FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal quarter ended FEBRUARY 28, 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 0-8773
CRESTED CORP.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-0608126
(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) 856-9272
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT APRIL 13, 1998
Common stock, $.001 par value 10,302,694 Shares
<PAGE>
CRESTED CORP. AND AFFILIATE
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
February 28, 1998 and May 31, 1997..................3-4
Condensed Consolidated Statements of Operations
Three and Nine Months Ended February 28, 1998
and February 28, 1997..............................5-6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 28, 1998
and February 28, 1997...............................7-8
Notes to Condensed Consolidated Financial Statements....9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....10-13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...................................14-15
ITEM 4. Submission of Matters to a Vote of Security Holders....15
ITEM 5. Other Information...................................16-17
ITEM 6. Exhibits and Reports on Form 8-K.......................17
Signatures.............................................18
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CRESTED CORP. AND AFFILIATE
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
February 28, May 31,
1998 1997
(Unaudited) (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 815,900 $ 37,100
Accounts receivable
Trade 82,000 63,900
Affiliates 876,400 596,200
Current portion of long-term receivable
Related parties 105,300 304,000
Inventory and other 64,900 48,300
--------- ---------
TOTAL CURRENT ASSETS 1,944,500 1,049,500
LONG-TERM NOTES RECEIVABLE 397,500 474,600
INVESTMENTS IN AFFILIATES 1,955,400 1,796,800
INVESTMENT IN CONTINGENT
STOCK PURCHASE WARRANT 651,000 651,000
PROPERTIES AND EQUIPMENT 5,716,600 5,181,300
Less accumulated depreciation,
depletion and amortization (3,162,200) (3,017,700)
---------- ----------
2,554,400 2,163,600
OTHER ASSETS 150,300 150,200
--------- ---------
$7,653,100 $6,285,700
See Notes to Condensed Consolidated Financial Statements
3
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CRESTED CORP. AND AFFILIATE
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28, May 31,
1998 1997
(Unaudited) (Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 113,000 $ 556,600
Deferred Income 2,000,000 --
Current portion of long-term debt
Affiliates 6,370,500 6,023,400
Others 53,200 12,400
--------- --------
TOTAL CURRENT LIABILITIES 8,536,700 6,592,400
LONG-TERM DEBT 48,700 15,800
ACCRUED RECLAMATION COSTS 725,900 725,900
COMMITMENTS AND CONTINGENCIES
FORFEITABLE COMMON STOCK, $.001 par value;
65,000 shares issued, forfeitable
until earned 43,900 43,900
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value;
authorized, 100,000 shares;
none issued or outstanding -- --
Common stock, $.001 par value;
authorized 20,000,000 shares;
issued 10,237,694 shares 10,200 10,200
Additional paid-in capital 6,375,400 6,375,400
Accumulated deficit (8,087,700) (7,477,900)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (1,702,100) (1,092,300)
----------- -----------
$ 7,653,100 $ 6,285,700
============ ===========
See Notes to Condensed Consolidated Financial Statements
4
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CRESTED CORP. AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
FEBRUARY FEBRUARY
<TABLE>
<CAPTION>
28, 1998 28, 1997 28, 1998 28, 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
<S> <C> <C> <C> <C>
Mineral Sales $ -- $ -- $429,300 $ --
Oil and gas sales 24,200 31,400 62,500 62,500
Mineral property
transactions 23,100 26,900 78,300 75,300
Interest 53,800 12,800 105,700 27,700
Rental 137,200 98,900 529,400 228,000
Other 296,600 124,000 637,100 287,500
------- ------- ----------- ------------
534,900 294,000 1,842,300 681,000
COSTS AND EXPENSE
Cost of sales 36,000 25,100 107,700 74,300
Mineral operations 187,700 114,300 549,300 272,800
Interest 5,200 8,800 15,800 22,500
General and
administrative 838,400 375,400 1,525,200 812,600
Depreciation, depletion
and amortization - 46,400 96,700 139,500
--------- ------ -------- ---------
1,067,300 570,000 2,294,700 1,321,700
--------- ------- --------- ---------
LOSS BEFORE EQUITY
INCOME (LOSS)
AND TAX PROVISION (532,400) (276,000) (452,400) (640,700)
EQUITY IN LOSS
OF AFFILIATES (66,000) (43,000) (157,400) (169,900)
------- ------- -------- ---------
LOSS BEFORE PROVISION
FOR INCOME TAXES (598,400) (319,000) (609,800) (810,600)
