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, 1999 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
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Commission file number 0-8773
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CRESTED CORP.
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(Exact Name of Company 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)
Company's telephone Number, including area code: (307) 856-9271
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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 Company (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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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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, 2000
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Common stock, $.001 par value 10,349,664 Shares
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CRESTED CORP. AND AFFILIATE
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
November 30, 1999 and May 31, 1999...............................3-4
Condensed Consolidated Statements of Operations
Three and Six Months Ended November 30, 1999 and 1998..............5
Condensed Consolidated Statements of Cash Flows
Six Months Ended November 30, 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 Matter to a vote of Security Holders..................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
November 30, May 31,
1999 1999
----------- -----------
(Unaudited)
<TABLE>
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,996,300 $ 3,509,000
Accounts receivable
Trade, net of allowance for doubtful accounts 262,400 72,200
Affiliates 1,778,200 1,875,300
Current portion of long-term receivable
Related parties 116,200 115,000
Inventory and other 86,800 34,200
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TOTAL CURRENT ASSETS 4,239,900 5,605,700
LONG-TERM NOTES RECEIVABLE
Related parties 12,800 10,200
INVESTMENTS IN AFFILIATES 163,900 126,000
PROPERTIES AND EQUIPMENT 6,535,500 5,951,800
Less accumulated depreciation,
depletion and amortization (3,528,400) (3,437,400)
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3,007,100 2,514,400
OTHER ASSETS 159,700 158,700
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$ 7,583,400 $ 8,415,000
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</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
November 30, May 31,
1999 1999
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(Unaudited)
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CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 205,900 $ 371,700
Deferred GMMV purchase option 2,000,000 2,000,000
Current portion of long-term debt
Affiliate 7,224,700 7,054,000
Others 76,400 25,300
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TOTAL CURRENT LIABILITIES 9,507,000 9,451,000
LONG-TERM DEBT 5,900 16,700
RECLAMATION LIABILITY 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:
Preferred stock, $.001 par value;
100,000 shares authorized
none issued or outstanding -- --
Common stock, $.001 par value;
20,000,000 shares authorized
issued 10,284,664 shares 10,300 10,300
Additional paid-in capital 6,387,300 6,387,300
Accumulated deficit (9,096,900) (8,220,100)
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TOTAL SHAREHOLDERS' DEFICIT (2,699,300) (1,822,500)
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$ 7,583,400 $ 8,415,000
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</TABLE>
See notes to Condensed Consolidated Financial Statements.
4
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CRESTED CORP. AND AFFILIATE
Condensed Consolidated Statements of Operations
Three Months Ended Six Months Ended
November 30, November 30,
------------------ ----------------
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
REVENUES:
Mineral revenue $ 16,400 $ 17,800 $ 33,500 $ 42,300
Commercial operations 82,300 57,500 187,500 387,300
Coal bed methane gas operations 381,600 -- 381,600 --
Oil sales 17,500 17,400 23,000 26,900
Interest 29,300 31,000 69,500 68,400
Management fees and others 150,200 74,700 227,900 295,600
----------- ----------- ----------- -----------
677,300 198,400 923,000 820,500
COSTS AND EXPENSES:
Mineral operations 268,000 224,800 528,200 552,000
Commercial operations 200,700 221,700 410,100 423,900
Coal bed methane gas operations 151,300 -- 151,300 --
Oil Production 7,600 8,400 8,500 19,500
Interest 4,100 6,400 6,100 13,100
General and administrative 411,400 293,800 653,400 920,900
----------- ----------- ----------- -----------
1,043,100 755,100 1,757,700 1,929,400
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LOSS BEFORE EQUITY LOSS
AND TAX PROVISION (365,800) (556,700) (834,700) (1,108,900)
EQUITY IN LOSS OF AFFILIATES (19,600) (248,000) (42,100) (310,900)
----------- ----------- ----------- ------------
LOSS BEFORE
PROVISION FOR INCOME TAXES (385,400) (804,700) (876,800) (1,419,800)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- ------------
NET (LOSS) $ (385,400) $ (804,700) $ (876,800) $(1,419,800)
=========== =========== =========== ============
NET (LOSS) PER SHARE,
BASIC AND DILUTED $ (0.04) $ (0.08) $ (0.08) $ (0.14)
