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 29, 2000 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 Company 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 14, 2000
- ------------------------------ -----------------------------
Common stock, $.01 par value 8,901,906 Shares
<PAGE>
U.S. ENERGY CORP. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
February 29, 2000 and May 31, 1999.................................3-4
Condensed Consolidated Statements of
Operations Three and Nine Months
Ended February 29, 2000 and
February 28, 1999....................................................5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 29, 2000
and February 28, 1999..............................................6-7
Notes to Condensed Consolidated
Financial Statements.................................................8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................9-13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................14-15
ITEM 4. Submission of Matters to Security Holders for Vote..................15
ITEM 5. Other Information...................................................15
ITEM 6. Exhibits and Reports on Form 8-K....................................15
Signatures..........................................................16
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
U.S. ENERGY CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
ASSETS
February 29, May 31,
2000 1999
------------ ------------
(Unaudited)
<TABLE>
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,380,500 $ 10,173,000
Accounts receivable
Trade, net of allowance for
doubtful accounts of $27,800 1,275,500 223,100
Affiliates 478,400 1,063,400
Assets held for resale and other 1,022,000 1,116,200
Inventory 166,100 143,200
------------ ------------
TOTAL CURRENT ASSETS 4,322,500 12,718,900
INVESTMENTS AND ADVANCES
Affiliates 727,000 751,600
Restricted investments 9,220,400 9,160,400
------------ ------------
9,947,400 9,912,000
PROPERTY AND EQUIPMENT 23,884,400 19,607,800
Less accumulated depreciation,
depletion and amortization (10,769,900) (10,171,300)
------------ ------------
13,114,500 9,436,500
OTHER ASSETS:
Accounts and notes receivable:
Real estate sales 48,400 20,400
Employees 541,000 366,600
Deposits and other 804,000 936,600
------------ ------------
1,393,400 1,323,600
------------ ------------
$ 28,777,800 $ 33,391,000
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
U.S. ENERGY CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' EQUITY
February 29, May 31,
2000 1999
------------ ------------
(Unaudited)
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,510,700 $ 1,229,600
Deferred GMMV purchase option 4,000,000 4,000,000
Current portion of long-term debt 436,000 126,000
------------ ------------
TOTAL CURRENT LIABILITIES 5,946,700 5,355,600
LONG-TERM DEBT 791,200 786,700
RECLAMATION LIABILITY 8,860,900 8,860,900
OTHER ACCRUED LIABILITIES 3,215,000 3,734,500
DEFERRED TAX LIABILITY 1,144,800 1,144,800
MINORITY INTERESTS 980,300 856,500
COMMITMENTS AND CONTINGENCIES
FORFEIT ABLE COMMON STOCK $.01 par value;
329,608 and 339,208 shares issued,
forfeit able until earned 2,464,700 2,471,700
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value;100,000
shares authorized none issued or outstanding; -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 8,639,353 and 8,550,624
shares issued, respectfully 86,500 85,600
Additional paid-in capital 33,302,800 33,014,900
Accumulated deficit (24,448,200) (19,408,600)
Treasury stock at cost 944,725
and 930,532 shares, respectfully (2,639,900) (2,584,600)
Unallocated ESOP contribution (927,000) (927,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 5,374,200 10,180,300
------------ ------------
$ 28,777,800 $ 33,391,000
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
U.S. ENERGY CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
February 29 and 28, February 29 and 28,
2000 1999 2000 1999
---- ---- ---- ----
REVENUES:
Mineral sales $ 33,200 $ 67,800 $ 100,300 $ 152,500
Coalbed methane operations 1,362,000 -- 2,125,100 --
Commercial operations 340,200 435,600 2,042,600 2,430,500
SMP settlements, net -- 6,077,200 -- 6,077,200
Oil Sales 54,000 29,600 100,100 83,300
Management fees and other 4,300 42,100 267,900 432,800
Interest 133,100 185,400 525,500 619,700
Gain (loss) on sales of assets 5,600 (9,200) 5,600 45,100
------------ ------------ ------------ ------------
1,932,400 6,828,500 5,167,100 9,841,100
COSTS AND EXPENSES:
Mineral operations $ 1,155,200 675,300 2,553,300 1,861,300
Construction costs 1,186,100 4,700 1,492,700 20,200
Commercial operations 925,800 853,600 2,773,400 2,676,900
General and administrative 1,302,900 1,965,100 3,484,800 5,388,600
Oil production 20,500 17,800 37,400 56,800
Provision for doubtful accounts 23,100 -- 23,100 --
Interest 7,900 14,500 22,300 45,900
------------ ------------ ------------ ------------
4,621,500 3,531,000 10,387,000 10,049,700
