<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---
ACT OF 1934
For the quarterly period ended JUNE 30, 1997
-----------------------------------
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 0-17480
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CROWN RESOURCES CORPORATION
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
WASHINGTON 84-1097086
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 BROADWAY, SUITE 2400, DENVER, COLORADO 80202
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 534-1030
----------------
Indicate by checkmark 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.
Shares outstanding as of July 31, 1997: 13,267,079 shares of common stock,
$0.01 par value.
<PAGE>
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements................................. 3
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 7
PART II - OTHER INFORMATION
Item 1 Legal Proceedings................................................. 9
Item 2 Changes in Securities............................................. 9
Item 3 Defaults Upon Senior Securities................................... 9
Item 4 Submission of Matters to a Vote
of Security Holders............................................. 9
Item 5 Other Information................................................. 10
Item 6 Exhibits and Reports on Form 8-K.................................. 10
SIGNATURES.................................................................. 11
2
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Consolidated Financial Statements
---------------------------------
CROWN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except June 30, December 31,
per share amounts) 1997 1996
------------ ------------
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 7,994 $ 5,447
Short-term investments 94 89
Bullion inventories 107 106
Prepaid expenses and other 182 377
------- -------
TOTAL CURRENT ASSETS 8,377 6,019
MINERAL PROPERTIES, NET 31,342 30,229
OTHER ASSETS:
Debt issuance costs, net 426 477
Other 345 388
------- -------
771 865
------- -------
$40,490 $37,113
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 256 $ 345
Other 292 290
------- -------
TOTAL CURRENT LIABILITIES 548 635
LONG TERM LIABILITIES:
Convertible debentures 15,000 15,000
Deferred income taxes 1,411 1,140
------- -------
16,411 16,140
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 5,709 3,141
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value - -
Common stock, $0.01 par value 133 132
Additional paid-in capital 29,397 27,886
Accumulated deficit (11,697) (10,813)
Unrealized loss on
marketable equity securities (11) (8)
------- -------
17,822 17,197
------- -------
$40,490 $37,113
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, except per Three months ended June 30, Six months ended June 30,
share amounts) ----------------------------- ---------------------------
1997 1996 1997 1996
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Mineral property option proceeds $ - $ 151 $ - $ 151
Royalty income 70 80 140 122
Interest income 113 110 211 234
------- ------- ------- -------
183 341 351 507
------- ------- ------- -------
COSTS AND EXPENSES:
Depreciation, depletion and
amortization 34 57 75 90
General and administrative 565 479 1,118 916
Interest expense 242 242 485 485
Abandonment and impairment of
mining claims and leases 55 153 58 164
Other, net 5 (3) (51) 3
------- ------- ------- -------
901 928 1,685 1,658
------- ------- ------- -------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (718) (587) (1,334) (1,151)
INCOME TAX BENEFIT (179) (89) (357) (233)
------- ------- ------- -------
LOSS BEFORE MINORITY INTEREST (539) (498) (977) (918)
MINORITY INTEREST IN LOSS OF
SUBSIDIARY 64 113 93 158
------- ------- ------- -------
NET LOSS $ (475) $ (385) $ (884) $ (760)
======= ======= ======= =======
NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE $ (0.04) $ (0.03) $ (0.07) $ (0.06)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 13,258 13,188 13,247 13,182
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
(in thousands) 1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (884) $ (760)
Adjustments:
Depreciation, depletion & amortization 126 141
Deferred income taxes (357) (233)
Abandonment of mining claims
and leases 58 164
Common stock issued for services 140 -
Minority interest (93) (158)
Changes in operating assets and liabilities:
Inventories (1) (45)
Prepaid expenses and other (55) (65)
Accounts payable and other
current liabilities (87) 59
------- -------
Net cash used in operating activities (1,153) (897)
------- -------
INVESTING ACTIVITIES:
Additions to mineral properties (1,280) (1,359)
Sale (purchase) of short-term investments (5) 47
Receipts on mineral property transactions 349 96
(Increase) decrease in other assets (27) 24
------- -------
Net cash used in investing activities (963) (1,192)
------- -------
FINANCING ACTIVITIES:
Common stock issued under options 76 53
Issuance of common stock of subsidiary 4,587 2,610
------- -------
Net cash provided by financing activities 4,663 2,663
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,547 574
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,447 7,623
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,994 $ 8,197
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 432 $ 432
Noncash investing and financing activities:
Deferred tax benefit of non-qualified
stock option exercises 24 15
Acquisition of additional interest in subsidiary - 240
Securities received for mineral property
transactions 9 -
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
CROWN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The accompanying consolidated financial statements of Crown Resources
Corporation ("Crown" or the "Company") for the six months ended June 30,
1997 and 1996 are unaudited, but in the opinion of management, include all
adjustments, consisting only of normal recurring items, necessary for a
fair presentation. Interim results are not necessarily indicative of
results which may be achieved in the future.
