SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 0-17480
CROWN RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Washington 84-1097086
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 Broadway, Suite 2400, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 534-1030
Indicate by checkmark 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.
Shares outstanding as of April 30, 1998: 14,520,725 shares
of common stock, $0.01 par value.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements. . . . . . . . . . .3
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . .7
PART II - OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . .8
Item 2 Changes in Securities. . . . . . . . . . . . . . . . .9
Item 3 Defaults Upon Senior Securities. . . . . . . . . . . .9
Item 4 Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . . .9
Item 5 Other Information. . . . . . . . . . . . . . . . . . .9
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . .9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CROWN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except March 31, December 31,
per share amounts) 1998 1997
Assets
Current assets:
Cash and cash equivalents $10,039 $ 5,857
Short-term investments 86 86
Bullion inventories 87 96
Prepaid expenses and other 176 130
Total current assets 10,388 6,169
Mineral properties, net 27,611 27,590
Other assets:
Debt issuance costs, net 349 375
Other 170 204
519 579
$38,518 $34,338
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 323 $ 359
Other 106 289
Total current liabilities 429 648
Long term liabilities:
Convertible debentures 15,000 15,000
Deferred income taxes 454 731
15,454 15,731
Minority interest in consolidated
subsidiary 3,937 3,980
Stockholders' equity:
Preferred stock, $0.01 par value - -
Common stock, $0.01 par value 145 133
Additional paid-in capital 34,836 29,653
Accumulated deficit (16,264) (15,792)
Unrealized loss on marketable
equity securities (19) (15)
18,698 13,979
$38,518 $34,338
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
(in thousands, except per March 31,
share amounts) 1998 1997
Revenues:
Royalty income $ 33 $ 70
Interest income 102 98
135 168
Costs and expenses:
Depreciation, depletion and amortization 31 41
General and administrative 494 553
Interest expense 243 243
Abandonment and impairment of mining
claims and leases 95 3
Other, net (6) (56)
857 784
Loss before income taxes and
minority interest (722) (616)
Income tax benefit (207) (178)
Loss before minority interest (515) (438)
Minority interest in loss of subsidiary 43 29
Net loss $ (472) $ (409)
Basic and diluted net loss per common
and common equivalent share $(0.03) $(0.03)
Weighted average number of common and
common equivalent shares outstanding 13,807 13,235
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
(in thousands) 1998 1997
Operating activities:
Net loss $ (472) $ (409)
Adjustments:
Depreciation, depletion & amortization 57 67
Deferred income taxes (207) (178)
Abandonment of mining claims
and leases 95 3
Common stock issued for services 32 140
Minority interest (43) (29)
Changes in operating assets and liabilities:
Inventories 9 -
Prepaid expenses and other (46) (56)
Accounts payable and other
current liabilities (219) (256)
Net cash used in operating activities (794) (718)
Investing activities:
Additions to mineral properties (461) (615)
Receipts on mineral property transactions 345 250
(Increase) decrease in other assets (3) (19)
Net cash used in investing activities (119) (384)
Financing activities:
Common stock issued under options 495 57
Issuance of common stock in private placement 4,600 4,490
Net cash provided by financing activities 5,095 4,547
Net increase in cash and cash equivalents 4,182 3,445
Cash and cash equivalents, beginning of period 5,857 5,447
Cash and cash equivalents, end of period $10,039 $ 8,892
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 432 $ 432
Noncash investing and financing activities:
Deferred tax benefit of non-qualified
stock option exercises 68 20
Securities received for mineral property
transactions - 9
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The accompanying consolidated financial statements of Crown
Resources Corporation ("Crown" or the "Company") for the three
months ended March 31, 1998 and 1997 are unaudited, but in the
opinion of management, include all adjustments, consisting
only of normal recurring items, necessary for a fair
presentation. Interim results are not necessarily indicative
of results which may be achieved in the future.
These financial statements should be read in conjunction with
the financial statements and notes thereto which are included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997. The accounting policies set forth in those
annual financial statements are the same as the accounting
policies utilized in the preparation of these financial
statements, except as modified for appropriate interim
financial statement presentation.
Effective January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." The following represents
Comprehensive loss and its components:
Three months ended March 31,
1998 1997
Net loss $(472) $(409)
Unrealized gain (loss) on
marketable equity securities (4) 10
Comprehensive loss $(476) $(399)
2. ISSUANCE OF COMMON STOCK
In February 1998, the Company received $4.6 million, after
commissions and offering expenses, from a European equity
financing through the private placement of 1.04 million shares
of the Company's common stock. Included in the placement was
an agency fee of 40,000 shares paid to David Williamson
Associates, Ltd., of which David R. Williamson, a director of
the Company, is a principal.
3. SALE OF SUBSIDIARY
In March 1998, Solitario Resources Corporation ("Solitario"),
a 57.2 percent-owned subsidiary of the Company, signed a
letter of intent with TNR Resources, Ltd., formerly Toscana
Resources, Ltd., ("TNR") of Vancouver, B.C., Canada, to sell
all of the issued and outstanding shares of Solitario's
Argentina subsidiary. The purchase price of Cdn$500,000 would
be received in shares of TNR. The transaction is subject to
due diligence, board of directors approval, and regulatory
approval. Solitario also received a non-refundable binder
payment of Cdn$65,000 upon signing the letter of intent.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of operations
The Company had a net loss of $472,000 or $0.03 per share, for the
first quarter of 1998 compared with a loss of $409,000, or $0.03
per share, for the first quarter of 1997.
Total revenues for the first quarter of 1998 were $135,000 compared
with $168,000 for first quarter 1997. Higher royalty revenues in
1997, primarily from the Kettle River mine in Washington, were
partially offset by higher interest income during the current
period.
