SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT/AMENDMENT #1
Under the Securities Act of 1933
CROWN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Commission File No. 333-2358
Utah 1311 87-0368981
(State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number Identification No.)
215 South State, Suite 550
Salt Lake City, Utah 84111
(801) 537-5610
(Address, including zip code and telephone number,
including area code, of Registrant's principal executive offices)
Richard S. Rawdin, Vice President
Crown Energy Corporation
215 South State, Suite 550
Salt Lake City, Utah 84111
(801) 537-5610
(Name, address, including zip code and telephone number,
including area code, of agent for service)
With copies to:
Lorin E. Patterson, Esq.
Suitter Axland & Hanson
175 S. West Temple, Suite #700
Salt Lake City, Utah 84101
Approximate date of commencement of proposed sale to public: As soon
as practicable after the effectiveness of this Registration Statement.
If any of the securities registered on this form are
to be offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933, check the
following box.
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under
the Securities Act, please check the following box and
list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check
the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering.
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box.
CALCULATION OF REGISTRATION FEE
Title of Each Amount To Be Securities to Proposed Maximum Amount of
Class of Registered be Registered Aggregate Offering Registration Fee
Securities to be Price
Registered
Common Stock 2,890,600 $.67 $1,965,668 $667.83
Estimated solely for purposes of calculating the
registration fee. Calculated on the basis of the average
of the high bid and asked prices for the Registrant's
Common Stock quoted on the NASD OTC Bulletin Board on
March 8, 1996.
The registrant hereby amends this Registration
Statement on such date or dates as may be necessary to
delay its effective date until the registrant shall file
a further amendment which specifically states that this
Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of
1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . 2
SUMMARY OF THE OFFERING. . . . . . . . . . . . . . . . 3
SUMMARY FINANCIAL INFORMATION. . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . 6
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . 11
DILUTION . . . . . . . . . . . . . . . . . . . . . . . 11
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF COMPANY'S SECURITIES. . . . . . . . . . 12
BUSINESS OF THE COMPANY. . . . . . . . . . . . . . . . 15
MARKET PRICE OF THE COMPANY'S COMMON EQUITY . . . . . 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . 26
SELLING SECURITY HOLDERS . . . . . . . . . . . . . . . 29
DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . 31
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . 37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 38
INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . 39
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . 40
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . 40
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 41
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS . . . 78
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. . . . . . 78
<PAGE>
CROWN ENERGY CORPORATION
Registration Statement on Form S-1
Cross Reference Sheet
Item Number and Caption Location in Prospectus
1. Forepart of the Outside Front Cover Page
Registration Statement of Prospectus.
and Outside Front
Cover Page of
Prospectus
2. Inside Front and Inside Front and Outside
Outside Back Cover Back Cover Pages of
Pages of Prospectus Prospectus
3. Summary Information, Prospectus Summary and
Risk Factors and Ratio Risk Factors
of Earnings to Fixed
Charges
4. Use of Proceeds Prospectus Summary and
Use of Proceeds
5. Determination of Plan of Distribution
Offering Price
6. Dilution Dilution
7. Selling Security Selling Security Holders
Holders
8. Plan of Distribution Plan of Distribution and
Outside Front Cover Page
of Prospectus
9. Description of Prospectus Summary,
Securities to Be Description of Company's
Registered Securities
10. Interests of Named Legal Matters and Experts
Experts and Counsel
11. Information with respect Prospectus Summary, Risk Factors,
to registrant Business Of The Company, Recent
Developments, Market Price of the
Company's Common Equity,
Dilution, Selected Financial
Data, Management's Discussion and
Analysis of Financial Condition
and Results of Operations,
Management, Certain Transactions,
Security Ownership of Certain
Beneficial Owners and Management,
Changes In and Disagreements With
Accountants, Financial
Statements
12. Disclosure of Indemnification of Officers and
Commission Position on Directors
Indemnification for
Securities Act
Liabilities
<PAGE>
Red Herring Legend
(To be placed vertically on the left margin, front cover
page of prospectus)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE OR OTHER
JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE OR OTHER
JURISDICTION.
<PAGE>
Subject to Completion
Preliminary Prospectus Dated July 2, 1996
2,890,600 Shares of Common Stock
CROWN ENERGY CORPORATION
215 South State, Suite 550
Salt Lake City, Utah 84111
(801) 537-5610
This Prospectus relates to an aggregate offering of
up to 2,890,600 shares of the Common Stock, par value
$0.02 per share ("Common Stock"), of Crown Energy
Corporation, a Utah corporation ("Crown" or the
"Company") which may be offered from time to time. Of
the 2,890,600 shares of Common Stock offered hereby
(i) 1,236,850 shares consist of presently outstanding
shares held by stockholders of the Company; and (ii)
1,653,750 consist of shares of Common Stock which are
reserved for issuance upon exercise of options
("Options") held by officers, directors and employees of
the Company and by other investors or consultants. The
Common Stock registered hereunder shall be referred to as
the "Securities." The Securities may be offered by
certain shareholders of the Company and holders of
Options (the "Selling Securities Holders") from time to
time in transactions in the over-the-counter market
through the NASD OTC Bulletin Board, in privately
negotiated transactions, or through a combination of such
methods of sale, at market prices prevailing at the time
of sale, at prices relating to such prevailing market
prices or at negotiated prices. The Selling Securities
Holders may effect such transactions by selling the
Securities to or through broker-dealers, and such
broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling
Securities Holders and/or the purchasers of the
Securities for whom such broker-dealers may act as agents
or to whom they may sell as principals, or both (which
compensation as to a particular broker-dealer might be in
excess of customary commissions). See, "Selling
Securities Holders" and "Plan of Distribution."
None of the proceeds from the sale of the Securities
by the Selling Securities Holders will be received by the
Company. The Company has agreed to bear all expenses
(other than selling commissions and fees and expenses of
counsel and other advisors to the Selling Securities
Holders) in connection with the registration and sale of
the Securities being offered by the Selling Securities
Holders. The Company has agreed to indemnify the Selling
Securities Holders against certain liabilities, including
liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Despite the fact that the
Company will not receive any proceeds from the sale of
the Securities, the Company will receive the total sum of
$1,202,063 if and when the Options are fully exercised.
All of the Securities were "restricted securities"
under the Securities Act prior to their registration
hereunder. The Company conducted a private placement of
shares of Common Stock which terminated in January 1996
(the "Private Placement") and 800,000 of the shares
registered hereunder were sold as part of the Private
Placement at a price of $.50 per share. The remaining
shares registered hereunder which are presently issued
and outstanding were previously issued by the Company in
exchange for consideration such as capital contributions,
consulting or employment services performed for the
Company or in exchange for legal services rendered. The
Options were issued at various times from 1993 through
1995 in exchange for capital contributions, consulting
services or as an incentive to certain officers,
directors or employees of the Company to encourage such
persons to remain committed to the objectives of the
Company and to reward them for their agreement to serve
on a deferred salary or a reduced salary basis. This
prospectus has been prepared so that future sales of the
Securities by the Selling Securities Holders will not be
restricted under the Securities Act. In connection with
any sales, the Selling Securities Holders and any brokers
participating in such sales may be deemed to be
"underwriters" within the meaning of the Securities Act.
See, "Selling Securities Holders."
The Common Stock is currently listed on the NASD
Bulletin Board under the symbol "CROE." On June 12,
1996, the high bid price for the Common Stock as recorded
on the Bulletin Board was $.69 per share. As of June 12,
there were 10,932,616 shares of Common Stock outstanding,
including 1,236,850 of the shares offered hereby. See,
"Risk Factors -- Shares Eligible For Future Sale." If
all of the Common Stock offered hereby were issued as of
that date, there would have been an aggregate of
12,586,366 shares of Common Stock issued and outstanding.
See, "RISK FACTORS" for discussion of certain risk
factors (including substantial doubts regarding the
Company's ability to continue as a going concern) that
should be considered in connection with the ownership of
the Common Stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on
Form S-1 with respect to the Common Stock being offered
hereby with the Securities and Exchange Commission (the
"Commission") under the Securities Act. This Prospectus,
which constitutes a part of the Registration Statement,
does not contain all the information set forth in the
Registration Statement, certain items of which are
omitted in accordance with the rules and regulations of
the Commission. Statements contained in this Prospectus
concerning the provisions of documents filed with the
Registration Statement as exhibits are necessarily
summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the
applicable document filed as an exhibit to the
Registration Statement. The Registration Statement may
be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such
material can be obtained from the public reference
section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. For further
information pertaining to the Company and the Common
Stock being offered hereby, reference is made to the
Registration Statement, including the exhibits thereto
and the financial statements, notes and schedules filed
as part thereof.
The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and thus will be required
to file reports, proxy and information statements with
the Securities and Exchange Commission (the
"Commission"). Any of such reports, etc. and other
information filed by the Company can be inspected and
copied at the public reference facilities maintained by
the Commission at 450 5th Street, N.W., Washington, D.C.
20549. Copies of such materials may be obtained from the
Public Reference Section of the Commission at 450 - 5th
Street, N.W., Washington, D.C. 20549 at prescribed rates.
No dealer, salesman, or any other person is
authorized by the Company to give any information other
than that contained in this Prospectus in connection with
the Registration described herein. This Prospectus does
not constitute an offer of any security other than the
Securities to which it relates, or an offer by the
Company within any jurisdiction to any person to whom
such offer would be unlawful. This Prospectus may be
used only in connection with the Registration as
contemplated herein. The delivery of this Prospectus at
any time does not imply that the information herein is
correct as of any time subsequent to its date. However,
if any material changes in the affairs of the Company or
this Prospectus is required by law to be delivered, it
will be amended or supplemented to describe the changes.
<PAGE>
SUMMARY OF THE OFFERING
THIS SUMMARY OF CERTAIN PROVISIONS OF THIS PROSPECTUS IS
INTENDED ONLY FOR EASE OF REFERENCE, IS NOT A COMPLETE
PRESENTATION OF ALL RELEVANT FACTS AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION, INCLUDING
FINANCIAL STATEMENTS AND OTHER INFORMATION, APPEARING
ELSEWHERE IN THE PROSPECTUS. THIS PROSPECTUS DESCRIBES
IN DETAIL NUMEROUS ASPECTS OF THE COMPANY AND ITS
PROPOSED BUSINESS WHICH ARE MATERIAL TO OWNERS OF ITS
STOCK, INCLUDING CERTAIN ASPECTS SUMMARIZED HERE.
The
Company<PAGE>
The Company operates through two wholly-owned
subsidiaries, BuenaVentura Resources Corporation
("BVRC") and Gavilan Petroleum, Inc. ("Gavilan").
The Company conducts its oil sands projects
through BVRC and its conventional oil and gas
operations through Gavilan. The Company completed
its Initial Oil Sand Production Facility ("IPF")
during the summer of 1994 and has targeted the
latter half of 1996 for the completion of
financing and the commencement of construction of
a full scale production facility. The Company
expects production of oil and other by-products
from oil sands to become its primary business
activity. Unless specifically indicated
otherwise, all discussion and references to the
Company's business includes references made to the
business and operations of its wholly-owned
subsidiaries. See, "Business of the Company,"
"Risk Factors" and "Financial Statements."<PAGE>
The
Offering<PAGE>
The Company is not offering newly issued shares
for sale as part of the offering registered
hereby. The offering will provide for the
registration under the Securities Act for the
future sale of 2,890,600 shares of the Company's
Common Stock, of which (i) 1,236,850 are presently
issued and outstanding, and (ii) 1,653,750 are
reserved for issuance upon exercise of the
Options. The holders of the Options may exercise
their Options at any time following notice to the
Company of their intent to do so.
The Company covenanted to file a registration
statement covering the shares issued in the
Private Placement in the Confidential Information
Package dated November 15, 1995 (the "CIP")
through which the shares were sold. The Company
is effecting this Registration to remove the
limitations on resale imposed by Rule 144,
promulgated under the Securities Act upon the
Securities generally. Such limitations on resale
include the requirement that stock be held for a
period of two years prior to such resale. The
Registration will be effected without the
assistance of an underwriter. In connection with
the sale of the Securities, the Company will
undertake to use its best efforts to keep the
Registration Statement, of which this Prospectus
is a part, effective in order to permit such
sales. The holders of such Securities may sell
the Securities from time to time through the NASD
OTC Bulletin Board, in regular brokerage
transactions, or through a combination of such
methods at fixed prices, which may be changed, at
market prices prevailing at the time of sale or at
negotiated prices. The holders of such Securities
may effect such transactions by selling Securities
to or through broker-dealers, and such broker-dealers
may receive compensation in the form of
discounts, concessions or commissions from the
holders of such Securities or the purchasers of
the Securities from whom such broker-dealers may
act as agent, or to whom they sell as principal,
or both (which compensation, which as to a
particular broker-dealer may be in excess of
customer commissions). See, "Plan of
Distribution" and "Description of Company's
Securities."<PAGE>
Sales Commissions<PAGE>
No sales commissions are payable by the Company to
registered broker-dealers or others as a result of
this Registration. See, "Plan of Distribution."<PAGE>
Use of
Proceeds<PAGE>
No cash proceeds will be realized by the Company
as a result of the sale of the Securities. The
estimated use of the net proceeds realized by the
Company from the Private Placement was explained
to the purchasers in such Private Placement in the
CIP. The Company will receive a total of
$1,202,063 assuming the exercise of all of the
Options by the holders thereof. See, "Use of
Proceeds."<PAGE>
Risk
Factors<PAGE>
Holders of the Company's Securities should
carefully review the risk factors and other
information set forth herein under the heading
"Risk Factors," which discuss, among other things,
(i) the early stage of the Company's development
and (ii) the regulatory requirements imposed upon
the Company's proposed business.<PAGE>
<PAGE>
Securities
Outstanding<PAGE>
As of the date of this Prospectus, the outstanding
securities of the Company are as follows:
Common Stock. . . . . . . . . . . . . . . . . 10,932,616
Options to purchase Common Stock. . . . . . . .1,794,750
As of the date of this Prospectus, the Company has
obligated itself to issue approximately 126,932
additional shares of Common Stock.
(See, "Description of Company's Securities --
Options," and "Management -- Stock Options to
Executive Officers and Directors").<PAGE>
SUMMARY FINANCIAL INFORMATION
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. Further,
reference should be made to the Company's financial statements
for the quarter ended March 31, 1996 included elsewhere
herein.
YEAR ENDED DECEMBER 31,
(audited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990
Net Sales $213,526 $325,907 $445,228 $587,314 $531,280 $8,685
Income (Loss)
from Continuing
Operations ($464,634) ($367,590)($267,362) ($61,205) $47,109 ($93,326)
Income (Loss)
per Share From
Continuing
Operations ($.05) ($0.03) ($0.02) ($0.00) $0.01 ($0.01)
Cash Dividend
per Common
Share -- -- -- -- -- --
</TABLE>
AS OF DECEMBER 31,
(audited)
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990
Total Assets $4,344,250 $4,351,310 $4,481,133 $5,065,119 $2,657,157$ 155,500
Long Term
Obligations $ 794,442 $ 964,794 $1,040,427 $ 304,592 $ 467,702 $ 0
Shareholder's
equity
(Deficit) $3,064,872 $2,939,500 $2,879,503 $4,091,521 $1,612,587 $1,657,819
</TABLE>
The foregoing selected financial data is presented on a
historical basis and may not be comparable from period to
period due to changes in the Company's operations. For
instance, summary financial data presented for the 1991
through 1995 calendar years includes results of operations of
the Company's Gavilan subsidiary, whereas summary financial
data presented for the 1992 through 1995 calendar years
includes results of operations of both the Company's Gavilan
and BVRC subsidiaries. <PAGE>
RISK FACTORS
An investment in the Securities involves a high degree of
risk. The holders or purchasers of the Securities are
encouraged to carefully review the Risk Factors set forth
below. Holders or purchasers of the Securities should
carefully consider the possibility of the loss of their entire
investment. In addition to the risks described elsewhere in
this Prospectus, owners and prospective owners of the
Securities should consider the following matters:
A. No Full Scale Commercial Operating History. Although the
Company currently owns and operates an oil sands mine at
Asphalt Ridge, Utah, and sells raw oil sands for pavement
application purposes, it has no operating history involving
the extraction and sale of oil which has been separated from
oil sands at a full scale operating facility.
1. Economic Factors. The revenues generated by the
Company are highly dependent on the price of oil and the costs
to extract oil from oil sands. Various factors beyond the
Company's control affect prices and costs, including worldwide
and domestic supplies of oil, price of foreign imports, level
of consumer demand, the price and availability of alternative
fuels and changes in existing federal regulation and price
controls. There is no assurance that oil prices or the
estimated costs of oil extraction will not change or will
remain favorable in the future or that the projects on which
the Company is working will realize a profit.