These financial statements should be read in conjunction with the financial
statements and notes thereto which are included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. The accounting
policies set forth in those annual financial statements are the same as the
accounting policies utilized in the preparation of these financial
statements, except as modified for appropriate interim financial statement
presentation.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 establishes standards for
computing and presenting earnings per share. The statement is effective
for financial statements issued in periods ending after December 15, 1997,
including interim periods; early adoption is not permitted. The Company
will adopt SFAS No. 128 in the fourth quarter of 1997 and will restate all
prior period earnings per share data presented as required. The Company
has not yet determined the impact of adopting this statement on its
reported net income per share.
2. ISSUANCE OF COMMON STOCK OF SUBSIDIARY
In February 1997, the Company sold 1,500,000 of its shares in Solitario
Resources Corporation ("Solitario"), receiving net proceeds of $4,448,000
from the market transaction. The Company reinvested the proceeds by
acquiring, through a private placement into Solitario, 1,500,000 new shares
of Solitario plus 1,500,000 warrants, exercisable into shares of Solitario
at Cdn$4.83 per share until February 27, 1999. Upon completion of the
private placement, the Company's interest in Solitario was approximately
54.5%.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
------------------------------------
RESULTS OF OPERATIONS
- ---------------------
SECOND QUARTER 1997 COMPARED WITH SECOND QUARTER 1996
The Company had a net loss of $475,000, or $0.04 per share, for the second
quarter of 1997 compared with a loss of $385,000, or $0.03 per share, for the
second quarter of 1996. The higher loss was due primarily to lower revenues in
the current quarter.
Total revenues for the second quarter of 1997 were $183,000 compared with
$341,000 for second quarter 1996. During the year earlier quarter, the Company
received $151,000 of mineral property option proceeds, while there were no such
receipts in the current quarter.
General and administrative expenses for the second quarter of 1997 were $565,000
compared with $479,000 for the same period last year. Interest expense of
$242,000 for second quarter 1997 was the same as in the year earlier quarter.
During the second quarter of 1997, the Company recorded exploration property
writedowns of $55,000, compared with property writedowns of $153,000 for the
second quarter of 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Net loss for the six months ended June 30, 1997 was $884,000, or $0.07 per
share, compared with a loss of $760,000, or $0.06 per share, for the six months
ended June 30, 1996.
Total revenues for the six months ended June 30, 1997 were $351,000 compared
with $507,000, including the option proceeds of $151,000, for the first half of
1996.
General and administrative expenses for the first half of 1997 were $1,118,000
compared with first half 1996 expenses of $916,000. The higher 1997 expenses
were mainly due to a non-recurring issuance of common stock for services.
Interest expense of $485,000 for the first six months of 1997 was the same as
for the first six months of 1996.
Property abandonments and writedowns for the six months ended June 30, 1997 were
$58,000 compared with writedowns of $164,000 for the same period last year.
Also during the first six months of 1997, the Company recorded other income of
$51,000, related primarily to a termination payment received on a previously
joint ventured exploration project. There was no such income in the year
earlier period.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the six months ended June 30, 1997, the Company spent $1,280,000 for
mineral property additions, of which $960,000 related to exploration activities
on its projects in Peru and Argentina, which are held through its 54%-owned
subsidiary, Solitario. Also during the period, Solitario received property
payments of $349,000 from its joint venture partners, including $250,000 from
Cominco Ltd. on the execution of its agreement with Cominco to joint venture its
Bongara zinc project in Peru.
In February 1997, the Company sold 1,500,000 of its shares in Solitario,
receiving net proceeds of $4,448,000 from the market transaction. The Company
reinvested the proceeds by acquiring 1,500,000 new shares of Solitario through a
private placement into Solitario.
Working capital at June 30, 1997 was $7,829,000, compared with $5,384,000 at
December 31, 1996. Cash and cash equivalents at June 30, 1997 were $7,994,000,
including $5,293,000 held in Solitario.
The Company expects to spend approximately $3,600,000 in 1997 on its exploration
programs, including $2,600,000 to be spent by Solitario. Existing funds and
projected sources of funds are believed to be sufficient to finance currently
planned activities for the foreseeable future. The Company's long term funding
opportunities and operating results continue to be largely dependent on the
successful commencement of commercial production at the Crown Jewel project.
