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

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended        August 31, 1997
                                       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: 1-9872

                              COLUMBUS ENERGY CORP.
             (Exact name of registrant as specified in its charter)

           Colorado                                            84-0891713
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                             Identification No.)

     1660 Lincoln St., Denver, CO                                80264
(Address of principal executive offices)                      (Zip Code)

                                 (303) 861-5252
              (Registrant's telephone number, including area code)

                                 Not Applicable
   (Former name, former address and former fiscal year, if since last report)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes  X   No

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date.

           Class                                 Outstanding at October 14, 1997
Common stock, $.20 par value                               3,861,752

<PAGE>

                              COLUMBUS ENERGY CORP.

                                      INDEX
                                                                            PAGE

PART I.  FINANCIAL INFORMATION

   Item 1.  Financial Statements

            Consolidated  Balance  Sheets  - 
               August  31,  1997 and  
               November  30,  1996........................................... 3

            Consolidated Statements of Income -
               Three Months and Nine Months
               Ended August 1997 and 1996.................................... 5

            Consolidated Statement of
               Stockholders' Equity -
               Nine Months Ended August 31, 1997............................. 6

            Consolidated Statements of Cash Flows -
               Nine Months Ended August 31, 1997
               and 1996...................................................... 7

            Notes to the Financial Statements................................ 9

   Item 2.  Management's Discussion and Analysis
               of Financial Condition and
               Results of Operations ........................................17

PART II.  OTHER INFORMATION

   Item 1.     Legal Proceedings.............................................27

   Items 2-5.  Not Applicable

   Item 6.     Exhibits and Reports
                   on Form 8-K...............................................27

   Signatures................................................................28

                                        2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                              COLUMBUS ENERGY CORP.

                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS

                                               August 31,    November 30,       
                                              ----------    ------------
                                             (unaudited)
                                                     (in thousands)

Current assets:
  Cash and cash equivalents                    $  1,232        $  1,396
  Accounts receivable:
    Joint interest partners                       2,109             889
    Oil and gas sales                             1,598           1,544
    Less allowance for doubtful accounts           (116)           (116)
  Deferred income taxes (Note 3)                    545             631
  Inventory of oil field equipment,
    at lower of average cost or market              248             115
  Other                                              42              77
                                               --------        --------

        Total current assets                      5,658           4,536
                                               --------        --------

Property and equipment:
  Oil and gas assets, successful efforts
    method (Note 2)                              34,339          28,031
  Other property and equipment                    2,052           2,001
                                               --------        --------

                                                 36,391          30,032
  Less:  Accumulated depreciation,
     depletion and amortization
     and valuation allowance                    (15,267)        (12,943)
                                               --------        --------

        Net property and equipment               21,124          17,089
                                               --------        --------

                                               $ 26,782        $ 21,625
                                               ========        ========

                                                             (continued)

                                        3
<PAGE>

                              COLUMBUS ENERGY CORP.

                    CONSOLIDATED BALANCE SHEETS - (continued)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                 August 31,   November 30,
                                                   1997          1996
                                                ----------    ------------
                                                (unaudited)
                                                       (in thousands)
Current liabilities:
  Accounts payable                              $   2,894        $   1,292
  Undistributed oil and gas
   production receipts                                374               54
  Accrued production and property taxes               323              555
  Prepayments from joint interest owners              193              258
  Accrued expenses                                    353              348
  Income taxes payable (Note 3)                       143               33
  Other                                                12               30
                                                ---------        ---------

        Total current liabilities                   4,292            2,570
                                                ---------        ---------

Long-term bank debt (Note 2)                        3,200            2,200
Deferred income taxes (Note 3)                      1,669              630

Commitments and contingent liabilities (Note 2)

Stockholders' equity:
  Preferred stock authorized 5,000,000
    shares, no par value, none issued                   -                -
  Common stock authorized 20,000,000
    shares of $.20 par value; shares issued
    4,445,558 in 1997, and 3,499,915 in 1996
    (outstanding 3,874,547 in 1997 and
    3,155,346 in 1996)                                889              700
  Additional paid-in capital                       17,551           17,361
  Retained earnings, since
    December 1, 1987                                2,819              720
                                                ---------        ---------
                                                   21,259           18,781
  Less: Treasury stock at cost
          571,011 shares in 1997 and
          344,569 shares in 1996                   (3,638)          (2,556)
                                                ---------        ---------
        Total stockholders' equity                 17,621           16,225
                                                ---------        ---------
                                                $  26,782        $  21,625
                                                =========        =========


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

                                       4
<PAGE>

                                 COLUMBUS ENERGY CORP.

                             CONSOLIDATED STATEMENTS OF INCOME
                                        (Unaudited)

                                      Nine Months Ended      Three Months Ended
                                          August 31,              August 31,
                                     -------------------    -------------------
                                       1997        1996        1997       1996
                                     -------     -------    -------     -------
                                        (in thousands, except per share data)
Revenues:
  Oil and gas sales                  $ 9,919     $ 7,745    $ 3,275     $ 2,514
  Operating and management
    services                             880         820        303         262
  Interest and other income              123         271         51          36
                                     -------     -------    -------     ------- 
       Total revenues                 10,922       8,836      3,629       2,812
                                     -------     -------    -------     -------
  
Costs and expenses:
  Lease operating expenses             1,402       1,477        451         502
  Property and production taxes          921         757        296         253
  Operating and management
    services                             576         648        188         231
  General and administrative           1,140         783        273         242
  Depreciation, depletion and
   amortization                        2,382       2,118        892         745
  Impairments                            494         165        494           -
  Exploration expense                    505         182        125          38
  Litigation (Note 4)                     11          13          -           3
                                     -------     -------    -------     -------
      Total costs and expenses         7,431       6,143      2,719       2,014
                                     -------     -------    -------     -------
       Operating income                3,491       2,693        910         798
                                     -------     -------    -------     -------
    
 Other expenses (income):
  Interest                               111         207         46          65
  Other                                   (5)          4          1          (3)
                                     -------     -------    -------     ------- 
                                         106         211         47          62
                                     -------     -------    -------     -------
      Earnings before
        income taxes                   3,385       2,482        863         736

Provision for income taxes
  (Note 3)                             1,286         943        328         280
                                     -------     -------    -------     ------- 
        Net earnings                 $ 2,099     $ 1,539    $   535     $   456
                                     =======     =======    =======     =======
 
Earnings per share (Note 1):
  Primary                            $   .54     $   .40    $   .14     $   .12
                                     =======     =======    =======     =======
  Fully diluted                          N/A         N/A        N/A     $   .11
                                                                        =======

Average number of common shares outstanding (Note 1):
  Primary                              3,918       3,811      3,890       3,914
                                     =======     =======    =======     ======= 
  Full diluted                           N/A         N/A        N/A       3,969
                                                                        =======

Note 1 - 1996  shares and  earnings  per share  restated  for May 27, 1997 five-
for-four  stock  split.  

