The board of directors has created a series of the Preferred Stock consisting of
563,270 shares designated as Series A 6% Convertible Non-Cumulative Preferred
Stock, $.01 par value per share (the "Series A Preferred Stock").

Voting Rights. Holders of shares of Series A Preferred Stock are entitled to
such number of votes per share as they would have if they had exercised their
conversion rights and received shares of Common Stock as of the record date
applicable to such vote. Except as required by applicable law, holders of shares
of Series A Preferred Stock do not vote separately as a class or series, but
vote together with the holders of outstanding shares of voting capital stock of
all other classes and series.

Dividends. Holders of shares of Series A Preferred Stock are entitled to receive
cash dividends at an annual rate of $.60 per share. Such cash dividends are
non-cumulative, and are payable semi-annually on June 1 and December 1 of each
year, if, when and as declared by the board of directors out of funds legally
available therefor. Shares of Series A Preferred Stock are senior to shares of
Common Stock with respect to such cash dividends. No cash dividends will be paid
on shares of Common Stock unless and until all declared, unpaid cash dividends
on the shares of Series A Preferred Stock have been paid or set aside for
payment.

Liquidation Rights. The Series A Preferred Stock has a liquidation preference of
$10.00 per share. Consequently, upon liquidation, dissolution or winding up of
the Company, holders of shares of Series A Preferred Stock are entitled to
receive, after payment of liabilities but prior to any distributions to holders
of shares of Common Stock or of shares of any other class or series of the
Serial Preferred Stock ranking junior in liquidation rights to the Series A
Preferred Stock, the sum of $10.00 per share. If the amounts available for
distribution to holders of shares of Series A Preferred Stock upon liquidation,
dissolution or winding up of the Company are not sufficient to pay in full the
preferred liquidation payments in respect of all of the outstanding shares of
Series A Preferred Stock, holders of outstanding shares of Series A Preferred
Stock will share ratably in any such distribution. After payment of the full
preferred liquidation payments in respect of all of the outstanding shares of
Series A Preferred Stock, holders of outstanding shares of Series A Preferred
Stock shall not participate with respect to such shares in any further
distribution of the assets of the Company upon its liquidation, dissolution or
winding up.

Conversion Rights. A holder of outstanding shares of Series A Preferred Stock
may elect at any time to convert his shares of Series A Preferred Stock into
shares of Common Stock. The Company, at its option, at such time as it makes a
Public Offering (as defined below) may convert all outstanding shares of Series
A Preferred Stock into shares of Common Stock. In the event any shares of Series
A Preferred Stock are called for redemption as described below, the holders
thereof shall have the right to elect to convert such shares into

51
<PAGE> 54

shares of Common Stock in accordance with these provisions at any time prior to
the date specified for such redemption to occur.

A holder of shares of Series A Preferred Stock is entitled to receive the number
of whole shares of Common Stock for each share of Series A Preferred Stock
converted as is determined by dividing $10.00 by the price at which conversion
occurs (the "Conversion Price"), which Conversion Price currently equals $4.35.
Therefore, each share of Series A Preferred Stock is currently convertible into
2.3 shares of Common Stock. Certain adjustments to the Conversion Price are
provided from time to time in connection with stock dividends payable in shares
of Common Stock or split-ups, combinations and other similar transactions
affecting the outstanding shares of Common Stock. Further, in the event the
Company issues any shares of Common Stock, other than shares of Common Stock
issued upon conversion of outstanding shares of Series A Preferred Stock or upon
the exercise of employee stock options, for a consideration per share less than
the then current market price of the Common Stock, the Conversion Price will be
adjusted to provide economic dilution protection for holders of shares of Series
A Preferred Stock. The Company must reserve and keep available, out of its
authorized but unissued shares of Common Stock, solely for the purposes of
conversion of the outstanding shares of Series A Preferred Stock, the number of
shares of Common Stock sufficient to effect the conversion of all shares of
Series A Preferred Stock from time to time outstanding. "Public Offering," as
used with respect to the conversion of shares of Series A Preferred Stock, means
an offering by the Company, pursuant to an effective registration statement
under the Act, of shares of its Common Stock which yields net proceeds to the
Company of not less than $5,000,000 and which is made at a public offering price
of not less than a price per share equal to 1.5 multiplied by the Conversion
Price (currently approximately $6.55), subject to adjustment for stock dividends
payable in shares of Common Stock or split-ups, combinations and other similar
transactions affecting the outstanding shares of Common Stock.

Redemption. The Company currently has the option to redeem, in whole or in part,
shares of Series A Preferred Stock at a price of $10.00 per share plus declared,
unpaid dividends on such shares to the date fixed for redemption. The Company
may exercise such option by providing not less than 30 days prior written notice
to each record holder of shares of Series A Preferred Stock. There are no
sinking fund or mandatory redemption provisions for the shares of Series A
Preferred Stock. Holders of shares of Series A Preferred Stock have no
preemptive rights.

SERIES B PREFERRED STOCK

The board of directors has created a second series of Preferred Stock consisting
of 625,000 shares designated as Series B Cumulative Convertible Preferred Stock
(the "Series B Preferred Stock").

Dividends. Holders of shares of Series B Preferred Stock are entitled to
receive, when, as and if declared by the board of directors out of funds at the
time legally available therefor, cash dividends at an annual rate of $1.00 per
share, and no more, payable quarterly. Dividends will accrue and be cumulative
from the date of first issuance of the Series B Preferred Stock and are payable
to holders of record as they appear on the stock books of the Company on such
record dates as are fixed by the board of directors.

The Series B Preferred Stock has priority as to dividends over the Common Stock,
the Series A Preferred Stock and any series or class of the Company's stock
hereafter issued that

52
<PAGE> 55

ranks junior as to dividends to the Series B Preferred Stock (the "Junior
Dividend Stock"), and no dividend (other than dividends payable solely in Common
Stock or any other series or class of the Company's stock hereafter issued that
ranks junior as to dividends to the Series B Preferred Stock) may be declared,
paid or set apart for payment on, and no purchase, redemption or other
acquisition may be made by the Company of, any Common Stock or Junior Dividend
Stock unless all accrued and unpaid dividends on the Series B Preferred Stock
have been paid or declared and set apart for payment.

Liquidation Rights. In the event of any liquidation, dissolution or winding up
of the Company, holders of shares of Series B Preferred Stock are entitled to
receive a liquidation preference of $10.00 per share, plus an amount equal to
any accrued and unpaid dividends to the payment date, and no more, before any
payment or distribution is made to the holders of Common Stock, the Series A
Preferred Stock, or any series or class of the Company's stock hereafter issued
that ranks junior as to liquidation rights to the Series B Preferred Stock.
However, the holders of the shares of the Series B Preferred Stock will not be
entitled to receive the liquidation preference of such shares until the
liquidation preference of any other series or class of the Company's stock
hereafter issued that ranks senior as to liquidation rights to the Series B
Preferred Stock (the "Senior Liquidation Stock") has been paid in full. The
holders of Series B Preferred Stock and all series or classes of the Company's
stock hereafter issued that rank on a parity as to liquidation rights with the
Series B Preferred Stock are entitled to share ratably, in accordance with the
respective preferential amounts payable on such stock, in any distribution
(after payment of the liquidation preference of the senior liquidation stock)
which is not sufficient to pay in full the aggregate of the amounts payable
thereon. After payment in full of the liquidation preference of the shares of
the Series B Preferred Stock, the holders of such shares will not be entitled to
any further participation in any distribution of assets by the Company.

Voting Rights. The holders of the Series B Preferred Stock have no voting rights
except as described below or as required by law. In exercising any such vote,
each outstanding share of Series B Preferred Stock are entitled to one vote,
excluding shares held by the Company or any entity controlled by the Company,
which shares have no voting rights.

Whenever dividends on the Series B Preferred Stock or any outstanding shares of
any class or series of the Company's capital stock having parity with the Series
B Preferred Stock as to dividends (the "Parity Dividend Stock") have not been
paid in an aggregate amount equal to at least six quarterly dividends on such
shares (whether or not consecutive), the number of directors of the Company will
be increased by two, and the holders of the Series B Preferred Stock, voting
separately as a class with the holders of Parity Dividend Stock on which like
voting rights have been conferred and are exercisable, will be entitled to elect
such two additional directors (and any successor to each such director) to the
board of directors at any meeting of stockholders of the Company at which
directors are to be elected held during the period such dividends remain in
arrears. Such voting right will terminate when all such dividends accrued and in
default have been paid in full or set apart for payment. The term of office of
all directors so elected will terminate immediately upon such payment or setting
apart for payment.

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<PAGE> 56

So long as any Series B Preferred Stock is outstanding, the Company shall not,
without the affirmative vote of the holders of at least 66 2/3% of all
outstanding shares of Series B Preferred Stock, voting separately as a class:

- amend, alter or repeal any provision of the certificate of incorporation
or the by-laws of the Company so as to adversely affect the relative
rights, preferences, qualifications, limitations or restrictions of the
Series B Preferred Stock,

- authorize or issue, or increase the authorized amount of, any additional
class or series of stock, or any security convertible into stock of such
class or series, ranking senior to the Series B Preferred Stock as to
dividends or upon liquidation, dissolution or winding up of the Company or

- effect any reclassification of the Series B Preferred Stock.

So long as any Series B Preferred Stock is outstanding, the Company shall not,
without the affirmative vote of the holders of at least 50% of all outstanding
shares of Series B Preferred Stock, voting separately as a class, authorize,
issue, or increase the authorized amount of, any additional class or series of
stock, or any security convertible into stock of such class or series, ranking
on parity with the Series B Preferred Stock as to dividends or liquidation and
having voting rights superior to the Series B Preferred Stock, or incur
indebtedness or authorize or issue, or increase the authorized amount of, any
additional class or series of stock, or any security convertible into stock of
such class or series, ranking on parity with the Series B Preferred Stock as to
dividend or liquidation rights if, immediately following such event, Adjusted
Stockholders' Equity is less than the aggregate liquidation preferences of all
Series B Preferred Stock and stock ranking senior to or on parity with the
Series B Preferred Stock as to liquidation. Adjusted Stockholders' Equity is the
Company's stockholders' equity as shown on its most recent annual or quarterly
balance sheet, increased by (a) any amount of any liability or other reduction
in stockholders' equity attributable to the Series B Preferred Stock and each
series of stock senior to or on parity with the Series B Preferred Stock as to
liquidation and (b) the net proceeds of any equity financing since the date of
the balance sheet, reduced by any reduction in stockholders' equity resulting
from certain dispositions of assets since the date of the balance sheet.

Redemption. The Series B Preferred Stock is redeemable for cash, in whole or in
part, at any time, at the option of the Company, at $10.00 per share plus any
accrued and unpaid dividends, whether or not declared.

If fewer than all of the outstanding shares of Series B Preferred Stock are to
be redeemed, the Company will select those shares to be redeemed pro rata or by
lot or in such other manner as the board of directors may determine. There is no
mandatory redemption or sinking fund obligation with respect to the Series B
Preferred Stock. In the event that the Company has failed to pay accrued
dividends on the Series B Preferred Stock, it may not redeem any of the then
outstanding shares of the Series B Preferred Stock until all such accrued and
unpaid dividends and (except with respect to shares to be redeemed) the then
current quarterly dividend have been paid in full.

Notice of redemption will be mailed at least 30 days but not more than 60 days
before the redemption date to each holder of record of shares of Series B
Preferred Stock to be redeemed. After the redemption date, unless there shall
have been a default in payment of the redemption price, dividends will cease to
accrue on the shares of Series B Preferred Stock

54
<PAGE> 57

called for redemption and all rights of the holders of such shares will
terminate, except the right to receive the redemption price without interest.

Conversion Rights

Optional Conversion. At any time prior to the redemption thereof, the
holders of Series B Preferred Stock shall have the right, exercisable at their
option, to convert any or all of such shares into Common Stock at a conversion
price of $1.74 per share (equivalent to a conversion rate of 6.55 shares of
Common Stock per share of Series B Preferred Stock which includes an
adjustment for the $1.40 per share of dividends in arrears), subject to
adjustment in certain events as described below.

Automatic Conversion. If at any time after the initial issuance thereof the
mean between the closing bid and asked price for the Series B Preferred Stock
as reported on NASDAQ (or the closing sale price as reported on any national
securities exchange on which the Series B Preferred Stock is then listed),
shall, for a period of 10 consecutive trading days, exceed $14.00, then,
effective as of the closing of business on the tenth such trading day, all
shares of Series B Preferred Stock then outstanding shall immediately and
automatically be converted into shares of Common Stock at the conversion rate
then in effect.

No fractional shares will be issued in connection with either the optional or
automatic conversion of Series B Preferred Stock, but, in lieu thereof, an
appropriate amount will be paid in cash by the Company based upon the reported
last sale price of the Common Stock on the business day prior to the date of
conversion.

The Series B Preferred Stock is currently convertible into Common Stock at the
rate of 6.55 shares of Common Stock for each share of Series B Preferred Stock
converted. The conversion rate is subject to adjustment in certain events,
including: the issuance of stock as a dividend on Common Stock; subdivisions or
combinations of Common Stock; the issuance to all holders of Common Stock of
certain rights or warrants (expiring within 45 days after the record date for
determining stockholders entitled to receive them) to subscribe for or purchase
Common Stock at a price less than the current market price of Common Stock; or
the distribution to all holders of Common Stock of evidences of indebtedness of
the Company, cash (excluding ordinary cash dividends), other assets or rights or
warrants to subscribe for or purchase any securities (other than those referred
to above).

The Company from time to time may decrease the conversion price by any amount
for any period of at least 20 days, by giving at least 15 days notice of such
decrease. The Company may, at its option, make such decreases in the conversion
price, in addition to those set forth above, as the board of directors of the
Company deems advisable to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for Common Stock or from any event treated
as such for income tax purposes.

Upon conversion of shares of Series B Preferred Stock, the rights of holders of
shares so converted will be limited to the right to receive shares of Common
Stock at the conversion rate then in effect.

Other Provisions. The shares of Series B Preferred Stock are duly and validly
issued, fully paid and nonassessable. The holders of the shares of Series B
Preferred Stock have no preemptive rights with respect to any securities of the
Company.

55
<PAGE> 58

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's certificate of incorporation and by-laws and
rights of Common Stock, set forth below, might have the effect of delaying,
deferring or preventing a change in control of the Company and may make more
difficult the removal of incumbent management even if such transactions could be
beneficial to the interests of stockholders.

Staggered Board of Directors. Under the Company's certificate of incorporation
and by-laws, the board of directors shall consists of not less than seven (7) or
more than thirteen (13) members with the number of directors to be fixed by the
vote of the majority of the entire board of directors from time to time. The
number of directors is currently fixed at eleven (11). The board of directors is
also divided into three (3) classes, with four (4) directors being elected to
each of Classes I and II, and three (3) directors being elected to Class III.
Directors of each class serve a three-year term, with the term of office of one
class expiring at the Company's annual meeting of stockholders in each year. The
current board configuration is a result of the approval of an amendment to the
Company's certificate of incorporation that was approved at the annual meeting
of stockholders on December 16, 1998. The amendment was necessary to comply with
the majority designation clause contained in the stock purchase agreement dated
August 1, 1997, between the Company and NUON.

