FORM 10-K/A-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the fiscal year ended December 31, 1995
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 0-19365
CROWN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0368981
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 South State, Suite 550
Salt Lake City, Utah 84111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 537-5610
Securities registered pursuant to Section 12 (b) of the Act:
(None)
Securities registered pursuant to Section 12 (g) of the Act:
$0.02 PAR VALUE COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES (X) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
YES ( ) NO ( )
The aggregate market value of Common Stock, Par Value $0.02 per share held
by non-affiliates of the Registrant on March 27, 1996, was $7,869,850 using
the average bid and asked price for Registrant's Common Stock. As of March
27, 1996, Registrant had 10,932,616 shares of its $0.02 par value Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Notice of Annual Meeting of Shareholders and definitive Proxy Statement
pertaining to the 1996 Annual Meeting of Shareholders (the "Proxy
Statement") to be filed pursuant to Regulation 14A are incorporated herein
by Reference into Part III. The Registrant's Registration Statement on Form
S-1 filed with the Commission on or about March 13, 1996 and bearing
Commission file number 0-19365 is incorporated herein by reference into Part
IV.
TABLE OF CONTENTS
Crown Energy Corporation
Form 10-K
March 28, 1996
PART I.
ITEM 1 Business 1
ITEM 2 Properties 6
ITEM 3 Legal Proceedings 8
ITEM 4 Submission of Matters to a Vote of Security Holders8
PART II.
ITEM 5 Market Price for the Company's Common Equity and
Related Stockholder Matters 9
ITEM 6 Financial Data 9
ITEM 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 8 Financial Statements and Supplementary Data 12
ITEM 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 12
PART III.
ITEM 10 Directors and Executive Officers of the Registrant13
ITEM 11 Executive Compensation 14
ITEM 12 Security Ownership of Certain Beneficial Owners
and Management 16
ITEM 13 Certain Relationships and Related Transactions17
PART IV.
ITEM 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18
PART I.
ITEM 1. BUSINESS
(a) General Development of Business
Crown Energy Corporation ("Crown" or the "Company"), a Utah
corporation, was organized March 17, 1981 for the purpose of acquiring,
holding and developing oil and gas leases and properties. Crown operates
through two wholly-owned subsidiaries, BuenaVentura Resources Corporation
("BVRC") and Gavilan Petroleum, Inc. ("Gavilan"). Crown conducts its oil
sands projects through BVRC and its conventional oil and gas operations
through Gavilan.
BVRC, a Utah corporation, was organized October 24, 1985 and was
acquired by Crown on September 30, 1992. BVRC is active in the mining and
development of oil sands deposits and owns rights to a patented technology
for the extraction of oil from oil sands. BVRC controls approximately 100
million barrels of oil in drill proven reserves at Asphalt Ridge in Uintah
County, Utah.
Gavilan, a Utah corporation, was organized September 9, 1985 and was
acquired by Crown on January 24, 1991. Gavilan has been actively engaged
in oil exploration and production. In 1987, Gavilan discontinued
exploration operations and focused on the acquisition of producing
properties.
The Company has focused its current efforts on the development and
commercialization of its oil sands technology and oil sands deposits. The
Company completed an initial production demonstration facility ("IPF")
during the summer of 1994. Based on the results of the IPF, the Company
plans to commence operations of the first full-scale production facility in
1996. The Company expects production of oil and other by-products from oil
sands to become its primary business activity.
On January 3, 1995, the Company reverse split its issued and
outstanding shares at the rate of one for four shares.
The Company's offices are located at 215 South State Street, Suite
550, Salt Lake City, Utah 84111. The Company's telephone number is (801)
537-5610.
Unless specifically indicated otherwise, all discussion hereinafter
pertains to the Company and all business operations conducted by it and its
subsidiaries.
(b) Narrative Description of Business
(i) Oil Sand Operations
General
The hydrocarbon potential of oil sands is widely recognized. North
America contains the largest known oil sands deposit in the world, located
in the Athabasca region in Alberta, Canada. These "Canadian Oil Sands" are
estimated to contain over 300 billion barrels of recoverable oil thus
exceeding the proven reserves of Saudi Arabia. Canadian Oil Sands
production is currently about 400,000 barrels per day accounting for 21% of
Canada's total oil production. Associated production costs have declined
from an estimated $21 per barrel initially to about $10.50 (before DD&A)
currently and are targeted to be further reduced to $9.00 per barrel by the
year 2000.
Utah contains approximately 90 percent of the known U.S. oil sands
deposits constituting over 28 billion barrels of oil in place in about 50
deposits. Asphalt Ridge is one of Utah's largest deposits containing over
a billion barrels of oil in place. Numerous research efforts have focused
on applying the hot water processes used in Canada to Utah oil sands with
no commercial success. The fact that the Utah sands are "oil-wet" unlike
the Canadian sands which are "water-wet", and the fact that the Utah oil is
substantially more viscous dictates that a different process be used.
The Company entered into a series of license agreements with Park
Guymon Enterprises, Inc., of which Dr. E. Park Guymon is a principal, for
the use of certain oil sand extraction technology. The license agreements
were dated, respectively, January 20, 1989, June 1, 1990 and June 1, 1990,
all of which were collectively amended on July 1, 1993. The license
agreements entered into with Park Guymon Enterprises, Inc., as amended,
grant the Company the exclusive license to use the oil sand extraction
technology within the exterior boundaries of the United States, within the
exterior boundaries of Canada and within Trinidad-Tobago.