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

                                        5
<PAGE>
<TABLE>
<CAPTION>
                                            COLUMBUS ENERGY CORP.
                               CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  For the Nine Months Ended August 31, 1997
                                                 (Unaudited)
 
                                                  
                               Common Stock           Additional                      Treasury Stock    
                            ---------------------      Paid-in     Retained        --------------------
                             Shares       Amount       Capital     Earnings         Shares       Amount 
                            ---------   ---------     --------     --------        -------      ------- 
                                                   (dollar amounts in thousands)
<S>                             <C>          <C>          <C>          <C>            <C>          <C>

Balances,
  December 1, 1996          3,499,915     $   700      $17,361     $   720         344,569      $(2,556)

Exercise of employee
  stock options                52,723          11          288           -          13,333        (131)
Purchase of shares                  -           -            -           -         120,514      (1,068)
Shares issued for Stock
  Purchase Plan                 6,996           1           62           -          (1,762)          12
Shares issued for
  Incentive Bonus Plan
  and directors' fees               -           -           (7)          -         (13,451)         105
Shares issued under
  five-for-four stock
  split (Note 1)              885,924         177         (179)          -         107,808            -
Tax benefit of disqualifying
  disposition of incentive
  stock options                     -           -           26           -               -            -
Net earnings                        -           -            -       2,099               -            -
                            ---------     -------      -------     -------         -------      ------- 

Balances,
  August 31, 1997           4,445,558     $   889      $17,551     $ 2,819         571,011      $(3,638)
         === ====           =========     =======      =======     =======         =======      ======= 


            The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                        6
<PAGE>

                              COLUMBUS ENERGY CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                   Nine Months Ended
                                                   -----------------
                                            August 31, 1997    August 31, 1996
                                            ---------------    ---------------
                                                     (in thousands)


Net earnings                                   $  2,099            $  1,539

Adjustments to reconcile net earnings
  to net cash provided by operating
  activities:
    Depreciation, depletion, and
      amortization                                2,382               2,118
    Impairments                                     494                 165
    Deferred income tax provision                 1,151                 856
    Gain on asset sale                                -                (175)
    Other                                            83                 106
Net change in operating assets and
  liabilities                                       376                (758)
                                               --------            --------
        Net cash provided by
          operating activities                    6,585               3,851
                                               --------            --------

Cash flows from investing activities:
  Additions to oil and gas properties            (6,802)             (5,849)
  Additions to other assets                        (109)                (28)
  Proceeds from sale of assets                        -                 336
                                               --------            --------
        Net cash used in
          investing activities                   (6,911)             (5,541)
                                               --------            --------

Cash flows from financing activities:
  Proceeds from long-term debt                    2,200               3,200
  Reduction in long-term debt                    (1,200)             (1,600)
  Proceeds from issuance of
    common stock                                    230                 377
  Purchase of treasury stock                     (1,068)               (579)
                                               --------            --------
      Net cash provided by
        financing activities                        162               1,398

Net decrease in cash and
  cash equivalents                                 (164)               (292)
Cash and cash equivalents at
  beginning of period                             1,396               1,414
                                               --------            --------
Cash and cash equivalents at
  end of period                                $  1,232            $  1,122
                                               ========            ========     

                                                                 (continued)

                                        7
<PAGE>

                              COLUMBUS ENERGY CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                       Nine Months Ended
                                                       -----------------
                                                August 31, 1997  August 31, 1996
                                                ---------------  ---------------
                                                         (in thousands)

 Supplemental disclosure of cash 
  flow information:
    Cash paid during the period for:
      Interest                                         $   119         $   184
                                                       =======         =======
      Income taxes (refund)                            $    26         $    (4)
                                                       =======         ======= 

 Supplemental disclosure of non-cash investing and financing activities:
    Non-cash compensation expense
      related to common stock                          $     -         $    20
                                                       =======         =======

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

                                        8
<PAGE>

                              COLUMBUS ENERGY CORP.

                        NOTES TO THE FINANCIAL STATEMENTS
                                   (Unaudited)

(1)  BASIS OF PRESENTATION

       The accompanying  consolidated  financial statements include the accounts
of Columbus Energy Corp. ("Columbus") and its wholly-owned subsidiary,  Columbus
Gas Services,  Inc.("CGSI").  All  significant  intercompany  balances have been
eliminated in consolidation. The term "Company" as used herein includes Columbus
and its subsidiary.

       The consolidated  financial  statements of the Company have been prepared
in accordance with generally accepted accounting  principles and require the use
of  managements'  estimates.  The financial  statements  contain all adjustments
(consisting  only  of  normal  recurring  accruals)  which,  in the  opinion  of
management,  are  necessary  to present  fairly the  financial  position  of the
Company  as of August  31,  1997 and  November  30,  1996,  the  results  of its
operations and cash flows for the periods  presented.  The results of operations
for such  interim  periods  are not  necessarily  indicative  of  results  to be
expected for the full year.

       For purposes of the statements of cash flows,  the Company  considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash  equivalents.  Hedging  activities  are  included  in cash  flow from
operations in the cash flow statements.

       The  Company  uses  crude  oil and  natural  gas  swaps to  manage  price
exposure.  Realized  gains and losses on the swaps are recognized in oil and gas
sales as settlement occurs.

       Earnings per share are  computed  using the  weighted  average  number of
common  shares   outstanding.   Stock  options  are  included  as  common  stock
equivalents,  when  dilutive,  using the  treasury  stock  method.  Common stock
equivalents  include  shares  issuable upon assumed  exercise of dilutive  stock
options using the average price for primary shares and the period end price,  if
higher,  for  fully  diluted  shares.  For  1997  and  1996  such  common  stock
equivalents  were not  dilutive,  except for the three  months  ended August 31,
1996.  Historical  average number of shares  outstanding  and earnings per share
have been adjusted for the  five-for-four  stock split distributed June 16, 1997
to shareholders of record as of May 27, 1997.

