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FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



|X |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF 
|- |  | -----------------------------------------------------
|  |  | THE SECURITIES EXCHANGE ACT OF 1934                  
| 
|  |  | For the quarterly period ended September 30, 2002    
| 
|  |  | OR                                                   
| 
|  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
|  |  | THE SECURITIES EXCHANGE ACT OF 1934                  

For the transition period from  to

Commission file number 0-18691

NORTH COAST ENERGY, INC.

(Exact name of Registrant as specified in its charter)


|                                         |  |                                     
|---------------------------------------- |  | ------------------------------------
|Delaware                                 |  | 34-1594000                          
|(State of incorporation)                 |  | (I.R.S. Employer Identification No.)
|                                         |  |                                     
|1993 Case Parkway                        |  |                                     
|Twinsburg, Ohio                          |  | 44087-2343                          
|(Address of principal executive offices) |  | (Zip Code)                          

Registrants telephone number, including area code: (330) 425-2330

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YesX.          No           .

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes of
Common Stock, as of the latest practicable date.

|                             |  |                                
|---------------------------- |  | -------------------------------
|Class                        |  | Outstanding at October 31, 2002
|                             |  |                                
|Common Stock, $.01 par value |  | 15,208,634                     





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TABLE OF CONTENTS



|                                      |                                                                                              |                                                      |  |  |  |  |  | 
|------------------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART 1  FINANCIAL INFORMATION       
|                                      | Item 1. Financial Statements                                                                
|                                      |                                                                                              | CONSOLIDATED BALANCE SHEETS                         
|                                      |                                                                                              | CONSOLIDATED STATEMENTS OF INCOME                   
|                                      |                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOWS               
|                                      |                                                                                              | Unaudited Notes to Consolidated Financial Statements
|                                      | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                      | Item 3. Quantitative and Qualitative Disclosures About Market Risk                          
|                                      | Item 4. Controls and Procedures                                                             
|PART II                              
|                                      | Item 1. Legal Proceedings                                                                   
|                                      | Item 2. Changes in Securities                                                               
|                                      | Item 3. Defaults Upon Senior Securities                                                     
|                                      | Item 4. Submission of Matters to a Vote of Security Holders                                 
|                                      | Item 5. Other Information                                                                   
|                                      | Item 6. Exhibits and Reports on Form 8-K                                                    
|SIGNATURES                           
|CHIEF EXECUTIVE OFFICER CERTIFICATION
|CHIEF FINANCIAL OFFICER CERTIFICATION



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NORTH COAST ENERGY, INC. AND SUBSIDIARIES

|                                      |  |                                                                                       |  |          |  | 
|------------------------------------- |  | ------------------------------------------------------------------------------------- |  | -------- |  | 
|                                      |  |                                                                                       |  | Page No. |  | 
|                                      |  |                                                                                       |  |          |  | 
|                                      |  |                                                                                       |  |          |  | 
|PART I   FINANCIAL INFORMATION       |  |                                                                                       |  |         
|                                      |  |                                                                                       |  |          |  | 
|Item 1.                               |  | Financial Statements                                                                  |  |          |  | 
|                                      |  |                                                                                       |  |          |  | 
|                                      |  | Consolidated Balance Sheets -                                                         |  |          |  | 
|                                      |  | September 30, 2002 (Unaudited) and December 31, 2001                                  |  | 3        |  | 
|                                      |  |                                                                                       |  |          |  | 
|                                      |  | Unaudited Consolidated Statements of Income -                                         |  |          |  | 
|                                      |  | For the Three and Nine Months Ended September 30, 2002 and 2001                       |  | 5        |  | 
|                                      |  |                                                                                       |  |          |  | 
|                                      |  | Unaudited Consolidated Statements of Cash Flows -                                     |  |          |  | 
|                                      |  | For the Nine Months Ended September 30, 2002 and 2001                                 |  | 6        |  | 
|                                      |  |                                                                                       |  |          |  | 
|                                      |  | Unaudited Notes to Consolidated Financial Statements                                  |  | 7        |  | 
|                                      |  |                                                                                       |  |          |  | 
|                                      |  |                                                                                       |  |          |  | 
|Item 2.                               |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  | 14       |  | 
|                                      |  |                                                                                       |  |          |  | 
|                                      |  |                                                                                       |  |          |  | 
|Item 3.                               |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 22       |  | 
|                                      |  |                                                                                       |  |          |  | 
|                                      |  |                                                                                       |  |          |  | 
|Item 4.                               |  | Controls and Procedures                                                               |  | 23       |  | 
|                                      |  |                                                                                       |  |          |  | 
|PART II  OTHER INFORMATION           |  | 24                                                                                    |  |         
|                                      |  |                                                                                       |  |          |  | 
|CHIEF EXECUTIVE OFFICER CERTIFICATION |  | 26                                                                                    |  |         
|                                      |  |                                                                                       |  |          |  | 
|CHIEF FINANCIAL OFFICER CERTIFICATION |  | 27                                                                                    |  |         

2



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##### Table of Contents









NORTH COAST ENERGY, INC. AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS

September 30, 2002 and December 31, 2001

|                                                          |                                           |                      |             |               |            |              |             |             |            | 
|--------------------------------------------------------- | ----------------------------------------- | -------------------- | ----------- | ------------- | ---------- | ------------ | ----------- | ----------- | ---------- | 
|                                                          |                                           |                      |             | September 30, |            | December 31,
|ASSETS                                                    |                                           | 2002                 |             | 2001         
|                                                          |                                           |                      |             |               |           
|                                                          |                                           |                      |             | (Unaudited)   |            |              |             |            
|CURRENT ASSETS                                            |                                           |                      |             |               |            |              |             |            
|                                                          | Cash and equivalents                      |                      | $           | 13,796,081    |            |              | $           | 22,035,924  |           
|                                                          | Accounts receivable                       |                      |             | 5,490,593     |            |              |             | 6,006,622   |           
|                                                          | Inventories                               |                      |             | 531,111       |            |              |             | 290,481     |           
|                                                          | Prepaid drilling and other expenses       |                      |             | 689,366       |            |              |             | 474,411     |           
|                                                          |                                           |                      |             |               |            |              |             |            
|                                                          |                                           | Total current assets |             |               | 20,507,151 |              |             |             | 28,807,438 | 
|                                                          |                                           |                      |             |               |            |              |             |            
|PROPERTY AND EQUIPMENT, at cost                           |                                           |                      |             |               |            |              |             |            
|                                                          | Land                                      |                      |             | 222,822       |            |              |             | 222,822     |           
|                                                          | Oil & gas properties (successful efforts) |                      |             | 140,670,745   |            |              |             | 121,195,745 |           
|                                                          | Gathering systems                         |                      |             | 16,448,437    |            |              |             | 16,411,433  |           
|                                                          | Vehicles                                  |                      |             | 2,553,352     |            |              |             | 2,249,507   |           
|                                                          | Furniture & fixtures                      |                      |             | 829,608       |            |              |             | 748,974     |           
|                                                          | Buildings & improvements                  |                      |             | 1,872,213     |            |              |             | 1,862,382   |           
|                                                          |                                           |                      |             |               |            |              |             |            
|                                                          |                                           |                      | 162,597,177 |               |            |              | 142,690,863 |            
|Less accumulated depreciation, depletion
and amortization |                                           |                      | 35,119,792  |               |            |              | 29,442,909  |            
|                                                          |                                           |                      |             |               |            |              |             |            
|                                                          |                                           |                      | 127,477,385 |               |            |              | 113,247,954 |            
|OTHER ASSETS, net                                         |                                           |                      | 1,587,552   |               |            |              | 2,734,966   |            
|                                                          |                                           |                      |             |               |            |              |             |            
|TOTAL ASSETS                                              |                                           | $                    | 149,572,088 |               |            | $            | 144,790,358 |            
|                                                          |                                           |                      |             |               |            |              |             |            

The accompanying notes are an
integral part of these consolidated financial statements.

