FORM 10-Q/A
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 August 31, 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.
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(Exact Name of Registrant as Specified in its Charter)
WYOMING 83-0205516
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 NORTH 8TH WEST, RIVERTON, WY 82501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (307) 856-9271
NOT APPLICABLE
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(Former name, address and 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 OCTOBER 17, 1997
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Common stock, $.01 par value 6,855,051 Shares
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U.S. ENERGY CORP.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
August 31, 1997 and May 31, 1997............................3-4
Condensed Consolidated Statements of
Operations Three Months Ended
August 31, 1997 and 1996......................................5
Condensed Consolidated Statements of Cash Flows
Three Months Ended August 31, 1997 and 1996...................6
Notes to Condensed Consolidated
Financial Statements..........................................7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............8-12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.........................................12-13
ITEM 6. Exhibits and Reports on Form 8-K.............................13
Signatures...................................................14
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
U.S. ENERGY CORP. AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, May 31,
1997 1997
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,293,600 $ 1,416,900
Accounts receivable
Trade 410,600 368,200
Related parties 1,774,300 1,191,000
Current portion long-term
notes receivables 337,200 337,200
Inventory 107,000 96,000
Assets held for resale and other 888,300 991,600
------------- -------------
TOTAL CURRENT ASSETS 7,811,000 4,400,900
LONG-TERM NOTES RECEIVABLE 1,418,500 1,477,900
INVESTMENT IN CONTINGENT WARRANT 4,594,000 4,594,000
INVESTMENTS
Affiliates 4,927,800 4,999,600
Restricted investments 8,668,700 8,506,300
------------- -------------
13,596,500 13,505,900
PROPERTIES AND EQUIPMENT 14,901,700 14,843,000
Less accumulated depreciation,
depletion and amortization (8,947,900) (8,802,100)
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5,953,800 6,040,900
OTHER ASSETS: 413,900 367,500
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$ 33,787,700 $ 30,387,100
============= =============
See notes to condensed consolidated financial statements.
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U.S. ENERGY CORP. AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, May 31,
1997 1997
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 340,200 $ 1,312,600
Deferred income (Note 8) 4,000,000 --
Current portion of long-term debt 78,800 81,300
------------- -------------
TOTAL CURRENT LIABILITIES 4,419,000 1,393,900
LONG-TERM DEBT (Note 4) 91,900 183,100
RECLAMATION LIABILITY (Note 5) 8,751,800 8,751,800
OTHER ACCRUED LIABILITIES (Note 5) 4,936,300 5,259,000
DEFERRED TAX LIABILITY 183,300 183,300
MINORITY INTERESTS -- --
FORFEITABLE COMMON STOCK
$.01 par value; issued 229,606 and 223,900,
respectively, forfeitable until earned 1,958,000 1,892,400
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, 6,656,475 and 6,646,475 66,600 66,500
Additional paid-in capital 22,582,900 22,543,000
Accumulated deficit (6,093,100) (6,776,900)
Treasury stock, 690,943 shares, at cost (2,182,000) (2,182,000)
Unallocated ESOP contribution (927,000) (927,000)
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13,447,400 12,723,600
------------- -------------
$ 33,787,700 $ 30,387,100
============= =============
See notes to condensed consolidated financial statements.
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U.S. ENERGY CORP. AND AFFILIATES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
AUGUST 31,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Mineral sales $ 858,700 $ --
Construction contract revenues -- 515,900
Commercial revenues 1,559,300 612,500
Oil sales 48,500 39,100
Gain on sale of assets 700 --
Gain from restructuring
mining properties agreements 57,500 20,900
Interest 187,000 127,100
Management and other fees 148,900 23,600
------------ -----------
2,860,600 1,339,100
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COSTS AND EXPENSES:
Mineral operations 374,900 162,800
Construction costs 11,700 363,200
Commercial operations 837,800 730,600
Oil production 14,500 24,100
General and administrative 611,700 415,300
Interest 15,900 35,900
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1,866,500 1,731,900
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INCOME (LOSS) BEFORE
EQUITY INCOME OF AFFILIATE
AND PROVISION FOR INCOME TAXES 994,100 (392,800)
MINORITY INTEREST IN (GAIN)
LOSS OF CONSOLIDATED SUBSIDIARIES (146,500) 113,800
EQUITY IN LOSS OF AFFILIATES - NET (163,800) (109,600)
------------ -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 683,800 (388,600)
PROVISION FOR INCOME TAXES -- --
------------ -----------
NET INCOME (LOSS) $ 683,800 $ (388,600)
============ ===========
NET INCOME (LOSS)
PER SHARE (see Note 7) $ .10 $ (.06)
============ ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,816,892 6,512,670
============= ===========
*Less than $.01 per share.