     The Company will adopt Financial  Accounting  Standards No. 128,  "Earnings
per  Share,"  ("SFAS No.  128")  effective  for the 1998  fiscal  year.  Earlier
application  is not  permitted.  The purpose of SFAS No. 128 is to simplify  the
computation of earnings per share. The new standard  replaces the calculation of
"primary  earnings  per share" with a  calculation  called  "basic  earnings per
share"  and redefines "diluted earnings per share".  The Company does not expect

                                        9
<PAGE>

                              COLUMBUS ENERGY CORP.

                 NOTES TO THE FINANCIAL STATEMENTS - (continued)
                                   (Unaudited)


the  application  of SFAS No. 128 to have a material  impact on its earnings per
share calculation.

       Oil and Gas Properties

       The Company  follows the successful  efforts method of accounting.  Lease
acquisition  and development  costs  (tangible and intangible) for  expenditures
relating to proved oil and gas  properties  are  capitalized.  Delay and surface
rentals are charged to expense in the year incurred. Dry hole costs incurred for
exploratory  operations are expensed.  Dry hole costs associated with developing
proved fields are  capitalized.  Expenditures  for  additions,  betterments  and
renewals are  capitalized.  Exploratory  geological  and  geophysical  costs are
expensed when incurred.

       Upon sale or  retirement of proved  properties,  the cost thereof and the
accumulated depreciation or depletion are removed from the accounts and any gain
or  loss  is  credited  or  charged  to  income  if  significant.   Abandonment,
restoration, and dismantlement costs and salvage value are taken into account in
determining  depletion  rates.  These  costs are  generally  about  equal to the
proceeds  from  equipment  salvage upon  abandonment  of such  properties.  When
estimated abandonment costs exceed the salvage value, the excess cost is accrued
and expensed. Maintenance and repairs are charged to operating expenses.

       Provision for depreciation  and depletion of capitalized  exploration and
development costs are computed on the unit-of-production  method based on proved
developed  reserves of oil and gas, as estimated by  petroleum  engineers,  on a
property by property  basis.  Unproved  properties are assessed  periodically to
determine  whether  they  are  impaired.  When  impairment  occurs,  a  loss  is
recognized  by  providing  a  valuation  allowance.  When  leases  for  unproved
properties expire, any remaining cost is expensed.

       An impairment  loss on oil and gas  properties is reported as a component
of income from continuing operations.  The Company recognizes an impairment loss
when the carrying value exceeds the expected  undiscounted future net cash flows
of each  property  pool at which time the  property  pool is written down to the
fair value. Fair value is estimated to be a discounted present value of expected
future net cash flows with appropriate risk consideration.

       The  Company  follows  the  entitlements  method  of  accounting  for gas
balancing of gas  production.  The Company's gas  imbalances  are  immaterial at
November 30, 1996 and August 31, 1997.

                                        10
<PAGE>


                              COLUMBUS ENERGY CORP.

                 NOTES TO THE FINANCIAL STATEMENTS - (continued)
                                   (Unaudited)


     Other Property and Equipment

     Depreciation  of other assets is provided on the straight  line method over
their estimated useful lives. Gains and losses from retirement or replacement of
other properties and equipment are included in income.  Betterments and renewals
are capitalized. Maintenance and repairs are charged to operating expenses.

     Accounting for Stock-Based Compensation

     The  Financial  Accounting  Standards  Board  issued  Statement  No. 123,
"Accounting  for  Stock-Based  Compensation".  This  statement  prescribes the
accounting  and reporting  standards  for  stock-based  employee  compensation
plans and is effective  for the  Company's  1997 fiscal year.  The Company has
determined it will use the alternative  pro forma  disclosures as permitted in
the Standard.

     Comprehensive Income

     The  Financial  Accounting  Standards  Board  issued  Statement  No. 130,
"Reporting  Comprehensive  Income"  effective  for the  Company's  1999 fiscal
year.  The Company  does not expect SFAS No. 130 to have any  material  effect
on its calculations of net income.

(2)  LONG-TERM DEBT

     The Company has a credit agreement with Norwest Bank Denver,  N.A. that was
amended and  restated on October 23,  1996.  The credit is  collateralized  by a
first lien on oil and gas properties.

     As requested by the Company, the borrowing base was increased to a limit of
$10,000,000  from  $7,000,000  effective  May 13,  1997,  without  regard to the
maximum  allowable  amount that would be set by the bank during its  semi-annual
redetermination.  A commitment  fee of .25% is payable for any unused portion of
the  credit  which  is  the  difference  between  the  borrowing  base  and  the
outstanding borrowings.

                                        11
<PAGE>


                              COLUMBUS ENERGY CORP.

                 NOTES TO THE FINANCIAL STATEMENTS - (continued)
                                   (Unaudited)


(3)  INCOME TAXES

      The  Company  files a  consolidated  income tax  return  with CGSI and has
executed a tax allocation agreement which provides for an allocation and payment
of income taxes based upon each  company's  separate tax liability  calculation.
Consolidated income taxes are payable only when taxable income exceeds available
net operating loss carryforwards and other credits.

      Pursuant  to  provisions  enacted  as part of the Tax  Reform Act of 1986,
utilization  of these  corporate  tax  carryforwards  in any one taxable year is
limited  if a  corporation  experiences  a 50%  change  of  ownership.  Columbus
experienced such a change of ownership in October 1987 effectively  limiting the
utilization  of  pre-change  ownership  net  operating  losses to  approximately
$900,000  in each  subsequent  year.  Subsequent  additional  ownership  changes
accumulated  to more  than 50% by  August  25,  1993  thereby  causing  a second
ownership change to occur. The remaining restricted post-1987 net operating loss
carryforwards were fully utilized during fiscal 1996.

     The  Company  uses the asset and  liability  method to  account  for income
taxes.  Under this method,  deferred tax  liabilities  and assets are determined
based on the temporary  differences between financial statement and tax bases of
assets and  liabilities  using enacted rates in effect for the year in which the
differences  are  expected to reverse.  Deferred  tax assets (net of a valuation
allowance)  primarily result from net operating loss  carryforwards,  percentage
depletion  and  certain  accrued  but unpaid  employee  benefits.  Deferred  tax
liabilities   result  from  the  recognition  of  depreciation,   depletion  and
amortization in different periods for financial reporting and tax purposes.