3



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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2002 and December 31, 2001

|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            |               |   |              |            |            |  | 
|----------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------- | ---------- | ------------- | - | ------------ | ---------- | ---------- |  | 
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            | September 30, |   | December 31,
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                          |                                                                                                                                                                                                       | 2002                       |             | 2001      
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |           
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            | (Unaudited)   |   |              |            |           
|CURRENT LIABILITIES                                                                                                           |                                                                                                                                                                                                       |                            |             |            |               |   |              |           
|                                                                                                                              | Accounts payable                                                                                                                                                                                      |                            | $           | 3,336,942  |               |   | $            | 3,395,272  |           
|                                                                                                                              | Accrued expenses                                                                                                                                                                                      |                            |             | 8,615,113  |               |   |              | 6,906,337  |           
|                                                                                                                              | Billings in excess of costs on uncompleted contracts                                                                                                                                                  |                            |             | 0          |               |   |              | 2,062,094  |           
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            |               |   |              |           
|                                                                                                                              | Total current liabilities                                                                                                                                                                             |                            |             | 11,952,055 |               |   |              | 12,363,703 |           
|                                                                                                                             
|LONG-TERM DEBT, net of current portion                                                                                        |                                                                                                                                                                                                       |                            |             |            |               |   |              |           
|                                                                                                                              | Affiliates                                                                                                                                                                                            |                            |             | 10,000,000 |               |   |              | 10,000,000 |           
|                                                                                                                              | Non-affiliates                                                                                                                                                                                        |                            |             | 57,000,000 |               |   |              | 57,000,000 |           
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            |               |   |              |           
|                                                                                                                              |                                                                                                                                                                                                       |                            | 67,000,000  |            |               |   | 67,000,000   |           
|                                                                                                                             
|ACCRUED PLUGGING LIABILITY                                                                                                    |                                                                                                                                                                                                       |                            | 226,796     |            |               |   | 367,394      |           
|                                                                                                                             
|DEFERRED INCOME TAXES                                                                                                         |                                                                                                                                                                                                       |                            | 8,146,326   |            |               |   | 5,680,027    |           
|                                                                                                                             
|COMMITMENTS AND CONTINGENCIES                                                                                                 |                                                                                                                                                                                                       |                            |             |            |               |   |              |           
|                                                                                                                             
|STOCKHOLDERS EQUITY                                                                                                          |                                                                                                                                                                                                       |                            |             |            |               |   |              |           
|                                                                                                                              | Series A, 6% Noncumulative Convertible Preferred stock par value $.01 per share; 563,270 shares
authorized; 72,591 and 73,096 shares issued and outstanding
(aggregate liquidation value of $725,910) |                            |             | 726        |               |   |              | 731        |           
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            |               |   |              |            |            |  | 
|                                                                                                                              | Series B, Cumulative Convertible Preferred stock, par value $.01 per share; 625,000 shares authorized;
0 and and 232,864 shares outstanding                                                           |                            |             | 0          |               |   |              | 2,329      |           
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            |               |   |              |            |            |  | 
|Undesignated Serial Preferred stock, par value $.01 per share; 811,730 shares authorized; no shares issued
or outstanding     |                                                                                                                                                                                                       |                            | 0           |            |               |   | 0            |           
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            |               |   |              |            |            |  | 
|Common Stock, par value $.01 per share; 60,000,000 shares authorized; 15,208,516 and 15,208,031 shares issued
and outstanding |                                                                                                                                                                                                       |                            | 152,085     |            |               |   | 152,080      |           
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            |               |   |              |            |            |  | 
|Additional paid-in capital                                                                                                    |                                                                                                                                                                                                       |                            | 47,889,110  |            |               |   | 50,213,422   |           
|Accumulated other comprehensive (loss) income                                                                                 |                                                                                                                                                                                                       |                            | (1,038,763  | )          |               |   | 579,630      |           
|Retained earnings                                                                                                             |                                                                                                                                                                                                       |                            | 15,243,753  |            |               |   | 8,431,042    |           
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            |               |   |              |           
|                                                                                                                              |                                                                                                                                                                                                       | Total stockholders equity |             |            | 62,246,911    |   |              |            | 59,379,234 | 
|TOTAL LIABILITIES & STOCKHOLDERS EQUITY                                                                                      |                                                                                                                                                                                                       | $                          | 149,572,088 |            |               | $ | 144,790,358  |           
|                                                                                                                              |                                                                                                                                                                                                       |                            |             |            |               |   |              |           

The accompanying notes are an integral part of these consolidated financial statements.

4



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NORTH COAST ENERGY, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF INCOME

For the Three and Nine Months Ended September 30, 2002 and 2001
(Unaudited)

|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | - | -------------------------------- | --------- | ------------------------------- | - | ---------- | --------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                                                                                                                                                                                                           |                                          |   | Three Months Ended September 30, |           | Nine Months Ended September 30,
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                
|                                                                                                                                                                                                                                                           |                                          |   | 2002                             |           | 2001                            |   | 2002       |           | 2001
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |     
|REVENUE                                                                                                                                                                                                                                                    |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|                                                                                                                                                                                                                                                           | Oil and gas production                   |   | $                                | 9,194,196 |                                 |   | $          | 7,936,738 |      |   | $          | 26,245,966 |   |   | $          | 23,618,617 |  
|                                                                                                                                                                                                                                                           | Drilling revenues                        |   |                                  | 0         |                                 |   |            | 0         |      |   |            | 2,082,351  |   |   |            | 6,214,520  |  
|                                                                                                                                                                                                                                                           | Well operating, gathering, and other     |   |                                  | 1,648,632 |                                 |   |            | 2,407,922 |      |   |            | 5,039,990  |   |   |            | 8,776,458  |  
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|                                                                                                                                                                                                                                                           |                                          |   | 10,842,828                       |           |                                 |   | 10,344,660 |           |      |   | 33,368,307 |            |   |   | 38,609,595 |           
|COSTS AND EXPENSES                                                                                                                                                                                                                                         |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|                                                                                                                                                                                                                                                           | Oil and gas production expenses          |   |                                  | 2,231,911 |                                 |   |            | 2,212,148 |      |   |            | 6,175,590  |   |   |            | 7,117,462  |  
|                                                                                                                                                                                                                                                           | Drilling costs                           |   |                                  | 0         |                                 |   |            | 164,088   |      |   |            | 1,752,456  |   |   |            | 4,793,974  |  
|                                                                                                                                                                                                                                                           | Well operating, gathering, and other     |   |                                  | 1,238,309 |                                 |   |            | 1,389,814 |      |   |            | 3,573,052  |   |   |            | 4,862,025  |  
|                                                                                                                                                                                                                                                           | General and administrative expenses      |   |                                  | 947,224   |                                 |   |            | 906,733   |      |   |            | 2,921,300  |   |   |            | 3,017,995  |  
|                                                                                                                                                                                                                                                           | Depreciation, depletion and amortization |   |                                  | 2,257,730 |                                 |   |            | 2,182,905 |      |   |            | 6,463,464  |   |   |            | 5,508,951  |  
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|                                                                                                                                                                                                                                                           |                                          |   | 6,675,174                        |           |                                 |   | 6,855,688  |           |      |   | 20,885,862 |            |   |   | 25,300,407 |           
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|INCOME FROM OPERATIONS                                                                                                                                                                                                                                     |                                          |   | 4,167,654                        |           |                                 |   | 3,488,972  |           |      |   | 12,482,445 |            |   |   | 13,309,188 |           
|INTEREST INCOME (EXPENSE)                                                                                                                                                                                                                                  |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|                                                                                                                                                                                                                                                           | Interest income                          |   |                                  | 104,225   |                                 |   |            | 138,300   |      |   |            | 272,798    |   |   |            | 637,557    |  
|                                                                                                                                                                                                                                                           | Interest expense                         |   |                                  | (795,167  | )                               |   |            | (938,866  | )    |   |            | (2,378,038 | ) |   |            | (3,831,421 | )
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|                                                                                                                                                                                                                                                           |                                          |   | (690,942                         | )         |                                 |   | (800,566   | )         |      |   | (2,105,240 | )          |   |   | (3,193,864 | )         
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|INCOME BEFORE PROVISION
FOR INCOME TAXES                                                                                                                                                                                                                   |                                          |   | 3,476,712                        |           |                                 |   | 2,688,406  |           |      |   | 10,377,205 |            |   |   | 10,115,324 |           
|PROVISION FOR INCOME TAXES                                                                                                                                                                                                                                 |                                          |   | 1,175,123                        |           |                                 |   | 799,702    |           |      |   | 3,506,332  |            |   |   | 3,262,702  |           
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|NET INCOME                                                                                                                                                                                                                                                 |                                          | $ | 2,301,589                        |           |                                 | $ | 1,888,704  |           |      | $ | 6,870,873  |            |   | $ | 6,852,622  |           
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|NET INCOME APPLICABLE TO
COMMON STOCK (after dividends on
Cumulative Preferred Stock of $0 and
$58,216 for the three months ended
September 30, 2002 and 2001 and $58,167
and $174,648 for the nine months ended
September 30, 2002 and 2001, respectively |                                          | $ | 2,301,589                        |           |                                 | $ | 1,830,488  |           |      | $ | 6,812,706  |            |   | $ | 6,677,974  |           
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           
|NET INCOME PER SHARE
(basic and diluted)                                                                                                                                                                                                                   |                                          | $ | 0.15                             |           |                                 | $ | 0.12       |           |      | $ | 0.45       |            |   | $ | 0.44       |           
|                                                                                                                                                                                                                                                           |                                          |   |                                  |           |                                 |   |            |           |      |   |            |            |   |   |            |           

The accompanying notes are an integral part of these consolidated financial statements.