The viscosity of the oil in "oil-wet" sands, like those in Utah, must
be significantly reduced before the oil can be separated from the sand. The
key to accomplishing this first step is the selection of a solvent with
acceptable oil solubility and environmental, health and safety attributes.
The surfactant is a critical element to the process because it facilitates
the transformation of the sand from oil-wet to water-wet. Most surfactants
cannot facilitate this transformation and result in the formation of tight
emulsions that severely contaminate the water phase. This contamination
could result in environmentally unacceptable residual sand and clays as seen
at Athabasca.
In November 1993, the Company retained Swaco-Geolograph ("SWACO") to
demonstrate and define the operating variables of its proprietary process
technology on a commercial scale. SWACO conducted research on critical
operating parameters including: 1) solvent selection, 2) optimum
solvent-to-oil ratios, 3) required exposure times, 4) desired temperatures,
5) preferred surfactant concentrations, and 6) water/surfactant volumes.
Based on this research, the Company and SWACO developed an on-site initial
production demonstration facility ("IPF") to test and refine the technology
and design for a full-scale commercial production facility. Based on the
operating results of the IPF, the Company and SWACO:
1) Determined the process technology to be effective
2) Recommended equipment and design changes
3) Projected capital and operating costs
The Company believes that it is now prepared to commercialize the
process technology at its Asphalt Ridge oil sand deposit. The Company
believes there are extensive opportunities to successfully employ the
technology at other deposits in Utah and around the world.
Asphalt Ridge Project. The Company is developing its first commercial
oil sand production facility at its Asphalt Ridge oil sand deposit near
Vernal, Utah. The first facility is designed to process approximately 1,900
tons of oil sands per day for an average production of 1,000 barrels of oil
per day. The production facility is expected to be operational in 1996.
The oil will be processed into two primary products, a light oil fraction
and a premium residual asphalt. Current plans are to operate the first
facility at a rate of 500 barrels per day (BPD) in 1996 and at the full
1,000 BPD capacity in 1997. This will allow the Company to make an orderly
entry into the rapidly expanding performance grade asphalt and asphalt
modifier markets. A second 1,000 BPD facility is scheduled to be in
operation by 1998 to further expand market penetration.
The Company currently plans to expand its production to 15,000 BPD
making a slate of traditional fuels and petrochemical products in addition
to specialty asphalt. The final decision on the timing and capacity of such
a facility will be predicated on market conditions for the products. The
current view of the market is that demand for the production will exceed
productive capacity for both the asphalt and local refinery feedstock
markets.
Products and Principal Markets. The oil or bitumen produced at
Asphalt Ridge ranges in API gravity from 12o to 15o. It contains a low
percentage of light distillate and diesel fractions (5% - 10%) and a low
hydrogen to carbon ratio. The bitumen is rich in gas-oils, asphaltenes and
nitrogen which makes it an excellent premium asphalt product.
The first production facility is designed to produce about 100 barrels
of light fraction material through atmospheric distillation (<600o F) and
900 barrels of residual premium asphalt. The light fraction can be sold
directly as an off-road diesel or shipped to local refineries for further
processing into motor diesel fuel. The residual asphalt will be sold as
performance grade/modified asphalt and specialty asphalt modifier. The
Company believes that there is a ready market for its products in the Salt
Lake City area and within the Western United States generally. The
Company's asphalt products business can be seasonal, but the Company expects
to produce throughout the year by selling into non-seasonal regional markets
or storing product during the off-season months for future sales.
Competition. Competition in the asphalt supply business is very keen
with several large companies, with superior financial resources to those of
the Company, as competing suppliers. The Company believes that it has two
advantages over its competitors - a superior base (unmodified) product and
a significantly lower product cost. The cost advantage occurs because of
the amount of polymer or other additive required in the asphalt formulation
to meet the specifications. A typical crude oil asphalt will require
polymer addition of between 3% and 5% by weight. At an average cost of
$1.00 per pound, this adds between $60 and $100 per ton to the cost of the
base stock material which can cost as much as $125 per ton.
A bitumen blend from the Athabasca area is beginning to make its way
into the regional market because of the shortage of local high quality base
stock. Current prices for this product are between $175 to $190 per ton
F.O.B. Salt Lake City. This native oil sand material has similar
performance qualities as the Asphalt Ridge bitumen. It does not however,
have the nitrogen content of the Asphalt Ridge bitumen causing it to be less
stable when blended with other base stocks and additives. This quality
advantage as well as a cost advantage due to high freight cost from Alberta
give the Company a competitive edge over this product.
(ii) Oil and Gas Operations
General
The Company and Gavilan are in the business of producing, acquiring,
developing and operating oil and natural gas properties. The Company's oil
and gas operations are conducted in the Rocky Mountain region of the Western
United States, primarily in Utah.
In recent years, there have been a large number of acquisitions and
divestitures of producing properties in the oil and gas industry as
companies focus on particular producing regions and segments of the
industry. This has created an opportunity for small oil and gas companies
to increase their reserves. There is a high level of competition for
operated properties and large property acquisitions, generally greater than
$5 million. Sellers want to maintain their operated properties and
typically the better quality sale properties are non-operated. Purchasers
tend to prefer to purchase properties that can be operated.