      Because of the Company's previous 1987  quasi-reorganization,  the Company
is required to report the effect of its net deferred tax asset  arising prior to
December  1, 1987 as an  increase  in  stockholders'  equity  rather  than as an
increase to net earnings.

                                        12
<PAGE>

                              COLUMBUS ENERGY CORP.

                 NOTES TO THE FINANCIAL STATEMENTS - (Continued)
                                   (Unaudited)


     The provision for income taxes consists of the following (in thousands):

                                             Nine Months Ended August 31,
                                             ----------------------------
                                                1997              1996
                                              ------            ------
Current:
      Federal                                   $ 34              $ 50
      State                                      101                37
                                              ------            ------
                                                 135                87
                                              ------            ------
Deferred:
      Federal                                  1,075              (198)
      Use of loss carryforwards                   76             1,054
                                              ------            ------
                                               1,151               856
                                              ------            ------
  Total income tax expense                    $1,286            $  943
                                              ======            ======
                                       
     The total tax  provision  has resulted in effective  tax rates which differ
from the statutory  Federal income tax rates. The reasons for these  differences
are:

                                              Percent of Pretax Earnings
                                              --------------------------
                                             Nine Months Ended August 31,
                                             ----------------------------
                                               1997               1996
                                             ------             ------

U.S. Statutory rate                             34%                34%
State income taxes                               3                  2
Other                                            1                  2
                                             ------             ------
                                                38%                38%
                                             ======             ======

                                        13
<PAGE>

                              COLUMBUS ENERGY CORP.

                 NOTES TO THE FINANCIAL STATEMENTS - (continued)
                                   (Unaudited)


     During the nine months of fiscal  1997,  certain  tax assets  (shown in the
table below) were utilized.  The tax effect of significant temporary differences
representing  deferred tax assets and  liabilities and changes were estimated as
follows (in thousands):
                                                       Current Year
                                        --------------------------------------
                                                   Stock-
                                        Dec.1,    holders'            August 31,
                                         1996      Equity  Operations    1997
                                        -----      ------  ----------   -----

Deferred tax assets:
       Pre-1987 loss carryforwards     $1,361     $    -     $    -     $1,361
       Post-1987 loss carryforwards       596          -        (56)       540
       Percentage depletion
         carryforwards                  1,130          -          -      1,130
       State income tax loss
         carryforwards                     88          -        (20)        68
       Other                              308          -         (5)       303
                                       ------     ------     ------     ------
                  Total                 3,483          -        (81)     3,402
          Valuation allowance          (1,469)         -          -     (1,469)
                                       ------     ------     ------     ------
            Deferred tax assets         2,014          -        (81)     1,933
                                       ------     ------     ------     ------

     Tax benefit of disqualifying
       disposition of incentive
       stock options                        -         26        (26)         -
                                       ------     ------     ------     ------

     Deferred tax liabilities-
       Depreciation, depletion and
         amortization and other        (2,013)         -     (1,044)    (3,057)
                                       ------     ------     ------     ------
         Net tax asset (liability)     $    1     $   26    $(1,151)   $(1,124)
                                       ======     ======    =======    ======= 

     The Company has net operating loss  carryforwards (in thousands)  available
at November 30, 1996 as follows:
                                                Net
            Expiration Year               Operating loss
            ---------------               --------------

                  1999                       $ 2,712
                  2000                           903
                  2001                           387
                  2003                             -
                  2004                             -
                  2010                         1,589
                                             -------
                                             $ 5,591
                                             =======

     For  Alternative  Minimum Tax purposes the Company had net  operating  loss
carryforwards of  approximately  $6,752,000 as of November 30, 1996. The Company
also has percentage  depletion  carryforwards of $2,908,000 which do not expire.
State income tax operating loss  carryforwards  of $1,470,000  were available at
November 30, 1996.

                                        14
<PAGE>

                              COLUMBUS ENERGY CORP.

                 NOTES TO THE FINANCIAL STATEMENTS - (continued)
                                   (Unaudited)


(4)   LITIGATION

      Management is unaware of any asserted or unasserted  claims or assessments
against the Company which would materially affect the Company's future financial
position or results of operations.

(5)   CONTINGENCY

      The Company  entered  into a natural gas swap by selling  60,000 Mmbtu per
month for the period from March 1997  through  October  1997 at $2.20 per Mmbtu.
This  volume  represents  approximately  21%  of  Columbus'  third  quarter  gas
production.

      Columbus  also  entered into a crude oil swap by selling a strip of 10,000
barrels per month for the twelve month period from November 1996 through October
1997 at an average  daily  price of $21.17 per barrel.  This  amount  represents
approximately 44% of Columbus' August 1997 crude oil production.  The difference
between  the hedge  price and the  actual  daily  closing  price on the New York
Mercantile Exchange ("NYMEX") is settled monthly.

      The  Company's  natural gas and crude oil swaps are  considered  financial
instruments  with  off-balance  sheet risk  which  were in the normal  course of
business to reduce its  exposure to  fluctuations  in the price of crude oil and
natural gas. Those instruments  involve, to varying degrees,  elements of market
and credit risk in excess of the amount  recognized in the balance  sheets.  The
Company had natural gas and crude oil swaps outstanding subsequent to August 31,
1997 as follows:

                                     Notional            Market Value as of
                                      Value                   8/31/97
                                    --------            ------------------

      Natural gas
        (9/97-10/97)                $264,000                 $204,660

      Crude oil
        (9/97-10/97)                 423,400                  453,700


                                        15
<PAGE>

                              COLUMBUS ENERGY CORP.

                 NOTES TO THE FINANCIAL STATEMENTS - (continued)


(6)   RELATED PARTY TRANSACTIONS

      CEC Resources Ltd. ("Resources") was a wholly-owned subsidiary of Columbus
prior  to its  divestiture  on  February  24,  1995.  Reimbursement  is  made by
Resources to Columbus for services  provided by Columbus  officers and employees
for managing  Resources and reduces  general and  administrative  expense.  This
reimbursement  totaled  $189,000  and  $232,000  for the nine months of 1997 and
1996, respectively.

                                        16
<PAGE>

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

      The following  summarizes the Company's financial condition and results of
operations and should be read in  conjunction  with the  consolidated  financial
statements and related notes.