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE MINORITY
INTEREST AND EQUITY IN LOSS
OF AFFILIATES (2,689,100) 3,297,500 (5,219,900) (208,600)
MINORITY INTEREST IN LOSS
(INCOME) OF CONSOLIDATED
SUBSIDIARIES 78,700 7,500 183,200 312,500
EQUITY IN LOSS OF AFFILIATES-NET -- (15,600) (2,900) (59,200)
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME
TAXES (2,610,400) 3,289,400 (5,039,600) 44,700
PROVISION FOR INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (2,610,400) $ 3,289,400 $ (5,039,600) $ 44,700
============ ============ ============ ============
NET (LOSS) INCOME PER SHARE $ (0.33) $ 0.43 $ (0.63) $ 0.01
============ ============ ============ ============
BASIC AND DILUTED
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 8,021,781 7,739,364 8,002,494 7,752,587
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
U.S. ENERGY CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
February 29 and 28,
-------------------------
2000 1999
------------ ------------
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) Income $(5,039,600) $ 44,700
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest in loss of
consolidated subsidiaries (183,200) (312,500)
Increase in reclamation liabilities -- 164,200
Depreciation 520,600 556,800
Equity in loss from affiliates 2,900 59,200
Gain on sale of assets (5,600) (45,100)
Provision for doubtful accounts 23,100 --
Non-cash compensation 29,200 293,800
Other 134,500 (187,400)
Net changes in components of working capital (875,500) 4,695,700
------------ ------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (5,393,600) 5,269,400
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of mining properties (21,600) (28,900)
Development of gas properties (21,500) --
Proceeds from sale of property and equipment 12,500 303,900
Increase in restricted investments (60,000) (244,200)
Purchase of property and equipment (1,917,900) (1,064,400)
Changes in notes receivable, net (225,500) 274,900
Issuance of stock for stock of subsidiary 252,600 --
Investments in affiliates (1,731,600) 31,100
----------- ------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (3,713,000) (727,600)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in cash from acquisition of subsidiaries 224,600 --
Proceeds from long-term debt 349,900 753,000
Purchase of treasury stock -- (123,800)
Repayments of long-term debt (260,400) (249,300)
------------ ------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES 314,100 379,900
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (8,792,500) 4,921,700
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
U.S. ENERGY CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
February 29 and 28,
---------------------------
2000 1999
------------ ------------
<TABLE>
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD $ 10,173,000 $ 5,650,500
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,380,500 $ 10,572,200
============ ============
SUPPLEMENTAL DISCLOSURES:
Income tax paid $ -- $ 21,000
============ ============
Interest paid $ 22,300 $ 45,900
============ ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Payment of receivable-affiliate with stock
from affiliate $ 70,400 $ --
============ ============
Issuance of stock for retired employee $ 7,000 $ --
============ ============
Issuance of stock for exercised warrants $ 200 $ --
============ ============
Consolidation of subsidiaries during fiscal year 2000
Other assets $ (1,900) $ --
Investment in affiliates 1,596,300 --
Intercompany receivables 230,600 --
Property, plant and equipment (2,244,500) --
Notes payable 225,000 --
Accounts payable and accrued expenses 10,400 --
Minority Interest 464,000 --
Treasury stock (55,300) --
Issuance of common stock to acquire
stock of subsidiary
Common stock 700 --
Additional paid-in-capital 251,700 --
</TABLE>
See Notes to Condensed Consolidated Financial Statements
7
<PAGE>
U.S. ENERGY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1) The Condensed Consolidated Balance Sheet as of February 29, 2000 and the
Condensed Consolidated Statements of Operations for the three and nine months
and Cash Flows for the nine months ended February 29, 2000 and February 28,
1999, have been prepared by the Company without audit. The Condensed
Consolidated Balance Sheet as of May 31, 1999, has been taken from the audited
financial statements included in the Company's May 31, 1999 Annual Report on
Form 10- K. In the opinion of the Company, the accompanying financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to fairly present the financial position of the Company and its subsidiaries as
of February 29, 2000 and May 31, 1999, the results of operations for the three
and nine months ended February 29, 2000 and February 28, 1999, 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 Company's May 31, 1999 Form 10-K. The
results of operations for the periods ended February 29, 2000 and February 28,
1999 are not necessarily indicative of the operating results for the full year.
