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, 1999
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, 1999: 14,533,422 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. . . . . 6
PART II - OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . .10
Item 2 Changes in Securities. . . . . . . . . . . . . . . . .11
Item 3 Defaults Upon Senior Securities. . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . . .12
Item 5 Other Information. . . . . . . . . . . . . . . . . . .12
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . .12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . .13
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) 1999 1998
Assets
Current assets:
Cash and cash equivalents $ 6,533 $ 8,136
Short-term investments 87 87
Prepaid expenses and other 124 128
Total current assets 6,744 8,351
Mineral properties, net 27,605 27,532
Other assets:
Debt issuance costs, net 221 272
Marketable equity securities 105 233
Other 135 112
461 617
$34,810 $36,500
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 170 $ 222
Other 312 290
Total current liabilities 482 512
Long term liabilities:
Convertible debentures 15,000 15,000
Minority interest in consolidated
subsidiary 3,557 3,806
Stockholders' equity:
Preferred stock, $0.01 par value - -
Common stock, $0.01 par value 145 145
Additional paid-in capital 34,792 34,768
Accumulated deficit (19,038) (17,720)
Accumulated other comprehensive loss (128) (11)
15,771 17,182
$34,810 $36,500
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) 1999 1998 1999 1998
Revenues:
Royalty income $ 29 $ 45 $ 49 $ 78
Interest income 98 133 189 235
127 178 238 313
Costs and expenses:
Depreciation, depletion, and
amortization 19 38 38 69
General and administrative 377 385 802 879
Interest expense 242 242 485 485
Abandonment and impairment of
mining claims and leases 474 103 474 198
Other, net (2) (8) 6 (14)
1,110 760 1,805 1,617
Loss before income taxes and
minority interest (983) (582) (1,567) (1,304)
Income tax benefit - (161) - (368)
Loss before minority interest (983) (421) (1,567) (936)
Minority interest in loss of
subsidiary 246 12 249 55
Net loss $ (737) $ (409) $(1,318) $ (881)
Basic and diluted loss per common
and common equivalent share $ (0.05) $ (0.03) $ (0.09) $ (0.06)
Weighted average number of
common and common equivalent
shares outstanding 14,533 14,521 14,533 14,165
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
(in thousands) 1999 1998
Operating activities:
Net loss $(1,318) $ (881)
Adjustments:
Depreciation, depletion, & amortization 89 120
Deferred income taxes - (368)
Abandonment of mining claims
and leases 474 198
Common stock issued for services 24 32
Minority interest (249) (55)
Loss on sale of assets 4 1
Changes in operating assets and liabilities:
Inventories - 10
Prepaid expenses and other (11) (17)
Accounts payable and other
current liabilities (30) (72)
Net cash used in operating activities (1,017) (1,032)
Investing activities:
Additions to mineral properties (667) (871)
Receipts on mineral property transactions 120 464
Proceeds from asset sales 22 -
Increase in other assets (61) (21)
Net cash used in investing activities (586) (428)
Financing activities:
Common stock issued under options - 495
Issuance of common stock in private placement - 4,600
Net cash provided by financing activities - 5,095
Net increase (decrease) in cash and cash equivalents (1,603) 3,635
Cash and cash equivalents, beginning of period 8,136 5,857
Cash and cash equivalents, end of period $ 6,533 $ 9,492
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 68
Securities received in payment for
account receivable 21 -
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, 1999 and 1998 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, 1998. 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.
2. COMPREHENSIVE INCOME
The following represents comprehensive loss and its
components:
(in thousands) Three months Six months
ended June 30, ended June 30,
1999 1998 1999 1998
Net loss $(737) $(409) $(1,318) $(881)
Unrealized gain (loss) on
marketable equity
securities (72) (4) (117) (8)
Comprehensive loss $(809) $(413) $(1,435) $(889)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of operations
Second quarter 1999 compared with the second quarter of 1998:
The Company had a net loss of $737,000 or $0.05 per share, for
the second quarter of 1999 compared with a net loss of $409,000,
or $0.03 per share, for the second quarter of 1998. The larger
loss was primarily the result of a non-cash writedown of $474,000
related to the Company's Santa Barbara property in Peru during
the second quarter of 1999.
