FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended February 28, 1997 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 0-6814
U.S. ENERGY CORP.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Wyoming 83-0205516
- --------------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 North 8th West, Riverton, WY 82501
- --------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (307) 856-9271
-------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check 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
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 17, 1997
- ---------------------------------- ----------------------------------------
Common stock, $.01 par value 6,767,389 Shares
<PAGE>
U.S. ENERGY CORP.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
February 28, 1997 and May 31, 1996.............................3-4
Condensed Consolidated Statements of
Operations Three and Nine Months
Ended February 28, 1997 and
February 29, 1996..............................................5-7
Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 28, 1997
and February 29, 1996..........................................8-9
Notes to Condensed Consolidated
Financial Statements...........................................10-11
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................12-15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..............................................15
ITEM 4. Submission of Matters to Security Holders for Vote.............16
ITEM 6. Exhibits and Reports on Form 8-K...............................16-17
Signatures.....................................................18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
U.S. ENERGY CORP. AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
February 28, May 31,
1997 1996
------------- -------------
(Unaudited) (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 2,757,500 $ 992,600
Accounts receivable
Trade 298,000 570,900
Related parties 534,200 281,800
Current portion long-term
notes receivables 605,300 438,700
Inventory 167,600 118,700
Assets held for resale and other 1,350,600 509,700
------------- -------------
TOTAL CURRENT ASSETS 5,713,200 2,912,400
INVESTMENTS AND ADVANCES
Affiliates 3,936,400 3,658,500
Restricted 8,478,600 8,200,800
------------- -------------
12,415,000 11,859,300
PROPERTIES AND EQUIPMENT 27,017,200 26,694,300
Less accumulated depreciation,
depletion and amortization (9,475,000) (9,047,900)
----------- -------------
17,542,200 17,646,400
OTHER ASSETS:
Accounts and notes receivable:
Real estate and other 1,224,700 1,648,900
Affiliates and related parties 731,200 532,400
Deposits and other 202,400 193,900
------------- -------------
2,158,300 2,375,200
------------- -------------
$ 37,828,700 $ 34,793,300
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
3
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U.S. ENERGY CORP. AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
February 28, May 31,
1997 1996
------------- -------------
(Unaudited) (Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 934,100 $ 1,292,300
Deferred income (Note 8) 4,207,700 --
Line of credit -- 499,000
Current portion of long-term debt 150,400 239,900
------------- -------------
TOTAL CURRENT LIABILITIES 5,292,200 2,031,200
LONG-TERM DEBT (Note 4) 441,200 444,300
RECLAMATION LIABILITY (Note 5) 3,978,800 3,978,800
OTHER ACCRUED LIABILITIES (Note 5) 9,914,000 10,414,300
DEFERRED TAX LIABILITY 146,100 183,300
MINORITY INTERESTS 2,309,000 1,637,900
FORFEITABLE COMMON STOCK
$.01 par value; issued 223,900 and 195,520,
respectively, forfeitable until earned 1,795,100 1,486,500
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
none issued or outstanding -- --
Common stock, $.01 par value;
authorized, 20,000,000 shares;
issued, 6,612,406 and 6,324,306 66,100 63,100
Additional paid-in capital 22,131,600 20,775,700
Accumulated deficit (4,997,600) (3,052,400)
Treasury stock, 776,943 and
769,943 shares, at cost (2,320,800) (2,242,400)
Unallocated ESOP contribution (927,000) (927,000)
------------- -------------
13,952,300 14,617,000
------------- -------------
$ 37,828,700 $ 34,793,300
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended February Nine Months Ended February
--------------------------- --------------------------
28, 1997 29, 1996 28, 1997 29, 1996
-------- -------- -------- --------
REVENUES:
<S> <C> <C> <C> <C>
Mineral sales $ -- $ 942,400 $ -- $ 3,116,700
Construction contract revenues 157,600 552,500 935,300 3,369,600
Commercial operations 389,500 161,100 1,458,300 684,400
