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 March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-17480
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 April 30, 1999: 14,533,422 shares
of common stock, $0.01 par value.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements. . . . . . . . . . .3
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . .6
PART II - OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . .9
Item 2 Changes in Securities. . . . . . . . . . . . . . . . 11
Item 3 Defaults Upon Senior Securities. . . . . . . . . . . 11
Item 4 Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . . 11
Item 5 Other Information. . . . . . . . . . . . . . . . . . 11
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
CROWN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
(in thousands, except March 31, December 31,
per share amounts) 1999 1998
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 7,141 $ 8,136
Short-term investments 87 87
Prepaid expenses and other 82 128
Total current assets 7,310 8,351
Mineral properties, net 27,754 27,532
Other assets:
Debt issuance costs, net 247 272
Marketable equity securities 182 233
Other 154 112
Total other assets 583 617
$35,647 $36,500
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 189 $ 222
Other 75 290
Total current liabilities 264 512
Long term liabilities:
Convertible debentures 15,000 15,000
Minority interest in consolidated
subsidiary 3,803 3,806
Stockholders' equity:
Preferred stock, $0.01 par value - -
Common stock, $0.01 par value 145 145
Additional paid-in capital 34,792 34,768
Accumulated deficit (18,301) (17,720)
Unrealized loss on marketable
equity securities (56) (11)
Total stockholders' equity 16,580 17,182
$35,647 $36,500
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended
(in thousands, except per March 31,
share amounts) 1999 1998
Revenues:
<S> <C> <C>
Royalty income $ 20 $ 33
Interest income 91 102
111 135
Costs and expenses:
Depreciation, depletion and amortization 19 31
General and administrative 425 494
Interest expense 243 243
Abandonment and impairment of mining
claims and leases - 95
Other, net 8 (6)
695 857
Loss before income taxes and
minority interest (584) (722)
Income tax benefit ( - ) (207)
Loss before minority interest (584) (515)
Minority interest in loss of subsidiary 3 43
Net loss $ (581) $ (472)
Basic and diluted net loss per common
and common equivalent share $(0.04) $(0.03)
Weighted average number of common and
common equivalent shares outstanding 14,532 13,807
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended March 31,
(in thousands) 1999 1998
Operating activities:
<S> <C> <C>
Net loss $ (581) $ (472)
Adjustments:
Depreciation, depletion & amortization 44 57
Deferred income taxes - (207)
Abandonment of mining claims
and leases - 95
Common stock issued for services 24 32
Loss on asset sales 5 -
Minority interest (3) (43)
Changes in operating assets and liabilities:
Inventories - 9
Prepaid expenses and other 25 (46)
Accounts payable and other
current liabilities (248) (219)
Net cash used in operating activities (734) (794)
Investing activities:
Additions to mineral properties (342) (461)
Receipts on mineral property transactions 120 345
Proceeds from asset sales 22 -
Increase in other assets (61) (3)
Net cash used in investing activities (261) (119)
Financing activities:
Common stock issued under options - 495
Issuance of common stock in private placement - 4,600
Net cash provided by financing activities - 5,095
Net increase (decrease) in cash and cash equivalents (995) 4,182
Cash and cash equivalents, beginning of period 8,136 5,857
Cash and cash equivalents, end of period $ 7,141 $10,039
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 432 $ 432
Noncash investing and financing activities:
Deferred tax benefit of non-qualified
stock option exercises - 68
Securities received in payment for
accounts receivable 21 -
</TABLE>
See Notes to Consolidated Financial Statements.
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 three
months ended March 31, 1999 and 1998 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, 1998. 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.
Effective January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." The following represents
Comprehensive loss and its components:
Three months ended March 31,
1999 1998
Net loss $(581) $(472)
Unrealized gain (loss) on
marketable equity securities (45) (4)
Comprehensive loss $(626) $(476)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The Company had a net loss of $581,000 or $0.04 per share, for the
first quarter of 1999 compared with a loss of $472,000, or $0.03
per share, for the first quarter of 1998.