2. Need for Additional Cash. The Company's ability to
complete a commercial oil sands production facility, expand
its reserve base or construct additional facilities is
dependent on its ability to obtain the necessary capital. The
Company's current cash reserves and cash flow is not adequate
for the activities it proposes to undertake in connection with
construction of the commercial facility and Crown's related
business operations. The extent of the Company's future
capital requirements will depend on many factors, including
the costs of labor and materials related to construction, the
availability of specialized equipment and expert personnel and
the costs of environmental permitting and compliance efforts.
Management currently anticipates that its capital requirements
for the development of the Asphalt Ridge project will be
approximately $10,000,000 (although interested persons should
note that this sum is a foreword-looking estimate or forecast
and that actual capital requirements may differ from such
estimate). 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.
3. Ability to Operate As a Going Concern. Due to the
Company's limited working capital and operating losses, there
is substantial doubt as to the Company's ability to continue
operating as a going concern. In particular, see "Risk
Factors - Need for Additional Cash." In the event the Company
is unable to find additional working capital, it may be
required to significantly curtail or cease its operations and
liquidate and dissolve, after which its assets, if any are
available after repayment of its debts and obligations, would
be distributed on a pro-rata basis to holders of its common
shares.
4. Governmental and Environmental Regulation. The
ability of the Company to operate its business within the
United States and, more particularly, the state of Utah, is
subject to regulation by both the federal government and the
state of Utah and the respective agencies thereof. There is
no assurance that statutes or regulations will not be
forthcoming that are not in the best interests of the Company
or that do not impose significant costs or other restraints on
the Company. Similarly, there can be no assurance that
government regulations will not seek to limit or preclude the
Company's proposed business operations or methods. The
Company believes it is in substantial compliance with
applicable environmental and other regulations, however, there
can be no assurance that significant costs for compliance or
clean up will not be incurred in the future.
5. Project Completion. The completion of the Company's
first commercial facility is contingent on obtaining all
necessary governmental permits and on the success of
construction and the ability to purchase the necessary
components and equipment. There can be no assurances that
necessary permits will be obtained for construction of the
facility. Further, there are no assurances that the
successful completion of construction of the first commercial
facility will occur or that if completed the facility will
operate as designed.
6. Product Market. Even though the Company believes
there is strong local and regional demand for its products,
oil from oil sands has never been commercially produced,
refined or sold in the United States. The Company is
analyzing its market options primarily through the use of
outside consultants, as well as through its contacts with
several refineries and purchasers in the area. However, there
is no assurance that the products produced will be able to be
processed by local refineries or sold in the local market.
Even if the Company is able to sell its products locally or
otherwise, there can be no assurance that the sales prices and
other terms and conditions will enable the Company to generate
profits.
7. Competition. The oil and gas industry has conducted
extensive research in an attempt to develop a technology to
commercially produce oil from oil sands. To date, the only
successful project is the Athabasca project in Alberta,
Canada. The Company is competing with a number of other
companies, including major oil companies and the operators of
the Athabasca project, many of whom have financial and
technical resources, staff and facilities substantially
greater than those of the Company. The Company believes it
has completed a thorough analysis of all the public
information available with respect to competing oil sand
extraction technologies, however, it can provide no assurances
that other companies or individuals have not or will not
develop a technology superior to the Company's. The Company
cannot predict the effect these technologies may have on its
operations.
8. Tax Abatement. Although motor fuels refined from
oil sands oil produced in Utah presently qualify for an
abatement of the $8.00 per barrel (approximate) Utah motor
fuels tax, there is no guarantee that the applicable state
laws and statutes will not be changed to modify or eliminate
this tax abatement.
9. No Cash Dividends. The Company has not paid any
cash dividend since its inception. Because of the Company's
anticipated capital requirements and uncertain profits, it is
highly unlikely that any cash dividends will be paid in the
foreseeable future. Any dividends to be paid are at the sole
discretion of the Board of Directors. See, "Description of
Company's Shares -- Dividends."
10. Authorization of Undesignated Shares. The Company
has authorized 50,000,000 shares of Common Stock and 1,000,000
shares of preferred stock. The Company's Board of Directors
has the authority, without action by the Company's
shareholders, to issue the authorized but unissued common and
preferred shares, and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights
and other rights of the preferred shares. The future issuance
of any shares of the Company could impede or deter an
unsolicited tender offer or takeover proposal regarding the
Company and otherwise adversely affect shareholders of the
Company. It is presently the intention of the Company's
management to seek considerable additional financing in order
to fully develop its oil sands business. The form which such
additional financing may take has not been determined and may
consist of either equity or debt. In any event, the Company's
shareholders may suffer significant dilution at the time such
additional capital is received by the Company. See,
"Description of Company's Shares -- Options."
11. Outstanding Options. At present there are Options
to purchase 1,794,750 shares of the Company's Common Stock
outstanding. Such Options are exercisable at prices ranging
from $0.5625 to $1.96 per share. The exercise of these
Options may have the effect of depressing the market price of
the Company's outstanding Common Stock, and may adversely
affect the Company's ability to raise equity capital through
the sale of its Common Stock at a future date at higher prices
which might have prevailed had it not been for the existence
of such Options. In addition, Option holders may choose to
exercise their Options and offer to sell such Common Stock in
competition with the Company at a time when the Company is in
need of additional equity capital.
12. Operating and Other Hazards. 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. The Company must
also contend with other natural hazards, such as earthquakes,
floods or inclement weather. 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.
13. Technological Factors. The Company's results of
operations will depend, at least in part, upon its ability to
implement its business plan using its licensed oil sand
extraction technology. There can be no assurance that the
Company will be able to successfully apply the licensed oil
sand extraction technology in a cost-efficient manner.
Further, advancements in oil sand extraction technology might
render the Company's licensed technology either obsolete or
unable to effectively compete in terms of price or quality.
14. Attraction and Retention of Key Employees and
Consultants. The Company will be highly dependent on the
principal members of its management, who are anticipated to be
employed by or provide consulting services to the Company.
The loss of the services of any one individual member of
management or of its consultants might impede the achievement
of the Company's objectives. Although the Company believes it
will be successful in retaining skilled and experienced
personnel, there can be no assurance that the Company will be
able to attract and retain such personnel on acceptable terms.
15. Dependence on Major Customer. At present, Amoco
purchases all (100%) of the Company's production of oil and
gas. Although the Company anticipates that Amoco will
continue to purchase all or substantially all of its oil and
gas production, there can be no assurance that Amoco will
continue to purchase all or any portion of the Company's oil
and gas production. In the event Amoco discontinues or
curtails it purchases from the Company, the Company's results
of operations will be materially and adversely impacted, at
least until such time as different buyer(s) can be located and
appropriate terms negotiated, which terms may be more or less
favorable than the terms under which the Company sells to
Amoco.
16. Conflicts of Interest. The Company's directors and
officers are or may become, in their individual capacities,
officers, directors, controlling shareholders and/or partners
of other entities engaged in a variety of businesses which may
in the future have various transactions with the Company.
Each director and officer of the Company may engage in
business activities outside of the Company. Thus, there
exists potential conflicts of interest including, among other
things, time, effort and corporate opportunity, involved in
participation with such other business entities and
transactions.
17. Technology License. The Company's license of oil
sands extraction technology from Park Guymon Enterprises, Inc.
is an important element of the Company's business plan. The
Company's success will in part depend on its ability to
maintain the validity of the license and, if the license is
terminated or rescinded or otherwise limited, the Company may
suffer a materially adverse impact.
18. Environmental Exposure. The Company's operations
are subject to the provisions of various federal and state
environmental laws and regulations, many of which impose
significant obligations on the Company regarding the
management, transport, storage and disposal of hazardous
substances. These laws and regulations may impose significant
compliance costs on the Company and, in the event of any
violations, the Company may be held liable for penalties,
assessments, environmental clean-up costs, etc. Although the
Company makes reasonable efforts to comply with such laws and
regulations, there can be no assurance that the Company will
be in compliance in all respects at all times or that
violations, if any, will not have a significant impact on the
Company's results of operations.
19. Litigation Risks. The Company's Gavilan operating
subsidiary is currently a party to 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, and its oil and gas leases
in the Roosevelt, Utah area. In the event any or all of such
administrative actions result in administrative orders adverse
to the Company, the Company may be required to reimburse the
costs and expenses incurred by the issuer of its $75,000
letter of credit. Further, the Company may have its operating
leases with respect to such operations terminated. In either
event, the Company would suffer an adverse and material
financial impact. Additionally, the Company may incur
significant costs and expenses in contesting such potential
adverse actions by the Bureau of Indian Affairs.
20. Penny Stock Regulations - Restrictions on
Marketability. The Securities and Exchange Commission (the
"Commission") has adopted regulations which generally define
"penny stock" to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain
exceptions. The Company's Common Stock is covered by the
penny stock rules, which imposes additional sales practice
requirements on broker-dealers who sell such securities to
person other than established customers and accredited
investors (generally institutions with assets in excess of
$5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000
jointly with their spouse). For transactions covered by the
rule, the broker-dealers must make a special suitability
determination for the purchase and receive the purchaser's
written agreement of the transaction prior to the sale.
Consequently, the rule may affect the ability of broker-dealers
to sell the Company's securities and also may affect
the ability of purchasers in this offering to sell their
shares in the secondary market.<PAGE>
USE OF PROCEEDS
The Company will not realize net proceeds from the sale
of the Securities which are the subject of this Registration.
As part of the Private Placement, the Company received net
proceeds of approximately $400,000. These funds were and are
being utilized for the expenses related to the Company's
operations, working capital and miscellaneous permitting and
engineering costs. An estimation of the use to which the
proceeds from the Private Placement were to be devoted was set
forth in the CIP which was distributed to all purchasers of
the shares in the Private Placement. The Company will receive
the amount of $1,202,063 assuming the exercise of all of the
Options.
DILUTION
In that the Registration and proposed sale of the
Securities merely involves the sale by the Selling Securities
Holders of either outstanding shares or shares underlying the
existing Options, the Company will not receive any cash
proceeds from such sales. Purchasers will not suffer a direct
financial dilution effect as a result of the sale of the
Securities. However, to the extent Options are exercised
subsequent to an investor's purchase of the Securities,
dilution of such purchaser's investment will occur to the
extent the Company's net tangible book value per share
decreases as a result of such Option exercises.
PLAN OF DISTRIBUTION
The Common Stock registered hereby may be sold from time
to time directly by any of the Selling Securities Holders
named herein. See, "Selling Security Holders." A Selling
Securities Holder may from time to time offer such Securities
to underwriters, dealers or agents. The distribution of
Securities by a Selling Securities Holder may be effected in
one or more transactions that may take place on the NASD OTC
Bulletin Board, including through ordinary brokers'
transactions, in privately negotiated transactions, through
sales to one or more broker-dealers for sale of such shares as
principals, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at
negotiated prices, or otherwise. Usual and customary or
specifically negotiated brokerage fees or commissions may be
paid by the Selling Securities Holders in connection with such
sales of the Securities. The Selling Securities Holders or
any intermediaries through whom the Securities are sold may be
deemed "underwriters" within the meaning of the Securities Act
with respect to the Securities offered and any profits
realized or commissions received may be deemed underwriting
compensation.
The Selling Securities Holders and any other persons who
participate in a sale of the Securities should be advised that
they may be deemed to be "underwriters" as defined under the
Securities Act and shall be required to deliver a current
Prospectus in connection with any such sale. The Company will
use its best efforts to maintain a current Prospectus and
Registration Statement applicable to the Securities for as
long as the securities laws will require. There is, however,
no assurance that the Company will be able to maintain such a
current Prospectus and Registration Statement. The Company
shall undertake to supply the Selling Securities Holders with
an adequate number of current Prospectuses in order to
facilitate such sales. Any commissions paid or any discounts
or concessions allowed to such holders, and any profits
received on the sale of the Securities, may be deemed to be
underwriting discounts and commissions under the Securities
Act.
Requests for additional copies of this Prospectus should
be made by mail or telephone to Crown Energy Corporation,
Attention: Richard S. Rawdin, 215 South State, Suite 550, Salt
Lake City, Utah 84111, (801) 537-5610.
DESCRIPTION OF COMPANY'S SECURITIES
Authorized Capitalization
The Company's authorized capital consists of 50,000,000
shares of Common Stock, par value $0.02 per share. At the
present time, 10,932,616 shares of Common Stock are issued and
outstanding while 1,794,750 shares of Common Stock are
reserved for issuance upon exercise of outstanding options.
Of the 2,890,600 shares of Common Stock offered hereby
(i) 1,236,850 shares consist of presently outstanding shares
held by stockholders of the Company; and (ii) 1,653,750
consist of shares of Common Stock which are reserved for
issuance upon exercise of Options held by officers, directors
and employees of the Company and by other investors or
consultants.
On January 3, 1995, the Common Stock was reverse split on
a one for four basis. The reverse split is reflected in the
foregoing capitalization numbers.
As of the date of this Prospectus, the Company has
obligated itself to issue approximately 126,932 additional
shares of Common Stock under various contractual
relationships.
As of March 5, 1996, there were 881 holders of record of
the Company's Common Stock.
Common Stock
Cumulative voting by the holders of the Common Stock in
the election of directors is not allowed and a quorum for a
shareholders' meeting exists when a majority of the issued and
outstanding shares are present, in person or by proxy. With
regard to the election of directors of the Company, the Utah
Revised Business Corporation Act (the "Corporation Act")
provides that in cases where a quorum is present, directors
shall be elected by a plurality of the votes cast.
Accordingly, the holders of a majority of the shares of Common
Stock present, in person or by proxy, at any legally held
shareholders' meeting at which the Board of Directors is
elected will be able to elect all directors and the minority
shareholders will not be able to elect a representative to the
Board of Directors. The Corporation Act provides that in
other cases a matter will be approved by a voting group if a
quorum is present and the votes cast in such group favoring
the action exceed those cast opposing it.
The holders of the Common Stock have no preemptive or
conversion rights, no redemption or sinking fund provisions
and are not liable for further call or assessment. The
outstanding shares of Common Stock are, and the shares issued
following the exercise of the Options will be, fully paid and
non-assessable. Each share of Common Stock is entitled to
share ratably in assets available for distribution to the
holders upon liquidation of the Company after provision is
made for the payment of debts and other liabilities of the
Company.
Preferred Stock
The Company is authorized to issue 1,000,000 preferred
shares, par value $0.005 per share. The preferred shares may
be issued by the Board from time to time in one or more issues
and with such serial designations as may be stated or
expressed in its resolution providing for the issuance of such
shares. There are no series of preferred stock designated at
present and no shares of preferred stock outstanding.
Dividends
Holders of the Company's outstanding shares are entitled
to receive dividends when, and if, declared by the Board of
Directors out of funds legally available therefor. Any such
dividends may be paid in cash, property or shares of the
Company's Common Stock or preferred stock. The Company has
not paid any dividends since its formation. It is the present
policy of the Board of Directors of the Company to retain any
earnings for use in the business of the Company, and
therefore, the Company does not presently anticipate paying
any cash dividend on its outstanding stock in the foreseeable
future. Any future dividends will be subject to the
discretion of the Company's Board of Directors and will depend
upon, among other things, the operating and financial
condition of the Company, and its capital requirements and
general business conditions. Therefore, there can be no
assurance that any dividends on the Company's outstanding
stock will be paid in the future.
Utah Control Shares Acquisition Act
It is likely that the Company will be subject to the
Control Shares Acquisitions Act, Utah Code Ann. Section 61-6-1
through 61-6-12 (the "Control Act"). In brief, the Control
Act limits the voting power of parties after they acquire at
least 20% of the outstanding shares of an "issuing public
corporation" unless the corporation's shareholders have
affirmatively resolved to grant unrestricted voting rights to
such persons. Several forms of share acquisitions are exempt
from the operation of the Control Act. Such exempt
transactions include shares acquired pursuant to the laws of
dissent and distribution, shares acquired pursuant to the
operation of a stock pledge or other security interest and
shares issued directly by the corporation. In the event
"control shares" are acquired in a "control share acquisition"
and granted full voting rights by the company's shareholders
and the acquiring person has acquired a majority or more of
all voting power, dissenter's rights will be available to
those shareholders not favoring the granting of unlimited
voting rights. Pursuant to such dissenter's rights, such
shareholders shall be entitled to receive the "fair value" of
their shares pursuant to the Corporation Act.
Transfer Agent
Interwest Transfer Co., Inc. is the transfer agent for
the Company's $0.02 par value Common Stock.