Oil sales 62,700 55,300 125,000 137,300
Gain (loss) on sale of assets -- 24,100 (19,900) 68,300
Gain from restructuring mineral
properties agreements 26,900 -- 75,300 --
Interest 236,100 125,700 522,700 391,400
Management fees and other 104,900 14,600 172,500 384,100
----------- ------------ ------------ -----------
977,700 1,875,700 3,269,200 8,151,800
----------- ------------ ------------ -----------
COSTS AND EXPENSES:
Costs of mineral sales -- 942,400 -- 2,766,700
Mineral operations 228,800 190,900 545,700 602,400
Construction costs 118,000 474,400 682,600 2,569,700
Commercial operations 739,400 490,300 2,190,200 1,558,600
Oil production 32,500 36,700 71,200 68,100
General and administrative 835,100 959,300 1,869,600 1,965,800
Abandonment of mining claims -- -- -- 328,700
Interest 29,400 72,600 91,600 174,300
----------- ------------ ------------ -----------
1,983,200 3,166,600 5,450,900 10,034,300
----------- ------------ ------------- -----------
(Continued)
See notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
Three Months Ended February Nine Months Ended February
--------------------------- --------------------------
28, 1997 29, 1996 28, 1997 29, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
LOSS BEFORE EQUITY LOSS
OF AFFILIATES AND
PROVISION FOR
INCOME TAXES $ (1,005,500) $(1,290,900) $ (2,181,700) $ (1,882,500)
MINORITY INTEREST IN
LOSS OF CONSOLIDATED
SUBSIDIARIES 231,100 332,200 575,000 398,700
EQUITY IN LOSS OF
AFFILIATES-NET (106,000) (115,700) (338,500) (281,600)
------------ ----------- ------------ ------------
LOSS BEFORE PROVISION
FOR INCOME TAXES (880,400) (1,074,400) (1,945,200) (1,765,400)
PROVISION FOR INCOME TAXES -- -- -- --
------------ ----------- ------------ ------------
LOSS FROM CONTINUING
OPERATIONS (880,400) (1,074,400) (1,945,200) (1,765,400)
INCOME (LOSS) FROM
DISCONTINUED
OPERATIONS (Note 8) -- (9,200) -- 308,900
Gain on disposal of subsidiary
operations in discontinued
segment net of income taxes
of $50,000 -- 2,295,700 -- 2,295,700
------------ ----------- ------------ ------------
(Continued)
See notes to condensed consolidated financial statements.
</TABLE>
6
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
Three Months Ended February Nine Months Ended February
--------------------------- --------------------------
28, 1997 29, 1996 28, 1997 29, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ (880,400) $ 1,212,100 $ (1,945,200) $ 839,200
=========== =========== ============ ============
NET INCOME (LOSS) PER SHARE
Loss from continuing operations $ (.13) $ (.17) $ (.29) $ (.28)
Income from discontinued
operations -- -- -- .05
Gain on disposal of subsidiary
operations in discontinued
segment -- .36 -- .37
----------- ----------- ------------ ------------
NET INCOME (LOSS) PER SHARE $ (.13) $ .19 $ (.29) $ .14
=========== =========== ============ ============
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 6,761,966 6,364,089 6,642,253 6,142,925
=========== =========== ============ ============
See notes to condensed consolidated financial statements.
</TABLE>
7
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
February
-----------------------------------
28, 1997 29, 1996
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,945,200) $ 839,200
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Minority interest in loss
of consolidated subsidiaries 575,000 (398,700)
Depreciation, depletion and amortization 532,000 623,900
Non-cash compensation (119,100) 297,400
Abandoned mineral leases -- 328,700
Equity in loss of affiliates 338,500 281,600
(Gain) loss on sale of assets 19,900 (68,300)
(Gain) on sale of subsidiary -- (2,345,700)
Net assets disposed of in connection
with sale of subsidiary -- (1,939,000)
Change in deferred income taxes (37,200) 83,700
Other (8,900) --
Deferred income 4,207,700 --
Net changes in components of working capital (1,476,900) 640,500
-------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,324,000 (1,656,700)
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in notes receivable (348,700) 55,800
Proceeds from collection of notes receivable 407,600 --
Proceeds from sale of subsidiary -- 3,300,000
Investments in affiliates (520,300) (556,700)
Investments in other (277,800) (299,500)
Development of mining properties (455,300) (349,200)
Development of gas properties (29,100) (23,400)
Purchase of property and equipment (100,200) (1,021,100)
Proceeds from sale of assets 193,500 77,700
-------------- -------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (1,130,300) 1,183,600
(Continued)
See notes to condensed consolidated financial statements.