3) The consolidated financial statements of the Company include 100% of the
accounts of USECB Joint Venture ("USECB" or "USECC") which is owned 50% by the
Company and 50% by the Company'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.("SGMC") (59%) and Four Nines Gold, Inc.
(50.9%) During the nine and three months ended February 29, 2000 the Company
also began consolidating Ruby Mining Company (90.9%), Northwest Gold, Inc.
(50.5%) and Rocky Mountain Gas, Inc. (86.3%). All material inter-company profits
and balances have been eliminated.
4) Deferred GMMV Purchase Option at February 29, 2000 and May 31, 1999
consists of the $4,000,000 Signing Bonus received when the Company and Crested
entered into an Acquisition Agreement with Kennecott Uranium Company to acquire
properties. (See GMMV discussion in Item 2).
5) Accrued reclamation obligations and standby costs of $12,075,900 are the
Company'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 and will not be commenced until such time as all
the uranium mineralization contained in the properties is produced or the
properties abandoned. It is not anticipated that either of these events will
occur for sometime into the future.
8
<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 Company's liquidity, capital resources and
results of operations during the periods included in the accompanying financial
statements. The discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from the
results discussed in any such forward-looking statements.
Overview of Business
During the nine and three months ended February 29, 2000, the Company
recognized revenues in three major areas; Coalbed methane contract drilling and
construction work, commercial operations and interest earned on cash and cash
equivalents. Other sources of revenue continue to be management fees, sale of
oil and the receipt of royalty interests on mineral properties.
Due to current depressed uranium prices, the Company has placed its uranium
properties on care and maintenance status. Until uranium market prices improve,
the Company has determined that it would enter into the coalbed methane gas
business. The Company owns and has purchased additional drilling and
construction equipment that is currently being used on a contract basis for
non-related companies. In addition, the Company has entered into a contract with
a third party through its newly formed subsidiary Rocky Mountain Gas, Inc.
(RMG), to lease a 50% interest in 185,000 acres for coalbed methane exploration
and development in the Powder River Basin of Montana. It is anticipated that the
business operations of the Company will be largely directed toward this new
venture for at least the next twelve to eighteen months.
As in all mineral development operations, there is risk involved in the
development of coalbed methane gas fields. Some of the known risks in the
coalbed methane development and production business are; government regulations,
environmental restrictions, market price for methane gas, availability of pipe
lines and capacity in the existing pipe lines. The Company cannot accurately
predict what if any of these risks will have on its business in the future.
Liquidity and Capital Resources
During the nine months ended February 29, 2000, the Company's working
capital decreased from $7,363,300 at May 31, 1999 to a working capital deficit
of $1,624,200. Included in the current liabilities at May 31, 1999 and February
29, 2000, is a $4,000,000 signing bonus which was paid by Kennecott Uranium
Company ("KUC") in June of 1997 when the Company entered into an Acquisition
Agreement with KUC and which has been deferred. This signing bonus of $4,000,000
is non refundable to KUC and will not be paid back to KUC.
Cash was consumed by operations, $5,393,600; and investing activities,
$3,713,000, while financing activities provided $314,100 in cash and cash
equivalents. The operating loss of $5,039,600, minus non cash depreciation of
$520,600, plus other working capital component decreases of $875,500 resulted in
using $5,393,600 for operations for the nine month period ended February 29,
2000. Cash of $3,713,000 used in investing activities resulted primally from the
Company's decision to invest $1,512,800 in a newly formed subsidiary company,
RMG and enter into the exploration, development and production of coalbed
methane gas. In connection therewith, the Company spent $1,429,200 in
refurbishing existing drilling related equipment and purchasing
9
<PAGE>
additional equipment for use in the drilling business. The Company also
used an additional $436,4000 in the purchase of capital improvements for its
Ticaboo commercial operations in southern Utah.