Supermajority Provisions. Under the certificate of incorporation, the
affirmative vote of the holders of at least 80% of the aggregate outstanding
voting capital stock of the Company is required (in addition to any separate
vote of any other class or series of securities of the Company which may be
required by the terms of such securities) to effect a merger or consolidation,
or a sale, lease, exchange or transfer of more than 10% of the Company's assets,
or a sale, lease, exchange or transfer of more than 10% of another entity's
assets to the Company, where the other party to the transaction, including its
affiliates and associated persons, is a holder or beneficial owner, directly or
indirectly, of 10% or more of the outstanding shares of capital stock of the
Company entitled to vote at a meeting called to consider such a proposed
transaction (such party(ies) being hereinafter referred to as a "Related
Person"). In addition, any such proposed transaction must also be approved by
the affirmative vote of the holders of at least 55% of the aggregate voting
power of the Company that is not held by the Related Person. The board of
directors must make a conclusive determination as to whether the proposed
transaction involves a Related Person. The requirements for supermajority
approval are not applicable to proposed transactions approved by a majority of
the directors who are not the Related Person and who were elected prior to the
acquisition of the 10% share interest by the Related Person and who have served
continuously since such election, provided that with respect to any proposed
transaction as to which the supermajority voting requirements would otherwise be
applicable, there has also been disclosure to all stockholders of any
inducements in connection with the proposed transaction offered to directors of
the Company which are not extended to all stockholders.

The provisions regarding division of the board of directors into classes and the
above-described voting requirements may have the overall effect of making it
more difficult to (i) attempt to take control of the Company through a merger,
tender offer, proxy contest or other means; (ii) assume control of the Company
by a holder of a large block of the Company's voting securities; and/or (iii)
remove incumbent management (each, a "Change in Control Transaction"). This may
be the case even though certain stockholders of the Company may determine such
action to be in their best interests. These provisions of the Company's
certificate of incorporation and its by-laws can be changed or amended only by
56
<PAGE> 59

the affirmative vote of the holders of at least 80% of the aggregate outstanding
voting capital stock of the Company and, in the case of the above-described
voting requirements with respect to certain transactions involving a Related
Person, by the additional affirmative vote of the holders of at least 55% of
such voting power held by persons who are not Related Persons.

Serial Preferred Stock. The board of director's ability to issue shares of
Preferred Stock and to determine the rights, preferences, privileges,
designations and limitations of such stock, including the dividend rights,
dividend rate, conversion rights, voting rights, terms of redemption and other
terms of conditions of such stock, could make it more difficult for a person to
engage in, or discourage a person from engaging in, a Change in Control
Transaction without the cooperation of management.

Section 203. The Company is a Delaware corporation and is subject to Section 203
of the Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of two-thirds of the outstanding voting stock of the corporation not owned by
the interested stockholder. Under Section 203, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or who were recommended
for election or elected to succeed such directors by a majority of such
directors.

DIRECTOR LIABILITY

As permitted by the Delaware General Corporation law, the certificate of
incorporation contains a provision which eliminates under certain circumstances
the personal liability of the directors of the Company to the Company or its
stockholders, in their capacity as directors of the Company, for monetary
damages for the breach of fiduciary duty as a director. The provision in the
certificate of incorporation does not change a director's duty of care, but it
does eliminate the possibility of monetary liability for certain violations of
that duty, including violations based on grossly negligent business decisions.
The provision does not

57
<PAGE> 60

affect the availability of equitable remedies for a breach of the duty of care,
such as an action to enjoin or rescind a transaction involving a breach of
fiduciary duty; however, in certain circumstances equitable remedies may not be
available as a practical matter. The provision in the certificate of
incorporation does not in any way affect a director's liability under the
federal securities laws. In addition, the Company's by-laws indemnify its past
and present directors for and provide advancements in respect of any expense,
liability or loss incurred in connection with any threatened, pending or
completed action, suit or proceeding by an individual by reason of the fact that
he is or was a director or officer of the Company or serving at the request of
the Company in another capacity. The Company has also entered into indemnity
agreements pursuant to which it has agreed, among other things, to indemnify its
directors for settlements in derivative actions.

TRANSFER AGENT AND REGISTRAR AND WARRANT AGENT

The American Stock Transfer & Trust Company, New York, New York, is the transfer
agent and registrar for the Common Stock, the Series A Preferred Stock and the
Series B Preferred Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, of the 60,000,000 authorized shares of Common
Stock, 29,377,244 shares will be outstanding or reserved for issuance pursuant
to the exercise of exercisable stock options and warrants. Of these 29,377,244
shares of Common Stock, the 21,647,847 shares purchased in this offering by
persons who are not "affiliates" of the Company will be freely tradable, without
restriction under the Securities Act. The Company believes that 15,532,721
shares of Common Stock currently may be sold pursuant to Rule 144 under the
Securities Act in compliance with the resale volume limitations of Rule 144.
These volume limitations will apply only if and as long as the holders of these
shares are "affiliates" of the Company for purposes of Rule 144.

The 6,620,076 shares of Common Stock reserved for issuance upon exercise of
outstanding options and warrants will become eligible for resale under Rule 144
two years subsequent to the date or dates that the holders of such options and
warrants exercise the same.

In general, under Rule 144 under the Securities Act as currently in effect, a
person (or persons whose shares must be aggregated), including a person who may
be deemed an "affiliate" of the Company, who has beneficially owned "restricted
securities" for at least one year, may sell within any three month period that
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the Common Stock or the reported average weekly trading volume of the
then outstanding shares of Common Stock for the four weeks preceding each such
sale. The sales under Rule 144 also are subject to certain manner of sale
restrictions and notice requirements and to the availability of current public
information about the Company. In addition, a person (or persons whose shares
must be aggregated) who owns restricted securities, who is not deemed an
"affiliate" of the Company at any time during the 90 days preceding a sale and
who acquired such shares at least two years prior to their resale, is entitled
to sell such shares under Rule 144(k) without regard to the foregoing
requirements. Sales of restricted securities by affiliates of the Company, even
after the two-year holding period, must continue to be made in broker's
transactions subject to the volume limitations described above. As defined in
Rule 144, an "affiliate" of an issuer

58
<PAGE> 61

is a person that directly, or indirectly through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer.

No prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sale, will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock (including shares issued upon the exercise of the outstanding stock
options), or the perception that such sales could occur, could adversely affect
the prevailing market prices for the Common Stock.

DESCRIPTION OF CERTAIN INDEBTEDNESS

The summary of the amended credit facility contained herein does not purport to
be complete and is qualified in its entirety by reference to the provisions of
the amended credit facility, a copy of which will be filed as an exhibit to the
registration statement of which this prospectus is a part.

On February 9, 1998, the Company entered into an agreement with ING to replace
the $20.0 million revolving credit facility with its previous lender. The
Company's amended credit facility, dated May 29, 1998, expanded the Company's
$20.0 million revolving credit facility with ING to a $25.0 million revolving
credit facility. The credit agreement also 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 September 30, 1998). The credit agreement requires payment of an
agent fee of 0.75% on amounts available and a 0.50% commitment fee on amounts
not borrowed up to the available credit line. At September 30, 1998, the
Company's borrowing base was $25.0 million subject to reduction for the
outstanding letters of credit. Available borrowings under the facility at
September 30, 1998 were $3,822,365 and may change based upon the semi-annual
reserve study and borrowing base determination. The credit facility provides
that the payment of dividends with respect to the Common Stock is prohibited. As
of September 30, 1998, the Company had $21,027,635 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
0.75% or LIBOR plus 2.50%. 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 September 30, 1999.

59
<PAGE> 62

MANNER OF OFFERING

The price and the manner of sale of the shares of Common Stock offered hereunder
are in the sole discretion of the selling stockholders. Sales of shares of
Common Stock covered by this prospectus may be made by the selling stockholder,
or, subject to applicable law, by pledgees, donees, transferees or other
successors in interest, in over-the-counter market or otherwise at prices and at
terms then prevailing or at prices related to the then-current market price or
at prices and at terms determined in privately negotiated transactions. The
shares of Common Stock may be sold through any one of several methods, including
by any one or more of the following:

- a block trade in which the broker or dealers so engaged will attempt to
sell the shares of Common Stock as agent but may position and resell a
portion of the block as principal to facilitate the transaction,

- purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this prospectus,

- ordinary brokerage transactions and transactions in which the broker
solicits purchasers, and

- privately negotiated transactions.

In effecting sales, brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the selling stockholders in amounts to be
negotiated immediately prior to sale. Such brokers or dealers may be deemed to
be "underwriters" within the meaning of the Securities Act in connection with
such sales. In addition, any shares of Common Stock covered by this prospectus,
which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather
than pursuant to this prospectus.

The Company has advised the selling stockholders of their obligations under the
Securities Exchange Act of 1934 (the "Exchange Act") to avoid market
manipulation of Common Stock, including without limitation their obligation not
to purchase or solicit purchases by others of any Common Stock during the two
business days preceding the commencement of any offers or sales of Common Stock
by the selling stockholders, until the offering pursuant to this prospectus by
the selling stockholders has been completed.

The Company has also advised the selling stockholders of their obligations under
the Securities Act to deliver copies of this prospectus to any purchaser of
their Common Stock.

LEGAL MATTERS

Certain legal matters with respect to the validity of the Common Stock offered
hereby will be passed upon for the Company by Calfee, Halter & Griswold LLP,
Cleveland, Ohio.

EXPERTS

The consolidated financial statements and notes thereto and schedules included
or incorporated by reference in this Prospectus and elsewhere in the
registration statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.

60
<PAGE> 63

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form S-1
(together with all amendments, schedules and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which are omitted as permitted by
the rules and regulations of the Commission. For further information pertaining
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements made in this prospectus regarding the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.

The Company is subject to the informational requirements of the Securities Act
of 1934, as amended, and, in accordance therewith, files reports, proxy
statements and other information with the Commission. These reports, proxy
statements, and other information, as well as the Registration Statement, may be
inspected, without charge, at the public reference facility maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington
D.C., 20549 and at the Company's regional offices located at Seven World Trade
Center, Suite 1300, New York, NY 10048 and Northwestern Atrium Center, 500 West
Madison Street, Room 1400, Chicago, IL 60661-2511. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such materials
can also be inspected at the offices of the Nasdaq National Market System at
1735 K Street, N.W., Washington, D.C. 20006 or on the Commission's website at
http://www.sec.gov.

61
<PAGE> 64

NORTH COAST ENERGY, INC.
GENERAL INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
Consolidated Financial Statements
September 30, 1998 (Unaudited)............................ F-2
Consolidated Financial Statements -
March 31, 1998 (Audited).................................. F-11
Kelt Ohio Interests - Financial Statements Consolidated
Financial Statements -
December 31, 1998 (Audited) and March 31, 1998
(Unaudited)............................................ F-33
Proforma Combined Financial Statements North Coast Energy
and Kelt Ohio Interests -
March 31, 1998 (Audited).................................. F-39
</TABLE>

F-1
<PAGE> 65

NORTH COAST ENERGY, INC.

<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
PART I -- FINANCIAL INFORMATION
Consolidated Balance Sheets -
March 31, 1998 (Audited) and September 30, 1998
(Unaudited)............................................ F-3
Unaudited Consolidated Statements of Operations -
For the Three and Six Months Ended September 30, 1997 and
1998................................................... F-5
Unaudited Consolidated Statements of Cash Flows -
For the Six Months Ended September 30, 1997 and 1998...... F-6
Unaudited Notes to Consolidated Financial Statements........ F-7
</TABLE>

F-2
<PAGE> 66

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 1998 AND SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents...................................... $ 1,578,984 $ 3,330,079
Accounts receivable --
Trade, net............................................. 1,311,714 2,099,529
Affiliates............................................. 96,011 99,110
Inventories............................................... 189,223 159,008
Deferred income taxes..................................... 26,000 26,000
Refundable income taxes................................... 38,000 38,000
Other, net................................................ 8,057 122,259
------------ ------------
Total current assets.............................. 3,247,989 5,873,985
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Land...................................................... 93,437 93,437
Oil and gas properties (successful efforts)............... 25,754,748 39,788,193
Pipelines................................................. 4,380,772 6,409,308
Vehicles.................................................. 420,026 1,267,491
Furniture and fixtures.................................... 508,417 586,262
Buildings and improvements................................ 786,689 796,037
------------ ------------
31,944,089 48,940,728
Less -- Accumulated depreciation, depletion, amortization
and impairment............................................ (13,155,288) (14,153,492)
------------ ------------
18,788,801 34,787,236
OTHER ASSETS, net........................................... 274,726 1,727,771
------------ ------------
$ 22,311,516 $ 42,388,992
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 67

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 1998 AND SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 88,300 $ 72,300
Accounts payable.......................................... 1,824,740 1,940,213
Accrued expenses.......................................... 250,073 374,352
Billings in excess of costs on uncompleted contracts...... 302,881 --
----------- -----------
Total current liabilities......................... 2,465,994 2,386,865
----------- -----------
LONG-TERM DEBT, net of current portion...................... 7,171,035 21,672,473
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 233,864 issued and outstanding (aggregate
liquidation value $2,682,640 and $2,338,640,
respectively).......................................... 2,683 2,339
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 22,757,168 issued and
outstanding............................................ 166,129 227,572
Additional paid-in capital................................ 16,859,237 21,723,150
Retained deficit.......................................... (4,689,517) (4,859,352)
----------- -----------
Total stockholders' equity........................ 12,339,287 17,094,454
----------- -----------
$22,311,516 $42,388,992
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 68

