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 August 31, 1998 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
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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 14, 1998
- --------------------------------------- ------------------------------------
Common stock, $.01 par value 7,763,953 Shares
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U.S. ENERGY CORP. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
August 31, 1998 and May 31, 1998...................................3-4
Condensed Consolidated Statements of
Operations Three Months Ended
August 31, 1998 and 1997.............................................5
Condensed Consolidated Statements of Cash Flows
Three Months Ended August 31, 1998 and 1997........................6-7
Notes to Condensed Consolidated
Financial Statements.................................................8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................9-12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................13-14
ITEM 5. Other Information...................................................14
ITEM 6. Exhibits and Reports on Form 8-K....................................14
Signatures..........................................................15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
U.S. ENERGY CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
August 31, May 31,
1998 1998
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 7,401,900 $ 5,650,500
Accounts receivable
Trade 156,900 195,800
Affiliates 3,261,200 1,878,400
Current portion of long-term
notes receivables 335,800 335,800
Assets held for resale and other 1,235,500 1,100,800
SMP settlement receivable, net -- 5,026,000
Inventory 142,300 113,700
------------ ------------
TOTAL CURRENT ASSETS 12,533,600 14,301,000
INVESTMENTS
Affiliates 829,400 871,800
Restricted investments 8,961,900 8,889,100
------------ ------------
13,596,500 13,505,900
PROPERTIES AND EQUIPMENT 31,242,500 31,256,600
Less accumulated depreciation,
depletion and amortization (12,003,800) (11,806,300)
------------ ------------
5,953,800 6,040,900
OTHER ASSETS:
Accounts and notes receivable:
Real estate sales, net of valuation allowance 676,100 398,000
Employees 36,100 352,000
Other 1,000 1,800
Deposits and other 720,600 755,100
------------ ------------
1,433,800 1,506,900
------------ ------------
$ 42,997,400 $ 45,019,100
============ ============
See notes to condensed consolidated financial statements.
</TABLE>
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U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, May 31,
1998 1998
---- ----
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,244,000 $ 1,836,400
Deferred GMMV purchase option 4,000,000 4,000,000
Current portion of long-term debt 426,700 225,700
------------ ------------
TOTAL CURRENT LIABILITIES 5,670,700 6,062,100
LONG-TERM DEBT 246,400 278,200
RECLAMATION LIABILITIES 8,778,800 8,778,800
OTHER ACCRUED LIABILITIES 4,173,100 4,266,800
DEFERRED TAX LIABILITY 1,144,800 1,144,800
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN SUBSIDIARIES 4,313,700 4,561,300
FORFEITABLE COMMON STOCK
$.01 par value; 312,378 shares issued,
forfeitable until earned 2,473,600 2,473,600
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
none issued or outstanding -- --
Common stock, $.01 par value;
20,000,000 shares authorized;
7,523,492 shares issued 75,200 75,200
Additional paid-in capital 28,526,200 28,526,200
Accumulated deficit (9,017,300) (7,760,100)
Treasury stock, 865,943 shares, at cost (2,460,800) (2,460,800)
Unallocated ESOP contribution (927,000) (927,000)
------------ ------------
16,196,300 17,453,500
------------ ------------
$ 42,997,400 $ 45,019,100
============ ============
See notes to condensed consolidated financial statements.
