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, 1999 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, address and 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, 1999
- --------------------------------------------------------------------------------
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, 1999 and May 31, 1998...........................3-4
Condensed Consolidated Statements of Operations
Three and Nine Months Ended February 28, 1999 and 1998.........5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 28, 1999 and 1998...................6
Notes to Condensed Consolidated Financial Statements..............7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................8-12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................13-14
ITEM 4. Submission of Matters to Security Holders for Vote...............14
ITEM 6. Exhibits and Reports on Form 8-K.................................15
Signatures.......................................................16
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<S> <C> <C>
February 28, May 31,
1999 1998
------------ -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $4,118,500 $1,012,700
Accounts receivable
Trade, net 41,300 89,500
Affiliates 1,530,900 939,900
SMP settlement receivable, net -- 2,513,000
Current portion of long-term note receivables
Related parties 114,600 227,800
Inventory and other 66,500 26,400
------------ -------------
TOTAL CURRENT ASSETS 5,871,800 4,809,300
LONG-TERM NOTES RECEIVABLE
Related parties 211,100 116,500
Real estate sales, net of valuation
allowance of $882,900 182,500 182,500
INVESTMENTS IN AFFILIATES 1,432,000 1,643,300
INVESTMENT IN CONTINGENT
STOCK PURCHASE WARRANT 651,000 651,000
PROPERTIES AND EQUIPMENT 5,852,200 5,876,700
Less accumulated depreciation,
depletion and amortization (3,385,100) (3,221,700)
2,467,100 2,655,000
OTHER ASSETS 155,300 153,800
$ 10,970,800 $10,211,400
</TABLE>
See notes to Condensed Consolidated Financial Statements.
3
<PAGE>
CRESTED CORP. AND AFFILIATE
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
February 28, May 31,
1999 1998
------------ --------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 171,800 $ 698,800
Deferred GMMV Purchase Option 2,000,000 2,000,000
Current portion of long-term debt
Affiliate 7,162,600 6,547,100
Others 53,400 36,400
----------- -----------
TOTAL CURRENT LIABILITIES 9,387,800 9,282,300
LONG-TERM DEBT 22,400 42,100
ACCRUED RECLAMATION LIABILITY 725,900 725,900
COMMITMENTS AND CONTINGENCIES
FORFEITABLE COMMON STOCK, $.001 par value
65,000 shares issued, forfeit able until earned 43,900 43,900
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value;
100,000 shares authorized;
none issued or outstanding -- --
Common stock, $.001 par value;
20,000,000 shares authorized;
10,237,694 shares issued and outstanding 10,200 10,200
Additional paid-in capital 6,375,400 6,375,400
Accumulated deficit (5,594,800) (6,268,400)
------------ --------------
TOTAL SHAREHOLDERS' EQUITY 790,800 117,200
------------ --------------
$10,970,800 $10,211,400
============ ==============
</TABLE>
See notes to Condensed Consolidated Financial Statements.