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1998

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas production................. $ 671,074 $1,862,691 $1,415,124 $3,427,603
Drilling revenues...................... 275,000 -- 738,554 326,958
Well operating, transportation and
other............................... 394,424 530,355 823,052 934,411
Administrative and agency fees......... 213,162 208,276 426,425 418,408
---------- ---------- ---------- ----------
1,553,660 2,601,322 3,403,155 5,107,380
COSTS AND EXPENSES:
Oil and gas production expenses........ 202,641 634,897 432,882 1,197,161
Drilling costs......................... 255,938 176,611 629,803 571,788
Oil and gas operations................. 163,167 196,527 305,661 445,397
General and administrative expenses.... 569,220 567,013 1,047,880 1,011,139
Depreciation, depletion, amortization,
impairment and other................ 258,700 494,545 552,242 1,012,472
Abandonment of oil and gas
properties.......................... -- -- 3,039 --
---------- ---------- ---------- ----------
1,449,666 2,069,593 2,971,507 4,237,957
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS................... 103,994 531,729 431,648 869,423
---------- ---------- ---------- ----------
OTHER INCOME
Interest............................... 13,377 28,607 26,293 45,676
Other.................................. -- 1,203 62 2,354
Gain (loss) on sale of property and
equipment........................... -- (1,964) 1,897 (2,472)
---------- ---------- ---------- ----------
13,377 27,846 28,252 45,558
---------- ---------- ---------- ----------
OTHER EXPENSE
Interest............................... 239,053 547,615 504,591 999,519
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........ (121,682) 11,960 (44,691) (84,538)
CREDIT FOR INCOME TAXES:
Current................................ (1,000) -- -- --
Deferred............................... -- -- -- --
---------- ---------- ---------- ----------
(1,000) -- -- --
---------- ---------- ---------- ----------
NET INCOME (LOSS)........................ $ (120,682) $ 11,960 $ (44,691) $ (84,538)
========== ========== ========== ==========
NET LOSS, applicable to common stock
(after preferred stock dividends paid
or in arrears of $67,066 and $58,466
for the three months ended September
30, 1997 and 1998; and $134,132 and
$125,532 for the six months ended
September 30, 1997 and 1998)........... $ (187,748) $ (46,506) $ (178,823) $ (210,070)
========== ========== ========== ==========
NET LOSS PER SHARE
(basic and diluted).................... $ (.02) $ (.00) $ (.02) $ (.01)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING...... 12,481,962 16,866,434 11,631,810 16,742,269
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these Financial Statements
F-5
<PAGE> 69

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998

<TABLE>
<CAPTION>
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (44,691) $ (84,538)
Adjustments to reconcile net loss to cash used by
operating activities-
Depreciation, depletion, amortization, impairment and
other................................................. 552,242 1,012,472
Abandonment of oil and gas properties.................. 3,039 --
(Gain) loss on sale of property and equipment.......... (1,897) 2,472
Change in:
Accounts receivable.................................... 82,888 (790,914)
Other current assets................................... 96,918 (83,987)
Other assets........................................... (6,462) (1,309,922)
Accounts payable....................................... (326,084) 115,473
Other liabilities.................................... -- 900,000
Accrued expenses..................................... 21,447 124,279
Billings in excess of costs on uncompleted contracts... (469,361) (302,881)
----------- -----------
Total adjustments................................. (47,270) (333,008)
----------- -----------
Net cash used by operating activities............. (91,961) (417,546)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (461,472) (17,006,505)
Proceeds on sale of property and equipment................ 2,000 --
----------- -----------
Net cash used for investing activities............ (459,472) (17,006,505)
----------- -----------
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
Payments on long-term debt................................ (1,508,776) (50,188)
Repayments of borrowings under revolving credit
facility............................................... (2,840,000) (3,500,000)
Cash paid for deferred financing cost..................... -- (150,000)
Proceeds from issuance of long-term debt.................. -- 73,256
Net proceeds from the issuance of Common Stock............ 4,772,633 4,925,000
Distributions and dividends............................... (67,066) (85,292)
----------- -----------
Net cash provided by financing activities......... 469,630 19,175,146
----------- -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS................. (81,803) 1,751,095
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................. $ 1,503,278 $ 1,578,984
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD....................... $ 1,421,475 $ 3,330,079
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the period for --
Interest.................................................. $ 411,731 $ 885,569
Income taxes.............................................. $ 11,049 $ 58,017
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Long-term debt incurred for the purchase of property and
equipment................................................. $ -- $ 73,256
Accounts payable incurred for the purchase of property and
equipment................................................. $ 13,347 $ --
Common Stock issued for Director fees....................... $ 25,582 $ --
Accounts payable from interest on long-term debt............ $ -- $ 155,799
</TABLE>

The accompanying notes are an integral part of these Financial Statements
F-6
<PAGE> 70

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............................... 40.4%
North Coast Energy/Capital 1987-2 Appalachian Drilling
Program Limited Partnership............................... 38.9%
North Coast Energy/Capital 1988-1 Appalachian Drilling
Program Limited Partnership............................... 35.1%
North Coast Energy/Capital 1988-2 Appalachian Drilling
Program Limited Partnership............................... 41.7%
North Coast Energy 1989 Appalachian Drilling Program Limited
Partnership............................................... 31.6%
North Coast Energy 1990-1 Appalachian Drilling Program
Limited Partnership....................................... 29.4%
North Coast Energy 1990-2 Appalachian Drilling Program
Limited Partnership....................................... 28.9%
North Coast Energy 1990-3 Appalachian Drilling Program
Limited Partnership....................................... 25.0%
North Coast Energy 1991-1 Appalachian Drilling Program
Limited Partnership....................................... 28.4%
North Coast Energy 1991-2 Appalachian Drilling Program
Limited Partnership....................................... 25.6%
North Coast Energy 1991-3 Appalachian Drilling Program
Limited Partnership....................................... 28.9%
North Coast Energy 1992-1 Appalachian Drilling Program
Limited Partnership....................................... 25.0%
North Coast Energy 1992-2 Appalachian Drilling Program
Limited Partnership....................................... 27.8%
North Coast Energy 1992-3 Appalachian Drilling Program
Limited Partnership....................................... 39.5%
North Coast Energy 1993-1 Appalachian Drilling Program
Limited Partnership....................................... 32.6%
North Coast Energy 1993-2 Appalachian Drilling Program
Limited Partnership....................................... 31.7%
North Coast Energy 1993-3 Appalachian Drilling Program
Limited Partnership....................................... 30.0%
North Coast Energy 1994-1 Appalachian Drilling Program
Limited Partnership....................................... 31.4%
</TABLE>

F-7
<PAGE> 71
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
North Coast Energy 1994-2 Appalachian Drilling Program
Limited Partnership....................................... 25.0%
North Coast Energy 1994-3 Appalachian Drilling Program
Limited Partnership....................................... 25.0%
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%
</TABLE>

All significant intercompany accounts and transactions have been
eliminated.

NOTE 2. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
MARCH 31, 1998 SEPTEMBER 30, 1998
-------------- ------------------
<S> <C> <C>
Revolving credit notes payable -- bank............. $6,565,265 $21,027,635
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 48,518
Mortgage note payable to a bank, secured by land
and a building, requiring monthly payments of
approximately $5,248 (including interest at
8.58%)........................................ 507,404 497,808
Various installment notes payable, in aggregate
monthly installments (including interest of
$6,860 at March 31, 1998 and $9,031 at
September 30, 1998)........................... 134,095 170,812
---------- -----------
7,259,335 21,744,773
Less current portion............................... 88,300 72,300
---------- -----------
$7,171,035 $21,672,473
========== ===========
</TABLE>

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
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 September
30, 1998), as defined. At September 30, 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 September 30, 1998 were $3,822,365
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 Bank is currently performing its semi-annual borrowing base review,
and preliminary discussions indicate that the Company's Credit Facility will be
continued without payment of principal until January 1, 2001. Therefore, the
debt has been reflected in the financial statements as long-term.

F-8
<PAGE> 72
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 8.25% at September 30, 1997 and September 30, 1998,
respectively. The agreement requires the company to pay a commitment fee of .5%
on the unused amount of the 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 September 30, 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>
SEPTEMBER
MARCH 31, 30,
1998 1998
--------- ---------
<S> <C> <C>
Billings on uncompleted contracts........................... $335,920 $ --
Costs incurred on uncompleted contracts..................... 33,039 --
-------- --------
$302,881 $ --
======== ========
</TABLE>

At September 30, 1998, all contracts were completed.

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 September 30, 1998, the Company has committed to fund certain costs of
the North Coast Energy Appalachian Drilling Programs estimated to be
approximately $118,000 for tangible well equipment and pipeline construction.

NOTE 5. PREFERRED DIVIDENDS

On September 30, 1998, the Company paid a dividend of $58,466 on the
cumulative convertible Series B preferred stock. For purposes of computing
earnings per share for the six months ended September 30, 1998, dividends paid
and in arrears on the cumulative convertible Series B preferred stock were
$125,532. Cumulative dividends in arrears on the cumulative convertible Series B
preferred stock are $375,570 at September 30, 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. 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 with the ability of NUON to appoint
additional directors at the Company's next 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.

F-9
<PAGE> 73
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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>
SEPTEMBER 30, 1997
PRO FORMA
------------------
(UNAUDITED)
<S> <C>
TOTAL REVENUES.............................................. $5,781,140
COSTS AND EXPENSES.......................................... 4,529,154
INCOME FROM OPERATIONS...................................... 1,251,986
OTHER EXPENSES.............................................. 1,308,967
NET LOSS.................................................... $ (56,981)
==========
NET LOSS, applicable to common stock (after preferred stock
dividends paid or in arrears of $134,132)................. $ (191,113)
==========
BASIC AND DILUTED EARNINGS, per common share................ $ (0.01)
==========
WEIGHTED AVERAGE SHARES, outstanding........................ 16,499,595
==========
</TABLE>

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.

F-10
<PAGE> 74

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... F-12
FINANCIAL STATEMENTS:
Consolidated balance sheets............................... F-13
Consolidated statements of operations..................... F-14
Consolidated statements of stockholders' equity........... F-15
Consolidated statements of cash flows..................... F-16
Notes to consolidated financial statements................ F-18
</TABLE>

All other financial statement schedules have been appropriately omitted if
the information is not required or is furnished in the financial statements or
in the notes thereto.
F-11
<PAGE> 75

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
NORTH COAST ENERGY, INC.:

We have audited the accompanying consolidated balance sheets of North Coast
Energy, Inc. (a Delaware corporation) and Subsidiaries as of March 31, 1997 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three fiscal years in the period ended
March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North Coast Energy, Inc. and
Subsidiaries as of March 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
March 31, 1998, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Cleveland, Ohio,
June 4, 1998.

F-12
<PAGE> 76

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 1997 AND 1998

<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents...................................... $ 1,503,278 $ 1,578,984
Accounts receivable-
Trade, net............................................. 1,306,577 1,311,714
Affiliates............................................. 81,456 96,011
Inventories............................................... 200,971 189,223
Deferred income taxes..................................... 26,000 26,000
Refundable income taxes................................... 50,000 38,000
Other, net................................................ 8,488 8,057
----------- -----------
Total current assets.............................. 3,176,770 3,247,989
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Land...................................................... 93,437 93,437
Oil and gas properties (successful efforts)............... 24,290,505 25,754,748
Pipelines................................................. 4,158,204 4,380,772
Vehicles.................................................. 348,825 420,026
Furniture and fixtures.................................... 501,049 508,417
Building and improvements................................. 788,419 786,689
----------- -----------
30,180,439 31,944,089
Less -- Accumulated depreciation, depletion, amortization
and impairment......................................... (12,279,402) (13,155,288)
----------- -----------
17,901,037 18,788,801
OTHER ASSETS, net........................................... 150,893 274,726
----------- -----------
$21,228,700 $22,311,516
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 108,900 $ 88,300
Accounts payable.......................................... 1,952,863 1,824,740
Accrued expenses.......................................... 320,255 250,073
Billings in excess of costs on uncompleted contracts...... 469,361 302,881
----------- -----------
Total current liabilities......................... 2,851,379 2,465,994
----------- -----------
LONG-TERM DEBT, net of current portion...................... 10,720,510 7,171,035
DEFERRED INCOME TAXES, net.................................. 347,200 335,200
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A, 6% Noncumulative Convertible Preferred stock,
par value $.01 per share; 563,270 shares authorized;
76,951 and 75,481 issued and outstanding (aggregate
liquidation value of $769,510 and $754,810,
respectively).......................................... 770 755
Series B, Cumulative Convertible Preferred stock, par
value $.01 per share; 625,000 shares authorized;
269,464 and 268,264 issued and outstanding (aggregate
liquidation value of $2,694,640 and $2,682,640,
respectively).......................................... 2,695 2,683
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; 10,753,895 and 16,612,931 issued and
outstanding............................................ 107,539 166,129
Additional paid-in capital................................ 12,083,196 16,859,237
Retained deficit.......................................... (4,884,589) (4,689,517)
----------- -----------
Total stockholders' equity........................ 7,309,611 12,339,287
----------- -----------
$21,228,700 $22,311,516
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.
F-13
<PAGE> 77

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Oil and gas production............................. $ 2,848,610 $3,137,556 $3,013,929
Drilling revenues.................................. 5,490,364 3,783,630 2,988,371
Well operating, transportation and other........... 1,610,469 1,859,806 1,622,608
Administrative and agency fees..................... 911,053 883,997 965,724
----------- ---------- ----------
10,860,496 9,664,989 8,590,632
----------- ---------- ----------
COSTS AND EXPENSES:
Oil and gas production expenses.................... 796,530 777,163 840,346
Drilling costs..................................... 4,160,788 2,876,615 2,516,588
Oil and gas operations............................. 881,025 976,943 652,672
General and administrative expenses................ 2,878,762 2,307,994 2,215,961
Depreciation, depletion, amortization, impairment
and other....................................... 3,298,359 1,385,570 1,242,200
Abandonment of oil and gas properties.............. 60,506 73,528 88,947
----------- ---------- ----------
12,075,970 8,397,813 7,556,714
----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS........................ (1,215,474) 1,267,176 1,033,918
----------- ---------- ----------
OTHER INCOME:
Interest........................................... 63,063 47,491 62,263
Other.............................................. 14,429 52,892 3,690
Gain on sale of property and equipment............. 18,295 -- 1,609
----------- ---------- ----------
95,787 100,383 67,562
----------- ---------- ----------
OTHER EXPENSE:
Interest........................................... 772,731 1,055,409 839,342
Loss on sale of property and equipment............. -- 20,400 --
----------- ---------- ----------
772,731 1,075,809 839,342
----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.................... (1,892,418) 291,750 262,138
PROVISION (CREDIT) FOR INCOME TAXES:
Current............................................ (83,100) (5,100) 12,000
Deferred........................................... (554,900) 5,100 (12,000)
----------- ---------- ----------
(638,000) -- --
----------- ---------- ----------
NET INCOME (LOSS).................................... $(1,254,418) $ 291,750 $ 262,138
=========== ========== ==========
NET LOSS APPLICABLE TO COMMON STOCK (after Preferred
stock dividends paid or in arrears of $649,864,
$458,606 and $268,264 in 1996, 1997 and 1998,
respectively)...................................... $(1,904,282) $ (166,856) $ (6,126)
=========== ========== ==========
NET LOSS PER SHARE (basic and diluted)............... $ (0.24) $ (0.02) $ (0.00)
=========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 78