See notes to condensed consolidated financial statements.
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U.S. ENERGY CORP. AND AFFILIATES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
August 31,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 683,800 $ (388,600)
Adjustments to reconcile net income to
net cash used in operating activities:
Minority interest in (gain) loss
of consolidated subsidiaries 146,500 (109,600)
Depreciation, depletion and amortization 229,800 161,600
Equity in (gain) loss of affiliates 163,800 111,300
Non-cash compensation 65,600 --
Deferred income 4,000,000 --
Other (46,100) (3,400)
Net changes in components
of working capital (1,912,600) (98,100)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 3,330,800 (326,800)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mining properties (900) (102,200)
Development of gas properties -- (20,300)
Increase in restricted investments (162,400) (44,400)
Purchase of property and equipment (57,900) (30,300)
Change in note receivable 59,400 (87,300)
Change in investments in affiliates (238,500) 699,200
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (400,300) 414,700
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of options for common stock 40,000 328,500
Proceeds from long-term debt -- 225,100
Payment on long-term debt (93,800) (130,100)
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (53,800) 423,500
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,876,700 511,400
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,416,900 992,600
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 4,293,600 $ 1,504,000
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Income tax paid $ -- $ --
=========== ===========
Interest paid $ 15,900 $ 35,900
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
6
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U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) The Condensed Consolidated Balance Sheet as of August 31, 1997, the
Condensed Consolidated Statements of Operations for the three months ended
August 31, 1997 and 1996, and the Condensed Consolidated Statements of Cash
Flows for the three months ended August 31, 1997 and 1996, have been prepared by
the Registrant without audit. The Condensed Consolidated Balance Sheet as of May
31, 1997, 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 August 31, 1997 and May 31,
1997, the results of operations for the three months ended August 31, 1997 and
1996, and the cash flows for the three 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, 1997 Form 10-K.
The results of operations for the periods ended August 31, 1997 and 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 (51.4%),
Plateau Resources Limited (100%) and Four Nines Gold, Inc. (50.9%) All material
intercompany profits and balances have been eliminated.
4) Accrued reclamation obligations of $8,751,800 are the Registrant's
share of a reclamation liability at the Crooks Gap Mining District and the full
obligation at the Shootaring Uranium Mill. The reclamation work may be performed
over several years.
5) Net income (loss) per share is computed using the weighted average
number of common shares outstanding during each period. The dilutive effect of
stock options is not included in the computation, as it is not material.
7
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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
On June 23, 1997, the Company and its subsidiary Crested Corp.
("Crested"), entered into an Acquisition Agreement with Kennecott Uranium
Company ("Kennecott") whereby the Company and Crested received a signing bonus
from Kennecott of $4,000,000 and a loan to develop the Green Mountain Mining
Venture ("GMMV") properties of $16,000,000. The $4,000,000 is forfeitable until
such time as a closing takes place on December 1, 1997 or certain other actions
are taken by the Company and Crested at that date. The $4,000,000 carried on the
liability portion of the balance sheet as a current deferred income item.
Additionally, the Company and Crested received cash from the sale of uranium
under the Sheep Mountain Partners ("SMP") contracts of $858,700; advance
royalties from Cyprus Amax of $57,500; $440,000 from the rental of equipment to
the GMMV and real estate properties and $148,900 in the form of management fees.
The receipt of these funds increased the Company's liquidity position
significantly.
The Company utilized $400,300 in its investing activities during the
three months ended August 31, 1997. This was primarily as a result of the
Company and Crested funding SMP and Plateau Resources Limited ("Plateau"). As
the Company and Crested provide various services for the GMMV and SMP, the
non-affiliated participants are invoiced for their proportionate share of the
approved operating costs. The GMMV is current on its reimbursements to the
Company and Crested for all the operating costs. Due to disputes existing
between the SMP partners, the Company and Crested have not been reimbursed for
care and maintenance costs expended on the SMP mineral properties in Wyoming
since the spring of 1996. As a result of the uncertainty of the receivable from
SMP, it is being reported on the Financial Statements as an investment in
affiliates. In addition to increasing investments, the Company utilized $57,900
of the cash received to purchase additional equipment.
