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, 2000 or
[ Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______ to ________
Commission file number 0-8773
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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 12, 2001
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Common stock, $.001 par value 10,381,664 Shares
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CRESTED CORP.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Condensed Consolidated Balance Sheets
November 30, 2000 and May 31, 2000..................................3-4
Condensed Consolidated Statements of Operations
Three and Six Months Ended November 30, 2000 and 1999.................5
Condensed Consolidated Statements of Cash Flows
Six Months Ended November 30, 2000 and 1999...........................6
Notes to Condensed Consolidated Financial Statements...................7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................8-10
PART II.OTHER INFORMATION
ITEM 4. Submission of Matter to a vote of Security Holders....................11
ITEM 6. Exhibits and Reports on Form 8-K......................................11
Signatures............................................................11
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CRESTED CORP.
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<S> <C> <C>
November 30, May 31,
2000 2000
--------------- ---------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 19,000 $ 3,000
Litigation settlement receivable, net 812,500 --
-------------- --------------
TOTAL CURRENT ASSETS 831,500 3,000
INVESTMENTS IN AFFILIATES 6,569,300 6,342,200
PROPERTIES AND EQUIPMENT 1,354,400 1,354,400
Less accumulated depreciation,
depletion and amortization (1,205,900) (1,205,900)
------------- --------------
148,500 148,500
OTHER ASSETS 2,100 2,100
------------- --------------
$ 7,551,400 $ 6,495,800
============= ==============
</TABLE>
See notes to Condensed Consolidated Financial Statements.
3
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CRESTED CORP.
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
November 30, May 31,
2000 2000
--------------- ---------------
(Unaudited)
CURRENT LIABILITIES:
Deferred GMMV purchase option $ -- $ 2,000,000
Current debt to affiliate 8,565,300 8,230,200
--------------- ---------------
TOTAL CURRENT LIABILITIES 8,565,300 10,230,200
COMMITMENT TO FUND EQUITY INVESTEES 215,600 215,600
RECLAMATION LIABILITY 748,400 748,400
COMMITMENTS AND CONTINGENCIES
FORFEITABLE COMMON STOCK, $.001 par value
65,000 shares issued, forfeitable until earned 43,900 43,900
SHAREHOLDERS' DEFICIT:
Preferred stock, $.001 par value;
100,000 shares authorized
none issued or outstanding -- --
Common stock, $.001 par value;
20,000,000 shares authorized
10,316,664 shares issued and outstanding 10,400 10,400
Additional paid-in capital 8,747,200 8,747,200
Accumulated deficit (10,779,400) (13,499,900)
---------------- ---------------
TOTAL SHAREHOLDERS' DEFICIT (2,021,800) (4,742,300)
---------------- ---------------
$ 7,551,400 $ 6,495,800
================ ===============
</TABLE>
See notes to Condensed Consolidated Financial Statements.
4
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CRESTED CORP.
Condensed Consolidated Statements of Operations
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
November 30, November 30,
------------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Mineral revenue $ 16,600 $ 16,400 $ 33,300 $ 33,500
Interest 100 900 100 1,500
Litigation settlement 3,566,400 -- 3,566,400 --
Other -- -- -- 5,000
----------- ---------- ----------- -----------
3,583,100 17,300 3,599,800 40,000
COSTS AND EXPENSES:
General and administrative 52,600 65,600 132,300 109,200
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE EQUITY LOSS
AND TAX PROVISION 3,530,500 (48,300) 3,467,500 (69,200)
EQUITY IN LOSS OF AFFILIATE (406,100) (337,100) (747,000) (807,600)
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 3,124,400 (385,400) 2,720,500 (876,800)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ------------ ----------
NET INCOME (LOSS) $3,124,400 $(385,400) $2,720,500 $(876,800)
=========== ========== =========== ==========
NET INCOME (LOSS)PER SHARE
BASIC AND DILUTED $ 0.30 $ (0.04) $ 0.26 $ (0.08)
=========== ========== =========== ==========
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 10,316,664 10,284,664 10,316,664 10,284,664
========== =========== =========== ==========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 10,381,664 10,349,664 10,381,664 10,349,664
=========== =========== =========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
5
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CRESTED CORP.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C>
Six Months Ended
November 30,
--------------------------------
2000 1999
---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,720,500 $ (876,800)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Non cash compensation 122,900 107,600
Equity in loss of affiliates 747,000 807,600
Deferred GMMV purchase option (2,000,000) --
Litigation settlement receivable, net (812,500) --
Net changes in components
of working capital -- 1,600
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NET CASH PROVIDED BY OPERATING ACTIVITIES 777,900 40,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (744,900) --
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NET CASH USED IN INVESTING ACTIVITIES (744,900) --
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on long term debt to affiliate (17,000) --
-------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (17,000) --
-------------- -------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 16,000 40,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,000 45,000
-------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 19,000 $ 85,000
============== =============
SUPPLEMENTAL DISCLOSURES:
Net noncash activity on investmentin affiliate $ (229,200) $ 63,100
============== =============
Net noncash activity on debt to affiliate $ 352,100 $ 170,700
============== =============
</TABLE>
See notes to Condensed Consolidated Financial Statements.