Total revenues for the second quarter of 1999 were $127,000
compared with $178,000 for the second quarter of 1998. Lower
royalty revenues in 1999, primarily from the Kettle River mine in
Washington, along with lower interest income during the period
accounted for the reduction.
General and administrative expenses for the second quarter of
1999 were $377,000 compared with $385,000 for the same period
last year. The decrease was primarily due to reduced operations
in the U.S. during 1999 compared to the prior year. Interest
expense of $242,000 for second quarter 1999 was the same as in
the year earlier quarter.
During the second quarter of 1999 the Company recorded an
exploration property writedown of $474,000 compared to writedowns
of $103,000 in the prior year quarter. The writedown of the
Santa Barbara property was primarily related to continued low
metals prices affecting the ability to economically develop the
deposit.
Six months ended June 30, 1999 compared with six months ended
June 30, 1998:
The Company had a net loss of $1,318,000 or $0.09 per share, for
the six months ended June 30, 1999 compared with a loss of
$881,000, or $0.06 per share, for the first six months of 1998.
The larger loss was primarily related to the writedown of the
Santa Barbara property in 1999.
Total revenues for the first six months of 1999 were $238,000
compared with $313,000 for the same period in 1998. The
reduction resulted from lower royalty revenue combined with lower
interest income during the current six month period.
General and administrative expenses for the first six months of
1999 were $ 802,000 compared with $879,000 for the same period
last year as a result of reduced operations in the U. S. and
Argentina during 1999.
During the six months ended June 30, 1999, the Company recorded
an exploration property writedown of $474,000 compared to
$198,000 in the prior year period.
Liquidity and Capital Resources
During the six months ended June 30, 1999, the Company spent
$667,000 for mineral property additions, of which $335,000
related to exploration activities on its projects in South
America, which are held through its 57.2 percent-owned
subsidiary, Solitario. The Company received $120,000 in receipts
on mineral property transactions during the first half of 1999,
including $118,000 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, 1999 decreased to $6,262,000 from
$7,839,000 at December 31, 1998. Cash and cash equivalents at
June 30, 1998, were $6,533,000, including $2,870,000 held in
Solitario.
The Company expects to spend approximately $1.4 million in 1999
on its exploration programs, including approximately $0.8 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.
Crown Jewel Project Permitting
The Crown Jewel Project (the "Project") is in the permitting
phase, with work currently underway to obtain the permits
necessary to construct and operate the mine.
In late March 1999, Battle Mountain Gold Company ("BMG") received
notification (the "Notification") that the Department of Interior
and the Department of Agriculture could not presently approve
the Plan of Operation ("POO") for the Project and the previously
approved Record of Decision ("ROD") for the Project had been
vacated. On May 21, 1999, President Clinton signed legislation
mandating the reinstatement of the ROD and approval of the POO.
The Departments of Interior and Agriculture reinstated the ROD
and approved the POO in June 1999.
On June 28, 1999, the Project received the 404 wetlands permit,
which is the last required federal permit to allow for
construction. The Project is awaiting approval of certain state
permits including reclamation and wastewater permits.
Additionally, the Project is undergoing final review of certain
state water permits and completion of various legal challenges to
the Project and permits received to date. Permitting related to
the Project has historically been subjected to appeals associated
with permits granted and the permitting process, and it is
difficult to predict their impact and duration. See Legal
Proceedings, elsewhere in this report. Any inability to
construct facilities could have a material adverse effect on the
operations, cash flows and financial condition of the Company.
The Year 2000
The year 2000 potentially poses unique challenges for many
businesses related to the ability of their computer systems and
those of third parties 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 has 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 address the year 2000 transition have been
less than $25,000 to date 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. The
Company has recorded additions to fixed assets for replacement
and upgrading of equipment and software and charged general and
administrative expenses for existing personnel time related to
the year 2000 transition. 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.
Item 2. Quantitative and qualitative disclosures about market
risk
Market Risk
As of June 30, 1999, there have been no material changes in the
market risks to which the Company is exposed as disclosed in the
Annual Report on Form 10-K for the year ended December 31, 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In March 1997, administrative appeals of the ROD for the
Final Environmental Impact Statement ("FEIS") for the Crown Jewel
Project were filed against the United States Forest Service,
("USFS") by members of 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.