PROVISION FOR
INCOME TAXES -- -- -- --
------- ------- ------- -----
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
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CRESTED CORP. AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
Three Months Ended Nine Months Ended
FEBRUARY FEBRUARY
28, 1998 28, 1997 28, 1998 28, 1997
NET LOSS $ (598,400) $ (319,000) $ (609,800) $ (810,600)
=========== =========== =========== ===========
NET LOSS
PER SHARE $ (.06) $ (0.03) $ (.06) $ (.08)
======= ======= ======== =========
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 10,302,694 10,217,805 10,302,694 10,214,647
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements
6
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CRESTED CORP. AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
FEBRUARY
28, 1998 28, 1997
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (609,800) $(810,600)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation, depletion and amortization 155,100 139,500
Abandonment of mining claims -- --
Equity loss of affiliates 157,400 169,900
Loss (gain) of sale of asset (800) --
Other -- (2,200)
Deferred income 2,000,000 2,103,800
Non-cash compensation - 700
Net changes in components and working ca (758,600) (395,400)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 943,300 1,205,700
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (40,300) (174,400)
Proceeds from collection of notes receiv 316,100 36,300
Development of mining claims (600) --
Investment in affiliates (316,000) (404,300)
Purchase of property and equipment (546,500) ( 35,600)
Proceeds from sale of assets 2,000 -
------ -------
NET CASH USED IN INVESTING ACTIVITIES (585,300) (578,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt 503,900 112,600
Principle payment on long-term debt (83,100) (730,600)
-------- ---------
NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES 420,800 (618,000)
See Notes to Condensed Consolidated Financial Statements
7
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CRESTED CORP. AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Nine Months Ended
FEBRUARY
28, 1998 28, 1997
(Unaudited) (Unaudited)
NET INCREASE IN CASH
AND CASH EQUIVALENTS 778,800 9,700
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 37,100 52,600
--------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 815,900 $ 62,300
========= ========
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 15,800 $ 22,500
========= ========
Income tax paid $ 9,500 $ -
========= =========
See Notes to Condensed Consolidated Financial Statements
8
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CRESTED CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) The Condensed Consolidated Balance Sheet as of February 28, 1998, the
Condensed Consolidated Statements of Operations for the nine months and the
three months ended February 28, 1998 and February 28, 1997, and Condensed
Consolidated Statements of Cash Flows for the nine months ended February 28,
1998 and February 28, 1997, have been prepared by the Company ( "Crested")
without audit. The Condensed Consolidated Balance Sheet of May 31, 1997, has
been taken from the audited financial statements included in the Company's
Annual Report on Form 10-K filed for the year then ended. 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 affiliate as of February 28, 1998 and
May 31, 1997, the results of operations for the three months and nine months
ended February 28, 1998 and February 28, 1997, 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, 1997 Form 10-K. The
results of operations for the periods ended February 28, 1998 and February 28,
1997 are not necessarily indicative of the operating results for the full year.
3) The condensed consolidated financial statements of the Company include
its proportionate share of the accounts of USECB Joint Venture ("USECB" or
"USECC") which is owned 50% by Company and 50% by Company's parent, U.S. Energy
Corp. ("USE"). All material intercompany profits and balances have been
eliminated.
4) Debt at February 28, 1998 and May 31, 1997 consists primarily of an
account payable to the Company's parent USE of $6,370,500 and $6,023,400,
respectively. The remaining debt is for various equipment.
5) Accrued reclamation obligations of $725,900 represent the Company's
share of the reclamation liability at the Crooks Gap Mining District. This
reclamation work may be performed over several years.
6) Certain reclassifications have been made in the May 31, 1997 financial
statements to conform to the classifications used in February 28, 1998.