5



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##### Table of Contents



NORTH COAST ENERGY, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three and Nine Months Ended September 30, 2002 and 2003
(Unaudited)

|                                                   |                                            |                                                                                   |                                          |                                                      |           |               |             |               |           |           |            |  
|-------------------------------------------------- | ------------------------------------------ | --------------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------------------- | --------- | ------------- | ----------- | ------------- | --------- | --------- | ---------- | -
|                                                   |                                            |                                                                                   |                                          |                                                      |           | September 30, |             | September 30,
|                                                   |                                            |                                                                                   |                                          |                                                      |           | 2002          |             | 2001         
|                                                   |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|CASH FLOWS FROM OPERATING ACTIVITIES               |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|                                                   | Net income                                 |                                                                                   | $                                        | 6,870,873                                            |           |               | $           | 6,852,622     |          
|                                                   |                                            | Adjustments to reconcile net income to net cash
provided by operating activities: |                                          |                                                      |           |               |             |               |           |          
|                                                   |                                            |                                                                                   | Depreciation, depletion and amortization |                                                      |           | 6,463,464     |             |               |           | 5,508,951 |           
|                                                   |                                            |                                                                                   | Deferred income taxes                    |                                                      |           | 3,416,787     |             |               |           | 3,262,656 |           
|                                                   |                                            |                                                                                   | Stock Issuance                           |                                                      |           |              |             |               |           | 14,648    |           
|                                                   |                                            |                                                                                   | Change in:                               |                                                      |           |               |             |               |           |           |           
|                                                   |                                            |                                                                                   |                                          | Accounts receivable                                  |           |               | (291,421    | )             |           |           | 2,241,003  |  
|                                                   |                                            |                                                                                   |                                          | Inventories and other current assets                 |           |               | (455,585    | )             |           |           | 3,295,274  |  
|                                                   |                                            |                                                                                   |                                          | Other assets, net                                    |           |               | 279,888     |               |           |           | 668,704    |  
|                                                   |                                            |                                                                                   |                                          | Accounts payable and accrued expenses                |           |               | (138,979    | )             |           |           | (77,150    | )
|                                                   |                                            |                                                                                   |                                          | Billings in excess of costs on uncompleted contracts |           |               | (2,062,094  | )             |           |           | (6,214,520 | )
|                                                   |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|                                                   |                                            |                                                                                   |                                          | Total adjustments                                    |           |               | 7,212,060   |               |           |           | 8,699,566  |  
|                                                   |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|                                                   |                                            |                                                                                   |                                          | Net cash provided by operating activities            |           |               | 14,082,933  |               |           |           | 15,552,188 |  
|CASH FLOWS FROM INVESTING ACTIVITIES               |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|                                                   | Additions to property and equipment        |                                                                                   |                                          | (18,482,411                                          | )         |               |             | (9,901,617    | )        
|                                                   | Proceeds on sale of property and equipment |                                                                                   |                                          | 1,275                                                |           |               |             |              |          
|                                                   | Acquisition of property and equipment      |                                                                                   |                                          | (1,456,833                                           | )         |               |             |              |          
|                                                   |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|                                                   |                                            |                                                                                   |                                          | Net cash used by investing activities                |           |               | (19,937,969 | )             |           |           | (9,901,617 | )
|CASH FLOWS FROM FINANCING ACTIVITIES               |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|                                                   | Redemption of preferred B stock            |                                                                                   |                                          | (2,326,640                                           | )         |               |             |              |          
|                                                   | Repayment of long term debt                |                                                                                   |                                          |                                                     |           |               |             | (3,763,188    | )        
|                                                   | Dividends                                  |                                                                                   |                                          | (58,167                                              | )         |               |             | (174,648      | )        
|                                                   |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|                                                   |                                            |                                                                                   |                                          | Net cash used by financing activities                |           |               | (2,384,807  | )             |           |           | (3,937,836 | )
|(DECREASE) INCREASE IN CASH AND EQUIVALENTS        |                                            |                                                                                   | (8,239,843                               | )                                                    |           |               | 1,712,735   |              
|CASH AND EQUIVALENTS AT BEGINNING OF PERIOD        |                                            |                                                                                   | 22,035,924                               |                                                      |           |               | 18,189,760  |              
|                                                   |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|CASH AND EQUIVALENTS AT END OF PERIOD              |                                            | $                                                                                 | 13,796,081                               |                                                      |           | $             | 19,902,495  |              
|                                                   |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|Supplemental disclosures of cash flow information: |                                            |                                                                                   |                                          |                                                      |           |               |             |              
|                                                   | Cash paid during the period for:           |                                                                                   |                                          |                                                      |           |               |             |               |          
|                                                   |                                            | Interest                                                                          |                                          | $                                                    | 2,548,886 |               |             | $             | 4,652,064 |          
|                                                   |                                            | Income taxes                                                                      |                                          |                                                      | 32,545    |               |             |               |          |          

The accompanying notes are an integral part of these consolidated financial statements.

6



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##### Table of Contents






Note 1. Summary of Accounting Policies



| | A. |  | General                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The accompanying unaudited consolidated financial statements
included herein, have been prepared by North Coast Energy, Inc. in
accordance with accounting principles generally accepted in the
United States of America for interim financial information and with
instructions to Form 10-Q and Article 10 of U.S. Securities and
Exchange Commission (SEC) Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
fair presentation have been included. These financial statements
should be read in conjunction with the financial statements and
notes thereto which are in the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2001.
|
| |    |  | The balance sheet at December 31, 2001, presented in this report,
has been derived from the audited financial statements at that date
but does not include all of the information and footnotes included
in the Companys annual report on Form 10-K for the year ended
December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |    |  | 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.                                                                                                                                                                                                                                                                                                                                              
|
| |    |  | The accompanying financial statements should be read in connection
with the Notes to Consolidated Financial Statements included in
Item 8. Financial Statements and Supplemental Data in the
Companys 2001 Annual Report on Form 10-K filed with the SEC.
Following is a discussion of the Companys most critical accounting
policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | B. |  | Successful Efforts Method of Accounting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |  | The Company utilizes the successful efforts method of accounting
for oil and gas producing activities. Under the successful efforts
method, property acquisition and development costs and certain
productive exploration cost are capitalized while non-productive
exploration costs, which include certain geological and geophysical
costs, exploratory dry hole costs and costs of carrying and
retaining unproved properties, are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |    |  | The major difference between the successful efforts method of
accounting and the alternative full cost method is that under the
full cost method of accounting such exploration costs and expenses
are capitalized as assets, pooled with the costs of successful wells
and charged against the net income (loss) of future periods as a
component of depletion or impairment expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

7



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Note 1. Summary of Accounting Policies (contd)



| | C. |  | Oil and Gas Reserves                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The Companys proved developed and proved undeveloped reserves are
all located within the Appalachian Basin in the United States. The
Company cautions that there are many uncertainties inherent in
estimating proved reserve quantities and in projecting future
production rates and the timing of development expenditures. In
addition, estimates of new discoveries are more imprecise than those
of properties with a production history. Accordingly, these
estimates are expected to change as future information becomes
available. Material revisions of reserve estimates may occur in the
future, development and production of the oil and gas reserves may
not occur in the periods assumed and actual prices realized and
actual costs incurred may very significantly from assumptions used.
Proved reserves represent estimated quantities of natural gas and
oil that geological and engineering data demonstrate with reasonable
certainty, to be recoverable in future years from known reservoirs
under economic and operating conditions existing at the time the
estimates were made. Proved developed reserves are expected to be
recovered through wells and equipment in place and under operating
methods being utilized at the time the estimates were made. The
accuracy of a reserve estimate is a function of the quality and
quantity of available data, the accuracy of assumptions used and the
judgment of the persons preparing the estimate.
|
| |    |  | The Companys proved reserve information is based on estimates it
prepared. Estimates prepared by others may be higher or lower than
the Companys estimates. The Companys estimates of proved reserves
have been reviewed by independent petroleum
engineers at each fiscal year end, most recently, December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | D. |  | Capitalization, Depreciation, Depletion and Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |    |  | Capitalized costs related to proved properties are depleted using
the units-of-production method. Depreciation, depletion and
amortization of proved oil and gas properties is calculated on the
basis of estimated recoverable reserve quantities. These estimates
can change based on economic or other factors. No gains or losses
are recognized upon the disposition of oil and gas properties except
in large or extraordinary transactions. Sales proceeds are credited
to the carrying value of the properties. Maintenance and repairs
are expensed, and expenditures which enhance the value of properties
are capitalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |    |  | Unproved oil and gas properties are stated at cost and consist of
undrilled leases. These costs are assessed periodically to
determine when their value has been impaired, and if impairment is
indicated, the costs are charged to expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |    |  | Gas gathering systems are stated at cost. Depreciation expense is
computed using the straight-line method over an average 15 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |    |  | Other property and equipment are stated at cost. Depreciation of
non-oil and gas properties is computed using the straight-line
method over the useful lives of the assets ranging from 3 to 15
years for machinery and equipment and 30 years for buildings. When
assets other than oil and gas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

