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 August 31, 2000 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.
- --------------------------------------------------------------------------------
(Exact Name of Company as Specified in its Charter)
Colorado 84-0608126
- ------------------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 North 8th West, Riverton, WY 82501
- ------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Company's telephone Number, including area code: (307) 856-9271
------------------------
NONE
- --------------------------------------------------------------------------------
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the Company (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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
------ --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 12, 2000
- -------------------------------------------- -------------------------------
Common stock, $.001 par value 10,381,664 Shares
CRESTED CORP.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Balance Sheets
August 31, 2000 and May 31, 2000.........................3-4
Condensed Statements of Operations
Three Months Ended August 31, 2000 and 1999................5
Condensed Statements of Cash Flows
Three Months Ended August 31, 2000 and 1999................6
Notes to Condensed Financial Statements........................7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............8-10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................11
ITEM 6. Exhibits and Reports on Form 8-K..............................12
Signatures....................................................12
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CRESTED CORP.
Condensed Balance Sheets
ASSETS
August 31, May 31,
2000 2000
--------------- ----------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $2,600 $3,000
INVESTMENTS IN AFFILIATES 6,252,400 6,342,200
PROPERTIES AND EQUIPMENT 1,354,400 1,354,400
Less accumulated depreciation,
depletion and amortization (1,205,900) (1,205,900)
------------ -----------
148,500 148,500
OTHER ASSETS 2,000 2,100
------------ -----------
$6,405,500 $6,495,800
============ ===========
See notes to Condensed Consolidated Financial Statements.
3
CRESTED CORP.
Condensed Balance Sheets
LIABILITIES AND SHAREHOLDERS' DEFICIT
August 31, May 31,
2000 2000
---------------- ---------------
(Unaudited)
CURRENT LIABILITIES:
Deferred GMMV purchase option $2,000,000 $2,000,000
Current portion of long-term debt to
Affiliate 8,543,800 8,230,200
-------------- --------------
TOTAL CURRENT LIABILITIES 10,543,800 10,230,200
COMMITMENT TO FUND EQUITY INVESTEES 215,600 215,600
RECLAMATION LIABILITY 748,400 748,400
COMMITMENTS AND CONTINGENCIES
FORFEITABLE COMMON STOCK, $.001 par value
65,000 shares issued, forfeitable until earned 43,900 43,900
SHAREHOLDERS' equity
Preferred stock, $.001 par value;
100,000 shares authorized;
none issued or outstanding -- --
Common stock, $.001 par value;
20,000,000 shares authorized;
issued 10,316,664 10,400 10,400
Additional paid-in capital 8,747,200 8,747,200
Accumulated deficit (13,903,800) (13,499,900)
-------------- --------------
TOTAL SHAREHOLDERS' DEFICIT (5,146,200) (4,742,300)
-------------- --------------
$6,405,500 $6,495,800
============== ==============
See notes to Condensed Consolidated Financial Statements.
4
CRESTED CORP.
Condensed Statements of Operations
Three Months Ended
August 31,
------------------------------------
2000 1999
---- ----
(Unaudited) (Unaudited)
REVENUES:
Mineral revenue $16,700 $17,100
Interest -- 600
Other -- 5,000
------------ ------------
16,700 22,700
COSTS AND EXPENSES:
General and administrative 79,700 43,600
------------ ------------
79,900 43,600
------------ ------------
INCOME (LOSS) BEFORE
EQUITY LOSS AND
TAX PROVISION (63,000) (20,900)
EQUITY IN LOSS OF AFFILIATES (340,900) (470,500)
------------ ------------
(LOSS) GAIN BEFORE
PROVISION FOR INCOME TAXES (403,900) (491,400)
PROVISION FOR
INCOME TAXES -- --
------------- -------------
NET (LOSS) GAIN $(403,900) $(491,400)
============ ============
NET (LOSS) GAIN PER SHARE,
BASIC AND DILUTED $(0.04) $(0.05)
============ ============
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 10,316,664 10,349,664
============ ===========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 10,381,664 10,349,664
============ ============
See notes to Condensed Consolidated Financial Statements.
5
CRESTED CORP.
Condensed Statements of Cash Flows
Three Months Ended
August 31,
---------------------------
2000 1999
---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(403,900) $(491,400)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Equity in loss of affiliates 340,900 470,500
Non cash compensation 73,900 41,100
Decrease in other assets 100 -
----------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 11,000 20,200
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from affiliate 5,600 1,000
----------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES 5,600 1,000
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on debt to affiliate (17,000) 1,500
------------ ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (17,000) 1,500
------------ ---------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENT (400) 22,700
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,000 45,000
------------ ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $2,600 $67,700
============ =========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ -- $ --
============ =========
Noncash investing and financing activities:
Net noncash distribution from affiliate $84,200 $168,200
============ =========
Net noncash borrowings from affiliate $330,600 $211,300
============ =========
See notes to Condensed Consolidated Financial Statements.