6
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CRESTED CORP.
Notes to Condensed Financial Statements
1) The Condensed Balance Sheet as of November 30, 2000, the Condensed
Statements of Operations and Cash Flows for the three and six months ended
November 30, 2000 and 1999, have been prepared by the Company without audit. The
Condensed Balance Sheet at May 31, 2000, has been derived 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 as of November 30, 2000 and May 31, 2000, the results of operations for
the three and six months ended November 30, 2000 and November 30, 1999.
2) Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the Company's May
31, 2000 Form 10- K. The results of operations for the periods ended November
30, 2000 and 1999 are not necessarily indicative of the operating results for
the full year.
3) Debt at November 30, 2000 and May 31, 2000 consists of the balance on a
note payable to USE of $8,565,300 and $8,230,200, respectively.
4) The reclamation liability of $748,400 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.
5) On September 11, 2000, the Company and USE entered into a settlement
agreement with Kennecott related to the pending legal dispute. In connection
with this settlement agreement, the Company and USE have transferred their
ownership interests in GMMV to Kennecott, including the ownership interest in
the Sweetwater Mill, the Jackpot Mine, the Big Eagle Mine and shop, and all
patented and unpatented mining claims. The Company and USE received various
machinery and equipment held by GMMV at the Jackpot Mine and $3.25 million from
Kennecott. The Company and USE received $1.625 million of this payment during
the six months ended November 30, 2000 and $1.625 million in January 2001. In
addition, Kennecott has assumed all the liabilities of the GMMV, including all
reclamation and bonding requirements, except the reclamation liability
associated with the Green Mountain Ion Exchange.
6) The Company adopted EITF 00-01, "Balance Sheet and Income Statement
Display Under the Equity Method for Investments in Certain Partnerships and
Other Unincorporated Joint Ventures," effective June 1, 2000. This standard
requires the Company to account for its investment in USECB using the equity
method of accounting. The Company previously consolidated its proportional
ownership in the joint venture (50%) for financial reporting purposes. The
adoption of this standard did not impact the net income (loss) of the Company,
but did have a material effect on the financial position and the presentation of
the Company's financial statements.
7) Certain reclassifications have been made to the May 31, 2000 financial
statements to conform to the classifications used as of November 30, 2000.
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. For a detailed explanation of the Company's Business Overview, it is
suggested that Management's Discussion and Analysis of Financial Condition and
Results of Operations for the quarter ended November 30, 2000 be read in
conjunction with the Company's Form 10K for the year ended May 31, 2000.
Overview of Business
The Company is engaged in the mineral development and extraction business.
The Company has interests in a uranium mine and mill in Southern Utah, uranium
mines in Central Wyoming, a gold property in California, coalbed methane
properties in Wyoming and Montana in the Powder River Basin and various real
estate operations including a motel operation near Lake Powell, Utah.
All these business are operated in conjunction with the Company's parent,
U.S. Energy Corp. ("USE") through a joint venture between the two companies, the
USECB Joint Venture ("USECB").
The Company adopted EITF 00-01, "Balance Sheet and Income Statement Display
Under the Equity Method for Investments in Certain Partnerships and Other
Unincorporated Joint Ventures," effective June 1, 2000. This standard requires
the Company to account for its investment in USECB using the equity method of
accounting. The Company previously consolidated its proportional ownership in
the joint venture (50%) for financial reporting purposes. The adoption of this
standard did not impact the net income (loss) of the Company, but did have a
material effect on the financial position and the presentation of the Company's
financial statements.