========== ========== ========== ===========
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 10,284,664 10,237,694 10,284,664 10,237,694
========== ========== ========== ==========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 10,349,664 10,302,694 10,349,664 10,302,694
========== ========== ========== ==========
</TABLE>
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,
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1999 1998
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(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (876,800) $(1,419,800)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 90,900 118,000
Equity in loss of affiliates 42,100 310,900
Net changes in components
of working capital (311,500) 1,310,100
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,055,300) 319,200
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in long-term receivables (3,800) 18,100
Investments in affiliates (80,000) (2,500)
Purchase of property and equipment (583,600) (31,100)
Increase in other assets (1,000) (1,600)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (668,400) (17,100)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from third party debt 93,300 100,500
Payment on long term debt (53,000) (60,600)
Net activity on long term debt to affiliate 170,700 345,400
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 211,000 385,300
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (1,512,700) 687,400
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,509,000 1,012,700
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,996,300 $ 1,700,100
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 6,100 $ 13,100
=========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
6
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CRESTED CORP.
Notes to Condensed Consolidated Financial Statements
1) The Condensed Consolidated Balance Sheet as of November 30, 1999, the
Condensed Consolidated Statements of Operations for the three and six months
ended November 30, 1999 and 1998, have been prepared by the Company without
audit. The Condensed Consolidated Statement of Cash Flows for the six months
ended November 30, 1999 and 1998 have been prepared by the Company without
audit. The Condensed Consolidated Balance Sheet at May 31, 1999, 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 November 30, 1999 and May 31, 1999, the
results of operations for the three and six months ended November 30, 1999 and
1998, 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 Company's May 31, 1999 Form 10-K. The
results of operations for the periods ended November 30, 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 the Company and 50% by the Company'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, 1999 and May 31, 1999
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 properties. (See GMMV discussion in Item 2).
5) Debt at May 31, 1999 and November 30, 1999 consists primarily of the
balance on a note payable to the Company's parent USE of $7,224,700 and
7,054,000, respectively. The remaining long-term debt of $82,300 at November 30,
1999 and 42,000 at May 31, 1999 is for various equipment purchases and the
financing of annual insurance premiums through financial institutions.
6) The reclamation liability of $725,900 represents the Company'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) Certain reclassifications have been made in the May 31, 1999 financial
statements to conform to the classifications used in November 30, 1999.
7
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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 Company'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, 1999, the Company experienced a
decrease in working capital in the amount of $1.4 million. This decrease
resulted in a working capital deficit $5.2 million at November 30, 1999 as
compared to a working capital deficit of $3.8 million at May 31, 1999. The
primary components of this increase in the working capital deficit were
reductions of $1.5 million in cash and cash equivalents, a reduction of $97,100
in accounts receivable affiliates and an increase of $221,800 in the current
portion of long term debt.
Accounts receivable affiliates decreased primarily as a result of the
Company receiving payments from its affiliates Green Mountain Mining Venture
("GMMV"), $216,200, Sutter Gold Mining Company ("SGMC"), $91,400, and Four Nines
Gold, ("FNG"), $74,500. These reductions in accounts receivable affiliates were
partially offset by increased receivables from other affiliates - Plateau
Resources, "(Plateau"), $271,600, and Yellow Stone Fuels Corp. ("YSFC"),
$64,600.
The Company and its parent U.S. Energy Corp. ("USE") determined during the
six months ended November 30, 1999 to enter into the coal bed methane gas
business. (See "Capital Resources Financing" below") As a result of this
decision the Company invested $80,000 in a newly formed subsidiary company,
Rocky Mountain Gas, Inc. ("RMG"). Additionally, the Company and USE have
completely refurbished various drill rigs and support equipment and have
purchased additional drill equipment. These capital expenditures for drilling
equipment consumed an additional $583,600 in cash.