</TABLE>
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U.S. ENERGY CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
August 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Mineral revenue $ 49,100 $ 916,200
Commercial revenues 1,543,100 1,559,300
Oil sales 19,000 48,500
Management and other fees 318,000 148,900
Interest 179,900 187,000
Gain on sales of assets 54,300 700
----------- -----------
2,163,400 2,860,600
----------- -----------
COSTS AND EXPENSES:
Mineral operations 654,400 374,900
Construction costs 6,300 11,700
Commercial operations 957,900 837,800
General and administrative 2,010,500 611,700
Oil production 22,100 14,500
Interest 16,600 15,900
----------- -----------
3,667,800 1,866,500
----------- -----------
(LOSS) INCOME BEFORE MINORITY INTEREST
AND EQUITY IN LOSS OF AFFILIATES (1,504,400) 994,100
MINORITY INTEREST IN LOSS (INCOME)
OF CONSOLIDATED SUBSIDIARIES 260,700 (146,500)
EQUITY IN LOSS OF AFFILIATES - NET (13,500) (163,800)
----------- -----------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (1,257,200) 683,800
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET (LOSS) INCOME $(1,257,200) $ 683,800
=========== ===========
NET (LOSS) INCOME
PER SHARE BASIC AND DILUTED $ (.18) $ .10
=========== ===========
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 6,969,927 6,816,892
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
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U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,257,200) $ 683,800
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities:
Minority interest in (loss) income
of consolidated subsidiaries (260,700) 146,500
Depreciation, depletion and amortization 203,200 229,800
Equity in loss of affiliates 13,500 163,800
Gain on sale of assets (54,300) --
Non-cash compensation -- 65,600
Other 34,500 (46,100)
Net changes in components
of working capital 2,832 700 (1,912,600)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,511,700 (669,200)
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of mining properties (1,700) (900)
Proceeds from sale of property and equipment 203,900 --
Increase in restricted investments -- (162,400)
Purchase of property and equipment (139,500) (57,900)
Change in note receivable 38,600 59,400
Investments in affiliates (30,800) (238,500)
Deferred GMMV purchase option -- 4,000,000
----------- -----------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 70,500 3,599,700
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of options for common stock -- 40,000
Proceeds from long-term debt 201,000 --
Payment on long-term debt (31,800) (93,800)
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 169,200 (53,800)
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 1,751,400 2,876,700
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,650,500 1,416,900
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 7,401,900 $ 4,293,600
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
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U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
-----------------------------
1998 1997
---- ----
SUPPLEMENTAL DISCLOSURES:
<S> <C> <C>
Income tax paid $ -- $ --
============ ===========
Interest paid $ 16,600 $ 15,900
============ ===========
See notes to condensed consolidated financial statements.
</TABLE>
7
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U.S. ENERGY CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) The Condensed Consolidated Balance Sheet as of August 31, 1998, the
Condensed Consolidated Statements of Operations and Cash Flows for the three
months ended August 31, 1998 and 1997 have been prepared by the Registrant
without audit. The Condensed Consolidated Balance Sheet as of May 31, 1998, 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, 1998 and May 31, 1998, the
results of operations and cash flows for the three months ended August 31, 1998
and 1997, 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, 1998 Form 10- K.
The results of operations for the periods ended August 31, 1998 and 1997 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 (52%),
Plateau Resources Limited (100%) Sutter Gold Mining Co. (59%) and Four Nines
Gold, Inc. (50.9%) All material intercompany profits and balances have been
eliminated.
4) Accrued reclamation obligations and standby costs of $12,951,900 are
the Registrant's share of a reclamation liability at the SMP mining properties
and the full obligation at the Shootaring Uranium Mill.
The reclamation work may be performed over several years.
5) In February 1997, SFAS No. 128 "Earnings per Share" was issued and
specifies the computation, presentation and disclosure requirements for earnings
per share. SFAS 128 is effective for periods ended after December 15, 1997 and
requires retroactive restatement of prior period earnings per share. The
statement replaces "primary earnings per share" with "basic earnings per share"
and replaces "fully diluted earnings per share" with "diluted earnings per
share." Adoption of SFAS 128 did not have an effect on the Company's previously
reported net income (loss) per common share.