8



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##### Table of Contents



Note 1. Summary of Accounting Policies (contd)



| |    |  | properties are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is reflected in income for the period.
The cost of maintenance and repairs is expensed as incurred, and
significant renewals and betterments are capitalized.                                                                                                                                                                                                                                
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not
be recoverable. If the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset, a loss is
recognized for the difference between the fair value and the
carrying amount of the asset. Fair value is based on managements
outlook of future oil and natural gas prices and estimated future
cash flows to be generated by the assets, discounted at a market
rate of interest.
|
| | E. |  | Derivatives and Hedging                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |    |  | The hedging relationship between the hedging instruments and hedged
item must be highly effective. The Company measures effectiveness
at least on a monthly basis. Ineffective portions of a derivative
instruments change in fair value are immediately recognized in net
income (loss). If there is a discontinuance of a cash flow hedge
because it is probable that the original forecasted transaction will
not occur, deferred gains or losses are recognized in earnings
immediately.                                                             
|
| | F. |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |    |  | Gas production revenue is recognized as production takes place. Oil
production is recognized as oil is removed from the well site. Oil
and gas marketing revenues are recognized when title passes.
Oilfield service revenues are recognized when services have been
provided.                                                                                                                                                                                                                                                                            
|
| | G. |  | Per Share Amounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |  | The average number of shares used in computing basic and diluted net
income per share was 15,208,516 and 15,241,877 and 15,208,031 and
15,244,894 for the three months ended September 30, 2002 and 2001,
respectively, and 15,208,423 and 15,241,867 and 15,207,672 and
15,248,769 for the nine months ended September 30, 2002 and 2001,
respectively.                                                                                                                                                                                                  
|
| | H. |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |  | Certain reclassifications were made to prior period financial
statement presentations to conform with current period
presentations.                                                                                                                                                                                                                                                                                                                                                                                                                       

9



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##### Table of Contents



Note 2. Preferred Dividends



| |  |  | The Company paid a dividend of $58,167 and $174,648 on the Cumulative
Convertible Series B Preferred Stock during the nine months ended
September 30, 2002 and 2001, respectively. All dividends in arrears
attributable to Series B Preferred Stock were paid in December 2001.
All shares of Series B Preferred Stock were redeemed on March 31, 2002.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 3. Related Party Transactions



| |  |  | Prior to January 2002, a large portion of the Companys revenues, other
than oil and gas production revenue, was generated from, or was a result
of, the organization and management of oil and gas partnerships
sponsored by the Company. The Company has since ceased to offer oil and
gas partnership investments. The Company believes that the terms of any
remaining related party transactions are consistent with terms that
could have been obtained from unaffiliated third parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Accounts receivable from affiliates amounted to $1,005,890 and $985,559
at September 30, 2002 and December 31, 2001, respectively, consisting
primarily of cash paid on behalf of the partnerships that are managed by
the Company and for administrative fees charged to the partnerships.
During the nine months ended September 30, 2002 and 2001, the Company
acquired limited partnership interests in oil and gas partnerships that
it had sponsored at a cost of approximately $295,000 and $1,590,000,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | In August 2002 the Company offered to purchase any and all partnership
interests in 17 limited partnerships in which the company serves as
Managing General Partner for approximately $1.8 million. At
October 31, 2002, the majority of outstanding interests in 14 of the
partnerships had voted in favor of selling all of the assets of the
partnerships to the Company. These 14 partnerships will be terminated
and the Company will acquire the remaining outstanding interests
excluding the interests of those investors that elect to become working
interest owners. At this time it is not possible to determine how many
partners will elect to become working interest owners. Consequently, it
is not possible to estimate the cost of the interests to be acquired or
the oil and gas reserves associated with such interests. Termination
of the partnerships and the acquisition of partnership interests,
excluding the interests of those investors that elect to become
working interest owners, is expected to take place in the fourth
quarter of 2002.

Note 4. Financial Instruments



| |  |  | Derivative Financial Instruments:The Company uses derivatives solely
for hedging purposes. The following is a summary of the Companys risk
management strategies and the effect of these strategies on the
Companys consolidated financial statements.                                                                                                                                                                                                                  
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Cash Flow Hedging Strategy:The Company is exposed to commodity price
risks related to natural gas. The Companys financial results can be
significantly impacted by changes in commodity prices. Costless
collars consist of a sold call option and a purchased put option such
that the combined revenue and cost of these individual transactions is
equal to or near zero. During 2001 and 2002, the Company entered into
the following costless collar arrangements:

10



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##### Table of Contents



Note 4. Financial Instruments (contd)

|                                     |  |         |         |           |  |           |      |  |  |  |      | 
|------------------------------------ |  | ------- | ------- | --------- |  | --------- | ---- |  |  |  | ---- | 
|                                     |  | Monthly |         |           |  |           |      |  |  | 
|                                     |  | Volume  |         | Price/Mcf |  | Price/Mcf
|Term                                 |  | Mcf     |         | Floor     |  | Ceiling  
|                                     |  |         |         |           |  |          
|January 1, 2002 to December 31, 2002 |  |         | 130,000 |           |  |           | 3.34 |  |  |  | 4.52 | 
|May 1, 2002 to December 31, 2002     |  |         | 139,000 |           |  |           | 3.29 |  |  |  | 4.62 | 
|August 1, 2002 to March 31, 2003     |  |         | 46,000  |           |  |           | 3.33 |  |  |  | 4.12 | 
|November 1, 2002 to March 31, 2003   |  |         | 98,000  |           |  |           | 3.08 |  |  |  | 3.48 | 
|January 1, 2003 to December 31, 2003 |  |         | 98,000  |           |  |           | 3.33 |  |  |  | 4.45 | 
|January 1, 2003 to December 31, 2003 |  |         | 130,000 |           |  |           | 3.45 |  |  |  | 5.11 | 
|April 1, 2003 to December 31, 2003   |  |         | 135,000 |           |  |           | 4.07 |  |  |  | 5.29 | 
|April 1, 2003 to December 31, 2003   |  |         | 149,000 |           |  |           | 3.74 |  |  |  | 4.51 | 
|January 1, 2004 to December 31, 2004 |  |         | 132,000 |           |  |           | 3.85 |  |  |  | 5.30 | 



| |  |  | Gains or losses on the hedge relative to the market are recognized
monthly as additions to or subtractions from oil and gas sales. To
lessen its exposure to commodity price risk, the Company expects to
continue to sell natural gas under fixed price contracts, on the spot
market and to use financial hedging instruments to realize a fixed price
on a portion of its production.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The following table reflects the natural gas volumes and the weighted
average prices under financial hedges and fixed price contracts at
September 30, 2002:                                                                                                                                                                                                                            

