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 September 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 October 29, 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. . . . . . . . . . . . . . . . .11
Item 3 Defaults Upon Senior Securities. . . . . . . . . . . 11
Item 4 Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . . .11
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 September 30, December 31,
per share amounts) 1998 1997
Assets
Current assets:
Cash and cash equivalents $ 8,521 $ 5,857
Short-term investments 87 86
Bullion inventories 85 96
Prepaid expenses and other 113 130
Total current assets 8,806 6,169
Mineral properties, net 27,442 27,590
Other assets:
Debt issuance costs, net 298 375
Other 257 204
555 579
$36,803 $34,338
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 192 $ 359
Other 100 289
Total current liabilities 292 648
Long term liabilities:
Convertible debentures 15,000 15,000
Deferred income taxes 18 731
15,018 15,731
Minority interest in consolidated
subsidiary 3,884 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 (17,266) (15,792)
Unrealized loss on marketable
equity securities (106) (15)
17,609 13,979
$36,803 $34,338
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per Three months ended September 30, Nine months ended September 30,
share amounts) 1998 1997 1998 1997
Revenues:
Royalty income $ 37 $ 42 $ 115 $ 182
Interest income 125 98 360 309
162 140 475 491
Costs and expenses:
Depreciation, depletion, and
amortization 19 69 88 144
General and administrative 328 400 1,207 1,518
Interest expense 243 243 728 728
Abandonment and impairment of
mining claims and leases 478 1,293 676 1,351
Other, net - (14) (51)
1,068 2,005 2,685 3,690
Loss before income taxes and
minority interest (906) (1,865) (2,210) (3,199)
Income tax benefit (272) (463) (640) (820)
Loss before minority interest (634) (1,402) (1,570) (2,379)
Minority interest in loss of
subsidiary 41 253 96 346
Net loss $ (593) $(1,149) $(1,474) $(2,033)
Basic and diluted loss per common
and common equivalent share $ (0.04) $ (0.08) $ (0.10) $ (0.15)
Weighted average number of
common and common equivalent
shares outstanding 14,521 13,269 14,285 13,254
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
(in thousands) 1998 1997
Operating activities:
Net loss $(1,474) $(2,033)
Adjustments:
Depreciation, depletion,and amortization 165 220
Deferred income taxes (640) (820)
Abandonment of mining claims
and leases 676 1,351
Common stock issued for services 32 140
Minority interest (96) (346)
Loss on sale of assets 1 -
Changes in operating assets and liabilities:
Inventories 11 2
Prepaid expenses and other 45 (35)
Accounts payable and other
current liabilities (356) 39
Net cash used in operating activities (1,636) (1,482)
Investing activities:
Additions to mineral properties (1,230) (2,663)
Purchase of short-term investments - (8)
Receipts on mineral property transactions 464 349
Increase in other assets (29) (29)
Net cash used in investing activities (795) (2,351)
Financing activities:
Common stock issued under options 495 133
Issuance of common stock in private placement 4,600 4,822
Net cash provided by financing activities 5,095 4,955
Net increase in cash and cash equivalents 2,664 1,122
Cash and cash equivalents, beginning of period 5,857 5,447
Cash and cash equivalents, end of period $ 8,521 $ 6,569
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 432 $ 868
Noncash investing and financing activities:
Deferred tax benefit of non-qualified
stock option exercises 68 34
Securities received for mineral property
transactions 212 9
Increase in accounts receivable from sale of
Argentina subsidiary 29
Acquisition of additional interest in subsidiary - 206
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 nine
months ended September 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 Nine months
ended Sept 30, ended Sept 30,
1998 1997 1998 1997
Net loss $(593)$(1,149) $(1,474) $(2,033)
Unrealized loss on
marketable equity
securities (83) (11) (91) (14)
Comprehensive loss $(676)$(1,160) $(1,565) $(2,047)
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 July 1998, Solitario Resources Corporation ("Solitario"),
a 57.2 percent-owned subsidiary of the Company, completed the
sale of all of the issued and outstanding shares of
Solitario's Argentina subsidiary to TNR Resources, Ltd.,
formerly Toscana Resources, Ltd., ("TNR") of Vancouver, B.C.,
Canada. The Company received 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 in March 1998 upon signing the
letter of intent.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of operations
Third quarter 1998 compared with the third quarter of 1997:
The Company had a net loss of $593,000 or $0.04 per share, for the
third quarter of 1998 compared with a net loss of $1,149,000, or
$0.08 per share, for the third quarter of 1997.
