UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal quarter ended March 31, 2004 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
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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)
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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
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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 May 24, 2004
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Common stock, $.01 par value 13,965,250 Shares
U.S. ENERGY CORP. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2004 and December 31, 2003 . . . . . . . . . . . . . 3-4
Condensed Consolidated Statements of
Operations (Unaudited) for the Three Months Ended
March 31, 2004 and 2003. . . . . . . . . . . . . . . . . . . . 5-6
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2004 and 2003 . . . . . . . . . . 7-8
Notes to Condensed Consolidated (Unaudited)
Financial Statements . . . . . . . . . . . . . . . . . . . . . 9-14
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . 15-20
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk . . 20-21
ITEM 4. Controls and Procedures. . . . . . . . . . . . . . . . . . . . 21-22
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . 23
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Certifications . . . . . . . . . . . . . . . . . . . . . . . . 26-29
-2-
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, December 31,
2004 2003
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CURRENT ASSETS:
Cash and cash equivalents $ 4,196,900 $ 4,084,800
Accounts receivable
Trade, net of allowance of $27,800 716,300 300,900
Affiliates 16,200 96,800
Current portion of long-term notes receivable, net 30,200 102,500
Prepaid expenses 721,100 584,700
Inventories 139,800 21,700
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Total current assets 5,820,500 5,191,400
INVESTMENTS:
Non-affiliated company 957,700 957,700
Restricted investments 6,842,700 6,874,200
-------------- --------------
Total investments and advances 7,800,400 7,831,900
PROPERTIES AND EQUIPMENT: 20,778,500 14,088,500
Less accumulated depreciation,
depletion and amortization (7,189,900) (6,901,400)
-------------- --------------
Net property and equipment 13,588,600 7,187,100
OTHER ASSETS:
Note receivable, less current portion 2,955,900 2,950,600
Deposits and other 665,200 768,700
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Total other assets 3,621,100 3,719,300
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Total assets $ 30,830,600 $ 23,929,700
============== ==============
See accompanying notes to condensed financial statements.
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U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
2004 2003
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CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,771,300 $ 977,500
Asset retirement obligations 642,700 --
Current portion of long-term debt 603,400 932,200
-------------- --------------
Total current liabilities 3,017,400 1,909,700
LONG-TERM DEBT 4,643,000 1,317,600
ASSET RETIREMENT OBLIGATIONS 6,994,300 7,264,700
OTHER ACCRUED LIABILITIES 2,324,000 2,158,600
DEFERRED GAIN ON SALE OF ASSET 1,295,700 1,295,700
MINORITY INTERESTS 2,524,100 496,000
COMMITMENTS AND CONTINGENCIES
FORFEITABLE COMMON STOCK, $.01 par value
465,880 shares issued, forfeitable until earned 2,726,600 2,726,600
PREFERRED STOCK,
$.01 par value; 100,000 shares authorized
No shares issued or outstanding; -- --
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value; unlimited shares authorized;
13,646,145 and 12,824,698 shares issued respectively 136,500 128,200
Additional paid-in capital 55,545,400 52,961,200
Accumulated deficit (44,848,000) (43,073,000)
Accumulated other comprehensive loss (252,300) --
Treasury stock at cost,
971,306 and 966,306 shares respectively (2,785,600) (2,765,100)
Unallocated ESOP contribution (490,500) (490,500)
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Total shareholders' equity 7,305,500 6,760,800
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Total liabilities and shareholders' equity $ 30,830,600 $ 23,929,700
============== ==============
See accompanying notes to condensed financial statements.
-4-
U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
March 31,
--------------------------
2004 2003
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OPERATING REVENUES:
Real estate operations $ 51,200 $ 171,500
Gas sales 593,400 140,000
Management fees and other 222,900 113,600
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867,500 425,100
OPERATING COSTS AND EXPENSES:
Real estate operations 77,500 80,500
Gas operations 741,400 150,800
Mineral holding costs 389,200 303,000
General and administrative 1,530,700 999,300
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2,738,800 1,533,600
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OPERATING LOSS: (1,871,300) (1,108,500)
OTHER INCOME & EXPENSES:
Loss on sales of assets -- (5,000)
Gain on sale of investment 279,200 --
Interest income 60,900 172,400
Interest expense (284,400) (227,100)
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55,700 (59,700)
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LOSS BEFORE MINORITY INTEREST,
PROVISION FOR INCOME TAXES,
DISCONTINUED OPERATIONS AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE: (1,815,600) (1,168,200)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARIES 40,600 37,700
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LOSS BEFORE PROVISION FOR INCOME
TAXES DISCONTINUED OPERATIONS
AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (1,775,000) (1,130,500)
See accompanying notes to condensed financial statements.
-5-
U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
March 31,
--------------------------
2004 2003
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PROVISION FOR INCOME TAXES -- --
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NET LOSS FROM
CONTINUING OPERATIONS (1,775,000) (1,130,500)
DISCONTINUED OPERATIONS,
NET OF TAX -- (176,400)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE -- 1,615,600
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NET (LOSS) INCOME: $(1,775,000) $ 308,700
============ ============
NET (LOSS) INCOME PER SHARE BASIC
FROM CONTINUED OPERATIONS (0.14) (0.10)
FROM DISCONTINUED OPERATIONS -- (0.02)
FROM EFFECT OF
ACCOUNTING CHANGE -- 0.15
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$ (0.14) $ 0.03
============ ============
NET (LOSS) INCOME PER SHARE DILUTED
FROM CONTINUED OPERATIONS (0.14) (0.10)
FROM DISCONTINUED OPERATIONS -- (0.02)
FROM EFFECT OF
ACCOUNTING CHANGE -- 0.15
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$ (0.14) $ 0.03
============ ============
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 12,319,657 10,881,394
============ ============
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 12,319,657 11,385,593
============ ============
See accompanying notes to condensed financial statements.
