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

                                    FORM 10-Q

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

For the quarterly period ended           May 31, 1998
                               ----------------------

                                       or

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

For the transition period from ___________________ to ______________________

Commission File Number:               001-9872



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

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

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

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

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

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

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

           Class                                    Outstanding at July 10, 1998
---------------------------                         ----------------------------
Common stock, $.20 par value                                 4,209,794


<PAGE>


                              COLUMBUS ENERGY CORP.

                                      INDEX


                                                                           PAGE
                                                                           ----
PART I.  FINANCIAL INFORMATION

     Item 1.  Financial Statements

              Consolidated Balance Sheets -
                May 31, 1998 and
                November 30, 1997                                            3

              Consolidated Statements of Operations -
                Three Months and Six Months
                Ended May 31, 1998 and 1997                                  5

              Consolidated Statement of
                Stockholders' Equity -
                Six Months Ended May 31, 1998                                6

              Consolidated Statements of Cash Flows -
                Six Months Ended May 31, 1998
                and 1997                                                     7

              Notes to the Financial Statements                              9

     Item 2.  Management's Discussion and Analysis
                of Financial Condition and
                Results of Operations                                       18

PART II.  OTHER INFORMATION

     Item 1.     Legal Proceedings                                          28

     Items 2-3.  Not Applicable

     Item 4.     Submission of Matters to a Vote
                   of Security Holders                                      28

     Item 5.     Not Applicable                                             28

     Item 6.     Exhibits and Reports
                   on Form 8-K                                              28

     Signatures                                                             29

                                       2

<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                              COLUMBUS ENERGY CORP.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                        May 31,     November 30,
                                                         1998           1997
                                                      -----------   ------------
                                                      (unaudited)
                                                            (in thousands)
Current assets:
  Cash and cash equivalents                           $    1,385    $     1,857
  Accounts receivable:
    Joint interest partners                                1,050          1,932
    Oil and gas sales                                      1,440          2,054
    Allowance for doubtful accounts                         (116)          (116)
  Inventory of oil field equipment,
    at lower of average cost or market                       117            102
  Other                                                       96             82
                                                      -----------   ------------

        Total current assets                                3,972         5,911
                                                      -----------   ------------

Deferred income taxes (Note 3)                                118             -

Property and equipment:
  Oil and gas assets, successful efforts
    method (Note 2)                                        34,146        33,803
  Other property and equipment                              1,810         2,053
                                                      -----------   ------------

                                                           35,956        35,856
  Less:  Accumulated depreciation,
     depletion and amortization
     and valuation allowance                              (17,264)      (15,632)
                                                      -----------   ------------

        Net property and equipment                         18,692        20,224
                                                      -----------   ------------
                                                      $    22,782   $    26,135
                                                      ===========   ============

                                                                     (continued)

                                       3

<PAGE>


                              COLUMBUS ENERGY CORP.

                    CONSOLIDATED BALANCE SHEETS - (continued)


                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                        May 31,     November 30,
                                                         1998           1997
                                                      -----------   ------------
                                                      (unaudited)
                                                            (in thousands)
Current liabilities:
  Accounts payable                                    $     1,704   $     3,023
  Undistributed oil and gas
   production receipts                                        266           393
  Accrued production and property taxes                       373           551
  Prepayments from joint interest owners                      351           565
  Accrued expenses                                            366           377
  Income taxes payable (Note 3)                                18            42
  Deferred income taxes (Note 3)                              223           201
  Other                                                        39            37
                                                      -----------   ------------

        Total current liabilities                           3,340         5,189
                                                      -----------   ------------

Long-term bank debt (Note 2)                                3,400         2,200
Deferred income taxes (Note 3)                                  -           788

Commitments and contingent liabilities (Notes 4 and 5)

Stockholders' equity:
  Preferred stock authorized 5,000,000
    shares, no par value, none issued                           -             -
  Common stock authorized 20,000,000
    shares of $.20 par value; shares issued
    4,576,552 in 1998, and 4,492,068 in 1997
    (outstanding 4,224,839 in 1998 and
    3,883,557 in 1997)                                        915           898
  Additional paid-in capital                               19,068        18,124
  Retained earnings (accumulated deficit)                  (1,515)        2,887
                                                      -----------   ------------
                                                           18,468        21,909
  Less: Treasury stock at cost
          351,713 shares in 1998 and
          608,519 shares in 1997                           (2,426)       (3,951)
                                                      -----------   ------------
        Total stockholders' equity                         16,042        17,958
                                                      -----------   ------------
                                                      $    22,782   $    26,135
                                                      ===========   ============


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

                                       4

<PAGE>


                              COLUMBUS ENERGY CORP.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                          Six Months Ended        Three Months Ended
                                              May 31,                   May 31,
                                       --------------------      --------------------
                                         1998         1997         1998         1997
                                       -------      -------      -------      -------
                                            (in thousands, except per share data)
<S>                                    <C>          <C>          <C>          <C>    
Revenues:
  Oil and gas sales                    $ 5,618      $ 6,644      $ 2,781      $ 2,879
  Operating and management
    services                               626          577          318          301
  Interest and other income                 77           72           35           35
                                       -------      -------      -------      -------
    Total revenues                       6,321        7,293        3,134        3,215
                                       -------      -------      -------      -------
Costs and expenses:
  Lease operating expenses               1,217          951          657          433
  Property and production taxes            541          625          281          304
  Operating and management
    services                               496          388          225          191
  General and administrative               898          867          611          529
  Depreciation, depletion and
   amortization                          1,890        1,490          885          737
  Impairments                            2,816            -            -            -
  Exploration expense                      428          380          165          318
  Litigation expense (Note 4)                -           11            -            4
                                       -------      -------      -------      -------
    Total costs and expenses             8,286        4,712        2,824        2,516
                                       -------      -------      -------      -------