Total revenues for the first quarter of 1999 were $111,000 compared
with $135,000 for first quarter 1998. The reduction was as a
result of the combination of lower royalty revenues, primarily from
the Kettle River mine in Washington and lower interest income
during the current period due to lower cash balances.
General and administrative expenses for the first quarter of
1999 were $425,000 compared with $494,000 for the same period last
year. The decrease was primarily due to reduced operations in
Argentina and Nevada during 1999 compared to the prior year.
Interest expense of $243,000 for first quarter 1999 was the same as
in the year earlier quarter.
During the first quarter of 1997, the Company recorded property
abandonments of $95,000, relating primarily to operations in
Argentina, which the company sold in July 1998. There were no such
abandonments in the current year quarter.
Liquidity and Capital Resources
During the quarter ended March 31, 1999, the Company spent $342,000
for mineral property additions, of which $157,000 related to
exploration activities on its projects in Peru, which are held
through its 57.2 percent-owned subsidiary, Solitario. Solitario
received $118,000 in receipts on mineral properties during the
first quarter of 1999 compared to $300,000 in 1998 from Cominco,
Ltd. related to its joint venture of the Bongara zinc project in
Peru.
Working capital at March 31, 1999 decreased to $7,046,000 from
$7,839,000 at December 31, 1998. Cash and cash equivalents at
March 31, 1999 were $7,141,000, including $3,145,000 held in
Solitario.
The Company expects to spend approximately $1,550,000 in 1999 on
its exploration programs, including $900,000 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 "Project").
Crown Jewel Project Permitting
The Project is in the permitting phase, with work currently
underway to obtain the permits necessary to construct and operate
the mine. Many of the proposed facilities at the Project are to be
located on unpatented lode mining claims and millsite claims. The
validity of the claims, or obtaining some other rights from the
federal government, is a prerequisite to the construction of the
facilities.
In late March 1999, Battle Mountain Gold Company ("BMG") received
notification (the "Notification") that the Department of Interior
and the Department of Agriculture could not presently approve the
Plan of Operation ("POO") for the Project and the previously
approved Record of Decision ("ROD") for the Project had been
vacated. The Notification alleged that a project cannot legally
rely on a greater number of mill site claims than the number of
lode claims being developed. At the Project, the ratio of millsite
claims necessary for proposed facilities to mining claims within
the proposed pit is significantly greater than 1:1. The position
taken in the Notification is contrary to the custom and practice of
the industry, as long recognized by the federal government in
internal guidance documents and by the granting of numerous plans
of operation without regard for the millsite to lode claim ratio.
The Company, in concert with BMG, intends to vigorously pursuing
the reversal of the decision set forth in the Notification.
On May 12, 1999, the United States House/Senate Appropriations
Conference Committee voted to overturn the Notification as part of
a Supplemental Appropriations Bill. The proposed legislation would
mandate the approval of the Project's POO and reinstatement of its
ROD. In order to become law, the Bill would have to be passed by
the United States House and Senate and be signed by the President.
In addition to the Notification, permitting related to the Project
has historically been subjected to appeals associated with permits
granted and the permitting process, and it is difficult to predict
their impact and duration. Any inability to construct facilities
could have a material adverse effect on the operations, cash flows
and financial condition of the Company. See Legal Proceedings,
elsewhere in this report.
The Year 2000
The year 2000 potentially poses unique challenges for many
businesses related to the ability of their computer systems and
those of third parties to properly recognize the date change. The
Company has made and will make certain investments in its software
systems and applications to help the Company make the year 2000
transition.
The Company has implemented new systems, analyzed internal and
external activities, including the Company's joint venture
partners, and has conducted vendor inquiries. The Company
estimates its plans will make all of its internal systems year 2000
compliant prior to the fourth quarter of 1999. Contingency plans
include some or all of the following: the delay of operational
activities, use of backup stand-alone systems, and manual
transaction processing. The Company believes its contingency plans
are adequate for reasonably foreseeable problems.