6
CRESTED CORP.
Notes to Condensed Financial Statements
1) The Condensed Balance Sheet as of August 31, 2000, the Condensed
Statements of Operations and Cash Flows for the three months ended August 31,
2000 and 1999, have been prepared by the Company without audit. The Condensed
Balance Sheet at May 31, 2000, has been derived from the audited financial
statements included in the Company's Annual Report on Form 10-K filed for the
year then ended. In the opinion of the Company, the accompanying financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to fairly present the financial position of the Company and
its affiliate as of August 31, 2000, the results of operations and cash flows
for the three months ended August 31, 2000 and August 31, 1999.
2) Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the Company's May
31, 2000 Form 10-K. The results of operations for the periods ended August 31,
2000 and 1999 are not necessarily indicative of the operating results for the
full year.
3) Debt at August 31, 2000 and May 31, 2000, consists of the balance on a
note payable to USE of $8,543,800 and $8,230,200, respectively.
4) The reclamation liability of $748,400 represents the Company's share of
the liability at the Sheep Mountain Mines in the Crooks Gap Mining District.
This reclamation work may be performed over several years and will not be
commenced until such time as all the uranium mineralization contained in the
properties is produced or the properties are abandoned. It is anticipated that
neither of these events will occur for sometime into the future.
5) Certain reclassifications have been made in the May 31, 2000 financial
statements to conform to the classifications used in August 31, 2000.
6) The Company adopted EITF 00-01, "Balance Sheet and Income Statement
Display Under the Equity Method for Investments in Certain Partnerships and
Other Unincorporated Joint Ventures," effective June 1, 2000. This standard
requires the Company to account for its investment in USECC using the equity
method of accounting. The Company previously consolidated its proportional
ownership in the joint venture (50%) for financial reporting purposes. The
adoption of this standard did not impact the net income (loss) of the Company,
but did have a material effect on the financial position and the presentation of
the Company's financial statements.
7
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 Company's liquidity, capital resources and
results of operations during the periods included in the accompanying financial
statements. For a detailed explanation of the Company's Business Overview, it is
suggested that Management's Discussion and Analysis of Financial Condition and
Results of Operations for the quarter ended August 31, 2000 be read in
conjunction with the Company's Form 10K for the year ended May 31, 2000.
Overview of Business
The Company is engaged in the mineral development and extraction business.
The Company has interests in a uranium mine and mill in Southern Utah, uranium
mines in Central Wyoming, a gold property in California, coalbed methane
properties in Wyoming and Montana in the Powder River Basin and various real
estate operations including a motel operation near Lake Powell, Utah. All these
business are operated in conjunction with the Company's parent, U.S. Energy
Corp. ("USE") through a joint venture between the two companies, the USECB Joint
Venture ("USECB").
The Company adopted EITF 00-01, "Balance Sheet and Income Statement Display
Under the Equity Method for Investments in Certain Partnerships and Other
Unincorporated Joint Ventures," effective June 1, 2000. This standard requires
the Company to account for its investment in USECC using the equity method of
accounting. The Company previously consolidated its proportional ownership in
the joint venture (50%) for financial reporting purposes. The adoption of this
standard did not impact the net income (loss) of the Company, but did have a
material effect on the financial position and the presentation of the Company's
financial statements.
Liquidity and Capital Resources
The Company's working capital deficit at May 31, 2000 of $10,227,200
increased to a working capital deficit of $10,541,200 at August 31, 2000. This
increase of $314,000 in the working capital deficit was caused by increased debt
to USE of $313,600. USE continues to fund a significant portion of the Company's
obligations on the various ventures in which they operate jointly.
During the three months ended August 31, 2000, operations and investing
activities generated $11,000 and $5,600, respectively while financing activities
consumed $17,000 for a net decrease in cash of $400.
Capital Resources
The Company and USE entered into a settlement agreement with Kennecott
Energy ("Kennecott") on September 11, 2000. This settlement agreement was
entered into to resolve all issues in a legal dispute among the companies who
were partners in the Green Mountain Mining Venture ("GMMV"). As a result of the
settlement, the Company and USE received $1,375,000 five days after the closing
and will receive $1,625,000 in January 2001. Kennecott assumed the reclamation
liabilities on the Sweet water uranium mill and mining properties of the GMMV.