      Operating income (loss)           (1,965)       2,581          310          699
                                       -------      -------      -------      -------
Other expenses (income):
  Interest                                 114           65           71           30
  Other                                     34           (6)           2           (9)
                                       -------      -------      -------      -------
                                           148           59           73           21
                                       -------      -------      -------      -------
    Earnings (loss) before
      income taxes                      (2,113)       2,522          237          678

Provision (benefit) for income
  taxes (Note 3)                          (803)         958           90          257
                                       -------      -------      -------      -------
    Net earnings (loss)                $(1,310)     $ 1,564      $   147      $   421
                                       =======      =======      =======      =======
Earnings (loss) per share (Note 7):
    Basic                              $  (.31)     $   .36      $   .03      $   .10
                                       =======      =======      =======      =======
    Diluted                            $  (.31)     $   .36      $   .03      $   .10
                                       =======      =======      =======      =======

Average number of common shares
and common equivalent shares
outstanding:
    Basic                                4,244        4,325        4,230        4,291
                                       =======      =======      =======      =======
    Diluted                              4,244        4,401        4,294        4,339
                                       =======      =======      =======      =======
</TABLE>

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

                                       5

<PAGE>


                              COLUMBUS ENERGY CORP.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      For The Six Months Ended May 31, 1998
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                  Retained
                                           Common Stock           Additional      Earnings          Treasury Stock
                                     -----------------------       Paid-in      (Accumulated    -----------------------
                                       Shares        Amount        Capital        Deficit)        Shares       Amount
                                     -----------   ---------     ------------   ------------    ----------   ----------
                                                                (Dollar Amounts In Thousands)
<S>                                    <C>           <C>         <C>            <C>                <C>       <C>        
Balances,
  December 1, 1997                     4,492,068     $   898     $     18,124   $      2,887       608,511   $   (3,951)

Exercise Of Employee
  Stock Options                           80,548          16              437              -        27,193         (229)
Purchase Of Shares                             -           -                -              -       138,750       (1,093)
Shares Issued For Stock
  Purchase Plan                            3,936           1               33              -          (995)           7
10% Stock Dividend                             -           -              492         (3,092)     (386,494)       2,598
Shares Issued For
  Incentive Bonus Plan
  And Directors' Fees                          -           -              (57)             -       (35,252)         242
Tax Benefit Of Disqualifying
  Disposition Of Incentive
  Stock Options                                -           -               39              -             -            -
Net Loss                                       -           -                -         (1,310)            -            -
                                     -----------   ---------     ------------   ------------    ----------   ----------
Balances,
  May 31, 1998                         4,576,552   $     915     $     19,068   $     (1,515)      351,713   $   (2,426)
                                     ===========   =========     ============   ============    ==========   ==========
</TABLE>


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

                                       6

<PAGE>


                              COLUMBUS ENERGY CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                   Six Months Ended May 31,
                                                 ----------------------------
                                                   1998                1997
                                                 --------            --------
                                                        (in thousands)

Net earnings (loss)                              $ (1,310)            $ 1,564

Adjustments to reconcile net earnings
  (loss) to net cash provided by
  operating activities:
    Depreciation, depletion, and
      amortization                                  1,890               1,490
    Impairments                                     2,816                   -
    Deferred income tax provision (benefit)          (845)                857
    Other                                             221                  62
Net change in operating assets and
  liabilities                                         948                 160
                                                 --------             --------
        Net cash provided by
          operating activities                      3,720               4,133
                                                 --------             --------
Cash flows from investing activities:
  Additions to oil and gas properties              (4,540)             (2,913)
  Additions to other assets                           (15)                (67)
                                                 --------             --------
        Net cash used in
          investing activities                     (4,555)             (2,980)
                                                 --------             --------
Cash flows from financing activities:
  Proceeds from long-term debt                      1,800                 500
  Reduction in long-term debt                        (600)             (1,200)
  Proceeds from issuance of
    common stock                                      258                 143
  Purchase of treasury stock                       (1,093)               (806)
  Other                                                (2)                  -
                                                 --------             --------
      Net cash provided by (used in)
        financing activities                          363              (1,363)

Net increase (decrease) in cash and
  cash equivalents                                   (472)               (210)
Cash and cash equivalents at
  beginning of period                               1,857               1,396
                                                 --------             --------
Cash and cash equivalents at
  end of period                                   $ 1,385             $ 1,186
                                                 ========             ========

                                                                     (continued)

                                       7

<PAGE>


                              COLUMBUS ENERGY CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                   Six Months Ended May 31,
                                                 ----------------------------
                                                   1998                1997
                                                 --------            --------
                                                        (in thousands)

Supplemental disclosure of cash flow information:
    Cash paid during the period for:
      Interest                                   $    111            $     78
                                                 ========            ========
      Income taxes                               $     66            $     25
                                                 ========            ========
Supplemental disclosoure of non-cash
  investing and financing activities               None                None



  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 May 31,  1998 and  November  30,  1997,  and the  results  of its
operations and cash flows for the periods  presented.  The results of operations
for such  interim  periods  are not  necessarily  indicative  of  results  to be
expected for the full year.