4
<PAGE>
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
1999 1998 1999 1998
<TABLE>
<S> <C> <C> <C> <C>
REVENUES:
Mineral revenue $ 17,500 $ 23,100 $ 17,500 $ 429,300
Commercial operations 52,600 137,200 439,900 529,400
Oil sales 14,800 24,200 41,700 62,500
Royalties from mineral interests 16,500 - 58,800 78,300
(Loss) on sale of assets (4,600) - (4,600) -
Interest 37,100 53,800 105,500 105,700
SMP settlements, net 3,038,600 - 3,038,600 -
Management fees and others 142,800 296,600 438,400 637,100
- - ---------- ---------- ----------- ----------
3,315,300 534,900 4,135,800 1,842,300
COSTS AND EXPENSES:
Mineral operations $ 337,600 $ 178,200 $ 889,600 $ 523,100
Commercial operations 446,800 36,000 870,700 107,700
Oil Production 8,900 9,500 28,400 26,200
Interest 10,100 5,200 23,200 15,800
General and administrative 515,100 838,400 1,436,000 1,621,900
---------- --------- ----------- ----------
1,318,500 1,067,300 3,247,900 2,294,700
---------- --------- ----------- ----------
INCOME (LOSS) BEFORE
EQUITY IN LOSS OF AFFILIATE
AND PROVISION FOR INCOME
TAXES 1,996,800 (532,400) 887,900 (452,400)
EQUITY IN GAIN (LOSS) OF AFFILIATE 96,600 (66,000) (214,300) (157,400)
---------- ---------- ----------- ----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 2,093,400 (598,400) 673,600 (609,800)
PROVISION FOR INCOME TAXES - - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $2,093,400 $ (598,400) $ 673,600 $ (609,800)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE,
BASIC AND DILUTED $ 0.20 $ (0.06) $ 0.07 $ (0.06)
========== ========== ========== ==========
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 10,237,694 10,302,694 10,237,694 10,302,694
========== ========== ========== ==========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 10,302,694 10,302,694 10,302,694 10,302,694
========== ========== ========== ==========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
5
<PAGE>
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Statements of Cash Flows
Nine Months Ended
February 28,
---------------------------
1999 1998
(Unaudited) (Unaudited)
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 673,600 $ (609,800)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation, depletion and amortization 169,200 155,100
Equity in loss of affiliates 214,300 157,400
Loss (Gain) on sale of assets 4,600 (800)
Deferred GMMV Purchase Option - 2,000,000
Net changes in components
of working capital 1,403,100 (758,600)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,464,800 943,300
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in notes receivable 18,600 275,800
Investments in affiliates (3,000) (316,000)
Purchase of property and equipment (35,900) (546,500)
Proceeds from sale of assets 50,000 2,000
Increase in other assets (1,500) -
Development of mining claims - (600)
---------- ----------
NET CASH PROVIDED BY( USED IN) INVESTING ACTIVITIES 28,200 (585,300)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from third party debt 100,500 313,300
Payment on long term debt (103,200) (239,600)
Net activity on long term debt due to affiliate 615,500 347,100
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 612,800 420,800
---------- ----------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 3,105,800 778,800
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,012,700 37,100
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,118,500 $ 815,900
========== ==========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 23,200 $ 15,800
========== ==========
Income tax paid $ 6,285 $ 9,500
========== ==========
</TABLE>
6
<PAGE>
CRESTED CORP.
Notes to Condensed Consolidated Financial Statements
1) The Condensed Consolidated Balance Sheet as of February 28, 1999 the
Condensed Consolidated Statements of Operations for the three and nine months
ended and the condensed consolidated statement of Cash Flows for the nine months
ended February 28, 1999 and 1998, have been prepared by the Company without
audit. The Condensed Consolidated Balance Sheet at May 31, 1998, 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, 1999 and May 31, 1998, the
results of operations for the three and nine months ended February 28, 1999 and
1998, and the consolidated statements of 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, 1998 Form 10-K. The
results of operations for the periods ended February 28, 1999 and 1998 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 inter-company profits and balances have been
eliminated.
4) Deferred GMMV Purchase Option at February 28, 1999 and May 31, 1998
consists of the Company's half of the $4,000,000 Signing Bonus received when the
Company and its parent, USE entered into an Acquisition Agreement with Kennecott
Uranium Company to acquire the Green Mountain Mining Venture ("GMMV")
properties. (See GMMV discussion in Item 2).
5) During the nine months ended February 28, 1998 the Company received
$5,551,900 in cash as a result of the settlement of the monetary portion of the
SMP Arbitration Order and Award. The Company recognized revenues of $3,038,600
during the quarter ended February 28, 1999, the balance of revenues were
recognized at the year ended May 31, 1998. The Company and USE continued to
pursue the enforcement of the equitable portions of the Order and Award.
6) Debt at February 28, 1999 and May 31, 1998 consists primarily of the
balance on a note payable to the Company's parent USE of $7,162,600 and
6,547,100, respectively. The remaining long-term debt of $75,800 at February 28,
1999 and 78,500 at May 31, 1998 is for various equipment purchases and the
financing of annual insurance premiums through financial institutions.
7) The reclamation liability of $725,900 represents the Company's 50% share
of the liability at the Sheep Mountain Mines in the Crooks Gap Mining District.