The increase in cash from financing activities of $314,100 resulted
primarily from equipment financing of $349,900 less equipment debt payments of
$260,400 and the increase of $224,600 in cash from the acquisition of subsidiary
companies. The subsidiaries that the Company acquired additional interests in
during the nine months ended February 29, 2000, were Ruby Mining Company
("Ruby"), Northwest Gold, Inc. ("NWG") and RMG. The additional interests in Ruby
and NWG came as a result of the Company accepting common stock of both companies
for the partial retirement of debt due the Company.
Capital Resources
The primary source of the Company's capital resources for the remainder of
Fiscal 2000 are the cash on hand at February 29, 2000; revenues from contract
drilling and construction activities for coalbed methane gas operations,
possible equity financing from affiliated companies, proceeds under the line of
credit, and the potential receipt of cash from the SMP arbitration.
The Company has successfully financed a portion of its new equipment
acquisitions. To preserve cash, the Company will continue to seek equipment
financing opportunities. Additionally, the Company will continue to offer for
sale various assets such as lots and homes in Ticaboo, Utah, real estate
holdings in Wyoming, Colorado and Utah and mineral interests. Interest, rentals
of real estate holdings and equipment and aviation fuel sales will also provide
cash.
It is contemplated that the Company will begin to generate revenues
sufficient to continue to participate in the coalbed methane gas contracting
work. The entry threshold into the coalbed methane gas business was significant
but now that it has been expended and the summer months have arrived, the
Company anticipates receiving a return on its investment. It is further
anticipated that RMG will receive significant revenues from coalbed methane gas
production for its own account. However, no assurances can be given as to the
actual amount or timing of coalbed methane gas production from the properties in
which RMG owns an interest.
The Company has 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 Company. At February 29, 2000 the entire line of credit was
available to the Company. At the time of the filing of this report a total of
$800,000 was available on the line of credit. The line of credit is being used
for short term working capital needs.
The Company believes that cash on hand at February 29, 2000, proceeds from
drilling and construction contracts, revenues from commercial operations, equity
financings and its line of credit will be adequate to fund working capital
requirements through Fiscal 2000. However, these capital resources will not be
sufficient to provide funding for the Company's development of its coalbed
methane gas business. RMG is seeking additional equity financing to develop its
coalbed methane leases.
Capital Requirements
The primary requirements for the Company's working capital during Fiscal
2000 are expected to be the costs associated with the expansion and development
of the coalbed methane gas and
10
<PAGE>
alternative feed /waste management businesses, the development activities of
Plateau Resources Ltd., ("Plateau") and Sutter Gold Mining Company ("SGMC"),
care and maintenance costs of the former SMP mineral properties, payments of
holding fees for mining claims, the Company's portion of the costs associated
with the GMMV properties should the Company elect to participate in the holding
costs and corporate general and administrative expenses.
New Business
To fund the purchase and development of the coalbed methane gas leasehold
interests described above, RMG is seeking equity funding. To acquire a 50%
working interest in 185,000 acres of leaseholds, RMG paid $3,200,000 to Quantum
Energy, ("Quantum") in January 2000. RMG further agreed to pay Quantum an
additional $1,000,000 in May 2000 and $1,300,000 on or before December 31, 2000.
If these payments are not made, the 50% working interest could be reduced. RMG
also has a $2,500,000 work commitment for drilling wells or completing
infrastructure on the Quantum properties.
Equity financing for the mineral development of SGMC and Plateau are
dependent on the market price of gold and uranium among other things. As of
February 29, 2000, the prices of these metals remained depressed and it is not
known when they will recover. The Company continues to be optimistic concerning
the future markets for these metals but cannot accurately forecast what the
prices will be in the short or long term markets. If the prices for these metals
do not increase in the short term, the working capital of the Company would be
impacted negatively due to permitting and stand-by costs associated with these
properties.
Plateau owns and operates the Ticaboo townsite, motel, convenience store,
boat storage, restaurant and lounge. Additionally, Plateau owns and maintains
the Tony M uranium mine and Shootaring Canyon Uranium Mill. The Company owns
Plateau but shares in the cash flow streams of the properties with Crested Corp.