The Company consumed a net of $53,800 from its financing activities as
it reduced long term debt by $93,800. This reduction in cash was off set in
financing by the exercise of an option of 10,000 shares of the Company's common
stock for a total of $40,000. Cash provided by operations, $3,330,800 which was
partially used in investing activities, $400,300, and financing activities,
$53,800 resulted in a net increase in cash and cash equivalents of $2,876,700.
This increase places the Company in a strong cash position of $4,293,600 at
August 31, 1997 as compared to $1,416,900 at May 31, 1997. If the terms of the
Kennecott agreement are not met, the refund of the $4,000,000 signing bonus from
Kennecott would materially affect the liquidity of the Company. It is believed
by management of the Company that it will be able to satisfy the terms of the
Kennecott agreement and the signing bonus will not have to be refunded.
The primary requirements for the Company's working capital continue to
be funding of the on-going administrative expenses, including the mine and mill
development and holding costs of Plateau and uranium delivery costs and property
holding costs of SMP. As a result of the disputes between the SMP partners, the
Company and Crested have been delivering certain of their respective portions of
the uranium concentrates required to fill various SMP delivery requirements on
long-term U3O8 contracts with domestic utilities. Nukem/CRIC are currently
making most of the SMP deliveries. No assurances can be given that this method
of delivery will continue. The capital requirements to fill the Company's and
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Crested's portion of the remaining commitments in fiscal 1998 will depend on the
spot market price of uranium concentrates and is also dependent on the outcome
of the arbitration proceedings involving Nukem/CRIC.
The primary source of the Company's capital resources for the remainder
of fiscal 1998 will be financing available through the GMMV, see discussion
below, cash on hand, eventual settlement of the Nukem/CRIC
arbitration/Litigation; uranium deliveries pursuant to the SMP contracts; the
borrowing from financial institutions (primarily the line of credit), and the
sale of equity or interests in investment properties. Fees from oil production,
rentals of various real estate holdings and equipment, and the sale of aviation
fuel will also provide cash. The Company and Crested are currently seeking
additional financing for the construction of the gold processing mill and mine
development of Sutter Gold Mining Company ("SGMC"). See discussion under Sutter
below. An additional $12 million in financing is being sought, however, there is
no assurance that the funds will be raised.
The expenditures for the SMP care and maintenance costs may require
additional funding, depending on the outcome of the SMP arbitration. See Part
II, Item 1 "Legal Proceedings" below.
GMMV
As a result of agreements being reached with Kennecott during the
quarter ended August 31, 1997, it is believed that no funding will be required
by the Company for the GMMV at either the Sweetwater Mill or the Jackpot Mine.
On June 23, 1997, the Company, and the Company and Crested d/b/a USECC signed an
Acquisition Agreement with Kennecott for the right to acquire Kennecott's
interest in the GMMV for $15,000,000 and other consideration. Kennecott paid USE
and USECC a bonus of $4,000,000 on signing, and committed to provide the GMMV up
to $16,000,000 for payment of reimbursable costs incurred by USECC in developing
the proposed underground Jackpot Uranium Mine for production and in changing the
status of the Sweetwater Mill from standby to operational.
The $16,000,000 being loaned by Kennecott to the GMMV was advanced to
Kennecott by an affiliate, Kennecott Energy Company ("KEC") under a secured
recourse Promissory Note (the "Note") bearing interest at 10.5% per annum
starting in April 1999 until paid in full. The Note is payable quarterly out of
20% of cash flow from the GMMV properties, but not more than 50% of the earnings
for such quarter from the GMMV operations, before interest, income tax,
depreciation and amortization. However, the Note is payable (i) in full on June
23, 2010 regardless of cash flow and earnings of the GMMV, or (ii) sooner (on
December 31, 2005) if an economically viable uranium mine has not been placed
into production by such date. The Note is secured by a first mortgage lien
against Kennecott's interest in the GMMV pursuant to a Mortgage, Security
Agreement, Financing Statement and Assignment of Proceeds, Rents and Leases
granted by Kennecott to KEC (the "Mortgage"). The Company and USECC will assume
the Note, and the assets of the GMMV will be subject to the Mortgage, at closing
of the acquisition.