The Company and USE are responsible for the reclamation clean up of the GMIX
plant which had been used in the recovery of uranium by other companies.
8
The Company and USE have a $1,000,000 line of credit with a commercial
bank. The line of credit is secured by various real estate holdings and
equipment belonging to the Company and USE. At August 31, 2000, the line of
credit had been drawn down by $850,000. The line of credit is being used for
short term working capital needs associated with operations. The Company and USE
also have a $500,000 line of credit through their affiliate Plateau Resources.
This line of credit is for the development of the Ticaboo town site in southern
Utah. Plateau has drawn down this financing facility $300,000 which is repayable
over a period of 10 years.
The Company, through USECB also has receivables being collected from
contract construction and drilling operations. Projected equity or industry
partner financing of coalbed methane affiliate Rocky Mountain Gas, Inc. ("RMG");
sale of mine, construction and drilling equipment; sale of partial ownership
interest in mineral properties, proceeds under the line of credit; receipt of
cash from Kennecott in the GMMV settlement; potential settlement discussions
with Phelps Dodge regarding a dispute on a molybdenum property, and final
determination of the SMP arbitration/litigation will also potentially provide
cash. The Company also will continue to receive revenues from its commercial
operations in southern Utah and from the rental and fixed base airport
operations in Wyoming.
The Company believes that these cash resources will be sufficient to
sustain operations during fiscal 2001. The capital resources at August 31, 2000,
will not be sufficient, however, to provide funding for the Company's
maintenance and development of its coalbed methane gas business. RMG is seeking
additional equity financing or an industry partner arrangement to develop its
coalbed methane leases.
Capital Requirements
The Company and USE jointly fund the holding costs of the Sheep Mountain
uranium mines; the Plateau uranium mine and mill, real estate commercial
operations and the development of the coalbed methane gas properties.
In September 2000, the Company and USE determined that the contract
drilling and construction work that they had been doing in the Powder River
Basin of Wyoming and Montana in the coalbed methane business for others were not
profitable and the payment for services performed was too slow. As a result of
this decision, all operations on a contract basis were stopped. The Company and
USE are currently in the process of evaluating which equipment will be needed to
develop the RMG properties. Any surplus equipment is being sold or will be
auctioned. This decision to curtail operations has dramatically reduced
personnel and operational expenses.
The Company and USE through RMG, have requirements for their cash to make
delay rental payments on RMG's portion of coalbed methane leases. During the
balance of fiscal 2001, the Company, USE and RMG will be required to fund
$285,300 in delay rentals. In addition, RMG is committed to pay Quantum Energy,
L.L.C. ("Quantum") one final payment of $1,300,000 on or before December 31,
2000. If RMG does not make this final payment, it must assign 12% of its
undivided 50% working interest in the properties to Quantum. Quantum at its sole
opinion, may elect to have RMG drill and complete additional wells for the
equivalent cost of $1,300,000. If Quantum exercises this option, RMG would own a
50% working interest (40%NRI) in the wells drilled with those funds, but only
after Quantum has received $1,300,000 in net revenues from those wells.
9
The Company owes USE $8,543,800 as a result of USE funding operations and
capital expansion expenses. The Company does not have the resources to repay
this debt and must negotiate continued terms with USE or find some other means
of retiring the debt. To date, USE has not called the debt.
The Company has attended appeals hearings with the IRS in Denver Colorado
to discuss resolving issues raised in audits for fiscal 1995 and 1996. A final
settlement agreement has not yet been approved but it is believed that the
settlement will not have a material affect on the Company.
It is anticipated that none of the Company's working capital will be used
in fiscal 2001 for the reclamation of any of its mineral property interests. The
future reclamation costs on the Sheep Mountain properties and the GMIX plant are
covered by a reclamation bond which is secured by a pledge of certain of the
Company and USE's real estate assets and a cash bond on the GMIX plant. The
reclamation bond amount is reviewed annually by State regulatory agencies.
Results of Operations
Revenues for the quarter ended August 31, 2000, decreased $6,000 from
revenues for the same period of the previous year to $16,700. This decrease was
primarily as a result of a settlement of a easement dispute during the first
three months of the previous year.
Costs and expenses increased by $36,100 during the three months ended
August 31, 2000 over the same period of the prior year. This increase was as a
result of work done in the coalbed methane business. The increased activity
increased the Company's obligations to retirement benefits.
