COGENTRIX ENERGY, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

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

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

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

COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

1.   Principles of Consolidation and Basis of Presentation

          The accompanying consolidated condensed financial statements include the accounts of Cogentrix Energy, Inc. ("Cogentrix Energy") and its subsidiary companies (collectively, the "Company"). Wholly-owned and majority-owned subsidiaries, including a 50%-owned entity in which the Company has effective control through its designation as the managing partner of this project, are consolidated. Less-than-majority-owned subsidiaries are accounted for using the equity method. Investments in unconsolidated affiliates in which the Company has less than a 20% interest and does not exercise significant influence over operating and financial policies are accounted for under the cost method. All material intercompany transactions and balances among Cogentrix Energy, its subsidiary companies and its consolidated joint ventures have been eliminated in the accompanying consolidated condensed financial statements.

          Information presented as of June 30, 2003 and for the three months and six months ended June 30, 2003 and 2002 is unaudited. In the opinion of management, however, such information reflects all adjustments, which consist of normal recurring adjustments necessary to present fairly the financial position of the Company as of June 30, 2003, the results of operations for the three months and six months ended June 30, 2003 and 2002 and cash flows for the six months ended June 30, 2003 and 2002. The results of operations for these interim periods are not necessarily indicative of results which may be expected for any other interim period or for the year as a whole.

          The accompanying unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "Commission"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although management believes that the disclosures made are adequate to make the information presented not misleading. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's most recent report on Form 10-K which the Company filed with the Commission on March 31, 2003.

          The accompanying unaudited consolidated condensed financial statements have been prepared assuming the Company will continue as a going concern which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. However, as a result of the maturity of the outstanding obligations ($187.1 million as of June 30, 2003) under Cogentrix Energy's Corporate Credit Facility (see Note 5) on October 29, 2003, the realization of assets and the satisfaction of liabilities are subject to uncertainty. Management of the Company intends to refinance these obligations and is currently negotiating the terms of a restructured facility. However, there are no assurances that this restructuring can be accomplished. As a result of the maturity of the outstanding obligations under Cogentrix Energy's Corporate Credit Facility on October 29, 2003, the Company's independent auditors expressed a going concern uncertainty in their report on the Company's consolidated financial statements for the year ended December 31, 2002, which triggered an event of default under the Corporate Credit Facility. Cogentrix Energy has a forbearance agreement in effect with the lenders to the Corporate Credit Facility pursuant to which the lenders have agreed to forbear through August 31, 2003 from terminating their commitments or accelerating the outstanding obligations and demanding payment. Additionally, the lenders have agreed to allow Cogentrix Energy to continue to convert to borrowings, drawings under outstanding letters of credit issued under the Corporate Credit Facility during this forbearance period. However, we are unable to make any restricted payments, a category that includes shareholders dividends and loans to Cogentrix Energy shareholders or repay any other senior debt prior to its scheduled maturity. If the lenders to the Corporate Credit Facility accelerate the outstanding obligations subsequent to the August 31, 2003 forbearance expiration, or if the Corporate Credit Facility matures and is not paid, a cross-default under the Cogentrix Energy's senior unsecured notes due 2004 and 2008 would be created, and the senior note holders would have the ability to accelerate the $394.7 million of senior notes outstanding as of June 30, 2003 and demand immediate payment.

          Cogentrix Energy is a management company that derives cash flow from its operating subsidiaries. Management of the Company believes that cash currently on hand and remaining expected 2003 cash flows from these subsidiaries will be adequate for Cogentrix Energy to meet its non-contingent contractual obligations and its other 2003 operating obligations including debt service on its senior unsecured notes due 2004 and 2008, interest and fees related to the Corporate Credit Facility and recurring general and administrative costs. However, this belief is based on a number of material assumptions, including, without limitation, the continuing ability of the Company's subsidiaries to pay dividends, management fees and other distributions and the ability to refinance the Corporate Credit Facility. There is no assurance that these sources will be available when needed or that Cogentrix Energy's actual cash requirements will not be greater than anticipated .

