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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
CROWN RESOURCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 84-1097086
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1675 BROADWAY, SUITE 2400 80202
DENVER, COLORADO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 534-1030
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Indicate by check mark 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 31, 1997: 13,312,829 shares of common
stock, $0.01 par value.
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TABLE OF CONTENTS
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Page
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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............................. 9
Item 3 Defaults Upon Senior Securities................... 9
Item 4 Submission of Matters to a Vote
of Security Holders.............................. 10
Item 5 Other Information................................. 10
Item 6 Exhibits and Reports on Form 8-K.................. 10
SIGNATURES.................................................. 11
2
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) 1997 1996
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,569 $ 5,447
Short-term investments 97 89
Bullion inventories 104 106
Prepaid expenses and other 163 377
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TOTAL CURRENT ASSETS 6,933 6,019
MINERAL PROPERTIES, NET 31,639 30,229
OTHER ASSETS:
Debt issuance costs, net 400 477
Other 277 388
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677 865
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$39,249 $37,113
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 602 $ 345
Other 72 290
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TOTAL CURRENT LIABILITIES 674 635
LONG TERM LIABILITIES:
Convertible debentures 15,000 15,000
Deferred income taxes 1,008 1,140
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16,008 16,140
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 5,826 3,141
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value - -
Common stock, $0.01 par value 133 132
Additional paid-in capital 29,468 27,886
Accumulated deficit (12,846) (10,813)
Unrealized loss on marketable
equity securities (14) (8)
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16,741 17,197
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$ 39,249 $ 37,113
======== ========
See Notes to Consolidated Financial Statements.
3
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
(in thousands, except per September 30, September 30,
share amounts) -------------------- -------------------
1997 1996 1997 1996
---------- -------- --------- --------
REVENUES:
Mineral property option proceeds $ - $ - $ - $ 151
Royalty income 42 57 182 179
Interest income 98 91 309 325
------- ------- ------- -------
140 148 491 655
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COSTS AND EXPENSES:
Depreciation, depletion and
amortization 69 49 144 139
General and administrative 400 402 1,518 1,318
Interest expense 243 243 728 728
Abandonment and impairment of
mining claims and leases 1,293 64 1,351 228
Other, net - (5) (51) (2)
------- ------- ------- -------
2,005 753 3,690 2,411
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LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (1,865) (605) (3,199) (1,756)
INCOME TAX BENEFIT (463) (117) (820) (350)
------- ------- ------- -------
LOSS BEFORE MINORITY INTEREST (1,402) (488) (2,379) (1,406)
MINORITY INTEREST IN LOSS OF
SUBSIDIARY 253 91 346 249
------- ------- ------- -------
NET LOSS $(1,149) $ (397) $(2,033) $(1,157)
======= ======= ======= =======
NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE $(0.08) $(0.03) $(0.15) $(0.09)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 13,269 13,198 13,254 13,187
======= ======= ======= =======
See Notes to Consolidated Financial Statements.
4
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
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(in thousands) 1997 1996
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OPERATING ACTIVITIES:
Net loss $(2,033) $(1,157)
Adjustments:
Depreciation, depletion & amortization 220 216
Deferred income taxes (820) (350)
Abandonment and impairment of mining
claims and leases 1,351 228
Common stock issued for services 140 -
Minority interest (346) (249)
Changes in operating assets and liabilities:
Inventories 2 (64)
Prepaid expenses and other (35) 162
Accounts payable and other
current liabilities 39 (151)
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Net cash used in operating activities (1,482) (1,365)
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INVESTING ACTIVITIES:
Additions to mineral properties (2,663) (2,564)
Sale (purchase) of short-term investments (8) 46
Receipts on mineral property transactions 349 96
Decrease in other assets (29) (1)
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Net cash used in investing activities (2,351) (2,423)
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FINANCING ACTIVITIES:
Common stock issued under options 133 129
Issuance of common stock of subsidiary 4,822 2,610
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Net cash provided by financing activities 4,955 2,739
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,122 (1,049)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,447 7,623
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,569 $ 6,574
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SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 868 $ 868
Non-cash investing and financing activities:
Deferred tax benefit of non-qualified
stock option exercises 34 61
Acquisition of additional interest in subsidiary 206 240
Securities received for mineral property
transactions 9 -
See Notes to Consolidated Financial Statements.
5
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, 1997 and 1996 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, 1996. 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.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 establishes standards for
computing and presenting earnings per share. The statement is effective
for financial statements issued in periods ending after December 15, 1997,
including interim periods; early adoption is not permitted. The Company
will adopt SFAS No. 128 in the fourth quarter of 1997 and will restate all
prior period earnings per share data presented as required. The pro forma
effect on loss per share for the three months and nine months ended
September 30, 1997 and 1996 had SFAS 128 been adopted is not material.
2. ISSUANCE OF COMMON STOCK OF SUBSIDIARY
In February 1997, the Company sold 1,500,000 of its shares in Solitario
Resources Corporation ("Solitario"), receiving net proceeds of $4,448,000
from the market transaction. The Company reinvested the proceeds by
acquiring, through a private placement into Solitario, 1,500,000 new shares
of Solitario plus 1,500,000 warrants, exercisable into shares of Solitario
at Cdn$4.83 per share until February 27, 1999. Upon completion of the
private placement, the Company's interest in Solitario was approximately
54.5%.
3. CONVERSION OF NOTE OF SUBSIDIARY
In August 1997, the Company elected to convert its $1,500,000 7.5%
convertible note into 1,254,180 shares of Solitario common stock. The
conversion was in accordance with the terms of the note dated August 25,
1995 and increased the Company's holding in Solitario to 9,633,585 shares
or 57%.