|                   |  |                            |       |                        |  |       |      |     |  |            |      |             |  |  |      |  |  |             |       |  |  |  |      | 
|------------------ |  | -------------------------- | ----- | ---------------------- |  | ----- | ---- | --- |  | ---------- | ---- | ----------- |  |  | ---- |  |  | ----------- | ----- |  |  |  | ---- | 
|                   |  |                            |       |                        |  |       |      |     |  |            |      |             |  |  |      |  |  | Fixed Price
|                   |  | Financial Hedges (Collars) |       | Contracts             
|                   |  |                            |       |                       
|                   |  |                            |       |                        |  |       |      |     |  | Estimated  |      |             |  |  |      | 
|                   |  |                            |       | Realizable Price (Mcf) |  |       |      |     |  | Estimated 
|                   |  | NYMEX                      |       |                        |  |       |      |     |  | Realizable
|Quarter Ending     |  | MMcf                       |       | Price (DTH)            |  | Floor |      | Cap |  | MMcf       |      | Price (Mcf)
|                   |  |                            |       |                        |  |       |      |     |  |            |      |            
|December 31, 2002  |  |                            | 1,158 |                        |  |       | 4.05 |     |  |            | 3.43 |             |  |  | 4.48 |  |  |             | 1,086 |  |  |  | 3.57 | 
|March 31, 2003     |  |                            | 1,114 |                        |  |       | 4.27 |     |  |            | 3.48 |             |  |  | 4.56 |  |  |             | 949   |  |  |  | 3.60 | 
|June 30, 2003      |  |                            | 1,531 |                        |  |       | 3.91 |     |  |            | 3.63 |             |  |  | 4.81 |  |  |             | 364   |  |  |  | 3.72 | 
|September 30, 2003 |  |                            | 1,540 |                        |  |       | 3.94 |     |  |            | 3.63 |             |  |  | 4.81 |  |  |             | 222   |  |  |  | 3.67 | 
|December 31, 2003  |  |                            | 1,540 |                        |  |       | 4.12 |     |  |            | 3.69 |             |  |  | 4.87 |  |  |             | 153   |  |  |  | 3.19 | 
|March 31, 2004     |  |                            | 396   |                        |  |       | 4.18 |     |  |            | 4.08 |             |  |  | 5.53 |  |  |             | 92    |  |  |  | 3.00 | 
|June 30, 2004      |  |                            | 396   |                        |  |       | 3.73 |     |  |            | 4.01 |             |  |  | 5.46 |  |  |             | 81    |  |  |  | 2.81 | 
|September 30, 2004 |  |                            | 400   |                        |  |       | 3.71 |     |  |            | 4.01 |             |  |  | 5.46 |  |  |             | 79    |  |  |  | 2.77 | 
|December 31, 2004  |  |                            | 400   |                        |  |       | 3.90 |     |  |            | 4.06 |             |  |  | 5.51 |  |  |             | 84    |  |  |  | 2.89 | 

11



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##### Table of Contents



Note 4. Financial Instruments (contd)



| |  |  | Interest Rate Swaps:During 2001 and the first nine months of 2002, the
Company entered into interest rate swap agreements that effectively
convert a portion of its variable-rate-long-term-debt to fixed rate debt
for periods of up to two years, thus reducing the impact of interest rate
changes on future income. At September 30, 2002, the following contracts
were outstanding:
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     |  |                 |            |       |  |            |     |        |  |  |     |  
|------------------------------------ |  | --------------- | ---------- | ----- |  | ---------- | --- | ------ |  |  | --- | -
|                                     |  |                 |            |       |  | LIBOR Rate |     | All-In
|Term                                 |  | Notional Amount |            | Fixed |  | Rate Fixed
|                                     |  |                 |            |       |  |           
|January 1, 2002 to December 31, 2002 |  | $               | 20,000,000 |       |  |            | 2.7 | %      |  |  | 4.6 | %
|January 1, 2002 to December 31, 2003 |  | $               | 20,000,000 |       |  |            | 3.5 | %      |  |  | 5.4 | %
|January 1, 2003 to December 31, 2003 |  | $               | 20,000,000 |       |  |            | 4.2 | %      |  |  | 6.0 | %



| |  |  | On April 1, 2001, the Company adopted Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities (as
amended). SFAS 133 establishes accounting and reporting standards for
hedging activities and derivative instruments.                                                                                                                                                                                                                                                                                                                         
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company qualifies for special hedge accounting treatment under SFAS
133, whereby the fair value of the hedge is recorded in the balance sheet
as either an asset or liability and changes in fair value are recognized
in other comprehensive income until settled, when the resulting gains and
losses are recorded in earnings. The effect on earnings and other
comprehensive income as a result of SFAS 133 will vary from period to
period and will be dependent upon prevailing natural gas prices and
interest rates, the volatility of forward prices for such commodities,
the amount the Company hedges and the time periods covered by such
hedges.
|
| |  |  | The following table summarizes other comprehensive income of the Company
for the three and nine months ended September 30, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                                                        |                     |   |                    |          |                   |   |           |         |      |   |           |          |   |   |           |         | 
|----------------------------------------------------------------------- | ------------------- | - | ------------------ | -------- | ----------------- | - | --------- | ------- | ---- | - | --------- | -------- | - | - | --------- | ------- | 
|                                                                        |                     |   | Three Months Ended |          | Nine Months Ended
|                                                                        |                     |   | September 30,      |          | September 30,    
|                                                                        |                     |   |                    |          |                  
|                                                                        |                     |   | 2002               |          | 2001              |   | 2002      |         | 2001
|                                                                        |                     |   |                    |          |                   |   |           |         |     
|Net Income                                                              |                     | $ | 2,301,589          |          |                   | $ | 1,888,704 |         |      | $ | 6,870,873 |          |   | $ | 6,852,622 |        
|Change in mark-to-market
hedge asset (liability) net
of deferred taxes: |                     |   |                    |          |                   |   |           |         |      |   |           |          |   |   |           |        
|                                                                        | Natural gas hedging |   |                    | (270,798 | )                 |   |           | 421,113 |      |   |           | (990,478 | ) |   |           | 126,113 | 
|                                                                        | Interest rate swaps |   |                    | (375,887 | )                 |   |           | 0       |      |   |           | (627,915 | ) |   |           | 0       | 
|                                                                        |                     |   |                    |          |                   |   |           |         |      |   |           |          |   |   |           |        
|Comprehensive Income                                                    |                     | $ | 1,654,904          |          |                   | $ | 2,309,817 |         |      | $ | 5,252,480 |          |   | $ | 6,978,735 |        
|                                                                        |                     |   |                    |          |                   |   |           |         |      |   |           |          |   |   |           |        

12



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Note 5. Accounting Standards



| |  |  | In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds SFAS 4, Reporting Gains and Losses from
Extinguishment of Debt, SFAS 44, Accounting for Intangible Assets of
Motor Carriers and SFAS 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements and amends SFAS 13, Accounting for Leases.
Statement 145 also makes technical corrections to other existing
pronouncements. SFAS 4 required gains and losses from extinguishment of
debt to be classified as an extraordinary item, net of the related income
tax effect. As a result of the rescission of SFAS 4, the criteria for
extraordinary items in APB Opinion No. 30, Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, now will be used to classify those gains and losses. SFAS
145 is effective quarter ending September 30, 2002, for the Companys
financial position, results of operations and cash flows.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 will be effective for the
Company for disposal activities initiated after December 31, 2002. The
adoption of this standard is not expected to have a material effect on
the Companys financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Note 6. Commitments and Contingencies



| |  |  | The Company leases certain equipment used in its field operations under
non-cancellable operating leases. Rents under existing leases are
approximately $10,000 per month and continues in decreasing amounts until
2005.                                                                                                                                                                                                                                                                                                                                                                                      
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company has 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), NCE has agreed to indemnify these
investor-general partners from any partnership liability, which they may
incur in excess of their capital contributions.
|
| |  |  | From time to time and in the ordinary course of business, the Company may
be subject to various claims, charges, and litigation. In the opinion of
management, final judgments from such pending claims, charges, and
litigation, if any, against the Company would not have a material adverse
effect on its consolidated financial position, results of operations or
cash flows.                                                                                                                                                                                                                            

Note 7. Industry Segment Information



| |  |  | The Company operates in one reportable industry segment as an independent
energy company engaged in exploring for, developing and producing natural
gas and oil reserves, acquiring and enhancing existing reserves and
gathering and marketing natural gas and oil. The companys operations
are entirely within the United States.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents






Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



| |  |  | Forward Looking Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The information in this document includes forward-looking statements that
are made pursuant to Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are based on current
expectations and projections about future events. Forward-looking statements,
and the business prospects of the Company are subject to a number of risks and
uncertainties, which may cause the Companys actual results in future periods
to differ from the forward-looking statements contained herein. These risks
and uncertainties include, but are not limited to, the Companys access to
capital, the market demand for and prices of oil and natural gas, the Companys
oil and gas production and costs of operation, the results of the Companys
future drilling activities, the uncertainties of reserve estimates, general
economic conditions, new legislation or regulation changes, changes in
accounting principles, policies or guidelines and environmental risks. These
and other risks are described in the Companys 10-K and 10-Q reports and other
filings with the SEC.