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- ---------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------- --------- ------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
MARCH 31, 1995....... 309,460 $3,095 464,665 $4,647 8,030,352 $ 80,304 $12,083,024 $(2,948,183)
Net loss............. -- -- -- -- -- -- -- (1,254,418)
Shares converted..... (4,260) (43) -- -- 9,796 98 (55) --
Dividends on Series A
Preferred stock
($0.60 per
share)............. -- -- -- -- -- -- -- (185,199)
Dividends on Series B
Preferred stock
($1.00 per
share)............. -- -- -- -- -- -- -- (464,665)
--------- ------- --------- ------- ----------- -------- ----------- -----------
BALANCE,
MARCH 31, 1996....... 305,200 3,052 464,665 4,647 8,040,148 80,402 12,082,969 (4,852,465)
Net income........... -- -- -- -- -- -- -- 291,750
Shares converted..... (228,249) (2,282) (195,201) (1,952) 2,713,747 27,137 227 --
Dividends on Series A
Preferred stock
($.30 per share)... -- -- -- -- -- -- -- (91,542)
Dividends on Series B
Preferred stock
($.50 per share)... -- -- -- -- -- -- -- (232,332)
--------- ------- --------- ------- ----------- -------- ----------- -----------
BALANCE,
MARCH 31, 1997....... 76,951 770 269,464 2,695 10,753,895 107,539 12,083,196 (4,884,589)
Net income........... -- -- -- -- -- -- -- 262,138
Shares converted..... (1,470) (15) (1,200) (12) 16,616 166 56 --
Dividends on Series B
Preferred stock
($.25 per share)... -- -- -- -- -- -- -- (67,066)
Issuance of common
stock.............. -- -- -- -- 5,825,720 58,257 4,765,716 --
Issuance of stock
bonus common
shares............. -- -- -- -- 16,700 167 10,269 --
--------- ------- --------- ------- ----------- -------- ----------- -----------
BALANCE,
MARCH 31, 1998....... 75,481 $ 755 268,264 $2,683 16,612,931 $166,129 $16,859,237 $(4,689,517)
========= ======= ========= ======= =========== ======== =========== ===========

TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE,
MARCH 31, 1995....... $ 9,222,887
Net loss............. (1,254,418)
Shares converted..... --
Dividends on Series A
Preferred stock
($0.60 per
share)............. (185,199)
Dividends on Series B
Preferred stock
($1.00 per
share)............. (464,665)
------------
BALANCE,
MARCH 31, 1996....... 7,318,605
Net income........... 291,750
Shares converted..... 23,130
Dividends on Series A
Preferred stock
($.30 per share)... (91,542)
Dividends on Series B
Preferred stock
($.50 per share)... (232,332)
------------
BALANCE,
MARCH 31, 1997....... 7,309,611
Net income........... 262,138
Shares converted..... 195
Dividends on Series B
Preferred stock
($.25 per share)... (67,066)
Issuance of common
stock.............. 4,823,973
Issuance of stock
bonus common
shares............. 10,436
------------
BALANCE,
MARCH 31, 1998....... $ 12,339,287
============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 79

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $(1,254,418) $ 291,750 $ 262,138
Adjustments to reconcile net income (loss) to net
cash provided by operating activities-
Depreciation, depletion, amortization,
impairment and other...................... 3,298,359 1,385,570 1,242,200
Abandonment of oil and gas properties........ 60,506 73,528 88,947
Loss (gain) on sale of property and
equipment................................. (18,295) 20,400 (1,609)
Deferred income taxes........................ (554,900) 5,100 (12,000)
Change in-
Accounts receivable....................... 213,970 49,561 (19,692)
Inventories and other current assets...... 118,979 (102,127) 12,179
Refundable income taxes................... (115,000) 65,000 12,000
Other assets, net......................... 88,129 23,109 (109,154)
Accounts payable.......................... (997,350) (521,662) (62,667)
Accrued expenses.......................... (143,417) 39,690 (70,182)
Billings in excess of costs on uncompleted
contracts............................... 352,467 (167,986) (166,480)
----------- ----------- -----------
Total adjustments......................... 2,303,448 870,183 913,542
----------- ----------- -----------
Net cash provided by operating
activities.............................. 1,049,030 1,161,933 1,175,680
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (3,389,274) (2,025,561) (2,124,052)
Proceeds on sale of property and equipment........ 12,253 198,669 2,000
----------- ----------- -----------
Net cash used for investing activities.... (3,377,021) (1,826,892) (2,122,052)
----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 80

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of accounts payable used to finance
property and equipment additions............... $ (236,422) $ (70,964) $ (87,161)
Borrowings under revolving credit facility........ 3,800,000 2,080,000 6,765,265
Borrowings (repayments) under note payable to
stockholder.................................... 1,064,000 84,883 (1,453,674)
Repayment of borrowings under revolving credit
facility....................................... (2,290,003) (1,000,000) (8,840,000)
Payments on long-term debt........................ (127,278) (140,656) (106,698)
Cash paid for deferred financing.................. (47,354) (12,900) (88,223)
Proceeds from issuance of long-term debt.......... -- -- 65,031
Net proceeds from issuance of common stock........ -- -- 4,834,604
Distributions and dividends....................... (649,864) (323,874) (67,066)
----------- ----------- -----------
Net cash provided by financing
activities.............................. 1,513,079 616,489 1,022,078
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS......... (814,912) (48,470) 75,706
CASH AND EQUIVALENTS AT BEGINNING OF YEAR........... 2,366,660 1,551,748 1,503,278
----------- ----------- -----------
CASH AND EQUIVALENTS AT END OF YEAR................. $ 1,551,748 $ 1,503,278 $ 1,578,984
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest....................................... $ 716,000 $ 1,032,000 $ 887,000
Income taxes................................... 30,000 52,000 51,000
SUPPLEMENTAL DISCLOSURES ON NONCASH INVESTING AND
FINANCING ACTIVITIES:
Long-term debt incurred for the purchase of
property and equipment......................... $ 91,000 $ 638,000 $ 65,000
Accounts payable incurred for the purchase of
property and equipment......................... 71,000 87,000 22,000
Accounts payable from interest on long-term
debt........................................... 64,000 85,000 44,000
Accounts payable incurred for deferred
financing...................................... -- -- 88,000
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE> 81

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1996, 1997 AND 1998

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

A. ORGANIZATION

North Coast Energy, Inc. (North Coast), a Delaware corporation, was formed
in August 1988 to engage in the exploration, development and production of oil
and gas, the acquisition of producing oil and gas properties, and the
organization and management of oil and gas partnerships.

B. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of North Coast
Energy, Inc. and its wholly owned subsidiaries (collectively, 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 is 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............................... 40.4%
North Coast Energy/Capital 1987-2 Appalachian Drilling
Program Limited Partnership............................... 38.9%
North Coast Energy/Capital 1988-1 Appalachian Drilling
Program Limited Partnership............................... 35.1%
North Coast Energy/Capital 1988-2 Appalachian Drilling
Program Limited Partnership............................... 41.7%
North Coast Energy/Capital 1989 Appalachian Drilling Program
Limited Partnership....................................... 31.6%
North Coast Energy 1990-1 Appalachian Drilling Program
Limited Partnership....................................... 29.4%
North Coast Energy 1990-2 Appalachian Drilling Program
Limited Partnership....................................... 28.9%
North Coast Energy 1990-3 Appalachian Drilling Program
Limited Partnership....................................... 25.0%
North Coast Energy 1991-1 Appalachian Drilling Program
Limited Partnership....................................... 28.4%
North Coast Energy 1991-2 Appalachian Drilling Program
Limited Partnership....................................... 25.6%
North Coast Energy 1991-3 Appalachian Drilling Program
Limited Partnership....................................... 28.9%
North Coast Energy 1992-1 Appalachian Drilling Program
Limited Partnership....................................... 25.0%
North Coast Energy 1992-2 Appalachian Drilling Program
Limited Partnership....................................... 27.8%
North Coast Energy 1992-3 Appalachian Drilling Program
Limited Partnership....................................... 39.5%
North Coast Energy 1993-1 Appalachian Drilling Program
Limited Partnership....................................... 32.6%
North Coast Energy 1993-2 Appalachian Drilling Program
Limited Partnership....................................... 31.7%
North Coast Energy 1993-3 Appalachian Drilling Program
Limited Partnership....................................... 30.0%
North Coast Energy 1994-1 Appalachian Drilling Program
Limited Partnership....................................... 31.4%
North Coast Energy 1994-2 Appalachian Drilling Program
Limited Partnership....................................... 25.0%
North Coast Energy 1994-3 Appalachian Drilling Program
Limited Partnership....................................... 25.0%
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%
</TABLE>

All significant intercompany accounts and transactions have been
eliminated.

F-18
<PAGE> 82
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

C. CASH EQUIVALENTS

Investments having an original maturity of 90 days or less that are readily
convertible into cash have been included in, and are a significant portion of,
the cash and equivalents balances.

D. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated or depleted
principally on methods and at rates designed to amortize their costs over their
estimated useful lives (proved oil and gas properties using the unit-of-
production method based upon estimated proved developed oil and gas reserves,
pipelines using the straight-line method over 10 to 14 years, vehicles,
furniture and fixtures using accelerated methods over 5 to 7 years, building and
improvements using accelerated methods over 31.5 years).

E. OIL AND GAS INVESTMENTS AND PROPERTIES

The Company uses the successful efforts method of accounting for oil and
gas producing activities. Under successful efforts, costs to acquire mineral
interests in oil and gas properties, to drill and equip exploratory wells that
find proved reserves, and to drill and equip development wells are capitalized.

Costs to drill exploratory wells that do not find proved reserves, costs of
development wells on properties the Company has no further interest in,
geological and geophysical costs, and costs of carrying and retaining unproved
properties are expensed.

Unproved oil and gas properties that are significant are periodically
assessed for impairment of value and a loss is recognized at the time of
impairment by providing an impairment allowance. Other unproved properties are
expensed when surrendered or expired.

When a property is determined to contain proved reserves, the capitalized
costs of such properties are transferred from unproved properties to proved
properties and are amortized by the unit-of-production method based upon
estimated proved developed reserves. To the extent that capitalized costs of
groups of proved properties having similar characteristics exceed the estimated
future net cash flows, the excess capitalized costs are written down to such
amounts. Impairment is recorded on a drilling program or property specific
basis, as applicable.

On sale or abandonment of an entire interest in an unproved property, gain
or loss is recognized, taking into consideration the amount of any recorded
impairment if the property had been assessed. If a partial interest in an
unproved property is sold, the amount received is treated as a reduction of the
cost of the interest retained.

F. REVENUE RECOGNITION

The Company recognizes revenue on drilling contracts using the completed
contract method of accounting for both financial reporting purposes and income
tax purposes. This method is used because the typical contract is completed in
three months or less and financial position and results of operations do not
vary significantly from those which would result from use of the
percentage-of-completion method.

Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Billings in excess of costs on
uncompleted contracts are classified as current liabilities.

Oil and gas production revenue is recognized as income as it is extracted
and sold from the properties. Other revenue is recognized at the time it is
earned and the Company has a contractual right to such revenue.

G. PER SHARE AMOUNTS

The computation of basic and diluted earnings per share for 1996, 1997 and
1998 does not assume the conversion of the unconverted Series A and B Preferred
stock or the effect of warrants and stock options
F-19
<PAGE> 83
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding due to a calculated loss (after dividends) being incurred in each
period and the effect, therefore, being anti-dilutive.

The average number of outstanding shares used in computing both basic and
diluted net loss per share was 8,033,642, 8,240,776 and 14,106,492, for the
years ended March 31, 1996, 1997 and 1998, respectively.

H. RISK FACTORS

The Company operates in an environment with many financial risks,
including, but not limited to, its limited history of profitable operations, the
ability to acquire additional economically recoverable oil and gas reserves, the
continued ability to market drilling programs, the inherent risks of the search
for development of and production of oil and gas, the ability to sell oil and
gas at prices which will provide attractive rates of return, and the highly
competitive nature of the industry and worldwide economic conditions. The
Company's ability to expand its reserve base, diversify its operations and
continue its marketing efforts for and investments in drilling programs is also
dependent upon the Company's ability to obtain the necessary capital through
operating cash flow, additional borrowings or additional equity funds.

In the event that available borrowings under the Credit Facility are not
sufficient or additional financing cannot be obtained, the Company would be
required to continue its current efforts to conserve cash resources. In order to
accomplish this objective, the Company believes that it would be necessary to
take various actions, including reducing the amount of capital raised in future
Drilling Programs, the introduction of additional cost cutting measures and the
possible sale of certain assets.

I. ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

J. FINANCIAL INSTRUMENTS

The Company's financial instruments include cash and equivalents, accounts
receivable, accounts payable and debt obligations. The book value of cash and
equivalents, accounts receivable and payable are considered to be representative
of fair value because of the short maturity of these instruments. The Company
believes that the carrying value of its borrowings under its bank credit
facility and other debt obligations approximates their fair value as they bear
interest at adjustable interest rates which change periodically to reflect
market conditions. The Company's accounts receivable are concentrated in the oil
and gas industry. The Company does not view such a concentration as an unusual
credit risk.

2. BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS:

Billings in excess of costs on uncompleted contracts consist of the
following at March 31:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Billings on uncompleted contracts.................... $738,554 $335,920
Costs incurred on uncompleted contracts 269,193 33,039
======== ========
$469,361 $302,881
======== ========
</TABLE>

F-20
<PAGE> 84
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. LEASE COMMITMENTS:

The Company leases real and personal property under operating leases. The
most significant obligations under these lease agreements were for annual
building rentals, which included standard maintenance and insurance. Total
rental expense under the operating leases for the years ended March 31, 1996,
1997 and 1998, amounted to approximately $82,000, $43,000 and $6,000,
respectively. In 1996 and 1997, rent expense of approximately $65,000, and
$34,000, respectively, was incurred pursuant to the lease of the Company's
previous corporate headquarters from one of the Company's principal
stockholders.

The Company currently has no noncancelable operating leases which require
future minimum rental payments.

4. LONG-TERM DEBT:

Long-term debt consists of the following at March 31:

<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Revolving credit notes payable -- bank...................... $ 8,640,000 $6,565,265
Notes payable to stockholder with interest at prime plus 1%
and 8%, repaid in 1998.................................... 1,453,674 --
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....... 60,216 52,571
Mortgage note payable to a bank, secured by land and a
building, requiring monthly payments of approximately
$5,248 (including interest at 8.58%) through May 2001.
Thereafter the balance of the note will be amortized over
a ten-year period, at an interest rate to be renegotiated
every five years.......................................... 524,033 507,404
Various installment notes payable in aggregate monthly
installments (including interest) of $6,860 at March 31,
1998, through 2003........................................ 151,487 134,095
----------- ----------
10,829,410 7,259,335
Less -- Current portion..................................... 108,900 88,300
----------- ----------
$10,720,510 $7,171,035
=========== ==========
</TABLE>

The Company has a $20,000,000 revolving credit agreement with its lender at
March 31, 1998. The Agreement 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 ($290,000 at March 31,
1998), as defined. At March 31, 1998, the Company's borrowing base was
$10,000,000 subject to reduction for the outstanding letters of credit.
Available borrowings under the facility at March 31, 1998 were $3,144,735 and
may subsequently change based upon the semiannual reserve study and borrowing
base determination. Subsequent to year end, the availability decreased and
borrowing base increased in conjunction with the Kelt Ohio Acquisition (Note
14).

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.