Shareholder Voting Requirements Under The Corporation Act
The provisions of the Corporation Act now provide that,
where a quorum is present, all corporate actions, excluding
the election of directors, requiring approval of a
corporation's shareholders will be adopted if the votes cast
favoring such action exceed those opposing it. Under the
Corporation Act, a quorum exists if a majority of the votes
entitled to vote on any matter is present in person or by
proxy. The effect of the foregoing provisions of the
Corporation Act is to permit abstentions received with regard
to a particular matter to be counted as part of the vote
tally. Accordingly, where a quorum is present, a matter may
be duly adopted by the Company's shareholders even if such
matter does not receive a majority of all the votes cast by
the quorum present at such meeting.
1995 Officer/Employee/Consultant Benefit Plan
In May 1995, the Company adopted the 1995
Officer/Employee/Consultant Benefit Plan (the "Plan").
Pursuant to the Plan, which is administered by the Company's
Board of Directors, up to 800,000 shares of Common Stock may
be awarded to the Company's officers, consultants,
and full-time and part-time salaried employees of the Company who are
selected by the Board. The Plan also permits the Company to
award cash incentives in the place of or in addition to the
award of stock options thereunder. As of the date hereof, the
Company has awarded 229,987 options to purchase Common Stock
under the Plan.<PAGE>
BUSINESS OF THE COMPANY
General Development of Business
Crown 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, BVRC and 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.
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 the IPF during
the summer of 1994 and, based on the results of its operation
over a 30-45 day period, has targeted the end of 1996 for the
completion of financing and the commencement of the
construction of a full-scale production facility. 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.
<PAGE>
Description of Business
Oil Sands 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. According to sources which
management believes to be credible, such as The New York Times
and Oil and Gas Journal, 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.
Company Activities. 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 (including the proviso that each such
agreement was made effective as of 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 license agreements require
the Company to pay to Park Guymon Enterprises, Inc. a 2%
production royalty on net returns realized within the State of
Utah and a 5% royalty payable with regards to the remainder of
the territory, calculated by reference to the amount of money
actually received by the Company or its sublicensees for sale
of products produced by use of the licensed technology, less
any sales or brokerage costs, transportation costs, processing
costs and extraction taxes. Under the agreements, the terms
of which are perpetual unless earlier terminated according to
certain provisions, the Company agrees to use its best efforts
to maximize the use of the oil sand extraction technology and
to meet certain production milestones. With respect to the
production milestones applicable to the state of Utah
territory, the Company has covenanted to use its best efforts
to, as soon as reasonably practicable, construct and commence
operation of a demonstration pilot plant at or near Vernal,
Utah. Within three months after production of 1,000 barrels
of product has been achieved from the demonstration pilot
plant, the Company must determine the commercial viability of
the licensed technology, at which time the Company must elect
to either continue or terminate the license agreement. If the
license agreement is continued, the Company must obtain a
commitment for funding of an initial commercial plant within
six months of the pilot project's production of 1000 barrels
of tar sands product (i.e. asphalt, bitumen, maltha or other
hydrocarbon minerals). The Company also covenants that,
within three years of production of 5000 barrels of product,
the Company will produce not less than 1000 barrels of product
per day. Further, within five years of production of 5000
barrels of product, or seven years from the effective date of
the license agreement, the Company must be producing not less
than 3000 barrels of product per day. Management believes it
is in compliance with these production milestones since it has
used, and continues to use, its best efforts to construct and
commence operation of a demonstration pilot plant. At the
present time, management believes that it can obtain pilot
project financing and commence construction in the latter half
of 1996.
With respect to the production milestones applicable to
the United States (other than Utah) and Canadian territories,
the Company has covenanted to, as soon as practicable but in
no event more than three years after July 1, 1993, construct
and put into operation a processing plant utilizing the
licensed technology. The Company has also made other
production milestone covenants similar, although not
identical, to the covenants described in the preceding
paragraph. Interested persons should note that the Company
has not satisfied the production milestones with respect to
the non-Utah territories. The Company has not received any
indication from Park Guymon Enterprises, Inc. that such
failure constitutes a breach or is otherwise an event of
termination of the license agreements applicable to non-Utah
territories. Management of the Company believes, although
there can be no assurance, that the license agreements remain
in force and effect with respect to non-Utah territories and
that any technical breaches will be waived by Park Guymon
Enterprises, Inc.
In any event, management of the Company believes that the
Company is in compliance with all of the production milestones
applicable to the Utah territory (where the Company's oil
sands operations are focused) since it has used, and continues
to use, its best efforts to construct and commence operation
of a commercial production facility. At the present time,
management believes that it can obtain project financing and
commence construction in the latter half of 1996.
In the event such milestones are not met within specified
time periods, Park Guymon Enterprises, Inc. retains the right
to license the technologies to others within specified
territories. The 2% production royalty on net returns
realized within the State of Utah and the 5% royalty payable
with regards to the remainder of the territory is calculated
by reference to the amount of money actually received by the
Company or its sublicensees for sale of products produced by
use of the licensed technology, less any sales or brokerage
costs, transportation costs, processing costs and extraction
taxes. The licensing agreements may be terminated by either
party upon 30 days written notice to the other party in
material breach of the agreement. A patent for the licensed
technology was issued by the United States Patent and
Trademark Office to Park Guymon Enterprises, Inc. on November
6, 1990 and expires on November 5, 2007. Further, management
understands that a Canadian patent for the licensed technology
was issued to Park Guymon Enterprises Inc. in 1990 and that
such intellectual property protection will expire in 2010.
The viscosity of the oil in "oil-wet" sands, like those
in Utah, must be significantly reduced before it 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 entered into a strategic
alliance with Swaco-Geolograph ("SWACO") with regard to its
oil sands operations. The Company retained 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 projected to be operational
during early 1997, although construction has not yet commenced
and the Company is presently seeking financing for such
construction as well as for the working capital needed to
finance the start of commercial production. The Company has
applied for all permits which it believes are required for
construction or operation of the facility and such permit
applications are currently pending review by the appropriate
administrative agencies.
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) during its initial months of operation
and at the full 1,000 BPD capacity in the latter half of 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 projected 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. See, "Risk Factors."
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.
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.
Properties
Oil and Gas Operations-Gavilan
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 believes it has
satisfactory title to its properties based upon standards
acceptable in the oil and gas industry. 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. The Company
believes its title practices to be consistent with industry
practices and that such practices are designed to assure the
Company adequate title to its properties. However, 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.
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
Future Net Revenues. The following table summarizes
estimated future net revenues applicable to proved reserves.
<TABLE>
<S> <C> <C> <C>
Period Proved Proved Total Proved
Ending Developed Undeveloped
December 31
1996 $63,788 49,987 37,680
1997 64,015 ( 0 ) (780,430)
1998 (455,875) 4,542,939 63,788
Thereafter (730,443) (418,195) 4,606,954
Total $215,470 $3,306,634 $3,522,104
</TABLE>
Present Value Future Net Revenues. The following table summaries
estimated present value future net revenues applicable to proved reserves.
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, which
price is assumed to have remained constant throughout the
life of the properties. Operating costs, production
costs, 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; however,
interested persons should note that such estimates are
forward-looking statements and projections and the
foregoing factors (and others, including those set forth
in the "Risk Factors" section hereof) could cause actual
results to vary from the estimates provided.
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:
<TABLE>
Average Sales Lifting Costs
Production: Prices: (per BBL)
<C> <C> <C> <C> <C> <C>
Oil (BBLS) Gas (MCF) Oil (BBLS) Gas (MCF)
1995 10,501 0 $16.82 $0 $10.40
1994 17,280 0 15.76 0 9.72
1993 20,135 1,980 17.59 .56 11.97
</TABLE>
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
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 Acreage
Gross 1,970
Net Wells Acreage 915
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.
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. The Company
believes that the final resolution of this matter will
not have a materially adverse effect on the business of
the Company.
Submission of Matters to a Vote of Security Holders
On December 7, 1994, the shareholders of the Company
voted to affirm and ratify the reverse split of the
Company's issued and outstanding Common Stock on a one to
four basis.
<PAGE>
MARKET PRICE OF THE COMPANY'S
COMMON EQUITY
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:
<TABLE>
<S> <C> <C> <C> <C>
CALENDAR QUARTER ENDED HIGH BID LOW BID
March 31, 1994* $1.40 $0.68
June 30, 1994* 1.20 0.40
September 30, 1994* 3.00 0.80
December 31, 1994* 2.24 0.52
March 31, 1995 $1.25 $0.38
June 30, 1995 1.06 0.38
September 30, 1995 1.31 0.38
December 31, 1995 0.94 0.28
</TABLE>
* The Company's common stock was reverse-split on a
one for four basis on January 3, 1995. The high and low
bid prices shown have been adjusted upwards by a multiple
of four to reflect such reverse split.
As of June 12, 1996, the high and low bid quotations
reported by the National Quotation Bureau were $1.00 and
$.38, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
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. See,
"Risk Factors." 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 Jeffery 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. See, "Risk Factors."
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 for excess
accruals of oil and gas taxes payable, 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.
SELLING SECURITY HOLDERS
The list of Selling Securities Holders set forth
below was prepared from the Company's records as of
February 24, 1996. The list set forth below gives effect
to the reverse stock split consummated in January 1995.
The columns reflecting ownership percentage after the
conclusion of this Registration assume the exercise of
all of the Options. Only those parties reflected on this
list will be entitled to the benefit of this Registration
Statement.
<TABLE>
<S> <C> <S> <C> <S> <C> <S>
Name of Selling Number of Shares or Shares Percent of Class
Securities Holders Underlying Options Owned After Offering*
and Expected to be Offered
James A. Middleton** 355,000 2.83%
John Worley 227,000 1.81
Jeff J. Fishman 55,000 *
Jeff J. Hoffman 44,000 *
WPD Associates 55,000 *
Gary B. Rovin 81,400 *
Arshalous Terzian 44,000 *
Arthur Marcus 66,000 *
Robert B. Zann 66,000 *
Ann Zann 22,000 *
Geoffrey and Melinda
Blackwell 36,250 *
Geoffrey Blackwell 3,625 *
Nathaniel W. Bottomly 49,999 *
Ross W. Bottomly 52,470 *
Bryan F. Boyle 6,600 *
Holly Boyle 11,000 *
Charles J. Blatt, P.C. 18,000 *
Joe Blau*** 1,800 *
Andrew W. Buffmire 11,000 *
Robert S. Thompson and
Patricia B. Thompson,
JTWROS 6,600 *
Jeff Shields 20,900 *
Glenn Mealey 22,000 *
Arnold W. Messer and
Sharon Ann Messer,
JTWROS 55,000 *
Robert J. Pease 19,356 *
David M. Mitchell 45,976 *
Clifford Grubbs 45,976 *
Gray Carrithers 22,990 *
Ed Davenport 91,962 *
Tom Barker 22,990 *
Joe B. and Nancy G.
Green, JT 22,990 *
Kelly Green 22,990 *
Harvey T. & Janet
McCroskey, JT 45,976 *
R. Kathryn Barnes Trust 10,000 *
Jay Mealey** 400,000 3.19
Tom Bachtell** 400,000 3.19
Rich Rawdin** 250,000 1.99
Steve Burton 25,000 *
IBEX Group**** 153,750 1.22
</TABLE>
* Reflects ownership of less than 1 percent.
** James A. Middleton, Jay Mealey, Tom Bachtell and
Rich Rawdin are officers and directors of the Company.
See, "Directors and Executive Officers" and "Certain
Relationships and Related Transactions."
*** Joseph Blau received restricted shares of Common
Stock as a finder's fee in connection with Mr. James
Middleton's employment by the Company.
**** IBEX Group has entered into an agreement under which
it has agreed to provide professional, technical and
project development services to the Company in exchange
for certain consideration, including the issuance of
Common Stock and warrants to acquire Common Stock. See,
"Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DIRECTORS AND EXECUTIVE OFFICERS
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.
Crown Energy Corporation
<TABLE>
<S> <C>
Name Age Current Position(s)
James A. Middleton 59 Chairman of the Board
of Directors, Chief
Executive Officer
Jay Mealey 39 Chief Operating
Officer, President,
Treasurer, Director
Thomas W. Bachtell 44 Director
Richard S. Rawdin 37 Vice President,
Director, Secretary
</TABLE>
BuenaVentura Resources Corporation
<TABLE>
<S> <C> <S> <C>
James A. Middleton 59 Chairman, Chief
Executive Officer
Thomas W. Bachtell 44 President, Director
Jay Mealey 39 Secretary, Director
Richard S. Rawdin 37 Director
Cyrus McKell 69 Director
Gavilan Petroleum, Inc.
Jay Mealey 39 President, Director
Richard S. Rawdin 37 Secretary
</TABLE>
James A. Middleton - Chairman of the Board, Chief
Executive Officer. 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 until his retirement in 1994. At the
time of his retirement, 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. Mr.
Middleton has recently been appointed Chairman of the
Board of Directors and CEO of the Company.
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
Company and it is anticipated that he will devote
one-hundred percent of his time to the Company.
Thomas W. Bachtell - Director. Mr. Bachtell is a
practicing natural resources attorney and President of
the law firm of Pruitt, Gushee & Bachtell where he has
worked since 1977. 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. Mr. Bachtell
devotes a substantial amount of his time to the Company
and is responsible for its governmental and regulatory
affairs along with its natural resources legal matters.
Cyrus M. McKell, PH.D. - Director (BVRC). Mr.
McKell recently retired as Dean, School of Natural
Sciences, Weber State University, Ogden, Utah. Dr.
McKell is a recognized authority in his field worldwide
and has biographical listings in Who's Who in America and
Who's Who in the World as well American Men and Women in
Science. His major awards include Rockefeller Foundation
and Fulbright Research Fellowships. He is currently a
member of the Utah Governor's Science Council and has
served on several National Advisory Committees to the
United States Congress Office of Technology Assessment,
the United States National Academy of Sciences, the
American Association for the Advancement of Science, as
well as many distinguished committee appointments
domestically and in foreign service. Dr. McKell has had
considerable experience in arid land reclamation and has
over 200 publications and six books in his field. Dr.
McKell's major research has been directed to land
resources ecology and physiology of range lands plants.
Recent work emphasizes land management policies, plus
research on revegetation of distributed arid and semi-arid lands.
Dr. McKell's unique experience enable him to
provide technical assistance to the Company on a wide
range of reclamation, revegetation and other permitting
issues.
Stock Options to Executive Officers and Directors
At present, a total of 1,360,000 Options to acquire
shares of Common Stock have been granted to the officers,
directors and employees of the Company. Such Options are
priced at exercise prices ranging from $0.5625 to $0.66
per share (giving effect to the Company's reverse stock
split).
Terms of Officers and Directors of the Company
All officers of the Company serve at the pleasure of
the Board of Directors of the Company, subject to
specific contractual rights held by certain officers.
Members of the Company's Board of Directors are each
elected for one year terms at the Company's annual
meeting of shareholders. There are no family
relationships between the existing officers and directors
of the Company.
<PAGE>
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").
Summary Compensation Table
The following table discloses compensation received
by the Named Officers for the three fiscal years ended
December 31, 1995:
SUMMARY COMPENSATION
Annual Compensation
<TABLE>
<C> <C> <C> <C>
Name and Principal
Position Year Salary Bonus Other Annual
Compensation
Jay Mealey,
President 1993 $78,000 $0 $0
1994 $78,000 $0 $0
1995 $78,000 $0 $0
</TABLE>
Option Grant Table
The following table provides information on options
granted to the Named Officers during the fiscal year
ended December 31, 1995:
OPTION GRANTS
<TABLE>
<S> <C> <C> <C> <S> <C> <C>
Name <PAGE>
Number of %of Total Exercise or Expiration Date
Securities Options Base Price
Underlying Granted to
Options Employees in
Granted (#) Fiscal Year
Jay Mealey 100,000 33.3 $.5625 May 31, 2000
per share
</TABLE>
Option/SAR Repricing
Ten-Year Option/SAR Repricings
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Name Number of High Bid Exercise Price New exercise Length of
Date options/SARs price of Stock at time of Price Original
repriced or at time of repricing or Option term
amended repricing or amendment remaining at
amendment date of
repricing or or
amendment
Jay
Mealey,
President 100,000 $.5625 $.60 $.60 37 months
May 31, 1995
Jay
Mealey,
President
May 31, 1995 100,000 $.5625 $.72 $.60 37 months
Jay
Mealey,
President
May 31, 1995 100,000 $.5625 $1.80 $.60 37 months
</TABLE>
On May 31, 1995, the Company amended the terms of the
Options previously awarded to Mr. Jay Mealey, President of
the Company. The result of this amendment was (i) to adjust
the Company's previous award of 1,200,000 Options to 300,000
to account for the one for four reverse stock split
effective January 3, 1995; (ii) the setting of a uniform
exercise price of $0.60 per share (after giving effect to
the aforementioned stock split) as opposed to the previous
pricing of $0.72 for the initial one-third of Option shares,
$1.08 for the second one-third of the Option shares; and
$1.80 for the remaining one-third of the Option shares; and
(iii) to grant "piggyback" registration rights to the shares
underlying the Options. The amended Options are exercisable
for a period of five years from the date of the amendment.
