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 June 30, 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 July 27, 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. . . . . . . . . . . . . . . . . . . 9
Item 2 Changes in Securities. . . . . . . . . . . . . . . . .10
Item 3 Defaults Upon Senior Securities. . . . . . . . . . . 10
Item 4 Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . . .10
Item 5 Other Information. . . . . . . . . . . . . . . . . . .11
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . .11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . .12
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CROWN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except June 30, December 31,
per share amounts) 1998 1997
Assets
Current assets:
Cash and cash equivalents $ 9,492 $ 5,857
Short-term investments 86 86
Bullion inventories 86 96
Prepaid expenses and other 147 130
Total current assets 9,811 6,169
Mineral properties, net 27,799 27,590
Other assets:
Debt issuance costs, net 324 375
Other 139 204
463 579
$38,073 $34,338
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 252 $ 359
Other 321 289
Total current liabilities 573 648
Long term liabilities:
Convertible debentures 15,000 15,000
Deferred income taxes 290 731
15,290 15,731
Minority interest in consolidated
subsidiary 3,925 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 (16,673) (15,792)
Unrealized loss on marketable
equity securities (23) (15)
18,285 13,979
$38,073 $34,338
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per Three months ended June 30, Six months ended June 30,
share amounts) 1998 1997 1998 1997
Revenues:
Royalty income $ 45 $ 70 $ 78 $ 140
Interest income 133 113 235 211
178 183 313 351
Costs and expenses:
Depreciation, depletion, and
amortization 38 34 69 75
General and administrative 385 565 879 1,118
Interest expense 242 242 485 485
Abandonment and impairment of
mining claims and leases 103 55 198 58
Other, net (8) 5 (14) (51)
760 901 1,617 1,685
Loss before income taxes and
minority interest (582) (718) (1,304) (1,334)
Income tax benefit (161) (179) (368) (357)
Loss before minority interest (421) (539) (936) (977)
Minority interest in loss of
subsidiary 12 64 55 93
Net loss $ (409) $ (475) $ (881) $ (884)
Basic and diluted loss per common
and common equivalent share $ (0.03) $ (0.04) $ (0.06) $ (0.07)
Weighted average number of
common and common equivalent
shares outstanding 14,521 13,258 14,165 13,247
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
(in thousands) 1998 1997
Operating activities:
Net loss $ (881) $ (884)
Adjustments:
Depreciation, depletion, & amortization 120 126
Deferred income taxes (368) (357)
Abandonment of mining claims
and leases 198 58
Common stock issued for services 32 140
Minority interest (55) (93)
Loss on sale of assets 1 -
Changes in operating assets and liabilities:
Inventories 10 (1)
Prepaid expenses and other (17) (55)
Accounts payable and other
current liabilities (72) (87)
Net cash used in operating activities (1,032) (1,153)
Investing activities:
Additions to mineral properties (871) (1,280)
Purchase of short-term investments - (5)
Receipts on mineral property transactions 464 349
Increase in other assets (21) (27)
Net cash used in investing activities (428) (963)
Financing activities:
Common stock issued under options 495 76
Issuance of common stock in private placement 4,600 4,587
Net cash provided by financing activities 5,095 4,663
Net increase in cash and cash equivalents 3,635 2,547
Cash and cash equivalents, beginning of period 5,857 5,447
Cash and cash equivalents, end of period $ 9,492 $ 7,994
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 24
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 six
months ended June 30, 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:
(in thousands) Three months Six months
ended June 30, ended June 30,
1998 1997 1998 1997
Net loss $(409) $(475) $(881) $(884)
Unrealized gain (loss) on
marketable equity
securities (4) (13) (8) (3)
Comprehensive loss $(413) $(488) $(889) $(887)
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 transaction was completed on July
9, 1998. The purchase price of Cdn$500,000 was received in
the form of 1,250,000 shares of TNR and warrants to purchase
an additional 625,000 shares over the next two years.
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
Second quarter 1998 compared with the second quarter of 1997:
The Company had a net loss of $409,000 or $0.03 per share, for the
second quarter of 1998 compared with a net loss of $475,000, or $0.04
per share, for the second quarter of 1997.
Total revenues for the second quarter of 1998 were $178,000
compared with $183,000 for the second quarter of 1997. Lower
royalty revenues in 1998, primarily from the Kettle River mine in
Washington, were partially offset by higher interest income during
the period.
