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, 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 November 4, 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. . . . . . . . . . . . . . . . 12
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 September 30, December 31,
share amounts) 1999 1998
Assets
Current assets:
Cash and cash equivalents $ 5,620 $ 8,136
Short-term investments 87 87
Prepaid expenses and other 140 128
Total current assets 5,847 8,351
Mineral properties, net 27,886 27,532
Other assets:
Debt issuance costs, net 196 272
Marketable equity securities 151 233
Other 123 112
470 617
$34,203 $36,500
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 179 $ 222
Other 84 290
Total current liabilities 263 512
Long term liabilities:
Convertible debentures 15,000 15,000
Minority interest in consolidated
subsidiary 3,521 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 (19,436) (17,720)
Accumulated other comprehensive loss (82) (11)
15,419 17,182
$34,203 $36,500
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per Three months ended Nine months ended
share amounts) September 30, September 30,
1999 1998 1999 1998
Revenues:
Royalty income $ 27 $ 37 $ 76 $ 115
Interest income 65 125 254 360
92 162 330 475
Costs and expenses:
Depreciation, depletion, and
amortization 13 19 51 88
General and administrative 273 328 1,075 1,207
Interest expense 243 243 728 728
Abandonment and impairment of
mining claims and leases - 478 474 676
Other, net (3) - 3 (14)
526 1,068 2,331 2,685
Loss before income taxes and
minority interest (434) (906) (2,001) (2,210)
Income tax benefit - (272) - (640)
Loss before minority interest (434) (634) (2,001) (1,570)
Minority interest in loss of
subsidiary 36 41 285 96
Net loss $ (398) $ (593) $(1,716) $(1,474)
Basic and diluted loss per common
and common equivalent share $ (0.03) $ (0.04) $ (0.12) $ (0.10)
Weighted average number of
common and common equivalent
shares outstanding 14,533 14,521 14,533 14,285
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
(in thousands) 1999 1998
Operating activities:
Net loss $(1,716) $(1,474)
Adjustments:
Depreciation, depletion, & amortization 127 165
Deferred income taxes - (640)
Abandonment of mining claims
and leases 474 676
Common stock issued for services 24 32
Minority interest (285) (96)
Loss on sale of assets 4 1
Changes in operating assets and liabilities:
Inventories - 11
Prepaid expenses and other (27) 45
Accounts payable and other
current liabilities (249) (356)
Net cash used in operating activities (1,648) (1,636)
Investing activities:
Additions to mineral properties (948) (1,230)
Receipts on mineral property transactions 120 464
Proceeds from asset sales 22 -
Increase in other assets (62) (29)
Net cash used in investing activities (868) (795)
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 (2,516) 2,664
Cash and cash equivalents, beginning of period 8,136 5,857
Cash and cash equivalents, end of period $ 5,620 $ 8,521
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 868 $ 868
Noncash investing and financing activities:
Deferred tax benefit of non-qualified
stock option exercises - 68
Securities received in payment for
account receivable and mineral properties 21 212
Increase in account receivable from sale of
Argentina subsidiary - 29
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, 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 Nine months
ended Sept. 30, ended Sept. 30,
1999 1998 1999 1998
Net loss $(398) $(593) $(1,716) $(1,474)
Unrealized gain (loss) on
marketable equity
securities 46 (83) (71) (91)
Comprehensive loss $(352) $(676) $(1,787) $(1,565)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of operations
Third quarter 1999 compared with the third quarter of 1998:
The Company had a net loss of $398,000 or $0.03 per share, for the
third quarter of 1999 compared with a net loss of $593,000, or
$0.04 per share, for the third quarter of 1998. The larger loss
in 1998 was primarily the result of non-cash writedowns of $478,000
which included $378,000 on the Snowstorm project in Nevada.
Total revenues for the third quarter of 1999 were $92,000 compared
with $162,000 for the third 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 third quarter of
1999 were $273,000 compared with $328,000 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
$243,000 for third quarter 1999 was the same as in the year earlier
quarter.
During the third quarter of 1999 the Company recorded no property
writedowns compared to writedowns of $478,000 in the prior year
quarter. The writedowns in 1998 were primarily related to
continued low metals prices affecting the ability to economically
develop commercial deposits.
Nine months ended September 30, 1999 compared with nine months
ended September 30, 1998:
The Company had a net loss of $1,716,000 or $0.12 per share, for
the nine months ended September 30, 1999 compared with a loss of
$1,474,000, or $0.10 per share, for the first nine months of 1998.
Total revenues for the first nine months of 1999 were $330,000
compared with $475,000 for the same period in 1998. The reduction
resulted from lower royalty revenue combined with lower interest
income during the current nine month period.
General and administrative expenses for the first nine months of
1999 were $1,075,000 compared with $1,207,000 for the same period
last year as a result of reduced operations in the U. S., Argentina
and Peru during 1999.
During the nine months ended September 30, 1999, the Company
recorded exploration property writedowns of $474,000 related to its
Santa Barbara property in Peru. This compares to $676,000 in
writedowns during the nine month prior year period.
The Company fully utilized its deferred tax liabilities during
1998, and did not record any income tax benefits during 1999 due to
the recording of a full valuation allowance against its net
deferred tax assets.
Liquidity and Capital Resources
During the nine months ended September 30, 1999, the Company spent
$948,000 for mineral property additions, of which $507,000 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 three quarters of 1999, including
$118,000 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. No similar issuance of
stock occurred in the current year.
Working capital at September 30, 1999 decreased to $5,584,000 from
$7,839,000 at December 31, 1998. Cash and cash equivalents at
September 30, 1999, were $5,620,000, including $2,624,000 held in
Solitario.
The Company expects to spend approximately $1.2 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 has
taken steps to make all of its internal systems year 2000 compliant
as of September 30, 1999. The Company has tested these systems for
year 2000 compliance and found no material deficiencies in the test
results. 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 costs, including 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.
Quantitative and qualitative disclosures about market risk
Market Risk
As of September 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.
Briefs have been filed in the appeal, however no hearing date has
been set.
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 certain water quality issues raised by the above appeals
would be consolidated with a hearing on an appeal (PCHB 99-019) of
the 401 Water Quality Certification, received in January 1999.
In September of 1999, the PCHB concluded hearings on the
remaining water quality issues and the 401 Water Quality
Certification (PCHB Nos. 97-182, 97-183, 97-186, 99-019). A ruling
on the merits of the case is pending.
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.
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 Interior Board of Land Appeals
In July 1999, members of the Plaintiffs filed two petitions
requesting a stay of the BLM's decision to approve the Project's
POO with the Department of Interior's Interior Board of Land
Appeals (the "IBLA"). The appeals alleged the approval of the 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.
In September of 1999, the IBLA found that the Plaintiff's have no
chance for success on the merits of their appeals. The IBLA denied
their petitions for stay and affirmed the BLM's approval of the
POO.
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 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 4 , 1999 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 . . 15