Liquidity and Capital Resources
The Company's working capital deficit at May 31, 2000 of $10,227,200
decreased to a working capital deficit of $7,733,800 at November 30, 2000. This
decrease of $2,493,400 in the working capital deficit was caused primarily by
the settlement of the litigation with Kennecott. As a result of the settlement
with Kennecott the Company was able to recognize $2,000,000 in non-cash revenues
which had previously been carried as a deferred purchase option. This reduction
in current liabilities combined with the recording of $812,500 in a settlement
receivable for the final payment from Kennecott which was received on January 4,
2001 resulted in a total decrease in the working capital deficit of $2,812,500.
This reduction in the working capital deficit was partially off set by increased
debt to USE of $335,100. USE continues to fund a significant portion of the
Company's obligations on the various ventures in which they operate jointly.
During the six months ended November 30, 2000, operations generated
$777,900 while investing and financing activities consumed $744,900 and $17,000,
respectively for a net increase in cash of $16,000.
Capital Resources
The Company and USE entered into a settlement agreement with Kennecott
Energy ("Kennecott") on September 11, 2000. This settlement agreement was
entered into to resolve all issues in a legal dispute among the companies who
were partners in the Green Mountain Mining Venture ("GMMV"). As a result of the
settlement, the Company and USE received $1,625,000 during the six months ended
November 30, 2000 and $1,625,000 in January 2001. Kennecott assumed the
reclamation liabilities on the Sweet water uranium mill and mining properties of
the GMMV. The Company and USE are responsible for the reclamation clean up of
the GMIX plant which had been used in the recovery of uranium by other
companies.
8
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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. At November 30, 2000, the line of
credit had been drawn down by $850,000. This total indebtedness had been repaid
as of January 12, 2001 leaving the entire $1,000,000 line of credit available to
fund operations in the third and fourth quarter of Fiscal 2001. The line of
credit is being used for short term working capital needs associated with
operations. The Company and USE also have a $500,000 line of credit through
their affiliate Plateau Resources. This line of credit is for the development of
the Ticaboo town site in southern Utah. Plateau has drawn down this financing
facility $300,000 which is repayable over a period of 10 years.
Projected equity or industry partner financing of coalbed methane affiliate
Rocky Mountain Gas, Inc. ("RMG"); sale of mine, construction and drilling
equipment; sale of partial ownership interest in mineral properties; potential
settlement discussions with Phelps Dodge regarding a dispute on a molybdenum
property; and the final determination of the SMP arbitration/litigation will
potentially provide cash to fund the operations of the Company. The Company also
will continue to receive revenues from its commercial operations in southern
Utah and from the rental and fixed base airport operations in Wyoming.
The Company believes that these cash resources along with funding from USE
will be sufficient to sustain operations during fiscal 2001. The capital
resources at November 30, 2000, will not be sufficient, however, to provide
funding for the Company's maintenance and development of its coalbed methane gas
business. RMG is seeking additional equity financing or an industry partner
arrangement to develop its coalbed methane leases.
Capital Requirements
The Company and USE jointly fund the holding costs of the Sheep Mountain
uranium mines; the Plateau uranium mine and mill, real estate commercial
operations and the development of the coalbed methane gas properties.
In September 2000, the Company and USE determined that the contract
drilling and construction work that they had been doing in the Powder River
Basin of Wyoming and Montana in the coalbed methane business for others did not
have sufficient profit margins to warrant continuing the business. As a result
of this decision, all operations on a contract basis were stopped. The Company
and USE are currently in the process of evaluating which equipment will be
needed to develop the RMG properties. Any surplus equipment is being sold
privately or auctioned.
The Company and USE through RMG, have obligations to make delay rental
payments on RMG's portion of coalbed methane leases. In addition, RMG is
committed to pay Quantum Energy, L.L.C. ("Quantum") one final payment of
$1,300,000 on or before January 31, 2001. If RMG does not make this final
payment, it can be extended to February 28, 2001 but penalty and interest
payments must also be made. If the final payment of $1,300,000 is ultimately not
made to Quanum, RMG must assign 12% of its undivided 50% working interest in the
properties to Quantum.