</TABLE>
8
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended
February
--------------------------------------
28, 1997 29, 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt 414,300 1,348,500
Payment on long-term debt (1,004,000) (2,966,700)
Purchase of treasury stock (78,400) --
Exercise of stock options 1,239,300 2,842,200
Cancellation of stock for services -- (23,100)
-------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 571,200 1,200,900
-------------- -------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,764,900 727,800
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 992,600 551,300
-------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,757,500 $ 1,279,100
============== =============
SUPPLEMENTAL DISCLOSURES:
Income tax paid $ 37,200 $ --
============== =============
Interest paid $ 91,600 $ 221,200
============== =============
NOTES RECEIVABLE OBTAINED IN
CONNECTION WITH SALE OF SUBSIDIARY $ -- $ 1,000,000
============== =============
See notes to condensed consolidated financial statements.
</TABLE>
9
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) The Condensed Consolidated Balance Sheet as of February 28, 1997, the
Condensed Consolidated Statements of Operations for the three and nine months
ended February 28, 1997 and February 29, 1996, and the Condensed Consolidated
Statements of Cash Flows for the nine months ended February 28, 1997 and
February 29, 1996, have been prepared by the Registrant ("USE") without audit.
The Condensed Consolidated Balance Sheet as of May 31, 1996, has been taken from
the audited financial statements included in the Registrant's Annual Report on
Form 10-K for the period then ended. In the opinion of the Registrant, the
accompanying financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position of
Registrant as of February 28, 1997 and May 31, 1996, the results of operations
for the three and nine months ended February 28, 1997 and February 29, 1996 and
the cash flows for the nine months then ended.
2) Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the Registrant's May 31, 1996 Form 10-K.
The results of operations for the periods ended February 28, 1997 and February
29, 1996 are not necessarily indicative of the operating results for the full
year.
3) The consolidated financial statements of the Registrant include 100%
of the accounts of USECB Joint Venture ("USECB" or "USECC") which is owned 50%
by the Registrant and 50% by the Registrant's subsidiary, Crested Corp.
("Crested"). The consolidated financial statements also reflect 100% of the
accounts of its majority-owned subsidiaries: Energx Ltd. (90%), Crested (51.9%),
Sutter Gold Mining Company (68%), Plateau Resources Limited (100%) and Four
Nines Gold, Inc. (50.9%) All material intercompany profits and balances have
been eliminated.
4) Debt as of February 28, 1997 consists of various equipment and other
property loans totaling $126,800 and debt attributable to consolidated
affiliates of $238,700 on Sutter and $226,100 on Four Nines Gold. Certain
inter-affiliate loans were eliminated during consolidation.
5) Accrued reclamation obligations of $3,978,800 are the Registrant's
reclamation liability at the Crooks Gap Mining District and the Shootaring
Uranium Mill. The reclamation work may be performed over several years. In
addition, Plateau has recorded additional obligations of $9,914,000 for the
estimated holding and maintenance costs needed until the mill is placed in
service or decommissioning begins. These obligations are secured by cash bonds
and real estate.
6) Net income (loss) per share is computed using the weighted average
number of common shares outstanding during each period.
10
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7) On November 4, 1996, the U.S. District Court of Colorado confirmed
the Order and Award in the Arbitration proceedings with Nukem and its subsidiary
CRIC. The Arbitration Panel had previously issued the Order and Award on April
18, 1996 and clarified the Award on July 3, 1996. As a result, USECC received a
partial distribution of the funds held in escrow of $4,367,500. A portion of
these funds, $159,800 was paid directly to the Registrant for U3O8 it had
purchased for a SMP delivery and interest thereon. The Registrant's independent
accountant has advised that the balance of $4,207,700 received as a distribution
of SMP profits, should be carried as a deferred income item on the liability
section of the balance sheet, which means that as of February 28, 1997, it is
not included in the Registrant's net income or earnings per share. When a more
definitive resolution is reached in the arbitration/litigation proceedings, the
$4,207,700 will be included as income, assuming the conclusion is favorable to
the Registrant and Crested.