Liquidity and Capital Resources

      Third quarter  results  ranked among the best quarters in history but this
was not readily  evident  when  compared  to the first  quarter  1997.  This was
primarily due to  significant  exploration  and  impairment  charges of $619,000
($384,000   after  income  tax  effect)  which   attacked  net  earnings.   This
overshadowed  the  increase in natural  gas  production  to record  levels and a
modest  improvement in daily crude oil production over last year.  Third quarter
discretionary  cash flow and sales attained a second best ever quarter  ranking.
Net earnings of $535,000,  or $0.14 per share,  were 17% higher than last year's
net of $456,000,  or $0.12 per share.  It is  noteworthy  that nine months' cash
flow in 1997  surpassed  all of fiscal  1996's  cash flow while net  earnings of
$2,099,000,  or $0.54 per share,  rose by 36% over the $1,539,000,  or $0.40 per
share and equaled the entire  fiscal 1996 year's net. As of the end of the third
quarter  1997,  shareholders'  equity  had  risen  to  $17,621,000  compared  to
$16,225,000  at  November  30,  1996.  There was  positive  working  capital  of
$1,366,000  as of August  31,  1997  which,  when  combined  with the  Company's
forecasted  future cash flow for the balance of the year,  should be more than a
sufficient  source of  capital to finish the  budgeted  1997  program to develop
undeveloped  reserves plus fund the expanded  exploratory  program. As discussed
later,  a  substantial  increase  in  the  percentage  working  interest  in the
Louisiana  Austin Chalk  exploratory  well  contributed  to 1997's  initial $7.1
million  capital  budget  being  raised by over $1 million.  This has required a
short term draw from the Company's bank credit facility  pending  repayment from
the additional monthly cash flow generated from those accelerated  expenditures.
The $10,000,000  credit  facility has been primarily  targeted by management for
acquisitions of oil and gas properties,  but can be used for any legal corporate
purpose and is always available for such expanded operational expenditures.

      Generally accepted accounting  principles ("GAAP") require cash flows from
operating  activities  to be determined  after giving effect to working  capital
changes.  Accordingly,  GAAP  net  cash  provided  by  operating  activities  of
$6,585,000  for the first nine months of 1997  compares with  $3,851,000  during
1996's period.  However,  an important  alternative  measure of a company's cash
flow (not GAAP but  commonly  used in the  industry)  is one  determined  before
consideration  of working capital  changes and without  deduction of exploration
expenses.  This is  generally  known as  Discretionary  Cash Flow ("DCF") and is
reported by successful efforts companies for comparability  purposes to the cash
flow  results  under the full  cost  accounting  method  used by a  majority  of
independent energy companies. Using the latter method, all exploration costs are

                                        17
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS - (Continued)


capitalized  and therefore do not adversely  affect  operating  cash flow or net
earnings.   Since  exploration   expenses  can  be  increased  or  decreased  at
management's  discretion,  DCF is certainly  more  comparable  to such full cost
accounting  results.  Columbus' DCF for the nine months of 1997 was a record for
such period at $6,714,000  compared to 1996's $4,791,000 which itself had been a
record and, in fact,  1997's nine months' DCF also  exceeded  fiscal 1996's DCF.
This 40% improvement  reflects higher natural gas prices and increased crude oil
and natural gas production over last year.  While DCF is calculated  before debt
retirement  requirements,  in  Columbus'  case it does not  matter  because  its
outstanding  bank debt  requires no principal  payments  before July 1999 and in
fact is what is  available  to  either  drill  or  retire  debt at  management's
discretion.   Interest  expense  on  the  outstanding  debt  has  recently  been
relatively insignificant but is always deducted before computing DCF anyway.

      Management  notes its strong exception to Financial  Accounting  Standards
Board  Statement  No. 95 which  directs  that  operating  cash flow must only be
determined  after  consideration  of working  capital  changes and  continues to
reflect  that  position  in  all of  its  public  filings  and  reports.  Such a
requirement by GAAP ignores  entirely the significant  impact on working capital
that the timing of income  received  for,  and  expenses  incurred on behalf of,
third  party  owners in wells  could have on a company  such as  Columbus  which
serves as an operator of several  properties with only a small working  interest
therein.

      Neither  discretionary  cash flow nor operating  cash flow before  working
capital  changes  may be  substituted  for net  income  or cash  available  from
operations  as  defined  by GAAP.  Furthermore,  cash  flows do not  necessarily
indicate they are  sufficient to fund all cash  requirements  of a company under
any of the definitions.

      Columbus' hedges (swaps) of natural gas and oil prices are discussed below
in Results of Operations as well as in Note 5 to the financial statements.

      The Company's operation and management services segment remains profitable
but has not contributed meaningfully to earnings since Resources was spun-off in
February, 1995.

      Columbus had  outstanding  borrowings  of $3,200,000 as of August 31, 1997
against its line of credit with Norwest Bank  Denver,  N.A.  which has a current
borrowing base of $10,000,000 and is  collateralized  by oil and gas properties.
At the end of the third  quarter 1997,  the ratio of bank debt to  shareholders'
equity was 0.18 and to total assets was 0.12. The debt  outstanding used a LIBOR
option at an interest  rate  of 7.1%. The  net increase or decrease of long-term

                                        18
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS - (Continued)


debt affects  reported cash flow from financing  activities as does the purchase
of treasury stock and proceeds from the exercise of stock options.

      Working  capital  at August  31,  1997  remained  positive  at  $1,366,000
compared  to  $1,966,000  at  November  30,  1996.  This  was  achieved  despite
expenditures of $6,802,000 for new additions to oil and gas properties out of an
expanded program for development and exploratory operations for 1997.

      A  300,000-share  repurchase  authorized (at less than $8.75 per share) in
February  1995 was  completed in March 1997 for an average  repurchase  price of
$7.21 ($5.77 after five-for-four stock split).

      During March 1997, an additional  100,000-share  repurchase was authorized
at less than $7.80 (giving effect to  five-for-four  stock split) per share.  To
date,  85,000  shares were  acquired at an average  price of $7.42 per share.  A
second  authorization  was granted in May,  1997 to become  effective  following
distribution  of split  shares  in  June,  1997  which  permits  purchase  of an
additional  200,000  shares at a price not to exceed  $8.25 per share.  To date,
39,000 shares have been acquired at an average price of $8.06 per share.