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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 periods included in the accompanying financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended August 31, 1998, the Registrant received
$5,026,000 cash as a result of a partial settlement of Sheep Mountain Partners
("SMP") arbitration. This increased the cash position of the Registrant at
August 31, 1998 to $7,401,900 or a net increase for the quarter in cash of
$1,751,400. Other increases in components of working capital were increases in
Assets held for resale and Other assets of $134,700 and Accounts Receivable
Affiliates of $1,382,800. Other current assets increased primarily as a result
of certain annual prepaid insurance premiums being paid during the quarter ended
August 31, 1998. Accounts Receivable Affiliates increased due to the Registrant
and Crested Corp. ("Crested") advancing funds for the Green Mountain Mining
Venture ("GMMV") operations that have not yet been reimbursed by the GMMV from
the proceeds of the loan from Kennecott Uranium Company ("KUC").
The Current portion of long term debt increased by $201,000 during the
quarter ended August 31, 1998. This increase in debt was as a result of
financing the Registrant and Crested"s annual insurance premium. The purchase
option that the Registrant and Crested received during Fiscal 1998 of $4 million
is carried as a current liability. If the GMMV Acquisition Agreement is
successfully concluded this amount will be credited against the $15 million
purchase price at the time of closing.
Increased cash reserves were partially consumed by operations in the
amount of $1,511,700. Cash was also used in investing activities to purchase
equipment, $139,500, and increase the investment in certain subsidiaries,
$30,800. Cash was generated from the sale of certain equipment, $203,900, and
increased long term debt of $201,000. Cash was also consumed in the payment of
bonuses to four of the Registrant's employees as recognition of the
extraordinary dedication they had given to their work in the SMP
arbitration/litigation. The amount of cash consumed in these bonuses which
included taxes due was $561,000. These changes resulted in a net increase of
$1,751,400 in cash for a cash balance as of August 31, 1998 of $7,401,900 as
compared to a cash balance of $5,650,500 at August 31, 1997.
CAPITAL RESOURCES
GENERAL: The primary source of the Registrant's capital resources for
the remaining nine months of fiscal 1999 are the cash on hand at August 31,
1998; the potential receipt of cash from the SMP Arbitration Award once the 10th
Circuit Court of Appeals rules on the Nukem appeal; possible equity financing
from affiliated companies, and proceeds under the line of credit. Additionally,
the Registrant and Crested will continue to offer for sale various non-core
assets such as, lots and homes in Ticaboo, real estate holdings in Wyoming,
Colorado and Utah and mineral interests. Interest, rentals of real estate
holdings and equipment, aircraft chartering and aviation fuel sales, also will
provide cash.
LINE OF CREDIT: The Registrant and Crested have a $1,000,000 line of
credit with a commercial bank. The line of credit is secured by various real
estate holdings and equipment belonging to the Registrant and Crested. It is
anticipated that this line of credit may be used to finance short term working
capital needs.
FINANCING: Equity financing for Sutter Gold Mining Company ("SGMC") and
Plateau Resources Ltd. ("Plateau") are dependent on the market price of gold and
uranium among other conditions. As of August 31, 1998, the prices for these
metals remained depressed and it is not known when they will recover. The
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Registrant and Crested continue to be optimistic concerning the future markets
for these metals but can not accurately forecast what the prices will be in the
short or long term markets. If the price for these metals do not increase in the
short term, working capital of the Registrant and Crested will be impacted
negatively due to holding costs of the properties and the ability to raise
equity funding could be impaired.
SUMMARY: The Registrant believes that cash on hand at August 31, 1998
as well as proceeds from its line of credit, if needed, will be adequate to fund
working capital requirements through fiscal 1999. However, these capital
resources will not be sufficient to provide the funding for major capital
expansions and development of the Registrant's mineral properties.
CAPITAL REQUIREMENTS
GENERAL: The primary requirements for the Registrant's working capital
during fiscal 1999 are expected to be the costs associated with the development
activities of Plateau, care and maintenance costs of the former SMP mineral
properties, payments of holding fees for mining claims, the Registrant's portion
of the costs associated with the GMMV properties and corporate general and
administrative expenses.