The adjustment in the Option price noted above resulted
in a reduction in the total cost of exercising the Options
by Mr. Mealey from $360,000 to $180,000. The Company's
Board of Directors' purposes for making this adjustment were
to (i) more closely align the exercise price of the Options
to the then prevailing market price of the Company's Common
Stock (the high bid price of Common Stock was $.5625 on the
date of its adjustment); and (ii) to reward Mr. Mealey for
his continued service as an officer of the Company on a
reduced and deferred salary basis. The adjustment was, in
the Board's determination, in the best interests of the
Company based on Mr. Mealey's past services rendered to the
Company and the value to be received from retaining such
services for the Company's future benefit.
/s/ James A. Middleton /s/ Jay Mealey
James A. Middleton Jay Mealey
/s/ Thomas W. Bachtell /s/ Richard S. Rawdin
Thomas W. Bachtell Richard S. Rawdin
Compensation of Directors
It is the present policy of the Company not to pay
compensation to its Directors.
Employment Agreements
Pursuant to an Employment Agreement dated August 7,
1991 yet made effective as of January 1, 1992, the Company
is obligated to pay Mr. Mealey a base salary of $78,000 per
year. The annual amount payable under the foregoing
agreement is subject to an annual increase (not to exceed
100% in any contract year) during its term according to a
formula based on the percentage increase in equity and
earnings from the prior year. The agreement's original term
expired on January 1, 1995, although the agreement was
extended according to its terms for an additional two years.
After January 1, 1997, the agreement will renew for
successive one year periods provided neither Mr. Mealey nor
the Company submit termination notices 90 days prior to the
end of each one year period.
On January 26, 1996, the Company entered into an
employment agreement with Mr. James Middleton, the Chief
Executive Officer and Chairman of the Board of the Company.
The foregoing agreement terminates on February 26, 1999,
with the option to extend its term to February 26, 2001.
This agreement includes a base salary of 5% of the Company's
net profits from operations before depletion, depreciation,
tax credits and amortization but after interest expense on
debt; not to exceed $1 million per year. The agreement also
calls for the Company to grant Mr. Middleton 300,000 options
to purchase its common stock at an exercise price of $.66
per share, with an additional 75,000 options to be granted
for each year of its term after funding for the Asphalt
Ridge project is achieved (such options to be exercisable at
the highest closing bid price of the common stock on the
last day ending on or before February 6, 1996 of each year).
Pursuant to the agreement, Mr. Middleton is entitled to
participate in such insurance, vacation and expense
reimbursement programs as are extended to officers of the
Company of similar standing. The Company accrued a $50,000
finder's fee liability in connection with the negotiation of
the agreement. Such finder's fee was paid by the Company in
February 1996 through the issuance of 51,547 shares of its
restricted common stock.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of
February 29, 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.
<TABLE>
<S> <C> <C>
Name and Address Number of Shares
Beneficially Owned Percent of Class
James A. Middleton 355,000 3.16%
574 Chapala Drive
Pacific Palisades, CA 90272
Jay Mealey 2,058,051 18.15%
4645 Hunters Ridge Circle
Salt Lake City, Utah 84124
Thomas W. Bachtell 2,013,448 17.8%
3245 Big Spruce Way
Park City, Utah 84060
Richard S. Rawdin 450,160 4.02%
P.O. Box 520982
Salt Lake City, Utah 84152
All Officers, Directors and 4,876,659 39.67%
owners of more
than 5% of the Company's stock as
a Group
(includes three persons)
</TABLE>
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Mr. Jay Mealey, President, Chief Operating Officer,
Treasurer and a Director of the Company loaned $43,448 to
the Company during the 1993 fiscal year. In 1995, the
Company executed a promissory note payable in favor of Mr.
Mealey in the amount of $53,240. The foregoing note is
intended to repay the original amount loaned by Mr. Mealey
and accrued interest thereon. This 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) and
accrues interest at the rate of 9 percent per annum. In
February 1995, Mr. Mealey loaned the Company an additional
$20,000, which amount was subsequently repaid by the
Company.
During the 1995 fiscal year, the Company issued an
aggregate of 381,722 shares of restricted common stock to
Mr. Mealey and Mr. Rich Rawdin, Vice President-Finance,
Secretary and a Director of the Company, in lieu of deferred
salaries in the amount of $103,500, together with accrued
interest of $9,547.
During the year ended December 31, 1995, the Company
converted deferred salaries payable to Mr. Thomas W.
Bachtell, Esq., a Director of the Company and an officer of
BVRC, in the amount of $34,000, with accrued interest of
$3,521 to a $38,271 note payable bearing interest at the
rate of 9% per annum. 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). During
the year ended December 31, 1995, the Company also delivered
a promissory note to Mr. Bachtell in the amount of $19,411
and bearing interest at the rate of 9% per annum. 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 May 1995, the Company issued an aggregate of 300,000
options to purchase its common stock to Mr. Bachtell, Mr.
Mealey and Mr. Rawdin, which are exercisable at $.5625 per
share for a period of five years.
Mr. Bachtell is a shareholder in the law firm of
Pruitt, Gushee & Bachtell. During the year ended December
31, 1995, the Company paid the foregoing firm the amount of
$33,092 through the issuance of 47,273 shares of its
restricted common stock. In addition, in January 1996, the
Company paid Mr. Bachtell's firm the amount of $21,124.75
for services rendered to Gavilan and BVRC.
See also "Executive Compensation."
<PAGE>
INDEMNIFICATION OF DIRECTORS
AND OFFICERS
Utah Code Annotated Section 16-10a-902 provides generally
that a corporation may indemnify any person who is a party
to any proceeding by reason of the fact that he is a
director, officer, employee, or agent of the corporation,
provided he acted in good faith and in a manner he
reasonably believed to be in the best interests of the
corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct
was unlawful. If the action or proceeding is by or in the
right of the corporation, the defendant shall be indemnified
only if successful or if the court determines that the
person fairly and reasonably is entitled to indemnification.
The statutory right to indemnification is not exclusive of
other rights that an individual may be entitled to pursuant
to corporate bylaws or other agreements.
Section 16-10a-840 provides that "a director or officer
is not liable for any action taken, or any failure to take
any action as an officer or director as the case may be,
unless: (a) the director or officer has breached or failed
to perform the duties of the officer in compliance with this
section; and (b) the breach or failure to perform
constitutes gross negligence, willful misconduct or
intentional infliction of harm on the corporation.
The Company's bylaws state that no officer or director
shall be personally liable for any obligations arising out
of any acts or conduct performed for or on behalf of the
corporation, provided, however, that no person shall be
indemnified against or be reimbursed for any expense
incurred in connection with any claim or liability arising
out of his own negligence or willful misconduct. No
insurance has been obtained by the Company for director and
officer indemnification.
The Company has entered into indemnification agreements
with the officers and directors which provide for
indemnification to the fullest extent permitted by law.
The Selling Securities Holders will be made aware that
insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
persons controlling the registrant pursuant to the foregoing
provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is,
therefore, unenforceable.
<PAGE>
LEGAL MATTERS
The legality of certain matters relating to the
registration will be passed upon for the Company by Suitter
Axland & Hanson, Salt Lake City, Utah.
EXPERTS
The consolidated balance sheet of the Company, BVRC,
Gavilan and Applied Enviro Services, Inc. as of December 31,
1995, 1994 and 1993 and the related consolidated statements
of operations, stockholders' equity and cash flows for the
three years then ended have been audited by Pritchett, Siler
& Hardy, P.C., independent auditors, as stated in their
report appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon the reports of
such firm given upon their authority as experts in
accounting and auditing.
<PAGE>
FINANCIAL STATEMENTS
Years Ended December 31, 1995 and 1994
Report of Pritchett, Siler & Hardy, P.C.,
independent certified public
accountants, for the years ended December 31,
1995, 1994 and 1993. 42
Consolidated Balance Sheet 43-44
Consolidated Statement of Operations 45-46
Consolidated Statement of Stockholder's Equity 47
Consolidated Statement of Cash Flows 48-50
Notes to Consolidated Financial Statements 51-63
Supplemental Information - Unaudited 64-69
Quarter Ended March 31, 1996
Consolidated Balance Sheet (Unaudited) 70-71
Consolidated Statement of Operations (Unaudited) 72
Consolidated Statement of Stockholder's Equity
(Unaudited) 73
Consolidated Statement of Cash Flows (Unaudited) 74-75
Notes to Consolidated Financial
Statements (Unaudited) 76-77
<PAGE>
PRITCHETT, SILER & HARDY, P.C.
Certified Public Accountants
430 East 400 South
Salt Lake City, Utah 84111
voice (801) 328-2727 - fax (801) 328-1123
INDEPENDENT AUDITORS' REPORT
Board of Directors
CROWN ENERGY CORPORATION
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets
of Crown Energy Corporation at December 31, 1995 and 1994 and
the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended
December 31, 1995, 1994 and 1993. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements audited
by us present fairly, in all material respects, the
consolidated financial position of Crown Energy Corporation as
of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years ended December 31,
1995, 1994 and 1993, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in Note 15 to the financial statements, the
Company has suffered recurring losses from operations, and has
current liabilities in excess of current assets. These
factors raise substantial doubt about the ability of the
Company to continue as a going concern. Management's plans
with respect to this matter are also described in Note 15.
The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Pritchett, Siler & Hardy, P.C.
Pritchett, Siler & Hardy, P.C.
January 26, 1996
<PAGE>
CROWN ENERGY CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,____________
<CAPTION>
1995 1994
CURRENT ASSETS:
<S> <C> <C>
Cash $ 97,247 $ 30,592
Joint interest and trade accounts
receivable,net of allowance for
doubtful accounts of $0 and $808,
at 1995 and 1994 37,697 38,565
Other current assets - 4,875
_________ ___________
Total Current Assets 134,944 74,032
PROPERTY AND EQUIPMENT, net 5,782 10,587
INVESTMENT IN OIL AND GAS PRODUCING
PROPERTIES, full cost method 1,145,214 1,356,852
INVESTMENT IN OIL SAND PROPERTIES 2,733,080 2,603,228
OTHER ASSETS 325,230 306,611
___________ ___________
$4,344,250 $4,351,310
___________ ___________
</TABLE>
The accompanying notes are an integral part of these financial
statements
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
December 31,
___________________
<S> <C> <C>
1995 1994
CURRENT
LIABILITIES:
Accounts payable $244,314 $212,637
Other current liabilities 173,250 133,125
Current portion of long-term debt 67,372 64,683
Deferred tax liability --- 36,571
Total Current Liabilities 484,936 447,016
_________ _______
LONG-TERM DEBT 231,342 207,240
DEFERRED TAX LIABILITY 563,100 757,554
_________ ________
Total Liabilities 1,279,378 1,411,810
STOCKHOLDERS' EQUITY:
Preferred stock, $.005 par value,
1,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, $.02 par value,
50,000,000 shares authorized,
9,861,069 and 8,991,217 shares
issued and outstanding at 1995 and
1994 197,220 179,823
Capital in excess of par value 4,701,193 4,359,609
Retained earnings (deficit) (1,833,541) (1,599,932)
___________ ___________
Total Stockholders' Equity 3,064,872 2,939,500
___________ ___________
$4,344,250 $4,351,310
___________ ___________
</TABLE>
The accompanying notes are an integral part of these financial
statements
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the Year Ended
December 31,
______________________________________
<S> <C> <C> <C>
1995 1994 1993
___________ __________ ___________
REVENUE:
Oil and gas sales $213,526 $325,907 $ 445,228
___________ _________ ___________
Total Revenue 213,526 325,907 445,228
___________ _________ ___________
EXPENSES:
Production costs and related taxes132,641 194,779 193,831
General and administrative 432,655 358,651 376,525
Depreciation, depletion and
amortization 81,149 113,536 111,673
___________ ____________ ___________
Total Expenses 646,445 666,966 682,029
___________ ____________ ___________
OPERATING (LOSS) (432,919) (341,059) (236,801)
___________ ____________ ___________
OTHER INCOME (EXPENSE):
Interest and other income 11,880 10,250 4,726
Interest and other expense (43,595) (36,781) (18,750)
Gain (loss) on sale of
property and equipment - - 1,443
Loss on investment - - (17,980)
___________ ________ ___________
Total Other Income
(Expense) (31,715) (26,531) (30,561)
___________ ________ ___________
(LOSS) BEFORE INCOME TAXES,
DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (464,634) (367,590) (267,362)
CURRENT TAX EXPENSE (BENEFIT) - - -
DEFERRED TAX EXPENSE (BENEFIT) (231,025) (137,575) (74,473)
___________ _________ ___________
(LOSS) BEFORE DISCONTINUED
OPERATIONS
AND EXTRAORDINARY ITEM (233,609) (230,015) (192,889)
___________ _________ ___________
DISCONTINUED OPERATIONS:
Income (loss) from operations of discontinued
tank testing and environmental services
division (net of income tax benefit of $8,377
at December 31, 1993) - - (21,696)
Estimated income (loss) on discontinuance
of the tank testing and environmental service
operations (net of income tax benefit of $8,820
at December 31, 1993) - - (22,845)
___________ ____________ ___________
NET (LOSS) FROM DISCONTINUED OPERATIONS - - (44,541)
</TABLE>
[Continued]
For the Year Ended
December 31,
<TABLE>
______________________________________
<S> <C> <C> <C> <C>
1995 1994 1993
________ ________ _______
CHANGE IN ACCOUNTING PRINCIPLE
Cumulative effect on years prior to
December 31, 1993, of application
of statement No. 109 "Accounting
for Income Taxes" - - (1,023,370)
________ ________ ________
NET (LOSS) (233,609) (230,015) (1,260,800)
________ ________ ___________
(LOSS) PER COMMON SHARE:
Income (loss) from continuing operations (.03) (.03) (.02)
Loss from discontinued operations - - -
Estimated gain (loss) on discontinuance
of tank testing and other services - - (.01)
Cumulative effect of change in
accounting principle - - (.12)
_______ _______ ___________
$ (.03) $(.03) (.15)
_______ ______ ___________
</TABLE>
The accompanying notes are an integral part of these financial statements
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
[RESTATED]
<TABLE>
Common Stock Capital in
__________________ Excess of Retained
Shares Amount Par Value Deficit Total
_________________ __________ _________ ___________
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,1992 8,355,921 167,118 4,033,520 (109,117) 4,091,521
Shares issued for cash at $.56
per share 44,643 893 24,107 - 25,000
Shares issued for non-cash
consideration 34,114 682 23,100 - 23,782
Net loss for the year ended
December 31, 1993 - - - (1,260,800) (1,260,800)
_________ _______ _________ ___________ ___________
BALANCE, December 31,1993 8,434,678 168,693 4,080,727 (1,369,917) 2,879,503
Shares issued for cash at
$.50 to $.51 per share 396,851 7,937 192,063 - 200,000
Shares issued for non-cash
consideration 128,989 2,580 69,045 - 71,625
Shares issued in payment of
a note payable and related
accrued interest. 30,645 613 17,774 - 18,387
Fractional Share Adjustment in
connection with 4 to 1 reverse
split of common shares 54 - - - -
Net loss for the year ended
December 31, 1994 - - - (230,015) (230,015)
_________ _______ _________ __________ _________
BALANCE, December 31, 1994 8,991,217 179,823 4,359,609 1,599,932) 2,939,500
Shares issued for cash at
$.35 and $.60 per share 292,857 5,857 134,143 - 140,000
Shares issued for non-cash
consideration at $.33
to $.76 per share 195,273 3,905 102,029 - 105,934
Shares issued for non-cash
consideration at $.28 and
$.35 per share to related
parties 381,722 7,635 105,412 - 113,047
Net loss for the year ended
December 31, 1995 - - - (233,609) (233,609)
_________ _________ __________ ___________ __________
BALANCE, December 31, 1995 9,861,069 $197,220 $4,701,193 $(1,833,541)$3,064,872
The accompanying notes are an integral part of these financial statements
</TABLE>
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
______________________________________
<TABLE>
1995 1994 1993
__________ ___________ ___________
Cash Flows From Operating
Activities:
<S> <C> <C> <C> <C>
Net (loss) $(233,609) $(230,015) $(1,260,800)
___________ ___________ ___________
Adjustments to reconcile net income
(loss) to net cash used in o
perating activities:
Depreciation, Depletion and
Amortization 81,149 113,536 111,673
(Gain) loss on sale of property
and equipment - - 1,443
Non-cash (income) expense 33,078 19,250 19,749
Write off investment in Partnership - - 17,980
Depreciation of discontinued
operations - - 22,560
Loss on disposition - - 10,006
Bad Debt Expenses - 808 -
Changes in Assets and Liabilities:
(Increase) decrease in joint
interest and trade receivables 868 (11,474) 154,811
(Increase) decrease in other
current assets 4,875 ( 6,500) 25,684
(Increase) decrease in other assets (33,325) (25,592) (17,905)
Increase (decrease) in accounts
payable 100,073 (33,444) 2,302
Increase (decrease) in other
current liabilities 205,654 19,293 (27,795)
Increase (decrease) in deferred
tax liability (231,025) (137,575) 931,700
________ _________ ___________
161,347 (61,698) 1,252,208
________ _________ ___________
Net Cash Provided (Used) by
Operating Activities (72,262) (291,713) (8,592)
________ _________ ___________
Cash Flows From Investing Activities:
Additions to property and equipment - - (4,000)
Proceeds from disposition or sale
of oil and gas investments 150,000 3,747 44,180
Additions to mining properties (129,852) (12,031) (50,250)
Additions to oil and gas properties - - (53,855)
Decrease in note receivable - 4,094 13,909
Payments for other investments - (7,470) -
Proceeds from sale of assets
of discontinued operations - - 55,700
_________ _________ __________
Net Cash (Used) Provided
by Investing Activities 20,148 (11,660) 5,684
_________ _________ ___________
</TABLE>
[Continued]
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS [Continued]
For the Year Ended
<TABLE>
December 31,
______________________________________
<S> <C> <C> <C>
1995 1994 1993
________ ________ ___________
Cash Flows From Financing Activities:
Increase in notes payable 20,000 - 158,448
Payments on notes payable (41,231) (32,330) (137,063)
Increase in convertible debentures - 65,000 -
Proceeds from issuance of common stock 140,000 200,000 25,000
_______ ________ ___________
Net Cash Provided (Used) by Financing
Activities 118,769 232,670 46,385
_______ ________ ________
Net Increase (Decrease) in Cash and Cash
Equivalents 66,655 (70,703) 43,477
Cash at Beginning of Year 30,592 101,295 57,818
________ ________ ___________
Cash at End of Year $ 97,247 $ 30,592 $101,295
________ ________ ___________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for 1995 1994 1993
_________ _________ ___________
Interest 7,744 7,616 15,259
_________ _________ ___________
Income taxes $ - - -
_________ _________ ___________
</TABLE>
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the Year Ended December 31, 1995:
The Company issued 3,250 shares of common stock to extend the
maturity date of the convertible debentures to January 1, 1997.