8) In February 1996, the Company completed the sale of 100% of the
8,267,450 outstanding shares of common stock of Brunton to a third party for
$4,300,000 in accordance with a Stock Purchase Agreement dated January 30, 1996
(the "Purchase Agreement"). The Registrant received $300,000 at execution of the
Purchase Agreement and approximately $3,000,000 at closing. USE will also
receive $1,000,000 in three annual installments of $333,333 plus interest at a
rate of 7% per year beginning February 15, 1997. The current portion of this
note receivable is included in current assets and the long-term portion is
included in notes receivable-real estate and other in the accompanying balance
sheet. The first installment due February 15, 1997 was received as scheduled. In
addition, the Registrant is entitled to receive 45% of the profits before taxes
as defined in the Purchase Agreement related to Brunton products existing at the
time the Purchase Agreement was executed for a period of 4 years and three
months, beginning February 1, 1996. The first payment will cover profits from
February 1, 1996 through April 30, 1997 and is due no later than July 15, 1997.
Each subsequent payment, due July 15 of subsequent years, will cover profits for
the most recent year ended April 30. For the nine months ended February 29, 1996
a total of $308,900 was reclassified on the statement of operations to income
from discontinued operations.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following is management's discussion and analysis of significant
factors which have affected the Registrant's liquidity, capital resources and
results of operations during the period included in the accompanying financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased during the nine months ended February 28, 1997
by $460,200 to working capital of $421,000. Cash and cash equivalents increased
by $1,764,900 to $2,757,500 during the period ended February 28, 1997. This
increase was as a result of operations, financing activities and the partial
payment from the SMP arbitration discussed below.
During the nine months ended February 28, 1997, the Registrant issued
288,100 shares of its common stock due to options being exercised by various
individuals. The Registrant received a total of $1,239,300 as a result of the
exercise of these options.
On November 4 and 5, 1996 the U.S. District Court in Denver, CO entered
two orders and a judgment confirming the April 18, 1996 Order and Award as
clarified on July 3, 1996 by the Arbitration Panel concerning the SMP
arbitration. Based on the Court's judgment, the First Interstate Bank of
Riverton and Norwest Bank of Denver released $367,475 and $4,000,000,
respectively, to USE and Crested. A similar amount was made available to Nukem.
To date of this filing, Nukem/CRIC has only withdrawn its share of the escrowed
funds from the First Interstate Bank of Riverton. All remaining funds,
approximately $15 million, remain in the SMP Norwest Bank escrow account. These
funds are in dispute and a decision on their distribution is pending. Of the
$4,367,475 received by USECC, $159,800 was paid to the Registrant for its cost
with interest for U3O8 it had purchased for a SMP delivery. The balance of
$4,207,700 is carried as a current deferred income item pending final resolution
of the SMP arbitration. The Registrant and Crested anticipate that resolution in
the next 12 months.
The Registrant used $1,130,300 in its investing activities during the
nine months ended February 28, 1997. This was primarily as a result of the
Registrant and its subsidiary Crested funding the standby costs of Sheep
Mountain Partners ("SMP"); Plateau Resources Limited ("Plateau"); Energx, Ltd.
("Energx"), and the Sutter Gold Mining Company ("SGMC"). As the Registrant and
Crested provide various services for GMMV and SMP, the non-affiliated
participants are invoiced for their proportionate share of the approved
operating costs. GMMV is current on its reimbursements to the Registrant and
Crested for all the operating costs. Due to disputes existing between the SMP
partners, the Registrant and Crested have not been reimbursed for care and
maintenance costs expended on the SMP mineral properties since the spring of
1991. Additionally, the Registrant and its affiliates purchased $100,200 of
additional equipment during the nine months ended February 28, 1997.
Other changes in working capital were decreases in accounts payable and
accrued expenses of $358,200. The Registrant and Crested have a line of credit
for $1,000,000 of which the entire amount was available as of February 28, 1997.