SGMC: The Registrant owns a majority interest in SGMC and is therefore
potentially responsible for the ongoing administrative and development costs of
the properties owned by SGMC. The Registrant is therefore assisting SGMC in its
efforts to secure financing to place the properties into production. SGMC has
sufficient cash reserves to fund its ongoing permitting and administrative
expenses. It is anticipated that an additional $15 million is needed to complete
the development of the mine and construction of the cyanide- flotation mill.
Prior to the time that such construction and development costs are undertaken
SGMC will require either additional debt or equity financing.
Due primarily to the sustained decline in gold prices during Fiscal
1998, the Registrant recorded a $1,500,000 impairment on its investment in SGMC.
If financing is not obtained in fiscal 1999 and/or gold prices further decline
from present levels, the Registrant will reevaluate the need for an additional
impairment on its investment in SGMC, which includes the Stock Purchase Warrant
that is contingent on SGMC identifying ounces of gold in excess of 300,000
ounces. The Registrant acknowledges that it may be required to record a
significant impairment under Generally Accepted Accounting Principles should
financing not be obtained by SGMC to develop the project or if gold prices
decline further. As of the three months ended August 31, 1998, the Registrant
was continuing its search for development capital.
SMP: As part of a settlement agreement reached during the fourth
quarter of 1998, the SMP mines and associated properties were transferred to the
Registrant and Crested. The holding and reclamation costs associated with these
mining properties are the responsibility of the Registrant and Crested. The
holding costs historically have been approximately $85,000 per month. The
Registrant and Crested continue to search for improved techniques that will
reduce these monthly costs. The future reclamation costs on the SMP properties
are covered by a reclamation bond which is secured by the pledge of certain of
the Registrant and Crested's real estate assets. The dollar amount for the
reclamation bond is reviewed annually by State regulatory agencies. The
Registrant's portion of the reclamation liability on the SMP properties is
$1,451,800 and is shown as such in the long term liability section of its
balance sheet.
It is not anticipated that the SMP properties will be placed into
production during Fiscal 1999. The Registrant and Crested have determined that
the SMP mining properties should be maintained and prepared for production in
the future when the price of uranium increases into the $15 per pound range or
at such time as the Registrant and Crested are able to obtain long term delivery
contracts with favorable price terms and the Sweetwater Mill which is owned and
operated by the GMMV, is placed into production. There are no major reclamation
obligations during the balance of Fiscal 1999 that the Registrant and Crested
are aware of on the properties.
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In addition to receiving the SMP mining properties back in the
settlement of a portion of the SMP arbitration issues, the Registrant and
Crested also received one of the market related delivery contracts which had
previously belonged to SMP. There is one delivery under this contract during the
third quarter of Fiscal 1999. The delivery requirement was sold to a third party
and the Registrant and Crested will make a nominal amount of profit on the sale
during the third quarter of 1999. As of August 31, 1998, the Registrant has no
additional delivery or financing commitments for the sale or purchase of uranium
during Fiscal 1999.
GMMV: During July 1998, the GMMV Management Committee unanimously
agreed to place the Jackpot Mine and Sweetwater Mill on active standby status.
This decision was made as a result of uncertainties in the short term uranium
market. These same uncertainties have made the financing of the acquisition of
Kennecott's interest in the GMMV more difficult. The Registrant and Crested have
until October 31, 1998 to complete the financing efforts to purchase Kennecott's
interest. It appears unlikely that the financing will be successfully completed
and the Acquisition Agreement, which was signed on June 23, 1997, will expire on
October 31, 1998.
After October 31, 1998 the mines and the mill will continue to be
maintained. Kennecott's obligation to fund the first $50 million in expenditures
is now satisfied and the Registrant and Crested will be obligated to fund their
50% of the ongoing costs. The Management Committee of the GMMV is currently
discussing what level of expenditures should be made to maintain the properties.