     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.

     When 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.

     The Company adopted Financial  Accounting  Standards No. 128, "Earnings per
Share,"  ("SFAS No.  128")  effective  for the 1998 fiscal  year.  Prior  period
earnings  per  share  data  presented  has been  restated  to  conform  with the
provisions  of SFAS No.  128.  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".

     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  diluted  shares.   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 and the 10% stock dividend  distributed  March 9, 1998 to  shareholders  of
record as of February 23, 1998.

                                       9

<PAGE>


                              COLUMBUS ENERGY CORP.

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


     Financial Instruments and Concentrations of Credit Risk

     The Company  maintains  demand  deposit  accounts  with  separate  banks in
Denver,  Colorado. The Company also invests cash in the highest rated commercial
paper of large U.S.  companies,  with  maturities  not over 30 days,  which have
minimal  risk of loss.  At May 31,  1998 and  November  30, 1997 the Company had
investments in commercial  paper of $1,200,000 and $900,000,  respectively.  The
carrying amount of long-term debt  approximates  fair value because the interest
rate on this instrument changes with market interest rates.

     Financial   instruments,   which   potentially   subject   the  Company  to
concentrations of credit risk, consist  principally of cash and cash equivalents
and  accounts  receivable.  Columbus as  operator  of jointly  owned oil and gas
properties,  sells oil and gas  production to relatively  large U.S. oil and gas
purchasers and pays vendors for oil and gas services. The risk of non-payment by
the purchasers, counter parties to the crude oil and natural gas swap agreements
or joint owners is considered  minimal.  The Company does not obtain  collateral
from its oil and gas  purchasers for sales to them.  Joint interest  receivables
are subject to collection under the terms of operating  agreements which provide
lien rights to the operator.

     Oil and Gas Properties

     The Company  follows the  successful  efforts  method of account ing. 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 on
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.

                                       10

<PAGE>


                              COLUMBUS ENERGY CORP.

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


     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,
1997 and May 31, 1998.

     Other Property and Equipment

     Other  property and  equipment  consists of office and computer  equipment.
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. Depreciation of other
assets is provided on the  straight  line  method  over their  estimated  useful
lives.

     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 was  effective  for the  Company's  1997 fiscal  year.  The Company uses the
alternative pro forma annual disclosures as permitted in the Standard.

     New Accounting Pronouncements

     The  Statement  of  Financial  Accounting  Standards  No.  130,  "Reporting
Comprehensive  Income," was issued in June 1997 and  establishes  standards  for
reporting  and display of  comprehensive  income and its  components  (revenues,
expenses,  gains,  and  losses)  in a  full  set  of  general-purpose  financial
statements. This statement is effective for  financial  statements  for  periods

                                       11

<PAGE>


                              COLUMBUS ENERGY CORP.

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


beginning  after December 15, 1997. The adoption of this statement will not have
a material impact on the Company's financial statements.

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131,  "Disclosures about Segments of
an Enterprise  and Related  Information,"  effective for fiscal years  beginning
after December 15, 1997. The Company must apply this statement no later than its
fiscal year ending November 30, 1999. SFAS No. 131 requires  disclosing  segment
information using the "management  approach" and replaces the "industry segment"
approach using Statement No. 14. The segment information previously presented is
not expected to materially change when SFAS No. 131 is adopted.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments and Hedging Activities,"  effective for fiscal years beginning after
June 15, 1999.  The Company  must apply this  statement no later than its fiscal
year ending  November 30, 2000.  SFAS No. 133 requires  recording all derivative
instruments as assets or liabilities  measured at fair value.  This Statement is
not expected to materially affect the Company's financial statements.

(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 agreement 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  amount  which  is  the  difference  between  the  borrowing  base  and  the
outstanding borrowings.

(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.

                                       12

<PAGE>


                              COLUMBUS ENERGY CORP.

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


     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.

     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 basis of
assets and  liabilities  using enacted rates in effect for the year in which the
differences are expected to reverse.  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.

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

                                                      Six Months Ended May 31,
                                                      ------------------------
                                                       1998              1997
                                                      ------            ------
Current:
         Federal                                      $    4            $   25
         State                                            38                76
                                                      ------            ------
                                                          42               101
                                                      ------            ------

Deferred:
         Federal                                        (814)              524
         Use of loss carryforwards                         3               311
         State                                           (34)               22
                                                      ------            ------
                                                        (845)              857
                                                      ------            ------

  Total income tax (benefit) expense                  $ (803)           $  958
                                                      ======            ======

                                       13

<PAGE>


                              COLUMBUS ENERGY CORP.