This 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 are abandoned. It is not anticipated
that either of these events will occur for sometime into the future.
8) 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.
7
<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.
Liquidity and Capital Resources
During the nine months ended February 28, 1999, the Company received
$5,551,900 in cash as a result of a partial settlements of the Sheep Mountain
Partners ("SMP") arbitration. Of this amount, $3,038,600 was recognized by the
Company as revenue during the nine months ended February 28, 1999 and
$2,295,000, net, during the year ended May 31, 1998. The receipt of these cash
settlements increased the cash position of the Company at February 28, 1999 to
$4,118,500 or a net increase for the nine months in cash of $3,105,800. Other
increases in components of working capital were increases in Inventory and other
of $40,100 and Accounts Receivable Affiliates of $591,000. Inventory and other
increased by $40,100 as a result of prepaid insurance incurred for fiscal 1999.
Accounts Receivable Affiliates increased due to the Company and its parent U.S.
Energy Corp. ("USE") advancing funds for the Green Mountain Mining Venture
("GMMV") operations that had not been reimbursed by the GMMV as of February 28,
1999. The Company and USE continue to work with Kennecott on resolving the
balance due.(Please see the GMMV discussion below)
The major component of decreased working capital during the nine months
ended February 28, 1999, is an increase in the current portion of long-term
debt. Long term debt and the current portion of long term debt increased by
$612,800 during the nine months ended February 28, 1999. This increase is due to
amounts owed USE for shared expenses that USE paid on behalf of the Company. The
other increase in debt was as a result of financing the Company's portion of
pre-paid insurance premiums, which increased debt by $100,500.
Capital Resources
General: The primary source of the Company's capital resources for the
remaining three months of fiscal 1999 are the cash on hand at February 28, 1999;
the potential receipt of cash from the equitable portion of the SMP Arbitration
Order and Award which impressed a constructive trust on the contracts Nukem
entered into with three CIS republics; possible equity financing from affiliated
companies, and proceeds under the line of credit once it is renewed. The Company
will continue to rely on USE to provide funding for its expenditures for the
remaining three months of fiscal 1999. Additionally, the Company and USE will
continue to offer for sale various non-core assets such as equipment, lots and
homes in Ticaboo, real estate holdings in Wyoming, Colorado and Utah and mineral
interests. Interest, rentals of real estate holdings and equipment, commercial
operations at Ticaboo, aircraft chartering and aviation fuel sales, also will
provide cash.
Line of Credit: The Company and USE had a $1,000,000 line of credit with a
commercial bank. The line of credit was secured by various real estate holdings
and equipment belonging to the Company and USE. The Company and USE are
negotiating with the commercial bank to increase the line of credit to
$3,000,000. No assurance can be given that the line of credit will be increased.
The bank has however indicated that the line of credit will be renewed for at
least its original amount. It is anticipated that this renewal will occur prior
to year end at May 31, 1999. The line of credit will 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, respectively among other conditions. As of February 28, 1999, the
prices for these metals remained depressed and it is not known when they will
8
<PAGE>
recover. The Company and USE continue 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 price for these metals do not
increase in the short term, the working capital of Company and USE will be
impacted negatively due to holding costs of the properties and the ability of
raising equity funding could be impaired.
Summary: The Company believes that cash on hand at February 28, 1999 as
well as proceeds from the renewed line of credit, if needed, the anticipated
proceeds from the SMP Arbitration Order and Award and the Company's continued
reliance on USE, 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 of the Company's mineral properties.
Capital Requirements
General: The primary requirements for the Company's working capital during
the remainder of 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 acquired from SMP in June of 1998, 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 plans and budget and
corporate general and administrative expenses.
SGMC: The Company owns a minority interest in SGMC and is therefore not
directly responsible for the ongoing administrative and development costs of the
properties owned by SGMC. Through its affiliation with USE however, the Company
assists in the efforts to secure financing to place the SGMC properties into
production. SGMC is currently negotiating with an equity banking firm to raise
the funds necessary to complete the mine and mill complex and place the property
into production. In addition to developing the mineral property, SGMC plans to
construct a visitors center on its property which will generate additional cash
flows. No assurance can be given that SGMC will be successful in raising the
necessary funds to complete these projects through equity markets.