("Crested") on a 50-50 basis. The Company is pursuing alternative uses for these
properties including alternative feed or waste disposal of low level nuclear
waste. The Company is seeking joint venture partners and equity financing to
enter into the alternative feed and waste disposal business as the expansion
into this business will require additional capital.
SGMC is also seeking to develop alternate uses of its mineral properties
until such time as the market price of gold increases to an economically viable
level. SGMC is developing a tourism related business that may generate
sufficient cash flows to cover the holding costs of the property. Prior to
placing the property into production additional capital will need to be
obtained.
Mineral Holding Costs
The care and maintenance costs associated with the Sheep Mountain uranium
mineral properties are the responsibility of the Company. The holding costs
during 2000 have been approximately $48,300 per month. The Company is currently
seeking alternative methods of managing the properties in an effort to reduce
these holding costs.
In 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 relative to the price and supply in the short
term uranium market. The management committee of the GMMV is endeavoring to
reduce the holding costs for the GMMV mine and mill
11
<PAGE>
properties. The Company has notified the GMMV management committee that they
have elected to be a non-participating partner in funding current holding costs.
By making this election, the Company will be diluted pursuant to the terms of
the GMMV contract. It is not believed that the dilution in the short term will
be material to the Company's ownership interest in the GMMV. The Company
received and deferred recognition of a $4,000,000 signing bonus in a prior year.
This bonus payment was received from KUC upon the execution of the Acquisition
Agreement on June 23, 1997. The Bonus is non refundable and will be used to
offset any future costs the Company may incur on the GMMV properties.
On November 10, 1999, KUC and Kennecott Energy Company filed a court action
in the Wyoming State Court against the Company. In its action, KUC expressed its
opinion that the GMMV was no longer economically viable and asked relief from
the court to allow the termination of the GMMV and the distribution of the
assets. The Company does not agree with the allegation made by KUC and has filed
its response. The ultimate outcome of these actions on the cash requirements of
the Company can not be predicted as of February 29, 2000. See item 1 in PART II
hereafter. Debt Payments
Debt to non-related parties at February 29, 2000 was $1,227,200 as compared
to $912,700 at May 31, 1999. The increase in debt to non-related parties
consists primally of debt due on the financing of equipment and annual insurance
premiums. The balance of the debt to non-related parties is for the purchase of
land and buildings by SGMC and various pieces of heavy equipment and bears
different interest rates with various maturity dates. All payments on the debt
are current.
Federal Income Tax Issues
The tax years through May 31, 1994 are closed after audit by the IRS. The
Company is currently attending appeals hearings with the IRS in Denver Colorado
to discuss resolving issues raised for fiscal 1995 and 1996. Although no
definite outcome can be predicted, the Company believes that there will not be a
material impact from the ultimate outcome of these hearings.
Reclamation Costs
It is not anticipated that any of the Company's working capital will be
used in fiscal 2000 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. The GMMV is in the process of
reclaiming an open pit mine near the Sweetwater Mill which was developed by a
previous owner. It is believed that the cost of reclamation will be covered by a
commitment by the prior owner to provide the initial $8,000,000 in reclamation
costs. These funds are to be recovered from an override on future production
through the Sweetwater Mill until such time as they are repaid. The reclamation
costs associated with the GMMV are carried on GMMV books. The GMMV is accounted
for by using the equity method.
The reclamation liability on the Plateau uranium properties is $7,382,100
which is reflected on the Balance Sheet as a reclamation liability. This
liability is fully covered by cash investments which are recorded as long term
restricted assets.
The future reclamation costs on the Sheep Mountain properties are
covered by a reclamation bond which is secured by a pledge of certain of
the Company's real estate assets. The reclamation
12
<PAGE>
bond amount is reviewed annually by the state regulatory agencies. The Company's
reclamation liability on the Sheep Mountain properties is $1,451,800.
Results of Operations
Three and Nine months ended February 29, 2000 Compared to Three and Nine months
ended February 28, 1999
During the three and nine months ended February 29, 2000, revenues
decreased from those revenues reported during the same periods of the previous
year by $4,896,100 and $4,674,000, respectively. During the three and nine
months ended February 28, 1999 the Company received $6,077,200 as a settlement
of the monetary damages in the SMP arbitration/litigation. There were no similar
revenues received in the three and nine months ended February 29, 2000. In
addition to the reduction in SMP settlement revenues, Mineral revenues,
Management Fees and Interest revenues decreased during the three and nine months
ended February 29, 2000. These reductions were caused by reduced mineral prices
paid on royalties, no uranium deliveries during the current year and reduced
activity at the GMMV and SMP properties on which management fees were charged.
