FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal quarter ended February 29, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission file number: 0-8773
CRESTED CORP.
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(Exact Name of Registrant as Specified in its Charter)
Colorado 84-0608126
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 North 8th West, Riverton, WY 82501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone Number, including area code: (307) 856-9272
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NONE
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(Former name, former address and former fiscal year, if changed
since last report)
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 April 12, 1996
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Common stock, $.001 par value 10,213,094 Shares
CRESTED CORP.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
February 29, 1996 and May 31, 1995. . . . . . . . .3-4
Condensed Consolidated Statements of Operations
Three and Nine Months Ended February 29, 1996
and February 28, 1995 . . . . . . . . . . . . . . .5-6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 29, 1996
and February 28, 1995 . . . . . . . . . . . . . . .7-8
Notes to Condensed Consolidated Financial Statements. .9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . .10-12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 12
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 13
Signatures. . . . . . . . . . . . . . . . . . . . . . 14
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Balance Sheets
ASSETS
February 29, May 31,
1996 1995
---------- ----------
(Unaudited) (Unaudited)
CURRENT ASSETS:
Cash $ 5,900 $ 24,400
Accounts receivable
Trade 58,700 49,700
Affiliates 156,300 115,600
Current portion of
long-term receivable
Related parties 35,000 196,500
Other -- 71,100
Inventory and other 58,900 55,300
---------- ----------
TOTAL CURRENT ASSETS 314,800 512,600
LONG-TERM NOTES RECEIVABLE 869,600 657,900
INVESTMENTS IN AFFILIATES 5,446,100 5,393,300
PROPERTIES AND EQUIPMENT 6,157,300 6,054,000
Less accumulated depreciation,
depletion and amortization (3,418,400) (3,311,700)
---------- ----------
2,738,900 2,742,300
OTHER ASSETS 57,900 57,800
---------- ----------
$9,427,300 $9,363,900
---------- ----------
---------- ----------
See notes to condensed consolidated financial statements.
3
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' EQUITY
February 29, May 31,
1996 1995
------------ ------------
(Unaudited) (Unaudited)
CURRENT LIABILITIES:
Accounts payable
and accrued expenses $ 187,800 $ 819,100
Accounts payable - affiliates 2,448,300 110,000
Line of credit (Note 4) -- 480,000
Current portion of long-term
debt to affiliates and others
(Note 4) 287,100 4,109,400
----------- -----------
TOTAL CURRENT LIABILITIES 2,923,200 5,518,500
ACCRUED RECLAMATION COSTS (See Note 5) 725,900 725,900
NOTE PAYABLE LONG-TERM (Note 4) 3,815,300 --
DEFERRED GAIN ON SALE OF ASSETS 127,800 127,800
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value;
authorized, 100,000 shares;
none issued or outstanding -- --
Common stock, $.001 par value; 10,200 10,200
authorized 20,000,000 shares;
issued 10,213,094 shares
February 29, 1996 and
10,208,094 shares
May 31, 1995
Additional paid-in capital 6,355,600 6,354,000
Accumulated deficit (5,965,200) (4,807,000)
Unrealized holding gain
on investments 1,434,500 1,434,500
----------- -----------
1,835,100 2,991,700
----------- -----------
$ 9,427,300 $ 9,363,900
----------- -----------
----------- -----------
See notes to condensed consolidated financial statements.
4
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Statements of Operations
Three Months Ended Nine Months Ended
February February
------------------------ -------------------------
29, 1996 28, 1995 29, 1996 28, 1995
--------- ----------- ---------- -----------
REVENUES:
Mineral property
transactions and
mineral sales $ 296,200 $ -- $1,383,400 $ 42,800
Rental 41,200 55,400 212,100 150,900
Oil and gas sales 27,600 23,700 68,600 69,100
Interest 21,900 4,000 30,000 13,400
Gain on sale of assets 12,400 486,300 37,400 502,300
Other 229,100 66,600 390,600 232,200
--------- ---------- ---------- ----------
628,400 636,000 2,122,100 1,010,700
--------- ---------- ---------- ----------
COSTS AND EXPENSES:
Mineral operations 200,500 149,700 301,200 502,800
General and
administrative 396,000 305,600 952,700 745,400
Cost of sales 492,700 16,800 1,453,100 71,800
Interest 20,600 15,800 44,700 32,300
Loss on investment -- -- -- 8,700
Depreciation and
amortization 59,000 64,800 183,200 194,400
--------- ---------- ---------- ----------
1,168,800 552,700 2,934,900 1,555,400
GAIN (LOSS) BEFORE
EQUITY LOSS OF
AFFILIATES, PROVISION
FOR INCOME TAXES (540,400) 83,300 (812,800) (544,700)
EQUITY LOSS OF
AFFILIATES (67,700) (98,600) (345,400) (165,000)
--------- ---------- ---------- ----------
LOSS BEFORE
PROVISION FOR
INCOME TAXES (608,100) (15,300) (1,158,200) (709,700)
PROVISION FOR
INCOME TAXES -- -- -- --
--------- ---------- ---------- ----------
(continued)
See notes to condensed consolidated financial statements.