The increase in cash from financing activities is as a result of increased
debt due to USE, in the amount of $170,700 and debt to third parties primarily
for the financing of prepaid insurance premiums and miscellaneous equipment in
the amount of $93,300. During the six months ended November 30, 1999, long term
debt was reduced by $53,000.
Reductions of working capital were partially offset by increases in
accounts receivable trade, $190,200, other assets $52,700 and a reduction of
$165,800 in accounts payable and accrued liabilities. Accounts receivable trade
increased primarily as a result of contract drilling and construction work that
is being performed by the Company in the coal bed methane gas business. Other
assets increased as a result of the Company recording prepaid insurance amounts
which will be amortized over the entire fiscal year.
The Company reported a $2,000,000 deferred purchase option at November 30,
1999 and May 31, 1999. This option is as the result of Kennecott Energy paying
the Company a signing bonus upon the execution of the Acquisition Agreement on
June 23, 1997. The option is non-refundable and will be offset against any cash
commitments the Company may incur on the GMMV properties in the future.
Capital Resources
General: The primary source of the Company's capital resources for the
remaining six months of fiscal 2000, are the cash on hand at November 30, 1999;
contract drilling and construction operations in coal bed methane gas; possible
equity financing from affiliated companies; proceeds under the line of credit;
and the potential receipt of cash from the SMP Arbitration Award. During the
quarter and six months ended November 30, 1999, the company recognized $381,600
in revenues from the drilling and construction contracts. The majority of this
amount was recorded during the month of November 1999.
8
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The Company will continue to rely on USE to provide funding for its
expenditures for the remaining six months of fiscal 2000. The Company and USE
have successfully financed a portion of the new equipment acquisitions as well
as equipment that they had purchased previously. To preserve cash, the Company
and USE continue to seek equipment financing. Additionally, the Company and USE
will continue to offer for sale various assets such as equipment, lots and homes
in Ticaboo, Utah, real estate holdings in Wyoming, Colorado and Utah and mineral
interests. Interest, rentals of real estate holdings and equipment, and aviation
fuel sales, also will provide cash.
Financing: During the six months ended November 30, 1999, the Company and
USE became involved in the exploration phase of coal bed methane gas as drilling
and construction contractors for third parties. The Company and USE also entered
into an agreement to purchase 185,000 acres of coal bed methane gas leasehold
interests land. To secure the land, the Company and USE formed RMG. To fund the
purchase and development of the coal bed methane gas lease hold interests RMG is
seeking equity funding.
To acquire a 50% working interest in the 185,000 acres of leaseholds, RMG
paid $3.2 million to Quantum Energy, ("Quantum") at closing on January 3, 2000.
RMG agreed to pay Quantum an additional $1.0 million on May 1, 2000 and $1.3
million on or before December 31, 2000. If these payments are not made, the 50%
working interest could be reduced. It is contemplated that the Company and USE
will conduct the drilling and construction work on these and other properties
which will generate significant revenues. It is further projected that RMG will
receive significant revenues from the coal bed methane gas production. No
assurance can be given as to the actual amount of coal bed methane gas that will
be produced from the RMG properties. The Company and USE own a controlling
interest in RMG.
Equity financing for Sutter Gold Mining Company ("SGMC") and Plateau are
dependent on the market price of gold and uranium among other conditions. As of
November 30, 1999, the prices for these metals remained depressed and it is not
known when they will 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 the
Company and USE could be impacted negatively due to holding costs of the
properties. The Company and USE continue to pursue alternative uses for these
properties including tourism at the SGMC properties and alternate feed or waste
disposal at the Plateau properties.
Line of Credit: The Company and USE have a $1,000,000 line of credit with a
commercial bank. The line of credit is secured by various real estate holdings
and equipment belonging to the Company and USE. It is anticipated that this line
of credit may be used to finance short term working capital needs. The Company
and USE are currently seeking an increase in their line of credit through
financial institutions to fund expanding operations.
