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 November 30,1998 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
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CRESTED CORP.
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(Exact Name of Registrant as Specified in its Charter)
Colorado 84-0608126
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 North 8th West, Riverton, WY 82501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone Number, including area code: (307) 856-9272
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NONE
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(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 January 14, 1999
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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
November 30, 1998 and May 31, 1998...........................3-4
Condensed Consolidated Statements of Operations
Three and Six Months Ended November 30, 1998 and 1997..........5
Condensed Consolidated Statements of Cash Flows
Six Months Ended November 30, 1998 and 1997....................6
Notes to Condensed Consolidated Financial Statements..............7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................13-14
ITEM 4. Submission of Matters to a Vote of Security Holders. . . . . . .15
ITEM 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 6. Exhibits and Reports on Form 8-K.................................15
Signatures.......................................................16
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CRESTED CORP. AND AFFILIATE
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<S> <C> <C>
November 30, May 31,
1998 1998
------------ -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $1,700,100 $1,012,700
Accounts receivable
Trade, net of allowance for doubtful accounts 61,100 89,500
Affiliates 1,722,900 939,900
SMP Settlement receivable - 2,513,000
Current portion of long-term receivable
Related parties 232,000 227,800
Inventory and other 99,200 26,400
---------- -----------
TOTAL CURRENT ASSETS 3,815,300 4,809,300
LONG-TERM NOTES RECEIVABLE
Related parties 94,200 116,500
Real estate sale,net of
valuation allowance of $882,900 182,500 182,500
INVESTMENTS IN AFFILIATES 1,334,900 1,643,300
INVESTMENT IN CONTINGENT WARRANT
STOCK PURCHASE WARRANT 651,000 651,000
PROPERTIES AND EQUIPMENT
Land 397,400 397,400
Buildings and improvements 2,185,000 2,185,000
Aircraft and related equipment 2,424,400 2,393,300
Developed oil properties, full cost method 886,800 886,800
Undeveloped mining properties 14,200 14,200
---------- ------------
5,907,800 5,876,700
Less accumulated depreciation,
depletion and amortization (3,339,700) (3,221,700)
---------- -----------
2,568,100 2,655,000
OTHER ASSETS 155,400 153,800
---------- -----------
$8,801,400 $10,211,400
========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
3
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CRESTED CORP. AND AFFILIATE
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
<TABLE>
<S> <C> <C>
November 30, May 31,
1998 1998
------------ ---------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 323,300 $ 698,800
Deferred GMMV Purchase Option 2,000,000 2,000,000
Current portion of long-term debt
Affiliate 6,892,500 6,547,100
Others 93,800 36,400
---------- ---------
TOTAL CURRENT LIABILITIES 9,309,600 9,282,300
LONG-TERM DEBT 24,600 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' (DEFICIT) 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 (7,688,200) (6,268,400)
---------- ----------
(1,302,600) 117,200
---------- ----------
$8,801,400 10,211,400
========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
4
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CRESTED CORP. AND AFFILIATE
Condensed Consolidated Statements of Operations
<TABLE>
Three Months Ended Six Months Ended
November 30, November 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited) (Unaudited)(Unaudited)
REVENUES:
Mineral revenue $ -- $ -- $ -- $ 429,300
Commercial operations 57,500 171,500 387,300 392,200
Interest 31,000 23,600 68,400 51,900
Oil sales 17,400 14,000 26,900 38,300
Management fees and others 74,700 184,300 295,600 339,700
Royalties from mineral
interests 17,800 26,400 42,300 55,200
Gain on sale of assets -- 800 -- 800
----------- ----------- ------------ -----------
198,400 420,600 820,500 1,307,400
----------- ----------- ------------ -----------
COSTS AND EXPENSES:
Mineral operations $ 224,800 $ 174,200 $ 552,000 $ 361,600
Commercial operations 221,700 41,000 423,900 64,400
General and administrative 293,800 409,300 920,900 783,500
Oil Production 8,400 3,100 19,500 7,300
Interest 6,400 6,200 13,100 10,600
----------- ------------ ------------ -----------
755,100 633,800 1,929,400 1,227,400
----------- ------------ ------------ -----------
(LOSS) INCOME BEFORE
EQUITY IN LOSS OF AFFILIATE
AND INCOME TAX PROVISION (556,700) (213,200) (1,108,900) 80,000
EQUITY IN LOSS OF AFFILIATE (248,000) (44,100) (310,900) (91,400)
----------- ----------- ------------ -----------
LOSS BEFORE PROVISION FOR
INCOME TAXES (804,700) (257,300) (1,419,800) (11,400)
PROVISION FOR INCOME TAXES -- -- -- --
NET LOSS $ (804,700) $ (257,300) $(1,419,800) $ (11,400)
=========== =========== =========== ============
LOSS PER SHARE,
BASIC AND DILUTED $ (0.08 $ (0.02) $ (0.14) $ *
=========== =========== =========== ============
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 10,237,694 10,237,694 10,237,694 10,237,694
=========== =========== =========== ============
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 10,302,694 10,302,694 10,302,694 10,302,694
=========== =========== =========== ============
</TABLE>
* Less than $0.01 per share.