12
<PAGE>
The primary requirements for the Registrant's working capital continue
to be the funding of on-going administrative expenses, the mine and mill
development and holding costs of SGMC; holding costs of Plateau; uranium (U3O8)
delivery costs, and property holding costs of SMP. As a result of the disputes
between the SMP partners, the Registrant and Crested have been delivering
certain of their respective portions of the U3O8 concentrates required to fill
various delivery requirements on long-term U3O8 contracts with domestic
utilities. Currently, Nukem/CRIC have made most of the SMP deliveries of U3O8.
It is not known how long this arrangement will continue. There will be no
capital requirements to fill the Registrant's and Crested's portion of the
remaining U3O8 commitments of SMP in fiscal 1997.
The primary source of the Registrant's capital resources for the
remainder of fiscal 1997, will be (i) cash on hand; (ii) sale of equity or
interests in investment properties or affiliated companies; (iii) sale of
equipment; (iv) resolution of the pending SMP litigation/arbitration; (v) sale
of royalties or interests in mineral properties; (vi) proceeds from the sale of
uranium under the SMP contracts, (vii) and borrowings from financial
institutions. Construction revenues from Four Nines Gold ("FNG"), fees from oil
production, rentals of various real estate holdings and equipment and the sale
of aviation fuel will also provide cash.
Additional working capital to that on hand at February 28, 1997, will be
required to hold and maintain existing mineral properties; permitting costs; the
construction of a gold processing mill and mine development of SGMC; the
development of Plateau and its associated properties, and general and
administration costs. The Registrant and Crested are seeking other financing for
the construction of the SGMC gold processing mill and mine development. The
funding of SMP care and maintenance costs may require additional funding,
depending on the outcome of the SMP arbitration.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO THREE AND NINE MONTHS
ENDED FEBRUARY 29, 1996
Revenues for the nine month period ended February 28, 1997 decreased by
$4,882,600, primarily due to reductions in mineral sales and construction
contract revenues.
Revenues from mineral sales decreased by $3,116,700 as there were no
U3O8 deliveries or option activities during the nine months ended February 28,
1997 compared to the same period in the prior year. This decrease in revenues
was partially offset by the increase of $75,300 in revenues from royalties from
Cyprus/AMAX. During the nine months ended February 29, 1996 no royalties were
received from Cyprus/AMAX as six quarters of royalties were exchanged for
certain real estate.
Construction contract revenues for the three and nine months ended
February 28, 1997 decreased by $2,434,300 due to reduced activities on
construction contracts by the Registrant's subsidiary Four Nines Gold. It is not
known how long this trend will continue.
Commercial revenues increased by $773,900 for the nine month period
ended February 28,1997 compared to the same period in 1996. This increase is due
largely to increased
13
<PAGE>
operations through the Registrant's subsidiary Plateau Resources Limited at
Ticaboo, UT. Increased revenues at Plateau are from motel and related business
activities.
The costs of mineral sales decreased by $2,766,700 for the nine months
ended February 28, 1997. There were no mineral sales of U3O8 during the nine
months ended February 28, 1997. Cost and expenses associated with mineral
operations decreased by $56,700 for the nine months ended February 28, 1997
compared to the nine months ended February 29, 1996 primarily as a result of a
decrease in legal costs in connection with the SMP arbitration. The cost of
construction activities decreased by $1,887,100 for the nine month period ended
February 28, 1997 compared to the same period in 1996 as a result of decreased
contract work noted above. Commercial operations expenses increased by $631,600
due to increased activity at Ticaboo. UT.
General and administrative expenses decreased by $96,200 and $124,200,
respectively, for the nine and three months ended February 28, 1997 compared to
comparable periods for 1996. Interest expense also decreased by $82,700 during
the nine months ended February 28, 1997 as compared to the same period in 1996.
General and administrative expenses decreased due to the Christmas bonuses paid
to certain employees and stock issued under the Registrant's Restricted Stock
Bonus Plan during the nine months ended February 28, 1997 of $277,900 compared
to $594,000 during the same period in 1996. This decrease was partially offset
by the issuance of stock for services of $119,000.