          The Company's Southaven, Caledonia and Dominican Republic facilities are in default of their senior, non-recourse project debt aggregating $1.0 billion as of June 30, 2003 as a result of the factors described in Note 5. As a result, these facilities' non-recourse project debt is callable and has been classified as a component of current liabilities in the accompanying consolidated balance sheets as of June 30, 2003 and December 31, 2002. See Note 3 for additional discussion regarding the Caledonia facility. The project lenders are not obligated to continue funding draws and have the right to exercise all remedies available to them under the applicable project loan agreement, including foreclosing upon and taking possession of all of the applicable project assets. Until the events of default under the applicable project loan agreements are cured, our project subsidiaries will be unable to make any distributions to Cogentrix Energy or the Company' s partners. These projects could remain in default for an extended period of time until the events of default are waived by the lenders, the project loan agreements are refinanced or a replacement conversion services or power purchase agreement is provided. However, there can be no assurances that the Company will be able to enter into a replacement conversion services or power purchase agreement, to refinance the project loan agreements or that the lenders will waive the events of default. The project lender to each of these facilities is able to satisfy this obligation with the applicable project's assets only (total assets of approximately $1.3 billion as of June 30, 2003) and cannot look to Cogentrix Energy or its other subsidiaries to satisfy this obligation. While these lenders do not have direct recourse to Cogentrix Energy, these defaults may still have important consequences for our results of operations and liquidity, including, without limitation:

2.   Newly Adopted Accounting Pronouncements

          On January 1, 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." This statement requires companies to record a liability relating to legal obligations to retire and remove assets used in their business. The Company identified obligations to remove or dismantle certain facilities under the terms of these facilities' land leases or, in the case of one facility, under a development agreement. The Company developed cost estimates representing the future cost to dismantle and remove these facilities at the end of the respective lease term or useful life. The future cost to dismantle and remove these facilities has been discounted to its present value, and the related asset and liability have been recorded on the balance sheet as of January 1, 2003. The asset will be depreciated over the life of the asset and the liability will be accreted to its future value and even tually extinguished when the asset is taken out of service. As of January 1, 2003, the Company recorded an expense of $1.0 million, net of tax, related to these obligations as a cumulative effect of a change in accounting principle in the accompanying consolidated condensed financial statements. This amount represents the cumulative accretion expense and depreciation expense which would have been recorded had the accounting pronouncement been applied since the retirement obligation was created. The proforma effect of this change in accounting principle was not significant to the prior periods presented.

          The following table represents the details of the Company's asset retirement obligations which are included in other long-term liabilities in the accompanying consolidated balance sheets (dollars in thousands):

          On January 1, 2003, the Company adopted SFAS No. 145, "Rescission of SFAS No. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections." SFAS No. 4 had required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. During the first quarter of 2003, the Company recognized a gain of approximately $1.3 million related to the repurchase of approximately $5.9 million Cogentrix Energy's senior unsecured notes due 2004. In accordance with SFAS No. 145, this gain is included in other income in the accompanying condensed consolidated financial statements. In addition, SFAS No. 145 rescinds SFAS No. 4 and the related required classification gains and losses from extinguishment of debt as extraordinary items under certain circumstances. Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic eff ects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. The provisions related to SFAS No. 13 are applicable for transactions occurring after May 15, 2002.

          On January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires costs associated with exit or disposal activities to be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company's adoption of this statement did not have an impact on the Company's financial condition or results of operations.

          In December 2002, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, and interpretation of SFAS Nos. 5, 57 and 107 and a rescission of FASB Interpretation No. 34". This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this n ew standard did not have a material impact on the Company's financial position, results of operations or cash flows.

          In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities". This Statement amends and clarifies the accounting and reporting for derivative instruments, including embedded derivatives, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 149 amends SFAS No. 133 to reflect the decisions made as part of the Derivatives Implementation Group and in other FASB projects or deliberations. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 is not expected to have an impact on the Company's consolidated financial statements.

          In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS No. 150 on July 1, 2003 and this adoption did not have a material impact on the Company's consolidated condensed financial statements.

