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 28, 2001 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 April 13, 2001
- -------------------------------- -----------------------------
Common stock, $.01 par value 9,044,793 Shares
U.S. ENERGY CORP. and SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
February 28, 2001 and May 31, 2000...........................3-4
Condensed Consolidated Statements of
Operations for the Three and Nine Months Ended
February 28, 2001 and February 29, 2000........................5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 28, 2001 and February 29, 2000......6
Notes to Condensed Consolidated
Financial Statements...........................................7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............8-11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................12
ITEM 6. Exhibits and Reports on Form 8-K..............................13
Signatures....................................................13
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
U.S. ENERGY CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
ASSETS
February 28, May 31,
2001 2000
-------------- --------------
(Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents $ 989,400 $ 916,400
Accounts receivable:
Trade, net of allowance for doubtful accounts 103,400 1,055,000
Affiliates 114,600 508,900
Assets held for resale and other 938,800 846,800
Inventory 45,600 129,700
------------- --------------
TOTAL CURRENT ASSETS 2,191,800 3,456,800
INVESTMENTS
Affiliates 18,000 9,600
Restricted investments 9,542,300 9,361,000
------------- --------------
9,560,300 9,370,600
PROPERTIES AND EQUIPMENT 28,836,200 27,705,800
Less accumulated depreciation,
depletion and amortization (11,071,600) (10,948,900)
------------- --------------
17,764,600 16,756,900
OTHER ASSETS:
Notes receivable:
Real estate sales 46,500 58,600
Employees 174,200 295,200
Deposits and other 833,400 938,000
------------- --------------
1,054,100 1,291,800
------------- --------------
$ 30,570,800 $ 30,876,100
============= ==============
See notes to condensed consolidated financial statements.
3
U.S. ENERGY CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28, May 31,
2001 2000
-------------- -------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,698,000 $ 1,683,800
Deferred GMMV purchase option -- 4,000,000
Deferred SUNCOR purchase option 1,278,800 --
Current portion of long-term debt 188,700 284,100
Line of credit 200,000 650,000
------------- -------------
TOTAL CURRENT LIABILITIES 3,365,500 6,617,900
LONG-TERM DEBT 1,054,100 900,100
RECLAMATION LIABILITIES 8,906,800 8,906,800
OTHER ACCRUED LIABILITIES 2,774,400 3,073,500
DEFERRED TAX LIABILITY 1,144,800 1,144,800
MINORITY INTERESTS 1,105,200 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 and outstanding 1,840,000 1,840,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000 shares authorized;
8,771,687 and 8,763,155 shares issued 87,800 87,700
Additional paid-in capital 37,816,800 37,797,700
Accumulated deficit (26,958,200) (30,071,200)
Treasury stock, at cost, 949,725
and 944,725 shares (2,660,500) (2,639,900)
Unallocated ESOP contribution (490,500) (490,500)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 7,795,400 4,683,800
------------- -------------
$30,570,800 $30,876,100
============= =============
See notes to condensed consolidated financial statements.
4
U.S. ENERGY CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 29, February 28, February 29,
-------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES:
Contract drilling and
construction $ (6,300) $ 1,362,000 $2,236,000 $ 2,125,100
Commercial operations 204,500 340,200 2,139,000 2,042,600
Gain on sales of assets 126,300 5,600 710,400 5,600
Management fees and other 153,800 4,300 509,600 267,900
Mineral sales 264,700 33,200 430,600 100,300
Oil sales 33,900 54,000 111,800 100,100
Kennecott settlement, net -- -- 7,132,800 --
Interest 96,200 133,100 446,300 525,500
--------- ------------ ----------- -----------
873,100 1,932,400 13,716,500 5,167,100
COSTS AND EXPENSES:
Contract drilling and
construction 56,900 1,186,100 2,174,800 1,492,700
Commercial operations 624,400 925,800 2,424,300 2,773,400
General and
administrative 1,071,900 1,302,900 3,186,200 3,484,800
Mineral operations 622,900 1,155,200 2,289,600 2,553,300
Gas operations 281,100 -- 394,700 --
Oil production 17,500 20,500 48,200 37,400
Provision for doubtful
accounts -- 23,100 -- 23,100
Interest 81,800 7,900 195,900 22,300
---------- ------------- ----------- -----------
2,756,500 4,621,500 10,713,700 10,387,000
---------- ------------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND EQUITY IN LOSS
OF AFFILIATES (1,883,400) (2,689,100) 3,002,800 (5,219,900)
MINORITY INTEREST IN LOSS
OF CONSOLIDATED
SUBSIDIARIES 63,100 78,700 222,700 183,200
EQUITY IN LOSS OF AFFILIATES -- -- -- (2,900)
----------- ------------ ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (1,820,300) (2,610,400) 3,225,500 (5,039,600)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (1,820,300) $(2,610,400) $3,225,800 $(5,039,600)
PREFERRED STOCK DIVIDENDS (37,500) -- (112,500) --
------------- ----------- ----------- -----------
NET INCOME (LOSS) TO
COMMON SHAREHOLDERS $ (1,857,800) $(2,610,400) $3,113,000 $(5,039,600)
============= ============ =========== ============
NET INCOME (LOSS)
PER SHARE, BASIC $ (0.24) $ (0.34) $ 0.41 $ (0.66)
============= ============ =========== ============
NET INCOME (LOSS)
PER SHARE, DILUTED $ (0.23) $ (0.33) $ 0.39 $ (0.63)
============= ============ =========== ============
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 7,819,446 7,688,797 7,665,360 7,665,361
============= ============ =========== ============
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 8,216,05 8,021,781 8,002,494 7,992,667
============= ============ =========== ===========
See notes to condensed consolidated financial statements.