The Company's strategic plan is to target primarily non-operated
properties and property packages with purchase prices less than $5 million.
This will increase the likelihood of making purchases and will increase the
Company's exposure to higher quality opportunities.
Products and Principal Markets. The Company's oil and gas production
is generally sold on month-to-month contracts to unaffiliated purchasers
available in the area at the location of oil and gas production. The
Company does not refine or process the oil that it produces. While Amoco
is currently the only purchaser of the Company's oil production, several
other purchasers are available to the Company in the area in which it
operates. The Company believes it is unlikely that Amoco will discontinue
the purchase of its crude oil in the foreseeable future. However, any
discontinuance or curtailment of Amoco's crude oil purchases could have an
adverse impact on the Company, at least until such time as the Company
establishes a relationship with an alternative purchaser.
The Company's business is not seasonal, however, severe winter weather
can increase production and operating costs.
Exploration, Development and Operations. During the year ended
December 31, 1995, the Company did not drill or complete any oil and gas
properties. During this time period Gavilan operated 11 wells in the Uintah
Basin in eastern Utah.
Competition. The oil and gas exploration, production, acquisition and
development industry is a highly competitive and speculative business. The
Company competes with a number of other companies, including major oil
companies, independent oil and gas operators, and individual producers and
operators, many of whom have financial and technical resources, staff and
facilities substantially greater than those of the Company. All of the
Company's drilling is conducted by third parties and in times of high
drilling activity, exploration for and production of oil and gas may be
affected by the prior commitments of such third parties and by the
availability of necessary equipment and supplies and by competition for
drilling rigs. The Company cannot predict the effect these factors will
have on its operations. Based on current market activities, the Company
believes that the demand for drilling rigs and equipment has declined due
to the decline in the number of oil and gas wells being drilled, which
factors have resulted in an overall decline in prices being paid to drillers
and the cost of exploration. The principal means of competition in oil and
gas exploration and development are product availability and price. The
Company cannot predict how long the industry will face pricing and demand
instability or the ultimate impact on the Company's markets.
Operating Hazards and Uninsured Risks. The Company's operations are
subject to the risks normally incident to the exploration for and production
of oil and gas, including blowouts, cratering, pollution, plugging costs and
fires, any of which could result in damage to or destruction of its oil and
gas wells or production facilities, suspension of operations or damage to
persons or property. Although the Company carries insurance coverage which
management believes to be adequate, the Company is not fully insured against
certain of these risks because insurance is not available or management has
elected not to insure due to high premium costs. The occurrence of an event
not fully insured against could have a materially adverse effect on the
Company's financial condition.
Regulation. The Company's operations are affected from time to time
in varying degrees by political developments and federal and state laws and
regulations. Utah and other states in which the Company may conduct its oil
and gas activities regulate the production and sale of oil and natural gas.
Such regulations include rules in connection with the operation and
production of both oil and gas wells, such as the method of developing new
fields, drilling and completion activities, spacing of wells, the prevention
and clean-up of pollution and production conservation. The Company's oil
and gas activities are subject to existing federal and state laws and
regulations governing environmental quality and pollution control. Such
laws and regulations may substantially increase the costs of exploration,
development or production of oil and gas and may prevent or delay the
commencement or condition of a given operation. The Company's management
believes that its present operations comply with applicable environmental
legislation and regulations, that the existence of such regulations has had
no material effect on the Company's operations to date, and that the cost
of such compliance will not be material in the future.
(c) Employees
As of December 31, 1995, the Company had three full-time employees and
one part-time employee. From time to time the Company utilizes the services
of consulting geologists, engineers, landmen and accountants.
ITEM 2. PROPERTIES
(a) Oil and Gas Operations
(i) General
The Company's oil and gas producing properties are located exclusively
in the State of Utah. The Company's interests in producing and non-producing
acreage are in the form of working, royalty and overriding royalty
interests. The working interests are subject to royalty and overriding
royalty interests (either pre-existing or created in connection with their
acquisition), liens incident to operating agreements, liens for current
taxes and other burdens or minor liens, encumbrances, easements and
restrictions. The Company believes that these burdens do not materially
detract from the value of its properties or interfere with the operation of
its properties.
Title to Properties. The Company's properties are burdened with
obligations incident to operating agreements, unit agreements,
communitization agreements, pooling orders, current taxes, development
obligations under oil and gas leases and other encumbrances, easements and
restrictions common in the oil and gas industry. As is common in the oil and
gas industry, generally only a preliminary investigation of property records
is made at the time of acquisition of undeveloped oil and gas properties.
Prior to the commencement of drilling operations, a thorough title
examination is conducted and significant title defects are remedied before
proceeding with operations. Prior to the sale or acquisition of properties,
it may be necessary for the Company to undertake title examination and
curative work involving substantial costs.
(ii) Oil and Gas Reserves
The following tables set forth as of December 31, 1995, the estimated
net quantities of proved developed and undeveloped oil and gas reserves for
the Company. Parallax Consulting ("Parallax"), an independent petroleum
engineering and consulting company, prepared the estimates included in this
report of the oil and gas reserves of the Company, the future net revenues
from such reserves, the present value thereof as of December 31, 1995 and
1994. These estimates have been included herein in reliance upon Parallax's
report and upon their authority as an expert in petroleum engineering and
reserve analysis. Of course, actual results of operations will likely vary
from estimated results due to a number of factors, including events beyond
the Company's control.