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


     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
                                                 --------------------------
                                                  Six Months Ended May 31,
                                                 --------------------------
                                                 1998                  1997
                                                 ----                  ----
U.S. Statutory rate                              (34)%                  34 %
State income taxes                                 -                     3
Other                                             (4)                    1
                                                 ----                  ----
                                                 (38)%                  38 %
                                                 ====                  ====

     During  the six months of fiscal  1998,  certain  tax assets  (shown in the
table below) were utilized.  The tax effect of significant temporary differences
representing  deferred tax assets and  liabilities and changes were estimated as
follows (in thousands):

<TABLE>
<CAPTION>
                                                        Current Year
                                        ----------------------------------------------
                                                     Stock-
                                         Dec. 1,    holders'                   May 31,
                                          1997       Equity     Operations      1998
                                        --------    --------    ----------    --------
<S>        <C>                          <C>         <C>         <C>           <C>     
     Deferred tax assets:
       Pre-1987 loss carryforwards      $  1,053    $      -    $        -    $  1,053
       Post-1987 loss carryforwards          540           -             -         540
       Percentage depletion
         carryforwards                     1,304           -             -       1,304
       State income tax loss
         carryforwards                       105           -            (3)        102
       Other                                 327           -           (16)        311
                                        --------    --------    ----------    --------
                  Total                    3,329           -           (19)      3,310
          Valuation allowance
            (long-term)                   (1,443)          -             -      (1,443)
                                        --------    --------    ----------    --------
         Deferred tax assets               1,886           -           (19)      1,867
                                        --------    --------    ----------    --------
     Tax benefit of disqualifying
       disposition of incentive
       stock options                           -          39(a)        (39)          -
                                        --------    --------    ----------    --------
     Deferred tax liabilities-
       Depreciation, depletion and
         amortization and other           (2,875)          -           903      (1,972)
                                        --------    --------    ----------    --------
         Net tax asset (liability)      $   (989)   $     39    $      845    $   (105)
                                        ========    ========    ==========    ========
</TABLE>

__________________
(a) Credited to additional paid-in capital.

                                       14

<PAGE>


                              COLUMBUS ENERGY CORP.

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


     The Company has net operating loss  carryforwards (in thousands)  available
at November 30, 1997 as follows:

                                                           Net
                  Expiration Year                    Operating Loss
                  ---------------                    --------------
                       1999                             $ 1,808
                       2000                                 903
                       2001                                 387
                       2010                               1,589
                                                        -------
                                                        $ 4,687

     For  Alternative  Minimum Tax purposes the Company had net  operating  loss
carryforwards of  approximately  $6,056,000 as of November 30, 1997. The Company
also has percentage  depletion  carryforwards of $3,638,000 which do not expire.
State income tax operating loss  carryforwards  of $1,730,000  were available at
November 30, 1997.

(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)  COMMITMENTS AND CONTINGENT LIABILITIES

     When the Company uses  natural gas and crude oil swaps they are  considered
financial  instruments with off-balance  sheet risk which are used in the normal
course of business to partially reduce its exposure to fluctuations in the price
of crude oil and natural gas. Those  instruments  involved,  to varying degrees,
elements  of market and credit  risk in excess of the amount  recognized  in the
balance sheets. The Company had no natural gas or crude oil swaps outstanding as
of May 31, 1998.

     The Company is not aware of any events of  noncompliance  in its operations
with  any  environmental  laws and  regulations  nor of any  material  potential
contingencies related to environmental issues. The exact nature of environmental
control  problems,  if any, which the Company may encounter in the future cannot
be  predicted,  primarily  because of the changing  character  of  environmental
requirements that may be enacted with applicable jurisdictions.

                                       15

<PAGE>


                              COLUMBUS ENERGY CORP.

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


(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 $123,000 and $131,000 for the six months of 1998 and 1997,
respectively.


                                       16

<PAGE>


                              COLUMBUS ENERGY CORP.

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


(7)  EARNINGS PER SHARE

     The following table provides a reconciliation of basic and diluted earnings
per share (EPS):

<TABLE>
<CAPTION>
                                                    Six Months             Three Months
                                                   Ended May 31,           Ended May 31,
                                               --------------------    --------------------
                                                 1998        1997        1998        1997
                                               --------    --------    --------    --------
                                                              (in thousands,
                                                          except per share data)

<S>                                            <C>         <C>         <C>         <C>     
Reconciliation of basic and diluted
  EPS share computations:
  Income (loss) available to common
    shareholders - basic and
    diluted ESP (numerator)                    $ (1,310)   $  1,564    $    147    $    421
                                               ========    ========    ========    ========

Shares (denominator):
  Basic EPS                                       4,244       4,325       4,230       4,291
  Effect of dilutive option
    shares                                            -          76          64          48
                                               --------    --------    --------    --------
  Diluted EPS                                     4,244       4,401       4,294       4,339
                                               ========    ========    ========    ========

Per share amount:
  Basic EPS                                    $  (.31)    $    .36    $    .03    $    .10
                                               ========    ========    ========    ========
  Diluted EPS                                  $  (.31)    $    .36    $    .03    $    .10
                                               ========    ========    ========    ========

Number of shares (in  thousands)
  not included in basic EPS that
  would have been antidilutive
  because exercise price of options
  was greater than the average
  market price of the common shares                 138          55         138          78
                                               ========    ========    ========    ========
</TABLE>

     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 and the 10% stock dividend distributed
March 9, 1998 to shareholders of record as of February 23, 1998.