Summary: The Company believes that cash on hand at November 30, 1999,
proceeds from drilling and construction contracts, its line of credit, and the
Company's continued reliance on USE, will be adequate to fund working capital
requirements through fiscal 2000. However, these capital resources will not be
sufficient to provide funding for the Company's mineral property acquisitions
and development or projected business expansions.
Capital Requirements
General: The primary requirements for the Company's working capital during
the remainder of fiscal 2000 are expected to be the costs associated with the
development activities of Plateau, care and maintenance costs of the former SMP
uranium properties, payments of holding fees for mining claims, business
expansion and development costs associated with the coal bed methane gas and
alternative feed/waste disposal businesses and corporate general and
administrative expenses.
9
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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, the Company assists
in the efforts to secure financing to place the SGMC properties in California
into production.
SGMC is developing alternate uses of its mineral properties until such time
as production of gold is profitable. SGMC is developing various facilities to
utilize its properties in the tourism business. SGMC is currently seeking either
debt or equity financing to fund these operations. Should these efforts be
unsuccessful, the development of the tourism business will be curtailed or the
cash reserves of the Company and USE will be needed to complete the development
of these assets.
Sheep Mountain Mines: The holding and reclamation costs associated with the
Sheep Mountain uranium mineral properties are the responsibility of the Company
and USE. The holding costs during 1999 were approximately $57,000 per month. The
Company and USE continue to search for improved techniques that will reduce
these monthly costs. The future reclamation costs on the Sheep Mountain
properties are covered by a reclamation bond which is secured by the pledge of
certain of the Company's and USE's real estate assets. The reclamation bond
amount is reviewed annually by the state regulatory agencies. The Company's
portion of the reclamation liability on the Sheep Mountain properties is
$725,900 and is shown as "Reclamation liability " within the condensed
consolidated balance sheet.
It is not anticipated that the Sheep Mountain properties will be placed
into production during Fiscal 2000. The Company and USE have determined that the
Sheep Mountain mining properties should be maintained and prepared for
production in the future when the price of uranium increases to the level where
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 expenditures
expected during the balance of Fiscal 2000 that the Company and USE are aware of
on the Sheep Mountain properties.
GMMV: In July 1998, the GMMV management committee unanimously agreed to
place the Jackpot Mine and Sweetwater Mill on active standby status. This
decision was made as a result of uncertainties in the short term uranium market.
The management committee of the GMMV is endeavoring to reduce the holding costs
of the GMMV mineral and mill properties. The Company and USE have notified the
GMMV management committee that they have elected to be a non-participating
partner in funding current holding and reclamation costs. By making this
election, the Company and USE will be diluted pursuant to the terms of the GMMV
contract. It is not believed that the dilution in the short term will be
material to the Company and USE's ownership interest in the GMMV.
On November 10, 1999, Kennecott Uranium Company, ("KUC") and Kennecott
Energy Company filed a court action in the Wyoming State Court against the
Company and USE. In its action KUC expressed its opinion that the GMMV was no
longer economically viable and asked relief from the court to allow the
termination of GMMV and the dissolution of assets. The Company and USE do not
agree with the allegation made by KUC and are in the process of filing their
responses. The ultimate outcome of these actions on the cash resources of the
Company cannot be predicted as of November 30, 1999.
10
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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 Canyon Uranium mill. The Company does not own any
portion of Plateau but shares in the cash flow streams of the properties with
USE on a 50-50 basis. The Company and USE are currently seeking joint venture
partners and equity financing to enter into the alternative feed and waste
disposal businesses. Currently, discussions are underway with third parties and
investment banking firms regarding the expansion into these business
opportunities. The Company and USE will continue to fund the costs of permitting
and stand-by costs associated with the properties. Expansion into the alternate
feed and waste disposal businesses will require additional capital. The
commercial operations of Plateau continue to improve.
Yellow Stone Fuels Corp. ("YSFC"): In Management's opinion, YSFC has
sufficient cash to fund its limited operations. YSFC continues to maintain its
mineral interests and look for additional business opportunities. It is not
anticipated that the Company or USE will be obligated to advance funds on behalf
of YSFC.