5
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Statements of Operations
(Continued)
Three Months Ended Nine Months Ended
February February
------------------------ -------------------------
29, 1996 28, 1995 29, 1996 28, 1995
--------- ----------- ---------- -----------
NET LOSS $(608,100) $ (15,300) $(1,158,200) $ (709,700)
--------- ---------- ----------- ----------
--------- ---------- ----------- ----------
NET LOSS
PER SHARE $ (.06) $ * $ (.11) $ (.07)
--------- ---------- ----------- ----------
--------- ---------- ----------- ----------
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 10,208,149 10,205,566 10,208,112 10,202,904
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
* Less than $.01 per share
See notes to condensed consolidated financial statements.
6
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Statements of Cash Flows
Nine Months Ended
February
-------------------------
29, 1996 28, 1995
--------- ----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,158,200) $(709,700)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Depreciation, depletion
and amortization 183,200 194,400
Issuance of Stock 1,600 1,200
Loss on sale of
investment securities -- 8,700
Gain on sale of assets (21,800) (502,400)
Other -- (1,700)
Equity loss in affiliates 345,400 66,400
Net changes in components
of working capital 1,653,600 526,600
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,003,800 (416,500)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (6,700) (380,600)
Proceeds from collection
of notes receivable 27,600 67,800
Investments in affiliates (398,200) (294,100)
Purchase of property and equipment (191,700) (16,200)
Proceeds from sale of assets 33,700 504,800
Proceeds from sale
of investment securities -- 23,500
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NET CASH (USED IN)INVESTING ACTIVITIES (535,300) (94,800)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt 49,000 555,100
Payment on long-term debt (536,000) (126,700)
---------- ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (487,000) 428,400
---------- ----------
(Continued)
See notes to condensed consolidated financial statements.
7
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Statements of Cash Flows
(Continued)
Nine Months Ended
February
-------------------------
29, 1996 28, 1995
---------- ----------
(Unaudited) (Unaudited)
NET DECREASE IN CASH
AND CASH EQUIVALENTS (18,500) (82,900)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 24,400 102,300
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,900 $ 19,400
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES:
Income tax paid $ -- $ --
---------- ----------
---------- ----------
Interest paid $ 44,700 $ 32,300
---------- ----------
---------- ----------
See notes to condensed consolidated financial statements.
8
CRESTED CORP.
Notes to Condensed Consolidated Financial Statements
1) The Condensed Consolidated Balance Sheet as of February
29, 1996, the Condensed Consolidated Statements of Operations for
the nine months and the three months ended February 29, 1996 and
February 28, 1995, and Condensed Consolidated Statements of Cash
Flows for the nine months ended February 29, 1995 and February 28,
1995, have been prepared by the Registrant without audit. The
Condensed Consolidated Balance Sheet of May 31, 1995, has been
taken from the audited financial statements included in the
Registrant's Annual Report on Form 10-K filed for the year then
ended. In the opinion of the Registrant, the accompanying
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to fairly present the
financial position of the Registrant and its affiliate as of
February 29, 1996 and May 31, 1995, the results of operations for
the three months and nine months ended February 29, 1996 and
February 28, 1995, and the cash flows for the nine months then
ended.
2) Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. It is suggested that these financial statements be read
in conjunction with the Registrant's May 31, 1995 Form 10-K. The
results of operations for the periods ended February 29, 1996 and
February 28, 1995 are not necessarily indicative of the operating
results for the full year.
3) The condensed consolidated financial statements of the
Registrant include its proportionate share of the accounts of USECB
Joint Venture (USECB) which is owned 50% by Registrant and 50% by
Registrant's parent, U.S. Energy Corp. (USE). All material
intercompany profits and balances have been eliminated.