                                       17

<PAGE>


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

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

Liquidity and Capital Resources

     Second  quarter  results  continued to suffer from the lowest average crude
oil prices in the last ten years. Average natural gas prices however were higher
than second  quarter  1997's prices while natural gas  production  also improved
over last year's quarter.  Second quarter cash flow suffered  significantly from
the very weak crude oil prices and was therefore well below 1997's. As a result,
only small net earnings of $147,000,  or $0.03 per share,  were recorded  versus
last year's net earnings of $421,000,  or $0.10 per share,  when oil prices were
high enough to negate lower natural gas prices.

     Because of the first quarter  impairments,  shareholders'  equity as of the
end of the second  quarter  1998 had  actually  decreased  to  $16,042,000  from
$17,958,000  at November  30, 1997.  Nevertheless,  a positive  working  capital
position of $632,000 was available as of May 31, 1998 which,  when combined with
the expected  reduction in annual cash flow,  should still  produce a sufficient
source of funds to meet the  proposed  1998 capital  program.  A total budget of
$6,800,000 includes developing undeveloped reserves and funding for an increased
exploratory  program which  emphasizes  natural gas reserve  prospects along the
Gulf Coast of Texas.

     A significant  portion of the costs  incurred for the wells drilled in late
1997  were  actually  paid for in 1998 and  therefore  appear  as  additions  to
properties in the  consolidated  Statements  of Cash Flows in this report.  This
necessitated  a short term draw from the Company's bank credit  facility  during
first  quarter  pending  repayment  from expected  additional  monthly cash flow
generated  as a result  of those  expenditures.  Nevertheless,  the  $10,000,000
credit  facility  continues to be primarily  targeted for use by management  for
acquisitions of oil and gas properties,  but can be used for any legal corporate
purpose and is always available for 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's net cash provided from  operating  activities was
$3,720,000  for the first six months of 1998 and compares with  $4,133,000  last
year.  This cash flow (as defined)  coupled with  temporary  utilization  of the
Company's credit facility has provided  sufficient  liquidity to finance capital
expenditures thus far in 1998 as well as fund treasury stock repurchases.

                                       18

<PAGE>


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


     However,  there  exists an  important  alternative  measure of  computing a
company's  cash flow (not GAAP but one commonly used in the industry) upon which
management places greater reliance.  This is one determined before consideration
of either working  capital  changes or deduction of exploration  expenses and is
generally  known  by  industry  as  Discretionary   Cash  Flow  ("DCF").   Since
exploration  expenses can be increased or decreased at management's  discretion,
DCF is often used by successful  efforts' companies when making comparisons with
the cash flow results of a majority of other  independent  energy  companies who
use  the  full  cost  accounting   method  wherein  all  exploration  costs  are
capitalized  and do not  adversely  affect  either  operating  cash  flow or net
earnings. Columbus' DCF for the first six months of 1998 was $3,200,000 down 26%
from 1997's similar period which reported a record $4,353,000.  This is directly
attributable  to lower  crude oil and  natural  gas prices  because  natural gas
production  was  increased  over  last  year.  DCF is  calculated  without  debt
retirement  requirements  being  considered  but in  Columbus'  case it does not
matter.  Outstanding  bank debt requires no principal  payments before August 1,
1999  and  interest   expense  on  the  outstanding  debt  has  been  relatively
insignificant and is always deducted before arriving at DCF.

     Management  continues to note in all public  filings and reports its strong
exception  to the  Statement  of  Financial  Accounting  Standards  No. 95 which
directs that operating cash flow must only be determined after  consideration of
working capital changes.  This is based on our belief 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
several  properties in which  Columbus owns a small working  interest but is the
operator.

     However, neither DCF nor operating cash flow before working capital changes
may be substituted  for net income or cash available from  operations as defined
by GAAP.  Furthermore,  currently  reported cash flows  however  defined are not
necessarily  indicative  that there  will be  sufficient  funds for future  cash
requirements.

     At the  present  time the  Company  has no hedges  of  either  crude oil or
natural gas prices in place similar to those swaps it negotiated in prior years.
As a result the Company's current oil and gas revenues are fully exposed to risk
of declining  prices such as have occurred during fiscal 1998 to date.  However,
it will be able to fully benefit from price increases which may occur during the
balance of 1998.

                                       19

<PAGE>


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


     Columbus  had  outstanding  borrowings  of  $3,400,000  as of May 31,  1998
against its $10,000,000  line of credit with Norwest Bank Denver,  N.A. which is
collateralized by oil and gas properties. At the end of the second quarter 1998,
the ratio of bank debt to shareholders'  equity was 0.21 and to total assets was
0.15 and outstanding  debt used a LIBOR option with an average  interest rate of
7.1%. The net increase or decrease of long-term debt directly affects cash flows
from  financing  activities  as do the purchase of treasury  shares and proceeds
from the exercise of stock options.

     Working capital at May 31, 1998 declined slightly to $632,000 from $722,000
at November  30, 1997 due to 1998's  capital  expendit  ures of  $3,160,000  for
additions  to oil and gas  properties  along with  $1,093,000  for  purchase  of
138,750 treasury shares. These capital expenditures differ from the amount shown
in the  consolidated  Statement of Cash Flows which also includes  payments made
during 1998 for 1997 expenditures which had been incurred but not yet paid as of
1997's year end.