Total revenues for the third quarter of 1998 were $162,000 compared
with $140,000 for the third quarter of 1997. Higher interest
income in 1998 was partially offset by lower royalty income during
the current quarter.
General and administrative expenses for the third quarter of
1998 were $ 328,000 compared with $400,000 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 third quarter 1998 was the same as
in the year earlier quarter.
During the third quarter of 1998 the Company recorded exploration
property writedowns of $478,000, compared to $1,293,000 in the
prior year quarter. During the current quarter, the Company
recorded a writedown of $365,000 on its Snowstorm project in Nevada
upon the withdrawal of its joint venture partner, Romarco. During
1997, the Company recognized the reduced value of several
properties as a result of drilling results coupled with the decline
in metals prices.
Nine months ended September 30, 1998 compared with nine months
ended September 30, 1997:
The Company had a net loss of $1,474,000 or $0.10 per share, for
the nine months ended September 30, 1998 compared with a loss of
$2,033,000, or $0.15 per share, for the first nine months of 1997.
Total revenues for the first nine months of 1998 were $475,000
compared with $491,000 for the same period in 1997. Lower royalty
revenue in 1998 has been partially offset by higher interest income
during the current nine month period.
General and administrative expenses for the first nine months of
1998 were $ 1,207,000 compared with $1,518,000 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 nine months ended September 30, 1998, the Company
recorded exploration property writedowns of $676,000 compared to
$1,351,000 in the prior year period. The large write-off in the
prior year was related to a sharp drop in metals prices coupled
with drilling results which indicated several properties did not
hold economic deposits and/or did not warrant further exploration.
Liquidity and Capital Resources
During the nine months ended September 30, 1998, the Company spent
$1,230,000 for mineral property additions, of which $832,000
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 three quarters of 1998,
including $354,000 from Cominco, Ltd., related to its joint venture
of the Bongara zinc project in Peru.
During the nine months ended September 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 September 30, 1998 increased to $8,514,000 from
$5,521,000 at December 31, 1997. Cash and cash equivalents at
September 30, 1998, were $8,521,000, including $3,407,000 held in
Solitario.
The Company expects to spend approximately $1.6 million in 1998 on
its exploration programs, including approximately $1.0 million 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 2000. See Legal Proceedings, elsewhere in this report.
Year 2000
The year 2000 potentially poses unique challenges for many
businesses insofar as their computer systems and those of third
parties attempt to properly recognize the date change. The Company
has made and will make certain investments in its software systems
and applications to help the Company make the year 2000 transition.
The Company has implemented new systems, analyzed internal and
external activities, including the Company's joint venture
partners, and conducted vendor inquiries. The Company estimates
its plans will make all of its internal systems year 2000 compliant
prior to the fourth quarter of 1999. Contingency plans include
some or all of the following: the delay of operational activities,
use of backup stand-alone systems, and manual transaction
processing. The Company believes its contingency plans are
adequate for reasonably foreseeable problems.
Total expenditures to date to address the year 2000 transition have
been less than $25,000 and the Company estimates the total costs to
implement all of the Company's plans to successfully make the year
2000 transition will be less than $50,000. All charges have been
included in normal and recurring activities including additions to
fixed assets for replacement and upgrading of equipment and
software and general and administrative costs for existing
personnel payroll. Accordingly, the operational and financial
impact to the Company has not been and is not anticipated to be
material to its financial position or results of operations.
Safe Harbor
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
During the first quarter of 1997 the Final Environmental
Impact Statement ("FEIS") for the Crown Jewel Mine was issued.
Certain positive permit decisions and approvals have been received
for the project, but additional state and federal permit decisions
and approvals are pending.
In March 1997, administrative appeals of the Record of Decision
("ROD") for the FEIS 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. Briefing of the case was completed 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
Mountain 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 late 1998. The consolidated hearing
concluded on May 20, 1998. Briefing of the portions of the case
heard at the consolidated hearing has been completed. 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 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.
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. The
respondents have moved to dismiss the action on both procedural and
substantive grounds. A hearing on the respondents' motion was held
on September 14, 1998, and post hearing briefing has been
completed.
The impact and timing of resolutions of these and any other
appeals related to the permitting process cannot be determined with
certainty 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 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
November 3, 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