Due to the adoption of EITF 00-01, "Balance Sheet and Income Statement
Display under the Equity Method for Investments in Certain Partnerships and
Other Unincorporated Joint Ventures," the Company recorded an equity loss from
USECC in the amounts of $340,900 and $470,500 for the three months ended August
31, 2000 and August 31, 1999, respectively.
Operations for the three months ended August 31, 2000, resulted in a loss
of $403,900 as compared to a loss of $491,400 for the same three months in the
previous year.
As a result of the settlement agreement with Kennecott, the Company will
recognize its portion of the cash payments from Kennecott in the second and
third quarters of fiscal 2001. In addition, the Company will be allowed to
record the Deferred GMMV Option of $2,000,000 as income in the second quarter of
fiscal 2001.
10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Dennis Selley et al vs U.S. Energy Corp., Crested Corp. et al. On May 14,
1999, Dennis Selley personally and as personal representative of the Estate of
Hannah Selley and his wife Mary B. Selley, filed a civil action No. 30869 in the
Ninth Judicial District Court of Fremont County, Wyoming against U.S. Energy
Corp. and Crested Corp., Plateau Resources Limited and USECC the joint venture,
alleging that the defendants were negligent as a landlord in renting a double
wide trailer (converted to a bunkhouse) near Ticaboo, Utah to plaintiffs'
daughter Hannah Selley and sought various unspecified damages. Hannah Selley was
employed by U.S. Energy Corp. ("USE") at the Ticaboo Lodge in June 1998. Because
no housing was available for employees, she and five other USE employees rented
rooms in the bunkhouse provided by USE. At about 4:00 a.m. in the morning of
June 6, 1998, a fire started in the bunkhouse. All occupants were awakened and
left the living quarters during the fire except Ms. Selley who perished in the
fire.
On September 19, 2000, after a mediation hearing, the insurers of U.S.
Energy Corp., Crested Corp. et al. agreed to settle the litigation with the
plaintiffs, the Selleys.
Declaratory Judgment Action. The Workers Compensation Fund of Utah had
filed a complaint for declaratory relief on or about July 26, 1999 against U.S.
Energy Corp., Crested Corp., Plateau Resources Limited, Dennis and Mary Selley
and others in civil action No. 99090 7500 before the Utah Third Judicial Court
of Salt Lake County, Utah. Insurers of U.S. Energy, Crested Corp. et al agreed
to settle the above Selley case on September 19, 2000 and agreed to dismiss this
Declaratory Judgment Action.
GMMV LITIGATION
On November 10, 1999, Kennecott Uranium Company and Kennecott Energy
Company ("Kennecott") filed a civil action against defendants U.S. Energy Corp.,
Crested Corp. and USECC in the Sixth Judicial District Court, Campbell County,
Wyoming, No. 22406. Kennecott was seeking to dissolve the GMMV joint venture
with USECC and judicial approval of a plan to sell the GMMV or liquidate its
assets plus attorney fees and costs. Defendants filed a motion to change venue
to the District Court in Fremont County, Wyoming and the Sixth Judicial District
Court granted the motion. The case was then transferred to the Ninth Judicial
District Court of Fremont County, Wyoming in Civil Action No. 31322. USECC file
answers, counterclaims and a cross complaint against Kennecott and Kennecott's
parent, Rio Tinto plc.
The parties entered into settlement negotiations and on September 11, 2000,
the parties executed a settlement agreement and related documentation and
releases (the "Settlement"). Under the Settlement, USECC sold all of its
interests in the GMMV and the GMMV properties, including those within a
described Area of Interest to an affiliate of Kennecott. The purchase
consideration was $3,250,000 in cash and a 4% net profits royalty interest in
certain of the mining claims at the Big Eagle and Jackpot Mines. USECC retained
certain mining equipment and supplies, and has the right to receive certain
mining claims that may be abandoned by Kennecott. Kennecott assumes the
reclamation obligations (to the extent required by applicable regulatory
authority) on the GMMV properties and USECC retains liabilities relating to its
activities only as a contractor to the GMMV. The Settlement provides that
Kennecott is under no obligation to develop any of the properties or the
underlying claims and may instead choose to sell the properties and claims or to
abandon the claims as they are no longer required. USECC, Kennecott and Rio
Tinto plc dismissed the case with prejudice on September 12, 2000.
11
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits. None.
(b) Reports on Form 8-K. The Company did not file any Reports on Form 8-K
during the quarter ended August 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
CRESTED CORP.
(Company)
Date: October 15, 2000 By: /s/ Max T. Evans
------------------------------
MAX T. EVANS,
President
Date: October 15, 2000 By: /s/ Robert Scott Lorimer
------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
12