The Company issued 179,987 shares of common stock in payment of
$99,320 in consulting and legal fees.
The Company issued 381,722 shares of common stock in payment of
$113,047 in deferred salaries.
The Company issued 12,036 shares of common stock in payment of
principal of $4,460 and $783 of interest due on a note payable.
The Company converted deferred salaries of $38,271 into a note
payable.
The Company converted accrued interest payable of $14,211 into notes
payable.
[Continued]
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS [Continued]
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the Year Ended December 31, 1994:
The Company issued 107,739 shares of common stock in payment of
$52,375 in deferred salaries.
The Company issued 35,645 shares of common stock in payment of a
$17,342 note payable with its accrued interest of $1,045 and for
services rendered valued at $3,000.
The Company issued 16,250 shares of common stock in connection with
the convertible debentures.
For the Year Ended December 31, 1993:
The Company sold certain assets of its discontinued operations with
a net book value of $83,512 for cash of $55,700 and notes receivable
in the amount of $17,936.
The Company wrote off investments in certain oil and gas
partnership's in the amount of $17,980.
The Company made a downward adjustment to the carrying value of
certain oil and gas leases in its full cost pool which were acquired
in 1991 in the amount of $295,544. The amount of the liabilities
assumed were also adjusted down by $295,544 to reflect the actual
amount the company is liable for.
The Company issued 34,114 shares of common stock for services valued
at $23,782.
The accompanying notes are an integral part of these financial
statements
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Crown Energy Corporation ["PARENT"], is a
Utah Corporation engaged in the acquisition and development
of oil and gas leases. Gavilan Petroleum, Inc.
["Gavilan"], was incorporated under the laws of the State
of Utah and is engaged in the production and selling of oil
and gas from leases it operates in the State of Utah.
Applied Enviro Systems, Inc. ["AES"], was incorporated
under the laws of the State of Oregon and was formerly
engaged in a wide array of environmental and technical
related services for underground tanks, from initial
testing to comprehensive site assessments, release
remediation and complete underground storage tank
management. During 1993, AES discontinued its environmental
services and tank testing operations [See Note 12]. AES
currently has no planned principal operations.
During January, 1991 PARENT acquired Gavilan in a
transaction accounted for as a recapitalization of Gavilan
in a manner similar to a reverse purchase. Gavilan
previously owned an 85% interest in AES. During 1991,
PARENT issued common stock to acquire the remaining 15%
interest in AES.
BuenaVentura Resources Corporation ["BVRC"] was
incorporated under the laws of the State of Utah on October
24, 1985 and is engaged in the production of oil and other
by-products from oil sand properties. On September 30,
1992 PARENT acquired BVRC in a transaction accounted for as
a purchase.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
Property and Equipment - Property and equipment are
recorded at cost which is depreciated over the estimated
useful lives of the related assets. Depreciation is
computed using the straight-line method for financial
reporting purposes, with accelerated methods used for
income tax purposes. The estimated useful lives of
property and equipment for purposes of financial reporting
range from three to seven years.
Oil and Gas Properties - Oil and gas properties are
accounted for on the full cost method, whereby all costs
associated with acquisition, exploration and development of
oil and gas properties are capitalized on a country-by-country, cost center
basis. All oil and gas revenues are
derived from reserves located in the state of Utah.
Amortization of such costs is determined by the ratio of
current period production to estimated proved reserves.
Estimated proved reserves are based upon reports of
petroleum engineers.
The net carrying value of oil and gas properties is limited
to the lower of amortized costs or the cost center ceiling
defined as the sum of the present value [10% discount rate]
of estimated, unescalated future net cash flows from proved
reserves, plus the lower of cost or estimated fair value of
unproved properties, giving effect to income taxes.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Oil Sand Properties - The Company's investment in oil sand properties
including acquisition and development costs are being capitalized and
will be amortized on the unit-of-production method upon commencement
of full scale production.
Intangible Assets - In connection with the acquisition of BVRC the
Company recorded intangible assets in the amount of $250,000. These
are included in other assets and are being amortized over seventeen
years on a straight-line method. During 1995, 1994 and 1993,
amortization of $14,706 was recorded to expense.
Revenue Recognition - The Company's revenue comes primarily from the
sale of oil and gas. Revenue from oil and gas sales is recognized when
the product is transferred to the purchaser.
Income Taxes - The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." This statement requires an asset and liability approach
for accounting for income taxes. This method has been adopted by the
Company beginning with the year ended December 31, 1993.
Income (Loss) Per Share - The computation of income (loss) per share
of common stock is based on the weighted average number of shares
outstanding during the periods presented. Common stock equivalents were
not included in the earnings per share computation as their effect was
anti-dilutive.
Reclassification - The financial statements presented for prior years
have been reclassified to conform to the titles and headings used in
the presentation of the December 31, 1995 financial statements.
Cash Flow Statement - For purposes of the statements of cash flows, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Restatement - On December 7, 1994, the Company approved, effective on
January 3, 1995, a 1 for 4 reverse split of common stock. The
financial statements and accompanying footnotes have been restated to
reflect this change for all periods presented.
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation as of December 31:
<TABLE>
<S> <C> <S> <C> <C>
1995 1994
___________ __________
Furniture and office equipment 66,546 $ 66,546
Less: accumulated depreciation (60,764) (55,959)
___________ __________
Total $ 5,782 $ 10,587
___________ __________
</TABLE>
Depreciation expense charged to operations was $4,805, $5,911 and
$6,338, in 1995, 1994 and 1993, respectively.<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - OIL AND GAS PROPERTIES
Upon placing oil and gas properties and productive
equipment in use, the unit-of-production method, based upon
estimates of proven developed and undeveloped reserves, is
used in the computation of depletion. Depletion expense
for the years ended December 31, 1995, 1994 and 1993
amounted to $61,638, $91,294 and $90,629, respectively.
Because the Company has elected to value its properties
under the "full cost" method of accounting for oil and gas
properties, it has a maximum allowance value which is
related to the underlying oil and gas reserves. Where the
capitalized value of its properties exceeds the fair market
value of the oil and gas reserves, the Company is required
to adjust the value of properties to the cost center
ceiling [See Note 1] by increasing the valuation allowance.
The Company did not record a valuation adjustment for the
years ended December 31, 1995, 1994, or 1993.
During 1995, the Company sold certain oil and gas interests
for total proceeds of $150,000. The interests which were
sold were not a significant portion of the overall full
cost pool and consequently the proceeds were recorded as a
reduction to the full cost pool.
During 1994, the Company sold certain oil and gas equipment
for $3,747. The equipment sold was not a significant
portion of the full cost pool and consequently the
proceeds were recorded as a reduction to the full cost
pool.
During 1993, the Company recorded a downward adjustment of
$295,544 to the carrying value of certain oil and gas
leases which the Company had commenced to acquire through
foreclosure during 1991 by assuming the underlying
liabilities. The amount of the liabilities assumed was
also adjusted down by $295,544 to reflect management's
current estimate of the actual amounts the Company will
pay.
During 1993, the Company sold certain oil and gas interests
for total proceeds of $44,180. The interests which were
sold were not a significant portion of the overall full
cost pool and consequently the proceeds were recorded as a
reduction to the full cost pool. The Company also incurred
costs of plugging and abandoning in the amount of $53,855,
during 1993, which was recorded as an addition to the full
cost pool.
NOTE 4 - OIL SAND PROPERTIES
The Company's investment in oil sand properties at December
31, 1995 included approximately $2,400,000 in acquisition
costs from the business acquisition of BVRC during 1992.
The Company has also capitalized approximately $300,000 in
additional acquisition and development costs related to the
properties through December 31, 1995. The capitalized
costs will be amortized using a unit of production method.
The Company's ability to realize its investment in oil sand
properties is dependent upon the Company obtaining the
necessary financing and permits to get a full scale
production facility into operation. The Company is in the
process of obtaining permits, which if completed would
enable the Company to continue its plans to set up a full
scale production facility.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG TERM DEBT
The following is a summary of long-term debt as of
December 31:
<TABLE>
<C> <C>
1995 1994
Note payable to an
officer, director and
shareholder in the
original amount of $38,271,<PAGE>
at 9%
per annum, due July 1, 1997 [See Below]. $ 38,271 $ --
Notes payable to an
officer, director
and share holder, interest
at 9%, due July 1, 1997. 53,240 43,448
Payable to various parties in
connection with foreclosed Oil &
Gas properties. Amount payable
includes production taxes and
royalties payable which are being
negotiated on a long-term pay-
back in the foreclosure [See
Below]. 65,139 65,139
Loan payable to an individual in
the amount of $100,000, interest at 10%.
Monthly payments of $2,622 with
payments due through June, 1997.
Secured by trust deeds granting
lender liens on certain of the
Company's oil and gas properties
located in the State of Utah.
[See Below] 43,653 69,336
Note payable to individual in the
original amount of $14,000,
interest at 10%, due on demand. 14,000 14,000
Note payable to an officer, director
and shareholder in the original
amount of $15,000, interest at 9%,
due July 1, 1997. 19,411 15,000
Unsecured debentures to individuals,
Interest at 6%, due January 1,
1997. [See Below] 65,000 65,000
__________ _________
298,714 271,923
Less: Current Portion (67,372) (64,683)
__________ __________
231,342 $ 207,240
__________ _________
</TABLE>
Following are maturities of long-term debt for each of
the next five years:
Amount
____________
1996 $ 67,372
1997 231,342
Thereafter -
____________
$ 298,714
____________<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG TERM DEBT [Continued]
At December 31, 1995 the Company had a $75,000 letter of credit
which is being held as an operating bond for the conducting of oil
and gas operations on certain Indian reservations. No amounts have
been borrowed against the letter of credit.
During February, 1995, the Company borrowed $20,000 on an 18% Note
payable to an individual who is an officer, director and shareholder
of the Company with three monthly payments of $3,000 beginning
February 28, 1995 with the remaining principal and interest due May
31, 1995. The Note was paid in full during 1995.
During November 1995, the Company converted deferred salaries of
$34,750 and their related accrued interest of $3,521 payable to an
officer, director and shareholder of the Company into a Note
Payable.
On December 31, 1995 the Company converted accrued interest of
$9,792 and $4,411 on notes payable to officers and directors to
principal bringing the balance outstanding on the notes to $53,240
and $19,411, respectively.
During June, 1994, the Company raised $65,000 through the sale of
partial units of an Unsecured Debenture in a private placement. The
Company had offered up to twelve $50,000 units in the offering which
expired September 30, 1994. Each unit consisted of a promissory
note for $50,000 due on or before January 1, 1996, plus 12,500
shares of the Company's Common Stock. The promissory notes accrue
interest at 6% per year payable at maturity. During 1995 the
Company, at its option, extended the due dates of the notes to
January 1, 1997 by issuing 3,250 shares of common stock to their
holders.
In August, 1991, the Company perfected its interest under certain
operating liens to commence foreclosure on two properties and
recorded the underlying liabilities of $388,116 as the acquisition
cost of the properties. The entire amount of these liabilities is
non-recourse and is to be repaid out of net proceeds from the wells
which is estimated to be $5,000 per month. Management is currently
negotiating with the respective parties for a long-term, non-recourse
payment plan wherein the parties would be paid from a
percentage of the net production proceeds. During 1993 the amount
of liability was reduced by $295,544 to reflect management's current
estimate of the actual amounts to be assumed by the Company.
In connection with the acquisition of Gavilan, the Company entered
into a loan in the amount of $185,000 from a corporation related to
a former officer and director of the Company. The loan provided for
interest at 12% per annum and was amortized over 24 months, through
February 1, 1993. The loan was secured by trust deeds granting
lender liens on all the Company's oil and gas property interests
located in Utah. The loan was also personally guaranteed by the
Company's president. During 1992 an additional $50,000 was borrowed
and the maturity date extended to February, 1994. The loan was paid
in full during February, 1994.
During January, 1993, the Company borrowed $100,000 on a 10% Note
payable to an individual with monthly payments beginning July 1,
1993 and amortized over four years. The Note is secured by oil sand
properties and includes the option to purchase 125,000 shares of
restricted common stock for $1.00 per share. [See Note 6]
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK TRANSACTIONS
Reverse Stock Split - On December 7, 1994, the Board of
Directors authorized a 1 for 4 reverse split of common
stock, thereby decreasing the number of shares
outstanding to 8,991,217. All references in these
financial statements and accompanying footnotes to the
number of common shares and per-share amounts have been
restated to reflect the stock split for all periods
presented. The Company recorded a 54 fractional share
adjustment in connection with the reverse split of
common shares.
Common Stock Issuances - During 1995, the Company sold
292,857 shares of restricted common stock to an
individual for $140,000 at prices of $.35 and $.60 per
share. The Company issued 179,987 shares of restricted
common stock at prices ranging from ($.76 to $.33 per
share) for legal and consulting services valued at
$99,320. Also during 1995, the Company issued 12,036
shares of common stock in lieu of payments on a note
payable of $5,243.
During 1995 and 1994, the Company issued 3,250 and 16,250
shares, respectively, of restricted common stock to the
purchasers of the Company's unsecured debenture. [See
Note 5]
During 1995 and 1994, the Company issued 381,722 and
107,739 shares of restricted common stock to officers and
employees of the Company in payment of $103,500 and
$52,375 of deferred salaries and related accrued interest
of $9,547 and $0, respectively.
During January, 1994, the Company sold 200,000 shares of
restricted common stock to a corporation for $100,000
($.50 per share).
During 1994, the Company sold 196,851 shares of
restricted common stock and granted 125,000 stock options
[See Below] to an investment group for $100,000 ($.51 per
share sold).
During 1994, the Company issued 35,645 shares of
restricted common stock to individuals for payment of a
$17,342 note payable with its accrued interest of $1,045
and $3,000 in consulting services ($.60 per share).
During January, 1993, the Company sold 44,643 shares of
restricted common stock to an individual for $25,000
($.56 per share).
During 1993, the Company issued 34,114 shares of common
stock for non-cash consideration to three individuals.
Consulting services expense of $19,750 was recorded for
27,813 shares and deferred wages payable was reduced by
$4,033 for 6,302 of the shares.
On September 30, 1992 the Company acquired BVRC, by
issuing 4,221,751 shares of restricted common stock to
the former shareholders of BVRC. The acquisition was
valued at 2,659,703 or $.63 per share of common stock.