-6-
U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
March 31,
--------------------------
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,775,000) $ 308,700
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Minority interest in loss of consolidated subsidiaries (40,600) (37,700)
Depreciation and amortization 288,500 170,400
Accretion of asset retirement obligations 71,800 91,600
Noncash services 3,300 105,800
Amortization of debt discount 172,400 131,200
(Gain) loss on sale of assets or investments (279,200) 5,000
Noncash cumulative effect of accounting change -- (1,615,600)
Noncash compensation 157,000 133,600
Net changes in assets and liabilities; net of business acquired 95,600 (233,600)
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NET CASH USED IN OPERATING ACTIVITIES (1,306,200) (940,600)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties (4,372,500) --
Exploration of coalbed methane gas properties (40,500) (29,300)
Proceeds from sale of gas interests 158,400 375,000
Proceeds from sale of property and equipment or investments 279,200 6,300
Net change in restricted investments 31,500 26,500
Purchase of property and equipment (162,900) (1,200)
Net change in investments in affiliates -- --
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NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (4,106,800) 377,300
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 350,000 52,400
Proceeds from issuance of stock by subsidiary 2,068,700 --
Proceeds from third party debt 3,184,700 2,600
Repayments of third party debt (78,300) (109,300)
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 5,525,100 (54,300)
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NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 112,100 (617,600)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,084,800 1,741,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,196,900 $ 1,123,400
============ ============
See accompanying notes to condensed financial statements.
-7-
U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
March 31,
--------------------------
2004 2003
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SUPPLEMENTAL DISCLOSURES:
Income tax paid $ -- $ --
============ ============
Interest paid $ 112,000 $ 95,900
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NON-CASH INVESTING AND FINANCING ACTIVITIES:
Initial valuation of new asset retirement obligations $ 372,100 $ --
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Accumulated comprehensive loss $ 252,300 $ --
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Acquisition of assets through issuance of debt $ -- $ 26,300
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Acquisition of assets through issuance of stock $ 1,396,200 $ --
============ ============
Issuance of stock as deferred compensation $ -- $ 151,900
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Issuance of stock to satisfy debt $ 500,000 $ --
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Issuance of stock for retired employees $ -- $ 435,200
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Issuance of stock for services $ -- $ 84,000
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Satisfaction of receivable - employee
with stock in company $ 20,500 $ 20,500
============ ============
See accompanying notes to condensed financial statements.
-8-
U.S. ENERGY CORP. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) The Condensed Consolidated Balance Sheet as of March 31, 2004 and the
Condensed Consolidated Statements of Operations and Cash Flows for the three
months ended March 31, 2004 and 2003, have been prepared by the Company without
audit. The Condensed Consolidated Balance Sheet at December 31, 2003 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 except for the cumulative effect of a change in
accounting principal in 2003) necessary to present fairly the financial position
of the Company as of March 31, 2004 and December 31, 2003 and the results of
operations and cash flows for the three months ended March 31, 2004 and 2003.
2) Certain reclassifications have been made in the December 31, 2003
Financial Statements to conform to the classifications used in the March 31,
2004 Financial Statements.
3) 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 December 31, 2003 Form 10-K. The results of operations for the periods
ended March 31, 2004 and 2003 are not necessarily indicative of the operating
results for the full year.
4) The consolidated financial statements of the Company include its
majority-owned and controlled subsidiaries: Energx Ltd. ("Energx")(90%); Crested
Corp. ("Crested")(71.5%); Plateau Resources Limited ("Plateau")(100%); Sutter
Gold Mining Co. ("SGMC")(78.5%); Yellow Stone Fuels Corp. ("YSFC")(35.9%); Four
Nines Gold, Inc. ("FNG")(50.9%); Rocky Mountain Gas, Inc. ("RMG")(88.5%), and
the USECC joint venture ("USECC"), a consolidated joint venture which is equally
owned by the Company and Crested, through which the bulk of their operations are
conducted. All material intercompany profits and balances have been eliminated.
5) Components of Properties and Equipment at March 31, 2004 consist of
coalbed methane properties, land, buildings and equipment.
Accumulated
Amortization
Cost and Depreciation Net Value
----------- ------------------ -----------
Coalbed methane and oil properties $ 9,429,000 $ (1,070,700) $ 8,358,300
Buildings, land and equipment 11,349,500 (6,119,200) 5,230,300
----------- ------------------ -----------
$20,778,500 $ (7,189,900) $13,588,600
=========== ================== ===========
The Company has impaired a portion of historical costs associated with its
properties in prior periods. The Company will provide additional impairments if
necessary in the future.
6) The Company presents basic and diluted earnings per share in accordance
with the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share". Basic earnings per common share, is based on the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed based on the weighted average number of common shares
outstanding adjusted for the incremental shares attributed to outstanding
options to purchase common stock, if dilutive. Potential common shares relating
to options and warrants are excluded from the computation of diluted earnings
(loss) per share, because they are antidilutive. These
-9-
options and warrants totaled 4,498,835 and 4,955,472 at March 31, 2004 and March
31, 2003, respectively. Stock options and warrants have a weighted average
exercise price of $2.96 and $2.91 per share at March 31, 2004 and March 31,
2003, respectively. Potential common shares relating to convertible debt are
excluded from the computation of diluted loss per share, because they are
antidilutive. They total 222,222 and 444,444 shares at March 31, 2004 and
December 31, 2003, respectively, with a conversion price of $2.25.
7) The Company has shut down the mine properties for which it is
responsible for the reclamation expense. These expenses are scheduled to be
completed over the next several years. Estimated future reclamation costs are
based upon the Company's best engineering estimates and legal and regulatory
requirements.