Total expenditures to address the year 2000 transition have been
less than $25,000 to date and the Company estimates the total costs
to implement all of the Company's plans to successfully make the
year 2000 transition will be less than $50,000. The Company has
recorded additions to fixed assets for replacement and upgrading of
equipment and software and charged general and administrative
expenses for existing personnel time related to the year 2000
transition. Accordingly, the operational and financial impact to
the Company has not been and is not anticipated to be material to
its financial position or results of operations.
Market Risk
As of March 31, 1999, there have been no material changes in the
market risks to which the Company is exposed as disclosed in the
Annual Report on Form 10-K for the year ended December 31, 1998.
Safe Harbor
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In March 1997, administrative appeals of the ROD for the Final
Environmental Impact Statement ("FEIS") for the Crown Jewel Project
were filed against the United States Forest Service, ("USFS") by
members of the following parties: (i) a joint appeal by the
Okanogan Highlands Alliance, Washington Environmental Council,
Colville Indian Environmental Protection Alliance, Washington
Wilderness Coalition, Rivers Council of Washington, and Sierra
Club, Cascade Chapter; (ii) Confederated Tribes of the Colville
Reservation; (iii) Columbia River Bioregional Education Project;
and (iv) Kettle Range Conservation Group; (all groups collectively
the "Plaintiffs"). The appeals were denied in May 1997.
In late May 1997, members of the Plaintiffs filed an action in
United States District Court for the District of Oregon against the
USFS appealing the Forest Service's issuance of the FEIS, its
decision to uphold the ROD and the denial of administrative
appeals. On December 31, 1998 the Court affirmed the decisions of
the USFS on the adequacy of the FEIS by granting all motions for
summary judgement on behalf of the USFS and BMG, while denying all
motions of the Plaintiffs. It is possible members of the
Plaintiffs will appeal the decision to the Ninth Circuit Court of
Appeals.
In late March 1999, BMG received the Notification vacating the
ROD and indicating the POO for the Project could not then be
approved. The Notification alleges that a project cannot rely on
a greater number of millsite claims than the number of lode claims
being developed. This is contrary to custom and practice of the
industry, as long recognized by the federal government in internal
guidance documents and by the granting of numerous plans of
operation without regard for the millsite to lode claim ratio.
The Company, in concert with BMG, intends to vigorously pursuing
the reversal of the decision set forth in the Notification. See
Management's Discussion and Analysis, Crown Jewel Permitting
elsewhere in this report.
During the fourth quarter of 1997, members of the Plaintiffs,
and others filed five actions (PCHB Nos. 97-146, 97-182, 97-183,
97-185, 97-186) against the Washington Department of Ecology
("WDOE") before the Pollution Control Hearings Board ("PCHB"), a
state administrative tribunal, challenging the FEIS and certain
permit decisions. In January 1998, members of the Plaintiffs
instituted a sixth action (PCHB 98-019) before the PCHB,
challenging the air quality permit, which was subsequently
dismissed in April 1998. In February 1998, the PCHB granted BMG's
motion for summary judgment and dismissed one of the actions (PCHB
97-146) related to storm water and dam safety claims. BMG obtained
a consolidated hearing schedule for the appeals before the PCHB.
The consolidated hearing concluded on May 20, 1998. On May 29, 1998
the PCHB dismissed one of the actions (PCHB 97-185) related to
approval of two water rights applications. In October 1998, the
PCHB entered an order dismissing certain of the Plaintiffs claims
and in February 1999, ruled in favor of BMG and the Company on
eight additional claims with regard to the above remaining
consolidated actions (PCHB Nos. 97-182, 97-183, and 97-186). The
PCHB also determined that certain water quality issues raised by
the appeals will only be decided after a hearing on the 401 Water
Quality Certification (below).