See notes to Condensed Consolidated Financial Statements.
5
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CRESTED CORP. AND AFFILIATE
Condensed Consolidated Statements of Cash Flows
Six Months Ended
November 30,
---------------------------
<TABLE>
<S> <C> <C>
1998 1997
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,419,800) $(11,400)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization 118,000 96,700
Equity in loss of affiliates 310,900 91,400
Gain on sale of assets -- (800)
Net changes in components
of working capital 1,310,100 (359,800)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 319,200 (183,900)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred GMMV Purchase Option -- 2,000,000
Changes in notes receivable 18,100 (21,900)
Investment in affiliates (2,500) (184,000)
Purchase of property and equipment (31,100) (437,700)
Proceeds from sale of assets -- 2,000
Increase in other assets (1,600) --
------------ ------------
NET CASH (USED IN)PROVIDED BY INVESTING ACTIVITIES (17,100) 1,358,400
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 100,500 313,300
Payment on long term debt (60,600) (31,200)
Net activity on debt to affiliate 345,400 --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 385,300 282,100
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 687,400 1,456,600
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,012,700 37,100
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,700,100 $ 1,493,700
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 13,100 $ 10,600
=========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
6
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CRESTED CORP. AND AFFILIATE
Notes to Condensed Consolidated Financial Statements
1) The Condensed Consolidated Balance Sheet as of November 30, 1998 and the
Condensed Consolidated Statements of Operations for the three and six months and
Cash Flows for the six months ended November 30, 1998 and 1997, have been
prepared by the Registrant without audit. The Condensed Consolidated Balance
Sheet at May 31, 1998, has been taken from the audited financial statements
included in the Registrant's Annual Report on Form 10-K filed for the year then
ended. In the opinion of the Registrant, the accompanying financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to fairly present the financial position of the Registrant and its affiliate as
of November 30, 1998 and May 31, 1998, the results of operations for the three
and six months ended November 30, 1998 and 1997, and the cash flows for the six
months ended.
2) Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the Registrant's May 31, 1998 Form 10-K.
The results of operations for the periods ended November 30, 1998 and 1997 are
not necessarily indicative of the operating results for the full year.
3) The condensed consolidated financial statements of the Registrant
include its proportionate share of the accounts of USECB Joint Venture ("USECB"
or "USECC") which is owned 50% by the Registrant and 50% by the Registrant's
parent, U.S. Energy Corp. ("USE"). All material inter-company profits and
balances have been eliminated.
4) Deferred GMMV purchase option at November 30, 1998 and May 31, 1998
consists of the Registrant's half of the $4,000,000 Signing Bonus received when
the Registrant and its parent, USE entered into an Acquisition Agreement with
Kennecott Uranium Company ("Kennecott") to acquire properties. The amount was
forfeitable until certain requirements were satisfied by the Registrant and USE
(See GMMV discussion in Item 2).
5) Debt at November 30, 1998 and May 31, 1998 consists primarily of a note
payable to the Registrant's parent USE of $6,892,500 and 6,547,100,
respectively. The remaining long-term debt of $118,400 at November 30, 1998 and
78,500 at May 31, 1998 is for various equipment purchases and the financing of
annual insurance premiums through financial institutions.
6) The reclamation liability of $725,900 represents the Registrant's 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.
7) 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 Registrant's
previously reported net income (loss) per common share.
8) Certain reclassifications have been made in the May 31, 1998 financial
statements to conform to the classifications used in November 30, 1998.