Operations for the nine months ended February 28, 1997 resulted in a
pre-tax loss of $2,181,700 before equity in loss of affiliates and minority
interest in loss of consolidated subsidiaries of $338,500 and $575,000,
respectively, as compared to a loss of $1,882,500 before equity in loss of
affiliates and minority interest in loss of consolidated subsidiaries of
$281,600 and $398,700, respectively, during the same period of the previous
year. After recognizing equity losses, the Registrant recognized a net loss of
$1,945,200 compared to a loss of $1,765,400 for the comparative period of the
previous year.
During the nine months and three months ended February 29, 1996, the
Registrant recorded a gain of $2,295,700 on the sale of a subsidiary. No such
gain has been recognized during the current period. Due to the sale, all income
from the subsidiary is shown as discontinued operations and gain of the disposal
of subsidiary operations on the Statements of Operations. During the nine months
ended February 28, 1997 the Registrant did not recognize income from
discontinued operations or the sale of the subsidiary compared to $2,295,700 and
$308,900, respectively for the nine month period ended February 29, 1996. The
Registrant therefore recognized a loss of $1,945,200 ($0.29 per share) and
$880,400 ($0.13 per share) for the nine months and three months ending February
29, 1997 compared to a net income of $839,200 ($0.14 per share) and $1,212,100
($0.19 per share), respectively, for the nine months ended February 29, 1996.
Registrant's independent accountant has recommended that the $4,207,700 received
as a distribution of SMP profits be recorded as a deferred income item on the
liability section of the balance sheet, which means that as of February 28,
1997, it is not included in the Registrant's net income or earnings per share.
When a more definitive resolution is reached in the arbitration/litigation
proceedings, the $4,207,700 currently recorded as deferred income will become
income, assuming the conclusion is favorable to the Registrant and Crested.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The information called for in this Item 1 has been previously reported
in: the Registrant's Form 10-K (Item 3) for the fiscal year ended May 31, 1996;
Registrant's Forms 10-Q (Item 1 of Part II) for the fiscal quarters ended August
31, 1996 and November 30, 1996, and the Form 8-K dated March 6, 1997. These
reports disclose the status of the consensual arbitration/litigation in the U.S.
District Court of Colorado involving the Registrant and Crested d/b/a USECC and
Nukem, Inc. and its wholly-owned subsidiary Cycle Resource Investment Corp.
(CRIC) over disputes involving the Sheep Mountain Partners (SMP) partnership
concerning the marketing and sale of uranium and mining operations in Wyoming.
As was reported earlier, an Amended Judgment was entered on March 6, 1997 by
Judge Lewis T. Babcock of the U.S. District Court of Colorado, wherein the Court
confirmed the Arbitration Award ordering Nukem to pay USECC a net of
approximately $8,465,000 as monetary damages. In November 1996, USECC received
$4,367,000 out of the SMP escrowed funds and its bank account per the Court's
earlier November 5, 1996 Judgment.
Despite the rulings of the Panel imposing a constructive trust in favor
of SMP on the rights to purchase CIS uranium, the uranium acquired pursuant to
those rights and the profits therefrom, the defendants-appellants Nukem/CRIC
continue to assert in both Court filings and public news releases that the
Arbitration Panel did just the opposite and in fact, "denied" SMP's rights to
the CIS contracts in constructive trust.
In the March 6, 1997 Amended Judgment, Judge Babcock again confirmed the
Arbitration Panel's Awards and denied Nukem's motion to modify and/or vacate
portions of the Award; denied Nukem's objections to the confirmation of the
Order and Award, and granted USECC's motion to modify the Award by deducting
$265,213 from the amounts Nukem and CRIC claimed to have advanced to purchase
uranium for the SMP Partnership.
The Amended Judgment of March 6, 1997 did not specifically address the
Panel's Award to SMP of a supply contract Nukem had entered into with another
utility, or Nukem's uranium purchase contracts with three CIS Republics. USECC
filed a motion for an order of limited remand to the Arbitration Panel for its
reaffirmation of its findings on the issue of placing the CIS contracts in
constructive trust for SMP. The Court found that the Panel's Awards were not
ambiguous and denied the motion. The Court may still reconsider the denial of
this motion. In order to preserve USECC's rights, Registrant and Crested filed a
Notice of Appeal with the Tenth Circuit Court of Appeals on the omission of
these equitable awards and filed a motion with the U.S. District Court to
correct a clerical omission in the Amended Judgment.