Amounts outstanding under the reducing revolving line of credit bear
interest at the lending bank's prime rate plus 1% or LIBOR plus 2.75%, or
approximately 10% and 8.5% at March 31, 1997 and 1998, respectively. The
weighted average interest rate on these borrowings was 9.9% and 10.1% for fiscal
1997 and 1998, respectively. The agreement requires the Company to pay a
commitment fee of .5% on the unused amount of the available borrowings. The
agreement contains certain restrictive covenants, including working capital,
current

F-21
<PAGE> 85
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ratio, tangible net worth, and EBITDA calculations, as defined. The Company was
in compliance with all covenants and restrictions at March 31, 1998.

Future maturities of long-term debt for the years ended March 31, are as
follows:

<TABLE>
<S> <C>
Fiscal 1999.......................................... $ 88,300
Fiscal 2000.......................................... 1,041,671
Fiscal 2001.......................................... 1,371,413
Fiscal 2002.......................................... 1,369,197
Fiscal 2003.......................................... 1,368,345
Thereafter........................................... 2,020,409
----------
$7,259,335
==========
</TABLE>

The carrying amount of the Company's long-term debt approximates fair
value, as primarily all of the Company's debt instruments carry adjustable
interest rates which change periodically to reflect market conditions.

5. STOCKHOLDERS' EQUITY:

In September, 1997, the Company sold 5,747,127 shares of its common stock
for $5,000,000 to NUON International (NUON), pursuant to the terms of a stock
purchase agreement (NUON Agreement). Under the terms of the NUON Agreement, and
subject to the satisfaction of certain conditions, as defined, NUON may purchase
an additional 5,747,127 shares of common stock by each of September 30, 1998 and
September 30, 1999. Proceeds from the sale of common stock were utilized to
repay notes payable to a stockholder, reduce the amount outstanding under the
revolving credit facility and for working capital purposes.

A. PREFERRED STOCK

The Board of Directors of North Coast has designated 563,270 shares of the
2,000,000 shares of preferred stock authorized as Series A, 6% Convertible
Noncumulative Preferred stock (Series A Preferred stock) and 625,000 shares of
preferred stock as Series B, Cumulative Convertible Preferred stock (Series B
Preferred stock).

Stockholders of Series A Preferred stock are entitled to vote such shares
on any and all matters submitted to a vote of the stockholders of the Company
based upon the number of votes such stockholders would have if the Series A
Preferred stock been converted into shares of common stock of the Company.
Holders of shares of Series A Preferred stock are entitled to receive, when and
if declared by the Board of Directors, noncumulative cash dividends at an annual
rate of $.60 per share. Shares of Series A Preferred stock are senior to shares
of common stock with respect to such cash dividends and junior to shares of
Series B Preferred stock.

Series A Preferred stock is convertible, at the stockholder's option, into
shares of common stock at the conversion rate of 2.3 shares of common stock for
each share of Series A Preferred stock converted.

All of the outstanding shares of Series A Preferred stock shall, at the
option of North Coast, be converted into shares of common stock pursuant to an
effective registration statement, as defined.

In the case where North Coast issues warrants or rights to purchase shares
of common stock of the Company, each record holder of outstanding shares of
Series A Preferred stock will receive the kind and amount

F-22
<PAGE> 86
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of such warrants or rights so issued which such holder would have been entitled
to upon such issuance had all of the holders of shares of Series A Preferred
stock been converted, as defined.

The Series A Preferred stock is redeemable at the option of North Coast at
a price of $10 per share. North Coast does not have any obligation to redeem the
Series A Preferred stock.

In the event of a voluntary or involuntary liquidation, dissolution or
winding up of North Coast, holders of the Series A Preferred stock are entitled
to be paid $10 per share out of the assets of North Coast but after payment of
other indebtedness of North Coast, after payment or distribution to the holders
of Series B Preferred stock, but prior to any distribution to holders of the
common stock.

Holders of shares of Series B Preferred stock are entitled to receive,
when, as and if declared by the Board of Directors cash dividends at an annual
rate of $1.00 per share, payable quarterly.

In the event of any liquidation, dissolution or winding up of the Company,
holders of shares of Series B Preferred stock are entitled to receive the
liquidation preference of $10 per share, plus an amount equal to any accrued and
unpaid dividends to the payment date, before any payment or distribution is made
to the holders of common stock and Series A Preferred stock, as defined. After
payment of the liquidation preference, the holders of such shares will not be
entitled to any further participation in any distribution of assets by the
Company.

Each outstanding share of Series B Preferred stock will be entitled to one
vote, excluding shares held by the Company or any entity controlled by the
Company, which shares shall have no voting rights.

Whenever distributions on the Series B Preferred stock have not been paid,
as defined, the number of directors of the Company may be increased, and the
holders of the Series B will be entitled to elect such additional directors to
the Board of Directors, as defined. Such voting right will terminate when all
such distributions accrued and in default have been paid in full or set apart
for payment, as defined. The amount of dividends in arrears attributable to
Series B preferred is $335,330 as of March 31, 1998.

Effective December 18, 1995, the Series B Preferred stock was redeemable at
the option of the Company, at $10 per share plus any accrued and unpaid
dividends, as defined.

There is no mandatory redemption or sinking fund obligation with respect to
the Series B Preferred stock. In the event that the Company has failed to pay
accrued dividends on the Series B Preferred stock, it may not redeem any of the
outstanding shares of the Series B Preferred stock until all such accrued and
unpaid distributions have been paid in full.

The holders of Series B Preferred stock shall have the right, exercisable
at their option, to convert any or all of such shares into 6.47 shares of common
stock.

In fiscal 1997, the Company commenced a conversion offer to its preferred
shareholders (Series A and B) to convert their shares into common stock with
additional shares offered as an incentive. Following the termination of the
conversion offer in fiscal 1997, 223,159 shares of preferred Series A were
tendered and exchanged for 1,115,795 shares of common stock and 195,201 shares
of preferred Series B were tendered and exchanged for 1,561,608 shares of common
stock.

F-23
<PAGE> 87
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents unaudited, pro forma operating results as if
the stock conversion and the NUON common stock sale had occurred at the
beginning of each period presented.

<TABLE>
<CAPTION>
1997 1998
PRO FORMA PRO FORMA
----------- -----------
<S> <C> <C>
REVENUES................................................ $ 9,664,989 $ 8,590,632
NET INCOME.............................................. 547,981 361,187
NET INCOME APPLICABLE TO COMMON STOCK................... $ 254,709 $ 92,923
WEIGHTED AVERAGE SHARES OUTSTANDING..................... 16,497,101 16,547,053
INCOME PER SHARE -- BASIC AND DILUTED................... $ 0.02 $ 0.01
</TABLE>

The pro forma operating results have been prepared for comparative purposes
only. They do not purport to present actual operating results that would have
been achieved had the conversions and stock sale been made at the beginning of
each period presented or to necessarily be indicative of future results of
operations.

B. COMMON STOCK WARRANTS

Warrants issued in connection with the Series B Preferred stock entitle the
holders thereof to purchase 1.15 shares of common stock with each warrant at a
price of $2.61 per share, as defined. The warrants issued in connection with the
Series B Preferred stock expired on December 18, 1997. There were 2,500,000
Series B warrants outstanding at March 31, 1996 and 1997, respectively.

The Company has granted a shareholder certain warrants to purchase 200,000
shares of common stock at $1.20 per share and 300,000 shares of common stock at
$1.00 per share, as defined. These warrants were exercisable on June 13, 1995
and expire on June 13, 2000 and 1998, respectively. The warrants may be redeemed
by the Company for $.10 per share at its option upon 30 days written notice.

In conjunction with the NUON Agreement, the Company issued NUON warrants to
purchase 134,000 shares of common stock for $.875 per share. The Company is
obligated to issue 134,000 warrants on each occasion NUON purchases an
additional 5,747,127 shares of common stock. These warrants expire in September,
2002.

C. SERIES B UNIT WARRANTS

In connection with the issuance of the Series B Preferred stock, the
underwriter of the issue received 50,000 warrants to purchase Series B Units at
$12.00 per unit. A Series B Unit consists of one share of Series B Preferred
stock, and five warrants to purchase 1.15 shares of common stock at $2.61 per
share. These warrants expired on December 18, 1997 and none of these warrants
were exercised as of March 31, 1998.

D. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

North Coast has a stock option plan (the Option Plan) to provide incentives
to stimulate interest in the development and financial success of the Company.
The Option Plan provides for the granting of stock options to purchase common
stock at an option price determined by North Coast's Compensation Committee (the
Committee). The Committee shall determine the expiration date but no option
shall be exercisable for a period of more than 10 years. The aggregate fair
market value of the common stock exercisable for the first time during any
calendar year shall not exceed $100,000. Options granted under the Option Plan
terminate upon the employee leaving the Company. The Company, from time to time,
may issue additional options outside the plan.

F-24
<PAGE> 88
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock option transactions during 1996, 1997 and 1998 are summarized as
follows:

<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING PRICE RANGE
----------- -----------
<S> <C> <C>
March 31, 1995............................................. 553,369
Options granted............................................ 10,000 $ .94
Options canceled........................................... (63,538) $.98-$2.17
--------
March 31, 1996............................................. 499,831
Options exercised.......................................... (100) $ .78
Options granted............................................ 18,100 $ .78
Options canceled........................................... (4,475) $.78-$1.38
--------
March 31, 1997............................................. 513,356
Options exercised.......................................... (250) $ .78
Options canceled........................................... (206,368) $.78-$4.91
--------
March 31, 1998............................................. 306,738
========
</TABLE>

Subsequent to year end, the Company granted 100,000 options to a company
director at $.875 per share.

A summary of stock options outstanding and exercisable at March 31, 1998
follows:

<TABLE>
<CAPTION>
OPTIONS OPTION
EXERCISABLE AT MARCH 31, 1998 THROUGH: OUTSTANDING PRICE
-------------------------------------- ----------- ------
<S> <C> <C>
February 20, 1999.................................... 230,000 $1.52
January 18, 2000..................................... 17,500 $1.62
May 17, 2001......................................... 43,700 $ .98
March 19, 2003....................................... 4,888 $1.38
September 4, 2006.................................... 10,650 $ .78
-------
306,738
=======
</TABLE>

Stock appreciation rights may be awarded by the Committee at the time or
subsequent to the time of the granting of options. Stock appreciation rights
awarded shall provide that the option holder shall have the right to receive an
amount equal to 100% of the excess, if any, of the fair market value of the
shares of common stock covered by the option over the option price payable, as
defined.

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's two stock option
plans been determined based on the fair value at the grant date for awards in
fiscal 1996, 1997 and 1998 consistent with the provisions of SFAS No. 123, the
Company's net loss per share would not change materially.

E. STOCK BONUS PLAN

The Company has a Key Employees Stock Bonus Plan (the Bonus Plan) to
provide key employees, as defined, with greater incentive to serve and promote
the interests of the Company and its shareholders. The aggregate number of
shares of common stock which may be issued as bonuses shall be 230,000 shares of
common stock, as defined. The expenses of administering the Bonus Plan shall be
borne by the Company. The Bonus Plan will terminate on February 1, 2001. The
Company has issued 16,700 shares of common stock related to this plan during
fiscal 1998 and 108,249 shares of common stock since inception.
F-25
<PAGE> 89
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES:

The Company has adopted the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's consolidated financial statements or tax returns.

Income taxes differed from the amount computed by applying the federal
statutory rates to pretax book income as follows:

<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Provision based on the statutory rate............ $(643,000) $ 99,000 $ 89,000
Tax effect of:
Adjustment from prior years...................... 39,000 28,000 12,000
Statutory depletion.............................. (109,000) (143,000) (132,000)
Other -- net..................................... 75,000 16,000 31,000
--------- --------- ---------
Total.................................. $(638,000) $ -- $ --
========= ========= =========
</TABLE>

The components of the net deferred tax liability as of March 31, 1997 and
1998 were as follows:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property and equipment.................................... $(350,000) $(389,000)
Other, net................................................ (56,000) (30,200)
--------- ---------
Total deferred tax liabilities.................... (406,000) (419,200)
--------- ---------
DEFERRED TAX ASSETS:
Alternative minimum tax credit carryforwards.............. 307,000 397,000
Net operating loss carryforwards.......................... -- 640,000
Other financial reserves.................................. 65,000 30,000
Less- Valuation allowance................................. (287,200) (957,000)
--------- ---------
Total deferred tax assets......................... 84,800 110,000
--------- ---------
Net deferred tax liability............................. $(321,200) $(309,200)
========= =========
</TABLE>

The Company has certain alternative minimum tax credit carryforwards and
net operating loss carryforwards which may be available to offset future taxable
income. A valuation allowance has been recorded against these amounts due to
uncertainty as to the Company's ability to realize any future benefit.

7. PROFIT SHARING PLAN:

The Company has a profit sharing plan that provides retirement and death
benefits to participants and covers substantially all employees. Company
contributions are discretionary and are allocated to the participants' accounts
based upon their compensation and are subject to a graded vesting schedule which
allows 20% vesting after two years of vesting service with an additional 20%
vesting for each complete year of vesting service thereafter. Contributions of
approximately $20,000 and $30,000 were accrued or paid for the years ended March
31, 1997 and 1998, respectively.

North Coast provides no significant postretirement and/or postemployment
benefits other than the profit sharing plan discussed above.

F-26
<PAGE> 90
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. OTHER COMMITMENTS AND CONTINGENCIES:

North Coast Energy, Inc., as general partner of several limited
partnerships, has committed to fund certain costs (primarily tangible well costs
and saleslines additions) of the partnerships as they are incurred. At March 31,
1998, management estimates the commitment to fund such costs to be approximately
$876,000. The commitment is expected to be funded by September 30, 1998.

The Company shares in unlimited liability to third parties with respect to
the operations of the partnerships it has sponsored and may be liable to limited
partners for losses attributable to breach of fiduciary obligations. In certain
partnerships, certain investors have participated as co-general partners in such
partnerships. To make such investments more acceptable to potential investors
(from a standpoint of risks to such investors) North Coast has agreed to
indemnify these investor-general partners from any partnership liability which
they may incur in excess of their contributions.

The Company has entered into employment contracts with certain of its
officers that provide for a minimum annual salary and incentives based on the
Company's sales and profitability. The commitment, including minimum incentives,
amounts to $430,000, $430,000 and $330,000, respectively, for the years ending
March 31, 1996, 1997 and 1998 plus CPI adjustments. In addition, each employment
contract provides for: reimbursement of certain business expenses; life
insurance ranging from $500,000 to $1,000,000; disability benefits for a stated
period of time as defined, and termination benefits of between one and three
years' salary.

9. INDUSTRY SEGMENTS AND MAJOR CUSTOMERS:

North Coast and its subsidiaries operate in a single industry segment, the
acquisition, exploration and development of oil and gas properties. North Coast
and its subsidiaries both originate and acquire prospects and drill or cause to
be drilled, such prospects through joint drilling arrangements with other
independent oil companies or through limited partnerships sponsored by the
Company.