SMP: As part of a settlement agreement reached during the fourth quarter of
1998, the SMP mines and associated properties were transferred to the Company
and USE. The holding and reclamation costs associated with these mining
properties are now the responsibility of the Company and USE. The holding costs
have been approximately $65,000 per month for the last two fiscal years. The
Company and USE 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 real
estate assets owned by the Company and USE. The dollar amount for the
reclamation bond is reviewed annually by regulatory agencies. The Company's
portion of the reclamation liability on the SMP properties as of February 28,
1999 is $725,900 and is shown as "Reclamation liability " within the condensed
consolidated balance sheet.
It is not anticipated that the SMP properties will be placed into
production during Fiscal 1999. The Company and USE have determined that the SMP
mining properties should be maintained and prepared for production in the future
when the price of uranium concentrates increases into the $15 per pound range or
at such time as the Company and USE 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 requirements during the balance of Fiscal 1999 that the Company and
USE are aware of on the SMP properties.
In addition to receiving the SMP mining properties as partial settlement of
the SMP arbitration issues, the Company and USE also received one of the market
related delivery contracts which had previously belonged to SMP. There was one
delivery under this contract during the third quarter of Fiscal 1999. The
delivery requirement was sold to a third party and the Company and USE received
$35,000, one half to each,
9
<PAGE>
on the sale during the current quarter. As of February 28, 1999, the
Company has no additional delivery or financing commitments for the sale or
purchase of uranium during Fiscal 1999.
The Company and USE continue to fund efforts to collect the equity portion
of the SMP Arbitration Award. Additional court actions have been taken in an
effort to collect amounts that the Company and USE believe are due them under
the Award. It is not known when these matters will be resolved and what the cost
of resolution will be. Please refer to Part II, Item I. Legal Proceedings.
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 resulted in the failure in the attempt of USECC to
acquire Kennecott's interest in the GMMV. The Company and USE had until October
31, 1998 to complete the financing efforts to purchase Kennecott's interest. The
financing was not successfully completed and the Acquisition Agreement which was
signed on June 23, 1997, expired on October 31, 1998.
After October 31, 1998, the mines and the mill continue to be maintained.
Kennecott's obligation to fund the first $50 million in expenditures is now
satisfied. 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 Company, USE and
Kennecott are desirous that the expenses be held to a minimum. Although
Kennecott's $50 million work commitment has been satisfied, the entire $16
million loan under the Acquisition Agreement was not advanced by Kennecott. The
GMMV Management Committee is still discussing how and when the balance of $1.5
million under the loan can be spent. The Company and USE have notified GMMV and
Kennecott that they will not be able to participate in the ongoing holding costs
of the mine and mill which could potentially cause a dilution of their interests
in the GMMV. The GMMV Management Committee has not resolved how to proceed.
Expenditures through October 1998 were covered under the $16 million dollar
loan from Kennecott Energy pursuant to the Acquisition Agreement. From that time
forward, the Company and USE have continued to fund the operations at the GMMV
mineral properties. At the time of the filing of this report, all but
approximately $450,000 of the monies advanced by the Company and USE have been
reimbursed by GMMV. The Company and USE continue to discuss with Kennecott the
resolution of the outstanding amounts.
Plateau: Plateau owns and maintains the Tony M uranium mine and Shootaring
Uranium mill in southeastern Utah. The Company and USE are currently working to
obtain the final approval from the NRC to place the Shootaring mill into
production. The Company and USE are seeking debt or equity financing to put the
mill and Tony M mine into production. Until such time as the financing is
received and profitable contracts are obtained, the Company and USE do not plan
to put the properties owned by Plateau into production. Historically, the net
holding costs of the Plateau properties have been $70,000 per month.
Plateau also operates the Ticaboo Townsite and commercial operations. Those
operations consist of a motel, convenience store, restaurant - bar, mobile home
lot rentals, projected sale of home lots and boat storage facilities. Plateau is
currently expanding its boat storage and real estate sales business. It is
anticipated that following the initial development stage that these operations
will be grown out of profits off on going sales.