9
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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 nine months ended February 28, 1998, the Company's current assets
increased by $895,000 to a balance of $1,944,500. This increase is primarily due
to a net increase of cash $778,800 and an increase of $280,200 in Accounts
Receivable related parties. The increase in cash was a result of the Acquisition
Agreement entered into during the three months ended August 31, 1997 between the
Company, its parent U.S. Energy Corp. ("USE") and Kennecott Uranium Company
(Kennecott). As a result of the Acquisition Agreement, the Company and USE
received a $4,000,000 signing bonus and a loan of $16,000,000 to continue to
develop the Green Mountain Mining Venture (GMMV) mining properties and
Sweetwater Mill. The $4,000,000 signing bonus was forfeitable through December
1, 1997, unless certain conditions were met by the Company and USE. Although the
conditions were met and the signing bonus was no longer forfeitable, under
generally accepted accounting principals the Company's portion, $2,000,000
continues to be carried as a deferred revenue item until such time as the
Acquisition Agreement is closed or terminated. If the Acquisition Agreement is
terminated, the GMMV will continue to hold the properties and only Kennecott
will be responsible for paying back the amount loaned under the $16,000,000
development loan to a Kennecott affiliate and the 50% interest of Crested and
USE will not be impacted.
The Company also received cash in the amount of $429,300, which is one half of
the proceeds the Company and USE received for the sale of uranium under a Sheep
Mountain Partners (SMP) contract, and $78,300 as an advance royalty from
Cyprus/AMAX. As a result of the GMMV operations, the Company and USE invoiced
the GMMV a total of $5,438,500 for direct costs, management fees and equipment
rental during the nine months ended February 28, 1998. Of the total amount
invoiced to the GMMV, $622,950 (an increase of $212,450) had not been paid to
the Company as of Februrary 28, 1998. However, the quarter-end balance was paid
in full in March of 1998. The Company and USE continued to fund SMP and the
Plateau Resources ("Plateau") operations. SMP has not reimbursed the Company and
USE for their direct costs for maintaining the SMP properties on standby and is
subject to the Arbitration Panel's Award and pending litigation.
The primary uses of cash by the Company were the reduction of Accounts Payable
of $443,600; purchases of Property Plant and Equipment of $546,500; increases in
the Investment in Affiliates of $316,000, and the repayment of Long Term Debt of
$83,100. The Company and USE's Chairman and CEO retired $432,000 in amounts owed
to the Company and USE. This was done as a result of the decision of the board
of director and compensation committee of USE granting the Company's and USE's
Chairman and CEO John L. Larsen a bonus of $615,000 for his excellent work in
acquiring Kennecott as a joint venture partner in 1990 for $15,000,000 in cash
10
<PAGE>
plus a $50,000,000 commitment to USECC to develop the Green Mountain properties;
the negotiations by Mr. Larsen in acquiring Plateau Resources Ltd. with the
Shootaring Mill and the most recent negotiations for USECC to enter into the
Acquisition Agreement to acquire Kennecott's interest in GMMV resulting in the
signing bonus of $4,000,000 to the Company and US. The Companies and Mr. Larsen
agreed that the bonus is further in full settlement of the $1,000,000 bonus to
the CEO authorized by the USE board of directors in 1993 which was conditioned
on the spot price of uranium concentrates and cash distributions from the GMMV
to the Company and USE.
The primary requirements for the Company's working capital continue to be
funding of the on-going administrative expenses; mine and mill holding and start
up costs of Plateau; the holding costs of the SMP mines; on-going litigation
expenses associated with the SMP dispute, and certain uranium delivery costs
associated with SMP utility contracts. Nukem and CRIC are currently making most
of the SMP uranium deliveries. No assurance can be given that this method of
delivery will continue. The capital requirements to fill the Company's and USE's
portion of the remaining commitments in fiscal 1998 will depend on the spot
market price of uranium and may also be dependent on the outcome of the
Arbitration/ Litigation Award involving Nukem and CRIC, which Nukem and CRIC
have appealed to the 10th Circuit Court of Appeals.