3.   Impairment of Long-Lived Assets

          Turbines and Other Equipment - The Company has entered into commitments with a turbine supplier and a heat recovery steam generator ("HRSG") supplier to purchase three sets of turbines and HRSGs with an original intent of placing this equipment in a new electric generating facility. During 2002, management of the Company reassessed the utilization of this equipment and currently intends to place two of three turbine and HRSG sets in the expansion of one of the Company's existing facilities. The Company has prepared a cash flow model for this expansion project, including the costs to place this equipment in service, and has concluded that the undiscounted cash flows from this expanded facility will be adequate to recover the carrying value of two sets of turbines and HRSGs, including the capital cost to place this equipment in service. Accordingly, under the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Live d Assets," the carrying value of these two sets of turbines and HRSGs are deemed to be recoverable, and no impairment charge is warranted. A third turbine and HRSG set was written down to fair market value during the fourth quarter of 2002 due to the uncertainty regarding placement into a new or existing project. The value of this third turbine and partially completed HRSG set continues to approximate fair value and no additional impairment charge is warranted as of June 30, 2003. As of June 30, 2003, the revised net book value of the three sets of turbines and HRSGs was $138.0 million. The Company expects to make additional progress payments on the turbines of $7.9 million during 2003 which will be capitalized into the remaining two unimpaired sets of turbines. Although the Company is attempting to place the two turbine and HRSG sets in the expansion of one of the Company's existing projects or a new development project, the Company cannot provide any assurances that we will be able to place this equip ment. In the event the Company is unsuccessful, the carrying value of this equipment may be further impaired and consequently the Company's results of operations would be adversely affected.

          Southaven Facility - The Company's project subsidiary which owns the Southaven facility is currently in default of its project loan agreement as a result of the earlier downgrade of the credit rating of PG&E National Energy Group, Inc. ("NEG") and the guarantor of the facility's then existing conversion services purchaser, PG&E Energy Trading-Power, L.P. ("PGET") as discussed in Note 5. During July 2003, NEG and certain of its subsidiaries, including PGET, voluntarily filed for protection from their creditors under Chapter 11 of the United States Bankruptcy Code (the "NEG Bankruptcy). On August 4, 2003, the bankruptcy court approved the rejection of the Southaven conversion services agreement by PGET as an executory contract.

          The Company's project subsidiary began operating this facility as a merchant plant during July 2003 under an agreement with a third party whereby the third party will manage and provide power marketing, fuel procurement and related services for the Southaven facility. The Company has prepared a merchant cash flow model for the facility and has concluded as of June 30, 2003 that the undiscounted cash flows from the facility will be adequate to recover the carrying value of its long-lived assets. Accordingly, under the provisions of SFAS No. 144, the carrying value of the long-lived assets is deemed to be recoverable, and no impairment charge is warranted as of June 30, 2003. However, the Company cannot provide any assurances that the actual cash flows from merchant plant operation will be adequate to recover the carrying value of the facility's long-lived assets. In the event the Company is unsuccessful, the carrying value of these long-lived ass ets may become impaired and consequently the Company's results of operations would be adversely affected. In addition, these long-lived assets may become impaired as a result of certain conditions discussed in Note 5.

          Caledonia Facility - The Company's project subsidiary which owns the Caledonia facility is currently in default of its project loan agreement as a result of the earlier downgrade of the credit rating of NEG and the guarantor of the facility's then existing conversion services purchaser, PGET as discussed in Note 5. The Company entered into an agreement in May 2003 with the lender to the Caledonia facility which will involve the transfer of its ownership interest in the Caledonia facility to the project lender in exchange for the project lender assuming all obligations of the Caledonia project, including long-term debt, and releasing the Company from all additional security obligations under the project loan agreement. This transaction is anticipated to close prior to December 31, 2003. A wholly-owned subsidiary of the Company will continue to operate and manage the Caledonia facility subsequent to the ownership transfer. The Company' s subsidiary and the project lender each has the ability to terminate the operations and maintenance agreement with 90 and 30 days notice, respectively. Accordingly, under the provisions of SFAS No. 144, the Caledonia facility was classified as assets of discontinued operations during the second quarter of 2003 and the carrying value of the facility's long-lived assets was written down to their fair value. The Company recorded a pre-tax charge of approximately $38.1 million related to this impairment which is included in discontinued operations in the consolidated condensed statements of operations. The components of discontinued operations are as follows (dollars in thousands):