A final decision on these expenditures has not been reached but the Registrant,
Crested and Kennecott are desirous that the expenses be held to a minimum. It is
anticipated that if the annual expenditures do not exceed $2 million for standby
and maintenance that the Registrant and Crested will be able to fund their
portion of this commitment through fiscal 1999.
Expenditures through July 1998 were covered under the $16 million
dollar loan from Kennecott Energy pursuant to the Acquisition Agreement. As of
the filing of this report, all these loan proceeds had not been paid to the
Registrant and Crested by the GMMV for costs incurred. The Management Committee
of GMMV is currently evaluating the billings and it is anticipated that they
will be completely resolved in the second quarter of Fiscal 1999.
PLATEAU: Plateau owns and operates the Ticaboo townsite, motel,
convenience store and restaurant. Additionally Plateau owns and maintains the
Tony M uranium mine and Shootaring Uranium mill. The Registrant and Crested are
currently working to obtain the necessary permits from the NRC and State of Utah
to place the Shootaring mill into production. The Registrant and Crested are
seeking debt or equity financing of between $6 million and $9 million to put the
mill and Tony M mine into production. Until such time as the financing is
received and profitable contracts are obtained, the Registrant and Crested will
not put the properties owned by Plateau into production. Historically, the net
holding costs of the Plateau properties have been $70,000 per month.
YELLOW STONE FUELS CORP. ("YSFC"): In Management's opinion, YSFC has
sufficient cash to complete its projected 1999 exploration program on its
in-situ uranium properties. As of August 31, 1998, YSFC owed the Registrant and
Crested $400,000 on a convertible promissory note plus interest at 10% per
annum. YSFC is indebted to the Registrant and Crested for the promissory note,
the interest accrued on the note and additional amounts that the Registrant and
Crested have advanced for YSFC for a total indebtedness at August 31, 1998 of
$709,900. YSFC has sufficient cash on hand to retire this indebtedness. YFSC has
indicated its desire to pay the total indebtedness in cash but it is not certain
that a cash payment will occur as YSFC may elect, at its option, to pay the
promissory note with shares of its common stock.
TERM DEBT: Debt to non-related parties at August 31, 1998 was $673,100
as compared to $503,900 at August 31, 1997. The increase in debt to non-related
parties consists primary of debt due on the financing
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of annual insurance premiums and various purchases of equipment. The for the
purchase of heavy equipment bears different interest rates and has various
maturity dates. All payments on the debt are current.
RECLAMATION OBLIGATIONS: It is not anticipated that any of the
Registrant's working capital will be used in Fiscal 1999 for the reclamation of
any of its mineral property interests. The reclamation costs are long term and
are either bonded through the use of cash bonds or the pledge of assets. It is
not anticipated that any of the mining properties in which the Registrant owns
an interest of will enter the reclamation phase prior to May 31, 1999.
OTHER: The Registrant and Crested currently are not in production on
any mineral properties, and development work continues on several of their major
investments. The Registrant and Crested are not using hazardous substances or
known pollutants to any great degree in these activities. Consequently,
recurring costs for managing hazardous substances, and capital expenditures for
monitoring hazardous substances or pollutants have not been significant. The
Registrant and Crested are also not aware of any claims for personal injury or
property damages that need to be accrued or funded.
The tax years through May 31, 1992 are closed after audit by the IRS.
On October 5, 1998 the Registrant and USE met with the Appeals Office of the IRS
in Denver, Colorado to discuss resolving issues raised for Fiscal 1993 and 1994.