The primary source of the Company's capital resources for the remainder of
fiscal 1998 will be reimbursement available through the GMMV (see discussion
below); cash on hand; the potential settlement of the Nukem/CRIC
Arbitration/Litigation; uranium deliveries pursuant to the SMP contracts;
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, USE and Sutter Gold Mining Company ("SGMC") are currently seeking
additional financing for the construction of the gold processing mill and mine
development of SGMC. See discussion under SGMC below. An additional $8 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 at the SMP uranium mines
may require additional funding, depending on the outcome of the SMP arbitration.
See Part II, Item 1 "Legal Proceedings" below.
GMMV
On June 23, 1997, the Company and USE 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 considerations. This information was previously
reported in the Company's Form 10-Q (Item 2) for the fiscal quarter ended August
31, 1997. As a result of this agreement, it is believed that no internal funding
will be required by the Company and Crested for the GMMV at either the
Sweetwater Mill or the Jackpot Mine.
11
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Pursuant to the Acquisition Agreement which includes the Mineral Lease and the
Mill Contract, USECC is developing the proposed Jackpot Mine and working with
Kennecott in preparing the Sweetwater Mill for renewed operations. Such work is
being funded from the $16,000,000 loan provided to the GMMV by Kennecott. Under
the Fourth Amendment of the GMMV Agreement, (which amendment was affected
pursuant to the Acquisition Agreement), Kennecott will be entitled to a credit
against its 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
loan provided by Kennecott to the GMMV, plus the $4,000,000 bonus paid to the
Company and USE on signing of the Acquisition Agreement.
Closing of the Acquisition Agreement is subject to the Company and USE
satisfying several conditions on or before the extended closing date of October
30, 1998. If the Acquisition Agreement is never closed, Kennecott and USECC,
shall own their respective 50% interest in the GMMV and the obligation to repay
the $16,000,000 loan shall remain Kennecott's obligation, without any adverse
effect on the 50% interest in the GMMV held by the Company and USE.
SUTTER GOLD MINING COMPANY
The preliminary prospectus to qualify a previous special warrant offering
prospectus of Sutter Gold Mining common stock has been filed with the Ontario
Securities Commission with a copy to the Toronto Stock Exchange. An additional
$8 million must be raised to fund the development costs to place the SGMC
properties in production. It is not anticipated that any of the Company's funds
will be required to fund these operations. Subsequent to the quarter ended
February 28, 1998 USE purchased certain Special Warrants of Sutter Gold. Please
refer to Item 5 below. It is unlikely SGMC will be listed on the Toronto Stock
Exchange until such time as gold prices recover further from the drop in prices
in 1997.
SHEEP MOUNTAIN PARTNERS
Nukem and CRIC filed their opening brief in their appeal to the 10th Circuit
Court of Appeals on December 12, 1997. The Company and USE filed their answer
brief on January 12, 1998. Thereafter, Nukem and CRIC filed a reply brief. On
April 13, 1998, the Deputy Clerk of Court advised all counsel that a three-judge
panel had reviewed the briefs and record on appeal and oral arguments are not
needed. See Item 1, Part II below. No assurance can be given as to the ultimate
outcome.
Until such time as these issues are resolved, the Company and USE may be
required to fund the standby costs of the Sheep Mountain Partners' mines. The
Company and USE 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 and filed suit in Wyoming to foreclose the lien. The case has been
stayed and the issues will be heard in the Denver District Court. See Item 1,
Part II below.
12
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RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE AND NINE MONTHS
ENDED FEBRUARY 28, 1997
Revenues for the nine months ended February 28, 1998, increased by $1,161,300
over the same period of the prior year. The increase in revenues primarily is as
a result of a delivery pursuant to one of the SMP delivery contracts wherein a
net profit of $429,300 was recognized by the Company and an increase of $301,400
in rental revenues which consist primarily of the rental of equipment and real
estate. There were no uranium sales during the nine months ended February 28
1998. The increase of equipment rentals is as a result of increased equipment
rentals to the GMMV under the June 23, 1997 Acquisition Agreement discussed
above. Management fees and other Revenues increased by $349,600 during the nine
month period ended February 28, 1998, over the same period ended February 28,
1997, due primarily to management fees charged on increased activities provided
to various subsidiary companies and partnerships by the Company and USE.