4) Debt consists primarily of a note to the Registrant's
parent USE of $6,241,000. The remaining debt is for various
equipment, and a hangar.
5) Accrued reclamation obligations of $725,900 are the
Registrant's share of the reclamation liability at the Crooks Gap
Mining District. This reclamation work may be performed over
several years.
6) Certain reclassifications have been made in the May 31,
1995 financial statements to conform to the classifications used in
February 29, 1996.
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following is Management's Discussion and Analysis of
significant factors which have affected the Registrant's liquidity,
capital resources and results of operations during the periods
included in the accompanying financial statements.
Liquidity and Capital Resources
Working capital improved during the nine months ended February
29, 1996 by $2,397,500 to a working capital deficit of $2,608,400.
This improvement was primarily caused by decreases in the current
portion of long-term debt of $3,822,300, payment on the line of
credit of $480,000 and a decrease in accounts payable to third
parties of $631,300. These improvements of working capital were
partially offset by an increase in accounts payable to the
Registrant's parent, U.S. Energy Corp. ("USE") of $2,338,300, and
a decrease in the current portion of long-term receivables of
$232,600. There were also improvements in current asset balances.
Accounts receivable-trade, accounts receivable-affiliates, and
other current assets increased by $9,000, $40,700, and 3,600
respectively. Cash and cash equivalents decreased by $18,500
during the nine months ended February 29, 1996. This decrease was
primarily as a result of operating and investing activities.
The Registrant utilized $535,300 in its investing activities
during the nine months ended February 29, 1996. This was primarily
as a result of the Registrant and its parent U.S. Energy Corp.
("USE") funding Sheep Mountain Partners ("SMP"), Plateau Resources
Limited ("PRL"), Energx Limited ("Energx") and Sutter Gold Mining
Company ("SGMC"). As the Registrant and USE provide various
services for GMMV and SMP, the non-affiliated participants are
invoiced for their proportionate share of the approved operating
costs. GMMV is current on reimbursements to the Registrant and USE
for all the operating costs. Due to disputes existing between the
SMP partners (see Part II, Item 1), the Registrant and USE have not
been reimbursed for care and maintenance costs expended on the SMP
mineral properties in Wyoming since the spring of 1991. As a
result of the uncertainty of the receivable from SMP, it is being
reported on the Financial Statements as an investment in
affiliates. Investing activities produced $27,600 as a result of
payment on a note receivable, and the sale of various equipment,
$33,700.
The primary requirements for the Registrant's working capital
continue to be funding of the on-going administrative expenses,
including the mine and mill development and holding costs of SGMC,
and uranium delivery costs and property holding costs of SMP. As
a result of the disputes between the SMP partners, the Registrant
and USE have been delivering certain of their respective portions
of the uranium concentrates required to fill various SMP delivery
requirements on long-term U3O8 contracts with domestic utilities.
10
The Registrant and USE made two U3O8 deliveries during the nine
months ended February 29, 1996. Nukem/CRIC have made the balance
of the SMP deliveries. No assurances can be given that this method
of delivery will continue. The Registrant, USE and Nukem have been
notified by the Arbitration Panel that they have extended the time
for making a ruling to April 22, 1996. This date can be extended
by unanimous consent of the Panel. At such time as a ruling is
further made, all SMP deliveries will be made in accordance with
that ruling. The capital requirements to fill the Registrant's and
USE's portion of the remaining commitments in fiscal 1996 will
depend on the spot market price of uranium and is also dependent on
the outcome of proceedings involving Nukem/CRIC.
The primary source of the Registrant's capital resources for
the remainder of fiscal 1996 will be borrowing from financial
institutions (primarily the line of credit), possible proceeds from
the sale of uranium under the SMP contracts after the Arbitration
Panel's ruling, and the possible sale of equity or interests in
investment properties. Fees from oil production, rentals of
various real estate holdings and equipment, aircraft chartering and
the sale of aviation fuel will also provide cash. Additional
sources of capital will be required to hold and maintain mineral
properties, permitting, the construction of a gold processing mill
and mine development of SGMC, and administrative costs. The
Registrant and USE are currently seeking a joint venture partner
and/or other means of financing the construction of the gold
processing mill and mine development at SGMC. The funding of SMP
care and maintenance costs may require additional funding,
depending on the outcome of the SMP arbitration. The Registrant
and USE have available to them $1,000,000 on a commercial line of
credit with their bank.