Additional restricted shares of the Parent (up to
4,221,751 additional shares) will be issued to the former
shareholders if certain levels of average earnings are
reached during 1995 and 1996 according to an agreed upon
schedule. BVRC has not yet commenced planned operations
but is the owner of oil sand properties and related oil
reserves.<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK TRANSACTIONS [Continued]
Stock Options - As of December 31, 1995 the Company has
the following options outstanding to purchase common
stock:
<TABLE>
Number
<C> <C> <C> <C> <S> <C> <S> <C> <C>
Number Exercise of Shares
of Shares Price Exercised Vesting Date Expiration Date
(A) 250,000 $ .60 July 5, 1993 May 30, 2000
(A) 250,000 $ .60 July 5, 1994 May 30, 2000
(A) 250,000 $ .60 July 5, 1995 May 30, 2000
(A) 300,000 $ .5625 May 31, 1995 May 31, 2000
(B) 125,000 $ 1.00 January 1, 1994 December 31, 1996
(C) 125,000 $ 1.96 April 7, 1994 December 31, 1997
(D) 123,750 $ .75 See Below See Below
___________
1,423,750
___________
(A) Options issued to three of the Company's officers.
(B) Options issued to an individual as part of the
negotiations to obtain a loan in the amount of
$100,000 [See Note 5].
(C) Options issued to an investment group in
connection with the sale of the Company's Common
Stock.
(D) 15,000 warrants, issued monthly in connection with
an agreement with an organization [See Note 14],
to purchase one share of the Company's common
stock per warrant. The warrants vest on issuance
and are exercisable for seven years after their
issuance.
</TABLE>
Preferred Stock - The Company is authorized to issue
1,000,000 preferred shares, par value $.005 per share.
The preferred shares may be issued by the Board from time
to time in one or more issues and with such serial
designations as may be stated or expressed in its
resolution providing for the issuance of such shares.
There are no series of preferred stock designated at
December 31, 1995 and 1994 and no shares of preferred
stock issued and outstanding.
NOTE 7 - LEASES
Operating Leases - The Company leases its current office
on an operating lease which expires in September, 1996.
The future minimum lease payments for non-cancelable
operating leases as of December 31, 1995 are as follows:
Year ending December 31 Amount
______________________ ___________
1996 22,454
1997 -
Thereafter -
__________
TOTAL $ 22,454
__________
Lease expense charged to operations was $28,699, $25,909 and $17,493
for the years ended December 31, 1995, 1994 and 1993.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No.
109 Accounting for Income Taxes [FASB 109] during Fiscal 1993. FASB
109 requires the Company to provide a net deferred tax asset or
liability equal to the expected future tax benefit or expense of
temporary reporting differences between book and tax accounting and
any available operating loss or tax credit carryforwards. At
December 31, 1995 and 1994, the total of all deferred tax assets
were $735,679 and $621,859 and the total of the deferred tax
liabilities were $1,298,779 and $1,415,985. The amount of and
ultimate realization of the benefits from the deferred tax assets
for income tax purposes is dependent, in part, upon the tax laws in
effect, the Company's future earnings, and other future events. The
Company has not established a valuation allowance. Therefore there
was no change in the valuation allowance during the years ended
December 31, 1995 and 1994.
The Company has available at December 31, 1995, unused tax operating
loss carryforwards of approximately $2,000,000, which may be applied
against future taxable income and expire in varying amounts
beginning in 1996 through 2010.
The components of income tax expense from continuing operations for
the years ended December 31, 1995, 1994 and 1993 consist of the
following:
For the Year Ended
December 31,
<TABLE>
______________________________________
<S> <C> <S> <C> <C> <C> <C>
1995 1994 1993
__________ ________ __________
urrent income tax expense:
Federal $ - $ - $ -
State - - -
_________ _______ __________
Net current tax expense (benefit) $ - $ - $ -
_________ ________ _________
Deferred tax expense (benefit arising from:
Excess of book over tax basis
depletion in oil & gas properties $ (61,983) $ (27,039) $ (9,582)
Excess of book over tax basis
depletion in oil sand properties (54,799) (5,441) (5,441)
Excess tax over book basis depreciation (423) 937 278
Net operating loss carryforwards (113,820) (106,032) (76,925)
_________ __________ ___________
</TABLE>
The net deferred tax (benefit) allocated to discontinued operations for the
year ended December 31, 1993 was $17,197.
Deferred income tax expense results primarily from the reversal of temporary
timing differences between tax and financial statement income.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES [Continued]
A reconciliation between income tax expense at the federal statutory rate and
to income tax expense at the Company's effective rate is as follows:
December 31,
<TABLE>
____________________________________
<S> <C> <C> <C> <C>
1995 1994 1993
__________ __________ ___________
Computed tax at the expected federal
statutory rate, 34% $ (157,976) $(124,981) $ (90,903)
Excess of book over tax basis
depletion in oil & gas properties (15,859) (308) 2,555
Excess of book over tax basis
depletion in oil sand properties (14,021) (62) 1,452
Excess tax over book basis depreciation (108) 11 (74)
State income taxes, net of federal income
tax benefits (13,939 (11,028) (8,021)
Net operating loss carryforward (29,122) (1,207) 20,518
_________ ___________ __________
Effective income tax rates $ (231,025) $(137,575) $ (74,473)
__________ ___________ __________
The temporary differences gave rise to the following deferred tax asset
(liability) at December 31, 1995 and 1994:
Year Ended December 31,
_________________________
1995 1994
____________ ____________
NOL carryforwards $ 735,679 $ 621,859
Excess of tax over book accounting
depreciation (256) (679)
Excess of book over tax basis
in oil and gas properties (374,156) (436,139)
Excess of book over tax basis
in oil sand properties $ (924,367) $ (979,166)
The deferred taxes are reflected in the consolidated balance sheet as follows:
</TABLE>
Year Ended December 31,
__________________________
1995 1994
___________ ____________
Short term asset (liability) $ (36,571)
Long term asset (liability) $ (563,100) $ (757,554)
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS
A current shareholder and officer of the Company has made loans to the
Company or its subsidiaries. At December 31, 1995 and 1994, $53,240
and $43,448 was owing to the officer/shareholder on a 9% note with a
maturity date of July 1, 1997. This amount was loaned to the Company
during 1993. During February, 1995, the shareholder and officer loaned
the Company an additional $20,000. The amount was paid in full during
August 1995.
During 1995, the Company issued 381,722 shares of restricted common
stock to officers of the Company for deferred salaries of $103,000 and
their related accrued interest of $9,547. Also during 1995, the Company
converted deferred salaries of $34,750 and their related accrued
interest of $3,521 to a $38,271 note payable bearing interest at 9% per
annum.
During May, 1995, the Company issued 300,000 options to purchase common
stock at $.5625 per share to directors and officers of the Company.
Accounts payable at December 31, 1995 and 1994 include $2,385 and
$6,729 owing to certain officers of the Company for expense
reimbursements.
Accounts payable at December 31, 1995 and 1994 include $18,872 and
$59,220 in legal fees owing to a law firm in which a shareholder and
officer of the Company is a partner. During 1995, the Company paid
$33,092 to the law firm through the issuance of 47,273 shares of common
stock.
An officer/shareholder advanced $19,411 to the Company during 1993.
The underlying note payable provides for interest at 9% per annum and
is due in July 1, 1997.
During 1993, the Company issued options to purchase common stock to
three of its officers [See Note 6].
NOTE 10 - LITIGATION
The Company is involved in an administrative action against the United
States Department of Interior, Bureau of Indian Affairs wherein the
Bureau of Indian Affairs is attempting to cancel certain oil and gas
leases in the Roosevelt Unit in Utah. The Company is functioning as
the Unit Operator of the Leases and could loose all of its interest
under the leases if they are cancelled. At this stage of the
proceedings, outside counsel cannot offer an opinion as to the probable
outcome. However, the Company believes the action is without merit and
intends to vigorously defend its position.
The Company is also involved in various litigation as part of its
normal business operations. In management's opinion, the ultimate
resolution of these cases will not have a material adverse effect on
the Company's financial position.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SIGNIFICANT CUSTOMERS
The Company sells substantially all of its oil production to one
purchaser because it is able to negotiate more favorable terms with the
purchaser. If the purchaser stopped buying products from the Company,
the Company would be forced to contract with other purchasers available
in the areas where the oil is produced. The effect of a purchaser
pulling out would at least put a temporary downward pressure on prices
in the area but it is not currently possible for the Company to
estimate how the Company would be affected. Management believes that
it's oil is a commodity that is readily marketable and that the
marketing methods it follows is typical of similar companies in the
industry.
NOTE 12 - DISCONTINUED OPERATIONS
On April 15, 1993, AES determined to discontinue its tank testing and
environmental services divisions. The tank testing division's customer
list was sold on May 20, 1993 for $50,000 and an earn-out equal to 20%
of the gross revenues received from AES's customers for three years
commencing May 20, 1993. For the year ended December 31, 1995 and 1994
the Company received $9,824 and $8,051 in earn-outs, and has included
them in other income. This was the only asset transferred in the sale.
During 1993, the Company sold two vehicles related to the discontinued
operation for cash proceeds of $3,200.
The Company sold the remainder of its tank testing equipment in two
separate transactions during July and October, 1993. The total
proceeds to the Company was $20,436. In connection with the equipment
sales the Company received cash of $2,500 and accepted two promissory
notes. The first note is in the amount of $6,000 and provides for
interest at 8% per annum. Six equal monthly payments of $1,023 are to
be received by the Company beginning November 1993. The second note,
in the amount of $11,936 provided for interest at 8% per annum. This
note was paid in full prior to December 31, 1993.
The total revenue received by the tank testing and environmental
services divisions was $171,486 for the years ended December 31, 1993.
NOTE 13 - RESTATEMENT OF 1993 FINANCIAL STATEMENTS
The financial statements for the year ended December 31, 1993 have been
restated to reflect the correction of an error with regards to the
recording of a deferred tax asset for statutory depletion on oil sand
properties. Accounting standards had previously allowed the
recognition of a deferred tax asset for statutory depletion to the
extent that it offset deferred tax liabilities. Upon adoption of FASB
109, the Company should not have recognized the deferred tax asset for
statutory depletion.
The financial statements for the year ended December 31, 1993 have been
restated to record the cumulative effect of the change in accounting
principle of $1,023,370, the net deferred tax liability of $931,700,
and the deferred tax expense of $91,670. The net effect of these
restatements was to increase the Company's net (loss) and accumulated
(deficit) by $931,700 or $(.11) per share.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - AGREEMENTS
During April, 1995 the Company entered into an agreement with an
organization to perform professional, technical and project development
services in connection with the planned oil sand processing facility
and to identify potential investors for the project financing and to
assist the Company in negotiating and closing project financing terms
and agreements. The terms of the agreement provide for the Company to
pay to the organization monthly amounts of $5,000 in cash or $7,500 in
common stock of the Company and to issue monthly 15,000 warrants to
purchase one share per warrant of the Company's common stock at $.75
per share. These warrants are exercisable for seven years after their
issuance. If the financing of the planned oil sand facility is
successfully funded, the Company will also pay a cumulative finders fee
of 1% to 5% of the cash proceeds arranged by the organization and issue
24 common stock warrants for each $1,000 received, with a 100,000
warrant minimum. These warrants allow the organization to purchase one
common share of the Company's stock at $1.00 per share and are
exercisable for a period of seven years from the date of issuance. In
connection with this agreement the Company issued 123,700 warrants to
the consultant.
The Company currently has a two year employment agreement with its
president which expires on January 1, 1997. The agreement will renew
for successive one year periods unless cancelled by either party. The
agreement provides for an annual base salary of $78,000.
In May 1995, the Company adopted the 1995 Officer/Employee/Consultant
Benefit Plan. Pursuant to the Plan, which is administered by the
Company's Board of Directors, up to 800,000 shares of Common Stock may
be awarded to the Company's officers, consultants, and employees who
are selected by the Board of Directors. The Plan also allows the
Company to award cash incentives in the place of or in addition to the
award of stock options thereunder. As of December 31, 1995, there were
99,987 shares of common stock issued under the plan to outside
consultants. There were no options or incentive awards issued under
the plan as of December 31, 1995.
NOTE 15 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. However, the Company
has incurred significant losses during the past few years including
$233,609 during 1995, and has current liabilities in excess of current
assets of $349,992 at December 31, 1995. Further the Company is still
in the process of developing its oil sand operation and thus has not
reached a profitable stage in its operations. These items raise
substantial doubt about the ability of the Company to continue as a
going concern.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - GOING CONCERN [Continued]
Management's plans in regards to these matters are as follows:
The Company has significant oil sand reserves and management is
continuing to develop and formulate plans for the extraction and
sale of the reserves. Preliminary testing on a reduced scale
has already been completed.
Management is seeking to raise additional working capital either
through loans or from additional equity capital from outside
investors or through production joint ventures. There is no
assurance that the Company will be successful in obtaining this
additional capital. [See Note 16]
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary
should the Company be unable to obtain additional financing or
establish profitable operations.
NOTE 16 - SUBSEQUENT EVENTS
Stock Offering - During February 1996, the Company successfully
completed a private placement of 800,000 shares of restricted common
stock for $400,000. In connection with the private placement the
Company issued 80,000 shares of restricted common stock in commissions.
Stock Issuances - During February 1996, the Company issued 51,547
shares of restricted common stock in payment of a $50,000 finders fee
included in accounts payable, 10,000 shares of restricted common stock
in connection with the renegotiation of oil sand leases, 50,000 shares
of common stock in payment of accrued liabilities, and 80,000 shares
of common stock in payment of consulting and engineering work
performed.
S-1 Registration Statement - Management is proposing to file a form S-1
registration statement to register under the Securities Act for the
future sale, from time to time, the sale of 2,890,600 shares of the
Company's common stock, of which 1,236,850 are presently issued and
outstanding and 1,653,750 are reserved for issuance upon the exercise
of Company's outstanding stock options held by officers, directors and
employees of the Company and by other investors and consultants.
Employment Agreement - The Company entered into an employment
agreement, effective January 26, 1996 with the new Chief Executive
Officer and Chairman of the Board of Directors of the Company. The
agreement covers the three year period ending February 26, 1999, with
the option to extend the agreement through February 26, 2001. The
agreement includes a base salary of 5% of the Company's net profits
from operations before depletion, depreciation, tax credits, and
amortization, but after interest expense on debt; not to exceed
$1,000,000 per year. The agreement also calls for the Company to grant
300,000 stock options to purchase the Company's restricted Common Stock
at $.66 per share and an additional 75,000 options for each year of
Executive Employment which is completed after funding is achieved.
Additionally, other benefits are provided including participation in
certain insurance, vacation and expense reimbursements. As of December
31, 1995, the Company had accrued a $50,000 finders fee in connection
with the new employment agreement. The fee was paid in February 1996,
through the issuance of 51,547 shares of restricted common stock.
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES
Oil and Gas Reserves - Users of this information should be
aware that the process of estimating oil and gas reserves is
very complex, requiring significant subjective decisions in
the evaluation of available geological, engineering, and
economic data for each reservoir. The data for a given
reservoir may change substantially over time as a result of,
among other things, additional development activity,
production history and viability of production under varying
economic conditions; consequently, material revisions to
existing reserve estimates may occur in the future. Although
every reasonable effort is made to ensure that the reserve
estimates reported represent the most accurate assessment
possible, the significance of the subjective decisions
required, and variances in available data for various
reservoirs make these estimates generally less precise than
other estimates presented in connection with financial
statement disclosure.
Proved reserves are estimated quantities of natural gas,
crude oil and condensate, and natural gas liquids which
geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known
reservoirs under existing economic and operating conditions.
Proved developed reserves are reserves that can be expected
to be recovered through existing wells with existing
equipment and operating methods.
The oil and gas reserve information presented in the
following tables as of December 31, 1995, 1994 and 1993 is
based upon reports of petroleum engineers and management's
estimate. All reserves presented are proved reserves, all of
which are located within the United States, and are defined
as estimated quantities which geological and engineering data
demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic
and operating conditions. Such reserves are estimates only
and should not be construed as exact amounts. The Company
does not have proved reserves applicable to long term supply
agreements with foreign governments.