5
U.S. ENERGY CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
February 28, February 29,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,113,000 $ (5,039,600)
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Minority interest in loss
of consolidated subsidiaries (222,700) (183,200)
Depreciation 632,600 520,600
Equity in loss from affiliates -- 2,900
Non cash compensation 19,200 29,200
Provision for doubtful accounts -- 23,100
Gain on sale of assets (710,500) (5,600)
Deferred purchase option (2,721,200) --
Other 203,300 134,500
Net changes in assets and liabilities 1,270,200 (875,500)
------------- --------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,583,900 (5,393,600)
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of mining properties -- (21,600)
Development of gas properties (2,000,900) (21,500)
Proceeds from sale of property and equipment 1,507,700 12,500
Increase in restricted investments (181,300) (60,000)
Purchase of property and equipment (436,600) (1,917,900)
Change in notes receivable, net -- (225,500)
Issue of stock for stock of subsidiary -- 252,600
Investments in affiliates (8,400) (1,731,600)
------------- ---------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (1,119,500) (3,713,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 888,800 349,900
Net proceeds from lines of credit (450,000) --
Increase in cash from acquisition of subsidiaries -- 224,600
Repayments of long-term debt (830,200) (260,400)
------------- --------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES (391,400) 314,100
------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 73,000 (8,792,500)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 916,400 10,173,000
------------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 989,400 $ 1,380,500
============= ==============
SUPPLEMENTAL DISCLOSURES:
Income tax paid $ -- $ --
============= ==============
Interest paid $ 195,100 $ 22,300
============= ==============
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 February 28, 2001, the
Condensed Consolidated Statements of Operations and Cash Flows for the three and
nine months ended February 28, 2001 and February 29, 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 February 28, 2001 and May 31, 2000, the
results of operations and cash flows for the three and nine months ended
February 28, 2001 and February 29, 2000.
2) Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America 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 February 28, 2001 and February 29, 2000 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 $11,681,200 at
February 28, 2001 and $11,980,300 at May 31, 2000 are the reclamation liability
at the SMP mining properties and the reclamation and holding liabilities at the
Shootaring Uranium Mill. The reclamation of these properties 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. The reclamation
work may be performed over several years and is bonded with either cash or
certain of the Company's real estate assets.
5) On September 11, 2000, the Company entered into a Settlement agreement
with Kennecott related to the pending legal dispute. In connection with this
Settlement agreement, the Company has transferred its ownership interests in the
GMMV to Kennecott, including its ownership interest in the Sweetwater Mill, the
Jackpot Mine, the Big Eagle Mine and shop, and all patented and unpatented
mining claims. The Company received various machinery and equipment held by the
GMMV at the Jackpot Mine and $3.25 million from Kennecott. In addition,
Kennecott has assumed all the liabilities of the GMMV, including all reclamation
and bonding requirements, except the reclamation liability associated with the
Green Mountain Ion Exchange Plant.
6) On February 8, 2001, the Company through its affiliate Rocky Mountain
Gas, ("RMG") entered into an option and farmin agreement with Suncor Energy
America, Inc., ("SUNCOR"). The agreement grants SUNCOR an option to purchase
37.5% of RMG's interest of 111,567 acres of its coalbed methane properties.
7) Certain reclassifications have been made in the May 31, 2000 financial
statements to conform to the classifications used in February 28, 2001.