The Company accounts for the reclamation obligation of these properties
pursuant to SFAS No. 143, "Accounting for Asset Retirement Obligation." The
statement requires the Company to record the fair value of the reclamation
liability on its shut-down mining properties as of the date that the liability
is incurred. The statement further requires the Company to review the liability
each quarter and determine its accurateness as well as accrete the total
liability on a quarterly basis for the full value of the liability.
The Company will also deduct any actual funds expended for reclamation
during the quarter in which it occurs. As a result of the Company taking
impairment allowances in prior periods on its shut-down mining properties, it
has no remaining book value for these properties. All accretion amounts will
therefore be expensed in the quarter in which they are recorded.
The following is a reconciliation of the total liability for asset
retirement obligations (unaudited):
Balance December 31, 2003 $ 7,264,700
Addition to Liability 372,100
Liability Settled (71,600)
Accretion Expense 71,800
-----------
Balance March 31, 2004 $ 7,637,000
===========
8) The Company has adopted the disclosure requirements of SFAS No. 148
"Accounting for Stock - Based Compensation - Transition and Disclosure" and has
elected to continue to record employee compensation expense utilizing the
intrinsic value method permitted under Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees" and its related
interpretations. Accordingly, any deferred compensation expense is recorded for
stock options based on the excess of the market value of the common stock on the
date the options were granted over the aggregate exercise price of the options.
This deferred compensation will be amortized over the vesting period of each
option. There were no options granted to employees under the two plans during
the three months ended March 31, 2004.
9) The Company has reviewed other current outstanding statements from the
Financial Accounting Standards Board and does not believe that any of those
statements will have a material adverse affect on the financial statements of
the Company when adopted.
10) The accompanying condensed financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. We
have sustained substantial losses from operations in recent years, and such
losses have continued through March 31, 2004. In addition, we have used, rather
than provided, cash in our operations.
-10-
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the condensed
consolidated accompanying balance sheet is dependent upon continued operations
of the Company, which in turn is dependent upon our ability to meet our
financing requirements on a continuing basis, to maintain present financing, and
to succeed in our future operations.
On July 30, 2003, the Company received an Order and thereafter a Judgment
on August 1, 2003 from the U.S. District Court of Colorado wherein Chief Judge
Lewis T. Babcock entered an Order that Judgment be entered against Nukem/CRIC
("Nukem") in favor of the Company the total amount of $20,044,184. The Judgment
was entered and defendant Nukem posted a supersedeas bond in the full amount of
the Judgment plus interest for one year, which was approved by the Court. On
October 3, 2003, Nukem, as Appellants, filed a Notice of Appeal to the 10th
Circuit Court of Appeals and thereafter on October 15, 2003, the Company filed a
Notice of Cross-Appeal to the 10th Circuit. As of April 30, 2004, all briefs
from both parties had been filed with the 10th Circuit Court of Appeals. It is
not known when or if the 10th Circuit Court of Appeals will hear oral arguments
or when it will make its ruling. In the event the Company should prevail, the
receipt of this cash would provide significant working capital to the Company.
We continue to pursue several items that will help us meet our future cash
needs. We are aggressively pursuing our claims against Nukem. We are also
currently working with several different sources, including both strategic and
financial investors, in order to raise sufficient capital to finance our
continuing operations. Although there is no assurance that funding will be
available or that the outcome in the Nukem litigation will be positive; we
believe that our current business plan, if successfully funded, will
significantly improve our operating results and cash flow in the future.
11) During the three months ended March 31, 2004, the Company issued
233,667 shares of common stock as payment of principal and interest to the
Caydal company to settle the note due Caydal. The Company issued 100,000 shares
of common stock and 250,000 warrants to purchase common stock to an accredited
investor in a private placement. The Company issued 108,613 shares of common
stock in exchange for 111,111 shares of Rocky Mountain Gas stock as part of a
provision given to an accredited investor when it invested in Rocky Mountain Gas
common stock. The Company issued 366,667 shares of common stock and 318,465
common stock warrants in the purchase of producing coal bed methane properties
(See note 14). The Company issued 12,500 shares of common stock to five
employees under the 2001 Stock Award Program, which was approved by the
shareholders in a vote at the 2002 shareholder's meeting.
The dollar values of the issuances were $525,600 to settle the principal
and interest due Caydal; $350,000 from the private placement to an accredited
investor; $282,900 on the exchange of Rocky Mountain Gas stock to USE stock;
$1,396,200 on the purchase of the producing coalbed methane properties, and
$37,800 under the 2001 Stock Award Program.
-11-
12) On January 30, 2004, the Company, through its subsidiary Rocky Mountain
Gas, Inc. purchased the producing, and non-producing properties of the Hi-Pro
company in the Powder River Basin of Wyoming. The operations of the properties
are included in the operations of the Company subsequent to January 30, 2004
(See the 8-K/A filed on April 15, 2004 for further information on the Hi-Pro
transaction). The terms of the purchase were as follows:
- $ 776,700 cash paid by RMG, $75,000 of which was non-refundable as of
December 31, 2003.
- $ 588,000 net revenues from November 1, 2003 to December 31, 2003,
which were retained by Hi-Pro.(1)
- $ 500,000 by USE's 30 day promissory note (secured by 166,667
restricted shares of USE common stock, valued at $3.00 per
share).(2)
- $ 600,000 by 200,000 restricted shares of USE common stock (valued
at $3.00 per share).(3)
- $ 700,000 by 233,333 restricted shares of RMG common stock (valued at
$3.00 per share).(4)
- $3,635,000 cash, loaned to RMG I under the credit facility agreement.
----------
- $6,800,000
- ---------------------------
(1) RMG I paid all January operating costs at closing. Net revenues from
the purchased properties for January 2003 were credited to RMG I's
obligations under the credit facility agreement. These net revenues
were considered by the parties to be a reduction in the purchase price
which RMG I otherwise would have paid at the January 30, 2004 closing.