          The major components of assets and liabilities of discontinued operations as of June 30, 2003 are as follows (dollars in thousands):

4.   Sale of Project Interest

          Cogentrix of Oklahoma, Inc. ("Cogentrix of Oklahoma"), the Company's wholly-owned subsidiary, was formed to own and hold 100% of the membership interest in Green Country Energy, LLC ("Green Country"). Green Country is the owner of an approximate 810-megawatt combined-cycle, natural gas-fired electric generating facility located in Jenks, Oklahoma.

          On June 10, 2003, Cogentrix of Oklahoma sold 100% of its direct membership interest in Green Country to a newly formed limited liability company, Green Country Holding LLC (the "Purchaser") formed by affiliates of General Electric Structured Finance, Inc. (collectively, "GESF") in exchange for cash consideration and a 10% interest in the Purchaser. As a result of the transaction, Green Country is now wholly-owned by the Purchaser, and the Purchaser is 90% owned by GESF and 10% owned by Cogentrix of Oklahoma. Cogentrix of Oklahoma remains an indirect, wholly-owned subsidiary of the Company. The purchase was effected pursuant to an amended purchase agreement dated April 11, 2003 (the "Purchase Agreement"). The sale to the Purchaser was consummated in connection with a refinancing of the Green Country bank loan which refinancing required additional equity contributions from GESF and Cogentrix of Oklahoma.

          In connection with the refinancing and sale of the Green Country interest, GESF and the financial institutions providing the refinancing required that Cogentrix Energy and Cogentrix of Oklahoma provide certain guarantees and indemnities pursuant to the Purchase Agreement and other related transaction agreements. The Cogentrix Energy guarantees and indemnities relate to any costs or expenses arising from: (1) the Jenks LC Litigations (see Note 6) and (2) any claim arising out of a breach of representations and warranties made under the amended Purchase Agreement. The Cogentrix of Oklahoma indemnities relate to any claims, costs or expenses arising from (1) the Jenks LC Litigation (see Note 6), (2) a performance guarantee for services provided to Green Country by a Cogentrix Energy affiliate, and (3) any claim arising out of a breach of representations and warranties made under the Purchase Agreement. In connection with the sale of our interest in Green Country, Cogentrix of Oklahoma agreed to escrow (the "Litigation Escrow") a portion of the sale proceeds until final and non-appealable resolution of the litigation has been reached. This has been included as restricted cash and other current liabilities in the accompanying consolidated balance sheet.

          The sale proceeds received by Cogentrix Energy, net of the Litigation Escrow, Cogentrix of Oklahoma capital contribution required upon refinancing, and transaction costs were approximately $71.6 million. Cogentrix Energy utilized $50.0 million of these proceeds to repay borrowings outstanding under the Corporate Credit Facility. The Company recorded a gain of approximately $58.8 million which is included in gain on sale of project interest, net of transaction costs and other revenue in the consolidated statements of income.

5.   Long-Term Debt Defaults

     Corporate Credit Facility Default

          The Company has an agreement with a syndicate of banks that provides up to $225.0 million of revolving credit through October 29, 2003 in the form of direct advances or the issuance of letters of credit (the "Corporate Credit Facility"). The total obligations outstanding as of June 30, 2003 consisted of approximately $107.1 million of borrowings and $80.0 million of letters of credit. The outstanding borrowings are included as current portion of long-term debt in the accompanying consolidated balance sheets as of June 30, 2003 and December 31, 2002. As discussed in Note 1, we are currently in default of the Corporate Credit Facility. Cogentrix Energy has a forbearance agreement in effect with the lenders to the Corporate Credit Facility pursuant to which the lenders agreed to forbear through August 31, 2003 from terminating their commitments or accelerating the outstanding obligations and demanding payment. Additionally, the lenders have agreed to allow Cogentrix Energy to continue to convert to borrowings, drawings under outstanding letters of credit issued under the Corporate Credit Facility during this forbearance period. However, we are unable to make any restricted payments, a category that includes shareholders dividends and loans to Cogentrix Energy shareholders or repay any other senior debt prior to its scheduled maturity. Even though the lenders have granted this forbearance, the Company cannot provide assurances that the lenders to the Corporate Credit Facility will not choose to accelerate the obligations outstanding under the Corporate Credit Facility and demand immediate payment of all obligations outstanding after the forbearance expiration on August 31, 2003.