14



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##### Table of Contents



General

North Coast Energy, Inc., a Delaware corporation (NCE or the Company),
is an affiliate of nv NUON (NUON), a limited liability company organized
under the laws of The Netherlands. NCE and its subsidiaries are engaged in the
acquisition and enhancement of developed producing natural gas and oil
properties and the exploration, development and production of undeveloped
natural gas and oil properties. NCE derives its revenues from its own oil and
gas production, well operating and gas gathering and marketing services it
provides for third parties.

The following tables review the results of operations of the Company for the
three and nine months ended September 30, 2002 and 2001.

|                                  |                                        |   |                    |       |                   |   |      |       |      |   |      |       |  |   |      |       | 
|--------------------------------- | -------------------------------------- | - | ------------------ | ----- | ----------------- | - | ---- | ----- | ---- | - | ---- | ----- |  | - | ---- | ----- | 
|                                  |                                        |   | Three Months Ended |       | Nine Months Ended
|                                  |                                        |   | September 30,      |       | September 30,    
|                                  |                                        |   |                    |       |                  
|                                  |                                        |   | 2002               |       | 2001              |   | 2002 |       | 2001
|                                  |                                        |   |                    |       |                   |   |      |       |     
|PRODUCTION                        |                                        |   |                    |       |                   |   |      |       |      |   |      |       |  |   |      |      
|                                  | Oil production (MBbls)                 |   |                    | 27    |                   |   |      | 27    |      |   |      | 76    |  |   |      | 68    | 
|                                  | Gas production (MMcf)                  |   |                    | 2,425 |                   |   |      | 2,267 |      |   |      | 6,935 |  |   |      | 6,216 | 
|                                  | Total production (MMcfe)               |   |                    | 2,585 |                   |   |      | 2,426 |      |   |      | 7,393 |  |   |      | 6,624 | 
|AVERAGE PRICES                    |                                        |   |                    |       |                   |   |      |       |      |   |      |       |  |   |      |      
|                                  | Oil (per Bbl)                          |   | $                  | 25.80 |                   |   | $    | 21.70 |      |   | $    | 21.90 |  |   | $    | 23.21 | 
|                                  | Gas (per Mcf)                          |   |                    | 3.51  |                   |   |      | 3.25  |      |   |      | 3.54  |  |   |      | 3.55  | 
|                                  | Average price per Mcfe                 |   |                    | 3.56  |                   |   |      | 3.27  |      |   |      | 3.55  |  |   |      | 3.57  | 
|AVERAGE COSTS (per Mcfe)          |                                        |   |                    |       |                   |   |      |       |      |   |      |       |  |   |      |      
|                                  | Production expense                     |   | $                  | 0.65  |                   |   | $    | 0.67  |      |   | $    | 0.63  |  |   | $    | 0.75  | 
|                                  | Production taxes                       |   |                    | 0.22  |                   |   |      | 0.25  |      |   |      | 0.21  |  |   |      | 0.29  | 
|                                  | Depreciation, depletion & amortization |   |                    | 0.87  |                   |   |      | 0.90  |      |   |      | 0.87  |  |   |      | 0.83  | 
|                                  | General and administrative expense     |   |                    | 0.37  |                   |   |      | 0.37  |      |   |      | 0.40  |  |   |      | 0.46  | 
|GROSS OPERATING MARGIN (per Mcfe) |                                        | $ | 2.69               |       |                   | $ | 2.35 |       |      | $ | 2.71 |       |  | $ | 2.53 |      

|                        |  |       |  |                     |  |        |  |                                              
|----------------------- |  | ----- |  | ------------------- |  | ------ |  | ---------------------------------------------
|MBbls: thousand barrels |  | MMcf: |  | million cubic feet  |  | MMcfe: |  | million cubic feet of natural gas equivalent 
|Bbl: barrel             |  | Mcf:  |  | thousand cubic feet |  | Mcfe:  |  | thousand cubic feet of natural gas equivalent

Gross Operating Margin (per Mcfe): Average Price less Production Expense (including production taxes)

15



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##### Table of Contents



All items in the following table are calculated as a percentage of total
revenues.

|               |                                           |  |                    |    |                   |  |      |    |      |  |     |    |   |  |     |    |  
|-------------- | ----------------------------------------- |  | ------------------ | -- | ----------------- |  | ---- | -- | ---- |  | --- | -- | - |  | --- | -- | -
|               |                                           |  | Three Months Ended |    | Nine Months Ended
|               |                                           |  | September 30,      |    | September 30,    
|               |                                           |  |                    |    |                  
|               |                                           |  | 2002               |    | 2001              |  | 2002 |    | 2001
|               |                                           |  |                    |    |                   |  |      |    |     
|Revenues:      |                                           |  |                    |    |                   |  |      |    |      |  |     |    |   |  |     |   
|               | Oil and gas production                    |  |                    | 85 | %                 |  |      | 77 | %    |  |     | 79 | % |  |     | 61 | %
|               | Drilling                                  |  |                    | 0  | %                 |  |      | 0  | %    |  |     | 6  | % |  |     | 16 | %
|               | Well operating, gathering, and other      |  |                    | 15 | %                 |  |      | 23 | %    |  |     | 15 | % |  |     | 23 | %
|               |                                           |  |                    |    |                   |  |      |    |      |  |     |    |   |  |     |   
|Total Revenues |                                           |  | 100                | %  |                   |  | 100  | %  |      |  | 100 | %  |   |  | 100 | % 
|Expenses:      |                                           |  |                    |    |                   |  |      |    |      |  |     |    |   |  |     |   
|               | Oil and gas production                    |  |                    | 21 | %                 |  |      | 21 | %    |  |     | 19 | % |  |     | 18 | %
|               | Drilling costs                            |  |                    | 0  | %                 |  |      | 2  | %    |  |     | 5  | % |  |     | 13 | %
|               | Well operating, gathering, and other      |  |                    | 11 | %                 |  |      | 13 | %    |  |     | 11 | % |  |     | 13 | %
|               | General and administrative                |  |                    | 9  | %                 |  |      | 9  | %    |  |     | 9  | % |  |     | 8  | %
|               | Depreciation, depletion, and amortization |  |                    | 21 | %                 |  |      | 21 | %    |  |     | 19 | % |  |     | 14 | %
|               | Interest (net)                            |  |                    | 6  | %                 |  |      | 8  | %    |  |     | 6  | % |  |     | 8  | %
|               | Income taxes                              |  |                    | 11 | %                 |  |      | 8  | %    |  |     | 10 | % |  |     | 8  | %
|               |                                           |  |                    |    |                   |  |      |    |      |  |     |    |   |  |     |   
|Total Expenses |                                           |  | 79                 | %  |                   |  | 82   | %  |      |  | 79  | %  |   |  | 82  | % 
|Net Income     |                                           |  | 21                 | %  |                   |  | 18   | %  |      |  | 21  | %  |   |  | 18  | % 
|               |                                           |  |                    |    |                   |  |      |    |      |  |     |    |   |  |     |   

The following discussion and analysis reviews the results of operations and the
financial condition for the Company for three and nine months ended September
30, 2002 and 2001. The review should be read in conjunction with the financial
information presented elsewhere herein.

16



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##### Table of Contents



Comparison of Three Months Ended September 30, 2002 to September 30, 2001

Revenues

Oil and gas revenues increased $1,257,458 (16%) to $9,194,196 for the
three months ended September 30, 2002, from $7,936,738 for the three months
ended September 30, 2001. The increase in oil and gas revenues reflects higher
volumes of gas production. The Companys production volumes for the three
months ended September 30, 2002, were 2,585,044 Mcfe (Mcf equivalents) of
natural gas and oil compared to 2,425,822 Mcfe for the three months ended
September 30, 2001. The Company recognizes a portion of the wellhead price it
receives as gas gathering and other revenues to offset a portion of its costs
related to its gathering systems and compression facilities. Excluding the
portion attributable to gas gathering and compression revenues, the Company
received an average price of $3.56 and $3.27 per Mcfe for oil and natural gas
sold for the three months ended September 30, 2002 and 2001, respectively.

Well operating, gathering and other revenue decreased $759,290 (32%) to
$1,648,632 for the three months ended September 30, 2002, compared to
$2,407,922 for the three months ended September 30, 2001. This decrease
results from lower natural gas gathering revenue and lower gas marketing
revenues due to a significant reduction in gas purchased and sold to third
parties because of reduced demand in 2002.