Term Debt and Other Obligations: Debt to non-related parties at
November 30, 1999, was $82,300 compared to $42,000 at May 31, 1999. The increase
in debt to non-related parties consists primarily 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 with various maturity dates. All payments on the debt are
current.
As of November 30, 1999, the Company was indebted to USE in the total
amount of $7.2 million. USE has not indicated that it will call the debt, when
it is due. The Company has had preliminary discussions with USE to potentially
retire the note with shares of its common stock.
Reclamation Obligations: It is not anticipated that any of the Company's
working capital will be used in Fiscal 2000 for the reclamation of any of its
mineral property interests. The reclamation costs are long term and are either
bonded through the use of cash bonds or the pledge of assets. It is not
anticipated that any of the mining properties in which the Company owns an
interest will enter the reclamation phase prior to May 31, 2000. GMMV is in the
process of reclaiming of an open pit mine near the Sweetwater Mill which was
developed by a previous owner. It is believed that the cost of reclamation will
be covered by a commitment by the prior owner to provide the initial $8 million
in reclamation. These funds are to be recovered from a future production through
the Sweetwater Mill override until such time as they are repaid.
Other: The Company and USE are currently not in production on any mineral
properties. The Company and USE are not using hazardous substances or known
pollutants to any great degree in the maintenance of mineral properties or the
development of new businesses. 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 not
aware of any claims for personal injury or property damages that need to be
accrued or funded. The Company and USE maintain both workers compensation and
liability insurance coverage which they believe cover any claims that may exist.
The tax years through May 31, 1994 are closed after audit by the IRS. The
Company and USE are currently in hearings with the Appeals Office of the IRS in
Denver, Colorado to discuss resolving issues raised for Fiscal 1995 and 1996.
Although no definite outcome can be predicted, the Company and USE believe that
there will not be a material cash impact from the ultimate outcome of these
hearings.
11
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Results of Operations
Six and Three Months Ended November 30, 1999 Compared to Six and Three
Months Ended November 30, 1998
During the six months ended November 30, 1999,revenues increased by
$102,500 to $923,000 as compared to revenues of $820,500 during the six months
ended November 30, 1998. During the quarter ended November 30, 1999 revenues
increased by $478,900. This increase was primarily associated with the contract
drilling and construction work the Company and USE have been doing in the coal
bed methane gas business. During the six months and quarter ended November 30,
1999, the Company recorded revenues of $381,600 from these contracts. No similar
revenues were recognized during the comparative periods of 1998. The other
increases in revenues during the six months ended November 30, 1999 were
commercial revenues, $45,200, as a result of increased fuel sales at the
Company's airport operations and increased other revenues, $102,200.
These increased revenues for the six months ended November 30, 1999, were
partially offset by decreased revenues from the rental of equipment to the GMMV,
$261,900, and the management fees that the Company received from the GMMV,
$164,100. The reduction of work on the GMMV properties was as a result of low
spot prices for uranium and the inability of the Company and USE to raise the
funds to purchase Kennecott Energy's 50% interest in the GMMV. The GMMV
management committee determined in late July 1998 to significantly reduce
expenditures at its mineral properties. This curtailment reduced the rental of
equipment revenues and management fees previously received by the Company and
USE from GMMV.
Costs and Expenses for the six months ended November 30, 1999, decreased by
$171,700 when compared with those expenses incurred during the six months ended
November 30, 1998 while expenses for the quarter ended November 30, 1999
increased by $288,000. During the quarter and six months ended November 30,
1999, the Company reported coal bed methane gas associated costs of $151,300.
General and Administrative expenses decreased for the six months ended November
30, 1999 by $$267,500. This decrease is primarily as a result of a bonus which
was paid during the six months ended November 30, 1998 to two employees for
their work on the SMP settlement. The bonus was the award of common shares of
USE stock, of which the Company was responsible for half.
Operations for the six months ended November 30, 1999, resulted in a loss
of $876,800 or $0.08 per share as compared to a loss of $1,419,800 or $0.14 per
share for the six months ended November 30, 1999. The improvement in the
profitability of the Company during the six months ended November 30, 1999, is
primarily attributable to the contract drilling and contract work in the coal
bed methane gas business.