Yellow Stone Fuels Corp. ("YSFC"): In Management's opinion, YSFC had
sufficient cash to complete its projected 1999 exploration program on its
in-situ uranium properties. YSFC owes the Company and USE $400,000 on a
convertible promissory note plus interest at 10% per annum which was due on
March 31, 1999. Additionally, YSFC is indebted to the Company and USE for the
interest accrued on the note and
10
<PAGE>
additional amounts that the Company and USE have advanced for YSFC for a
total indebtedness at February 28, 1999 of $654,700. YSFC has sufficient cash on
hand to retire this indebtedness. YSFC has indicated its desire to pay the total
indebtedness in cash but it is not certain that a cash payment will be made as
YSFC may elect, at its option, to pay the promissory note with shares of its
common stock.
Term Debt and Other Obligations: Debt to non-related parties at February
28, 1999 was $75,800 as compared to $78,500 at May 31, 1998 The increase in debt
to non-related parties consists primary of debt due on the financing of annual
insurance premiums. The balance of the debt to non-related parties is for the
purchase of various pieces of heavy equipment and bears different interest rates
and has various maturity dates. All payments on the debt are current.
As of February 28, 1999, the Company was indebted to USE in the total
amount of $7,162,600. USE has not indicated that it will call the debt, (which
is backed by a promissory note), when it is due. The Company will need to either
retire the note with shares of its common stock; pay the debt with any monies
received from the SMP Arbitration Award if additional cash is received or
negotiate with USE to extend the note and or negotiate an alternative method of
repayment.
Reclamation Obligations: It is not anticipated that any of the Company'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 Company owns an
interest of will enter the reclamation phase prior to May 31, 1999.
Other: The Company and USE currently are not in production on any mineral
properties, and development work continues on several of their major
investments. The Company and USE 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 Company and
USE 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 Company and USE met with the Appeals Office of the IRS in
Denver, Colorado to discuss resolving issues raised for Fiscal 1993 and 1994.
The Company and USE 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 both companies, but no final
reports have been issued therefore no representations can be made as to their
ultimate outcome.
Results of Operations
Nine months Ended February 28, 1999 Compared to Nine months Ended February
28, 1998
During the nine months ended February 28, 1999, revenues increased from the
same period of the previous year by $2,293,500 to total revenues of $4,135,800.
The major increase resulted from the Company recognizing $3,038,600 in revenues
as the payment of the monetary portion of the SMP Arbitration Award after the
10th Circuit Court affirmed the Federal Court's Second Amended Judgment which
was appealed by Nukem and CRIC. This increase was offset by a reduction in
revenues recognized from the delivery of uranium under SMP contracts. During the
nine months ended February 28, 1998, the Company recognized $429,300 in revenue
from a SMP contract delivery. During the nine months ended February 28, 1999,
the Company only recognized $17,500.
11
<PAGE>
Costs and expenses for the nine months ended February 28, 1999 increased by
$953,200 over the same period of the previous year. The primary increase in
costs 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. The projects which are being
developed, are currently not in the production phase do not generate cash flow.
With the decline in the market price of uranium, the properties will not be
placed into production in Fiscal 1999. Until the price of uranium concentrates
recovers and the capital is raised to place the properties into production, the
operating and administrative costs of the properties should decline until they
consist of only standby costs.
As a result primarily of the increased revenues from the SMP arbitration,
operations for the nine months ended February 28, 1999 resulted in a net income
of $673,600 or $0.07 per share as compared to a loss of $609,800 or $0.06 per
share for the nine months ended February 28, 1998.
Year 2000 Issue
Computer programs written in the past utilize a two digit format to
identify the applicable year. Any date sensitive software beyond December 31,
1999 could fail, if not modified. The result could be among other possibilities,
disruptions to the operations and the inability to process financial
transactions. The Company has evaluated the operating systems on all headquarter
and field office computers and consulted with all of the vendors of the computer
software which is being used by the Company and affiliates. The vendors have
confirmed to the Company that all of the Company's software and information
systems are Year 2000 compliant.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Sheep Mountain Partners Arbitration/Litigation
In 1991, disputes arose between USE/Crested, d/b/a USECC 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 on April 18, 1996 and supplemented it on July 3,
1996, which were ultimately confirmed by the U.S. District Court of Colorado.
