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, 1995 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.
(Exact Name of Registrant as Specified in its Charter)
Wyoming 83-0205516
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 North 8th West, Riverton, WY 82501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (307) 856-9271
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 13, 1995
Common stock, $.01 par value 5,247,993 Shares
U.S. ENERGY CORP.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Consolidated Balance Sheets
February 28, 1995 and May 31, 1994. . . . . . . . . . . . 3-4
Consolidated Statements of Operations
Three and Nine Months Ended
February 28, 1995 and 1994. . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
Nine Months Ended February 28, 1995 and 1994. . . . . . . 6-7
Notes to Consolidated Financial Statements. . . . . . . . . . 8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . .9-11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .11
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . .11
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . .12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Balance Sheets
ASSETS
February 28, May 31,
1995 1994
(Unaudited) (Unaudited)
CURRENT ASSETS:
Cash $ 780,700 $1,181,700
Accounts receivable
Trade 791,000 1,009,800
Related parties 254,100 166,500
Inventory 1,486,400 1,424,600
Deferred federal income tax current 36,000 --
Deferred compensation 12,200 12,200
Other 135,800 71,800
TOTAL CURRENT ASSETS 3,496,200 3,866,600
INVESTMENTS
Affiliates 2,980,600 2,807,900
Other 7,637,700 7,728,500
10,618,300 10,536,400
PROPERTIES AND EQUIPMENT 26,890,800 26,252,200
Less accumulated depreciation,
depletion and amortization (9,507,500) (8,874,000)
17,383,300 17,378,200
OTHER ASSETS:
Accounts and notes receivable:
Real estate sale and other 652,400 28,700
Affiliates and related parties 25,000 25,000
Employees 498,500 366,000
Buildings and improvements held for sale 496,200 758,200
Deferred compensation, long-term 8,100 17,300
Deposits and other 117,200 113,900
1,797,400 1,309,100
$33,295,200 $33,090,300
<FN>
See notes to condensed consolidated financial statements.
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28, May 31,
1995 1994
(Unaudited) (Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $1,394,300 $ 722,200
Current portion of long-term debt 1,697,900 569,500
TOTAL CURRENT LIABILITIES 3,092,200 1,291,700
LONG-TERM DEBT (See Note 5) 918,700 1,109,100
RECLAMATION LIABILITY (See Notes 6) 3,951,800 3,951,800
OTHER ACCRUED LIABILITIES (See Notes 6) 10,892,500 11,284,600
DEFERRED TAX LIABILITY 183,200 267,000
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 815,300 1,326,400
Common stock, 187,817 and 169,300
shares forfeitable 1,370,100 1,300,600
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
none issued or outstanding -- --
Common stock, $.01 par value;
authorized, 20,000,000 shares;
issued, 5,002,486 and 4,693,090 49,900 46,800
Additional paid-in capital 17,729,900 16,784,800
Retained earnings (deficit) (2,501,600) (1,185,800)
Treasury stock, 758,276 shares, at cost (2,192,500) (2,072,400)
Unallocated ESOP contribution (1,014,300) (1,014,300)
12,071,400 12,559,100
$33,295,200 $33,090,300
<FN>
See notes to condensed consolidated financial statements.