12
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Sheep Mountain Partners Arbitration/Litigation
In 1991, disputes arose between USE/Crested (USECC), and Nukem, Inc. and
its subsidiary Cycle Resource Investment Corp. ("CRIC"), concerning the
formation and operation of the Sheep Mountain Partners ("SMP") partnership for
uranium mining and marketing, and activities of the parties outside SMP.
Arbitration proceedings were initiated against USECC by CRIC in June 1991 before
the American Arbitration Association ("AAA"). A three member panel of the AAA
held hearings on the SMP and entered an Order and Award in April 1996 and
supplemented it in July 1996, which were ultimately confirmed by the U.S.
District Court of Colorado in its Second Amended Judgment (the "Judgment").
Please see Item 3 of the Company's 1999 Form 10-K for more details of this
arbitration/litigation. Nukem appealed the Judgment of the U.S. District Court
to the 10th Circuit Court of Appeals (10th CCA). On October 22, 1998, the 10th
CCA issued its Order and Judgment affirming the District Court's Judgment
(without modification). The Judgment ordered Nukem/CRIC to pay USECC a monetary
award and ordered the uranium purchase contracts Nukem entered into with three
CIS republics including the purchase rights, the uranium acquired pursuant to
those rights and the profits therefrom be impressed with a constructive trust in
favor of SMP of which USECC owned one half.
On November 13, 1998, Nukem/CRIC filed motions for entry of full
satisfaction of the Judgment if Nukem/CRIC paid only the balance remaining due
on the monetary portion of the Judgment. USECC responded opposing the motions
and requesting payment of the balance of the monetary award. On February 8,
1999, the District Court denied the motion of Nukem/CRIC for entry of final
satisfaction of the Judgment and ordered Nukem/CRIC to forthwith pay USECC the
balance of $5,971,600 plus interest of $105,700. Nukem/CRIC made that payment to
USECC on February 9, 1999.
On April 28, 1999, USECC filed a petition in the U.S. District Court to
dissolve SMP and for an accounting. Nukem/CRIC responded that the District Court
did not have jurisdiction and again filed a motion seeking entry of final
satisfaction of the Judgment. On July 16, 1999, the District Court again denied
the motion of Nukem/CRIC for entry of final satisfaction of Judgment and denied
USECC's petition for dissolution because neither USECC nor Nukem/CRIC petitioned
the Court for dissolution of SMP before the Court entered its Second Amended
Judgment. On August 2, 1999, Nukem/CRIC filed a Notice of Appeal to the 10th CCA
of the District Court's July 16, 1999 Order. Thereafter, USECC filed a request
with the District Court for post judgment assistance to compel Nukem to account
for its profits on the CIS contracts. USECC also filed a motion to dismiss the
appeal of Nukem/CRIC to the 10th CCA. The post judgment request and the motion
to dismiss are pending before the Courts.
Ticaboo Townsite Litigation
In fiscal 1998, a prior contract operator of the Ticaboo restaurant and
lounge, and two employees supervising the motel and convenience store in Utah
(owned by Canyon Homesteads, Inc.) and their corporation Dejavue, Inc. sued USE,
Crested and others in the Utah 3rd Judicial District State Court. See Item 3 of
the Company's 1999 Form 10K for more details. 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 against USE and awarded the
plaintiff Dejavue, Inc. $91,668 in attorney fees. USE posted a supersedeas bond
for $275,000 to appeal the judgment and plaintiffs also appealed the judgment to
the Utah Court of Appeals. The Utah Court of Appeals affirmed the judgment on
December 3, 1999 against USE and USE plans to petition the Supreme Court of Utah
for a writ of certiorari to appeal the decision of the Court of Appeals. The
petition is due to be filed on or before February 3, 2000.
