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 0-6814
U.S. ENERGY CORP.
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(Exact Name of Company as Specified in its Charter)
Wyoming 83-0205516
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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)
Company's telephone number, including area code: (307) 856-9271
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Not Applicable
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(Former name, address and fiscal year, if changed since last report)
Check 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
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State 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 15, 2000
- -------------------------------------------- -------------------------------
Common stock, $.01 par value 9,041,261 Shares
U.S. ENERGY CORP. & SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
August 31, 2000 and May 31, 2000.............................3-4
Condensed Consolidated Statements of
Operations Three Months Ended
August 31, 2000 and 1999.......................................5
Condensed Consolidated Statements of Cash Flows
Three Months Ended August 31, 2000 and 1999....................6
Notes to Condensed Consolidated
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..............................11
Signatures....................................................12
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
U.S. ENERGY CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
August 31, May 31,
2000 2000
------------ ----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $1,179,900 $ 916,400
Accounts receivable
Trade, net of allowance for doubtful accounts 1,076,800 1,055,000
Affiliates 168,900 508,900
Current portion of long-term notes receivable, net 91,800 -
Assets held for resale & other 964,700 846,800
Inventory 128,900 129,700
----------- -----------
Total current assets 3,611,000 3,456,800
INVESTMENTS AND ADVANCES
Affiliates 12,500 9,600
Restricted investments 9,367,900 9,361,000
----------- -----------
Total investments and advances 9,380,400 9,370,600
PROPERTIES AND EQUIPMENT 27,516,800 27,705,800
Less accumulated depreciation,
depletion and amortization (10,799,700) (10,948,900)
----------- -----------
Total properties and equipment 16,717,100 16,756,900
OTHER ASSETS:
Accounts and notes receivable:
Real estate sales 54,100 58,600
Employees 304,200 295,200
Deposits and other 886,600 938,000
----------- -----------
Total other assets 1,244,900 1,291,800
----------- -----------
$30,953,400 $30,876,100
=========== ===========
See notes to condensed consolidated financial statements.
3
U.S. ENERGY CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, May 31,
2000 2000
---------------- --------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $1,923,200 $1,683,800
Deferred GMMV purchase option 4,000,000 4,000,000
Current portion of long-term debt 452,900 284,100
Line of credit 850,000 650,000
-------------- -------------
Total current liabilities 7,226,100 6,617,900
LONG-TERM DEBT 1,158,900 900,100
RECLAMATION LIABILITY 8,906,800 8,906,800
OTHER ACCRUED LIABILITIES 2,984,800 3,073,500
DEFERRED TAX LIABILITY 1,144,800 1,144,800
MINORITY INTERESTS 1,129,000 1,124,600
COMMITMENTS AND CONTINGENCIES
FORFEITABLE COMMON STOCK,
$.01 par value; 396,608 shares issued,
forfeitable until earned 2,584,600 2,584,600
PREFERRED STOCK,
$.01 par value; 100,000 shares authorized
200 shares issued or outstanding; 1,840,000 1,840,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000 shares authorized;
8,763,155 shares issued 87,700 87,700
Additional paid-in capital 37,797,700 37,797,700
Accumulated deficit (30,776,600) (30,071,200)
Treasury stock at cost, 944,725 shares (2,639,900) (2,639,900)
Unrealized gain on investments - -
Unallocated ESOP contribution (490,500) (490,500)
-------------- -------------
Total shareholders' equity 3,978,400 4,683,800
-------------- -------------
$30,953,400 $30,876,100
============== =============
See notes to condensed consolidated financial statements.
4
U.S. ENERGY CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
August 31,
----------------------------------
2000 1999
---- ----
REVENUES:
Contract drilling and construction $2,119,000 $ -
Commercial operations 1,424,200 1,083,300
Management fees and other 135,600 119,700
Gain (loss) on sales of assets 134,600 -
Oil sales 40,200 10,900
Mineral sales 33,300 34,300
Interest 56,200 225,900
--------------- ---------------
3,943,100 1,474,100
COSTS AND EXPENSES:
Contract drilling and construction operations 1,691,400 2,700
Commercial operations 1,038,000 925,600
General and administrative 980,000 1,165,800
Oil production 21,200 1,900
Mineral operations 899,300 549,400
Interest 35,200 4,900
-------------- --------------
4,665,100 2,650,300
-------------- --------------
(LOSS) INCOME BEFORE MINORITY INTEREST
AND EQUITY LOSS OF AFFILIATES (722,000) (1,176,200)
MINORITY INTEREST IN LOSS (GAIN) OF
CONSOLIDATED SUBSIDIARIES 27,300 65,000
EQUITY IN LOSS OF AFFILIATES - (400)
--------------- --------------
LOSS BEFORE INCOME TAXES (694,700) (1,111,600)
PROVISION FOR INCOME TAXES - -
-------------- --------------
NET LOSS $(694,700) $(1,111,600)
PREFERRED STOCK DIVIDENDS (10,700) -
-------------- ---------------
NET LOSS TO COMMON SHAREHOLDERS $(705,400) $(1,111,600)
============== ==============
NET LOSS PER SHARE, BASIC $(0.09) $(0.15)
============== ==============
NET LOSS PER SHARE, DILUTED $(0.09) $(0.15)
============== ==============
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 7,818,430 7,258,291
=============== ==============
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 8,215,038 7,258,291
============== ===============
See notes to condensed consolidated financial statements.