The following table shows the estimated quantities of oil and natural
gas available to be produced from the Company's net proved reserves during
the period shown.
Proved Reserves
Period ending December 31: Oil (bbls) Gas (MCF)
1995 773,628 0
1994 870,885 0
1993 1,015,688 0
(iii) Future Net Revenues
The following table summarizes future net revenues applicable to
proved reserves.
Period Ending Proved Proved Total
December 31 Developed Undeveloped Proved
1996 $63,788 $0 63,788
1997 49,987 (780,430) (730,443)
1998 37,680 (455,875) (418,195)
Thereafter 64,015 4,542,939 4,606,954
Total $215,470 $3,306,634 $3,522,104
(iv) Present Value Future Net Revenues
Proved Proved Total
Developed Undeveloped Proved
Future Net Revenue
discounted at 10%
per annum $176,449 $1,089,212 $1,265,661
These estimates of future net revenues were made using a year-end oil
price of $18.00 per barrel and was held constant throughout the life of the
properties. Operating costs, production taxes, royalties and overriding
royalties and estimated future capital expenditures were deducted in
arriving at the estimates of future revenues. Such costs were estimated
based upon current costs and were not adjusted to reflect any anticipated
changes in prices. Such estimates have been made in accordance with current
Securities and Exchange Commission guidelines.
(v) Production, Revenue and Costs
The following table sets forth the net production attributable to the
Company's oil and gas interests, the average sales prices and average
production cost (lifting cost) for the periods indicated:
1995 1994 1993
Production:
Oil (BBLS) 10,501 17,280 20,135
Gas (MCF) 0 0 1,980
Average Sales Prices:
Oil (per BBL) $16.82 $15.76 $17.59
Gas (per MCF) $.00 $.00 $.56
Lifting Costs (per BBL) $10.40 $9.72 $11.97
(vi) Developed and Undeveloped Acreage and Wells
The following table summarizes the productive oil and gas wells in
which the Company has an interest. Productive wells are those that are
either currently producing or capable of producing oil and/or gas:
As of December 31, 1995
Wells Acreage
Oil Wells Developed Acres
Gross 2.00 Gross 770
Net 1.70 Net 198
Gas Wells Undeveloped Acres
Gross 0.00 Gross 1,200
Net 0.00 Net 717
Total Combined Acres
Gross 1,970
Net 915
(b) Office Space Lease
The Company conducts its business operations at 215 South State, Suite
550, Salt Lake City, Utah, where it has approximately 2,303 square feet of
office space under lease until September 30, 1996. Under the terms of the
lease, the Company pays $2,495 per month through the expiration date of
September 30, 1996. There is no renewal option under the terms of this
lease. Management of the Company believes that it will either be able to
negotiate a new lease on its existing space or obtain suitable other space
in the Salt Lake City area upon the expiration of the existing lease.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
itself is a party. With respect to the subsidiaries of the Company, Gavilan
is currently a party in three pending administrative actions against the
United States Department of Interior, Bureau of Indian Affairs, involving
Gavilan's $75,000 letter of credit submitted as its operating bond for
conducting oil and gas operations on Indian lands in Uintah and Ouray Indian
Reservation, Utah. The cases have been consolidated and are under appeal.
The Company believes that the final resolutions of these actions will not
have a materially adverse effect on the business of the Company.
Gavilan is also subject to an administrative action brought by the
Bureau of Indian Affairs to cancel certain oil and gas leases in the
Roosevelt, Utah area. Gavilan is challenging these cancellations, but to
the extent Gavilan claims interests under these leases, such interests are
subject to cancellation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1995.
PART II.
ITEM 5. MARKET PRICE FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock has been traded in the over-the-counter
market since 1980. The Common Stock is currently listed on the NASD OTC
Bulletin Board under the symbol CROE. At the present time, only the Common
Stock is publicly traded. The following table sets forth for the respective
period indicated, the range of high and low bid quotations, as adjusted for
stock splits, of the Company's common stock as reported by the National
Quotation Bureau and represents prices between dealers, does not include
retail markups, markdowns or commissions, and may not represent actual
transactions:
CALENDAR QUARTER ENDED HIGH BID LOW BID
March 31, 1994 $1.40 $0.96
June 30, 1994 1.20 0.76
September 30, 1994 3.00 1.20
December 31, 1994 2.24 1.24
March 31, 1995 $1.25 $0.88
June 30, 1995 1.06 0.56
September 30, 1995 1.31 0.70
December 31, 1995 0.84 0.50
As of March 28, 1996, the high and low bid quotations reported by the
National Quotation Bureau were $1.00 and $.75, respectively.
On March 28, 1996, approximately 886 shareholders of record held the
Company's common stock.
The Company has not paid any cash dividend on its common shares. It
is the present policy of the Board of Directors of the Company to retain any
earnings for use in the business, and therefore, the Company does not
anticipate paying any cash dividends on its common stock in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
The financial data included in the following table has been derived
from the financial statements for the periods indicated. The financial
statements as of and for the years ended December 31, 1990 through 1995 were
audited by Pritchett, Siler & Hardy, P.C., formerly known as Peterson, Siler
& Stevenson, P.C., independent public accountants. The following financial
data should be read in conjunction with the financial statements and related
notes and with management's discussion and analysis of financial conditions
and results of operations included elsewhere herein.