13
<PAGE>
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. Please see
Item 3 of Company's 1999 Form 10K. The Trial Court ruled against both the
plaintiff and defendants on their respective claims. BGBI, Parador and
USE/Crested all appealed the decision to the Nevada Supreme Court. Briefing has
been substantially completed and oral arguments have not yet been scheduled.
Sutter Gold Mining Company (SGMC) Litigation
In 1993, Amador County issued a conditional use permit ("CUP") to allow
SGMC to develop the Sutter Gold Mine (SGM) near the town of Sutter Creek, Amador
County, California. A number of conditions were included in the original CUP
which accommodated local citizen and government agency concerns about noise,
waste disposal, traffic and other aspects of the proposed mining operation.
Please see Item 3 of the Company's 1999 Form 10K.
In 1997 and 1998, SGMC proposed amendments to the CUP for a new design of
the SGM which would lower its environmental impact by reducing traffic,
potentially eliminating the use of cyanide on-site, and removing two large
tailings dams which would have been built to hold mine and mill waste. In August
and September 1998, the Board of Supervisors approved the amendments to the CUP.
On September 28, 1998, a lawsuit was filed in Amador County Superior Court,
California (Case No. 98 CV 3298) by Concerned Citizens of Amador County as
plaintiffs, against the County of Amador and the Amador County Board of
Supervisors, and against SGMC as a real party in interest. The lawsuit
challenged the actions of Amador County and its Board of Supervisors in
approving the amended CUP. A hearing was held on June 7, 1999 and the Court
denied plaintiffs' lawsuit on August 30, 1999. Plaintiffs have appealed the
decision to the California appellate court.
Kennecott Uranium Litigation
On November 10, 1999, Kennecott Uranium Company and Kennecott Energy
Company ("Kennecott") filed a civil action against defendants U.S. Energy Corp.,
Crested Corp. and USECC in the Sixth Judicial District Court, Campbell County,
Wyoming, No. 22406. Kennecott is seeking among other relief, the judicial
approval of a plan to sell the GMMV or liquidate its assets plus attorney fees
and costs. Defendants have filed a motion to change venue to the District Court
in Fremont County, Wyoming. The motion is pending. The parties have initiated
discovery proceedings each seeking production of documents from the other.
USE and Crested are involved in other litigation as reported in their Form
10-Ks for the fiscal year ended May 31, 1999. There were no material changes in
the status of the various cases during the quarter ended November 30, 1999.
14
<PAGE>
ITEM 4. Submission of Matter to a vote of Security Holders
On December 10, 1999, 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, Kathleen R. Martin and Michael D. Zwickl. 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:
Name of Director For Against Abstain Withheld
---------------- --- ------- ------- --------
John L. Larsen 8,806,593 10,330 14,050 1,207
Max T. Evans 8,804,743 12,930 14,050 457
Daniel P. Svilar 8,807,743 10,930 13,050 457
Kathleen R. Martin 8,806,743 10,430 14,050 957
Michael D. Zwickl 8,804,743 12,930 13,850 457
ITEM 5. Other Information
On January 5, 2000, USE and Crested announced in a public news release that
their newly formed subsidiary, Rocky Mountain Gas, Inc. ("RMG"), had closed on
an agreement to purchase a 50% working interest and 40% net royalty interest on
approximately 185,000 acres of leaseholds prospective for coal bed methane gas
in the Powder River Basin of Montana. RMG paid Quantum $3,200,000 at closing on
January 3, 2000, and agreed to pay Quantum an additional $1,000,000 on or before
May 1, 2000 and $1,300,000 on or before December 31, 2000.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. On November 22, 1999, the Company filed a
Report in Item 5 on Form 8-K during the second quarter ended November 30, 1999.
The Report was reporting (1) the entry of the Company and USE into a purchase
agreement for coal bed methane gas properties and (2) the litigation filed by
Kennecott Uranium Company et al.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
CRESTED CORP.
(Company)
Date: January 14, 2000 By: /s/ John L. Larsen
----------------------------
JOHN L. LARSEN,
Chairman and Vice President
Date: January 14, 2000 By: /s/ Robert Scott Lorimer
----------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
16
<PAGE>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> NOV-30-1999
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