The Registrant and Crested have resolved all outstanding issues for those years
without incurring any cash commitments for additional taxes due. The IRS is
currently concluding its review of Fiscal 1995 and 1996 for the companies but no
final reports have been issued so no representations can be made as to their
ultimate outcome.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1998 COMPARED TO
THREE MONTHS ENDED AUGUST 31, 1997
During the three months ended August 31, 1998, revenues decreased from
those revenues reported during the same period of the previous year by $697,200
to total revenues of $2,163,400. The major reduction resulted from the
Registrant not receiving any revenues from the delivery of uranium on one SMP
contract. During the quarter ended August 31, 1997, the Registrant recognized
$858,600 in revenue from the profits derived from a SMP contract delivery. No
such revenues were recognized during the three months ended August 31, 1998.
Revenues from Management Fees increased by $169,100 during the three months
ended August 31, 1998 over the same period of the previous year as a result
increased expenditures at the GMMV on which the Registrant recognized a
management fee.
Costs and expenses for the quarter ended August 31, 1998 increased by
$1,801,300 over the same period of the previous year. The increase in costs
primary came as a result of increased activity on mineral properties and
commercial operations along with an increase in general and administrative
overhead to supervise the increased activity and the bonuses paid as discussed
above. The projects which are being developed, are currently not in the
production phase so are not generating cash flow. With the decline in the market
price of uranium, it is not anticipated that the properties will be placed into
production in Fiscal 1999. A decision was however made in July 1998 to place the
GMMV mines on active standby. The Registrant is therefore anticipating
reductions in costs.
As a result of the reduced revenues and increased costs discussed
above, operations for the quarter ended August 31, 1998 resulted in a loss of
$1,257,200 or $0.18 per share as compared to a profit of $683,800 or $0.10 per
share for the quarter ended August 31, 1997.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
SHEEP MOUNTAIN PARTNERS ARBITRATION/LITIGATION
In 1991, disputes arose between USE/Crested, and Nukem, Inc. and its
subsidiary Cycle Resource Investment Corp. ("CRIC"), concerning the formation
and operation of the Sheep Mountain Partners partnership for uranium mining and
marketing, and activities of the parties outside SMP. Arbitration proceedings
were initiated by CRIC in June 1991 and in July 1991, USECC filed a lawsuit
against Nukem, CRIC and others in the U.S. District Court of Colorado. Later,
USECC filed another suit for the standby costs at the SMP mines against SMP in
the Colorado State Court. The Federal Court stayed the arbitration proceedings
and the State Court case was also stayed. In fiscal 1994, all of the parties
agreed to exclusive and binding arbitration of the disputes before the American
Arbitration Association, ("AAA") for which the legal claims made by both sides
included fraud and misrepresentation, breach of contract, breach of duties owed
to the SMP partnership, and other claims.
Following hearings before a three member panel of the AAA, the Panel
entered an Order and Award in April 1996 and supplemented in July 1996, which
were ultimately confirmed by the U.S. District Court of Colorado. Please
see"Item 3. Legal Proceedings" of the Registrant's 1998 Form 10-K for more
details of this arbitration/litigation. Nukem appealed the decision of the U.S.
District Court to the 10th Circuit Court of Appeals and on September 24, 1998,
oral arguments were made to a three judge panel. The Court has not yet ruled on
the appeal.
TICABOO TOWNSITE LITIGATION.
In fiscal 1998, a prior contract operator of the Ticaboo restaurant and
lounge, and two employees supervising the motel and convenience store in Utah
(owned by Canyon Homesteads, Inc.) sued USE, Crested and others in Utah State
Court. After a five day trial, a jury denied the claims of two of three
plaintiffs but awarded the third plaintiff $156,000 in damages against USE. USE
has filed motions including a motion for judgment notwithstanding the verdict
("JNOV"), and the motions are pending. USE intends to appeal the judgment if the
motion for JNOV is not granted.
BGBI LITIGATION
USE and Crested are defendants and counter- or cross-claimants in
certain litigation in the District Court of the Fifth Judicial District of Nye
County, Nevada, brought by Bond Gold Bullfrog Inc. ("BGBI") on July 30, 1991.