     The Company has been authorized  during the last several years by the Board
of Directors to repurchase  its common shares from the market subject to maximum
price  limitations.  During the first six months of 1998,  138,750  shares  were
repurchased  (143,715 shares  inclusive of the 10% stock dividend) at a restated
average price of $7.54 per share.

     As of May  31,  1998,  another  200,000  shares  has  been  authorized  for
repurchase  at prices not to exceed  $8.25 per share.  This is an  addition to a
smaller number of shares which remain to be purchased from prior authorizations.
Subsequently,  during June and so far in July 1998,  42,000 shares were acquired
at an average price of $7.36 per share.

     Impact  of the Year  2000  issue.  The Year  2000  issue is the  result  of
computer  programs  being  written  using two digits  rather than four, or other
methods,   to  define  the  applicable   year.   Computer   programs  that  have
date-sensitive  software may recognize a date using "00" as the year 1900 rather
than the year 2000.  This could  result in a system  failure or  miscalculations
causing  disruptions of operations,  including,  among other things, a temporary
inability to process  transactions,  send  invoices or engage in similar  normal
business activities.

     The Company  upgraded its major system  computer  software in 1997 to a new
release of a major  software  vendor that is compliant  with the year 2000.  The
Company will review other less  significant  systems along with its  significant
suppliers,  purchasers,  and transporters of oil and gas to determine the extent
to which the Company might be vulnerable to other failures and  thereafter  will
assess the impact on the operations of the Company, if any.

                                       20

<PAGE>


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


RESULTS OF OPERATIONS

     During 1998's second quarter,  the Company's gross revenues decreased by 3%
while  operating  income  declined to $310,000  which  compares with $699,000 in
1997.  Other  comparisons  for the 1998  quarter  versus 1997 related to prices,
production and oil and gas sales are covered later in this section.

     Thus far  during  1998,  the  Company  postponed  all  Williston  Basin oil
drilling and accelerated its  exploration  efforts by acquiring  acreage and 3-D
seismic  for  approximately  $700,000  in three new  onshore  prospects  between
Houston and Corpus Christi  including the two discoveries  discussed  below. All
three  prospects  present the  possibility  of selecting  well sites which could
produce  from several  different  zones in the same well bore.  These  prospects
possess the potential to  significantly  expand the Company's  production  which
would  equal or  surpass  that of the more fully  developed  areas of Laredo and
Sralla Road fields combined.

     During 1998's second  quarter,  four gross wells (1.73 net WI) were drilled
which  included one (.04 net WI)  successful  development  gas well and one (.50
net)  development dry hole in the Laredo area plus two discovery gas wells (1.19
net) in the  aforementioned  Gulf  Coast area of Texas.  One of the  exploratory
successes was a 10,500 foot Frio wildcat  adjacent to the old Bay City field but
in a separate fault block.  The Moore Unit #1 (.575 net WI) in Matagorda  County
commenced  production in early June and has produced on a 14/64ths inch choke at
a daily rate of approximately  1,450 Mcf of natural gas during most of June. The
second  wildcat was a Vicksburg  sand gas discovery  drilled to a depth of about
5800 feet which had  excellent gas shows in the three  objective  sands but only
the  uppermost  sand was water free.  The two other sands  should be  productive
higher on structure.  Located in Jim Wells County,  Texas,  the Bernsen #1 (.615
net WI) was  tested on an  8/64ths  inch choke at a daily rate of 400 Mcf and is
awaiting hookup to a nearby  transmission line. A second well will be drilled in
July on this  project at a  location  projected  to be higher by 40 feet.  It is
expected  to have three  productive  gas zones in the  Vicksburg  formation  and
hopefully will be dual zone completion.

     The third well of the new exploratory  ventures is to be commenced  shortly
in Bee County, Texas and is located in an area of numerous prolific,  multi-zone
oil and natural gas fields. A 50%  participation has been acquired in an acreage
block of 4,024 acres all of which has 3-D seismic coverage. An initial test well
will be drilled to about  10,500 feet to test the Slick and Luling  sands of the
Wilcox  formation.  The entire  block is highly  faulted with  numerous  seismic
indications of various levels of separate fault block traps.  Eventually most of
these will need to be drilled  through several well bores to test various Wilcox

                                       21

<PAGE>


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


sand  levels  with some wells  reaching  depths  below  15,000  feet in the high
pressure  Reagan  sand.  This  prospect  will  require a several  year effort to
properly evaluate, regardless of the outcome of the first test well.

     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
second quarters of 1998 and 1997 and the second quarter of 1998 versus the first
quarter of 1997.

<TABLE>
<CAPTION>
                                              Second Quarter
                                          ---------------------         %         First Qtr.        %
                                           1998           1997       Change          1998        Change
                                          ------         ------      ------       -----------    ------

<S>                            <C>                       <C>          <C>           <C>             <C>
         Natural gas revenues M$          $2,017         $1,672       21 %          $ 1,916         5 %
         Oil revenue M$                   $  764         $1,207      (37)%          $   921       (17)%
         Natural gas sales volumes:
           Millions of cubic feet            856            809        6 %              861        (1)%
           MCF/day                         9,303          8,792                       9,572

         Oil sales volumes:
           Barrels                        57,570         61,792       (7)%           59,669        (4)%
           Barrels/day                       626            672                         663

         Average price received:
           Natural gas - $/MCF            $ 2.36         $ 2.07       14 %           $ 2.22         6 %
           Oil - $/BBL                    $13.27         $19.53      (32)%           $15.44       (14)%
</TABLE>