5
U.S. ENERGY CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
August 31,
-------------------------------
2000 1999
---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(705,400) $(1,111,600)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest in loss of
consolidated subsidiaries (27,300) (65,000)
Issuance of stock for additional investment in YSFC - 207,100
Depreciation 106,700 121,200
Equity in loss from affiliates - 400
Gain on sale of assets (134,600) -
Other 41,700 47,900
Net changes in assets and liabilities 306,900 (351,400)
---------------- --------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (412,000) (1,151,400)
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of mining properties (4,400) (8,800)
Development of gas properties (158,300) -
Proceeds from sale of property and equipment 274,100 -
Increase in restricted investments (6,900) (117,400)
Purchase of property and equipment (43,700) (212,600)
Changes in notes receivable, net - (9,400)
Investments in affiliates (12,900) (167,500)
--------------- --------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES 47,900 (515,700)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 526,400 181,300
Net (repayment on) proceeds from lines of credit 200,000 -
Repayments of long-term debt (98,800) (54,500)
--------------- --------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 627,600 126,800
--------------- --------------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS 263,500 (1,540,300)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 916,400 10,173,000
--------------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,179,900 $8,632,700
=============== ==============
SUPPLEMENTAL DISCLOSURES:
Income tax paid $ - $ -
=============== ==============
Interest paid $35,200 $4,900
=============== ==============
See notes to condensed consolidated financial statements.
6
U.S. ENERGY CORP. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1) The Condensed Consolidated Balance Sheet as of August 31, 2000, the
Condensed Consolidated Statements of Operations and Cash Flows for the three
months ended August 31, 2001 and 2000 have been prepared by the Company without
audit. The Condensed Consolidated Balance Sheet as of May 31, 2000, has been
taken from the audited financial statements included in the Company's Annual
Report on Form 10-K for the period then ended. In the opinion of the Company,
the accompanying financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of the Company as of August 31, 2000 and May 31, 2000, the results of
operations and cash flows for the three months ended August 31, 2000 and 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) The consolidated financial statements of the Company include 100% of the
accounts of USECB Joint Venture ("USECB" or "USECC") which is owned 50% by the
Company and 50% by the Company's subsidiary, Crested Corp. (Crested). The
consolidated financial statements also reflect 100% of the accounts of its
majority-owned and controlled subsidiaries: Energx Ltd. (90%), Crested (52%),
Plateau Resources Limited (100%), Sutter Gold Mining Co. (63%), Yellow Stone
Fuels Corp. ("YSFC") (35.9%), Four Nines Gold, Inc. (50.9%), Ruby Mining Company
(91%), Northwest Gold, Inc. (96%) and Rocky Mountain Gas, Inc. (82%). All
material intercompany profits and balances have been eliminated.
4) Accrued reclamation obligations and standby costs of $11,891,600 are the
reclamation liability at the SMP mining properties and the Shootaring Uranium
Mill. The reclamation work may be performed over several years and is bonded
with either cash or certain of the Company's real estate assets.
7
U.S. ENERGY CORP. & SUBSIDIARIES
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 the Powder River Basin in Wyoming and Montana and various real
estate operations including a motel operation near Lake Powell, Utah.
All these business are operated in conjunction with the Company's
subsidiary Crested Corp. . ("Crested") through a joint venture between the two
companies, USECB Joint Venture ("USECB").
Liquidity and Capital Resources
The Company's working capital deficit at May 31, 2000 of $3,161,000
increased to a working capital deficit of $3,615,100 at August 31, 2000. This
increase of $454,100 in the working capital deficit was caused by increased
accounts payable of $239,400, additional drawing down of the letter of credit
$200,000, and increases in the current portion of long term debt to third
parties of $168,800.