Expenses

Oil and gas production expenses increased $19,763 (1%) to $2,231,911 for
the three months ended September 30, 2002, from $2,212,148, for the three
months ended September 30, 2001, reflecting increased production volumes.

Drilling costs decreased $164,088 (100%) to $0 for the three months ended
September 30, 2002, compared to $164,088 at September 30, 2001, due to no wells
being drilled for drilling partnerships in the quarter ending September 30,
2002.

Well operating, gathering, and other expenses decreased $151,505 (11%) for
the three months ended September 30, 2002, to $1,238,309 from $1,389,814 for
the three months ended September 30, 2001, primarily as a result of decreased
costs and amounts of gas purchased and sold to third parties.

General and administrative expenses increased $40,491 (4%) to $947,224 for
the three months ended September 30, 2002, from $906,733 for the three months
ended September 30, 2001, primarily due to compensation and benefit related
expenses.

The increase in depreciation, depletion and amortization (DD&A) of $74,825
(3%) to $2,257,730 for the three months ended September 30, 2002, from
$2,182,905 for the three months ended September 30, 2001, is the result of
increased production volumes in the quarter ending September 30, 2002. DD&A
per unit of production decreased 3% to $0.87 per Mcfe in the quarter ending
September 30, 2002.

For the three months ended September 30, 2002, net interest expense
decreased $109,624 to $690,942 compared to $800,566 for the three months ended
September 30, 2001. The decrease reflects lower interest rates on the
Companys long-
17Table of Contents

term debt partially offset by lower interest income resulting
from lower rates earned on amounts invested in 2002 compared to 2001.

Net income for the three months ended September 30, 2002, increased
$412,885 (22%) to $2,301,589 from $1,888,704 for the three months ended
September 30, 2001 due to increased production volumes along with a $0.28
increase in average price per Mcfe. The Companys net income attributable to
common stock was $2,301,589 ($0.15/share) for the three months ended September
30, 2002, compared to $1,830,488 ($0.12/share) for the three months ended
September 30, 2001.

18



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##### Table of Contents



Comparison of Nine Months Ended September 30, 2002 to September 30, 2001

Revenues

Oil and gas revenues increased $2,627,349 (11%) to $26,245,966 for the
nine months ended September 30, 2002, from $23,618,617 for the nine months
ended September 30, 2001. The increase in oil and gas revenues reflects
increased volumes of gas and oil production offset by slightly lower prices
received for natural gas and oil. The Companys production volumes for the
nine months ended September 30, 2002, were 7,393,174 Mcfe (Mcf equivalents) of
natural gas and oil compared to 6,624,295 Mcfe for the nine months ended
September 30, 2001. The Company recognizes a portion of the wellhead price it
receives as gas gathering and other revenues to offset a portion of its costs
related to its gathering systems and compression facilities. Excluding the
portion attributable to gas gathering and compression revenues, the Company
received an average price of $3.55 and $3.57 per Mcfe for oil and natural gas
sold for the nine months ended September 30, 2002 and 2001, respectively.

Drilling revenues decreased $4,132,169 (66%) to $2,082,351 for the nine
months ended September 30, 2002, compared to $6,214,520 for the nine months
ended September 30, 2001. This decrease results from significantly less
drilling program funds being raised reflecting the Companys exodus from the
drilling program business to focus on its core business of exploration and
production.

Well operating, gathering and other revenue decreased $3,736,468 (43%) to
$5,039,990 for the nine months ended September 30, 2002, compared to $8,776,458
for the nine months ended September 30, 2001. This decrease results from lower
natural gas gathering revenue and lower gas marketing revenues due to a
significant reduction in gas purchased and sold to third parties because of
reduced demand in 2002.

Expenses

Oil and gas production expenses decreased $941,872 (13%) to $6,175,590 for
the nine months ended September 30, 2002, from $7,117,462 for the nine months
ended September 30, 2001, reflecting ongoing efficiencies in field operations
and lower production taxes resulting from lower average gas prices.

Drilling costs decreased $3,041,518 (63%) to $1,752,456 for the nine
months ended September 30, 2002, compared to $4,793,974 at September 30, 2001,
reflecting a significantly reduced number of wells drilled and completed for
drilling programs.

Well operating, gathering, and other expenses decreased $1,288,973 (27%)
for the nine months ended September 30, 2002, to $3,573,052 from $4,862,025 at
September 30, 2001, primarily as a result of decreased costs and amounts of gas
purchased and sold to third parties.

General and administrative (G&A) expenses decreased $96,695 (3%) to
$2,921,300 for the nine months ended September 30, 2002, from $3,017,995 for
the nine months ended September 30, 2001. The decrease in G&A expense
primarily reflects the elimination of costs incurred in the quarter ended March
31, 2001 associated with business process reengineering activities and the
implementation of a new computer system.

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##### Table of Contents



The increase in depreciation, depletion and amortization (DD&A) of
$954,513 (17%) to $6,463,464 for the nine months ended September 30, 2002, from
$5,508,951 for the nine months ended September 30, 2001, is the result of
higher volumes of oil and gas produced during the nine months ended September
30, 2002. DD&A per unit of production increased 5% to $0.87 per Mcfe for the
nine months ended September 30, 2002.

For the nine months ended September 30, 2002, net interest expense
decreased $1,088,624 to $2,105,240 compared to $3,193,864 for the nine months
ended September 30, 2001. The decrease reflects lower interest rates on the
Companys long-term debt partially offset by lower interest income resulting
from lower rates earned on amounts invested in 2002 compared to 2001.

Net income for the nine months ended September 30, 2002 increased $18,251
(0.3%) to $6,870,873 from $6,852,622 for the nine months ended September 30,
2001, primarily as a result of increased production volumes reflected in oil
and gas revenues. This increase is offset by the decrease in drilling
revenues. This reflects the Companys shift from the drilling program business
to its core business of exploration and development. The Companys net income
attributable to common stock was $6,812,706 ($0.45/share) for the nine months
ended September 30, 2002, compared to $6,677,974 ($0.44/share) for the nine
months ended September 30, 2001.

Inflation and Changes in Prices

Inflation affects the Companys operating expenses as well as interest
rates, both of which may have an effect on the Companys profitability. Oil
and gas prices have not followed inflation and have fluctuated during recent
years as a result of other forces such as the Organization of Petroleum
Exporting Countries (OPEC), economic factors and demand for and supply of
natural gas in the United States and within the Companys regional area of
operation. Natural gas prices have decreased slightly during the nine months
ended September 30, 2002, compared to the natural gas prices for the nine
months ended September 30, 2001. This decrease in price is attributed to
higher storage supplies entering the winter of 2002/2003 and decreased natural
gas demand for industrial use. As a result of these market forces, the Company
received an average price of $21.90 per barrel of oil for the nine months ended
September 30, 2002 compared to $23.21 for the nine months ended September 30,
2001. The Company received an average price after recognition of a portion of
the wellhead price in gas gathering and other revenues of $3.54 per Mcf for its
natural gas for the nine months ended September 30, 2002, compared to $3.55 for
the nine months ended September 30, 2001. The Company cannot predict the
future direction of oil and gas markets and prices, as the forces noted above
as well as other variables are subject to change.

Liquidity and Capital Resources

The Companys working capital was $8,555,096 at September 30, 2002,
compared to $16,443,735 at December 31, 2001. The decrease of $7,888,639 in
working capital at September 30, 2002, is due mainly to the use of cash in the
Companys drilling activity, the acquisition of certain oil and gas properties
and the redemption of the Companys Series B Preferred Stock.