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 Registrant's liquidity, capital resources and
results of operations during the periods included in the accompanying financial
statements.
Liquidity and Capital Resources
During the six months ended November 30, 1998, the Registrant received
$2,513,000 in cash as a result of a partial settlement of the Sheep Mountain
Partners ("SMP") arbitration. Primarily as a result of receiving these funds,
the cash position of the Registrant increased to $1,700,100 at November 30, 1998
from $1,012,700 at May 31, 1998. Other increases in components of working
capital were increases in Inventory and other assets of $72,800 and Accounts
Receivable Affiliates of $783,000. The components of the increase in inventory
and other assets was as a result increases in prepaid insurance of $67,000 and
$5,800 in increased inventory at the Registrant's aircraft operations. Accounts
Receivable Affiliates increased due to the Registrant and USE advancing funds
for the Green Mountain Mining Venture ("GMMV") and Plateau Resources ("Plateau")
operations. The GMMV advances had not yet been reimbursed at November 30, 1998
due to certain differences of opinion between the GMMV participants relating to
allowable charges under the temporary standby status of the GMMV mining
properties. As of December 31, 1998, the majority of this advance had been paid
by GMMV. The Registrant, USE and Kennecott continue to work on resolving the
balance of the funds due the Registrant and USE.
The major component of decreased working capital during the six months
ended November 30, 1998, is an increase in the debt due to USE of $345,400. This
increase is due to amounts owed to USE for shared expenses that USE paid on
behalf of both companies. These expenses during the six months ended November
30, 1998 consisted primary of payroll and operating expenses. Other debt also
increased by $100,500 as a result of financing the Registrant's and USE's annual
liability insurance premiums. There was also a reduction of other debt in the
amount of $60,600 for a net increase in other debt of $39,900 during the six
months ended November 30, 1998.
Accounts payable decreased from $698,800 at May 31, 1998 to $323,300 as of
November 30, 1998. This decrease of $375,500 is as a result of reduced
operations at the GMMV properties. As part of the agreements to purchase
Kennecott's interest in the GMMV, the Registrant received a $2,000,000 signing
bonus. This amount is carried as a deferred purchase option until such time as
the anticipated acquisition of the Kennecott interest is concluded or standby
costs are offset against the $2,000,000 deferred purchase option until it is
reduced to zero.
Capital Resources
General: The primary source of the Registrant's capital resources for the
remaining six months of fiscal 1999 is the cash on hand at November 30, 1998;
the potential receipt of cash from the SMP Arbitration Award; possible equity
financing from affiliated companies, and proceeds under the line of credit after
it is renewed. The Registrant will continue to rely on USE to provide funding
for its expenditures for the remaining six months of fiscal 1999. Additionally,
the Registrant 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, aircraft chartering and aviation fuel sales, also will
provide cash.
8
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Line of Credit: The Registrant and USE have 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 Registrant and USE. The Registrant and
USE are currently negotiating with the commercial bank to increase the line of
credit. No assurance can be given that the line of credit will be increased. The
commercial bank however has given initial indications that at a minimum the line
of credit will be renewed in its initial amount of $1,000,000 during the third
quarter of 1999. It is anticipated that the line of credit may be used to
finance short term working capital needs .
Financing: Equity financing for Sutter Gold Mining Company ("SGMC") and
Plateau Resources Ltd. ("Plateau") are dependent on the market price of gold and
uranium among other conditions. As of November 30, 1998, the prices for these
metals remained depressed and it is not known when they will recover. The
Registrant 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 Registrant 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 Registrant believes that cash on hand at November 30, 1998 as
well the anticipated proceeds from the Nukem litigation and the Registrant'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 Registrant's mineral
properties. For these expansions, the Registrant and USE continue to seek joint
venture partners.
Capital Requirements
General: The primary requirements for the Registrant'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 Registrant's portion of the costs associated with
the GMMV properties should the Registrant elect to participate in the holding
costs of these properties and corporate general and administrative expenses.
SGMC: The Registrant 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
Registrant assists in the efforts to secure financing to place the SGMC
properties into production.