Year Ended December 31,
1995 1994 1993 1992 1991
Net Revenues $213,526 $325,907 $445,228 $587,314 $531,280
Income(Loss) from
Continuing Operations ($464,364) ($367,590) ($267,362) ($61,205) $47,109
Income(Loss) Per Share
from Continuing
Operations ($0.05) ($0.03) ($0.02) ($0.00) $0.01
Total Assets $4,344,250 $4,351,310 $4,481,133 $5,065,119 $2,657,157
Total Long-Term
Obligations $794,442 $964,794 $1,040,427 $304,592 $467,702
Cash Dividends Per
Common Share $0.00 $0.00 $0.00 $0.00 $0.00
Shareholder's Equity $3,064,872 $2,939,500 $2,879,503 $4,091,521 $1,612,587
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
Liquidity and Capital Resources
At December 31, 1995, the Company had cash and other current assets
of $134,944 as compared to cash and other current assets of $74,032
at December 31, 1994. The increase of $60,912 was due to proceeds
from equity financings and the sale of an oil and gas well totalling
approximately $290,000. The increase was partially offset by
a loss from operations, payments on debt obligations and
pre-construction capital costs incurred on the Asphalt Ridge oil
sand project.
Total debt increased from $207,240 in long-term debt and $64,683
in current portion of long-term debt at December 31, 1994 to $231,342
in long-term debt and $67,372 in current portion of long-term debt at
December 31, 1995. This total increase of $26,791 was due to new
borrowings of approximately $38,000 which was partially offset by payments
in the amount of $26,000. In order for the Company to meet its
pre-construction oil sand facility expenses and working capital requirements
in 1995, the Board of Directors approved two private placements. The
Company sold 292,857 shares of restricted common stock to an individual
for $140,000. In January 1996, the Company sold 800,000 shares of its
Common Stock to twenty-one investors for $400,000.
The Company's primary objective is to complete financing for
construction of its full-scale, 1,000 barrel per day commercial oil sand
production facility. The Company is seeking approximately $10,000,000
and is evaluating financing alternatives with several investor groups.
No assurance can be given that additional financing will be available or,
if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further
dilution to then-existing stockholders may result. If such additional
funds are raised through the issuance of debt securities, the Company's
cash flows will be required to be devoted to service such debt. If
adequate funds are not available, the Company may be required to
significantly curtail or cease its operations. In April 1995, the
Company entered into a letter agreement with IBEX Group, Inc. and Hoffman
Partners, Inc. (collectively, "IBEX/Hoffman"), the principals of which
are Robert E. Sweeney and Jeffrey J. Hoffman, respectively. The letter
agreement provides that IBEX/Hoffman will render professional, technical
and project development services in connection with the Company's
Asphalt Ridge Oil Sand Project, as well as in connection with the Company's
efforts to raise capital in order to finance the Asphalt Ridge Oil Sand
Project. In exchange for their services, the Company has agreed to pay
a monthly retainer of $5,000 in cash or Common Stock having a value of
$7,500 (calculated by reference to the bid price of the Company's Common
Stock and discounted by 25% in the event the stock issued is restricted
Common Stock). In addition, if the Asphalt Ridge Oil Sand Project is
funded through the efforts of IBEX/Hoffman, the Company is obligated to pay
IBEX/Hoffman a fee calculated as a percentage of the amount of financing
(i.e., 5% of the first $2,000,000, 4% of the second $2,000,000, etc.).
Further, the letter agreement provides that warrants to purchase shares
of the Company's Common Stock will be issued upon successful completion
of financing at the rate of options to acquire 24 shares for each $1,000
of cash raised, subject to a minimum of options to acquire 100,000 shares.
The Company further grants IBEX/Hoffman a right of first refusal with
respect to subsequent financing activities of the Company.
Results of Operations
1995 vs. 1994
Oil and gas revenue decreased from $325,907 for the year ended
December 31, 1994 to $213,526 for the year ended December 31, 1995,
a decrease of $112,381 (34%). This decrease was due to lower
production resulting from normal production declines and the sale of
a producing well. Barrels of oil sold for the year ended December 31,
1995 were 10,501 as compared to 17,020 barrels for the same period in
1994, a decrease of 38%. This decrease was partially offset by a 7%
increase in average oil prices. Unless the Company acquires additional
producing properties, re-works existing wells or commences new drilling
activity, lower oil prices and normal production declines could adversely
affect future conventional oil revenues.
Oil and gas production costs decreased from $194,779 for the year ended
December 31, 1994 to $132,641 for the year ended December 31, 1995, a
decrease of $62,138 (32%). This decrease was due to lower production
resulting from normal production declines and the sale of a producing
well.
General and administrative expenses increased from $358,651 for the year
ended December 31, 1994 to $432,655 for the year ended December 31, 1995,
an increase of $74,004 (21%). This increase was primarily due to an
increase in consulting expenses relating to the Asphalt Ridge oil sand
project and to a $50,000 finder's fee payable with regard to the Company's
employment of Mr. James Middleton.