Pursuant to the Acquisition Agreement, the Mineral Lease, and the Mill
Contract, USECC is to develop the proposed Jackpot Mine and work with Kennecott
in preparing the Sweetwater Mill for renewed operations. Such work will be
funded from the $16,000,000 being provided to the GMMV by Kennecott. Under the
Fourth Amendment of the GMMV Agreement, Kennecott will be entitled to a credit
against Kennecott's original $50,000,000 commitment to fund the GMMV, in the
amount of two dollars of credit for each one dollar of such funds out of the
$16,000,000 provided by Kennecott to the GMMV, plus the $4,000,000 paid to the
Company and USECC on signing of the Acquisition Agreement. It is anticipated
that such credits will satisfy the balance of Kennecott's initial funding
commitment to acquire a 50% interest in the GMMV.
9
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Kennecott has agreed to provide funds to the GMMV each month in an
amount adequate to reimburse USECC for invoiced costs and restore the USECC
working account balance to $1,000,000. Payment by GMMV of the monthly invoiced
costs is subject to Kennecott's confirmation that such costs conform to the
Mineral Lease and Mill Contract budgets. Subject to and at the closing of the
Acquisition Agreement, Kennecott will advance to the GMMV cash equal to any
difference between (i) the $16,000,000 commitment and (ii) amounts advanced to
pay reimbursable costs and maintain the working capital account.
Closing of the Acquisition Agreement is subject to the Company and USECC
satisfying several conditions, including: (i) the acquiring entity (which may be
the Company, USECC, or an entity formed by the Company and USECC to acquire
Kennecott's interest in the GMMV) must have a market capitalization of at least
$200,000,000; (ii) the parties to the Acquisition Agreement must have received
all authorizations, consents, permits and approvals of government agencies
required to transfer Kennecott's interest in the GMMV to the acquiring entity;
(iii) the Company and USECC shall have replaced, or caused the replacement of,
approximately $25,000,000 of reclamation bonds, in addition to other guarantees,
indemnification and suretyship agreements posted by Kennecott on behalf of the
GMMV; and (iv) the Company and USECC, or the acquiring entity, must pay
$15,000,000 in cash to Kennecott at closing and assume all obligations and
liabilities of Kennecott with respect to the GMMV (including repayment of the
$16,000,000 Note and the Mortgage) from and after the closing. Under very
limited circumstances, the scheduled closing date may be postponed to another
date not later than October 30, 1998. The parties to the Acquisition Agreement
also executed a mutual General Release with respect to any and all claims that
they may have with respect to any prior disputes concerning the GMMV, which
General Release would be delivered to all such parties at closing of the
Acquisition Agreement. Upon closing of the Acquisition Agreement, the Mineral
Lease and the Mill Contract will be terminated and the Company, USECC or the
acquiring entity will own 50% of the GMMV, although its properties will remain
subject to the Mortgage until the Note is paid in full. The current 50% interest
in GMMV held by the Company and USECC will not change when the Acquisition
Agreement is closed.
If the Acquisition Agreement is not closed by December 1, 1997, then the
Company and USECC (or an entity formed by them to acquire the GMMV interest
owned by Kennecott) are to provide to Kennecott a commitment letter from a
recognized national investment banking firm to complete an underwritten public
offering of the securities of the Company (or an entity formed or introduced to
acquire Kennecott's GMMV interest (the "Acquiring Entity")), in amount
sufficient to close the Acquisition Agreement transactions. Such amount is
estimated by USE to be approximately $40,000,000, (for the $15,000,000 closing
cash purchase price to Kennecott, plus $25,000,000 to assume or cause the
replacement of reclamation bonds, guarantees, indemnification agreements and
suretyship agreements related to the GMMV properties and the Sweetwater Mill.
Alternatively, the Company, USECC or the Acquiring Entity must provide evidence
to Kennecott of a commitment letter from a bank, other financial institution or
industry entity to provide private or joint venture financing in such
approximate amount. Failure to provide evidence of such financial commitment by
December 1, 1997 will terminate the Acquisition Agreement, the Mineral Lease and
the Mill Contract.