Accounts payable increased as a result of the Company's continued drilling
of Coalbed Methane wells and the construction of infrastructure for third
parties. Due to late payments from third parties, the Company's accounts payable
amounts increased during the quarter. Current portion of long term debt
increased as a result of financing the Company's annual insurance premiums and a
financing on the Company's real estate operations in southern Utah.
These increases in the working capital deficit were offset by increased
cash on hand, $263,500 increased accounts receivable from third parties in the
Coalbed Methane business, $21,800, and an increase in other assets, $117,900.
During the three months ended August 31, 2000, operations consumed $412,000
while investing and financing activities generated $47,900 and $627,600
respectively for a net increase in cash of $263,500. The increase in cash from
financing activities was a result of financing the Company's annual insurance
premiums, $219,400, additional draw downs on the Company's line of credit,
$200,000, and a financing on the Company's real estate operations in southern
Utah, $307,000. These increases in long term debt were offset by payments of
$98,800 on the debt. Investing activities resulted in increased cash primarily
as a result of the sale of the shop and associates land to an affiliated
company. The Company sold the shop to provide for short term capital needs. The
Company has the option to repurchase the shop.
Capital Resources
The primary source of the Company's capital resources are cash on hand;
collection of receivables from contract construction and drilling operations at
August 31, 2000, projected equity financing of its Coalbed methane affiliate
Rocky Mountain Gas, ("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 the GMMV settlement; potential settlement
discussions with Phelps Dodge regarding a dispute on a molybdenum property and
final determination of the SMP arbitration/litigation. The Company also will
8
continue to receive revenues from its commercial operations in southern Utah
along with the rental and fixed base airport operations in Wyoming.
The Company has 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. 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 also has 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 10 years.
The Company 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 received from Kennecott $1,375,000 five days after the closing and
will receive $1,625,000 in January 2001. Kennecott assumed the reclamation
liabilities on the Sweetwater uranium mill and mining properties of the GMMV.
The Company is responsible for the reclamation clean up of the GMIX plant which
had been used in the recovery of uranium by other companies.
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 funds 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 determined that the contract drilling and
construction work that it had been doing in the Powder River Basin of Wyoming
and Montana for others was 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 is 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 through RMG is responsible to make delay rental payments on
coalbed methane leases. During the balance of fiscal 2001, the Company will be
required to fund $285,300 in delay rentals and option payments. In addition RMG
is committed to pay Quantum Energy ("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 discretion, 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.
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 not anticipated that any 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's real estate assets and cash bonds. The reclamation bond
amount is reviewed annually by the state regulatory agencies.
9
Results of Operations
Revenues for the quarter ended August 31, 2000, increased $2,469,000 over
revenues for the same period of the previous year to $3,943,100. This increase
was primarily as a result of operations in the coalbed methane contract drilling
and construction businesses. During the three months ended August 31, 2000 the
Company recorded $2,119,000 in revenues from these operations. During the
quarter ended August 31, 1999 no revenues were recorded in the contract drilling
and construction business. Increases in revenue were also recorded in the
quarter ended August 31, 2000 in Commercial operations, $340,900, Oil sales,
$29,300, and the gain on the sale of an asset, $134,600. These increases were
offset by a reduction in interest revenue $169,700, and mineral revenues,
$1,000.
Costs and expenses increased by $2,014,800 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. Operations in the coalbed
methane contract drilling and construction work resulted in costs and expenses
of $1,691,400. In additional mineral operations increased by $349,900 due to
work performed on equipment used in the contract drilling and construction
operations. General and administrative expenses decreased by $185,800 during the
three months ended August 31, 2000 due to overhead being allocated to the
drilling and construction business.
As a result of a decision which was made in September 2000 the Company and
USE curtailed all contract drilling and construction work for third parties.
Associated with these reductions were significant personnel reductions as well
as many reductions in corporate overhead. These reductions should account for
significant reductions in costs during the balance of the fiscal 2001.
Operations for the three months ended August 31, 2000, resulted in a loss
of $705,400 as compared to a loss of $1,111,600 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 $4,000,000 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. 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 litigation was
settled by the insurers of U.S. Energy Corp., Crested Corp. et al.
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. The parties settled 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'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) at 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.
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.
11
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.
U.S. ENERGY CORP.
(Company)
Date: October 15, 2000 By: /s/ John L. Larsen
--------------------------------
JOHN L. LARSEN,
Chief Executive Officer
and Chairman
Date: October 15, 2000 By: /s/ Robert Scott Lorimer
--------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer and
Chief Accounting Officer
12