Depletion, depreciation and amortization decreased from $113,536 for the
year ended December 31, 1994 to $81,149 for the year ended December 31,
1995, a decrease of $32,387 (29%). This decrease was due to lower
production for the period and was partially offset by a higher unit
depletion rate.
Other income/expenses increased from total expense of $26,531 for the
year ended December 31, 1994, to total expenses of $31,715 for the year
ended December 31, 1995, an increase of $5,184 (20%). This increase was
due to an increase in interest expense.
1994 v. 1993
Oil and gas revenue decreased from $445,228 for the year ended
December 31, 1993 to $325,907 for the year ended December 31, 1994, a
decrease of $119,321 (27%). This decrease was primarily due to a 9%
decline in average oil prices and lower production resulting from normal
production declines and the fact that four producing wells were shut-in
or sold. Barrels of oil sold for the year ended December 31, 1994 was
17,021 as compared to 21,016 barrels sold for the same period in 1993,
a decrease of 19%. Unless the Company acquires additional producing
properties, re-works existing wells or commences new drilling activity,
lower oil prices and normal production declines could adversely affect
future revenues.
Oil and gas production costs increased from $193,831 for the year ended
December 31, 1993 to $194,779 for the year ended December 31, 1994, an
immaterial increase of $948. During 1993, however, the Company recorded
a prior period adjustment of approximately $70,000 which lowered 1993's
stated production costs. Therefore, actual production costs decreased
over 1993. This decrease was due to more efficient well operation and
lower production resulting from normal production declines and the fact
that four producing wells were shut-in or sold.
General and administrative expenses decreased from $376,525 for the year
ended December 31, 1993 to $358,651 for the year ended December 31, 1994,
an immaterial decrease of $17,874 (5%). This decrease was primarily due
to an approximate $20,000 bad debt expense recorded in 1993.
Depletion, depreciation and amortization increased from $111,673 for the
year ended December 31, 1993 to $113,536 for the year ended December 31,
1994, an increase of $1,863 (2%). This increase was due to a higher unit
depletion rate and was partially offset by lower production for the
period.
Other income/expenses increased from total expense of $30,561 for the
year ended December 31, 1993 to total expenses of $26,531 for the year
ended December 31, 1994. This change was due to the write-off of an
approximate $18,000 investment in the period ending December 31, 1993.
This write-off was partially offset by an increase in interest expense
due to the sale of partial units of a $65,000 unsecured debenture.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth following
Item 14 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's
accountants on any matter of accounting principles or practices or
financial statement disclosure.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each
officer and director of the Company. Each director holds office until
his successor has been duly elected and qualified.
Year First Elected
NAME AGE Position/Office as a Director
James A. 60 Chief Executive Officer, 1996
Middleton Chairman of the Board of Directors
Jay Mealey 40 President, Chief Operating 1991
Officer, Treasurer
Thomas W. 45 Director 1993
Bachtell
Richard S. 38 Vice President, Director, 1992
Rawdin Secretary
James A. Middleton - Chairman of the Board, Chief Executive Officer.
Mr. Middleton became Chairman and Chief Executive Officer on February 7, 1996.
Mr. Middleton was President of ARCO Oil and Gas Company as well as Executive
Vice President and a member of the Board of Directors of Atlantic Richfield
Company. Mr. Middleton's areas of responsibility included ARCO Products
Company, ARCO Transportation Company, ARCO Coal Company, ARCO Exploration
and Production Technology and ARCO Aluminum, Inc. Earlier in his career
Mr. Middleton was head of the engineering department of ARCO's Synthetic
Fuels and Minerals Division and was heavily involved in ARCO's activities
in oil shale, Athabasca oil sands, coal mining and coal conversion projects.
He remains on the Board of Directors of ARCO Chemical Company and is
Executive Vice President - Emeritus of ARCO. Mr. Middleton also serves
on the Board of Directors of Texas Utilities Company as well as many
community and civic organizations.
Jay Mealey - President, Chief Operation Officer. Mr. Mealey has been
the President, Treasurer and a Director of the Company since 1991. He has
been employed by the Company since 1986 in various management positions.
Mr. Mealey has been actively involved in the oil and gas exploration and
production business since 1978. Prior to employment with the Company, he
was Vice President of Ambra Oil and Gas Company and worked for Belco
Petroleum Corporation and Conoco, Inc. in their exploration divisions.
Mr. Mealey is responsible for managing the day to day operations of the
Company. He is a full-time employee and it is anticipated that he
will devote one hundred percent of his time to the Company.
Richard S. Rawdin - Vice President, Director. Mr. Rawdin became
Vice President on September 23, 1991, and is a certified public accountant.
He is responsible for managing the financial and accounting functions of
the Company. From February, 1986, to September, 1991, he was Controller
and Vice President of Finance for Kerry Petroleum Company, Inc. where he
was responsible for directing the financial and accounting affairs of the
Company, its two subsidiaries and six partnerships. Prior to that, he
was a Senior Consultant with Deloitte and Touche. Mr. Rawdin is a
full-time employee of the Company and it is anticipated that he will
devote one-hundred percent of his time to the Company.