U.S. ENERGY CORP. AND AFFILIATES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
1995 1994 1995 1994
REVENUES:
Mineral sales $ -- $ -- $ -- $2,893,700
Oil sales 47,400 51,100 138,200 141,900
Commercial revenues 1,268,600 123,700 4,032,200 461,700
Gain from restructuring
mining properties
agreements -- 33,400 85,500 591,400
Construction contract
revenues 29,100 120,400 919,600 2,004,700
Gain on sale of assets 975,000 -- 1,288,900 30,300
Interest 81,100 61,000 254,200 162,000
Management fees and other 77,000 98,000 215,700 301,500
2,478,200 487,600 6,934,300 6,587,200
COSTS AND EXPENSES:
Cost of mineral sales -- -- -- 2,927,400
Mineral operations 299,300 262,500 1,005,500 700,900
Construction costs 36,500 106,000 790,500 1,774,300
General and
administrative 1,127,300 787,400 2,783,200 1,859,400
Commercial operations 1,195,100 366,900 3,466,800 1,004,600
Oil production 24,100 106,200 52,700 259,900
Loss on sale
of investments -- 29,800 89,900 31,800
Interest 72,400 26,900 175,000 87,400
2,754,700 1,685,700 8,363,600 8,645,700
Income (Loss) Before Equity
Income of Affiliate,
Provision for Income Taxes
and Extraordinary Item (276,500) (1,198,100) (1,429,300) (2,058,500)
Minority Interest in Loss
of Consolidated
Subsidiaries 76,200 299,600 418,400 572,900
Equity in Income (Loss)
of Affiliates-net (128,100) (95,400) (304,900) (266,700)
Income (Loss) Before
Provision for Income Taxes
and Cumulative Effect (328,400) (993,900) (1,315,800) (1,752,300)
Provision for Income Taxes -- -- -- --
Income (Loss) Before
Cumulative Effect of
Accounting Changes (328,400) (993,900) (1,315,800) (1,752,300)
Cumulative Effect at
June 1, 1993 of Income
Tax Accounting Changes -- -- -- (267,000)
NET INCOME (LOSS) $(328,400) $(993,900) $(1,315,800) $(2,019,300)
NET INCOME (LOSS)
PER SHARE $ (.07) $ (.22) $ (.27) $ (.46)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 5,012,216 4,473,468 4,877,776 4,402,658
<FN>
See notes to condensed consolidated financial statements.
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
February 28,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $(1,315,800) $(2,019,300)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Minority interest in (gain) loss
of consolidated subsidiaries (418,400) (572,900)
Depreciation, depletion and amortization 577,300 710,600
Non-cash compensation 69,500 82,300
Gain from restructuring mineral
properties agreements -- (500,000)
Equity in loss of affiliates 304,900 266,700
Gain on sale of assets (1,288,900) (27,900)
Loss (gain) on sale of investments 89,900 (3,400)
Cumulative effect of accounting changes (83,800) 267,000
Change in deferred income taxes (36,000) --
Net changes in components of working capital 282,600 (1,138,100)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,818,700) (2,935,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (476,800) (1,095,300)
Investments other (198,400) --
Purchase of property and equipment (141,000) (632,200)
Proceeds from sale of assets 969,100 55,100
Development of mining claims (341,400) (624,100)
Development of gas properties (147,700) --
Increase in note receivable (128,200) (36,800)
Proceeds from sale of investments 199,300 --
Cash acquired in purchase of subsidiary -- 6,900,000
Deposits and other (3,300) 172,300
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (268,400) 4,739,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement of common stock 868,100 --
Company stock purchased by
consolidated affiliate (120,000) --
Additions to long-term debt 1,740,800 368,400
Payments on long-term debt (802,800) (630,800)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,686,100 (262,400)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (401,000) 1,541,600
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,181,700 479,600
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 780,700 $2,021,200
(continued)
<FN>
See notes to condensed consolidated financial statements.
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
February 28,
1995 1994
SUPPLEMENTAL DISCLOSURES:
Income tax paid $118,900 $--
Interest paid $175,000 $ 60,500
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of unowned portion of affiliate
with Company stock $ 80,000 $--
Common stock issued in lieu of
payment of long-term debt $-- $300,000
Negotiate settlement on accounts payable
for asset previously capitalized $-- $155,000
<FN>
See notes to condensed consolidated financial statements.
U.S. ENERGY CORP. AND AFFILIATES
Notes to Condensed Consolidated Financial Statements
1) The Condensed Consolidated Balance Sheet as of
February 28, 1995, the Condensed Consolidated Statements of
Operations for the nine months ended February 28, 1995 and 1994,
and the Condensed Consolidated Statements of Cash Flows for the
nine months ended February 28, 1995 and 1994, have been prepared by
the Registrant without audit. The Condensed Consolidated Balance
Sheet as of May 31, 1994, has been taken from the audited financial
statements included in the Registrant's Annual Report on Form 10-K
for the period then ended. In the opinion of the Registrant, the
accompanying financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position of Registrant as of February 28, 1995
and May 31, 1994, the results of operations for the nine months
ended February 28, 1995 and 1994, and the cash flows for the nine
months then ended.
2) Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. It is suggested that these financial statements be read
in conjunction with the Registrant's May 31, 1994 Form 10-K. The
results of operations for the periods ended February 28, 1995 and
1994 are not necessarily indicative of the operating results for
the full year.
3) The consolidated financial statements of the Registrant
include 100% of the accounts of USECB Joint Venture (USECB) which
is owned 50% by the Registrant and 50% by the Registrant's
subsidiary, Crested Corp. (Crested). The consolidated financial
statements also reflect 100% of the accounts of its majority-owned
subsidiaries: The Brunton Company (100%), Energx Ltd. (90%),
Crested (51.9%), USECC Gold Limited Liability Company (100%),
Plateau Resources Limited (100%) and Four Nines Gold, Inc. (50.9%)
All material intercompany profits and balances have been
eliminated.
4) Effective June 1, 1993, the Registrant adopted Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". This statement requires recognition of deferred
income tax assets and liabilities for the expected future income
tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of
assets, liabilities and carryforwards.
In contrast to the previous method, SFAS No. 109 requires
recognition of deferred tax assets for the expected future effects
of all deductible temporary differences, loss carryforwards and tax
credit carryforwards. Deferred tax assets are then reduced, if
deemed necessary, by a valuation allowance for any tax benefits
which, based on current circumstances, are not assured of
realization.
As a result of adopting SFAS No. 109, the Registrant
recognized a cumulative provision for change in accounting
principle of $267,000 or $(0.06) per common share as of the
beginning of the fiscal year. The provision is included under the
caption "cumulative effect at June 1, 1993 of income tax accounting
change" in the accompanying condensed consolidated statements of
operations.
5) Debt as of February 28, 1995 consists of a $960,000
operating line of credit; two property loans totaling $274,900;
various equipment and other loans totaling $199,200; and debt
attributable to consolidated affiliates of $1,029,200 on Brunton
and $153,300 on Four Nines Gold. Certain inter-affiliate loans
were eliminated during consolidation.
6) Accrued reclamation obligations of $3,951,800 are the
Registrant's share of a reclamation liability at the Crooks Gap
Mining District and the full obligation at the Shootaring Uranium
Mill. The reclamation work may be performed over several years.
7) Net income (loss) per share is computed using the
weighted average number of common shares outstanding during each
period. The dilutive effect of stock options is not included in
the computation, as it is not material.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following is management's discussion and analysis of
significant factors which have affected the Registrant's liquidity,
capital resources and results of operations during the period
included in the accompanying financial statements.
Liquidity and Capital Resources
Working capital declined during the nine months ended February
28, 1995 by $2,170,900 to working capital of $404,000. Cash and
cash equivalents decreased by $401,000 during the period ended
February 28, 1995. This decrease was primarily as a result of
operating and investing activities.
The Registrant utilized $268,400 in its investing activities
during the nine months ended February 28, 1995. This was primarily
as a result of the Registrant and its subsidiary Crested Corp.
("Crested") funding Sheep Mountain Partners ("SMP"), Plateau
Resources Limited ("Plateau"), Energx, Ltd. ("Energx") and the
Sutter Gold Mining Company ("SGMC"). As the Registrant and Crested
provide various services for GMMV and SMP, the non-affiliated
participants are invoiced for their proportionate share of the
approved operating costs. GMMV is current on its reimbursements to
the Registrant and Crested for all the operating costs. Due to
disputes existing between the SMP partners, the Registrant and
Crested have not been reimbursed for care and maintenance costs
expended on the SMP mineral properties since the spring of 1991.