Other than the increases in Mineral Operations of $276,500 and General and
Administrative expenses of $712,600, costs and expenses remained relatively
constant with those experienced during the nine month period of the prior year.
Mineral Operations and General and Administrative expenses increased due
primarily to additional staff to administer the development of the GMMV and the
bonus given to the Company and USE's Chairman and CEO.
Equity in loss of in affiliates decreased by $12,500 over the prior year during
the nine months ended February 28, 1997; to a total of $157,500.
Operations for the nine month period ended February 28, 1998, resulted in a loss
of $609,800 or $0.06 per share as compared to a loss of $810,600 or $0.08 per
share for the same period from the previous year. The decrease in the loss is
primarily as a result of increased revenues for the sale of Uranium and the
rental of equipment which were offset by increases in mineral costs, and the
increased administrative costs associated with expanded operations. Operations
for the three months ended February 28, 1998, resulted in a loss of $598,401 or
$0.06 per share as compared to a loss of $319,000 or $0.03 per share during the
quarter ended February 28, 1997. This increase in the loss for the quarter is
primarily associated with the bonus given the Company's Chairman and CEO and
increased costs associated with mining and administrative costs.
13
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
(a) SHEEP MOUNTAIN PARTNERS ARBITRATION/LITIGATION. The information called
for in this Item 1 has been previously reported in the Company's Form 10-K (Item
3) for the fiscal year ended May 31, 1997 and Item 1, Part II of the Company's
Form 10-Q for the quarters ended August 31, 1997 and November 30, 1997. This
report discloses the status of the consensual arbitration/litigation in the U.S.
District Court of Colorado and 10th Circuit Court of Appeals involving the
Company and U.S. Energy Corp. 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, a Second
Amended Judgment was entered on June 30, 1997, by Judge Lewis T. Babcock of the
U.S. District Court of Colorado wherein the Court again confirmed the
Arbitration Award ordering Nukem to pay USECC a net of approximately $8,600,000
as monetary damages and 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 "CIS contracts"). 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, Amended Judgment
and Second Amended Judgment with the 10th Circuit Court of Appeals. USECC filed
a motion to increase the supersedeas bond Nukem posted for $8,613,600 to cover
the value of the CIS contracts, but the 10th Circuit Court denied the motion.
Nukem/CRIC filed their Appellants' opening brief with the 10th Circuit Court of
Appeals on December 12, 1997. USECC filed its Appellees' brief on January 12,
1998. Nukem/CRIC filed a reply brief on January 26, 1998. On April 13, 1998,
Company received a notice to all counsel in the appeal from the Deputy Clerk of
the 10th Circuit Court advising that the case was referred to a three-judge
panel and after examination of the briefs and record on appeal, the panel was of
the unanimous opinion that oral arguments were not needed. Nukem and CRIC have
the opportunity to file within ten days with the Court a statement of reasons
for oral argument. The Court also required Nukem and CRIC to initiate a
mandatory settlement conference and a report of the proposed conference shall be
filed with the Clerk.
(b). BGBI LITIGATION. The information called for in this Item 1 has been
previously reported in the Company's Form 10-K (Item 3) for the fiscal year
ended May 31, 1997 and Item I part II of the Company's Form 10-Q for the quarter
ended November 30, 1997. This report discloses the status of the lawsuit filed
by Plaintiff Bond Gold Bullfrog Inc. in Nye County, NV against the Defendants
Company, USE and Parador Mining Company, Inc. regarding Parador's lease to Bond
Gold of two patented mining claims. On December 18, 1997, at a hearing before
the District court on motions for summary judgment by all parties, the Court
granted various motions of the parties but denied plaintiff's motions for
summary judgment on the breach of Parador's lease and the issue of specific
performance by plaintiff. The Court denied defendants' motion for summary
judgment on plaintiff's claim for breach of contract. Thus, the issues of breach
of contract by both BGBI for specific performance by plaintiff. The Court denied
defendants' motion for summary judgment on plaintiff's claim for breach of
contract. Thus, the issues of breach of contract by both plaintiff BGBI and
these defendants and BGBI for specific performance remained and were tried
before the Court commencing on January 26, 1998. After the trial, the Court
found against the parties on their respective claims and the plaintiff
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and these defendants filed a Notice of Cross-Appeal and Notice of Appeal,
respectively to the Nevada Supreme Court. The record on appeal has been filed
with the Nevada Supreme Court and the appeals process is now being followed.