Thomas W. Bachtell - Director. Mr. Bachtell devotes a substantial
amount of time to the Company in his position as President of the Company's
wholly-owned subsidiary, BuenaVentura Resources Corporation ("BVRC"). He
is also a practicing natural resources attorney and President of the law
firm of Pruitt, Gushee & Bachtell. Mr. Bachtell's law practice focuses on
advising and assisting oil, gas and mineral companies in their exploration
and development activities in the Rocky Mountain States. He is experienced
in contract negotiation and drafting, permitting and environmental matters,
business development and operations, and civil litigation. He has
authored several papers and drafted various statutes on mineral law matters.
In addition to his responsibilities as President of BVRC, Mr. Bachtell is
responsible for the Company's governmental and regulatory affairs along with
its natural resources legal matters.
ITEM 11. EXECUTIVE COMPENSATION
There is set forth below information concerning the annual and long-term
compensation paid for services rendered in all capacities to the Company for
the fiscal years ended December 31, 1995, 1994 and 1993 by the person who was,
at December 31, the Chief Executive Officer of the Company and to any other
officer of the Company who received in excess of $100,000 in compensation for
the year ended December 31, 1995 (collectively the "Named Officers").
The following table discloses compensation received by the Named
Officers for the three fiscal years ended December 31, 1995:
SUMMARY COMPENSATION
Annual Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation($)
Jay Mealey 1993 $78,000 $0 $0
1994 $78,000 $0 $0
1995 $78,000 $0 $0
The following table provides information on options granted to the Named
Officers during the fiscal year ended December 31, 1995:
OPTION GRANTS
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in or Base
Name Granted # Fiscal Year Price ($/Sh) Expiration Date
Jay Mealey 100,000 33.3% $.5625 per May 31, 2000
Ten-Year Option/SAR Repricings
Length of
original
Hig Bid option term
Number of price Exercise remaining
options of stock price at date of
/SARs at time of at time of New repricing
repriced repricing or repricing or exercise or
Name Date or amended amendment($) amendment($) price($) amendment
Jay Mealey, May 31, 100,000 $.5625 $.72 $.60 37 months
President 1995
Jay Mealey, May 31, 100,000 $.5625 $1.08 $.60 37 months
President 1995
Jay Mealey, May 31, 100,000 $.5625 $1.80 $.60 37 months
President 1995
On May 31, 1995, the Board of Directors of the Company unanimously
approved an amendment to the terms of certain options previously awarded to
Mr. Mealey, Mr. Rawdin and Mr. Bachtell (as reflected in the table above for
Mr. Mealey). It was the Board's determination that such an amendment was in
the best interests of the Company to create incentives for and retain the
services of the recipients for the Company's future benefit. The amended
terms accounted for the adjustment for the 1:4 reverse split on January 3,
1995, reduced the exercise price of the options from an average of $1.20
per share to $.60 per share, granted piggyback registration rights and
extended the exercise period to five years from the date of the amendment.
The amendment resulted in a reduction in the total cost to exercise the
options from $900,000 to $450,000.
The information required is set forth under the caption "Directors and
Executive Officers of the Registrant" in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A and is incorporated herein
by reference.
The information required is set forth under caption "Compensation of
Executive Officers" in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of July 30, 1996,
regarding (i) all stockholders known to the Company to be beneficial owners
of more than 5% of the outstanding common stock; (ii) each director; and
(iii) all officers and directors of the Company as a group. Each of the
persons in the table below has sole voting power and sole dispositive power
as to all of the shares shown as beneficially owned by them except as
otherwise indicated.
Number of Shares Percentage
Name and Address Beneficially Owned of Class(1)
James A. Middleton 355,000(2) 3.16%
574 Chapala Drive
Pacific Palisades, Ca. 90272
Jay Mealey 2,058,051(3) 18.15%
4645 Hunters Ridge Circle
Salt Lake City, Utah 84124
Thomas W. Bachtell 2,013,448(4) 17.77%
3245 Big Spruce Way
Park City, Utah 84060
Richard S. Rawdin 450,160(5) 4.02%
P. O. Box 520982
Salt Lake City, Utah 84152
All Officers, Directors and
owners of more than 5% of the
Company's stock as a Group 4,876,659(6) 39.67%
(Includes 4 individuals)
1) Based on 10,932,616 shares of the Company's Common Stock issued and
outstanding on July 30, 1996. Treated as outstanding for the purpose of
computing the percentage ownership of each beneficial owner are common
shares which such beneficial owner had a right to acquire within 60 days
of July 30, 1996.
2) Includes 300,000 Options which are exercisable within 60 days.
3) Includes 406,000 Options which are exercisable within 60 days, as well
as 110,000 shares gifted by Mr. Mealey to Glenn Mealey as custodian for
Mr. Mealey's children, Cameron and Andrew Mealey. Mr. Mealey expressly
disclaims beneficial ownership of the aforementioned gifted shares.
4) Includes 5,000 shares held as trustee of the Nielson Family Trust and
400,000 Options which are exercisable within 60 days. Mr. Bachtell
expressly disclaims beneficial ownership of the aforementioned shares held
by the Nielson Family Trust.
5) Includes 254,000 Options which are exercisable within 60 days.