These reductions in revenues were partially offset by increased revenues in
coalbed methane gas operations and oil sales. As noted above, the Company has
entered into the coalbed methane business and has contracted with third parties
to perform drilling and construction work. Oil sales increased due to increased
market prices for oil which allowed the Company to begin pumping its wells again
in the Lustre Field during the nine months ended February 29, 2000.
Costs and Expenses increased by $1,090,500 and $337,300 for the three and
nine months ended February 29, 2000. Increased costs and expenses came primarily
as a result of increased drilling activity in the coalbed methane gas business
which required a certain amount of start-up cost. Additionally, construction
costs and expenses increased as a result of the contract construction work being
performed for third party companies in the coalbed methane business. Offsetting
these increases for the nine months ended February 29, 2000 was a reduction in
General and Administrative expenses. This reduction came as a result of
decreased costs and expenses, including bonus payments, relating to the SMP
arbitration/litigation.
These reductions in revenues and increased costs and expenses resulted in
losses of $2,610,400 and $5,039,600 for the three and nine months ended February
29, 2000, respectively as compared to earnings during the comparative periods of
the previous year of $3,289,400 and $44,700.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Sheep Mountain Partners Arbitration/Litigation
In 1991, disputes arose between USE/Crested (USECC), and Nukem, Inc. and
its subsidiary Cycle Resource Investment Corp. ("CRIC"), concerning the
formation and operation of the Sheep Mountain Partners ("SMP") partnership for
uranium mining and marketing, and activities of the parties outside SMP.
Arbitration proceedings were initiated against USECC by CRIC in June 1991 before
the American Arbitration Association ("AAA"). A three member panel of the AAA
held hearings on the SMP issues and entered an Order and Award in April 1996 and
clarifying it in July 1996. The Order and Award were confirmed by the U.S.
District Court of Colorado in its Second Amended Judgment (the "Judgment") in
June 1997. The Judgment ordered Nukem/CRIC to pay USECC a monetary award and
ordered the uranium purchase contracts Nukem entered into with three CIS
republics including the purchase rights, the uranium acquired pursuant to those
rights and the profits therefrom, be impressed with a constructive trust in
favor of SMP of which USECC owned one half. Nukem appealed the Judgment to the
10th Circuit Court of Appeals (10th CCA). On October 22, 1998, the 10th CCA
issued its Order and Judgment affirming the District Court's Judgment (without
modification).
On November 13, 1998, Nukem/CRIC filed a motion for entry of full
satisfaction of the Judgment if Nukem/CRIC paid only the balance remaining due
on the monetary portion of the Judgment. USECC responded opposing the motion and
requesting payment of the balance of the monetary award. On February 8, 1999,
the District Court denied the motion of Nukem/CRIC for entry of final
satisfaction of the Judgment and ordered Nukem/CRIC to forthwith pay USECC the
balance of $5,971,600 plus interest of $105,700. Nukem/CRIC made that payment to
USECC on February 9, 1999.
On April 28, 1999, USECC filed a petition in the U.S. District Court to
dissolve SMP and for an accounting. Nukem/CRIC responded that the District Court
did not have jurisdiction and again filed a motion seeking entry of final
satisfaction of the Judgment. On July 16, 1999, the District Court again denied
the motion of Nukem/CRIC for entry of final satisfaction of Judgment and denied
USECC's petition for dissolution because neither USECC nor Nukem/CRIC petitioned
the Court for dissolution of SMP before the Court entered its Second Amended
Judgment. On August 2, 1999, Nukem/CRIC filed a Notice of Appeal to the 10th CCA
of the District Court's July 16, 1999 Order. Thereafter, USECC filed a request
with the District Court for post judgment assistance to compel Nukem to account
for its profits on the CIS contracts. This request was denied. USECC also filed
a motion to dismiss the appeal of Nukem/CRIC to the 10th CCA, which is pending.