(2) Pursuant to the terms of the promissory note, USE issued 166,667
shares as payment in full of this obligation during the first quarter
of 2004.
(3) USE agreed to file a resale registration statement with the SEC to
cover public resale of these 200,000 shares.
(4) From November 1, 2004 to November 1, 2006, the RMG shares shall be
convertible at Hi-Pro's sole election into restricted shares of common
stock of USE. The number of USE shares to be issued to Hi-Pro shall
equal (A) the number of RMG share to be converted, multiplied by $3.00
per shares, divided by (B) the average closing sale price of the
shares of USE for the 10 trading days prior to notice of conversion.
The conversion right is exercisable cumulatively, as to at least
16,666 RMG shares per conversion.
The Company purchased these properties to continue its entry into the
coalbed methane gas business and accounted for as a purchase transaction with
the estimated fair value of assets and liabilities assumed in the acquisition as
follows:
Estimated fair value of assets acquired
Current assets $ 639,400
Oil and gas properties 6,498,300
Other property and equipment 146,700
Other long term assets 145,000
-----------
Total assets acquired 7,429,400
Estimated fair value of liabilities assumed
Current liabilities $ 884,800
Asset retirement obligation 372,100
-----------
Total liabilities assumed 1,256,900
-----------
Net assets acquired $ 6,172,500
===========
-12-
Pro Forma (Unaudited) Statement of Operations, including the purchase of
the Hi-Pro properties for the periods ended March 31, 2004 and 2003 as if the
acquisition had been consummated immediately for the Company prior to January 1,
2003. The Pro Forma results are not indicative of future results.
Pro Forma Unaudited)
Three months ended March 31,
2004 2003
------------ -----------
Revenues $ 1,169,400 $1,503,600
Net Loss from continuing operations $(1,565,000) $ (423,100)
Net (loss) income $(1,565,000) $1,016,100
Net (loss) earnings per share basic $ (0.13) $ 0.09
Net (loss) earnings per share - diluted $ (0.13) $ 0.08
RMG financed $3.7 million of the cash component from a recently established
$25 million credit facility arranged by Petrobridge Investment Management, LLC
(Petrobridge), a mezzanine lender headquartered in Houston, TX. The properties
acquired from Hi-Pro serve as the sole collateral for the credit facility. As
defined by the agreement, terms under the credit facility include the following:
(1) Advances under the credit facility are subject to lender's approval; (2) All
revenues from oil and gas properties securing the credit facility will be paid
to a lock box controlled by the lender. All disbursements for lease operating
costs, revenue distributions and operating expense will require approval by the
lender before distributions are made; and (3) The Company must maintain certain
financial ratios and production volume, among other things. At March 31, 2004,
RMG was not in compliance with one financial covenant. A waiver was granted for
this reporting period by the lender and management believes that the Company
will be in compliance at the next reporting date. In the event RMG is not in
compliance at the next reporting date, approximately $3,300,000 of long term
debt would be reclassified as current debt and due on demand if waivers are not
granted.
13) Hedging Activities. The results of operations and operating cash flows
are impacted by changes in market prices for oil and gas. To mitigate a portion
of this exposure, the Company has entered into certain derivative instruments.
The Company's derivative instruments covered approximately 81% of net gas sales
for the period ended March 31, 2004. All derivative instruments have been
entered into and designated as cash flow hedges of gas price risk and not for
speculative or trading purposes. As of March 31, 2004, the Company's derivative
instruments were comprised of swaps. For swap instruments, the Company receives
(pays) a fixed price for the hedged commodity and pays (receives) a floating
market price, as defined in each instrument, to the counterparty. These
instruments have been designated and have qualified as cash flow hedges.
The carrying values of these instruments are equal to the estimated fair
values. The fair values of the derivative instruments were established using
appropriate future cash flow valuation methodologies. The actual contribution to
future results of operations will be based on the market prices at the time of
settlement and may be more or less than fair value estimates used at March 31,
2004.
Hedging activities included in the condensed statement of operations were
nominal during the period ended March 31, 2004. The Company recognized no
significant amounts due to hedge ineffectiveness for the quarter ended March 31,
2004. The Company expects to transfer substantially all of the $252,300 balance
in accumulated other comprehensive loss, based upon the market prices at March
31, 2004 to earnings during the next 21 months. All forecasted transactions
hedged as of March 31, 2004
-13-
are expected to occur by December 2005. Approximately 60,000 mmbtu per month are
hedged at $4.76 per mmbtu through December 2004 and 30,000 mmbtu per month are
hedged at $4.14 per mmbtu through December 2005.
14) Comprehensive loss. Other comprehensive loss consists primarily of the
fair value of derivative instruments. Total comprehensive losses for the three
months ended March 31, 2004 was $252,300.
-14-
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 our 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 three months ended March 31, 2004 be read in conjunction with
the Company's Form 10-K for the year ended December 31, 2003. The discussion
contains forward-looking statements that involve risks and uncertainties. Due to
uncertainties in our business, actual results may differ materially from the
discussion below.
FORWARD LOOKING STATEMENTS
- ----------------------------
This Report on Form 10Q includes "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended ("the
Exchange Act"). All statements other than statements of historical fact included
in this Report, are forward-looking statements. In addition, whenever words like
"expect", "anticipate, or "believe" are used, we are making forward looking
statements. Actual results may vary materially from the forward-looking
statements and there is no assurance that the assumptions used will be realized
in fact.
OVERVIEW OF BUSINESS
The Company owns controlling interests in coalbed methane properties in
southwest Wyoming and the Powder River Basin in Wyoming and Montana; a uranium
mine and mill in southern Utah; uranium mines in central Wyoming; a gold
property in California, and various real estate holdings. The coalbed methane
business is conducted through our subsidiary, Rocky Mountain Gas, Inc. ("RMG").