General and administrative expenses for the first quarter of
1998 were $494,000 compared with $553,000 for the same period last
year. The decrease was primarily due to reduced operations in
Argentina and Nevada during 1998 compared to the prior year.
Interest expense of $243,000 for first quarter 1998 was the same as
in the year earlier quarter.
During the first quarter of 1997, the Company recorded other income
of $56,000, relating primarily to a termination payment received on
a previously joint ventured exploration project. There was no such
income in the current year quarter.
Liquidity and Capital Resources
During the quarter ended March 31, 1998, the Company spent $461,000
for mineral property additions, of which $311,000 related to
exploration activities on its projects in South America, which are
held through its 57.2 percent-owned subsidiary, Solitario.
Solitario received $300,000 in during the first quarter of 1998
compared to $250,000 in 1997 from Cominco, Ltd. related to its
joint venture of the Bongara zinc project in Peru.
During the first quarter of 1998, the Company sold 1,040,000 shares
of its common stock in a European private placement for net
proceeds of $4,600,000. During the first quarter of 1997, the
Company sold 1,500,000 of its shares in Solitario and reinvested
the proceeds of $4,448,000 by acquiring 1,500,000 new shares of
Solitario through a private placement into Solitario.
Working capital at March 31, 1998 increased to $9,959,000 from
$5,521,000 at December 31, 1997. Cash and cash equivalents at
March 31, 1998 were $10,039,000, including $3,876,000 held in
Solitario.
The Company expects to spend approximately $2,070,000 in 1998 on
its exploration programs, including $1,350,000 to be spent by
Solitario. Existing funds and projected sources of funds are
believed to be sufficient to finance currently planned activities
for the foreseeable future. The Company's long-term funding
opportunities and operating results continue to be largely
dependent on the successful commencement of commercial production
at the Crown Jewel project.
The Crown Jewel property is in the permitting phase, with work
currently underway to obtain the permits necessary to construct and
operate the mine. Historically, there have been appeals associated
with the permitting process, and it is difficult to predict their
impact and duration. Assuming timely permit issuance and absent an
injunction, the 14-month construction process could begin in 1999.
See Legal Proceedings, elsewhere in this report.
The information set forth in this report includes "forward-looking"
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934, and
is subject to the safe harbor created by those sections. Factors
that could cause results to differ materially from those projected
in the forward-looking statements include but are not limited to
the timing of receipt of necessary governmental permits, the market
price of gold, results of current exploration activities and other
risk factors detailed in the Company's Securities and Exchange
Commission filings.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In March 1997, appeals of the Record of Decision ("ROD") for
the Final Environmental Impact Statement ("FEIS")for the Crown
Jewel Mine were filed against the United States Forest Service,
("USFS") by the following parties: (i) a joint appeal by the
Okanogan Highlands Alliance, Washington Environmental Council,
Colville Indian Environmental Protection Alliance, Washington
Wilderness Coalition, Rivers Council of Washington, and Sierra
Club, Cascade Chapter; (ii) Confederated Tribes of the Colville
Reservation; (iii) Columbia River Bioregional Education Project;
and (iv) Kettle Range Conservation Group; (all groups collectively
the "Plaintiffs"). The appeals were denied in May 1997.
In late May 1997, members of the Plaintiffs filed an action
against the USFS appealing the FEIS, its decision to uphold the ROD
and the denial of administrative appeals. The action was filed in
United States District Court for the District of Oregon. In March
1998, the court ruled in favor of the USFS by denying the
Plaintiffs' challenge to the contents and scope of the
administrative record. It is anticipated that briefing of the case
on the merits will occur in the second and third quarters of 1998.
During the fourth quarter of 1997, members of the Plaintiffs
filed five actions against the Washington Department of Ecology
("WDOE") before the State of Washington Pollution Control Hearings
Board ("PCHB"), a state administrative tribunal, challenging the
FEIS and certain permit decisions. Battle Mountain Gold ("BMG")
has appealed the actions and obtained hearing dates for May 1998
under a consolidated hearing schedule for the appeals before the
PCHB. In February 1998, members of the Plaintiffs instituted a
sixth action before the PCHB challenging the air quality permit.
Also in February, the PCHB granted BMG's motion for summary
judgment and dismissed one of the actions related to stormwater and
dam safety claims. However, in March 1998, the PCHB excluded from
the consolidated hearing schedule certain water quality issues
related to water rights permits. Hearing dates for these issues
have not been set by the PCHB, however, the Company anticipates
they may be set for the fall of 1998.
In December of 1997, the members of the Plaintiffs filed three
separate actions against the WDOE in Thurston County Superior
Court, State of Washington. The actions challenge the WDOE's
approval of permits issued to BMG for water resource mitigation and
solid waste permit rulings. In April 1998, the Plaintiffs
dismissed one of the three actions related to the tailings and
solid waste permits without prejudice. The remaining actions are
currently pending and no trial date has been set.
The impact and timing of resolutions of these and any other
appeals related to the permitting process cannot be determined with
any accuracy at this time.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The exhibits as indexed on page 11 of this Report
are included as a part of this Form 10-Q.
(b) Reports on Form 8-K:
On February 27, 1998 a report on form 8-K to report the
private placement of 1.04 million shares of the Company's
common stock.
Exhibit Number Description
27 Financial Data Schedule
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.
CROWN RESOURCES CORPORATION
May 5, 1998 By: /s/ James R. Maronick
Date James R. Maronick
Vice President - Finance
Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number Description Page No.
27 Financial Data Schedule . . 12