The other significant changes in current assets occurring
during the most recently completed period, were a decrease in
accounts receivable of $131,200 and an increase in inventory of
$61,800. Inventories increased as a result of the Registrant's
subsidiary, The Brunton Company, expanding its optics product line.
Other changes in working capital were increases in accounts
payable and accrued expenses of $672,100 and current portion of
long term debt of $1,128,400. The increase in current portion of
long term debt is primarily due to the draw down by the Registrant
and Crested of a line of credit with a bank. The line of credit is
for $1,000,000 and as of February 28, 1995 the Registrant and
Crested had utilized $960,000 of the credit facility leaving
$40,000 available for operations.
The primary requirements for the Registrant's working capital
continue to be the funding of on-going administrative expenses,
including legal costs incurred as a result of the SMP litigation
and arbitration with Nukem/CRIC; the mine and mill development and
holding costs of SGMC; holding costs of Plateau; development of gas
properties of Energx; uranium (U3O8) delivery costs, and property
holding costs of SMP. As a result of the disputes between the SMP
partners, the Registrant and Crested have been delivering certain
of their respective portions of the U3O8 concentrates required to
fill various delivery requirements on long-term U3O8 contracts with
domestic utilities. Currently, Nukem/CRIC are making the SMP
deliveries of U3O8. It is not known how long this arrangement will
continue. The capital requirements to fill the Registrant's and
Crested's portion of the remaining commitments in fiscal 1995 will
depend on the spot market price of uranium and is also dependent on
the outcome of proceedings involving Nukem/CRIC.
The primary source of the Registrant's capital resources for
the remainder of fiscal 1995, will be (i) cash on hand; (ii) sale
of an interest or 100% in mining and investment properties, (iii)
sale of equipment; (iv) private placement of the Registrant's
common stock; (v) settlement of litigation; (vi) sale of royalties
on mineral properties; (vii) proceeds from the sale of uranium
under the SMP contracts, (viii) and borrowings from financial
institutions. Fees from oil production, rentals of various real
estate holdings and equipment, aircraft chartering and the sale of
aviation fuel will also provide cash. Additional working capital
to that on hand at February 28, 1995 will be required to hold and
maintain existing mineral properties, permitting, the construction
of a mill, and mine development of SGMC, funding of litigation
against Nukem/CRIC and the development of Plateau associated
properties and administration costs. The Registrant and Crested
are currently seeking a joint venture partner and/or other means of
financing the construction of the SGMC mill and mine development.
The funding of SMP care and maintenance costs may require
additional funding, depending on the outcome of the SMP
arbitration. The Registrant and Crested sought rescission of the
SMP Partnership Agreement as well as damages from Nukem/CRIC in
U.S. District Court. The parties to the litigation agreed to a
consensual binding arbitration on claims accruing after the
formation of the SMP partnership. In the opinion of management,
the arbitration proceedings are progressing favorably for the
Registrant and Crested, however, it is premature at this time to
predict the outcome. It is currently anticipated that the
arbitration hearings will be concluded by June 2, 1995. It is
further anticipated that the Arbitration Panel will enter its award
some time during August or September 1995 depending on the Panel's
availability.
During the quarter ended February 28, 1995, the Registrant
began selling a shares of its common stock through a private
placement to individual investors. As of February 28, 1995 a total
of 289,396 shares had been sold for a total of $868,188. The
balance of the private placement was completed during March 1995.
The total number of shares sold was 400,000 at $3.00 per share for
total proceeds of $1,200,000. No commissions were paid. The
Registrant has agreed to either buy the stock back on October 15,
1995 or issue an additional share for every three shares purchase
or a total of 133,333 additional shares. The Registrant has
further agreed to register all the shares issued in the private
placement by February 28, 1996.
The Registrant is currently negotiating an additional private
placement of 1,000,000 shares of its common stock at market. If
this private placement is completed, these monies will be used to
develop the Plateau properties.
Results of Operations
Nine Months Ended February 28, 1995 Compared to Nine Months Ended
February 28, 1994
Revenues for the period ended February 28, 1995 remained
consistent with the same period of the previous year; however the
components changed somewhat.