The mine properties are all shut-down. All these properties are held in
conjunction with the Company's subsidiary, Crested Corp. ("Crested") through the
USECC joint venture between the two companies.
The acquisition, exploration and development of coalbed methane properties
is our only recurring business activity at the present time.
CRITICAL ACCOUNTING POLICIES
- ------------------------------
Asset Impairments - We assess the impairment of property and equipment
whenever events or circumstances indicate that the carrying value may not be
recoverable.
Oil and Gas Producing Activities - We follow the full cost method of
accounting for oil and gas properties. Accordingly, all costs associated with
acquisition, exploration and development of oil and gas reserves, including
directly related overhead costs, are capitalized.
Reclamation Liabilities - The Company's policy is to accrue the liability
for future reclamation costs of its mineral properties under SFAS 143 based on
the current estimate of the future reclamation costs as determined by internal
and external experts. The present value of the obligation is accreted each
period as the date of obligation settlement approaches.
Use of Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions.
-15-
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
- ----------------------------------
The Company has reviewed all current outstanding statements from the
Financial Accounting Standards Board and does not believe that any of those
statements will have a material adverse effect on the financial statements of
the Company when adopted.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to implement its strategy of entering into the
coalbed methane business. Capital resources needed to make this change of
business direction have been derived by the issuance of equity; obtaining third
party debt and the sale of certain interests in coal bed methane. These capital
resources have been used to purchase and operate both developed and undeveloped
coalbed methane properties.
Although operations for the quarter ended March 31, 2004 resulted in a
loss, management projects that coalbed methane property operations will become
profitable during calendar 2004. In the first quarter 2004, the only gas sales
were from the Hi-Pro assets. As expected, initial operating expenses for this
field were high and will continue to be high, as we continue to refurbish
production equipment to enhance production volumes. A substantial amount of
routine maintenance work had been deferred by the Hi-Pro sellers prior to
January 30, 2004. Although this is a mature field, efforts through mid-May 2004
to increase production have been successful, and further increases in 2004 are
expected. All net operating profits from this field will be applied
automatically to pay the mezzanine debt incurred in the purchase transaction.
Liquidity of the Company improved during the three months ended March 31,
2004 as a result of the financing activities entered into during the quarter.
The purchase, exploration and development of coalbed methane properties is a
capital intensive business. Continued capital resources will need to be obtained
to continue in the coalbed methane business. Management of the Company continues
to search for sources of capital to fully develop its undeveloped properties. In
addition to equity and debt financings, the Company will continue to seek out
industry partners to assist in funding projects.
Cash reserves on hand at March 31, 2004, are not sufficient to complete all
the development plans that the Company is currently contemplating. If sufficient
capital resources are not located, the Company will have to implement alternate
plans which could include delaying development of certain properties or selling
a portion of the Company's coalbed methane property assets.
CAPITAL RESOURCES
The primary sources of our capital resources are cash on hand; equity
financings; the final determination of the Sheep Mountain Partners ("SMP")
arbitration/litigation; proceeds under the line of credit; receipt of monthly
payments from CCBM, Inc. ("CCBM") for the purchase of an interest in RMG's
coalbed methane properties; CCBM funding of drilling and exploration programs;
projected production from RMG's coalbed methane properties; receipt of monthly
payments from the Cactus Group on the sale of the Ticaboo townsite; sale of
excess mine, construction and drilling equipment; sale of real estate properties
which are no longer needed in the core business of the Company; and the sale of
partial ownership interests in exploration properties.
-16-
We have been involved in litigation with Nukem, Inc. involving Sheep
Mountain Partners, ("SMP") for the past twelve years. On August 1, 2003, the
Company and Crested received a Judgment from the U.S. District Court of Colorado
in the amount of $20,044,184 against Nukem, Inc. The Judgment was entered and
defendant Nukem posted a supersedeas bond in the full amount of the Judgment
plus interest for one year, which was approved by the Court. Nukem filed a
motion to alter and amend portions of the Order and Judgment and a motion to
remand the case to the Arbitration Panel. The Company also filed a motion to
alter and amend certain portions of the Order and Judgment. Both motions were
overruled. Nukem filed an appeal and the Company filed a cross-appeal to the
10th Circuit Court of Appeals. Management is optimistic that the ultimate
determination will be favorable to the Company. No assurance, however, can be
given as to the outcome of this litigation. See Item 1 Part II Legal Proceedings
As of March 31, 2004, there was a balance of $273,900 available to RMG
under the CCBM work commitment. There was also a balance of $704,800 at March
31, 2004 due from CCBM under its purchase agreement. Under the terms of the
promissory note, this amount is to be paid at the rate of $52,800 per month
until November 2004 at which time a balloon payment of $282,400 is due. These
funds will fund a portion of the work plans that the Company anticipates
completing during the second and third quarters of 2004. CCBM's interest in
RMG's coalbed methane properties is pledged as security for the note to RMG.
CCBM can discontinue making payments at any time subject to certain earn-in
provisions and penalties.
During the three months ended March 31, 2004, the Company through RMG
signed a credit agreement with a group of mezzanine credit lenders for up to
$25,000,000 of loans. The commitment is through June 30, 2006. All borrowings
are due three years from the date of funding. The credit facility is available
to RMG to purchase and improve coalbed methane properties subject to a
development plan. The first draw down, in the amount of $3.7 million, was made
at the end of January 2004 to partially fund the purchase of the Hi-Pro
Production LLC. ("Hi-Pro") properties. The Company is currently evaluating
additional prospective acquisition targets which will be funded from this credit
facility.
The Company and Crested currently have a $750,000 line of credit with a
commercial bank. At March 31, 2004, the entire line of credit was available to
the Company and Crested.