SMP: As part of a settlement agreement reached during the fourth quarter of
1998, the SMP mines and associated properties were transferred to the Registrant
and USE. The holding and reclamation costs associated with these mining
properties are the responsibility of the Registrant and USE. The holding costs
historically have been approximately $85,000 per month. The Registrant 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 of the Registrant and USE's real
estate assets. The dollar amount for the reclamation bond is reviewed annually
by the state regulatory agencies. The Registrant's portion of the reclamation
liability on the SMP properties 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 Registrant and USE have determined that the
SMP mining properties should be maintained and prepared for production in the
future when the price of uranium increases into the $15 per pound range or at
such time as the Registrant and USE are able to obtain long term delivery
contracts with favorable price terms and the
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Sweetwater Mill (which is owned and operated by the GMMV) is placed into
production. There are no known major reclamation obligations required during the
balance of Fiscal 1999.
In addition to receiving the SMP mining properties back in the settlement
of a portion of the SMP arbitration issues, the Registrant and USE also received
one of the market related delivery contracts which had previously belonged to
SMP. There is one delivery under this contract during the third quarter of
Fiscal 1999. The delivery requirement was sold to a third party and the
Registrant and USE will make a nominal amount of profit on the sale during the
third quarter of 1999. As of November 30, 1998, the Registrant has no additional
delivery or financing commitments for the sale or purchase of uranium during
Fiscal 1999.
GMMV: During July 1998, the GMMV Management Committee unanimously agreed to
place the Jackpot Mine and Sweetwater Mill on active standby status. This
decision was made as a result of uncertainties in the short term uranium market.
These same uncertainties have made the financing of the acquisition of
Kennecott's interest in the GMMV more difficult. The Registrant and 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 and the Registrant and USE will be obligated to fund their 50% of the
ongoing costs. The Management Committee of the GMMV is currently discussing what
level of expenditures should be made to maintain the properties. A final
decision on these expenditures has not been reached but the Registrant, USE and
Kennecott are desirous that the expenses be held to a minimum. The Registrant
and USE will need to elect to either participate in the standby costs or become
diluted by not participating.
Certain disagreements as to how the holding costs from July 1998 forward
have existed between Kennecott, the Registrant and USE. Until such time as the
disagreements are resolved and a firm understanding is arrived at, no estimate
as to any potential financial commitment for the holding costs of the properties
to the Registrant and USE can be made. If the GMMV participants are not able to
resolve the disagreements on holding cost obligations, the GMMV contracts direct
such disagreements to arbitration for resolution.
Plateau: Plateau owns and operates the Ticaboo Townsite, motel, convenience
store and restaurant. Additionally Plateau owns and maintains the Tony M uranium
mine and Shootaring Uranium mill. The Registrant and USE are currently working
to obtain the necessary permits from the State of Utah to place the Shootaring
mill into production. Until such time as financing is received and profitable
contracts are obtained, the Registrant and USE will not put the properties owned
by Plateau into production. Historically, the net holding costs of the Plateau
properties have been $70,000 per month.
Yellow Stone Fuels Corp. ("YSFC"): In Management's opinion, YSFC has
sufficient cash to complete its projected 1999 exploration program on its
in-situ uranium properties. As of November 30, 1998, YSFC owed the Registrant
and USE $400,000 on a convertible promissory note plus interest at 10% per
annum. The note was not paid on the due date of December 31, 1998. The directors
of YSFC and management of the Registrant and USE are discussing how the note
will be retired. At the time of this filing, it is anticipated that the note
will be retired partially in cash and partially in stock of YSFC pursuant to the
terms of the note and will be completely retired during March of 1999.
Additional amounts of money totaling $157,800 have been advanced by the
Registrant and USE for YSFC to a total indebtedness at November 30, 1998 of
$577,800. YSFC has sufficient cash on hand to retire this indebtedness.
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Term Debt and Other Obligations: Debt to non-related parties at November
30, 1998 was $118,400 as compared to $78,500 at May 31, 1998. The increase in
debt to third parties consists primary of debt due on the financing of annual
insurance premiums. The balance of the debt to third parties is for the purchase
of various pieces of heavy equipment and bears different interest rates and has
various maturity dates.
As of November 30, 1998, the Registrant was indebted to USE in the total
amount of $6,892,500. USE has not indicated that it will call the debt, (which
is covered in a promissory note), when it is due. The Registrant 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, 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 Registrant's
working capital will be used in Fiscal 1999 for the reclamation of any of its
mineral property interests. The reclamation costs are long term and are either
bonded through the use of cash bonds or the pledge of assets. It is not
anticipated that any of the mining properties in which the Registrant owns an
interest will enter the reclamation phase prior to May 31, 1999.