BGBI (now known as Barrick Bullfrog, Inc.) is an affiliate of Barrick Corp., a
large international gold producer headquartered in Toronto, Canada. The
litigation primarily concerns extra lateral rights associated with two patented
mining claims owned by Parador Mining Company Inc. ("Parador") and initially
leased to a predecessor of BGBI, which claims are in and adjacent to BGBI's
Bullfrog open pit and underground mine. USE and Crested assert certain interests
in the claims under an April 1991 assignment and lease with Parador, which is
subject to the lease to BGBI's predecessor. Please see "Item 3, Legal
Proceedings" of Registrant's 1998 Form 10-K for more details of this litigation.
The record on appeal has been filed with the Nevada Supreme Court and the
Registrant, USE and Parador have until January 26, 1999 to file their opening
brief and appendix.
13
<PAGE>
DEPARTMENT OF ENERGY LITIGATION
On July 20, 1998, eight uranium mining companies with operations in the
United States (including USE, Crested, YSFC) and the Uranium Producers of
America (a trade organization) filed a complaint against the United States
Department of Energy (the "DOE") in a lawsuit (file no. 98 CV 1775) in the
United States District Court, Cheyenne, Wyoming. Please see "Item 3. Legal
Proceedings" of Registrant's 1998 Form 10-K for more details of this litigation.
The DOE has filed a motion to dismiss the complaint claiming that the U.S.
Congress withdrew its consent to be sued in connection with the USEC Inc.
privatization and that USEC Inc.
must be joined as an indispensable party. The motion is pending.
CONTOUR DEVELOPMENT LITIGATION
On July 28, 1998, USE filed a lawsuit in the United States District
Court, Denver, Colorado against Contour Development Company, L.L.C. and entities
and persons associated with Contour Development Company, L.L.C. (together,
"Contour") seeking compensatory and consequential damages of more than $1.3
million from the defendants for dealings in certain real estate. Please see
"Item 3. Legal Proceedings" of Registrant's 1998 Form 10-K for more details on
this litigation. USE has filed an Amended Complaint adding additional parties
defendant and no responsive pleading has been filed to the Amended Complaint.
ITEM 5. OTHER INFORMATION
On September 28, 1998 the Registrant announced that it would begin
purchasing up to 500,000 shares of its common shares in the open market. The
purchase of shares will take place over time and will depend on the market price
of the Registrant's common shares. The purchases will be made from cash on hand
and future earnings. As of the date of the filing of this report the Registrant
had purchased a total of 19,000 common shares at a purchase price of $51,006.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. The Registrant did not file any Reports on
Form 8-K during the quarter ended August 31, 1998.
14
<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, there unto duly authorized.
U.S. ENERGY CORP.
(Registrant)
Date: October 14, 1998 By: /s/ John L. Larsen
-------------------------------
JOHN L. LARSEN,
Chief Executive Officer
and Chairman
Date: October 14, 1998 By: /s/ Robert Scott Lorimer
-------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer and
Chief Accounting Officer
15
<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, 1998 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-31-1999
<PERIOD-END> AUG-31-1998
<CASH> 7,401,900
<SECURITIES> 0
<RECEIVABLES> 3,418,100
<ALLOWANCES> 0
<INVENTORY> 142,300
<CURRENT-ASSETS> 12,533,600
<PP&E> 31,242,500
<DEPRECIATION> 12,003,800
<TOTAL-ASSETS> 42,997,400
<CURRENT-LIABILITIES> 5,670,700
<BONDS> 0
0
0
<COMMON> 75,200
<OTHER-SE> 16,121,100
<TOTAL-LIABILITY-AND-EQUITY> 42,997,400
<SALES> 1,592,200
<TOTAL-REVENUES> 2,163,400
<CGS> 1,640,700
<TOTAL-COSTS> 3,651,200
<OTHER-EXPENSES> (247,200)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,600
<INCOME-PRETAX> (1,257,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,257,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,257,200)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> 0
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