During the three months ended March 31, 2004, operating and investing
activities consumed $1,306,200 and $4,106,800, respectively while financing
activities provided $5,525,100. These activities are consistent with the
Company's stated business plan of entering into the coalbed methane gas
business. The capital resources which were obtained through the sale of equity
of both the Company and RMG, were used to purchase additional properties and
reduce long term debt.
CAPITAL REQUIREMENTS
The primary requirement of the Company for capital resources at March 31,
2004 is the funding of the purchase, exploration and development of its coalbed
methane properties. Other requirements for capital resources include the
maintaining and reclamation of certain mine properties that are currently in a
shut-down mode.
-17-
PURCHASE AND EXPLORATION OF COALBED METHANE PROPERTIES
- ------------------------------------------------------------
During the quarter ended March 31, 2004, the Company through RMG purchased
producing and undeveloped coalbed methane properties from Hi-Pro. The purchase
price for the properties was $6.8 million subject to certain adjustments. (See
Note 12 above) In addition to the purchase of the coalbed methane properties,
certain equipment, tools and inventory were also purchased for a total
consumption of cash of $162,900. The Company also expended $40,500 for the
development of certain coalbed methane properties.
During the balance of calendar 2004, the Company will continue to rely on
funding under the CCBM work commitment to provide capital for a significant
portion of its projected development drilling work on properties other than
Hi-Pro. Any drilling or development work that is not covered by the CCBM work
commitment, will either be funded through capital resources discussed above or
delayed until such time as the necessary capital is obtained.
MAINTAINING MINERAL PROPERTIES
- --------------------------------
SMP URANIUM PROPERTIES
The holding costs associated with the uranium properties in Wyoming
formerly owned by Sheep Mountain Partners ("SMP"), are approximately $14,000 per
month. It is estimated that approximately $142,000 in reclamation work will be
completed on the SMP properties during 2004.
PLATEAU RESOURCES URANIUM PROPERTIES
Plateau owns and maintains the Tony M uranium mine and Shootaring Canyon
uranium mill. We are pursuing alternative uses for these properties including
the potential sale or entering into a joint venture to operate the uranium mill.
SUTTER GOLD MINING COMPANY PROPERTIES ("SGMC")
We have one full time equivalent employee at the SGMC properties to
preserve the core properties. SGMC is seeking equity financing through a
potential merger with a Canadian mining company to develop the property. The
commitment of capital resources to the Sutter properties will be held at a
minimum until such time as financing is available or the properties are sold.
DEBT PAYMENTS
- --------------
Debt to non-related parties at March 31, 2004 was $5,246,400. This debt
consists of debt owed by RMG I to mezzanine lenders to purchase the Hi-Pro
assets of $3.3 million; long term debt related to the purchase of vehicles and a
corporate aircraft of $1.5 million, and convertible debt. The commitment of
capital resources during the balance of calendar 2004 for equipment debt is
$430,700. The convertible debt is a forced conversion to common stock of the
Company so will not require any of the Company's capital resources. The
mezzanine lenders for the Hi-Pro acquisition sweep all funds from operations of
the field to pay interest and principal with the exception of funds to pay (a)
lease operating expenses, (b) royalties and (c) production related taxes.
RECLAMATION COSTS
- ------------------
The asset retirement obligations are long term and are either bonded
through the use of cash bonds or the pledge of assets. It is anticipated that
$142,000 of reclamation work on the SMP properties
-18-
and $500,700 on the southern Utah mine uranium mine properties will be performed
during 2004. The Company has submitted a reclamation plan to the Nuclear
Regulatory Commission ("NRC") for the reclamation of the Shootaring Uranium
Mill. The Company has begun portions of the Shootaring reclamation during 2004.
The asset retirement obligation on the Plateau uranium mining and milling
properties in Utah at March 31, 2004 is $5,189,500, which is reflected on the
Balance Sheet. This liability is fully funded by cash investments that are
recorded as long term restricted assets.
The asset retirement obligation of the Sheep Mountain uranium properties in
Wyoming at March 31, 2004 are $2,075,400 and are covered by a reclamation bond
which is secured by a pledge of certain real estate assets of the Company and
Crested.
The asset retirement obligation on the RMG coalbed methane properties in
Wyoming are $372,100. It is not anticipated that any reclamation work will
commence on the coalbed methane properties during 2004.
RESULTS OF OPERATIONS
- -----------------------
During the three months ended March 31, 2004, the Company recorded a loss
of $1,775,000 from continuing operations as compared to a loss of $1,130,500
from continuing operations for the three months ended March 31, 2003.
Revenues for the three months ended March 31, 2004 were $867,500 as
compared to $425,100 for the three months ended March 31, 2003. This increase in
revenues of $442,400 was as a result of the increase in gas sales and management
fees received by the Company. These increases were directly as a result of the
purchase of the Hi-Pro assets during the three months ended March 31, 2004. In
addition, the purchase of the Hi-Pro properties resulted in an increase of
$590,600 in gas operating expenses.
With the exception of expenses incurred at the Sutter Gold Mine to complete
the permitting process and place the SGMC properties in a position of being able
to be merged with an industry partner, the other increases in operating costs
and expenses are directly related to the acquisition of the Hi-Pro assets. As a
result of the purchase of those assets, the Company has added additional
personnel to manage the properties as well as professional staff to direct
operations and assess the potential of acquisition targets. The Company also
incurred approximately $252,700 in professional services in the Hi-Pro
acquisition.
Other income and expenses for the three months ended March 31, 2004,
increased by $115,400 over the same period of the previous year primarily as a
result of the sale of Ruby Mining stock for $279,200. The major offset to this
increase was an increase in interest expense of $57,300. This increase in
interest expense was as a result of interest paid to an investor under a
convertible debt which was entered into in a prior year.
The Company recorded non-cash income of $1,615,600 during the three months
ended March 31, 2003, as a result of the implementation of SFAS No. 143. There
was no similar non-cash income during the three months ended March 31, 2004.