In January 1999, the WDOE granted the 401 Water Quality
Certification for the Project. In February 1999, members of the
Plaintiffs instituted an action (PCHB 99-019) appealing the
decision. The action has been consolidated with the above-
described actions. A hearing on the merits was scheduled for
September 1999. However, in light of the Notification denying the
Project's Plan of Operations, the hearing has been canceled and the
matter continued for ninety days. See Management's Discussion and
Analysis, Crown Jewel Permitting elsewhere in this report.
In December of 1997, the members of the Plaintiffs filed three
separate actions against the WDOE in Superior Court of the State of
Washington for Thurston County. The actions challenge the WDOE's
approval of permits issued to BMG for water resource mitigation and
solid waste permit rulings. In April 1998, members of the
Plaintiffs dismissed one of the three actions related to the
tailings and solid waste permits without prejudice. In November
1998, the remaining two actions were consolidated. The case is
currently pending and no trial date has been set.
In May 1998, the Okanogan Highlands Alliance instituted an
action in the Superior Court of the State of Washington for
Okanogan County against Okanogan County, BMG and the Company
challenging the County's decision that a solid waste permit was not
required for the Project's mine tailings and waste rock piles. On
January 20, 1999, the Court dismissed the action. The time for
appeal of the ruling has elapsed without the plaintiff filing a
notice of appeal.
The impact and timing of resolutions of these and any other
appeals related to the permitting process cannot be determined with
any accuracy at this time.
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The exhibits as indexed on page 13 of this Report
are included as a part of this Form 10-Q.
(b) Reports on Form 8-K:
On March 26, 1999 a report on form 8-K regarding notification
by the Department of Interior and the Department of
Agriculture to deny the approval of the Crown Jewel Plan of
Operations and to vacate the Crown Jewel Record of Decision.
Exhibit Number Description
27 Financial Data Schedule<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
May 17, 1999 By: /s/ James R. Maronick
Date James R. Maronick
Vice President - Finance
Principal Financial and
Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page No.
27 Financial Data Schedule . . 13
<PAGE>
EXHIBIT 27
CROWN RESOURCES CORPORATION
FINANCIAL DATA SCHEDULE
10-Q DATA
PERIOD TYPE THREE MONTHS
QUARTER END MAR-31-1999
PERIOD START JAN-01-1999
PERIOD END MAR-31-1999
CASH 7,141,000
SECURITIES ---
RECEIVABLES ---
ALLOWANCES ---
INVENTORY ---
CURRENT ASSETS 7,310,000
FF&E 28,578,000
DEPRECIATION 824,000
TOTAL ASSETS 35,647,000
CURRENT LIABILITIES 264,000
BONDS, MTGS 15,000,000
COMMON 34,937,000
PREFERRED MANDATORY ---
PREFERRED ---
OTHER SE (18,357,000)
TOTAL LIABILITY & EQUITY 35,647,000
SALES 111,000
TOTAL REVENUES 111,000
CGS ---
TOTAL COSTS 452,000
OTHER EXPENSES ---
LOSS PROVISION ---
INTEREST EXPENSE 243,000
INCOME PRETAX (584,000)
INCOME TAX ---
INCOME CONTINUING (584,000)
DISCONTINUED ---
EXTRAORDINARY ---
CHANGES ---
NET INCOME (581,000)
EPS BASIC (0.04)
EPS DILUTED (0.04)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,141
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,310
<PP&E> 28,578
<DEPRECIATION> 824
<TOTAL-ASSETS> 35,647
<CURRENT-LIABILITIES> 264
<BONDS> 15,000
0
0
<COMMON> 34,937
<OTHER-SE> (18,357)
<TOTAL-LIABILITY-AND-EQUITY> 35,647
<SALES> 111
<TOTAL-REVENUES> 111
<CGS> 0
<TOTAL-COSTS> 452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> (584)
<INCOME-TAX> 0
<INCOME-CONTINUING> (584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (581)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