     Natural  gas  revenues  increased  21% in the  second  quarter of 1998 when
compared to 1997's  quarter as a result of increased  prices and volumes.  Sales
volumes  improved by 6% over 1997's  second  quarter as a result of numerous gas
wells being completed and connected during the intervening  months while average
prices were up 14% commensurate  with increased demand and lower excess capacity
above that needed for storage refill.  The latest quarter  compared to the first
quarter of 1998 showed  comparable sales volumes since added production from new
wells occurred after close of the quarter.  However,  the 6% increase in average
prices  occurred  because the  relatively  warm winter had reduced prices during
1998's first  quarter.  Natural gas revenues  increased 5% during second quarter
over the first quarter.

     Oil  revenues  for  1998's  second  quarter  were down  significantly  when
compared to the similar  1997 quarter due to a  substantial  32% decrease in the
average  price and a lower sales  volume of 7%.  Crude oil  production  declined
because few new wells were drilled.  Only limited  exploration or development of
crude oil can really be justified in this current price  environment  and during
June,  production  has been  temporarily  halted at several  marginal  oil wells

                                       22

<PAGE>


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


and/or sales deferred pending a price improvement.  Oil revenues for last year's
second  quarter had  benefitted by $19,370 ($.31 per barrel) from crude oil swap
participation  but unfortunately no such crude oil swaps were in place this year
to offer protection from this price debacle.

     When  compared  with the 1998 first  quarter  results,  second  quarter oil
revenues  were 17% lower  because of a 14% decrease in average  price per barrel
received  while  production  declined 4% due to workovers and required  downhole
equipment replacement which contributed to the downtime in several oil wells.

     Columbus' 1998 second quarter average sales volumes of natural gas of 9,303
Mcfd and oil and liquids production of 633 barrels per day equates to an average
daily  production of 2,184 barrels of oil equivalent (BOE) compared to 2,137 BOE
during  1997's  second  quarter.  A sale of a gas well lease in the Berry R. Cox
field and normal decline plus the  aforementioned  downtime in several oil wells
essentially offset most of the increases generated by new wells completed in the
intervening period.

     Lease operating  expenses for the 1998 second quarter were higher than 1997
because  this year's  quarter  had several  expensive  workovers  performed  and
downhole and surface equipment  replaced or repaired on a few older wells. Lease
operating  costs on a BOE basis  were $3.27 in 1998  compared  to $2.19 in 1997.
Operating  costs as a  percentage  of revenues  was up to 24% in the 1998 second
quarter as a result of lower sales versus only 15% in 1997's comparable  quarter
when  extraordinary  prices helped to generate  record  revenues in every fiscal
quarter.

     Production and property taxes  approximated  10% of revenues in 1998 and 9%
in 1997. These may 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  property 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  business is  comprised  of opera tions and
services  conducted on behalf of third parties including  compressor rentals and
salt water disposal facilities.

     Operating  and  management  services  profit was $130,000  during first six
months 1998 compared to a $189,000 profit during the equivalent  period in 1997.
There was only a $37,000  profit  during first  quarter 1998 which had unusually
high  expenses  related  to  cleaning  out sand from a well bore of a salt water
disposal well. Revenues had previously improved as the number of operated  wells

                                       23

<PAGE>


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


and drilling activity  increased but began to decrease in April 1998 as drilling
activity  was  reduced.  Effective  June 1, 1998 the Company has  increased  its
interest  from 50% to 100% in four  compressors  operating  in South Texas which
should be  reflected  by increased  management  services  revenue and profits in
future periods.

     Interest Income

     Interest  income is earned  primarily  from  short-term  invest ments whose
rates  fluctuate with changes in the commercial  paper rates and the prime rate.
Interest income was $35,000 in both 1998 and 1997's second quarter.

     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 for the second quarter of
1998 were 16% higher than last year due to increased  incentive  bonuses,  which
are discretionary and directly related to Company's performance during the prior
year.  These  totaled  $273,000  ($153,000  non-cash) in May,  1998  compared to
$220,000  ($70,000  non-cash) in May,  1997.  Also,  some cost increases in 1998
resulted  from  salary  adjustments  granted  effective  December  1,  1997  for
non-officer employees and May 1, 1998 for officers.  Higher medical claims under
the Company's self-insured plan increased 1998 second quarter costs.

     Reimbursement  for services provided by Columbus officers and employees for
managing Resources is expected to decrease.  This assumes that the new President
and  Chief  Executive  Officer  who has  purchased  a 4.5%  equity  position  in
Resources  as of June 30,  1998 will be making  acquisitions  of  companies  and
properties and adding staff to handle those assets over the next several months.
Notice of  termination  of the services  contract by Resources  requires only 30
days but  requires  a 90 day  notice for EGY to  completely  withdraw  personnel
services.  When such notice is received,  it is expected that Columbus'  general
and  administrative   expense  will  rise  commensurately  since  no  EGY  staff
reductions  are presently  contemplated.  Reimbursement  of $64,000 was equal to
that received  during the second quarter of 1997 for providing those services to
Resources as more hours were required of most of Columbus'  personnel during the
search for a business  combination partner even though routine services provided
decreased.