During the quarter ended March 31, 2004, the Company recognized a net loss
of $1,775,000 or $0.14 per share as compared to net income of $308,700 or $0.03
per share during the three months ended March 31, 2003.
-19-
CONTRACTUAL OBLIGATIONS
- ------------------------
The Company has two divisions of contractual obligations as of March 31,
2004: Debt to third parties of $5,246,400, and asset retirement obligations of
$7,637,000 which will be paid over a period of five to seven years. During the
quarter ended March 31, 2004 the Company incurred new debt of $3,356,700, in the
acquisition of the assets of the Hi-Pro company. The Company did an initial
valuation of the asset retirement obligation of the acquired assets, of
$372,100. The following table shows the schedule of the payments on the debt,
and the budgeted retirement of the asset obligations.
Payments due by period
-----------------------------------------------------------
Less One to Three to More than
than one Three Five Five
Total Year Years Years Years
----------- ---------- ---------- ---------- ----------
Long-term debt obligations 5,246,400 603,400 4,618,600 24,400 -
Other long-term liabilities 7,637,000 642,700 2,727,200 1,597,900 2,669,200
----------- ---------- ---------- ---------- ----------
Totals $12,883,400 $1,246,100 $7,345,800 $1,622,300 $2,669,200
=========== ========== ========== ========== ==========
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
GAS HEDGING ACTIVITIES
- ------------------------
Our results of operations and operating cash flows are impacted by changes
in market prices for gas. To mitigate a portion of the exposure to adverse
market changes, the Company has entered into a derivative instrument. As of
March 31, 2004, our gas derivative instruments are comprised of swaps. These
instruments allow the Company to predict with greater certainty the effective
gas prices to be received for our hedged production. Although derivatives often
fail to achieve 100% effectiveness for accounting purposes, we believe our
derivative instrument will continue to be highly effective in achieving the risk
management objectives for which they are intended.
For swap instruments, the Company receives a fixed price for the hedged
commodity and pays a floating market price, as defined in each instrument, to
the counterparty. The fixed-price payment and the floating-price payment are
netted, resulting in a net amount due to or from the counterparty.
In accordance with FASB Interpretation No. 39, the Company nets the value
of its derivative arrangements with the same counterparty in the accompanying
consolidated balance sheets, to the extent that a legal right of setoff exists.
Gain or losses from derivative transactions are reflected as adjustments to
gas sales on the consolidated statements of operations. Following provisions of
SFAS 133, changes in the fair value of derivative instruments designated as cash
flow hedges, to the extent they are effective in offsetting cash flows
attributable to the hedged risk, are recorded in other comprehensive income
until the hedged item is recognized in earnings. Any change in fair value
resulting from ineffectiveness is recognized currently in gas sales. No
ineffectiveness was recorded in the quarter ended March 31, 2004.
-20-
As of March 31, 2004, the Company had the following open gas derivative
instruments designed to hedge a portion of our gas production for periods after
March 31, 2004:
NATURAL GAS (MMBTU):
- ----------------------
Weighted- Fair
Average Value at
Volume Strike March 31,
Mmbtu Price 2004
------- --------- ----------
Swaps:
2004 540,000 $ 4.76 $ (80,800)
2005 360,000 4.14 (171,500)
------- --------- ---------
Total Gas 900,000 $(252,300)
=========
The Company has established the fair value of all derivative instruments
using appropriate future cash flow valuation methodology. The actual
contribution to our future results of operations will be based on the market
prices at the time of settlement and may be more or less than the fair value
estimates used at March 31, 2004.
Based upon the market prices as of March 31, 2004, the Company expects to
transfer approximately $252,300 of losses included in the balance sheet in
accumulated other comprehensive loss to earnings during the next 21 months. All
hedged transactions as of March 31, 2004, are expected to mature by December 31,
2005.
Additional information concerning the fair value of our gas derivative
instruments is as follows for the quarter ended March 31, 2004:
Fair value of contracts outstanding as of January 1 $ --
Change in fair value of contracts during the quarter --
Contracts realized or otherwise settled during the quarter --
Fair value of new contracts when entered into during the quarter (252,300)
Fair value of contracts when closed during the quarter --
------------
Fair value of contracts outstanding as of March 31 $ (252,300)
============
Derivative instruments reflected as current in the consolidated balance
sheet represent the estimated fair value of derivative instrument settlements
scheduled to occur over the subsequent twelve month period based on market
prices for gas as of the consolidated balance sheet date. The derivative
settlement amounts are not due and payable until the month in which the related
underlying hedged transaction occurs.
The Company uses a sensitivity analysis technique to evaluate the
hypothetical effect that changes in the market value of gas may have on the fair
value of its commodity hedging instruments. At March 31, 2004, a 10% change in
the underlying commodities' prices would change the net liabilities recorded for
the Company's hedging instruments by approximately $411,000.
ITEM 4. CONTROLS AND PROCEDURES
Our management, under the supervision and with the participation of our
Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), has
evaluated the effectiveness of our disclosure controls and procedures as defined
in Securities and Exchange Commission ("SEC") Rule 13a-15(e) and 15d-
-21-
15(e) as of the end of the period covered by this Report. Based upon that
evaluation, management has concluded that our disclosure controls and procedures
are effective to ensure that information we are required to disclose in reports
that we file or submit under the Securities Exchange Act is communicated to
management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure and is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
During the fiscal quarter covered by this Report, there have been no
significant changes in internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
-22-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
------------------
On July 30, 2003, the Company and Crested received an Order and thereafter
a Judgment on August 1, 2003 from the U.S. District Court of Colorado wherein
Chief Judge Lewis T. Babcock entered an Order that Judgment be entered against
Nukem/CRIC ("Nukem") in favor of the Company in the total amount of $20,044,184.