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 nine months ended February 28, 2001 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 and associated commercial operations 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
During the nine months ended February 28, 2001, the Company experienced an
increase in working capital of $1,987,400. At May 31, 2000 the Company had a
deficit in working capital of $3,161,100 as compared to a deficit in working
capital of $1,173,700 at February 28, 2001.
Components in the increase of working capital were increased cash, $73,000,
and assets held for resale & other, $92,000, along with decreases in the
Deferred GMMV purchase option, $4,000,000, in the current portion long-term
debt, $95,400, and the line of credit $450,000. These increases in working
capital were offset by reduced accounts receivable trade, $951,600, accounts
receivable affiliates, $394,300, and inventory, $84,100, along with an increase
in accounts payable and accrued expenses, $14,200, and deferred purchase option
of $1,300,000 from the SUNCOR purchase option agreement.
On September 11, 2000, the Company entered into a Settlement agreement with
Kennecott related to the pending legal dispute between the companies about the
GMMV operations. As a result of this settlement the Company received certain
GMMV equipment, cash payments of $3,250,000 and the ability to recognize the
$4,000,000 deferred GMMV purchase option as revenues. This transaction resulted
in the increase of cash, the reclassification of the deferred purchase option
and the decrease in accounts payable trade. The transaction also resulted in the
reduction of accounts receivable affiliates as the Company had an outstanding
receivable from GMMV at May 31, 2000.
Accounts receivable trade at May 31, 2000 consisted primarily of amounts
due the Company for contract drilling and construction work. These receivables
were collected during the nine months ended February 28, 2001. Accounts
receivable affiliates were reduced due to the collection of account and notes
receivable from employees. These partial satisfactions of the debt were made by
the payment of cash, settlement agreements, and the receipt of 5,000 shares of
the Company's common stock which was pledged for the indebtedness. These shares
were recorded as treasury shares at the value of the principal portion of the
debt reduction.
During the nine months ended February 28, 2001, operation activities
generated $1,583,900, while investing and financing activities consumed
$1,119,500 and $391,400 respectively, for a net increase in cash of $73,000.
Investing activities provided cash as a result of the sale of various pieces of
equipment. This increase of $1,507,700 was offset by the acquisition of coalbed
methane properties, $2,000,900, the purchase of equipment, $436,600, and an
increase in restricted investments, $181,300. The equipment purchases were
8
made during the quarter ending August 31, 2000, when the company was still
involved in the contract drilling, for contract drilling and construction.
The use of cash from financing activities was the result of payment on the
company's debt of, $830,200, and the line of credit, $450,000. These payments
were partially offset by new debt of $888,800. The increase in debt during the
nine months ended February 28, 2001 was a result of the Company drawing down its
line of credit, $200,000, financing of annual insurance premium, $219,400, the
purchase of equipment, $169,400 and partial financing of the Company's real
estate operations in southern Utah, $300,000.
The Company issued 8,532 shares of its restricted common stock during the
quarter ended February 28, 2001 as non cash compensation to its outside
directors.
Capital Resources
The primary source of the Company's capital resources are cash on hand;
collection of receivables; projected equity financing of its Coalbed methane
affiliate RMG; sale of mine, construction and drilling equipment; sale of
partial ownership interest in mineral properties; proceeds under the line of
credit; and final determination of the SMP arbitration/litigation. The Company
also will 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 February 28, 2001, the line of credit had been
drawn down by $200,000. The line of credit is being used for short term working
capital needs associated with operations. As of April 12, 2001 the line of
credit was drawn down by $700,000 leaving $300,000 available to fund operational
needs during the fourth quarter of Fiscal 2001. The Company also has a $500,000
line of credit through its 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. All
payments on these lines of credit are current as of the filing date of this
report.
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 $3,250,000 during the nine months ended
February 28, 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.
In addition to the above referenced cash resources, the Company through its
subsidiary RMG continues to seek either an equity or industry partner in the
financing of the coalbed methane operations. The Company also plans to either
privately sell or auction a significant portion of its equipment that has been
used in the mining and drilling business. It is anticipated that these sales
will occur in the fourth quarter of Fiscal 2001.
The Company believes that these cash resources will be sufficient to
sustain operations during fiscal 2001. The capital resources at February 28,
2001, will not be sufficient, however, to provide funding for the Company's
maintenance and development of its coalbed methane gas business.
Capital Requirements
The Company has the obligation to fund the holding costs of the Sheep
Mountain uranium mines; the Plateau uranium mine and mill, Sutter Gold
properties; real estate commercial operations and the development of the coalbed
methane gas properties. Due to the holding costs of these properties and the
uncertainty of when they will become economic to operate the Company had
determined that it will either sell the properties or consider joint venture
partners on them.