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Changes in Net Proved Reserves
[Volumes in Thousands]
<TABLE>
<C> <C> <C> <C> <C> <C>
1995 1994 1993
_________________________________________________
Oil Gas Oil Gas Oil Gas
(MBbls) (MMcf) (MBbls) MMcf) (MBbls) (MMcf)
_____ _______ _______ _______ _______ _______
Estimated quantity at beginning
of period 871 - 1,016 - 860 223
Revisions of previous estimates 3 - (128) - 208 -
Discoveries and extensions - - - - - -
Purchase of reserves in place - - - - - -
Production (10) - (17) - (20) (2)
Sale/disposal of reserves in place (90) - - - (32) (221)
______ ______ ______ ______ ______ ______
Estimated quantity at end of
period 774 - 871 - 1,016 -
______ ______ ______ ______ ______ ______
Proved developed reserves:
Beginning of period 151 - 167 - 155 143
End of period 51 - 151 - 167 -
______ ______ ______ ______ ______ ______
Company's proportional interest
in reserves of investees accounted
for by the equity method - end
of year - - - - - -
______ ______ ______ ______ ______ ______
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Costs Incurred in Oil and Gas Property Acquisition,
Exploration and Development Activities
<TABLE>
December 31,
______________________________
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993
________ ________ ________
[In Thousand of Dollars]
Acquisition of properties:
Undeveloped leases $ - $ - $ -
Proved producing leases - - -
Exploration costs - - -
Development costs - - -
_______ _______ _______
Total Additions to Oil and Gas
Properties $ - $ - $ -
_______ _______ _______
Company's share of equity method
investees' costs of property
acquisition, exploration and
development costs $ - $ - $ -
_______ _______ _______
Capitalized Costs Relating to Oil and Gas Producing Activities
Capitalized costs as of the end of the
period: [In thousands of dollars]
Proved properties $2,196 $2,346 $2,350
Unproved properties - - -
_______ _______ _______
Total Capitalized Costs 2,196 2,346 2,350
Less: accumulated depreciation and
depletion 1,051 989 898
_______ _______ _______
Net Capitalized Costs $1,145 $1,357 $1,452
_______ _______ _______
Company's share of equity method
investees' net capitalized costs $ - $ - $ -
_______ _______ _______
</TABLE>
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Results of Operations for Producing Activities
<TABLE>
December 31,
______________________________
<C> <C> <C>
1995 1994 1993
________ ________ ________
[In Thousand of Dollars]
Oil and gas sales $197 $287 $397
Production costs 128 188 213
Exploration costs - - -
Depreciation and depletion 62 91 91
_______ _______ _______
Income (loss) from operations 7 8 93
Income tax benefit (expense) (3) (3) (32)
_______ _______ _______
Results of Operations from Producing
Activities [Excluding Corporate Overhead
and Interest Costs] 4 5 61
_______ _______ _______
Company's share of equity method investees'
results of operations for producing activities - - -
_______ _______ _______
</TABLE>
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The information that follows has been developed pursuant to
procedures prescribed by SFAS No. 69, and utilizes reserve
and production data estimated by management and independent
petroleum engineers. The information may be useful for
certain comparison purposes, but should not be solely
relied upon in evaluating the Company or its performance.
Moreover, the projections should not be construed as
realistic estimates of future cash flows, nor should the
standardized measure be viewed as representing current
value.
The future cash flows are based on sales, prices, costs,
and statutory income tax rates in existence at the dates of
the projections. Material revisions to reserve estimates
may occur in the future, development and production of the
oil and gas reserves may not occur in the periods assumed,
and actual prices realized and actual costs incurred are
expected to vary significantly from those used. Management
does not rely upon the information that follows in making
investment and operating decisions; rather, those decisions
are based upon a wide range of factors, including estimates
of probable reserves as well as proved reserves, and
different price and cost assumptions than those reflected
herein.
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The following tables set forth the standardized measure of
discounted future net cash flows from projected production of the
Company's proved oil and gas reserves:
<TABLE>
December 31,
______________________________
<S> <C> <C> <C>
1995 1994 1993
________ ________ ________
[In Thousand of Dollars]
Future reserves $13,925 $15,023 $14,981
Future production and development
costs 10,403 11,188 11,211
Future income tax expenses - - -
_______ _______ _______
Future net cash flows 3,522 3,835 3,770
Discount to present value at 10 percent 2,256 2,329 2,314
_______ _______ _______
Standardized measure of discounted
future net cash flows $1,266 $1,506 $1,456
_______ _______ _______
Company's share of equity method
investees' standardized measure of
discounted future net cash flows $ - $ - $ -
_______ _______ _______
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The following table sets forth the changes in standardized
measure of discounted future net cash flows:
<TABLE>
December 31,
______________________________
1995 1994 1993
________ ________ ________
[In Thousand of Dollars]
<S> <C> <C> <C>
Balance at beginning of period $1,506 $1,456 $2,919
Sales of oil and gas net of production
costs (69) (99) (184)
Changes in prices and costs 571 489 (1,561)
Changes in quantity estimates and
timing of production (509) (340) 444
Acquisition of reserves in place - - -
Current year discoveries, extensions
and improved recoveries - - -
Estimated future development and
production costs related to current
year acquisitions, discoveries,
extensions and improved recoveries - - -
Net change in income taxes - - -
Sales of reserves in place (233) - (162)
Accretion of discount - - -
Other - change in ten percent
discount - - -
_______ _______ _______
Balance at End of Period $1,266 $1,506 $1,456
_______ _______ _______
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<S> <C> <C>
March 31, December 31,
1996 1995
[unaudited]
CURRENT ASSETS:
Cash $268,746 $97,247
Joint interest and trade accounts receivable 17,617 37,697
Other current assets 66,365 0
Total Current Assets 352,729 134,944
PROPERTY AND EQUIPMENT 4,776 5,782
(net of accumulated depreciation)
INVESTMENT IN OIL AND GAS PROPERTIES 1,132,032 1,145,214
(full cost method, net of accumulated depletion)
INVESTMENT IN OIL SAND PROPERTIES 2,782,557 2,733,080
OTHER ASSETS 327,230 325,230
TOTAL ASSETS $4,599,324 $4,344,250
</TABLE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
March 31, December 31
1996 1995
[unaudited]
CURRENT LIABILITIES:
Accounts payable $57,635 $244,314
Current portion of long-term debt 53,847 67,372
Other current liabilities 166,709 173,250
Total Current Liabilities 278,191 484,936
LONG TERM DEBT 252,110 231,342
DEFERRED TAX LIABILITY 521,170 563,100
Total Liabilities 1,051,471 1,279,378
STOCKHOLDERS' EQUITY:
Preferred stock, $.005 par value, 1,000,000
shares authorized, no shares issued and
outstanding ------
Common stock, $.02 par value, 50,000,000
shares authorized, 10,932,616 and 9,861,069
issued and outstanding at 1996 and 1995 218,651 197,220
Capital in excess of par value 5,244,137 4,701,193
Retained earnings (1,914,935) (1,833,541)
Total Stockholders' Equity 3,547,853 3,064,872
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,599,324 $4,344,250
</TABLE>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
March 31,
<TABLE>
<S> <C> <S> <C> <C>
1996 1995
REVENUE:
Oil and gas production $44,552 $54,122
Total Revenue 44,552 54,122
EXPENSES:
Production costs and related taxes 29,871 34,835
General and administrative expenses 121,175 73,101
Depletion, depreciation and amortization 14,188 15,021
Total Expenses 165,234 122,957
OPERATING INCOME (LOSS) (120,682) (68,835)
OTHER INCOME (EXPENSES):
Interest and other income 2,615 408
Gain (loss) on sale of properties 0 0
Interest and other expense (5,256) (4,545)
Total Other Income (Expenses) (2,641) (4,137)
INCOME (LOSS) BEFORE TAX PROVISION ($123,323) ($72,972)
PROVISION FOR TAXES:
Current tax expense (benefit) 0 0
Deferred tax expense (benefit) (41,930) (24,810)
NET INCOME (LOSS) ($81,393) ($48,162)
NET INCOME (LOSS) PER SHARE ($0.01) ($0.00)
</TABLE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY
[Unaudited]
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
Common Stock Capital in
Excess of Retained
Shares Amount Par Value (Deficit) Total
BALANCE, December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1995 9,861,069 $197,220 $4,701,193 ($1,833,541)$3,064,872
Net income (loss) for the three
months ended March 31, 1996 --- --- --- (81,393) (81,393)
Shares issued for cash at $.50 per
share in private placement net
of placement costs 800,000 16,000 329,000 --- 345,000
Shares issued for commissions 80,000 1,600 38,400 --- 40,000
Shares issued for services at $.79
to $1.00 per share 191,547 3,831 175,544 --- 179,375
BALANCE, March 31, 1996 10,932,616 $218,651 $5,244,137 ($1,914,934)$3,547,854
</TABLE>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
<TABLE>
<S> <C> <C>
1996 1995
Cash Flows From (To) Operating Activities:
Net income (loss) ($81,393) ($48,162)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization, depreciation and depletion 14,188 15,021
Non-cash (income) expense 4,018 15,154
Change in assets and liabilities:
Joint interest and accounts receivable 20,080 (96,022)
Other assets (68,365) (455)
Accounts payable (17,306) (2,688)
Other current liabilities (3,316) (19,130)
Deferred tax liability (41,930) (24,810)
Total adjustments (92,631) (112,930)
Net Cash Used by Operating Activities (174,024) (161,092)
Cash Flows From (To) Investing Activities:
Additions to oil sand properties (39,477) (19,960)
Net proceeds from sale of oil and gas properties 0 150,000
Net Cash Provided (Used) in
Investing Activities (39,477) 130,040
Cash Flows From (To) Financing Activities:
Principal payments on long-term debt 0 (8,278)
Net proceeds from sale of common stock 385,000 90,000
Net Cash Provided by Financing Activities $385,000 $81,722
</TABLE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
<TABLE>
For the Three Months Ended
March 31,
<S> <C> <C>
1996 1995
Net Increase (Decrease) in Cash: $171,499 $50,670
Cash at Beginning of Period $97,247 $30,592
Cash at End of Period $268,746 $81,262
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest --- $2,208
Income taxes --- ---
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities:
For the period ended March 31, 1996:
The Company issued 181,547 shares of common stock in payment of $179,375
in consulting fees.
The Company issued 10,000 shares of common stock to restructure an oil
sand lease.
The Company converted accrued interest of $4,018 into notes payable.
For the period ended March 31, 1995:
The Company converted accrued interest of $15,154 into notes payable.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO MARCH 31, 1996 UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared
by the Company without audit. In the opinion of
management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the
financial position, results of operations and changes in
stockholders' equity and cash flows at March 31, 1996 and
for all periods presented have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction
with the financial statements and notes thereto included
in the Company's December 31, 1995 audited financial
statements. The results of operations for the period
ended March 31, 1996 are not necessarily indicative of
the operating results for the full year.
ORGANIZATION
Crown Energy Corporation ["Crown"], a Utah corporation,
was organized on March 17, 1981. Crown's primary
activities have been the acquisition and development of
oil and gas leases. Crown has completed a sale of its
common stock to the public.
BuenaVentura Resources Corporation ["BVRC"], a Utah
corporation, was organized October 24, 1985. BVRC is
active in the mining and development of oil sand deposits
and owns the rights to a newly patented technology for
the extraction of oil from oil sands. Crown acquired
100% of BVRC on September 30, 1992.
Gavilan Petroleum, Inc. ["Gavilan"], a Utah corporation,
was organized on September 9, 1985. Gavilan is engaged
in the production and selling of oil and gas from leases it operates
in the state of Utah. Gavilan became a 100% subsidiary of
Crown on January 24, 1991.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
OIL AND GAS PROPERTIES
Oil and gas properties are accounted for on the full cost
method, whereby all costs associated with acquisition,
exploration and development of oil and gas properties are
capitalized on a country-by-country, cost center basis.
All oil and gas revenues are derived from reserves
located in the state of Utah. Amortization of such costs
is determined by the ratio of current period production
to estimated proved reserves. Estimated proved reserves
are based upon reports of petroleum engineers.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO MARCH 31, 1996 UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The net carrying value of oil and gas properties is
limited to the lower of amortized costs or the cost
center ceiling [defined as the sum of the present value
[10% discount rate] of estimated, unescalated future net
cash flows from proved reserves, plus the lower of cost
or estimated fair value of unproved properties, giving
effect to income taxes].
OIL SAND PROPERTIES
The Company's investment in oil sand properties,
including acquisition and development costs, are being
capitalized and will be amortized by the unit-of-production method
once commercial production commences,
projected to be late 1996 or early 1997.
INCOME (LOSS) PER SHARE
The computation of income (loss) per share of common
stock is based on the weighted average number
of shares outstanding during the periods presented.
NOTE 2 - SIGNIFICANT CUSTOMERS
The Company sells substantially all of its oil production
to one purchaser. If this purchaser stopped buying
products from the Company, the Company would then
contract with other purchasers available in the areas
where the oil is produced. The effect of this purchaser
pulling out of the area would at least put a temporary
downward pressure on prices in the area, but it is not
currently possible for the Company to estimate how the
Company would be affected. Management believes that its
oil is a commodity that is readily marketable and that
the marketing methods it follows is typical of similar
companies in the industry.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE
AND DISTRIBUTION
Item 13. Other Expenses of Issuance and Distribution
The estimated expenses of the registration effected hereby, all
of which are to be paid by the Registrant, are as follows:
Registration Fees:
Securities and Exchange Commission . . . . . . $677.83
Printing and Engraving Fees . . . . . . . . . . .500.00
Legal Fees and Expenses . . . . . . . . . . . 25,000.00
Accounting Fees and Expense . . . . . . . . . .2,000.00
Transfer Agent Fees . . . . . . . . . . . . . . .500.00
Miscellaneous . . . . . . . . . . . . . . . . . .500.00
TOTAL $29,177.83
Item 14. Indemnification of Directors and Officers
Utah Code Annotated Section 16-10a-902 provides generally that a
corporation may indemnify any person who is a party to any proceeding
by reason of the fact that he is a director, officer, employee, or
agent of the corporation, provided he acted in good faith and in a
manner he reasonably believed to be in the best interests of the
corporation and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. If the
action or proceeding is by or in the right of the corporation, the
defendant shall be indemnified only if successful or if the court
determines that the person fairly and reasonably is entitled to
indemnification. The statutory right to indemnification is not
exclusive of other rights that an individual may be entitled to
pursuant to corporate bylaws or other agreements.
Section 16-10a-840 provides that "a director or officer is not
liable for any action taken, or any failure to take any action as an
officer or director as the case may be, unless: (a) the director or
officer has breached or failed to perform the duties of the officer
in compliance with this section; and (b) the breach or failure to
perform constitutes gross negligence, willful misconduct or
intentional infliction of harm on the corporation.
The Company's bylaws state that no officer or director shall be
personally liable for any obligations arising out of any acts or
conduct performed for or on behalf of the corporation, provided,
however, that no person shall be indemnified against or be reimbursed
for any expense incurred in connection with any claim or liability
arising out of his own negligence or willful misconduct. No
insurance has been obtained by the Company for director and officer
indemnification.
The Company has entered into indemnification agreements with
the officers and directors which provide for indemnification to the
fullest extent permitted by law.
Item 15. Recent Sales of Unregistered Securities
Crown acquired 100% of BVRC on September 30, 1992 by issuing
4,221,751 shares (adjusted for a 1:4 reverse stock split effective
January 3, 1995) of restricted Common Stock. Additional Crown shares
may be issued if BVRC attains certain earning levels. The exemption
from registration under the Securities Act relied upon by the Company
for such sale was that afforded by Section 4(2).
In January 1993, the Company sold 44,643 shares of its
restricted Common Stock to an individual in exchange for the payment
of $25,000. No underwriter was used to effect the aforementioned
placement of Common Stock. The exemption from registration under the
Securities Act relied upon by the Company for such sale was that
afforded by Section 4(2).
In February and June 1993, the Company issued 34,114 shares of
restricted Common Stock in consideration for consulting services
rendered to the Company by three individuals and valued at $23,782.
The exemption from registration under the Securities Act relied upon
by the Company for such sale that was afforded by Section 4(2).
In April 1994, the Company issued 35,645 shares of its
restricted common stock to one individual in exchange for the
satisfaction of a $17,342 note payable with accrued interest of
$1,045 and the receipt of $3,000 in consulting services. The
exemption from registration of the Securities Act relied upon by the
Company for such sale was that afforded by Section 4(2).
In May 1994, the Company sold 200,000 shares of its restricted
Common Stock to a privately held corporation for $100,000. No
underwriters were used in relation to such sale of stock. The
exemption from registration under the Securities Act relied upon by
the Company for such sale was that afforded by Section 4(2).
In April 1994, the Company issued 196,851 shares of its
restricted Common Stock and 125,000 stock options exercisable at
$1.96 per share for a period expiring on December 31, 1997 to an
investment group consisting of eight individuals for $100,000. No
underwriters were utilized in the aforementioned sale of stock and
options. The exemption from registration under the Securities Act
relied upon by the Company was that afforded by Section 4(2).
In September 1994, the Company sold an unsecured debenture plus
16,250 shares of its restricted Common Stock to five investors for
$65,000. The underlying $65,000 note accrues interest at 6% per year
and was extended until January 1, 1997, in exchange for the issuance
of 3,250 shares of Common Stock. No underwriter was used to effect
the foregoing placement of the debenture or stock. The exemption
from registration under the Securities Act relied upon by the Company
for the issuance of the debenture and shares was that afforded by
Section 4(2).