The Judgment was entered and defendant Nukem posted a supersedeas bond in the
full amount of the Judgment plus interest for one year, which was approved by
the Court. On October 3, 2003, Nukem, as Appellants, filed a Notice of Appeal to
the 10th Circuit Court of Appeals and thereafter on October 15, 2003, the
Company filed a Notice of Cross-Appeal to the 10th Circuit. As of April 30, 2004
all briefs from both parties had been filed with the 10th Circuit Court of
Appeals. It is not known when or if the 10th Circuit Court of Appeals will hear
oral arguments or when it will make its rulings.
No other material developments in the other pending Legal Proceedings have
occurred since they were last reported by the Company in Item 3 of its Form 10-K
for the year ended December 31, 2003.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
----------------------------------------------------------------------
SECURITIES
---------
During the three months ended March 31, 2004 the Company issued 233,667
shares of common stock as payment of principal and interest to the Caydal
company to settle the note due Caydal.
The Company issued 100,000 shares of common stock and 250,000 warrants to
purchase common stock (at $3.00 per share) to an accredited investor in a
private placement. A cash commission of $22,500 was paid to a registered
broker-dealer in connection with this transaction.
The Company issued 108,613 shares of common stock in exchange for 111,111
shares of Rocky Mountain Gas stock as part of a provision given to an accredited
investor when it invested in Rocky Mountain Gas common stock.
The Company issued 366,667 shares of common stock and 318,465 common stock
warrants (exercisable at 90% of market price) in the purchase of producing coal
bed methane properties (See note 12).
The Company issued 12,500 shares of common stock to five employees under
the 2001 Stock Award Program, which was approved by the shareholders in a vote
at the 2002 shareholder's meeting.
The Company issued to three institutions, who invested $1.8 million in
Rocky Mountain Gas Inc., preferred stock and warrants to purchase 150,000 shares
of common stock of the Company. A cash commission of $126,000 was paid to a
registered broker-dealer in connection with the investment in RMG.
The dollar values of the issuances were $525,600 to settle the principal
and interest due Caydal; $350,000 from the private placement to an accredited
investor; $282,700 on the exchange of Rocky Mountain Gas stock to USE stock;
$1,396,200 on the stock issued in the purchase of the producing coalbed methane
properties, and $37,800 under the 2001 Stock Award Program.
-23-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits.
31.1 Certification under Rule 13a-14(a) John L. Larsen
31.2 Certification under Rule 13a-14(a) Robert Scott Lorimer
32.1 Certification under Rule 13a-14(b) John L. Larsen
32.2 Certification under Rule 13a-14(b) Robert Scott Lorimer
(b) REPORTS ON FORM 8-K. The Company filed three reports on Form 8-K for
the quarter ended March 31, 2004. The events reported were as follows:
1. The report filed on March 3, 2004 under Items 2 and 7, referenced the
Company's subsidiary, Rocky Mountain Gas, Inc. (RMG) purchasing coalbed methane
properties in the Power River Basin of Wyoming;
2. The report filed on March 5, 2004 under Items 2 and 7, referenced the
Company's subsidiary, Rocky Mountain Gas, Inc. (RMG) purchasing coalbed methane
properties in the Power River Basin of Wyoming;
3. The report filed on March 22, 2004 under Item 5, referenced the
Company's subsidiary, Rocky Mountain Gas, Inc. (RMG) obtaining equity funding
(Series A Preferred Stock) from institutional investors.
-24-
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: May 24, 2004 By: /s/ John L. Larsen
-------------------------------------
JOHN L. LARSEN,
CHAIRMAN and CEO
Date: May 24, 2004 By: /s/ Robert Scott Lorimer
-------------------------------------
ROBERT SCOTT LORIMER
Principal Financial Officer and
Chief Accounting Officer
-25-
EXHIBIT 31.1
------------
CERTIFICATION
-------------
I, John L. Larsen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Energy Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
transition report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Omitted such paragraph in accordance with SEC instructions contained
in SEC release 34-47986;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation, and
d. Disclosed in this report any change in the resented in the
registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
DATED this 24th day of May, 2004.
/s/ John L. Larsen
----------------------------------------
John L. Larsen
Chief Executive Officer
-26-
EXHIBIT 31.2
------------
CERTIFICATION
-------------
I, Robert Scott Lorimer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Energy Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
transition report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Omitted such paragraph in accordance with SEC instructions contained
in SEC release 34-47986;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation, and
d. Disclosed in this report any change in the resented in the
registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
DATED this 24th day of May, 2004.
/s/ Robert Scott Lorimer
----------------------------------------
Robert Scott Lorimer
Chief Financial Officer
-27-
EXHIBIT 32.1
Certification of CEO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of U.S. Energy Corp. (the
"Company") on Form 10-Q for the period ended March 31, 2004 as filed with the
Securities and Exchange Commission on May 21, 2004 (the "Report"), John L.
Larsen Chief Executive Officer of the Company, hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ John L. Larsen
----------------------------------------
John L. Larsen,
Chief Executive Officer
May 24, 2004
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been
provided to U.S. Energy Corp. and will be retained by U.S. Energy Corp. and
furnished to the Securities and Exchange Commission or its staff upon request.
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EXHIBIT 32.2
Certification of CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of U.S. Energy Corp. (the
"Company") on Form 10-Q for the period ended March 31, 2004 as filed with the
Securities and Exchange Commission on May 21, 2004 (the "Report"), Robert Scott
Lorimer, Chief Financial Officer of the Company, hereby certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Robert Scott Lorimer
----------------------------------------
Robert Scott Lorimer,
Chief Financial Officer
May 24, 2004
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been
provided to U.S. Energy Corp. and will be retained by U.S. Energy Corp. and
furnished to the Securities and Exchange Commission or its staff upon request.
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