9
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.
On December 31, 2000 RMG and Quantum entered into an option and farmin
agreement with Suncor Energy America Inc. (Suncor"). The agreement grants an
option to Suncor to purchase 37.5% of RMG's and 12.5% of Quantum's interest in
111,567 acres of their coalbed methane properties. For this option Suncor paid
$1,705,000 at closing on February 9, 2001. RMG received $1,278,800 of this
option payment. These funds were used to fund the final payment of $1,300,000 to
Quantum.
The Suncor option period is for 12 months from closing on 105,265.69 acres
and 24 months on 6,301.37 acres. During this option period Suncor has committed
to conduct a $2,250,000 drilling program on the properties. RMG is obligated to
fund $250,000 of that drilling program. At the conclusion of the option periods
Suncor must elect to exercise its option or return the properties to RMG and
Quantum. If Suncor elects to exercise its option the ownership interests in the
properties would be RMG -12.5%, Quantum - 37.5% and Suncor - 50%. Upon the
exercise of its option, Suncor is obligated to pay an additional $3,923,700, of
which RMG would receive $2,942,800. Suncor would also be committed to pay an
additional $841,380 as a disportional contribution to a subsequent 18 month
drilling program.
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.
Results of Operations
Revenues for the nine months ended February 28, 2001, increased $8,549,400
over revenues for the same period of the previous year to $13,716,500. This
increase was primarily as a result of an increase in mineral sales, the
resolution of the GMMV litigation with Kennecott and the gain on sales of
assets.
During the nine months ended February 28, 2001 the Company recorded
$430,600 in revenues from mineral sales compared to $100,300 during the previous
year. The increase was the result of the Company's sale of an delivery contract
to a non affiliated company, and a delivery made under the market related
contract before the sale of the contract. There were no similar sales during the
same period of the prior year.
As a result of the settlement of the Kennecott Litigation $7,132,800 was
recorded as income during the nine months ended February 28, 2001. This revenue
has two components. (1) Non-cash revenues as a result of the recognition of
$4,000,000 of a deferred GMMV purchase option payment that was received by the
Company in 1997 and (2) the receipt of cash from Kennecott as a result of the
settlement, $3,132,800 - net of accounts receivable from GMMV.
During the nine months ended February 28, 2001 the Company recognized a
gain of $710,400 from the sale of equipment that were determined to be surplus.
One large component of this amount was the sale of certain GMMV assets that were
distributed to the Company upon the resolution of the GMMV litigation.
Other increases in revenue were also recorded in the nine months ended
February 28, 2001. Contract drilling and construction increased by $110,900,
Commercial operations increased $96,400, Oil sales increased $11,700, Management
fees and other increased $241,700. These increases were partially offset by a
decrease in interest revenue of $79,200.
Costs and expenses increased by $326,700 during the nine months ended
February 28, 2001 over the same period of the prior year. This increase was as a
result of costs increases in work performed in the drilling and construction
business, $682,100; coalbed gas operations, $394,700, due to the company
drilling
10
test holes for RMG on its Oyster Ridge project; oil production, $10,800; and
interest expense, $173,600. These increases were partially offset by cost
decreases in commercial operations, $349,100; general and administrative,
$298,600; mineral operations, $263,700; and provision for doubtful accounts,
$23,100.
As a result of a decision which was made in September 2000 the Company
curtailed all contract drilling and construction work for third parties.
Associated with this decision were significant personnel reductions as well as
reductions in corporate overhead. These reductions have and will continue to
account for reductions in costs during the balance of fiscal 2001 and fiscal
2002.
Operations for the nine months ended February 28, 2001, resulted in
earnings of $3,113,000 or $0.41 per share as compared to a loss of $5,039,600
for the same nine months in the previous year.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
a. Sheep Mountain Partners Arbitration/Litigation
In 1991, disputes arose between USE/Crested, and Nukem, Inc. and its
subsidiary Cycle Resource Investment Corp. ("CRIC"), concerning the formation
and operation of the Sheep Mountain Partners ("SMP") partnership for uranium
mining and marketing, and activities of the parties outside SMP. Arbitration
proceedings were initiated by CRIC in June 1991 and in July 1991, USECC filed a
lawsuit against Nukem, CRIC and others in the U.S. District Court (District of
Colorado) Civil No. 91 B 1153. In February 1994, all of the parties agreed to
exclusive and binding arbitration of the disputes before the American
Arbitration Association("AAA"). Following 73 hearing days and various
submissions by the parties, the arbitration panel (the "Panel") entered an Order
and Award (the "Order") in April 1996 finding generally in favor of USE and
Crested on certain of their claims (including the claims for reimbursement for
standby maintenance expenses and profits denied SMP in Nukem's trading of
uranium), and in favor of Nukem/CRIC and against USE and Crested on certain
other claims. USE/Crested filed a petition for confirmation of the Order and the
District Court confirmed the Order in its Second Amended Judgment (the
"Judgment") on June 30, 1997. Thereafter, Nukem/CRIC appealed the Judgment to
the 10th Circuit Court of Appeals ("10th CCA").