Other: The Registrant and USE currently are not in production on any
mineral properties, and development work continues on several of their major
investments. The Registrant 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 Registrant 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 Registrant and USE met with the Appeals Office of the IRS in
Denver, Colorado to discuss resolving issues raised for Fiscal 1993 and 1994.
The Registrant and 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
Six Months Ended November 30, 1998 Compared to Six Months Ended November 30,1997
During the six months ended November 30, 1998, revenues decreased from the
same period of the previous year by $486,900 to total revenues of $820,500. The
major reduction was as a result of the Registrant not receiving any revenues
from the delivery of uranium from one of the SMP delivery contracts. During the
six months ended November 30, 1997, the Registrant recognized $429,300 in
revenue from the profits derived from a SMP contract delivery. No such revenues
were recognized during the six months ended November 30, 1998. Additionally,
management fees and other income decreased by $44,100 during the six months
ended November 30, 1998 from the revenues recognized during the same period of
the previous year due to the curtailment of operations at the GMMV properties as
of July 1998.
Costs and expenses for the six months ended November 30, 1998 increased by
$702,000 over the same period of the previous year. The primary increase in
costs came as a result of increased activity on mineral properties, primarily
associated with decline development in June and July on the GMMV properties and
subsequent shut down expenses of the GMMV properties, commercial operations and
an increase in general and administrative overhead to supervise the increased
activity. The Registrant and USE also paid bonuses to four employees as
recognition of the extraordinary dedication they had given to their work in the
SMP
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arbitration/litigation. These bonuses, which included taxes due, were $561,000.
The projects which are being developed, are currently not in the production
phase and do not generate cash flow. With the decline in the market price of
uranium, it is anticipated that the properties will not be placed into
production in Fiscal 1999. However, a decision was made in July 1998 to place
the GMMV Jackpot Mine on active standby status. The Registrant is therefore
anticipating reductions in costs.
As a result of the reduced revenues and increased costs discussed above,
operations for the six months ended November 30, 1998 resulted in a loss of
$1,419,800 or $0.14 per share as compared to a loss of $11,400 or less than
$0.01 per share for the six months ended November 30, 1997.
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 Registrant 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 Registrant and affiliates. The
vendors have confirmed to the Registrant that all of the Registrant's software
and information systems are Year 2000 compliant.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Sheep Mountain Partners Arbitration/Litigation
In 1991, disputes arose between USE/Crested and Nukem, Inc. and its
subsidiary Cycle Resource Investment Corp. ("CRIC"), concerning the formation
and operation of the Sheep Mountain Partners ("SMP") 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 both the arbitration
proceedings and the State Court case. In February 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 73 hearing days before a three member panel of the AAA, the Panel
entered an Order and Award on April 18, 1996 and supplemented the Order on July
3, 1996. The Orders were ultimately confirmed by the U.S. District Court of
Colorado in its Second Amended Judgment on June 27, 1997. Please see "Item 3.
Legal Proceedings" in the Registrant's 1998 Form 10-K for more details of this
arbitration/litigation. Nukem/CRIC appealed the decision of the U.S. District
Court to the 10th Circuit Court of Appeals (CCA) and on September 24, 1998, oral
arguments were made to a three judge panel. On October 22, 1998, the 10th CCA
affirmed the Second Amended Judgment issued by the Federal Court which had
confirmed the AAA Orders and Award, and issued its Mandate on November 13, 1998.
Thereafter, Nukem and CRIC filed a motion in the U.S. District Court seeking to
stay the execution of the Judgment and offered to deposit in Court the net
amount of the monetary judgment due USECC of $5,971,596 in full satisfaction of
the Second Amended Judgment. USECC filed a response alleging that the equitable
portion of the Judgment granting USECC a one half interest in the contracts
Nukem had to purchase uranium from CIS republics, had not been satisfied and
requested the Court to deny the Motion of Nukem/CRIC. USECC also filed a motion
to compel the bonding company which posted the supersedeas bond for Nukem/CRIC,
to pay the monetary amount of the Second Amended Judgment. As of January 13,
1999, no ruling on the motions had been received from the U.S. District Court.
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, Canyon 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") The motions were
denied by the Court and USE posted a supersedeas bond for $275,000 to appeal the
judgment. The appeal is pending.