(c). On September 16, 1991, Company and USE d/b/a USECC as plaintiffs,
filed Civil Action No. 91CV7082 in the Denver District Court, wherein plaintiffs
were seeking reimbursement of $85,000 per month from the spring of 1991 for
maintaining the SMP uranium mines at Crooks Gap on a standby basis. On behalf of
SMP, CRIC filed an answer, affirmative defenses and a counterclaim against
plaintiffs denying that SMP owed plaintiffs any money. Plaintiffs filed a Motion
for Summary Judgment and the Denver District Court Judge denied the motion and
stayed all proceedings until the case involving plaintiffs and CRIC and Nukem
were resolved in the U.S. District Court for Colorado. This matter was submitted
to arbitration in February 1994, and on April 18, 1996, the Arbitration Panel
awarded USECC $2,512,823 plus per diem interest of $616 against Nukem and CRIC
jointly and severally for standby costs through March 31, 1996. When Nukem and
CRIC appealed the confirmation of the Arbitration Award, they posted a
supersedeas bond to cover this portion of the Award. USECC continued to maintain
the SMP underground and open pit mines in Fremont County, Wyoming so USECC filed
a lien for such expenditures on the SMP mining properties from March 31, 1996
and in 1997, filed a civil action to foreclose the lien in a Wyoming District
Court. Nukem and CRIC resisted the foreclosure case in Wyoming claiming the
Denver District Court had jurisdiction because of the forum selection clause
referred to Colorado as the jurisdiction for such claim in the Operating
Agreement between SMP and USECC. The Court enjoined USECC from proceeding with
the foreclosure action in the Wyoming Court and various pleadings have been
filed by both parties in the Denver District Court where the case is now
pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 5, 1997, an annual meeting of shareholders was held and five
directors, John L. Larsen, Max T. Evans, Daniel P. Svilar, Michael D. Zwickl and
Kathleen R. Martin were reelected for a term expiring at the next succeeding
annual meeting and until their successors are duly elected or appointed and
qualified.
The vote as follows:
NAME OF DIRECTOR FOR AGAINST ABSTAIN WITHHELD
John L. Larsen 8,601,807 8,400 31,500 8,330
Max T. Evans 8,604,807 8,400 31,500 5,330
Daniel P. Svilar 8,602,807 8,400 31,500 7,330
Michael D. Zwickl 8,602,807 8,400 31,500 7,330
Kathleen R. Martin 8,602,507 8,400 31,500 7,630
15
<PAGE>
ITEM 5. OTHER INFORMATION
Subsequent to February 28, 1998, USE entered into four separate Stock Purchase
Agreements with four Canadian investment funds, for the issuance of 658,895
shares of Common Stock of USE, in consideration of the funds' payment to USE of
US$1,190,000 in cash and the delivery to USE of 888,900 Special Warrants of
Sutter Gold Mining Company ("SGMC"), a subsidiary of USE. The funds had paid
SGMC a total of Cdn$4,888,950 in May 1997, pursuant to a private offering in
Canada, to purchase the Special Warrants from SGMC. Each Special Warrant
entitled the holder to acquire from SGMC, at no further cost, one share of
Common Stock of SGMC, and one Purchase Warrant; each Purchase Warrant would have
entitled the holder to purchase one share of Common Stock of SGMC, at a price of
Cdn $6.00 per whole share (the "Purchase Warrants"), during the 18 months
following the May 1997 closing of the offering of the SGMC Special Purchase
Warrants.