The Company's revenue, other than revenue from oil and gas production, is
derived primarily from public and private program partnerships sponsored by the
Company. During 1996, 1997, and 1998 between 35% and 49% of the Company's oil
and gas production revenues were derived from two and/or three significant
purchasers. A significant portion of trade accounts receivable at March 31, 1997
and 1998 was attributable to these purchasers.

10. RECEIVABLES FROM AFFILIATES:

Accounts receivable from affiliates consists primarily of receivables from
the partnerships managed by the Company and are for administrative fees charged
to the partnerships, and to reimburse the Company for amounts paid on behalf of
the partnerships.

11. SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED):

The following supplemental unaudited oil and gas information is required by
Statement of Financial Accounting Standards (SFAS) No. 69, "Disclosures about
Oil and Gas Producing Activities."

F-27
<PAGE> 91
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tables on the following pages set forth pertinent data with respect to
the Company's oil and gas properties, all of which are located within the United
States.

CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Proved oil and gas properties............... $23,769,853 $24,290,505 $25,754,748
Accumulated depreciation, depletion,
amortization and impairment............... (10,392,335) (10,488,719) (10,892,238)
----------- ----------- -----------
Net capitalized costs....................... $13,377,518 $13,801,786 $14,862,510
=========== =========== ===========
</TABLE>

COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Property acquisition costs..................... $ 334,934 $ 124,384 $ 277,742
Exploration costs.............................. 216,595 121,809 194,503
Development costs.............................. 2,584,430 1,477,312 2,149,440
</TABLE>

RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Oil and gas production......................... $2,848,610 $3,137,556 $3,013,929
Gain (loss) on sale of oil and gas
properties................................... 9,766 (26,031) 1,700
Production costs............................... (796,530) (777,163) (840,346)
Exploration expenses........................... (156,089) (121,809) (194,503)
Depreciation, depletion, amortization,
impairment and other......................... (2,550,431) (695,877) (627,636)
Abandonment of oil and gas properties.......... (60,506) (73,528) (88,947)
---------- ---------- ----------
(705,180) 1,443,148 1,264,197
Provision (credit) for income taxes............ (349,000) 347,460 278,123
---------- ---------- ----------
Results of operations for oil and gas producing
activities (excluding corporate overhead and
financing costs)............................. $ (356,180) $1,095,688 $ 986,074
========== ========== ==========
</TABLE>

Provision (credit) for income taxes was computed using the statutory tax
rates for the years ended March 31, 1996, 1997 and 1998 and reflects permanent
differences, including the Partnership's results of operations for oil and gas
producing activities that are reflected in the Company's consolidated income tax
provision (credit) for the periods.

F-28
<PAGE> 92
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES

<TABLE>
<CAPTION>
OIL GAS
(BBLS) (MCF)
-------- ----------
<S> <C> <C>
Balance, March 31, 1995..................................... 419,700 20,234,000
Extensions, discoveries and other additions............... 12,600 4,899,000
Production................................................ (14,100) (1,166,000)
Revision of previous estimates............................ (205,900) (3,299,000)
Sales of minerals in place................................ (17,100) (620,000)
-------- ----------
Balance, March 31, 1996..................................... 195,200 20,048,000
Extensions, discoveries and other additions............... -- 2,267,000
Production................................................ (16,200) (1,153,000)
Revision of previous estimates............................ (58,800) (3,121,000)
Sales of minerals in place................................ -- (1,082,000)
-------- ----------
Balance, March 31, 1997..................................... 120,200 16,959,000
Extensions, discoveries and other additions............... 3,000 1,333,000
Production................................................ (13,900) (1,116,000)
Revision of previous estimates............................ 26,400 1,153,000
Sales of minerals in place................................ -- (527,000)
-------- ----------
Balance, March 31, 1998..................................... 135,700 17,802,000
======== ==========
</TABLE>

<TABLE>
<CAPTION>
OIL GAS
(BBLS) (MCF)
------- ----------
<S> <C> <C>
PROVED DEVELOPED RESERVES:
March 31, 1995............................................ 178,600 15,788,000
March 31, 1996............................................ 151,800 16,303,000
March 31, 1997............................................ 120,200 14,472,000
March 31, 1998............................................ 126,700 15,087,000
</TABLE>

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Future cash inflows from sales of oil and gas.... $ 59,810,000 $ 44,379,000 $ 46,349,000
Future production and development costs.......... (19,992,000) (15,442,000) (15,175,000)
Future income tax expense........................ (12,836,000) (8,145,000) (8,959,000)
------------ ------------ ------------
Future net cash flows............................ 26,982,000 20,792,000 22,215,000
Effect of discounting future net cash flows at
10% per annum.................................. (13,720,000) (10,447,000) (11,557,000)
------------ ------------ ------------
Standardized measure of discounted future net
cash flows..................................... $ 13,262,000 $ 10,345,000 $ 10,658,000
============ ============ ============
</TABLE>

F-29
<PAGE> 93
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CHANGES IN THE STANDARDIZED MEASURE OF
DISCOUNTED FUTURE NET CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year......................... $11,635,000 $13,262,000 $10,345,000
Extensions, discoveries and other additions........ 3,925,000 1,301,000 728,000
Sales of oil and gas, net of production costs...... (2,052,000) (2,355,000) (2,173,000)
Net changes in prices and production costs......... 3,019,000 (3,567,000) 26,000
Revisions of previous quantity estimates........... (2,893,000) (1,477,000) 1,122,000
Sales of minerals in place......................... (158,000) (859,000) (259,000)
Net change in income taxes......................... (1,034,000) 2,257,000 (246,000)
Accretion of discount.............................. 1,163,000 1,326,000 1,035,000
Other.............................................. (343,000) 457,000 80,000
----------- ----------- -----------
Balance, end of year............................... $13,262,000 $10,345,000 $10,658,000
=========== =========== ===========
</TABLE>

Under the guidelines of SFAS No. 69, estimated future cash flows are
determined based on year-end prices for crude oil, current allowable prices
applicable to expected natural gas production, estimated production of proved
crude oil and natural gas reserves, estimated future production and development
costs of reserves based on current economic conditions, and the estimated future
income tax expenses, based on year-end statutory tax rates (with consideration
of true tax rates already legislated) to be incurred on pretax net cash flows
less the tax basis of the properties involved. Such cash flows are then
discounted using a 10% rate.

The estimated quantities of proved oil and gas reserves and standardized
measure of discounted future net cash flows include reserves from proved
undeveloped acreage. The proved undeveloped acreage is included at the working
interest which the Company estimates to retain in the properties, and the
standardized measure was calculated using prices and operating costs and
development costs expected in the area of interest. The quantities for fiscal
1997 and 1998 were reviewed by an independent petroleum engineering firm.

The methodology and assumptions used in calculating the standardized
measure are those required by SFAS No. 69. It is not intended to be
representative of the fair market value of the Company's proved reserves. The
valuation of revenues and costs do not necessarily reflect the amounts to be
received or expended by the Company. In addition to the valuations used,
numerous other factors are considered in evaluating known and prospective oil
and gas reserves.

12. RELATED PARTY TRANSACTIONS:

During fiscal 1997, the Company paid finder's fees to two employees in the
amount of $75,000 each. During fiscal 1998, the Company purchased wells and a
pipeline from a shareholder for $62,000 and purchased 28 wells from an employee
for $339,000.

13. ACCOUNTING STANDARDS:

In fiscal 1996, the Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets." Although the Company in
the past has routinely reviewed its oil and gas properties for impairment, the
Company changed its method of assessing the impairment of the capitalized costs
of oil and gas properties, to a drilling program or property specific basis as
applicable, to comply with the new standard. As a result of adoption, the
Company incurred impairment expense of approximately $1,562,000, on a pretax
basis, for

F-30
<PAGE> 94
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the year ended March 31, 1996. The impairment expense is included in the
depreciation, depletion, amortization, impairment and other caption in the
accompanying consolidated financial statements.

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.

14. SUBSEQUENT EVENT:

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 the Kelt Ohio Acquisition had occurred on April 1, 1997. The
accompanying unaudited pro forma balance sheet information of the Company as of
March 31, 1998 has been prepared as if the transaction had occurred as of that
date.

<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1998
PRO FORMA
--------------
(UNAUDITED)
<S> <C>
REVENUES:
Oil and gas production.................................. $7,169,392
Drilling revenues....................................... 2,988,371
Well operating transportation and other................. 2,088,115
Administrative and agency fees.......................... 965,724
----------
13,211,602
----------
COSTS AND EXPENSES:
Oil and gas production expenses......................... 3,120,954
Drilling costs.......................................... 2,516,588
Oil and gas operations.................................. 652,672
General and administrative expenses..................... 2,339,511
Depreciation, depletion, amortization, impairment and
other................................................ 2,141,389
Abandonment of oil and gas properties................... 88,947
----------
10,860,061
----------
INCOME FROM OPERATIONS.................................... 2,351,541
OTHER INCOME:
Interest................................................ 62,263
Other................................................... 3,690
Gain on sale of property and equipment.................. 1,609
----------
67,562
----------
</TABLE>

F-31
<PAGE> 95
NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1998
PRO FORMA
--------------
(UNAUDITED)
<S> <C>
OTHER EXPENSES:
Interest................................................ 2,448,092
----------
2,448,092
----------
NET LOSS.................................................. $ (28,989)
==========
NET LOSS, applicable to common stock (after preferred
stock dividends paid or in arrears of $268,264 in
1998)................................................... $ (297,253)
==========
BASIC AND DILUTED EARNINGS, per common share.............. $ (0.02)
==========
WEIGHTED AVERAGE SHARES, outstanding...................... 14,106,492
==========
</TABLE>

Balance Sheet Data (at March 31, 1998 unaudited):

<TABLE>
<S> <C>
Cash and equivalents...................................... $ 1,578,984
Total assets.............................................. $39,811,516
Long-term debt............................................ $23,671,035
Stockholders' equity...................................... $12,339,287
</TABLE>

F-32
<PAGE> 96

THE KELT OHIO INTERESTS

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... F-34
FINANCIAL STATEMENTS:
Statements of Revenues and Direct Operating Expenses...... F-35
Notes to Statements of Revenues and Direct Operating
Expenses............................................... F-36
</TABLE>

F-33
<PAGE> 97

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
North Coast Energy, Inc.:

We have audited the accompanying statements of revenues and direct
operating expenses of the Kelt Ohio Interests, as described in Note 1, for the
years ended December 31, 1995, 1996 and 1997. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of revenues and direct
operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of revenues and direct operating expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

The accompanying statements of revenues and direct operating expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion on Form 8-K/A of North Coast
Energy, Inc.), as described in Note 1, and are not intended to be a complete
presentation of the results of operations of the Kelt Ohio Interests.

In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of the Kelt Ohio Interests, as described in Note 1,
for the years ended December 31, 1995, 1996, and 1997, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Cleveland, Ohio
May 7, 1998

F-34
<PAGE> 98

THE KELT OHIO INTERESTS

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997 1998
------------ ------------ ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas production.......... $4,694,922 $4,631,339 $4,038,907 $1,040,305
Transportation.................. 204,934 236,161 439,730 42,786
---------- ---------- ---------- ----------
Total Revenues.......... 4,899,856 4,867,500 4,478,637 1,083,091
Direct operating expenses......... 1,958,076 1,910,663 2,150,311 631,883
---------- ---------- ---------- ----------
Excess of revenues over direct
operating expenses.............. $2,941,780 $2,956,837 $2,328,326 $ 451,208
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 99

THE KELT OHIO INTERESTS

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. GENERAL:

ORGANIZATION

The accompanying statements present the revenues and direct operating
expenses of certain working and other interests in oil and gas properties and
related pipelines owned by Kelt Ohio, Inc. (the "Kelt Ohio Interests") which
were purchased by North Coast Energy, Inc. ("North Coast") in May, 1998. Such
financial statements were derived from the historical records of the predecessor
owner and represent North Coast's interest.

BASIS OF PRESENTATION

The historical financial statements reflecting financial position, results
of operations, and cash flows required by generally accepted accounting
principles are not presented, as such information is neither readily available
on an individual property basis nor meaningful for the Kelt Ohio Interests.
During the periods presented, the Kelt Ohio Interests were not accounted for as
a separate entity. These statements do not include depreciation, depletion and
amortization, general and administrative expenses, interest expense, federal
income tax expenses, or federal income tax credits allowed under Section 29 of
the Internal Revenue Code. These statements have been prepared solely as a
result of the requirements of Section 3.05 of Regulation S-X of the Securities
and Exchange Commission (SEC), for filing by North Coast as a part of the SEC
Form 8-K/A reporting the acquisition of the subject assets. Accordingly, the
accompanying financial statements are not intended to be a complete presentation
of the results of operations of the Kelt Ohio Interests in conformity with
generally accepted accounting principles.

REVENUE RECOGNITION

The Kelt Ohio Interests follows the full-cost method of accounting for its
oil and gas properties. Under this method of accounting, all costs incurred in
the acquisition of oil and gas properties and the exploration for the
development of oil and gas reserves are capitalized. Revenues are recognized
when oil and gas production is sold. Direct operating expenses are accrued when
services are provided.

USE OF ESTIMATES

Management has made a number of estimates and assumptions relating to the
reporting of revenues and direct operating expenses to prepare the accompanying
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

2. SALES TO MAJOR CUSTOMERS:

For the years ended December 31, 1995, 1996 and 1997 one purchaser
accounted for approximately 90% of total revenues, respectively.

3. OIL AND GAS RESERVES INFORMATION (UNAUDITED):

The estimates of the Kelt Ohio Interests in proved oil and gas reserves,
which are located entirely in the United States, are based on evaluations by an
independent petroleum engineer and by Kelt Ohio, Inc. These reserves were
estimated in accordance with guidelines established by the Securities and
Exchange Commission which require that reserve reports be prepared under
existing economic and operating conditions with no provision for price
escalations except by contractual arrangements.

North Coast's management emphasizes that reserve estimates are inherently
imprecise. Accordingly, the estimates are expected to change as future
information becomes available.

F-36
<PAGE> 100
THE KELT OHIO INTERESTS

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES -- (CONTINUED)

The following unaudited table sets forth the estimated proved oil and gas
reserve quantities of the Kelt Ohio Interests at December 31, 1995, 1996 and
1997:

<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
(BBLS) (MCFS)
--------- -----------
<S> <C> <C>
PROVED RESERVES:
Balance, December 31, 1994.................................. 263,400 24,260,000
Production................................................ (34,400) (1,929,000)
Sales..................................................... (35,100) (1,128,000)
Revisions................................................. 23,300 1,513,000
------- ----------
Balance, December 31, 1995.................................. 217,200 22,716,000
Production................................................ (15,600) (1,668,000)
Revisions................................................. 8,400 448,000
------- ----------
Balance, December 31, 1996.................................. 210,000 21,496,000
Production................................................ (11,900) (1,480,000)
Extensions................................................ 30,600 1,084,000
Revisions................................................. 8,200 4,337,000
------- ----------
Balance, December 31, 1997.................................. 236,900 25,437,000
======= ==========
PROVED DEVELOPED RESERVES:
Balance, December 31, 1995................................ 208,500 22,202,000
======= ==========
Balance, December 31, 1996................................ 195,700 20,395,000
======= ==========
Balance, December 31, 1997................................ 213,000 20,664,000
======= ==========
</TABLE>

The "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves" (Standardized Measure) is a disclosure requirement
under Statement of Financial Accounting Standards No. 69. The Standardized
Measure does not purport to present the fair market value of proved oil and gas
reserves. This would require consideration of expected future economic and
operating conditions, which are not taken into account in calculating the
Standardized Measure.