BGBI Litigation
USE and Crested are defendants and counter or cross-claimants in certain
litigation in the District Court of the Fifth Judicial District of Nye County,
Nevada, brought by Bond Gold Bullfrog Inc. ("BGBI") on July 30, 1991. BGBI (now
known as Barrick Bullfrog, Inc.) is an affiliate of Barrick Corp., a large
international gold producer headquartered in Toronto, Canada. The litigation
primarily concerns extra-lateral
13
<PAGE>
rights associated with two patented lode mining claims owned by Parador Mining
Company Inc. ("Parador") which were initially leased to a predecessor of BGBI.
The two mining 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 were made subject to the earlier 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 USE, Crested and Parador have until January 26, 1999 to file
their opening brief and appendix.
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 in July 1998. Please see "Item 3. Legal Proceedings " of
Registrant's 1998 Form 10-K for more details of this litigation. The DOE filed a
motion to dismiss the complaint claiming that the U.S. Congress withdrew its
consent to be sued in connection with the adoption of the law privatizing USEC
Inc. and that USEC Inc. must be joined as an indispensable party. The State of
Wyoming moved to join in the litigation on behalf of the plaintiffs. A hearing
was held on the motions on January 8, 1999 before the U.S. District Court in
Cheyenne, WY and the Court took the motions 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. (all referred to as,
"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
subject to certain conditions precedent. If all conditions are met by January
15, 1999, the case will be resolved. Otherwise, the lawsuit will continue.
14
<PAGE>
ITEM 4. Submission of Matter to a vote of Security Holders
On December 4, 1998, the annual meeting of shareholders was held and the
only issue considered was the reelection of the five directors: John L. Larsen,
Max T. Evans, Daniel P. Svilar, Michael D. Zwickl and Kathleen R. Martin. These
directors were reelected for a term expiring at the next succeeding annual
meeting and until their successors are duly elected or appointed and qualified.
With respect to the reelection of the five directors, the votes cast were as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Name of Director For Against Abstain Withheld
- ---------------- --------- ------- -------- --------
John L. Larsen 8,627,540 6575 138,616 1400
Max T. Evans 8,629,240 7075 137,416 400
Daniel P. Svilar 8,629,840 6875 137,416 0
Michael D. Zwickl 8,628,840 6875 137,416 1000
Kathleen R. Martin 8,629,140 6775 137,416 800
</TABLE>
ITEM 5. Other Information
On December 28, 1998, the Utah Department of Water Quality began a 30 day
public advertisement of a notice for public comments on the water discharge and
construction permit for the tailings facility at Shootaring Canyon uranium mill
in southeast Utah. If there are no substantial and significant comments from the
public by January 11, 1999, there will be no public hearing and Registrant's
affiliate Plateau Resources Ltd. should receive the discharge and construction
permit.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. On October 22, 1998, the Registrant filed a Report
in Item 5 on Form 8-K during the second quarter ended November 30, 1998. The
Report was on the decision of the 10th CCA affirming the Second Amended Judgment
entered by the U.S. District Court of Colorado in favor of USE and Crested and
against Nukem/CRIC and the subsequent motions filed thereafter with the District
Court by the Parties.
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: January 14, 1999 By: /s/ Max T. Evans
-------------------------------------------
MAX T. EVANS,
President
Date: January 14, 1999 By: /s/ Robert Scott Lorimer
-------------------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000025657
<NAME> CRESTED CORP. 10Q
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,700,100
<SECURITIES> 0
<RECEIVABLES> 1,784,000
<ALLOWANCES> 0
<INVENTORY> 99,200
<CURRENT-ASSETS> 3,815,300
<PP&E> 5,907,800
<DEPRECIATION> (3,339,700)
<TOTAL-ASSETS> 8,801,400
<CURRENT-LIABILITIES> 9,309,600
<BONDS> 0
0
0
<COMMON> 10,200
<OTHER-SE> (1,312,800)
<TOTAL-LIABILITY-AND-EQUITY> 8,801,400
<SALES> 414,200
<TOTAL-REVENUES> 820,500
<CGS> 443,400
<TOTAL-COSTS> 1,472,900
<OTHER-EXPENSES> 310,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,100
<INCOME-PRETAX> (1,419,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,419,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,419,800)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> 0
</TABLE>