During 1994 and 1995, the Company issued 381,722 and 100,739
shares of its restricted common stock to the officers and employees
of the Company in payment of $103,500 and $52,375, respectively, of
deferred salaries and related accrued interest of $9,547. The
exemption from registration under the Securities Act relied upon by
the Company for such issuances was that afforded by Section 4(2).
In February and November 1995, the Company sold 292,857 shares
of its restricted common stock to an individual in exchange for
$140,000. No underwriter was used to effect the aforementioned
placement of the Company's stock. The exemption from registration
under the Securities Act relied upon by the Company was that afforded
by Section 4(2).
In December 1995, the Company issued 47,273 shares of Common
Stock to Pruitt, Gushee and Bachtell, the law firm of Mr. Thomas
Bachtell, Esq., in exchange for the cancellation of accounts
receivable in the amount of $33,092 held by such firm. The exemption
from registration under the Securities Act relied upon by the Company
for the issuance of such stock was that afforded by Section 4(2).
In November and December 1995, the Company issued 132,714
shares to a consulting group in exchange for consulting services
valued at $61,764. The exemption from registration under the
Securities Act relied upon by the Company for the issuance of the
foregoing shares was that afforded by Section 4(2).
In December 1995, the Company issued 80,000 shares of its
restricted and 10,714 shares of its unrestricted Common Stock to
Andrew W. Buffmire, Esq. in consideration of the cancellation of an
accounts receivable for legal services rendered in the amount of
$35,304. The shares issued to Mr. Buffmire were issued under the
exemption from registration under the Securities Act afforded by
Section 4(2).
On January 31, 1996, the Company concluded the Private
Placement pursuant to which 800,000 shares of the Company's
restricted Common Stock were sold at a price of $.50 per share to 21
accredited investors in exchange for the receipt by the Company of
proceeds in the amount of $400,000. Certain investors received a 10%
commission in consideration for their efforts with regards to the
Private Placement. The Company relied upon the exemption from
registration under the Securities Act afforded by Regulation D
promulgated thereunder.
In February 1996, the Company issued 80,000 shares of its
restricted Common Stock to Dr. Park Guymon in payment for $80,000 of
consulting services rendered with regard to the Asphalt Ridge
project. The exemption from registration under the Securities Act
relied upon by the Company for such issuances was that afforded by
Section 4(2).
In November 1995, the Company issued 21,000 shares of the
Company's restricted Common Stock to each of Scott Gutting and Elliot
Travis in connection with consulting services rendered to the Company
and valued at $15,462 each. The exemption from registration under
the Securities Act relied upon by the Company for such issuances was
that afforded by Section 4(2).
In February 1996, the Company issued 50,000 shares of the
Company's restricted Common Stock to Daintree Trust in connection
with consulting services rendered to the Company and valued at
$39,375. The exemption from registration under the Securities Act
relied upon by the Company for such issuances was that afforded by
Section 4(2).
In February 1996, the Company issued 51,547 shares of
restricted Common Stock to Messrs. Joseph Blau, James Foster and
Walter Dunn as a finder's fee (valued at $50,000) relating to Mr.
James Middleton's employment contract. The exemption from
registration under the Securities Act relied upon by the Company was
that afforded by Section 4(2).
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Number Description Page No.
3.1 Articles of Incorporation
3.2 Amended By-Laws
4.1 Stock Option Agreement - 1991
4.2 Stock Option Agreements(1),
4.3 1995 Officer/Employee/Consultant Benefit Plan(1)
5.2 Opinion of Suitter Axland & Hanson85
10.2 License Agreements with Park Guymon
Enterprises, Inc. dated Jan. 20, 1989,
June 1, 1990 and June 1, 1990
10.3 Amendment to License Agreement with Park
Guymon Enterprises, Inc.(1)
10.4 Executive Employment Agreement
with James A. Middleton(1)
10.5 Employment Agreement
with Jay Mealey(1)
10.6 Employment Agreement
with Richard S. Rawdin(2)
10.7 June 15, 1989 Letter Agreement
with Amoco Production Company(1)
10.8 Consulting Agreement with IBEX Group, Inc.
and Hoffman Partners, Inc.(1)
10.9 Promissory Note issued to Jay Mealey 12/31/95(1)
10.10 Promissory Note issued to Thomas W. Bachtell 12/31/95(1)
10.11 Promissory Note issued to Thomas W. Bachtell 12/31/95(1)
10.12 November 1993 Agreement with Swaco-Geolograph87
22.1 Subsidiaries of the Company(1)
24.1 Consent of Pritchett, Siler & Hardy, P.C.91
(b) Financial Statement Schedules:
See "Financial Statements."
"Financial Data Schedule"
<PAGE>
Item 17. Undertakings
The Company hereby undertakes to file, during any period in which
offers or sales are being made, a post-effective amendment to this
registration statement:
(a) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(d) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(e) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
CROWN ENERGY CORPORATION
Date: , 1996 By: /s/ James A. Middleton
James A. Middleton, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Each of the undersigned expressly adopt as his electronic signature his or
her name typed in italics and preceded by /s/.
Signature Date
/s/ James A. Middleton
James A. Middleton, Chairman of
the Board of Directors, Chief
Executive Officer
/s/ Jay Mealey
Jay Mealey, President,
Chief Operating Officer and Treasurer
/s/ Richard S. Rawdin
Richard S. Rawdin, Vice-President,
Director and Secretary
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. SEC Reference No. Title of Document Sequentially
Exhibits Numbered Page
5.2 5 Opinion of Suitter
Axland & Hanson 85 - 86
10.12 10 November 1993 Agreement
with Swaco-Geolograph 87 - 90
24.1 24 Consent of Pritchett,
Siler & Hardy, P.C. 91
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 268,746
<SECURITIES> 0
<RECEIVABLES> 17,617
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 352,729
<PP&E> 66,546
<DEPRECIATION> 61,770
<TOTAL-ASSETS> 4,599,324
<CURRENT-LIABILITIES> 278,191
<BONDS> 252,110
<COMMON> 218,651
0
0
<OTHER-SE> 5,244,137
<TOTAL-LIABILITY-AND-EQUITY> 4,599,324
<SALES> 44,552
<TOTAL-REVENUES> 44,552
<CGS> 29,871
<TOTAL-COSTS> 165,234
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,256
<INCOME-PRETAX> (123,323)
<INCOME-TAX> (41,930)
<INCOME-CONTINUING> (81,393)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,393)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
July 18, 1996
Crown Energy Corporation
Attention: Mr. Richard S. Rawdin
215 South State, Ste. 550
Salt Lake City, Utah 84111
Gentlemen:
We have assisted, as securities counsel, Crown
Energy Corporation, a Utah corporation (the "Company")
with the preparation and filing of that certain
Registration Statement on Form S-1 (the "Registration
Statement") by the Company under the Securities Act of
1933, as amended, with respect to the offering of up to
2,890,600 shares of the Company's common stock, par
value $0.02 per share (the "Common Stock"). Of the
2,890,600 shares of Common Stock to be registered by
the Registration Statement, (a) 1,236,850 shares
consist of presently outstanding shares held by
stockholders of the Company and (b) 1,653,750 consist
of shares of Common Stock which are reserved for
issuance upon exercise of certain options held by
officers, directors and employees of the Company, as
well as by other investors or consultants.
In rendering the opinions herein, we have examined
originals or copies of (i) the Registration Statement,
(ii) the Company's Articles of Incorporation, as
amended, (iii) the Bylaws of the Company, and such
other documents and records as we deem necessary and
relevant for the purposes hereof.
We have assumed the genuineness of all signatures,
the authenticity of all documents, certificates and
records submitted to us as originals, the conformity to
original documents, certificates and records of all
documents, certificates and records submitted to us as
copies, and the truthfulness of all statements of fact
contained therein.
Based upon the foregoing and subject to the
limitations set forth herein, and having due regard for
such legal considerations we deem relevant, we are of
the opinion that:
1. The 1,236,850 presently issued and
outstanding shares of the Company's Common
Stock to be registered under the Registration
Statement are duly authorized, validly
issued, fully paid and nonassessable.
2. The 1,653,750 shares of the Company's Common
Stock to be registered under the Registration
Statement, which shares will be issued upon
exercise of the Options and payment of the
full exercise price with respect to such
Options, will be duly authorized, validly
issued, fully paid and nonassessable.
In rendering the foregoing opinions, we have
assumed that the Company's Board of Directors has
determined that the consideration received or to be
received for the Common Stock shares referenced herein
is adequate and that the Company has received or will
receive such consideration.
The foregoing opinion is based on and is limited
to the general corporate laws of the State of Utah. In
rendering this opinion, we have not considered and
express no opinion on the effect of any other law or
the laws of any other state or jurisdiction, including
federal laws regulating securities or other federal
laws or regulations, or the rules and regulations of
stock exchanges or any other regulatory body.
The opinions expressed herein represent the
judgement of this firm as to legal matters, and are not
a guaranty and should not be construed as such.
The opinion is given as of the date hereof, and we
undertake no, and hereby disclaim any, obligation to
advise you of any change in any matter set forth
herein.
This opinion is being delivered to you in
connection with the matters referred to above and may
not be relied upon by any other person or entity
without our prior written consent.
Very truly yours,
BUENAVENTURA RESOURCES CORPORATION
November 24, 1993
Larry D. Barker, Vice President
SWACO GEOLOGRAPH
P.O. Box 42842
Houston, Texas 77242
Carroll Richey, President
RICHEY PETROLEUM CORPORATION
5718 Westheimer, Suite 1312
Houston, Texas 77057
George P. Post, President
POST PETROLEUM COMPANY
501 West I-44, Suite 100
Oklahoma City, Oklahoma 73118
Re: Letter of Understanding for Tar Sands Project
Gentlemen:
For quite sometime we have been negotiating to jointly
undertake a tar sands oil extraction project at Asphalt Ridge, Utah.
This letter is an attempt to memorialize our most recent
discussions and understandings so that we may proceed, on a
mutually agreeable basis, with the proposed project.
1. Swaco Geolograph ("Swaco") has confirmed its
interest in proceeding with the Initial Production Facility ("IPF")
pursuant to the terms of its quotation and the IPF budget, copies
of which are attached hereto. As soon as the funding for the IPF
has been secured to the satisfaction of Swaco, it will initiate its
required mobilization and purchases. The purpose of the IPF is to,
among other things, determine optimum process flows and
material balances utilizing the equipment suite proposed by
Swaco. Within a reasonable period of time after the conclusion of
IPF operations, Swaco will deliver to all parties under this letter, a
detailed written report (the "IPF Report") analyzing the feasibility of
proceeding with a full scale tar sands oil extraction facility limited
to a capacity of 6400 tons of tar sands ore per day (the
"Commercial Facility"). The IPF Report will address in specific
detail and itemization, the IPF operations and costs, and projected
capital and operating costs for the Commercial Facility including,
the complete equipment suite, and optimum solvent and surfactant
ratios, and operating temperatures of the solvent and water. The
IPF Report will also provide best estimates of a complete and
itemized breakdown of costs per ton to process the mined tar
sands ore through the Commercial Facility. It is understood that
the primary purpose of the IPF Report is to enable the participants
to determine whether it is in their best interests to proceed with the
Commercial Facility. All participants will have full and immediate
access to the IPF operations and the information which is
generated. As you know, BuenaVentura has already secured all
necessary permits for IPF operations, and will use its best efforts to
extend any such permits as may be required.
2. If the parties elect to continue the project after
reviewing the IPF report, a mining joint venture (the "Venture") will
be formed between BuenaVentura on the one hand, and Bitumen
Extraction Technology Systems, L.L.C. (which is a proposed Utah
Limited Liability Company which will include Swaco Geolograph
Division of M-I Drilling Fluids Company, Richey Petroleum
Corporation, Post Petroleum Company, and possibly others), on
the other hand ("L.L.C." herein). The area of interest for the
Venture will be the area known as the Uintah Basin, Utah, and all
participants will contribute their respective technologies, properties,
leases, licenses, know how and other resources for the success of
the Venture. It is understood that none of the proposed
participants for the L.L.C. are obligated to participate in the project
after the IPF, but will have the option to continue their respective
participation in the L.L.C. as agreed among them. It is also
understood that if for some reason Swaco should elect not to
participate in the L.L.C., a cost plus construction contract with a
management fee based on a 7.5% share of the operating cash flow
could be negotiated between the Venture and Swaco for
construction and operation of the Commercial Facility.
3. The L.L.C. shall make an election within sixty (60) days
after receiving the IPF report from Swaco to proceed with the
Commercial Facility. The election will be made in writing and
delivered to Jay Mealey, President, Crown Energy Corporation at
215 South State, Suite 550, Salt Lake City, Utah 84111. Time is of
the essence.
4. A condition of the L.L.C. electing to proceed with the
Commercial Facility will be its agreement to contribute to the
Venture all equipment and structures which are necessary,
required and reasonable so that the Venture may economically
mine, extract process (including distillation), and sell the tar sands
and bitumen. BuenaVentura will be responsible for 25% of the
working capital funding and the L.L.C. will be responsible for 75%
of the working capital funding for commercial operation s of the
Commercial Facility until the L.L.C. has reached payout where full
funding has been recovered at which time the L.L.C. and
BuenaVentura will share the working capital funding on a 50/50
basis. BuenaVentura will also be responsible for obtaining all
permits for the project, which includes mining, air, water, solid
waste, reclamation and any other permits required to commence
and continue full scale operations. BuenaVentura will have no
responsibility to provide funding to purchase any equipment and
structures until after payout of the Commercial Facility, or to
construct and test the Commercial Facility.
5. The mining joint venture agreement for the
Commercial Facility and future operations will be based upon the
Rocky Mountain Mineral Law Foundation Form 5, Mining Venture
Agreement. BuenaVentura and the L.L.C. will each own 50% of the
Venture, giving each participant 50% of the profits, with each party
to the Venture being responsible for their respective share of all
investments after the Commercial Facility is operational and the
L.L.C. has recovered its investment. A Management Committee
comprising three members from BuenaVentura and three members
from the L.L.C. will oversee and approve all operations and
budgets for the Commercial Facility after payout, and all
subsequent facilities and operations. BuenaVentura agrees that
the L.L.C. will be entitled to 75% of the cash flow from operations
of the Commercial Facility until its full investment in equipment,
structures, facilities, and working capital contributed by the L.L.C.
is recovered. Additionally, it is understood that both BuenaVentura
and the L.L.C. may relinquish up to 2 1/2% each (cumulative 5%)
of their interest in the project to any investor(s) which fund the IPF.
Such investors(s) will be entitled to participate in the Commercial
Facility and will not be required to advance additional funds for the
construction, maintenance or operations of said Commercial
Facility. Swaco will have the election to be the project manager for
the Commercial Facility; however, a Management Committee
comprising two members from BuenaVentura and four members
from the L.L.C. will oversee and approve all operations and
budgets of the Commercial Facility before payout.
6. All parties will be entitled to participate in additional
production facilities approved by the Management Committee in
the same proportions as their interest in the Venture. This will
include those parties that earn an interest by contributing to the
funding of the IPF. All parties who elect to participate in additional
production facilities will be required to pay for their respective
share of said facility in a timely manner.
Due to the sensitive nature of the proposed operations, no
parties will make a public disclosure with respect to this letter or
any aspect of the project without first conferring with the other
parties.
We believe that the above fairly represents our discussions
to date, and presents a workable method for developing the IPF,
and at the election of the L.L.C., the first full scale production
facility at Asphalt Ridge. It is understood, however, that this letter
is not binding upon the parties hereto until such time as the proper
funding of the IPF has been secured and Swaco has
acknowledged, in writing, its unqualified intention to proceed.
If you agree with the matters set forth in this letter, please
sign at the place provided below and return on signed original to
me. This letter may be signed in multiple counterparts and a
facsimile may be deemed an original for all purposes.
Very truly yours,
/s/ Thomas W. Bachtell
Thomas W. Bachtell
President
SWACO GEOLOGRAPH OPERATIONS
/s/Larry D. Barker
Larry D. Barker, Vice President
POST PETROLEUM COMPANY
/s/George P. Post
George P. Post, President
RICHEY PETROLEUM CORPORATION
/s/Carroll Richey
Carroll Richey, President
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus
constituting part of this Amendment No. 1 to the
Registration Statement on Form S-1 for Crown Energy
Corporation, of our report dated January 26, 1996,
relating to the December 31, 1995 and 1994 financial
statements of Crown Energy Corporation, which appears in
such Prospectus. We also consent to the reference to us
under the heading "Experts".
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
Salt Lake City, Utah
June 27, 1996