6
Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations
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RESULTS OF OPERATIONS
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THIRD QUARTER 1997 COMPARED WITH THIRD QUARTER 1996
The Company had a net loss of $1,149,000, or $0.08 per share, for the third
quarter of 1997 compared with a loss of $397,000, or $0.03 per share, for the
third quarter of 1996. The higher loss was due primarily to exploration
property writedowns in the current quarter.
Total revenues for the third quarter of 1997 were $140,000 compared with
$148,000 for third quarter 1996 due to a slight increase in interest bearing
assets during the current quarter.
General and administrative expenses for the third quarter of 1997 were $400,000
compared with $402,000 for the same period last year. Interest expense was
$243,000 for third quarter 1997 which was the same in the third quarter of 1996.
During the third quarter of 1997, the Company recorded exploration property
writedowns of $1,293,000, compared with property writedowns of $64,000 for the
third quarter of 1996. The increase in property writedowns was the result of a
combination of an unfavorable gold price and drilling results during 1997 which
defined certain properties that no longer meet the Company's criteria for
potential economic ore deposits.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Net loss for the nine months ended September 30, 1997 was $2,033,000, or $0.15
per share, compared with a loss of $1,157,000, or $0.09 per share, for the nine
months ended September 30, 1996.
Total revenues for the nine months ended September 30, 1997 were $491,000
compared with $655,000 for the first nine months of 1996, which included mineral
property option proceeds of $151,000.
General and administrative expenses for the first nine months of 1997 were
$1,518,000 compared with expenses of $1,318,000 for the first nine months of
1996. The higher 1997 expenses were mainly due to a non-recurring issuance of
common stock for services. Interest expense of $728,000 for the first nine
months of 1997 was the same during the first nine months of 1996.
Property abandonments and writedowns for the nine months ended September 30,
1997 were $1,351,000 compared with writedowns of $228,000 for the same period
last year as a result of lower gold prices and increased drilling activity in
1997. Additionally, during the first nine months of 1997, the Company recorded
other
7
income of $51,000, related primarily to a termination payment received on a
previously joint ventured exploration project. There was no such income in the
year earlier period.
LIQUIDITY AND CAPITAL RESOURCES
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During the nine months ended September 30, 1997, the Company spent $2,663,000
for mineral property additions, of which $1,933,000 related to exploration
activities on its projects in Peru and Argentina, which are held through
Solitario. Also, during the nine month period, the Company received property
payments of $349,000 from its joint venture partners, including the receipt of
$250,000 from Cominco Ltd. ("Cominco") which had been recorded during December
1996 on the execution of its agreement with Cominco to joint venture its Bongara
zinc project in Peru.
In February 1997, the Company sold 1,500,000 of its shares in Solitario,
receiving net proceeds of $4,448,000 from the market transaction. The Company
reinvested the proceeds by acquiring 1,500,000 new shares of Solitario through a
private placement into Solitario.
In August 1997, the Company elected to convert its US$1.5 million convertible
debenture into 1,254,180 shares of Solitario common stock in accordance with the
terms of the 7.5% convertible note dated August 25, 1995. The conversion
increased the Company's ownership in Solitario to 9,633,585 shares or 57%.
Working capital at September 30, 1997 was $6,259,000, compared with $5,384,000
at December 31, 1996. Cash and cash equivalents at September 30, 1997 were
$6,569,000, including $4,631,000 held in Solitario.
The Company expects to spend approximately $3,600,000 for the full year 1997 on
its exploration programs, including $2,600,000 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.
Favorable permit decisions have been received, with the scheduling agreement
with the Washington state permitting agencies providing time lines for the
remaining state permit decisions. Certain special interest groups have
challenged the favorable Record of Decision ("ROD") and Final Environmental
Impact Statement ("FEIS") for the Crown Jewel Project. See Legal Proceedings,
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elsewhere in this report. In cases where special interest groups challenge an
FEIS for a project, it is also typical that specific permit decisions are
appealed. The impact and duration of pending and potential appeals is difficult
to predict.
8
Based on the foregoing, the fourteen-month Crown Jewel construction process is
presently expected to begin in mid-1998.
During the third quarter, Solitario leased the promising Soloco zinc property
south of the Bongara project area. Solitario relinquished its option rights to
the original Bongara claim block where the Mina Grande zinc oxide deposit is
situated. The Mina Grande property was not part of the Cominco joint venture.
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
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In late May 1997, an action was filed against the United States Forest
Service ("USFS") appealing its decision to uphold its Record of Decision to
approve the Crown Jewel mine. The action was filed in United States District
Court by the Okanogan Highlands Alliance, the Washington Environmental Council,
the Colville Indian Environmental Protection Alliance, and the Kettle Range
Conservation Group (collectively, "OHA"). In July 1997 the USFS answered the
appeal and the action is pending in United States District Court.
In August 1997, the action previously filed in June 1997 by the OHA in
County Superior Court against the Washington Department of Natural Resources was
dismissed without prejudice.
In September 1997, the OHA filed an action before the State of Washington
Pollution Control Hearings Board, a state administrative tribunal, challenging
the FEIS and certain permit decisions. The impact and timing of resolution 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
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Not Applicable
Item 3. Defaults Upon Senior Securities
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None
9
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits: The exhibits as indexed on page 12 of this Report are included
as a part of this Form 10-Q.
(b) Reports on Form 8-K:
None
Exhibit Number Description
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27 Financial Data Schedule
10
SIGNATURES
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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 7,1997 By: /s/ James R. Maronick
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Date James R. Maronick
Vice President - Finance
and Secretary
(Principal Financial
and Accounting Officer)
11
INDEX TO EXHIBITS
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Exhibit
Number Description Page No.
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27 Financial Data Schedule 13
12