RESULTS OF OPERATIONS

      During 1997's third quarter, the Company's gross revenues increased by 29%
while  operating  income  increased by 14% when  compared to 1996 despite  large
exploratory  charges  and an  impairment  provision.  This was  attributable  to
improved  crude oil  production  and to a record level of natural gas production
generated by the  Company's  successful  drilling  program thus far during 1997.
Other  comparisons  appear  later for the quarter and nine months of 1997 versus
like periods in 1996 for prices, production and oil and gas sales.

      With a record  drilling  budget  approved for 1997,  it should be expected
that  there  will be an  increased  number of well  participations  during  each
period.  During 1997's third quarter,  ten gross wells (2.85 net) were completed
including  four (.35 net)  successful  gas wells in the Laredo area and two (.91
net) gas cap wells in the Sralla Road oil field in Texas and a prolific  Frio 16
sand natural gas discovery (.37 net) in Chambers County, Texas.

      That latter well whose  completion  was  discussed  in the second  quarter
report  began  sales  in  early  July  and  has   maintained  a  daily  rate  of
approximately  3,800 MMCF of gas and 70 barrels of condensate.  A separate fault
block containing an additional 600 acres of prospective  acreage is owned to the
south and east of the Syphrett  Heirs #1 480-acre  discovery  fault block.  This
acreage  will  require its  own  exploratory  test and should be commenced later

                                        19
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS - (Continued)


in 1997.  It may  possibly  be  drilled  to a depth of  11,000  feet to test the
underlying  Vicksburg  formation  because  there  was  a  recent  gas  discovery
completed  in this zone about two miles  east of the  Syphrett  discovery  fault
block. An uphole Frio 15 sand is also considered  prospective for oil production
at a  structurally  higher  position in the  Syphrett  fault block and may prove
productive in the southeast acreage block also.

      Also pending completion at the end of the third quarter were two (.68 net)
small oil producers in Oklahoma along with the exploratory Austin Chalk oil well
(.55 net) in mid-Louisiana discussed below more fully.

      As  previously  reported  in Form 10-K's and  various  quarterly  reports,
Columbus  has a 12.5%  working  interest  in a  three  township  Area of  Mutual
Interest  covering 55,000 gross acres of leaseholds  which overlie the fractured
Austin  Chalk  formation  below  15,000 feet in depth in  mid-Louisiana.  A good
portion of this block was assembled by a co-venture group which included EGY and
75% was sold to Belco Oil & Gas.  Terms  included a modest profit plus a carried
25%  interest  in a  vertical  well  drilled  from  grass  roots to 15,000  feet
including updip and downdip horizontal legs approximately 3,000 to 4,000 feet in
length.  This  was  subsequently  modified  to  permit  the  use of an  existing
abandoned but cased  vertical hole from which to drill the two laterals at no up
front costs to Columbus or its  co-venturers and a no cost vertical hole portion
later at a second  location.  The Morrow #23-1H's  operations  began in February
with Belco  choosing to drill a  3,000-foot  north  updip  lateral  first.  They
purposely  elected to drill  laterally  below the base of the  Austin  Chalk for
reasons  not clear to,  and over the  objections  of, the  co-venture  group and
resulted in a dry hole. As a consequence, Belco then drilled a piggyback lateral
about 100 feet vertically higher in the prospective pay section which penetrated
numerous shows and fractures  throughout this 3,100-foot  horizontal hole. Belco
was disappointed with its production test from this updip lateral over a 66-hour
period which  yielded a high water cut of about 70% in addition to the crude oil
and natural  gas.  The last few hours of test still had a fluid rate of about 66
barrels  per hour of which 21% was oil (over 12 BPH) and  600,000  cubic feet of
natural gas per day.

     Following the test, Belco proposed to move the drilling rig off of the well
without  drilling an  obligatory  4,000-foot  downdip south  lateral.  There was
strong objections by the co-venturers  which was settled by Belco  relinquishing
all of its right,  title and interest in the cased well bore,  the updip lateral
and  the  1,960-acre  spacing  unit  to  the  co-venturers  who  took  over  rig
operations.  Numerous  problems were encountered  while attempting to drill this
downdip  lateral which included  encountering  high bottom hole pressures  which
exceeded the maximum  capability  of weighting  up the clear  drilling  fluid to
maintain  control  over the well.  As a result,  only 1,300 feet of the proposed
4,000-foot downdip lateral could be drilled and the well had to be killed with a

                                        20
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS - (Continued)

     
conventional  barite-weighted  mud system which brought about a lost circulation
problem.  At that point,  all further  efforts to finish the entire lateral were
ceased and it was  generally  agreed to make  another  attempt to drill  another
4,000-foot downdip lateral from a new casing window after the 1,300-foot downdip
lateral and the updip 3,100-foot lateral had been depleted.  Thereafter numerous
problems were  encountered  during  completion  operations which included packer
problems, pushing the liner out to the full 1,300 feet of lateral, inexperienced
crews,  rental  equipment  from major service  companies  which did not function
properly,  drilling rig equipment failures,  etc. The final blow occurred when a
roughneck  dropped  a five  inch  bolt in the  hole on top of the  packer  which
contributed to several  additional days of rig and rental equipment expenses and
a "jerry-rigged" completion had to be designed which at least permitted the well
to produce.

      Fortunately,  Columbus only owns 55% WI of the completed well and drilling
unit so that the significant cost overruns were not entirely  absorbed by it. In
any  event,  during a test for its  initial  potential,  the  Morrow  #23-1H was
produced for a 26-hour  clean-up  followed by a 24-hour test period during which
the well flowed 560 barrels of 41o API gravity  oil,  831 Mcf of natural gas and
1,691 barrels of a mixture of formation salt water and the clear calcium bromide
drilling fluid lost during drilling operations. The final five hours of the flow
period yielded 80 barrels of fluid per hour with an oil cut of about 25% and was
followed by a one-hour shut in pressure of 3,950 psi.