Please see "Item 3. Legal Proceedings " in the Company'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. On October 22, 1998, the 10th
Circuit Court of Appeals affirmed the Second Amended Judgment issued by the
Federal Court confirming the Arbitration Order and Award and issued its Mandate
on November 13, 1998. Thereafter, Nukem and CRIC filed a motion in the U.S.
District Court seeking full satisfaction of the judgment against them and
offering to deposit the net amount due USECC of $5,971,596 in full satisfaction
of the Second Amended Judgment. Plaintiffs USECC filed a response requesting the
Court to deny Defendants Motion and filed a motion to compel the company which
posted the supersedeas bond for Nukem to pay the judgment. The District Court
denied the motion of Nukem and CRIC and Nukem paid USECC $6,077,264 on February
9, 1999. Since then, USECC has filed certified copies of the Second Amended
Judgment in Illinois and elsewhere to enforce the Judgment. Proceedings in aid
of execution are pending in a Federal and State Court in Illinois.
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 compensatory and punitive
damages plus $90,000 in attorneys fees against USE. USE filed motions including
a motion for judgment notwithstanding the verdict ("JNOV") which were denied by
the Court. USE posted a supersedeas bond for $275,000 and is appealing the
judgment. The opening brief of USE is due on May 11, 1999.
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.,
13
<PAGE>
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 near Beatty, Nevada. USE and Crested
assert certain interests in the claims under an April 1991 assignment and lease
with Parador. The lease and assignment are 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 Company, USE and Parador have requested
that the record be supplemental because it was incomplete. Thereafter, briefs
will be filed by BGBI and the Company, USE and Parador.
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 alleging inter alia that the DOE
unlawfully transferred uranium to USEC Inc. which became a publicly traded
corporation. 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 was heard on January 8, 1999 in Cheyenne,
Wyoming and the District Court took the motion under advisement.
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. The parties have reached an agreement to settle the litigation
and documents are being circulated for authority to resolve the disputes.
ITEM 4. Submission of Matters to Security
Holders for Vote On December 4,1998, an annual meeting of shareholders was
held and the only issue was the election of five directors. The results of the
meeting were reported in the Company's Form 10Q for fiscal quarter ended
November 30, 1998.
ITEM 5. Other Information On December 28, 1998, 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, 1999 and will be reviewed by the NRC to determine if the
permit is in compliance.
14
<PAGE>
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 three months ended February 28, 1999.
15
<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.
CRESTED CORP.
(Registrant)
Date: April 13, 1999 By: /s/ John L. Larsen
-----------------------------------------
JOHN L. LARSEN,
Chairman and Vice President
Date: April 13, 1999 By: /s/ R. Scott Lorimer
------------------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000025657
<NAME> Crested Corp.
<MULTIPLIER> 1
<CURRENCY> no
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> May-31-1999
<PERIOD-START> Jun-01-1998
<PERIOD-END> Feb-28-1999
<EXCHANGE-RATE> 1
<CASH> 4,118,500
<SECURITIES> 0
<RECEIVABLES> 1,572,200
<ALLOWANCES> 0
<INVENTORY> 66,500
<CURRENT-ASSETS> 5,871,800
<PP&E> 5,852,800
<DEPRECIATION> (3,385,100)
<TOTAL-ASSETS> 10,970,800
<CURRENT-LIABILITIES> 9,387,800
<BONDS> 0
0
0
<COMMON> 10,200
<OTHER-SE> 780,600
<TOTAL-LIABILITY-AND-EQUITY> 10,970,800
<SALES> 516,200
<TOTAL-REVENUES> 4,135,800
<CGS> 1,788,700
<TOTAL-COSTS> 3,224,700
<OTHER-EXPENSES> 214,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,200
<INCOME-PRETAX> 673,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 673,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 673,600
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