Future net cash flows for the periods presented were derived from the
December 31, 1995, 1996 and 1997 reserve estimates after considering historical
production and drilling activities. December 31, 1995, 1996 and 1997 prices in
the reserve estimates were adjusted for fixed and determinable escalations to
the estimated future production less estimated future production costs based on
period-end costs and future development costs. Future net cash inflows were
discounted using a 10% annual discount rate to arrive at the Standardized
Measure. Future income tax estimates are not included, as the historical tax
basis of the properties is not relevant.

F-37
<PAGE> 101
THE KELT OHIO INTERESTS

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES -- (CONTINUED)

The standardized measure of discounted future net cash flows relating to
proved oil and gas properties is as follows:

<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Future cash inflows................................. $71,339,000 $61,189,000 $74,558,000
Future costs:
Production........................................ 36,466,000 31,410,000 33,730,000
Development....................................... 450,000 711,000 3,750,000
----------- ----------- -----------
36,916,000 32,121,000 37,480,000
----------- ----------- -----------
Undiscounted future net cash flows.................. 34,423,000 29,068,000 37,078,000
10% discount factor................................. 16,458,000 13,860,000 18,685,000
----------- ----------- -----------
Standardized measure................................ $17,965,000 $15,208,000 $18,393,000
=========== =========== ===========
</TABLE>

Changes in standardized measure of discounted future net cash flows from
proved reserve quantities are as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Standardized measure, beginning of year............. 16,676,000 17,965,000 15,208,000
Extensions.......................................... -- -- 2,330,000
Production.......................................... (2,737,000) (2,721,000) (1,889,000)
Sales............................................... (986,000) -- --
Accretion of discount............................... (1,668,000) (1,797,000) (1,521,000)
Revisions of estimates, changes in price and
other............................................. 6,680,000 1,761,000 4,265,000
---------- ---------- ----------
Standardized measure, end of year................... 17,965,000 15,208,000 18,393,000
========== ========== ==========
</TABLE>

F-38
<PAGE> 102

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

PRO FORMA COMBINED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL STATEMENTS..... F-40
FINANCIAL STATEMENTS:
Pro Forma Statements of Operations........................ F-41
Pro Forma Combined Balance Sheet.......................... F-42
Notes to Statements of Revenues and Direct Operating
Expenses............................................... F-43
</TABLE>

F-39
<PAGE> 103

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The accompanying unaudited pro forma combined financial statements give
effect to the purchase by North Coast of certain oil and gas properties from
Kelt Ohio, Inc. (the "Kelt Ohio Acquisition") in May 1998 for approximately $16
million. The unaudited pro forma combined statement of income for the year ended
March 31, 1998 was prepared as if the Kelt Ohio Acquisition had occurred on
April 1, 1997, the beginning of North Coast's fiscal year. The accompanying
unaudited pro forma combined balance sheet as of March 31, 1998 has been
prepared as if the transaction had occurred as of that date which is North
Coast's fiscal year end.

This information is not necessarily indicative of future consolidated
results of operations and it should be read in conjunction with the separate
historical statements and related notes of the respective entities appearing
elsewhere in this Prospectus.

F-40
<PAGE> 104

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED MARCH 31, 1998

<TABLE>
<CAPTION>
NORTH COAST PRO FORMA NORTH COAST
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Oil and gas production.......................... $3,013,929 $4,155,463(a) $7,169,392
Drilling revenues............................... 2,988,371 -- 2,988,371
Well operating transportation and other......... 1,622,608 465,507(a) 2,088,115
Administrative and agency fees.................. 965,724 -- 965,724
---------- ---------- ----------
8,590,632 4,620,970 13,211,602
---------- ---------- ----------
COSTS AND EXPENSES:
Oil and gas production expenses................. 840,346 2,280,608(a) 3,120,954
Drilling costs.................................. 2,516,588 -- 2,516,588
Oil and gas operations.......................... 652,672 -- 652,672
General and administrative expenses............. 2,215,961 123,550(b) 2,339,511
Depreciation, depletion, amortization,
impairment and other......................... 1,242,200 899,189(c,d) 2,141,389
Abandonment of oil and gas properties........... 88,947 -- 88,947
---------- ---------- ----------
7,556,714 3,303,347 10,860,061
---------- ---------- ----------
INCOME FROM OPERATIONS............................ 1,033,918 1,317,623 2,351,541
OTHER INCOME:
Interest........................................ 62,263 -- 62,263
Other........................................... 3,690 -- 3,690
Gain on sale of property and equipment.......... 1,609 -- 1,609
---------- ---------- ----------
67,562 -- 67,562
---------- ---------- ----------
OTHER EXPENSE:
Interest........................................ 839,342 1,608,750(e) 2,448,092
---------- ---------- ----------
839,342 1,608,750 2,448,092
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES................. 262,138 (291,127) (28,989)
PROVISION (CREDIT) FOR INCOME TAXES:
Current......................................... 12,000 -- 12,000
Deferred........................................ (12,000) -- (12,000)
---------- ---------- ----------
NET INCOME (LOSS)................................. $ 262,138 $ (291,127) $ (28,989)
========== ========== ==========
NET LOSS, applicable to common stock (after
preferred stock dividends paid or in arrears of
$268,264 in 1998)............................... $ (6,126) $ (291,127) $ (297,253)
========== ========== ==========
BASIC AND DILUTED EARNINGS, per common share...... $ (0.00) $ (0.02)
========== ==========
BASIC WEIGHTED AVERAGE SHARES, outstanding........ 14,106,492 14,106,492
========== ==========
</TABLE>

See notes to pro forma combined financial statements
F-41
<PAGE> 105

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

PRO FORMA COMBINED BALANCE SHEET

MARCH 31, 1998

<TABLE>
<CAPTION>
NORTH COAST PRO FORMA NORTH COAST
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets--
Cash and equivalents.......................... $ 1,578,984 $ $ 1,578,984
Accounts receivable--
Trade, net.................................. 1,311,714 -- 1,311,714
Affiliates.................................. 96,011 -- 96,011
Inventories................................... 189,223 -- 189,223
Deferred income taxes......................... 26,000 -- 26,000
Refundable income taxes....................... 38,000 -- 38,000
Other, net.................................... 8,057 206,000(f) 214,057
----------- ----------- -----------
Total current assets..................... 3,247,989 206,000 3,453,989
----------- ----------- -----------
Property and equipment, at cost:
Land.......................................... 93,437 -- 93,437
Oil and gas properties........................ 25,754,748 12,828,650(f) 38,583,398
Pipelines..................................... 4,380,772 1,800,000(f) 6,180,772
Vehicles...................................... 420,026 278,350(f) 698,376
Disposal wells and drilling equipment......... -- 778,000(f) 778,000
Furniture and fixtures........................ 508,417 -- 508,417
Buildings and improvements.................... 786,689 -- 786,689
----------- ----------- -----------
31,944,089 15,685,000 47,629,089
Less -- Accumulated depreciation, depletion,
amortization and impairment................... (13,155,288) -- (13,155,288)
----------- ----------- -----------
18,788,801 15,685,000 34,473,801
----------- ----------- -----------
Other assets, net................................ 274,726 1,609,000(f) 1,883,726
----------- ----------- -----------
22,311,516 17,500,000 39,811,516
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities--
Current portion of long-term debt............. 88,300 -- 88,300
Accounts payable.............................. 1,824,740 -- 1,824,740
Accrued expenses.............................. 250,073 100,000(f) 350,073
Billings in excess of costs on uncompleted
contracts................................... 302,881 -- 302,881
----------- ----------- -----------
Total current liabilities................ 2,465,994 100,000 2,565,994
----------- ----------- -----------
Long-term debt, net of current portion........... 7,171,035 16,500,000(f) 23,671,035
Deferred income taxes, net....................... 335,200 -- 335,200
Other liabilities................................ -- 900,000 900,000
Stockholders' equity:
Preferred stock............................... 3,438 -- 3,438
Common stock.................................. 166,129 -- 166,129
Additional paid-in-capital.................... 16,859,237 -- 16,859,237
Retained deficit.............................. (4,689,517) -- (4,689,517)
----------- ----------- -----------
Total stockholders' equity............... 12,339,287 -- 12,339,287
----------- ----------- -----------
$22,311,516 $17,500,000 $39,811,516
=========== =========== ===========
</TABLE>

See notes to pro forma combined financial statements
F-42
<PAGE> 106

NORTH COAST ENERGY, INC. AND SUBSIDIARIES

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

(UNAUDITED)
1. PRO FORMA ADJUSTMENTS FOR THE YEAR ENDED MARCH 31, 1998:

The accompanying unaudited pro forma consolidated statement of income for
the year ended March 31, 1998 has been prepared as if the transaction had
occurred on April 1, 1997, the beginning of North Coast's fiscal year, and
reflects the following adjustments:

(a) To record historical revenues and direct operating expenses of the
Kelt Ohio Interests for the period April 1, 1997 to March 31, 1998, which
reflects North Coast's fiscal year.

(b) To record additional general administrative expenses for
additional payroll costs related to the Kelt Ohio Interests.

(c) To record the estimated adjustments to depreciation, depletion,
amortization, impairment and other expenses attributable to the allocation
of the purchase price using the successful efforts method of accounting.

(d) To record additional amortization expense on deferred financing
costs associated with the related financing of the Kelt Ohio Acquisition.

(e) To record additional interest expense on the Kelt Ohio Interests
purchase price of $16 million, plus other acquisition costs incurred, using
North Coast's weighted average interest rate of 9 3/4%. A 1/4% per annum
increase in the interest rate would increase the loss before taxes by
$42,000.

2. PRO FORMA ADJUSTMENTS FOR THE KELT OHIO ACQUISITION AS OF MARCH 31, 1998:

The accompanying unaudited pro forma consolidated balance sheet as of March
31, 1998 has been prepared as if the acquisition occurred on March 31, 1998,
North Coast's fiscal year end and reflecting the following adjustment:

(f) To record assets and liabilities under the purchase method of
accounting based upon the purchase price of $16 million plus other
acquisition costs incurred. Such purchase price has been allocated to the
assets and liabilities based upon preliminary estimated fair values.

F-43
<PAGE> 107

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 1
Prospectus Summary.................... 2
Risk Factors.......................... 8
Price Range of Common Stock and
Dividend Policy..................... 14
Capitalization........................ 15
Use of Proceeds....................... 16
Selected Consolidated Financial
Data................................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 32
Management............................ 43
Summary Compensation Table............ 46
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End
Values.............................. 47
Certain Transactions.................. 49
Principal and Selling Stockholders.... 49
Description of Securities............. 50
Shares Eligible for Future Sale....... 58
Description of Certain Indebtedness... 59
Manner of Offering.................... 60
Legal Matters......................... 60
Experts............................... 60
Available Information................. 61
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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

21,647,847 SHARES OF

COMMON STOCK

NORTH COAST ENERGY, INC.
--------------------

PROSPECTUS
--------------------
, 1999

------------------------------------------------------
------------------------------------------------------
<PAGE> 108

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following is a list of the estimated expenses to be incurred by the
Company in connection with the distribution of the shares of Common Stock being
registered hereby. Except for the Securities and Exchange Commission
Registration Fee, all amounts are estimates.

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... 4,023.26
Blue Sky Fees and Expenses.................................. 1,000.00
Printing and Engraving Costs................................ 1,000.00
Legal Fees and Expenses..................................... 15,000.00
Accountants Fee and Expenses................................ 5,000.00
Miscellaneous............................................... 1,000.00
----------
Total............................................. $27,023.26
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law permits indemnification
of directors, officers, employees or agents of the Registrant against expenses,
including attorney's fees, actually and reasonably incurred by such persons in
connection with the defense of any action, suit or proceeding in which such a
person is a party by reason of his being or having been a director, officer,
employee or agent of the Registrant, or of any corporation, partnership, joint
venture, trust or other enterprise in which he served as such at the request of
the Registrant, provided that he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful, and provided further (if the threatened,
pending or completed action or suit is by or in the right of the corporation)
that he shall not have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the corporation (unless the court determines
that indemnity would nevertheless be proper under the circumstances). The
Registrant's by-laws provide that the Registrant shall indemnify such
individuals to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law. These provisions may be sufficiently broad to indemnify
such persons for liabilities arising under the Securities Act of 1933.

In addition, as permitted by Section 102(b)(7) of the Delaware General
Corporation Law, the Registrant's certificate of incorporation provides that a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a director
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
paying a dividend or approving a stock repurchase in violation of Section 174 of
the Delaware General Corporation Law; or (iv) for any transaction from which the
director derived an improper personal benefit. The effect of these provisions
will be to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of fiduciary duty as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i)-(iv) of the preceding sentence. These
provisions will not affect the availability of injunctive relief nor will it
limit directors' liability for violations of the federal securities laws.

In addition to the indemnification provisions contained in the Company's
certificate of incorporation and by-laws, the Company has entered into
Indemnification Agreements with each of its directors and executive officers.
Generally, these Indemnification Agreements require the Company to reimburse
such officers and directors for the costs of defending litigation by or in the
right of the Company or otherwise, by reason of the fact such officer or
director was acting in good faith in his capacity as such on behalf of the
Company. These Indemnification Agreements also require the Company to reimburse
the costs of a good-faith settlement of any such litigation by such officers and
directors. Finally, the Indemnification Agreements may not restrict the
officers' and directors' indemnity rights subsequently without the approval of
the affected officer or director.

E-1
<PAGE> 109

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

No securities of the Company which were not registered under the Act have
been issued or sold by the Company within the past three years except as
follows:

Common Stock was issued to NUON pursuant to a private offering at the then
current price of $0.87 per share. NUON purchased 11,494,254 shares of Common
Stock in two separate transactions on September 4, 1997 and September 30, 1998.
NUON also has an option to purchase an additional 5,747,127 shares of Common
Stock prior to September 30, 1999 for $0.87 per share.

The Company issued Warrants to each of Messrs. Berns and Siegel to purchase
134,000 shares of Common Stock at a price of $0.875 per share associated with
the NUON investment transactions of September 4, 1997 and September 30, 1998
described above. Messrs. Berns and Siegel are each entitled to additional
Warrants to purchase 67,000 shares of Common Stock upon the exercise of NUON's
option.