     At  present,   the  gas  gathering  line  is  being  laid  to  the  closest
transmission  system which is about 7,500 feet to the south.  The tank  battery,
separator, treater, plus other surface equipment has been installed. Major items
remaining  before the well can begin sales include a shallow water disposal well
being drilled and  electricity  being  brought to the location.  These should be
completed during October. The present plan of production is to first essentially
deplete  the short  downdip  lateral  followed by removal of the junk and bridge
plug  above the updip  lateral  to allow it to be  depleted  before  undertaking
mobilization  of a drilling  rig to attempt  drilling a new  4,000-foot  downdip
lateral.  Whether or not other  well(s) can be  promoted  on the  acreage  block
before acreage  renewals are required will depend on the production  performance
of the Morrow  #23-1H over the next few months.  Meanwhile,  it has already been
determined  not to exercise the remaining  option acreage as the profit will not
be  realized  from Belco on each new lease.  Should the well not  perform as has
been  forecasted out of two  existing laterals, then it  is highly  unlikely the


                                        21
<PAGE>

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS - (Continued)


development  of reserves in one or more new laterals from this well bore will be
undertaken and additional  exploratory or impairment charges will be incurred in
such circumstance.

      Columbus'  investment  in this  prospect  through  August 31, 1997 totaled
$688,000 for  undeveloped  leaseholds  and $2,415,000 for interests in producing
wells including the Morrow #23-1H.

     Oil and Gas Revenues and Operating Costs

      The following table shows  comparative crude oil and natural gas revenues,
sales volumes,  average prices and percentage  changes  between  periods for the
third  quarters of 1997 and 1996 and the third quarter of 1997 versus the second
quarter of 1997.
<TABLE>
<CAPTION>

                                    Third Quarter       
                                    -------------          %         Second Qtr.     %
                                   1997       1996       Change        1997       Change
                                  ------     ------      ------       ------      ------ 
<S>                                <C>         <C>         <C>         <C>         <C> 

     Natural gas revenues M$      $2,016     $1,445          40%      $1,672          21%
     Oil revenue M$               $1,259     $1,068          18%      $1,207           4%
     Natural gas sales volumes:
        Millions of cubic feet       874        682          28%         809           8%
        MCF/day                    9,497      7,412                    8,792

     Oil sales volumes:
        Barrels                   67,944     56,500          20%      61,792          10%
        Barrels/day                  739        614                      672
     Average price received:
        Natural gas - $/MCF       $ 2.31     $ 2.12           9%      $ 2.07          12%
        Oil - $/BBL               $18.53     $18.91         (2)%      $19.53         (5)%
</TABLE>


      Natural  gas  revenues  increased  40% in the third  quarter  of 1997 when
compared to 1996's  quarter as a result of higher  volumes  and prices.  Average
prices for natural gas  increased 9% in the third  quarter of 1997 compared with
last year due to strong  demand and a fairly  tight  supply of gas over  storage
injection  requirements.  Gas revenues in the third quarter of 1997 were reduced
by $10,000 ($.01 per Mcf) and 1996's revenues were reduced by $165,000 ($.24 per
Mcf) from swaps of natural gas. Sales volumes  improved by 28% over 1996's third
quarter as a result of numerous gas wells being  completed and connected  during
the intervening  months.  The latest quarter as compared with the second quarter
of  1997  showed  a  sales  volume  increase  of  8% as a  result  of  new  well
connections.  Also,  there was a 12% increase in average  prices  received which
also contributed to a revenue increase of 21%.

      Oil revenues for the 1997 third quarter were up meaningfully when compared
to the similar  1996  quarter  because of a sales  volume  increase of 20% which
overcame a decrease in the average  price of 2%.  Crude oil  production  has now
reversed its continuing  slide over a several year period as new wells have been
added  which generated  the  improvement over last  year's volumes. There was an


                                        22
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS - (Continued)


improvement of 10% over 1997's second quarter volume, also. Oil revenues for the
third  quarter of 1997 were  aided by  $46,900  ($.69 per  barrel)  while  third
quarter 1996 revenues were reduced by $67,500  ($1.19 per barrel) from crude oil
swaps.

      When  comparisons are made with the second quarter results for 1997, third
quarter oil  revenues  were 4% higher  because of a 10%  increase in  production
which overcame a 5% decrease in average price per barrel received.

      Columbus' 1997 third quarter average sales volumes of natural gas of 9,497
Mcfd and oil and  liquids  production  of 747  barrels  per day equates to daily
production  of 2,330  barrels  of oil  equivalent  (BOE).  This is 6% above  the
previous  record  quarter  for U.S.  daily  production  of 2,200  BOE  which was
achieved  during the third quarter of 1994. For the month of August,  1997 daily
production was 2,498 BOE.

      Lease  operating  expenses  for the 1997  quarter  were  lower  than third
quarter 1996 because the prior year's  quarter had several  expensive  workovers
performed and equipment  replaced on older wells. Lease operating costs on a BOE
basis were only $2.10 in 1997 compared to $2.94 in 1996 as a result of increased
production  volumes.  Operating costs as a percentage of revenues was 14% in the
1997 third quarter and 20% in 1996's comparable quarter.

     Production and property taxes  approximated  9% of revenues in 1997 and 10%
in 1996.  These vary based on Texas'  percentage  share of the total  production
where oil tax rates are lower than gas tax rates.  The relationship of taxes and
revenue  is  not  always  directly  proportional  since  several  of  the  local
jurisdiction's  taxes are based upon reserve  evaluations as opposed to revenues
received or production rates for a given tax period.

     Operating and Management Services

     This segment of the Company's U.S.  business is comprised of operations and
services conducted on behalf of third parties and includes compressor rentals.

      Operating  and  management  services  profit  has been  fairly  consistent
between  quarters.  There was a $304,000  profit  during  first nine months 1997
compared to a $172,000 profit for the equivalent period in 1996 as the number of
operated wells and drilling activity has increased.


                                        23
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS - (Continued)


      Interest Income

      Interest  income is earned  primarily from  short-term  investments  whose
rates  fluctuate with changes in the commercial  paper rates and the prime rate.
Interest  income  decreased  slightly in 1997 to $32,000  from $36,000 in 1996's
third quarter primarily as a result of a decreased amount of investments despite
somewhat higher short-term interest rates.

     General and Administrative Expenses

      General  and  administrative  expenses  are  considered  to be those which
relate to the direct costs of the Company which do not originate  from operation
of properties  or providing of services.  Corporate  expense  represents a major
part of this category although other nonbillable expenses are also included.

      The Company's general and administrative  expenses in the third quarter of
1997 were 13% higher than last year. Those increased costs were primarily due to
salary increases in May 1997 for officers and as of November 1996 for employees.