6) Includes 1,360,000 Options which are exercisable within 60 days and
110,000 shares gifted by Mr. Mealey and 5,000 shares held as trustee by
Mr. Bachtell.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1995, the Company executed
promissory notes payable to Mr. Thomas W. Bachtell, Esq., a Director of the
Company and President of BVRC, for loans to the Company including accrued
interest and salary payable in the amount of $57,682 and bearing interest at
the rate of 9% per annum. The foregoing notes mature on July 1, 1997 (or
earlier upon the Company's receipt of $2,000,000 as a result of its offer
and sale of its securities).
In 1995, the Company executed a promissory note payable to Mr. Jay Mealey,
President, Chief Operating Officer, Treasurer and a Director of the Company
for amounts loaned to the Company in the amount of $53,240 and bearing
interest at a rate of 9% per annum replacing a prior promissory note. The
foregoing note matures on July 1, 1997 (or earlier upon the Company's
receipt of $2,000,000 as a result of its offer and sale of its securities).
In February, 1995, Mr. Mealey loaned the Company an additional $20,000,
which amount was subsequently repaid by the Company.
In 1995, the Board of Directors approved the issuance of common stock
to reduce the liabilities (debt and accounts payable) and improve the equity
position of the Company. Under this plan, restricted common stock (Rule 144)
was issued at one-half the market price to account for the three year holding
period and to be consistent with previous issuances of restricted common
stock. The Company converted a total of $181,443 of liabilities to equity
at prices ranging from $.35 (restricted common stock at one-half market price)
to $.70 (free trading common stock at market price) per share. As part of
this program Mr. Mealey and Mr. Rich Rawdin, Vice President-Finance,
Secretary and a Director of the Company, converted salary payable of $113,047
to 322,991 shares of restricted common stock. The Company has the option to
repurchase Mr. Mealey's 215,114 shares at the issue price plus interest
accrued at 9% per annum. Also, as part of this program the law firm of
Pruitt, Gushee & Bachtell, of which Mr. Bachtell is president and a
shareholder, converted $33,092 to 47,273 shares of free trading common stock.
In January, 1996, the Company paid Pruitt, Gushee & Bachtell $21,125 for
services rendered in prior periods to the Company's wholly-owned
subsidiaries, Gavilan and BVRC.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
1. FINANCIAL STATEMENTS:
See Index to Financial Statements
2. EXHIBITS:
EXHIBIT NO. ITEM TITLE PAGE NO.
2.1 Agreement and Plan of Reorganization (1)
2.2 Agreement and Plan of Reorganization (3)
3.1 Articles of Incorporation (6)
3.2 Amended By-Laws (1)
4.1 Stock Option Agreement - 1991 (2)
4.2 Stock Option Agreements (6)
10.2 License Agreements with Park
Guymon Enterprises, Inc., dated January 20, 1989,
June 1, 1990 and June 1, 1990 (3)
10.3 Amendment to License Agreement with Park
Guymon Enterprises, Inc. (6)
10.4 Executive Employment Agreement with
James A. Middleton (6)
10.5 Employment Agreement with Jay Mealey (6)
10.6 Employment Agreement with Richard S. Rawdin (2)
10.7 June 15, 1989 Letter Agreement
with Amoco Production Company (6)
10.8 Consulting Agreement with IBEX Group, Inc.
and Hoffman Partners, Inc. (6)
10.9 Promissory Note issued to Jay Mealey 12/31/95 (6)
10.10 Promissory Note issued to Thomas W. Bachtell 12/31/95 (6)
10.11 Promissory Note issued to Thomas W. Bachtell 12/31/95 (6)
10.12 Oil and Gas Minerals Lease, dated September 1, 1991
with Wembco, Inc. (4)
10.13 Crown Office Space Lease (5)
22.1 Subsidiaries of the Company (6)
(1) Incorporated by reference from the Company's Registration
Statement on Form 10 filed with the Commission on July 1, 1991,
amended August 30, 1991 and bearing Commission file number 0-19365.
(2) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 bearing Commission
file number 0-19365.
(3) Incorporated by reference from the Company's Current Report on
Form 8-K filed with the Commission on or about September 30, 1992
and bearing Commission file number 0-19365.
(4) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1992 bearing Commission
file number 0-19365.
(5) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1993 bearing Commission
file number 0-19365.
(6) Incorporated by reference from the Company's Registration
Statement on Form S-1 filed with the Commission on or about March 13,
1996 and bearing Commission file number 0-19365.
3. REPORTS ON FORM 8-K
During the fourth quarter ended December 31, 1995, the Company
filed no reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
CROWN ENERGY CORPORATION
(Registrant)
Date: March 28, 1996 By:/s/JAMES A. MIDDLETON
James A. Middleton
Chief Executive Officer,
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 28th day of March, 1996.
Thomas W. Bachtell Jay Mealey
/s/THOMAS W. BACHTELL /s/JAY MEALEY
Director President, Chief Operating Officer and
Director
Richard S. Rawdin
/s/RICHARD S. RAWDIN
Vice President, Director and Secretary
CROWN ENERGY CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report of Pritchett, Siler & Hardy, P.C. F-2
Consolidated Balance Sheets, December 31, 1995 and 1994 F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Stockholders' Equity, for the years
ended December 31, 1995, 1994 and 1993 F-7
Consolidated Statements of Cash Flows, for the years ended
December 31, 1995, 1994 and 1993 F-8
Notes to Consolidated Financial Statements F-11
Supplemental Information - Unaudited F-24