Certain directors of the Company received Common Stock in lieu of cash
compensation for director's fees between October 1996 and December 1997 in the
following amounts: Mr. Pinkerton (8,464 shares); Mr. Grose (8,971 shares); Mr.
Michaels (8,094 shares); Mr. Begley (16,715 shares); Mr. Wegrich (12,403
shares); Mr. Ebinger (11,973 shares); and Mr. Bauman (11,973 shares).

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

See the Exhibit Index at page E-1 of this Registration Statement.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(a) The Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective date thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.

E-2
<PAGE> 110

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities bring registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated in the Registration Statement by reference shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

E-3
<PAGE> 111

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio
on February 5, 1999.

NORTH COAST ENERGY, INC.

By: /s/ GARRY REGAN

------------------------------------
Garry Regan
President

E-4
<PAGE> 112

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints Charles M. Lombardy, Jr., Garry Regan,
Timothy D. Wagers, Saul Siegel and Michael D. Phillips, or any one or more of
them, his attorneys-in-fact and agents, each with full power of substitution and
resubstitution for him in any and all capacities, to sign any and all amendments
or post-effective amendments to this Registration Statement, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or his substitute or substitutes may do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated and on this 5th day of February, 1999.

/s/ CHARLES M. LOMBARDY, JR. Chief Executive Officer and Director
- -------------------------------------------- (principal executive officer)
Charles M. Lombardy, Jr.

/s/ GARRY REGAN President and Director
- --------------------------------------------
Garry Regan

Director
- --------------------------------------------
Leo J. M. J. Blomen

Director
- --------------------------------------------
Dominic A. Visconsi

/s/ CAREL W. J. KOK Director
- --------------------------------------------
Carel W. J. Kok

Director
- --------------------------------------------
S. F. E. Bas Rosenbaum

/s/ C. RAND MICHAELS Director
- --------------------------------------------
C. Rand Michaels

/s/ JOHN H. PINKERTON Director
- --------------------------------------------
John H. Pinkerton

/s/ SAUL SIEGEL Chief Operating Officer and Director
- --------------------------------------------
Saul Siegel

/s/ JOS J. M. SMITS Director
- --------------------------------------------
Jos J. M. Smits

/s/ RALPH L. BRADLEY Director
- --------------------------------------------
Ralph L. Bradley

/s/ TIMOTHY WAGERS Treasurer and Chief Financial Officer
- -------------------------------------------- (principal financial and accounting officer)
Timothy Wagers
</TABLE>

E-5
<PAGE> 113

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENTS PAGE
- ------- ------------------------ ----------
<C> <S> <C>
3.1 Certificate of Incorporation of the Registrant dated August (B)
30, 1988.
3.2 Certificate of Stock Designation of the Registrant filed (B)
September 12, 1988.
3.3 Certificate of Stock Designation of the Registrant filed (B)
September 14, 1989.
3.4 Certificate of Correction filed March 22, 1991. (C)
3.5 Certificate of Amendment to Certificate of Incorporation (A)
filed November 4, 1992.
3.6 Certificate of Stock Designation filed December 29, 1992. (D)
3.7 Certificate of Amendment to Certificate of Incorporation (G)
filed August 29, 1994.
3.8 Certificate of Amendment of Certificate of Incorporation --
filed December 16, 1998.
5.1 Opinion of Calfee, Halter & Griswold LLP as to the validity
of the shares of Common Stock.
10.1 1988 Stock Option Plan. (B)
10.2 Form of Profit Sharing Plan. (B)
10.3 Form of Indemnity Agreement between the Registrant and each (B)
of its Directors and executive officers.
10.4 North Coast Energy, Inc. Key Employees Stock Bonus Plan. (B)
10.5 Stock Option Agreement dated as of May 17, 1991 between (C)
Registrant and Timothy Wagers.
10.6 Stock Option Agreement dated as of May 17, 1991 between the (C)
Registrant and Thomas A. Hill.
10.7 Option Agreement dated February 22, 1994 by and between (E)
Registrant and Charles M. Lombardy, Jr.
10.8 Option Agreement dated February 22, 1994 by and between (E)
Registrant and Garry Regan.
10.9 Warrant to purchase 200,000 shares of Common Stock of the (G)
Company.
10.10 Warrant to purchase 300,000 shares of Common Stock of the (G)
Company.
10.11 Restated Employment Agreement dated May 3, 1995 by and (H)
between Registrant and Charles M. Lombardy, Jr.
10.12 Restated Employment Agreement dated May 3, 1995 by and (H)
between Registrant and Garry Regan.
10.13 Open End Mortgage and Promissory Note by and between Bank (I)
One, Akron, N.A. and the Company dated April 30, 1996.
10.14 Purchase and Sale Agreement dated April 8, 1998 between Kelt (J)
Ohio, Inc., and North Coast Energy, Inc.
10.15 Ratification and Amendment to Purchase and Sale Agreement (J)
dated May 12, 1998 between Kelt Ohio, Inc., and North Coast
Energy, Inc.
10.16 First Amendment to Credit Agreement and Promissory Note (J)
dated May 29, 1998 between ING (U.S.) Capital Corporation
and North Coast Energy, Inc.
11.1 Statement regarding computation of per share earnings. --
21.1 List of Subsidiaries. (E)
23.1 Consent of Arthur Andersen LLP. --
23.2 Consent of Calfee, Halter & Griswold LLP (included in
Exhibit 5.1 of this Registration Statement)
27.1 Financial Data Schedule for the period April 1, 1997 to *
March 31, 1998
27.2 Financial Data Schedule for the period April 1, 1998 to *
September 30, 1998
</TABLE>

E-6
<PAGE> 114

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

<TABLE>
<S> <C>
(A) Incorporated herein by reference to the appropriate exhibit
to the Registrant's Registration Statement on Form S-2 (Reg.
No. 33-54288).
(B) Incorporated herein by reference to the appropriate exhibit
to the Company's Registration Statement on Form S-1 (File
No. 33-24656).
(C) Incorporated herein by reference to the appropriate exhibit
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1991.
(D) Incorporated herein by reference to the appropriate exhibit
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.
(E) Incorporated herein by reference to the appropriate exhibit
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994.
(F) Incorporated herein by reference to the appropriate exhibit
to the Registrant's Quarterly Report on form 10-Q for the
fiscal quarter ended September 30, 1994.
(G) Incorporated herein by reference to the appropriate exhibit
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995.
(H) Incorporated herein by reference to the appropriate exhibit
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996.
(I) Incorporated herein by reference to the appropriate exhibit
to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1996.
(J) Incorporated herein by reference to the appropriate exhibit
to the Registrant's Report on Form 8-K dated June 12, 1998.
* Exhibits 27.1 and 27.2 furnished for Securities and Exchange
Commission purposes only.
</TABLE>

E-7

<PAGE> 1
EXHIBIT 3.8

CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
NORTH COAST ENERGY, INC.

----------------------------------------------
Pursuant to Section 242 of the
Delaware General Corporation Law
----------------------------------------------

The undersigned, Garry Regan, being the President, and Vicki L. Zanella,
being the Assistant Secretary, of North Coast Energy, Inc., a Delaware
corporation (the "Corporation"), hereby certify as follows:

1. The name of the Corporation is North Coast Energy, Inc.

2. The amendment of the Certificate of Incorporation as hereinafter set
forth has been duly adopted in accordance with Section 242 of the Delaware
General Corporation Law.

3. The Certificate of Incorporation of the Corporation is hereby amended
by deleting in its entirety Section 1, Article VI, and replacing it with the
following:

"ARTICLE VI
----------

1. CLASSIFICATION OF BOARD OF DIRECTORS. The board of directors shall
consist of not less than nine (9) nor more than thirteen (13) members and shall
be divided into three classes, Class I, Class II, and Class III, which shall be
as nearly equal in number as possible. Subject to the foregoing limitations,
the number of directors shall be fixed by, or in the manner provided in, the
By-Laws of the Corporation. In the event the total number of directors is not
divisible by three (3), an extra director shall be assigned to Class I if there
is one (1) extra director to be assigned among the classes, and an extra
<PAGE> 2
director shall be assigned to each of Classes I and II if there are two (2)
extra directors to be assigned among the classes. The directors to be elected
at each annual meeting of stockholders shall be only (a) the members of the
class whose term of office then expires or (b) nominees to a class of directors
whose number has been increased as a result of the action by the stockholders or
directors in accordance with the provisions of the By-Laws of the Corporation.
Each director elected at any stockholders' meeting shall serve for a term ending
on the date of the third annual meeting of stockholders following the meeting at
which such director was elected, unless the director is being elected to a
class whose term of office does not expire at such stockholder's meeting, in
which case he shall serve for a term ending on the date of the termination of
the term of such class. Elections of directors need not be by written ballot
unless the By-Laws of the Corporation shall so provide."

IN WITNESS WHEREOF, the undersigned, being the duly elected and acting
President and Assistant Secretary, respectively, have hereunto subscribed their
names to this Certificate of Amendment and affirm that the facts stated herein
are true under penalties of perjury, this 16th day of December, 1998.

/s/ Garry Regan
-------------------------------------
Garry Regan, President

/s/ Vicki L. Zanella
- -------------------------------------
Vicki L. Zanella, Assistant Secretary

<PAGE> 1

Exhibit 5.1

February 5, 1999

North Coast Energy, Inc.
1993 Case Parkway
Twinsburg, Ohio 44087

In connection with the registration under the Securities Act
of 1933, as amended (the "Act"), and sale of 21,647,847 shares of North Coast
Energy, Inc.'s (the "Company's") Common Stock, $.01 par value (the "Common
Stock"), we, as your counsel, have examined such corporate records, certificates
and other documents, and such questions of law as we have considered necessary
or appropriate for this opinion.

Based upon such examination and on the assumptions set forth
below, we are of the opinion that (a) 15,532,721 shares of Common Stock to be
registered under the Act are currently validly issued, fully paid and
nonassessable and (b) the remaining 6,115,126 shares of Common Stock to be
registered under the Act and issuable upon the exercise of outstanding stock
warrants and options, when duly issued upon the exercise of outstanding stock
warrants and options, will be validly issued, fully paid and nonassessable.

In rendering the foregoing opinion, we have relied as to
certain matters on information obtained from public officials, officers of the
Company and other sources believed by us to be responsible, and we have not
independently checked or verified the accuracy of the statements contained
therein. In addition, we are admitted to the practice of law only in the State
of Ohio and the opinions expressed herein are limited to the federal law of the
United States of America, the General Corporation Law of the State of Delaware
and the laws of the State of Ohio, in each case as in effect on the date hereof.

We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement on Form S-1 (the "Registration Statement") filed
by the Company to effect registration of the Common Stock under the Act, and to
the reference to us under the heading "Legal Matters" in the prospectus
constituting part of the Registration Statement. In giving such consent, we do
not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act.

Very truly yours,

CALFEE, HALTER & GRISWOLD LLP

<PAGE> 1
EXHIBIT 11.1

Computation of Basic and Diluted Earnings Per Common Share

<TABLE>
<CAPTION>
EARNINGS

3/31/96 3/31/97 3/31/98
------- ------- -------
<S> <C> <C> <C>
Net Income (Loss) $(1,254,418) $ 291,750 $ 262,138
Series A Preferred Stock Dividends (185,199) (91,542) 0
Series B Preferred Stock Dividends (464,655) (232,332) (67,066)
Series B Preferred Stock Dividends in arrears 0 (134,732) (201,198)
----------- --------- ---------

Pro Forma Loss Applicable to Common Stock $(1,904,272) $(166,856) $ (6,126)

Weighted Average Common Shares for the
period ended 8,033,642 8,240,776 14,106,492

Additional Shares Assuming Conversion of:
Employee Options Exercised 0 0 0
---------- ---------- ----------

Pro Forma Shares for Basic Earnings
Per Common Share 8,033,642 8,240,776 14,106,492
---------- ---------- ----------

Additional Shares Assuming Conversion of:
Preferred Stock 0 0 0
---------- ---------- ----------

Pro Forma Shares for Diluted Earnings
Per Common Share 8,033,642 8,240,776 14,106,492
========== ========== ==========

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

Basic Earnings Per Common Share $( .24) $( .02) $( .00)
Diluted Earnings Per Share *$( .24) *$( .02) *$( .00)

- ----------------------------------------------------------------------------------------------------------
</TABLE>

* Common Stock Equivalents have an Anti-Dilutive Effect on Earnings Per Share
and are excluded from This Exhibit.

** The above information is provided on the Statement of Operations for the six
months ended September 30, 1998.

<PAGE> 1
EXHIBIT 23.1

Consent of Arthur Andersen LLP

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of and the
incorporation by reference in this registration statement of our reports (i)
dated June 4, 1998, on Form 10-K for the fiscal year ended March 31, 1998 and
(ii) dated May 7, 1998, on Form 8-K, dated July 14, 1998, and to all references
to our Firm included in this registration statement.

ARTHUR ANDERSEN LLP

Cleveland, Ohio
February 1, 1999.

<ARTICLE> 5
<CIK> 0000839950
<NAME> NORTH COAST ENERGY, INC.

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,578,984
<SECURITIES> 0
<RECEIVABLES> 1,407,725
<ALLOWANCES> 0
<INVENTORY> 189,223
<CURRENT-ASSETS> 3,247,989
<PP&E> 31,944,089
<DEPRECIATION> 13,155,288
<TOTAL-ASSETS> 22,311,516
<CURRENT-LIABILITIES> 2,465,994
<BONDS> 0
166,129
0
<COMMON> 3,438
<OTHER-SE> 12,169,720
<TOTAL-LIABILITY-AND-EQUITY> 22,311,516
<SALES> 8,590,632
<TOTAL-REVENUES> 8,590,632
<CGS> 7,556,714
<TOTAL-COSTS> 7,556,714
<OTHER-EXPENSES> (67,562)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 839,342
<INCOME-PRETAX> 262,138
<INCOME-TAX> 0
<INCOME-CONTINUING> 262,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262,138
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)

</TABLE>

<ARTICLE> 5
<CIK> 0000839950
<NAME> NORTH COAST ENERGY, INC.

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,330,079
<SECURITIES> 0
<RECEIVABLES> 2,198,639
<ALLOWANCES> 0
<INVENTORY> 159,008
<CURRENT-ASSETS> 5,873,985
<PP&E> 48,940,728
<DEPRECIATION> 14,153,492
<TOTAL-ASSETS> 42,388,992
<CURRENT-LIABILITIES> 2,386,865
<BONDS> 0
0
3,084
<COMMON> 227,572
<OTHER-SE> 16,863,798
<TOTAL-LIABILITY-AND-EQUITY> 42,388,992
<SALES> 5,107,380
<TOTAL-REVENUES> 5,107,380
<CGS> 4,237,957
<TOTAL-COSTS> 4,237,957
<OTHER-EXPENSES> (45,558)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 999,519
<INCOME-PRETAX> (84,538)
<INCOME-TAX> 0
<INCOME-CONTINUING> (84,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,538)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)

</TABLE>