On December 31, 2000 RMG and Quantum entered into an option and farmin
agreement with Suncor Energy America Inc. (Suncor"). The agreement grants an
option to Suncor to purchase 37.5% of RMG's and 12.5% of Quantum's interest in
111,633.77 acres of their coal bed methane properties. For this option Suncor is
obligated to pay $1,706,813 at closing which is scheduled on or before January
31, 2001. RMG will receive $1,280,110 of this option payment which will be used
to fund the $1,300,000 obligation to Quantum.
The option period is for 12 months from closing on 105,172.4 acres and 24
months on 6,461.37 acres. During this option period Suncor has committed to
conduct a $2,250,000 drilling program on the properties. RMG is obligated to
fund $250,000 of that drilling program. At the conclusion of the option periods
9
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Suncor must elect to exercise its option or return the properties to RMG
and Quantum. Should Suncor elect to exercise its option the ownership interests
in the properties would be RMG -12.5%, Quantum - 37.5% and Suncor - 50%. Should
Suncor exercise its option it is obligated to pay an additional $3,926,600, of
which RMG would receive $2,944,900. Upon exercise of its option, Suncor is also
committed to pay an additional $841,400 as a disportional contribution to a
subsequent 18 month drilling program.
The Company owes USE $8,565,300 at November 30, 2000 as a result of USE
funding operations and capital expansion expenses. The Company does not have the
resources to repay this debt and must negotiate continued terms with USE or find
some other means of retiring the debt. To date, USE has not called the debt.
The Company has attended appeals hearings with the IRS in Denver Colorado
to discuss resolving issues raised in audits for fiscal 1995 and 1996. A final
settlement agreement has not yet been approved but it is believed that the
settlement will not have a material affect on the Company.
It is anticipated that none of the Company's working capital will be used
in fiscal 2001 for the reclamation of any of its mineral property interests. The
future reclamation costs on the Sheep Mountain properties and the GMIX plant are
covered by a reclamation bond which is secured by a pledge of certain of the
Company and USE's real estate assets and a cash bond on the GMIX plant. The
reclamation bond amount is reviewed annually by State regulatory agencies.
Results of Operations
Revenues for the six months ended November 30, 2000, increased
significantly by $3,559,800 from revenues for the same period of the previous
year to $3,599,800. This increase was a s a result of the recognition of the
litigation settlement with Kennecott. Of the $3,566,400 recognized as revenues,
$2,000,000 was a non cash recognition of a deferred purchase option. This
purchase option was paid in cash to the Company in 1997 by Kennecott. The
balance of the revenues recognized are the cash portion of the payments made by
Kennecott, net of accounts receivable for operations at the GMMV properties.
Costs and expenses increased by $23,100 during the six months ended
November 30, 2000 over the same period of the prior year. This increase was as a
result of work done in the coalbed methane business.
Due to the adoption of EITF 00-01, "Balance Sheet and Income Statement
Display under the Equity Method for Investments in Certain Partnerships and
Other Unincorporated Joint Ventures," the Company recorded an equity loss from
USECC in the amounts of $747,000 and $807,600 for the six months ended November
30, 2000 and November 30, 1999, respectively.
Operations for the six months ended November 30, 2000, resulted in net
income of $2,720,500 as compared to a loss of $876,800 for the same six months
in the previous year.
10
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ITEM 4. Submission of Matter to a vote of Security Holders
On December 8, 2000, 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 8,864,933 4,350 46,620 2,200
Max T. Evans 8,845,594 4,350 36,250 21,039
Daniel P. Svilar 8,862,633 4,350 46,620 1,100
Kathleen R. Martin 8,861,655 4,350 46,620 5,478
Michael D. Zwickl 8,864,533 4,350 46,620 2,100
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. During the quarter ended November 30, 2000 the
Company filed two reports on Form 8-K. On September 12, 2000 under Item 5, the
Company reported the settlement of litigation with Kennecott concerning the
Green Mountain Mining Venture. On October 17, 2000 the Company reported the
affirmation by the Tenth Circuit Court of Appeals of the ruling of the United
States District Court of Colorado in the Nukem litigation.
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 12, 2001 By: /s/ John L. Larsen
-----------------------------------
JOHN L. LARSEN,
Chairman and CEO
Date: January 12, 2001 By: /s/ Robert Scott Lorimer
-----------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
11
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