Pursuant to the terms and conditions of the Special Warrants, if SGMC were to
fail to obtain prospectus qualification before the October 10, 1997
qualification deadline (as such terms were defined in the Special Warrants) from
the securities commissions of the Canadian Provinces wherein purchasers of the
Special Warrants reside, the holders of the Special Warrants would be entitled
to receive a dilution penalty in the amount of 1.1 shares of Common Stock of
SGMC and 1.1 Purchase Warrants, for each Special Warrant exercised after the
qualification deadline if prospectus qualification were not obtained by the
qualification deadline. Such qualification required listing of the SGMC shares
and Purchase Warrants on a principal Canadian stock exchange.
The prospectus qualification has not been obtained by SGMC, due to the drop in
gold prices during the latter part of 1997 and the resulting lack of interest in
new listings of gold companies in the Canadian markets. However, none of the
four Canadian funds, nor any other investor in the Canadian offering, has
received additional shares of SGMC Common Stock or additional Purchase Warrants
in payment of the dilution penalty with respect to the Special Warrants and
their constituent securities.
Each of the four Canadian funds, in order to diversify and increase their
original investment, made offers to USE to purchase shares of Common Stock of
USE. Each of the four funds, and USE, negotiated the terms of acceptance of the
funds' offer by USE. As a result of the offer and subsequent negotiations with
each of the funds, USE entered into the four Stock Purchase Agreements with the
funds.
As of the date hereof, pursuant to the Stock Purchase Agreements, USE has
received consideration for its issued shares consisting of (i) net cash
proceeds, from all four funds, of US$1,102,464 (after deduction of US$87,536 in
legal fees and a fee paid to a Canadian investment banking firm); (ii) 684,300
Special Warrants of SGMC (from three of the four funds); and (iv) the
relinquishment by each of the four funds of their rights to the dilution
penalty. USE has issued 546,365 shares of Common Stock as of the date hereof in
consideration of the cash, the Special Warrants received to date and the
relinquishments. The USE shares are restricted securities. Pursuant to the terms
of the Stock Purchase Agreements, USE will file a resale registration statement
with the Securities and Exchange Commission, to permit the resale of the subject
shares by the funds. When the registration statement is declared effective, the
balance of 112,530 shares of USE Common Stock will be issued to the fourth
16
<PAGE>
fund, and that fund will deliver its 204,600 Special Warrants to USE in payment
for such 112,530 shares of USE Common Stock. Such 112,530 shares of USE Common
Stock issued to the fourth fund will be included in the resale registration
statement.
The dilution penalty, if paid, would have resulted in the issuance to the funds
of an additional 88,890 shares of Common Stock of SGMC and Purchase Warrants to
buy another 88,890 shares of Common Stock of SGMC. USE will retain the SGMC
Special Warrants acquired to date from three of the funds (and will retain the
fourth fund's Special Warrants when acquired). It is possible that the dilution
penalty may have to be paid with respect to Canadian investors in the Special
Warrants other than the four Canadian funds.
The Stock Purchase Agreements closed as of April 7, 1998, at which date the
closing bid price of USE shares was US$6.876. A price of US$7.00 was utilized by
the funds and by USE for purposes of determining the number of USE shares to be
issued under the Stock Purchase Agreements. There will not be any adjustment in
the terms of the fourth fund's Stock Purchase Agreement for any changes in USE
share market prices when the final portion of that Agreement is closed.
The USE compensation committee is to review the transaction with the above four
funds on a division of the SGMC Special Warrants acquired by USE, between USE
and Crested and make its recommendation to the boards of directors of USE and
the Company.
The accounting treatment of the transaction with the funds will be set forth in
the full year financial statements for USE, which will be included in the Form
10-K Report for fiscal year ending May 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. There were no Reports filed by the Registrant on
Form 8-K during the quarter ended February 28, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CRESTED CORP.
(Registrant)
Date: April 13, 1998 By: S/ MAX T. EVANS
------------------
MAX T. EVANS,
President
Date: April 13, 1998 By: S/ ROBERT SCOTT LORIMER
--------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
18
<PAGE>
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<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> Jun-01-1997
<PERIOD-END> Feb-28-1998
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<INCOME-PRETAX> (609,800)
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