If the Acquisition Agreement is not closed, the Company and USECC, and
Kennecott, shall own their respective 50% interest in the GMMV, and Kennecott's
obligation to repay the $16,000,000 loaned by KEC shall remain Kennecott's
obligation, without any adverse effect on the 50% interest in the GMMV held by
the Company and USECC. However, the Jackpot Mine development work and Sweetwater
Mill upgrade work funded by the $16,000,000 advance, will have benefited all
parties to the GMMV.
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SUTTER GOLD MINING COMPANY
Sutter Gold Mining Company is in discussions with two separate,
substantial Canadian investment banking firms in Toronto, Canada, regarding a
proposed public offering of SGMC common stock through the Toronto Stock
Exchange. If such discussions result in a successful securities offering, which
would be made only to Canadian residents, SGMC will be able to fund the
anticipated $12 million development costs with these funds and the funds it
currently has on hand from the 1997 private placements. It is not anticipated
that any of the Company's funds will be required to fund these operations, if
such financing efforts are successful.
SHEEP MOUNTAIN PARTNERS
On June 27, 1997, the District Court entered its Second Amended Judgment
ordering Nukem to assign the PSE&G contract to SMP and impressed a constructive
trust in favor of SMP on Nukem's rights to purchase CIS uranium, the uranium
acquired pursuant to those rights and the profits therefrom. The District Court
also stayed USECC's right to execute on the Judgment against Nukem/CRIC when
Nukem/CRIC posted a supersedeas bond in the amount of $8,613,600. Thereafter,
Nukem/CRIC filed a motion for clarification and/or limited remand of the Second
Amended Judgment. On August 13, 1997, the U.S. District Court denied the motion.
Nukem/CRIC then filed an Amended Notice of Appeal of the District
Court's Judgment and Second Amended Judgment with the Tenth Circuit Court of
Appeals. The Company and Crested filed a motion to increase the supersedeas bond
to cover the value of the CIS purchase contracts. Nukem/CRIC filed their
response on October 17, 1997. No assurance can be given on the outcome of these
motions. The Tenth Circuit Court of Appeals set November 6, 1997 as the date
that Nukem/CRIC must file its pleadings in their appeal before the Court. The
Company and Crested have until December 6, 1997 to file a response to these
pleadings. Some time after that the issue will be resolved by the Appellate
Court. No assurance can be given as to the ultimate outcome, however management
of the Company and Crested are optimistic the ruling will be in their favor.
Until such time as these issues are resolved, the Company and Crested
may be required to fund the standby costs of the Sheep Mountain mines. The
Company and Crested have filed a lien on the SMP properties as a protection for
the payment of past and future standby costs for which they have not been
reimbursed by Nukem/CRIC.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1997 COMPARED TO
THREE MONTHS ENDED AUGUST 31, 1996
Revenues for the quarter ended August 31, 1997 increased by $1,521,500
over the same quarter of the prior year. The increase in revenues primarily are
as a result of a delivery pursuant to one of a delivery of uranium concentrates
under one of the SMP delivery contracts, wherein a net profit of $858,700 was
recognized by the Company. There were no such sales during the quarter ended
August 31, 1996 as Nukem/CRIC were making all deliveries for SMP during that
period. Nukem/CRIC likewise made the SMP delivery for the first quarter of
fiscal 1998 and delivered one half of the reported profits from the sale to the
Company and Crested. Revenues also increased for the rental of equipment by
$372,800 to a total of $370,200 for the quarter ended August 31, 1997. This
increase is as a result of increased equipment rentals to the GMMV under the
June 23, 1997 agreement discussed above. Construction revenues decreased
$515,900 during the quarter ended August 31, 1997 as a result of the Company's
subsidiary Four Nines Gold concentrating all of its efforts and equipment on the
mine
11
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development at the Jackpot Uranium Mine. During the prior year Four Nines Gold
recorded $515,900 in construction contract revenue. Commercial revenues
increased by $946,800 due increased activity at the real estate properties owned
in southern Utah. Finally other revenues increased by $125,300 during the
quarter ended August 31, 1997 over the quarter ended August 31, 1996. This
increase was primarily as a result of management fees increasing by $107,800 due
to increased activities provided to the various subsidiary companies by the
Company.