On October 22, 1998, the 10th CCA issued an Order and Judgment unanimously
affirming the U.S. District Court Second Amended Judgment without modification.
The ruling of the 10th CCA affirmed (i) the imposition of a constructive trust
in favor of SMP on Nukem's rights to purchase CIS uranium, the uranium acquired
pursuant to those rights, and the profits therefrom; and (ii) the damage award
against Nukem/CRIC. As a result of the ruling of the 10th CCA, USE and Crested
received an additional $6,077,264 (including interest and court costs) from
Nukem in February 1999 for a total net monetary award of $15,468,625 in the
arbitration/litigation, and equitable relief in the form of USE's and Crested's
interest in SMP, which holds the constructive trust over the CIS contracts.
After paying the $6,077,264, Nukem/CRIC filed a motion for entry of final
satisfaction of Judgment. The U.S. District Court denied the motion on July 16,
1999 and on August 16, 1999, Nukem filed a Second Notice of Appeal to the 10th
CCA. USECC opposed the appeal and filed its brief in opposition to the
Nukem/CRIC's brief in the 10th CCA. On October 16, 2000, the 10th CCA affirmed
the Order of the U.S.District Court denying Nukem's motion for satisfaction of
Judgment. Thereafter, USECC filed a motion to enforce the Judgment and on
February 15, 2001, the U.S. District Court entered two orders, one granting
USECC's motion and the second, appointing a Special master to enforce the
Court's Judgment through an accounting. On April 2, 2001 Nukem/CRIC produced
certain documents pursuant to the demand of USECC. The accounting is proceeding.
b. BGBI Litigation
USE and Crested were defendants and counter- or cross-claimants in certain
litigation in the District Court of the Fifth Judicial District of Nye County,
Nevada, Civil No. 11877, brought by Bond Gold Bullfrog Inc. ("BGBI") on July 30,
1991. BGBI (now known as Barrick Bullfrog, Inc.) is an affiliate of Barrick
Corp.,
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a large international gold producer headquartered in Toronto, Canada. The
litigation primarily concerns extra-lateral rights associated with two patented
mining claims owned by Parador Mining Company Inc. ("Parador") and initially
leased to a predecessor of BGBI, which claims are in and adjacent to BGBI's
Bullfrog open pit and underground mine. USE and Crested assert certain interests
in the claims under an April 1991 assignment and lease with Parador, which is
subject to the lease to BGBI's predecessor.
A partial or bifurcated trial to the Court of the extra-lateral rights
issues was held on December 11 and 12, 1995, to determine whether the Bullfrog
orebody is a vein apexing on Parador's Claims. The Court found that Parador had
failed to meet its burden of proof and therefore Parador, USE and Crested have
no right, title and interest in the minerals lying beneath the adjacent claims
of Layne pursuant to extralateral rights. After the trial, the Court found
against the parties on their respective claims. BGBI and Parador and USE/Crested
all appealed the decision to the Nevada Supreme Court. On January 26, 2001, the
Nevada Supreme Court entered an Order of Affirmance, affirming the Trial Court's
judgment. On December 10, 1999, Parador filed a motion for EnBanc review and
thereafter Parador filed a Petition for rehearing on February 13, 2001. The
motions are pending.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. During the quarter ended February 28, 2001 the
Company filed two reports on Form 8-K. On December 4, 2000 the Company reported
that it had filed an interim balance sheet with footnotes to show that the
Company had overcome a very brief period of non compliance with the National
market System requirements. On February 1, 2001 under Item 4, the Company
reported the change in its outside accounting firm to Grant Thornton, LLP.
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: April 12, 2001 By: /s/ Keith G. Larsen
-------------------------------------
KEITH G. LARSEN,
President
Date: April 12, 2001 By: /s/ Robert Scott Lorimer
-------------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer and
Chief Accounting Officer
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