The Crown Jewel property is in the permitting phase, with work currently
underway to obtain the permits necessary to construct and operate the mine.
Favorable permit decisions have been received, with the scheduling agreement
with the Washington state permitting agencies providing time lines for the
remaining state permit decisions. Certain special interest groups have
challenged the favorable Record of Decision ("ROD") and Final Environmental
Impact Statement ("FEIS") for the Crown Jewel Project. See Legal Proceedings,
-----------------
elsewhere in this report. In cases where special interest groups challenge an
FEIS for a project, it is also typical that specific permit decisions are
appealed. The impact and duration of pending and potential appeals is difficult
to predict. Based on the foregoing, the 14-month Crown Jewel construction
process is presently expected to begin in spring 1998.
The information set forth in this report includes "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, and is subject to the safe harbor
created by those sections. Factors that could cause results to differ
materially from those projected in the forward-looking statements include but
are not limited to the timing of receipt of necessary governmental permits, the
market price of gold, results of current exploration activities and other risk
factors detailed in the Company's Securities and Exchange Commission filings.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In May 1997, the United States Forest Service ("USFS") Deputy Regional
Forester upheld the ROD to approve the Crown Jewel Mine project, denying the
four appeals which had been filed by special interest groups in March. In late
May 1997, an action was filed against the USFS appealing its decision to uphold
the ROD. The action was filed in United States District Court by the Okanogan
Highlands Alliance, the Washington Environmental Council, the Colville Indian
Environmental Protection Alliance, and the Kettle Range Conservation Group. The
Company expects the USFS to contest the appeal. The appeal petition indicates
that the special interest groups will seek injunctive relief restraining the
USFS from approving or authorizing any action related to the Crown Jewel
project.
In June 1997, the Okanogan Highlands Alliance filed an action, in Superior
Court of the State of Washington in and for Thurston County, against the
Washington Department of Natural Resources ("DNR"), the Washington Department of
Ecology, Battle Mountain Gold Company, and Crown Resources Corporation. The
petition requests judicial review of the FEIS under the Washington State
Environmental Policy Act.
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On June 19, 1997, the Company held its Annual Meeting of Shareholders
at which the following two matters were submitted to a vote of security holders:
1. ELECTION OF DIRECTORS. All seven directors were re-elected to serve
until the next Annual Meeting of Shareholders and until their
successors are elected and qualified:
<TABLE>
<CAPTION>
Number of Shares
--------------------
Name For Withheld
--------------------- ---------- --------
<S> <C> <C>
Mark E. Jones, III 10,205,896 53,101
Christopher E. Herald 10,213,098 45,899
J. Michael Kenyon 10,213,098 45,899
Rodney D. Knutson 10,212,496 46,501
Linder G. Mundy 10,212,320 46,677
Steven A. Webster 10,213,098 45,899
David R. Williamson 10,213,098 45,899
</TABLE>
9
<PAGE>
2. APPOINTMENT OF AUDITORS. The appointment of Deloitte & Touche LLP as
the Company's auditors for fiscal year 1997 was ratified:
Number of Shares
---------------------------------
For Against Abstain
---------- --------- ---------
10,196,138 31,143 31,716
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits: The exhibits as indexed on page 12 of this Report are included
as a part of this Form 10-Q.
(b) Reports on Form 8-K:
None
Exhibit Number Description
- --------------- -----------
27 Financial Data Schedule
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN RESOURCES CORPORATION
August 5, 1997 By: /s/ John A. Labate
- ------------------- --------------------------------
Date John A. Labate
Vice President and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
11
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description Page No.
- ------- ----------- --------
27 Financial Data Schedule . . 13
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,994,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 107,000
<CURRENT-ASSETS> 8,377,000
<PP&E> 33,289,000
<DEPRECIATION> 1,622,000
<TOTAL-ASSETS> 40,490,000
<CURRENT-LIABILITIES> 548,000
<BONDS> 15,000,000
0
0
<COMMON> 29,530,000
<OTHER-SE> (11,708,000)
<TOTAL-LIABILITY-AND-EQUITY> 40,490,000
<SALES> 183,000
<TOTAL-REVENUES> 183,000
<CGS> 0
<TOTAL-COSTS> 654,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242,000
<INCOME-PRETAX> (718,000)
<INCOME-TAX> (179,000)
<INCOME-CONTINUING> (475,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (475,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