Results of Operations
Nine Months Ended February 29, 1996 Compared to Nine Months Ended
February 28, 1995
Total revenues for the nine months ended February 29, 1996
increased by $1,111,400 compared to the same period of the previous
year. Revenues during the nine month period ended February 29,
1996 increased primarily as a result of the Registrant reporting
revenues of $1,383,400 from the sale of U3O8 to fill delivery
contracts on behalf of SMP. The Registrant also reported an
increase of $61,200 in rental revenues as a result of operations at
Ticaboo, Utah. These increases were partially offset by a $464,900
decrease in gains from the sale of assets and a decrease in mineral
property transactions of $42,800. This decrease is as a result of
the Registrant and USE exchanging six quarters of their advance
royalty for certain real estate property in Gunnison, Colorado.
The Registrant and USE will not receive this advance royalty again
until June of 1996.
11
Costs and expenses increased by $1,379,500 during the nine
months ended February 29, 1996 compared to the same period of the
previous year. This increase is entirely the result of the cost of
U3O8 sold under the SMP contract of $1,383,300. There were no sales
of U3O8 during the nine months ended February 28, 1995. This
increase in cost was partially offset by a reduction in mineral
operations of $201,600 due to reduced operations on mineral
properties. General and administrative expenses increased by
$207,300 due to a Christmas bonus paid in USE stock to employees of
USE, a portion of which was charged to Crested and increased legal
costs associate with the SMP Arbitration.
Operations for the nine months ended February 29, 1996
resulted in a pre-tax loss of $812,800 before equity in loss of
affiliates of $345,400, as compared to a loss of $544,700 before
equity in income of affiliates of $165,000 during the same period
of the previous year. After recognizing equity losses, the
Registrant realized a net loss of $1,158,200 ($0.11 per share)
compared to a loss of $709,700 ($0.07 per share) for the
comparative period of the previous year.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
(a) In the pending arbitration proceedings involving Sheep
Mountain Partners, Registrant, U.S. Energy and Nukem Inc./CRIC,
reported in Registrant's Form 10-K (Item 3) for the fiscal year
ended May 31, 1995, the three member Arbitration Panel unanimously
concluded that it will need an additional period of time up to and
including April 22, 1996 before the Panel's Award will be issued.
The Panel also reserved the right to extend that period of time
should it be unanimously decided it is necessary.
(b) In the Bond Gold Bullfrog, Inc. "(BGBI") litigation reported
in the Registrant's 1995 Form 10-K (Item 3) a partial or bifurcated
trial to the judge of the extralateral rights issues was held on
December 11 and 12, 1995, as scheduled. The purpose of the hearing
was to determine whether the Bullfrog orebody in question is a
"vein, lode or ledge" as described in the General Mining Law and if
so, whether the facts of the case warrant the application of the
doctrine of extralateral rights as set forth in such statute.
Although the Court sat as both the finder of fact and law with
respect to such issues, the Court concluded that the questions are
ultimately one of law which must be reached based on the testimony
and exhibits introduced at the trial concerning the description of
the orebody. Registrant and defendants U.S. Energy and Parador
Mining Co., Inc. ("Parador") presented five experts in the field of
geology, including the person who was responsible for the discovery
of the gold deposit at the mine. All five experts opined that the
12
deposit was a lode and it apexed on a portion of Parador's two
mining claims. The defendant H. B. Layne Contractor, Inc.
("Layne") presented a single witness who testified that there was
no apex within the Parador claims. The Court nevertheless found
that Parador had failed to meet its burden of proof and therefore
Parador, Registrant and U.S. Energy have no right, title and
interest in the minerals lying beneath the claims of Layne pursuant
to extralateral rights. The Court entered a partial judgment in
favor of Layne and ordered that Parador pay Court costs to Layne.
Defendants intend to appeal the Court's ruling as erroneous as a
matter of law at such time as it is appropriate to do so.
The partial trial did not address any of the other issues
pending in the litigation other than those required to decide the
question of whether the doctrine of extralateral rights is
applicable to this case. All other claims and counterclaims remain
pending before the Court and no hearing date has been set for those
issues.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. There were no Reports filed on Form
8-K during the quarter ended February 29, 1996.
13
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.
CRESTED CORP.
(Registrant)
Date: April 12, 1996 By: s/ Max T. Evans
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MAX T. EVANS,
President
Date: April 12, 1996 By: s/ Robert Scott Lorimer
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ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
14