On or about March 7, 2000, Nukem and CRIC filed their opening brief with the
10th CCA. U.S. Energy and Crested Corp. filed their answer brief on April 10,
2000 and Nukem and CRIC may file a reply brief within 20 days thereafter. Please
see Item 3 of the Company's 1999 Form 10-K and Item 1 of PART II of the November
30, 1999 Form 10-Q for more details of this arbitration/litigation.
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.) and their corporation Dejavue, Inc. sued USE,
Crested and others in the Utah 3rd Judicial District
14
<PAGE>
State Court. See Item 3 of the Company's 1999 Form 10K and Item 1. of PART
II of the November 30, 1999 Form 10-Q for more details. USE petitioned the
Supreme Court of Utah for a writ of certiorari to allow the approval of the
decision of the Court of Appeals. The petition is pending.
Kennecott Uranium Litigation
On November 10, 1999, Kennecott Uranium Company and Kennecott Energy
Company ("Kennecott") filed a civil action against defendants U.S. Energy Corp.,
Crested Corp. and USECC in the Sixth Judicial District Court, Campbell County,
Wyoming, No. 22406. Kennecott is seeking to dissolve the GMMV joint venture with
USECC and judicial approval of a plan to sell the GMMV or liquidate its assets
plus attorney fees and costs. Defendants filed a motion to change venue to the
District Court in Fremont County, Wyoming and the Sixth Judicial District Court
granted the motion. The case was then transferred to the Ninth Judicial District
Court of Fremont County, WY in Civil Action No. 31322. The parties have
initiated discovery proceedings each seeking production of documents from the
other and certain documents of the parties have been reviewed.
On March 13, 2000, Defendants U.S. Energy, Crested Corp. and USECC filed an
answer denying the various allegations of Kennecott and counterclaims against
Plaintiff Kennecott and its parent Rio Tinto plc. Defendants also filed a
separate third party complaint against Rio Tinto plc.
In their counterclaims and cross complaint U.S. Energy and Crested Corp.
allege various claims of breach of contract and fiduciary duties including
violation of laws against entry into agreements to prevent competition and
influence the production and market of uranium concentrate. U.S. Energy and
Crested Corp. are seeking $1,250,000,000 in compensatory damages and
$2,000,000,000 in punitive damages. Kennecott has filed a motion to dismiss the
complaint and Rio Tinto has filed a motion for judgment on the pleadings.
Briefings supporting the motions are underway. A hearing date on the respective
motions is currently set for May 30, 2000.
ITEM 4. Submission of Matters to Shareholders Holders for Vote.
On December 4, 1999, an annual meeting of shareholders was held and two
proposals were presented to shareholders for a vote. The results of the meeting
were reported in the Company's Form 10Q for the fiscal quarter ended November
30, 1999.
ITEM 5. Other Information.
On December 28, 1999, the Utah Department of Water Quality began public
advertisement of a notice for a public hearing on the water discharge permit for
the Shootaring Canyon uranium mill. The State issued the permit on March 17,
2000 and it will be reviewed by the Nuclear Regulatory Commission (NRC) to
determine if the permit is in compliance.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. No reports were filed on Form 8K during the
quarter ended February 29, 2000.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. ENERGY CORP.
(Company)
Date: April 14, 2000 By: /s/ Keith G. Larsen
----------------------------
KEITH G. LARSEN
President
Date: April 14, 2000 By: /s/ Robert Scott Lorimer
----------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 1,380,500
<SECURITIES> 0
<RECEIVABLES> 1,753,900
<ALLOWANCES> 0
<INVENTORY> 166,100
<CURRENT-ASSETS> 4,322,500
<PP&E> 25,245,700
<DEPRECIATION> 10,769,900
<TOTAL-ASSETS> 30,139,100
<CURRENT-LIABILITIES> 5,946,700
<BONDS> 0
0
0
<COMMON> 86,500
<OTHER-SE> 6,649,000
<TOTAL-LIABILITY-AND-EQUITY> 30,139,100
<SALES> 4,368,100
<TOTAL-REVENUES> 5,167,100
<CGS> 4,303,500
<TOTAL-COSTS> 10,364,700
<OTHER-EXPENSES> (180,300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,300
<INCOME-PRETAX> (5,039,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,039,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,039,600)
<EPS-BASIC> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