United States District Court
In late May 1997, members of the Plaintiffs filed an action
in United States District Court for the District of Oregon
against the USFS appealing the Forest Service's issuance of the
FEIS, its decision to uphold the ROD and the denial of
administrative appeals. On December 31, 1998 the Court affirmed
the decisions of the USFS on the adequacy of the FEIS by granting
all motions for summary judgement on behalf of the USFS and BMG,
while denying all motions of the Plaintiffs. Members of the
Plaintiffs appealed the decision to the Ninth Circuit Court of
Appeals in April of 1999.
Pollution Control Hearings Board
During the fourth quarter of 1997, members of the
Plaintiffs, and others filed five actions (PCHB Nos. 97-146, 97-
182, 97-183, 97-185, 97-186) against the Washington Department of
Ecology ("WDOE") before the 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
BMG's motion for summary judgment and dismissed one of the
actions (PCHB 97-146) related to storm water and dam safety
claims. BMG obtained a consolidated hearing schedule for the
appeals before the PCHB. The consolidated hearing concluded on
May 20, 1998. On May 29, 1998 the PCHB dismissed one of the
actions (PCHB 97-185) related to approval of two water rights
applications. In October 1998, the PCHB entered an order
dismissing certain of the Plaintiffs claims and in February 1999,
ruled in favor of BMG and the Company on eight additional claims
with regard to the remaining consolidated actions (PCHB Nos. 97-
182, 97-183, and 97-186). The PCHB also determined that certain
water quality issues raised by the appeals will only be decided
after a hearing on the 401 Water Quality Certification (below).
In January 1999, the WDOE granted the 401 Water Quality
Certification for the Project. In February 1999, members of the
Plaintiffs instituted an action (PCHB 99-019) appealing the
decision. The action has been consolidated with the remaining
actions before the PCHB with a hearing on the merits scheduled
for September 1999.
Thurston County Superior Court
In December of 1997, the members of the Plaintiffs filed
three separate actions against the WDOE in Superior Court of the
State of Washington for Thurston County. The actions challenge
the WDOE's approval of permits issued to BMG for water resource
mitigation and solid waste permit rulings. In April 1998,
members of the Plaintiffs dismissed one of the three actions
related to the tailings and solid waste permits without
prejudice. In November 1998, the remaining two actions were
consolidated. The case is currently pending and no trial date
has been set.
Okanogan County Superior Court
In May 1998, the Okanogan Highlands Alliance ("OHA")
instituted an action in the Superior Court of the State of
Washington for Okanogan County against Okanogan County, BMG and
the Company challenging the County's decision that a solid waste
permit was not required for the Project's mine tailings and waste
rock piles. On January 20, 1999, the Court dismissed the action.
The time for appeal of the ruling has elapsed without the
plaintiff filing a notice of appeal.
The Interior Board of Land Appeals
In July 1999 members of the OHA filed two complaints with
the Department of Interior's Interior Board of Land Appeals (the
"IBLA"). The appeals allege the approval of the Project's POO
was improper because of a lack of compliance with the Mining Law
of 1872 as it relates to the surface use of unpatented mining
claims. The case is currently pending.
United States Congress
In late March 1999, BMG received the Notification from the
Departments of the Interior and Agriculture (the "Departments")
vacating the ROD and indicating the POO for the Project could not
then be approved. In June 1999, the Departments reinstated the
ROD and approved the POO, as mandated by legislation passed by
Congress and signed into law by President Clinton. See
Management's Discussion and Analysis, Crown Jewel Project
Permitting elsewhere in this report.
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 4, 1999 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 Against
Mark E. Jones, III 8,195,090 578,027
Christopher E. Herald 8,189,292 573,825
J. Michael Kenyon 8,189,292 573,825
Rodney D. Knutson 8,188,694 574,423
Linder G. Mundy 8,188,518 574,599
Steven A. Webster 8,189,296 573,821
David R. Williamson 8,189,296 573,821
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
8,723,863 18,839 20,415
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
August 5, 1999 By: /s/ James R. Maronick
Date James R. Maronick
Vice President - Finance
(Principal Financial and
Accounting Officer)
Exhibit
Number Description Page No.
27 Financial Data Schedule . . 15