Other than a reduction of construction costs, $351,500 and increases in
commercial operations, $107,200, mineral operations, $212,100 and general and
administrative expenses, $196,400 costs and expenses remained fairly constant
with the prior year for the same quarter of the prior year. Mineral operations
and general and administrative expenses increased due primarily to additional
staff to administer the development of the GMMV as well as accrued vacations
being paid to certain employees and primarily applied to their indebtedness to
the Company and Crested. Commercial expenses increased due to increased activity
at the commercial real estate operations in southern Utah. Construction expenses
decreased due to limited activity in Four Nines Gold outside the Company owned
activities.
Operations for the quarter ended August 31, 1997, resulted in income of
$683,800 or $0.10 per share as compared to a loss of $388,600 or $0.06 per
share. The increase in earnings is primarily as a result of increased revenues
from the sale of uranium concentrates and the rental of equipment.
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, 1997.
This report discloses the status of the consensual arbitration/litigation in the
U.S. District Court of Colorado involving the Registrant and USE 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 approximately
$12,594,000 as monetary damages. In November 1996, USECC received $4,367,000 of
these damages out of the SMP escrowed funds and its bank account per the Court's
earlier November 5, 1996 Judgment.
Despite the rulings of the Arbitration Panel imposing a constructive
trust in favor of SMP on Nukem's rights to purchase CIS uranium, the uranium
acquired pursuant to those rights and the profits therefrom, the
defendants-appellants Nukem/CRIC continued 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 Orders and Award; denied Nukem's motion to modify and/or
vacate portions of the Award; denied Nukem's objections to the confirmation of
the Orders 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.
12
<PAGE>
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 but the District
Court denied the motion. USECC then filed a motion with the U.S. District Court
to correct clerical omissions in its March 6, 1997 Amended Judgment. Nukem/CRIC
opposed the motion but on June 30, 1997, the District Court entered its Second
Amended Judgment ordering Nukem to assign the PSE&G contract to SMP and
impressing a constructive trust in favor of SMP on Nukem's rights to purchase
CIS uranium, the uranium acquired pursuant to those rights and the profits
therefrom.
Thereafter, Nukem/CRIC filed a motion for clarification and/or limited
remand of the Second Amended Judgment. On August 13, 1997, the U.S. District
Court denied the motion. Nukem and CRIC then filed an amended notice of appeal
of the District Court's Judgment and Second Amended Judgment with the Tenth
Circuit Court of Appeals. USECC filed a motion to increase the supersedeas bond
and Nukem/CRIC filed their response to USECC's motion on October 17, 1997. Also,
Nukem and CRIC are to file their brief in the appeal to the Tenth Circuit Court
of Appeals by November 6, 1997. USECC will then have thirty days to respond to
Nukem/CRIC's appellant brief.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. The Registrant filed two Reports on Form 8-K
under Item 5 Other, during the quarter ended August 31, 1997, reporting events
of June 23, 1997 and June 27, 1997.
13
<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: October 17, 1997 By: /s/ Max T. Evans
----------------------------------
MAX T. EVANS,
Secretary
Date: October 17, 1997 By: /s/ Robert Scott Lorimer
----------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer and
Chief Accounting Officer
14
<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 QUARTER ENDED AUGUST 31, 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> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 4,293,600
<SECURITIES> 0
<RECEIVABLES> 2,522,000
<ALLOWANCES> 0
<INVENTORY> 107,000
<CURRENT-ASSETS> 7,811,000
<PP&E> 14,901,700
<DEPRECIATION> 8,947,900
<TOTAL-ASSETS> 33,787,700
<CURRENT-LIABILITIES> 4,419,000
<BONDS> 0
0
0
<COMMON> 66,600
<OTHER-SE> 13,380,800
<TOTAL-LIABILITY-AND-EQUITY> 33,787,700
<SALES> 2,466,500
<TOTAL-REVENUES> 2,860,600
<CGS> 14,500
<TOTAL-COSTS> 1,238,900
<OTHER-EXPENSES> 922,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,900
<INCOME-PRETAX> 683,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 683,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 683,800
<EPS-PRIMARY> 0
<EPS-DILUTED> .10
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