20



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##### Table of Contents



| |  |  | The following table summarizes the Companys financial position at September
30, 2002, and December 31, 2001 (amounts in thousands):
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------
|

|                                            |       |   |               |         |              |  |        |     |   |   |         |         |  |  |    |     | 
|------------------------------------------- | ----- | - | ------------- | ------- | ------------ |  | ------ | --- | - | - | ------- | ------- |  |  | -- | --- | 
|                                            |       |   | September 30, |         | December 31,
|                                            |       |   | 2002          |         | 2001        
|                                            |       |   |               |         |             
|                                            |       |   | Amount        |         | %            |  | Amount |     | %
|                                            |       |   |               |         |              |  |        |     |  
|Working Capital                             |       | $ | 8,555         |         |              |  | 6      |     |   | $ | 16,444  |         |  |  | 12 |    
|Property and equipment (net)                |       |   | 127,477       |         |              |  | 93     |     |   |   | 113,248 |         |  |  | 86 |    
|Other                                       |       |   | 1,588         |         |              |  | 1      |     |   |   | 2,735   |         |  |  | 2  |    
|                                            |       |   |               |         |              |  |        |     |   |   |         |         |  |  |    |    
|                                            | Total |   | $             | 137,620 |              |  |        | 100 |   |   | $       | 132,427 |  |  |    | 100 | 
|                                            |       |   |               |         |              |  |        |     |   |   |         |         |  |  |    |    
|Long-term debt                              |       | $ | 67,000        |         |              |  | 49     |     |   | $ | 67,000  |         |  |  | 51 |    
|Deferred income taxes and other
liabilities |       |   | 8,373         |         |              |  | 6      |     |   |   | 6,048   |         |  |  | 4  |    
|Stockholders equity                        |       |   | 62,247        |         |              |  | 45     |     |   |   | 59,379  |         |  |  | 45 |    
|                                            |       |   |               |         |              |  |        |     |   |   |         |         |  |  |    |    
|                                            | Total |   | $             | 137,620 |              |  |        | 100 |   |   | $       | 132,427 |  |  |    | 100 | 
|                                            |       |   |               |         |              |  |        |     |   |   |         |         |  |  |    |    

| |  |  | The oil and gas exploration and development activities of NCE historically have
been financed through the sponsored drilling programs, internally generated
funds, and from bank and equity financing.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The following table summarizes the Companys Statements of Cash Flows for the
nine months ended September 30, 2002 and 2001 (amounts in thousands):                                                   
|





|                                            |  |      |         |      |  |   |        |  
|------------------------------------------- |  | ---- | ------- | ---- |  | - | ------ | -
|                                            |  | 2002 |         | 2001
|                                            |  |      |         |     
|Net cash provided by operating activities   |  | $    | 14,083  |      |  | $ | 15,552 |  
|Net cash used by investing activities       |  |      | (19,938 | )    |  |   | (9,902 | )
|Net cash used by financing activities       |  |      | (2,385  | )    |  |   | (3,937 | )
|                                            |  |      |         |      |  |   |        |  
|(Decrease) Increase in cash and equivalents |  | $    | (8,240  | )    |  | $ | 1,713  |  
|                                            |  |      |         |      |  |   |        |  



| |  |  | As the above table indicates, the Companys cash provided by operating
activities was $14,082,933 and $15,552,188 for the nine months ended September
30, 2002, and 2001, respectively. This decrease reflects a significant
reduction in accounts receivable from the nine months ended September 30, 2001.                                        
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Net cash used for investing activities was $19,937,969 for the nine months
ended September 30, 2002, compared to $9,901,617 for the nine months ended
September 30, 2001 reflecting the Companys increased drilling for its own
account and the acquisition of producing oil and gas properties.                                                   
|
| |  |  | Net cash used in financing activities was $2,384,807 for the nine months ended
September 30, 2002, and $3,937,836 for the nine months ended September 30,
2001. The amount used in 2002 was primarily for the redemption of the
Companys Series B Preferred Stock while the amount used in 2001 was primarily
used for repayment of long-term debt.

21



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##### Table of Contents





| |  |  | At September 30, 2002, the Company had $8,000,000 available on its revolving
line of credit and cash balances totaling $13,796,081. In October 2002, the
Company was informed by its lead bank that its borrowing base will be increased
to $80,000,000, which will increase the amount available under its line of
credit to $23,000,000. The Company believes that its cash, cash flow from
operations and available borrowing capacity are adequate to fund its planned
capital expenditures and operations, including any operating risks discussed
below under the heading Quantitative and Qualitative disclosures About Market
Risk.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 3. Quantitative and Qualitative Disclosures About Market Risk



| |  |  | The Company is exposed to commodity price, interest rate and credit risks.
The Companys primary interest rate risk exposure results from floating rate
debt including debt under the Companys revolving Credit Facility and the
Subordinated Promissory Note between the Company and NUON. The Company is
exposed to commodity price risks related to natural gas and oil. The Company
has entered into contracts to reduce its exposure to these risks, as discussed
in the Companys financial statements filed herein. In addition, quantitative
and qualitative disclosures about market risk were included in the Companys
Form 10-K (Item 7A) and the financial statements included therein for the
fiscal year ended December 31, 2001.                                                                                                                                                                                             
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company is exposed to credit risk from its customers and
counterparties transactions. The Company has credit approval policies that
establish credit limits for its customers. These limits are closely monitored,
as are collections of accounts receivable. The Company generally does not
require collateral from its customers and counterparties. Historically, losses
from bad debt have been within managements expectations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | The Companys ability to collect for sales of natural gas and oil to its
customers is dependent on the payment ability of the Companys customer base.
The Company monitors the creditworthiness of its customers and, from time to
time, will demand adequate assurances of performance if the creditworthiness of
the customer is in question. If such assurances are not given to the Company,
an alternative purchaser may be sought. In recent months, a number of energy
marketing and trading companies have discontinued their marketing and trading
operations, which has significantly reduced the number of potential purchasers
for the Companys natural gas production. This reduction in potential
customers has reduced market liquidity and, in some cases, made it difficult
for the Company to identify creditworthy customers. The Company will continue
to monitor its customer base and to pursue alternative customers.
|
| |  |  | The Company sells approximately $1,000,000 per month of natural gas to a
major customer. Performance by this customer is guaranteed by an affiliate of
the customer. The credit rating of the customers affiliate was recently
downgraded by various credit rating agencies due to liquidity and other
financial concerns. In the event of a default in payment by the customer, the
Company may not be able to collect amounts due from the customer or customers
affiliate and would need to identify an alternative purchaser for a significant
amount of natural gas. The Company presently believes that the customer will
honor all payment obligations to the Company.                                                                                                                                                                                                                                                               

22



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##### Table of Contents






Item 4. Controls and Procedures



| |  |  | Evaluation of disclosure controls and procedures.The Companys Chief
Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14) as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date) have concluded that as of
the Evaluation Date, the Companys disclosure controls and procedures were
effective in ensuring that information required to be disclosed by the Company
in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commissions rules and forms.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Changes in internal controls.There were no significant changes in the
Companys internal controls or in other factors that could significantly affect
these controls subsequent to the Evaluation Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

23



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##### Table of Contents



NORTH COAST ENERGY, INC. AND SUBSIDIARIES




PART II

OTHER INFORMATION




Item 1. Legal Proceedings



| |  |  | Not applicable
| |  |  | --------------




Item 2. Changes in Securities



| |  |  | Not applicable
| |  |  | --------------




Item 3. Defaults Upon Senior Securities



| |  |  | Not applicable
| |  |  | --------------




Item 4. Submission of Matters to a Vote of Security Holders



| |  |  | Not applicable
| |  |  | --------------




Item 5. Other Information



| |  |  | Not applicable
| |  |  | --------------




Item 6. Exhibits and Reports on Form 8-K



| | a.) |  | Exhibits                                                                                  
| | --- |  | ------------------------------------------------------------------------------------------
|
| |     |  | None                                                                                      
|
| | b)  |  | Reports on Form 8-K:                                                                      
|
| |     |  | No reports on Form 8-K have been filed during the quarter for which
this report was filed.

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##### Table of Contents






SIGNATURES

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

|                 |  |                                                                         
|---------------- |  | ------------------------------------------------------------------------
|                 |  | NORTH COAST ENERGY, INC.                                                
|                
|November 6, 2002 |  | /s/ Ömer YonelÖmer Yonel
President, Chief Executive Officer and Director
|                
|                 |  | NORTH COAST ENERGY, INC.                                                
|                
|November 6, 2002 |  | /s/ Dale E. StittDale E. Stitt                                          
|                
|                 |  | Chief Financial Officer and Principal Accounting Officer                

25



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##### Table of Contents






CERTIFICATIONS

I, Ömer Yonel, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of North Coast Energy,
Inc.;

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

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

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



| |  |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

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



| |  |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

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

|                       |  |  |  |                                                                               
|---------------------- |  |  |  | ------------------------------------------------------------------------------
|Date: November 6, 2002 |  |  |  | Signed:  /s/ Ömer YonelTitle:  President, Chief Executive Officer and Director

26



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##### Table of Contents






I, Dale E. Stitt, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of North Coast Energy,
Inc.;

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

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

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



| |  |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

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



| |  |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

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

|                       |  |  |  |                                                                                           
|---------------------- |  |  |  | ------------------------------------------------------------------------------------------
|Date: November 6, 2002 |  |  |  | Signed:  /s/ Dale E. StittTitle:  Chief Financial Officer and Principal Accounting Officer

27