Commercial revenues increased by $3,377,300 primarily as a
result of the consolidation of sales from Brunton. These revenues
were consolidated for the nine months ended February 28, 1995 due
to the acquisition of Brunton in May 1994. Brunton revenues were
not consolidated during the same period of the prior year.
Revenues from mineral sales and mineral property transactions
decreased by $2,893,700 and $505,900, respectively, as a result of
the Registrant reporting revenues from the deliveries of U3O8 to
fill various SMP contracts with domestic utilities and the final
amortization of the indebtedness to AMAX of $500,000 during the
period ended August 31, 1993. There were no similar U3O8 deliveries
or amortization activities in the current year. The debt to AMAX
was fully amortized as of August 31, 1993.
Construction operation revenues for the nine months ended
February 28, 1995 decreased by $1,085,100 from the same period last
year due to decreased contract work performed by the Registrant's
subsidiary Four Nines Gold, Inc. ("FNG").
The costs and expenses associated with mineral operations
decreased primarily due to no U3O8 sales in fiscal 1995. This
decrease was partially offset by an increase in legal costs in
connection with the SMP arbitration. The commercial operations,
and general and administrative expenses increased primarily due to
the Brunton consolidation.
On June 1, 1993, the Registrant implemented SFAS No. 109.
Please see Footnote 4 to the Financial Statements. The cumulative
effect for the period ended February 28, 1994, of this tax
accounting change was a decrease of net income of $267,000. No
charge for a change in tax accounting was made for the nine months
ended February 28, 1995.
Operations for the nine months ended February 28, 1995
resulted in a net loss $1,315,800 as compared to a loss of
$2,019,300 during the same period of the previous year.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The information called for in this Item 1 has been previously
reported in the Registrant's Form 10-K for the fiscal year ended
May 31, 1994. In the ongoing SMP arbitration proceedings involving
the Registrant, Crested and Nukem, Inc./Cycle Resource Investment
Corporation, the three member arbitration panel stayed further
proceedings on September 29, 1994 to be reconvened on January 9,
1995 for two weeks and February 13, 1995 for two additional weeks.
Hearings were held during those weeks and the weeks of March 20 and
27, 1995. On or about April 6, 1995, the Panel set fourteen
additional days in May 1995 to complete the presentation of
evidence. Counsel for the parties have agreed to complete the
presentation of evidence by June 2, 1995. Findings of facts and
conclusions of law will be presented by the parties to the Panel
and the Panel will thereafter enter its award.
In the case of Illinois Power Company ("IPC") vs. the
Registrant et al referred to in the May 31, 1994 Form 10-K, the
U.S. District Court for the Central District of Illinois granted
the defendants' Motions for Summary Judgment on September 1, 1994
and set a scheduling conference for September 30, 1994.
Thereafter, the Court scheduled another conference before the Judge
Magistrate on November 29, 1994. The issues as to the amount of
damages and to whom the damages should be paid were considered.
The parties have been unable to agree on a settlement and submitted
briefs on the matter in January 1995. Thereafter on March 7, 1995,
IPC filed a motion to reconsider the summary judgment of September
1, 1994 in favor of defendants. On March 15, 1995, the U.S.
District Court, Central District of Illinois entered its order
overruling IPC's motion for reconsideration and the case is set for
trial on the issue of damages on Monday, October 23, 1995.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. There was one Report filed on Form
8-K during the quarter ended February 28, 1995. The Form 8-K,
filed on December 23, 1994, reported an event under Item 2 that
occurred on November 21, 1994, being the sale of property owned by
the Registrant and Crested in Gunnison County, CO.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
U.S. ENERGY CORP.
(Registrant)
Date: April 12 , 1995 By: s/ Max T. Evans
MAX T. EVANS,
Secretary
Date: April 13 , 1995 By: s/ Robert Scott Lorimer
ROBERT SCOTT LORIMER,
Principal Financial Officer and
Chief Accounting Officer