On or about March 21, 1997, defendants Nukem and CRIC filed a motion to
stay enforcement of USECC's monetary judgment pending the appeal of Nukem/CRIC
and posted a supersedeas bond in the amount of $8,613,600. On March 25, 1997,
USECC filed a motion objecting to defendants' motion on the posting of that
amount for its supersedeas bond and requested the Court to order the defendants
to increase the bond to cover the value of the CIS contracts. This motion is
pending.
15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 13, 1996 an annual meeting of shareholders was held and
three proposals were presented to shareholders for a vote.
Proposal one was for election of directors. Two directors, Don C.
Anderson and Nick Bebout were reelected, and one new director, H. Russell Fraser
was elected, for a term expiring on the third succeeding annual meeting and
until their successors are duly elected or appointed and qualified. With respect
to the election of the three directors, the votes cast were as follows.
Name of Director For Against Abstain Withheld
- ---------------- --- ------- ------- --------
Don C. Anderson 5,736,796 6,887 168,158 44,600
Nick Bebout 5,736,759 6,887 167,658 45,137
H. Russell Fraser 5,737,296 6,887 167,658 44,600
Proposal Two, an amendment to the 1989 Incentive Stock Option Plan
("ISOP") to increase the number of shares authorized to be issued pursuant to
the ISOP received the following votes:
For Against Abstain Withheld
--- ------- ------- --------
4,338,888 298,305 44,989 1,274,259
Proposal Three, adoption of the 1996 Stock Award Program for executive
officers received the following votes:
For Against Abstain Withheld
--- ------- ------- --------
3,817,948 922,382 54,398 1,161,713
The Registrant's Board of Directors consists of seven members and
Messrs. Anderson, Bebout and Fraser will continue to serve with John L. Larsen,
Max T. Evans, David W. Brenman and Harold F. Herron whose terms of office as
directors continued after the annual meeting of shareholders held on December
13, 1996.
ITEM 5. OTHER INFORMATION
On November 22, 1996, the Registrant and Registrant's subsidiary Crested
Corp. (the "USE Parties") signed a letter of intent with Kennecott Energy and
Coal Company ("Kennecott") for Registrant and Crested to acquire Kennecott's 50%
interest in the Green Mountain Mining Venture (GMMV) through the acquisition of
the stock of a Kennecott subsidiary within 18 months. Although the letter of
intent was extended and has since expired, the parties are continuing
negotiations for the USE Parties to acquire Kennecott's interest in the GMMV.
The GMMV was formed in 1990 to explore for and if warranted, to develop the
uranium deposits in south-central Wyoming. The proposed change in the GMMV would
make U.S. Energy Corp. and Crested Corp., dba USECC, 100% owners of the GMMV if
the USE Parties can arrange
16
<PAGE>
the necessary financing to exercise the option. USECC has moved forward to
prepare the portal and other workings at the proposed Jackpot Mine to
accommodate the installation of a conveyor system for driving the double
declines (tunnels) at a -17% decline, to a length of up to 8,000 feet to reach
the first of several horizons of the uranium deposits.
Such change in ownership is subject to Kennecott and the USE Parties
renewing the letter of intent and finalizing terms of a definitive agreement,
and the USE Parties arranging the necessary financing to close such an
agreement. There is no assurance such steps will be successfully achieved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. There were no Reports filed by the Registrant
on Form 8-K during the quarter ended February 28, 1997.
17
<PAGE>
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.
U.S. ENERGY CORP.
(Registrant)
Date: April 17, 1997 By: s/ John L. Larsen
--------------------------------------
JOHN L. LARSEN
Chief Executive Officer and President
Date: April 17, 1997 By: s/ R. Scott Lorimer
--------------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
U.S. ENERGY CORP. FORM 10-Q FOR THE PERIOD ENDED FEBRUARY 28, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000101594
<NAME> U.S. ENERGY CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 2,757,500
<SECURITIES> 0
<RECEIVABLES> 833,200
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