     Project Level Defaults

          As discussed below, the Southaven, Caledonia, Sterlington and Dominican Republic facilities continue to be in default of their project loan agreements. As a result, the non-recourse project debt of each of the Southaven, Caledonia and Dominican Republic facilities is callable and has been classified as a component of current liabilities in the accompanying consolidated balance sheets as of June 30, 2003 and December 31, 2002. These facilities are 100%, 100%, 50% and 65%-owned by the Company, respectively. As discussed in Note 3, the Caledonia facility's long-term debt was reclassified as a liability of discontinued operations during the second quarter of 2003. The Company accounts for the Sterlington project using the equity method of accounting and its proportional interest in this facility's assets and related liabilities, including long-term debt, are reflected net as an investment in unconsolidated affiliates in the accompanying consolid ated balance sheets. The project lenders to these facilities are not obligated to continue funding draws and have the right to exercise all remedies available to them under the applicable project loan agreement, including foreclosing upon and taking possession of all of the applicable project assets. Until the events of default under these project loan agreements are cured, the project subsidiaries will be unable to make any distributions from these projects. These projects could remain in default for an extended period of time until the Company can obtain waivers from the lenders, cure the events of default, refinance or restructure the project loan agreements or in the case of the Southaven and Sterlington facilities, provide a replacement conversion services or power purchaser. However, there can be no assurances that the Company will be able to enter into a replacement conversion services or power purchase agreement, refinance or restructure the project loan agreements, cure the events of default or obtain waivers from the lenders. The project lenders to each facility are able to satisfy the respective obligations with the applicable project's assets (total assets of approximately $1.3 billion as of June 30, 2003) only and cannot look to Cogentrix Energy or its other subsidiaries to satisfy this obligation. While these lenders do not have direct recourse to Cogentrix Energy, these defaults may still have important consequences for the Company's results of operations and liquidity, including, without limitation,

          Caledonia and Southaven Facility Customer Defaults - During August 2002, NEG was downgraded below investment grade which created an event of default by NEG under each facility's then existing separate conversion services agreements (the "NEG Default"). This NEG Default created an event of default under these project subsidiaries' non-recourse loan agreements during February 2003. As a result, the applicable project lenders will not be obligated to continue funding draws and will have the right to exercise all remedies available to them under the applicable project loan agreement, including foreclosing upon and taking possession of all the applicable project assets. As a consequence of these events of default, the total senior borrowings for the two facilities of $790.7 million are callable and have been classified as a component of current liabilities on the consolidated balance sheets at June 30, 2003 and December 31, 2002. As a result o f the Caledonia and Southaven debt being in default and callable, the project's independent auditors expressed or are expected to express a going concern uncertainty in each project's financial statements for the year ended December 31, 2002 that triggered additional events of default under their non-recourse loan agreements during the second quarter of 2003. In addition, the NEG Bankruptcy and the rejections of the conversion services agreements by the bankruptcy court on August 4, 2003 triggered additional events of default under their non-recourse loan agreements.