      Reimbursement for services provided by Columbus officers and employees for
managing  Resources  is expected to decrease by the end of fiscal 1997  assuming
that  Canadian-based  management  takes  over  following  an  expected  business
combination that Resources is currently aggressively seeking.  Columbus' general
and administrative  expenses will rise commensurately  since no staff reductions
are  contemplated  when this occurs.  Reimbursement  of $58,000 is down from the
$82,000  received  during  the  third  quarter  of 1996 for  administrative  and
operational services provided to Resources.

     Depreciation, Depletion and Amortization

     Depreciation,  depletion  and  amortization  of  oil  and  gas  assets  are
calculated  based upon the units of  production  compared to proved  reserves of
each field. The expense is not only directly related to the level of production,
but also is  dependent  upon past  costs to find,  develop,  and  recover  those
reserves in each of the pools or fields. Depreciation and amortization of office
equipment and computer software is also included in the total charge.

     Total charges for depletion  expense for oil and gas  properties  increased
over 1996 due to increased production and added development  expenditures in the
intervening  period.  The 1997  third  quarter  depletion  rate of $4.01 per BOE
compares with the $4.18 per BOE for the like period of fiscal 1996 and $3.86 per
BOE  for all of  1996. These  amounts are somewhat  below the  industry  average

                                        24
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS - (Continued)


primarily  because of  historically  lower finding costs  compared to others who
have grown mostly by acquisitions.

     Exploration Expense

      In  general,  the  exploration  expense  category  includes  the  cost  of
Company-wide   efforts  to  acquire  and  explore  new  prospective  areas.  The
successful  efforts  method of accounting  for oil and gas  properties  requires
expensing the costs of unsuccessful exploratory wells. Other exploratory charges
such as seismic and geologic costs must also be immediately  expensed regardless
of whether a prospect is ultimately proved to be successful. Exploration charges
for  comparative  third quarters  amounted to $125,000 for 1997 up  dramatically
from  $38,000  for  1996  because  $74,000  was  incurred  for a  non-commercial
exploratory  oil well. All  exploration  expenses reduce reported GAAP cash flow
from  operations  even though they are  discretionary  expenses;  however,  such
charges  are added back for  purposes  of  determining  DCF which  makes it more
comparable to cash flow reported by full cost accounting companies.

      Impairments

      A non-cash  impairment  loss of $243,000 in 1997 and  $165,000 in 1996 was
recognized during the first nine months of each year because uneconomic Oklahoma
development  wells  completed  during each year  raised the  question of whether
future net revenues for this entire pool would exceed the accrued  undepreciated
costs. It was deemed advisable to accrue an impairment provision but should this
amount later prove to be excessive then depletion charges in future periods will
benefit,  or vice versa.  Likewise,  the Louisiana  Austin Chalk oil  discovery,
although successful,  brought into question the likelihood of developing certain
leaseholds in the AMI.  Where annual  renewal  rentals either had already become
due or will become due before a reasonable  production test period of the Morrow
#23-1H can be  realized  and a well  promoted  on these  leaseholds,  management
determined  to write these off as a current  charge as part of this  exploratory
effort.  Also included in this group were numerous  small  leaseholds  where the
possibility  of putting  together a unit ready to be promoted was rather remote.
This charge recognized was $251,000 which brought the total to $494,000 non-cash
impairment for the third quarter.

     Interest Expense

     Interest expense varies in direct proportion to the amount of bank debt and
the level of bank interest  rates.  The average amount of bank debt  outstanding
has been lower  during  1997's  third  quarter  than in 1996.  The average  bank
interest rate paid this latest quarter was 7.2% which compares to 7.3% in 1996.

                                        25
<PAGE>

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS - (Continued)


      Income Taxes

      During the first nine months of 1997 the net  deferred  tax asset became a
net liability of  $1,124,000  as a result of expected use of net operating  loss
carryforwards.  The net liability is comprised of $545,000  current deferred tax
asset and  $1,669,000  long-term tax  liability.  The estimated  utilization  of
deferred  tax  assets  was  $1,151,000  during the nine  months.  The  valuation
allowance has remained  unchanged  thus far in 1997.  The effective tax rate for
1997 is 38%.  See  also  Note 3 to the  consolidated  financial  statements  for
further explanation of income taxes.

      Statement Pursuant to Safe Harbor Provision of the Private
      Securities Litigation Reform Act of 1995

      This report may contain  certain  "forward-looking  statements"  that have
been based on imprecise  assumptions  with regard to  production  levels,  price
realizations,  and  expenditures for exploration and development and anticipated
results  therefrom.  Such statements are subject to risks and uncertainties that
could cause actual results to differ  materially from those expressed  herein or
implied by such statements.

                                        26
<PAGE>

                           PART II - OTHER INFORMATION


Item 1.  LEGAL PROCEEDINGS

      Management is unaware of any asserted or unasserted  claims or assessments
against the Company which would materially affect the Company's future financial
position or results of operations.

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

          (a)     Exhibits

                  11    - Computation of per share earnings

                  27    - Financial data schedule

          (b)     Reports on Form 8-K

                  None


                                        27
<PAGE>

                                   SIGNATURES

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



                                                 COLUMBUS ENERGY CORP.
                                                      (Registrant)



DATE:    October 14, 1997                        /s/  Harry A.Trueblood, Jr.
         ----------------                        ---------------------------
                                                 Harry A. Trueblood, Jr.
                                                 Chairman, President and
                                                 Chief Executive Officer
                                                 (a duly authorized officer)



DATE:    October 14, 1997                        /s/ Ronald H.Beck
         -----------------                       -----------------
                                                 Ronald H. Beck
                                                 Vice President
                                                 (Chief Accounting Officer)


                                        28
<PAGE>
                                                      Commission File No. 1-9872



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549





                                     EXHIBIT

                                       TO

                                    FORM 10-Q



                                QUARTERLY REPORT

                         PURSUANT TO SECTION 13 OR 15(d)

                                       OF

                       THE SECURITIES EXCHANGE ACT OF 1934

                      FOR THE QUARTER ENDED AUGUST 31, 1997










                              COLUMBUS ENERGY CORP.
                           (Exact Name of Registrant)

                               1660 Lincoln Street
                             Denver, Colorado 80264
                     (Address of Principal Executive Office)