General and administrative expenses for the second quarter of
1998 were $ 385,000 compared with $565,000 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 $242,000 for second quarter 1998 was the same
as in the year earlier quarter.
During the second quarter of 1998 the Company recorded exploration
property writedowns of $103,000 compared to $55,000 in the prior
year quarter.
Six months ended June 30, 1998 compared with six months ended June
30, 1997:
The Company had a net loss of $881,000 or $0.06 per share, for the
six months ended June 30, 1998 compared with a loss of $884,000, or
$0.07 per share, for the first six months of 1997.
Total revenues for the first six months of 1998 were $313,000
compared with $351,000 for the same period in 1997. Lower royalty
revenue in 1998 has been partially offset by higher interest income
during the current six month period.
General and administrative expenses for the first six months of
1998 were $ 879,000 compared with $1,118,000 for the same period
last year as a result of new cost-containment efforts as well as
reduced operations in Argentina and Nevada during 1998.
During the six months ended June 30, 1998, the Company recorded
exploration property writedowns of $198,000 compared to $58,000 in
the prior year period. The increase was primarily due to continued
low metals prices affecting the ability to develop economic
deposits.
Liquidity and Capital Resources
During the six months ended June 30, 1998, the Company spent
$871,000 for mineral property additions, of which $619,000 related
to exploration activities on its projects in South America, which
are held through its 57.2 percent-owned subsidiary, Solitario. The
Company received $464,000 in receipts on mineral property
transactions during the first half of 1998, including $354,000 from
Cominco, Ltd., related to its joint venture of the Bongara zinc
project in Peru.
During the six months ended June 30, 1998, the Company sold
1,040,000 shares of its common stock in a European private
placement for net proceeds of $4,600,000.
Working capital at June 30, 1998 increased to $9,238,000 from
$5,521,000 at December 31, 1997. Cash and cash equivalents at June
30, 1998, were $9,492,000, including $3,596,000 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 estimated 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, administrative 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 third quarter of 1998.
During the fourth quarter of 1997, members of the Plaintiffs
filed five actions (PCHB Nos. 97-146, 97-182, 97-183, 97-185, 97-
186) 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. In January 1998, members of the Plaintiffs
instituted a sixth action (PCHB 98-019) before the PCHB,
challenging the air quality permit, which was subsequently
dismissed in April 1998. In February 1998, the PCHB granted Battle
Mountan Gold's ("BMG") motion for summary judgment and dismissed one
of the actions (PCHB 97-146) related to stormwater and dam safety
claims. BMG obtained a consolidated hearing schedule for the
appeals before the PCHB. 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 excluded
issues have not been set by the PCHB, however, the Company
anticipates they may be set in the fall of 1998. The consolidated
hearing concluded on May 20, 1998. Certain post-hearing briefs and
motions have been filed with the remainder scheduled to be filed in
the third quarter of 1998. On May 29, 1998 the PCHB dismissed one
of the actions (PCHB 97-185) related to approval of two water
rights applications.
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 water permits issued to BMG 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.
In May 1998, members of the Plaintiffs filed an action against
the Okanogan County Health District (OCHD), the Company and BMG in
Okanogan County Superior Court, State of Washington. The action
challenges the decision of the OCHD to not require a Solid Waste
Permit for the Crown Jewel mine tailings and waste rock piles. An
initial hearing on preliminary matters is expected during the third
quarter of 1998.
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
On June 18, 1998 the Company held its Annual Meeting of
Shareholders at which the following two matters were submitted to
a vote of security holders:
a). Election of Directors. All seven directors were re-
elected to serve until the next Annual Meeting of
Shareholders and until their successors are elected and
qualified:
Number of Shares
Name For Withheld
Mark E. Jones, III 10,315,435 36,278
Christopher E. Herald 10,316,037 35,676
J. Michael Kenyon 10,316,037 35,676
Rodney D. Knutson 10,310,895 40,818
Linder G. Mundy 10,310,855 40,858
Steven A. Webster 10,316,037 35,676
David R. Williamson 10,311,497 40,216
b). Appointment of Auditors. The appointment of Deloitte and
Touche, LLP as the Company's auditors for the fiscal year
1998 was ratified:
Number of Shares
For Against Abstain
10,315,368 14,218 22,127
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The exhibits as indexed on page 13 of this Report
are included as a part of this Form 10-Q.
(b) Reports on Form 8-K:
None
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
July 28, 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 . . 14