          Sterlington Facility Customer Default - During July 2002, Dynegy Holdings, Inc. ("Dynegy"), the guarantor of the conversion services purchaser at our Sterlington facility, was downgraded below investment grade creating a purchaser event of default under the Sterlington facility's conversion services agreement and an event of default under the Sterlington facility's non-recourse project loan agreements. During October 2002, the Company and the project lender amended the loan agreement requiring that all excess cash generated by the facility be utilized to repay the outstanding borrowings under the Sterlington facility's loan agreement on a quarterly basis. The project lenders have the right to exercise all remedies available to them under the project loan agreements including foreclosing upon and taking possession of all project assets. Dynegy continues to perform pursuant to the terms of the conversion services agreement and is current on i ts payments due to the Sterlington facility. The Company accounts for this project using the equity method of accounting and its proportional interest in this facility's assets and related liabilities, including long-term debt, are reflected net as an investment in unconsolidated affiliates in the accompanying consolidated balance sheets. The Company's investment in this project was $9.8 million as of June 30, 2003. As a result of the Sterlington debt being in default and callable, the project's independent auditors expressed a going concern uncertainty in the Sterlington financial statements for the year ended December 31, 2002 that triggered an additional event of default under the Sterlington non-recourse loan agreement during April 2003.

          Dominican Republic Facility Customer Defaults - The Company's project subsidiary which owns our Dominican Republic facility notified the power purchaser, Corporación Dominicana de Electricidad ("CDE"), on several occasions since the facility achieved commercial operations in March 2002 of events of default under the power purchase agreement based on CDE's failure to pay amounts due for the sale of capacity and electricity (the "Payment Defaults"). Under the terms of the project subsidiary's implementation agreement with the State of the Dominican Republic ("SDR"), which guarantees CDE's payment obligations, we demanded that the SDR pay certain of these amounts owed by CDE and, when the SDR failed to do so in the time allotted according to the implementation agreement, notified the SDR that they are in default of the implementation agreement for failing to pay this past due amount by CDE (the "SDR Defaults"). During June and July 2003 , CDE and SDR made payments aggregating $45.0 million to our project subsidiary curing all existing Payment Defaults and SDR Defaults.

          Due to certain Payment Defaults and SDR Defaults existing at the time, the Company's project subsidiary could not convert the outstanding borrowings from construction loans to term loans on or before March 28, 2003. This event triggered an event of default under the project loan agreement. The project lenders have the right to exercise all remedies available to them under the project loan agreements including foreclosing upon and taking possession of all project assets. As a consequence of these events, the total borrowings for the Dominican Republic facility of $227.2 million are callable and have been classified as a current liability on the consolidated balance sheets as of June 30, 2003 and December 31, 2002. As a result of the Dominican Republic debt being in default and callable, the project's independent auditors expressed a going concern uncertainty in the Dominican Republic financial statements for the year ended December 31, 2002 that triggered an additional event of default under the Dominican Republic non-recourse loan agreement during April 2003. The Company is currently negotiating with the project lenders to obtain permanent waivers related to these remaining defaults and obtain approval to convert the construction loans to terms loans. The Company is unable to provide any assurance that the project lenders will waive the remaining events of default or approve the conversion of construction loans.

6.   Claims and Litigation

          Product Liability Claims Related to Coal Combustion By-Products - One of the Company's wholly-owned subsidiaries is party to certain product liability claims related to the sale of coal combustion by-products for use in 1997-1998 in various construction projects. Management cannot currently estimate the range of possible loss, if any, the Company will ultimately bear as a result of these claims. However, management believes - based on its knowledge of the facts and legal theories applicable to these claims, after consultations with various counsel retained to represent the subsidiary in the defense of such claims, and considering all claims resolved to date - that the ultimate resolution of these claims should not have a material adverse effect on its consolidated financial position or results of operations or on Cogentrix Energy's ability to generate sufficient cash flow to service its outstanding debt.

          Claims Asserted by City of Jenks against the Jenks, Oklahoma Facility - In October 2002, the City of Jenks, Oklahoma filed a petition in the District Court for Tulsa County, State of Oklahoma against Green Country (see Note 4 for additional discussion). The petition also names as defendants the counterparty under the conversion services agreement for this facility, Exelon Generation Company, LLC ("Exelon"), and a third party that transports natural gas on behalf of Exelon. The City of Jenks claims that Green Country is liable for failure to pay an annual gross receipts tax of 2% on sales of electricity and that Green Country and the other defendants are also liable to Jenks for failure to pay a pipeline capacity permit fee of 3% of the purchase price of