                                       24

<PAGE>


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


     Depreciation, Depletion and Amortization

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

     Total charges for this expense item increased over 1997 and were the result
of increased  production and added  development  expenditures in the intervening
period  along with  lower  reserves  in several of the cost pools  brought on by
lower crude oil prices.  The 1998 second quarter depletion rate of $4.28 per BOE
compares with the $3.75 per BOE for the like period of fiscal 1997 and $3.91 per
BOE for all of  1997.  The  1998  rate  is  directly  affected  by  those  lower
quarter-end crude oil prices and added development  although performance of some
wells did  contribute to reserve  quantities  being  reduced.  The impairment of
carrying  values at the end of the first  quarter  of  several  different  pools
lowered the  depletable  basis and reduced the per barrel  depletion rate in the
second quarter from the $4.91 per BOE rate of the first quarter.

     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
of  $165,000  for 1998's  second  quarter  were down from  1997's  $318,000  and
included  $122,000  of 3-D seismic  costs  incurred in the Froid area in Montana
while  1997's  quarter  included  $235,000  of  similar  3-D costs for  adjacent
acreage.  No wells are planned for any of the structures  mapped on this acreage
until  crude oil  prices  improve  later  this year or next.  These  exploration
charges not only  decrease net earnings but also 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 is why it more
nearly   tracks  cash  flow   reported  by  full  cost   accounting   companies.
Approximately $300,000 of 3-D seismic costs were originally budgeted for 1998 in
the Hay Creek  area of  Richland  County,  Montana  but with crude oil prices in
disarray,  this program has been deferred indefinitely.  Such a postponement was
not possible in the Froid area because of lease expirations.

                                       25

<PAGE>


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


     Impairments

     No  impairment  loss was necessary  during second  quarter 1998 even though
crude oil prices further declined from the end of the first quarter.

     The non-cash  impairment loss of $2,816,000 thus far in 1998 was recognized
during  the  first  quarter  with the  crude  oil  price  debacle  being a major
contributor.  Well  performance  also  contributed  to a  reduction  in  reserve
quantities as well as the remaining carrying value of several successful efforts
pools when such costs suddenly exceeded the newly calculated undiscounted future
net cash flows.  Certain  property pools were written down to a fair value based
on an  assumption  that the average  future  crude oil price would be $18.75 per
barrel  during the  remaining  life.  A portion of these  crude oil  reserves is
expected to be restored when crude oil prices improve but the impairment charges
of $2,360,000 are not  reversible.  An additional  $400,000 of impairments  were
also  provided  for  probable  loss in value  of  undeveloped  acreage  holdings
(unproved  properties)  located primarily in Louisiana plus $56,000 expensed for
an expired lease.

     Interest Expense

     Interest expense varies in direct proportion to the amount of bank debt and
the level of bank interest  rates.  The average amount of bank debt  outstanding
has been higher  during  1998's  second  quarter than in 1997.  The average bank
interest rate paid this latest quarter was 7.2% which compares to 7.1% in 1997.

     Income Taxes

     During  the  first six  months  of 1998,  the net  deferred  tax  liability
decreased  to  only  $105,000  as a  result  of the  large  financial  statement
impairment  write-off which substantially  reduced the book versus tax temporary
differences.  The net  liability is comprised  of $223,000  current  portion and
$118,000  long-term  asset.  A tax  deduction  of  $39,000  from the  benefit of
disqualifying   disposition  of  incentive  stock  options  has  been  added  to
additional  paid-in capital during 1998. The estimated  increase in deferred tax
assets was $845,000 during the six months. The valuation  allowance has remained
unchanged  thus far in 1998.  The  effective  tax rate for 1998 is 38%. See also
Note 3 to the  consolidated  financial  statements  for further  explanation  of
income taxes.

                                       26

<PAGE>


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


     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.


                                       27

<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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Annual  meeting  held May 7, 1998 in Denver,  Colorado  for the  purpose of
electing  members  of the  board of  directors.  Proxies  for the  meeting  were
solicited  pursuant to Section 14(a) of the Securities  Exchange Act of 1934 and
there was no solicitation in opposition to management's solicitations.

     All of  management's  nominees for three Class I directors as listed in the
proxy statement were elected with the following vote:

                                                        Shares
                                            Shares     Abstaining
         Nominee            Shares For      Against   or Withheld
         -------            ----------      -------   -----------
Harry A. Trueblood, Jr.     3,854,110        1,570      49,593
William H. Blount, Jr.      3,854,982          698      49,493
Donald W. Ringsby           3,854,982          698      49,593

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

             (a)     Exhibits

                     27    - Financial data schedule

             (b)     Reports on Form 8-K

                     None

                                       28

<PAGE>


                                   SIGNATURES

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



                                                       COLUMBUS ENERGY CORP.
                                                     ---------------------------
                                                            (Registrant)


DATE:       July 13, 1998                        /s/ Harry A. Trueblood, Jr.
     ----------------------------------------        ---------------------------
                                                     Harry A. Trueblood, Jr.
                                                     Chairman, President and
                                                     Chief Executive Officer
                                                     (a duly authorized officer)


DATE:       July 13, 1998                        /s/ Ronald H. Beck
     ----------------------------------------        ---------------------------
                                                     Ronald H. Beck
                                                     Vice President
                                                     (Chief Accounting Officer)

                                       29