THIS DOCMENT IS A COPY OF THE FORM 10-Q
FILED ON AUGUST 15, 1997 PURSUANT TO A
RULE 201 TEMPORARY HARDSHIP EXEMPTION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19365
CROWN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Utah 87-0368981
(State or other jurisdiction of (I.R.S. Employer Identification
or organization) No.)
215 South State, Suite 550, Salt Lake City, Utah, 84111
(Address of principal executive offices, zip code)
(801) 537-5610
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the
latest practicable date.
There were 11,501,465 shares of $.02 par value common stock
outstanding as of August 13, 1997.
<PAGE>
CROWN ENERGY CORPORATION
INDEX
PAGE(S)
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet at June 30,
1997 (unaudited) and December 31, 1996 3
Condensed Consolidated Statement of Income for
the Three Months ended June 30, 1997 and
1996 (unaudited) 5
Condensed Consolidated Statement of Income for
the Six Months ended June 30, 1997 and
1996 (unaudited) 6
Condensed Consolidated Statement of
Stockholder's Equity (unaudited) 7
Condensed Consolidated Statement of Cash Flows
for the Six Months ended June 30, 1997 and
1996 (unaudited) 8
Notes to Condensed Consolidated Financial
Statements (unaudited) 10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
PART II. Other Information
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities 15
ITEM 3. Defaults upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security
Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
PART III. Signatures 16
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<C> <C> <C>
June 30,
1997 December 31,
[unaudited] 1996
CURRENT ASSETS:
Cash $26,774 $142,772
Joint interest and trade accounts
receivable 13,022 30,379
Notes receivable 150,000 0
Other current assets 154,300 72,780
Total Current Assets 344,096 245,931
INVESTMENT IN OIL AND GAS PROPERTIES 0 1,083,882
(full cost method, net of accumulated
depletion)
INVESTMENT IN OIL SAND PROPERTIES 2,958,709 2,919,077
OTHER ASSETS 344,984 342,484
TOTAL ASSETS $3,647,789 $4,591,374
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<C> <C> <C>
June 30,
1997 December 31,
[unaudited] 1996
CURRENT LIABILITIES
Accounts payable $41,318 $92,663
Current portion of long-term debt 293,635 185,984
Other current liabilities 141,553 225,322
Total Current Liabilities 476,506 503,969
LONG TERM DEBT 0 60,845
LONG TERM DEBT -- RELATED PARTIES 126,786 121,248
DEFERRED TAX LIABILITY 60,223 434,056
Total Liabilities 663,516 1,120,118
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,
11,501,465 and 11,430,571 issued
and outstanding at 1997 and 1996 230,029 228,611
Capital in excess of par value 5,553,069 5,497,772
Retained earnings (2,798,825) (2,255,127)
Total Stockholders' Equity 2,984,273 3,471,256
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,647,789 $4,591,374
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
For the Three Months Ended
June 30,
1997 1996
REVENUE:
Oil and gas production $26,993 $55,441
Total Revenue 26,993 55,441
EXPENSES:
Production costs and related taxes 26,496 32,953
General and administrative expenses 81,119 109,645
Depletion, depreciation and amortization 8,905 15,880
Total Expenses 116,520 158,478
OPERATING INCOME (LOSS) (89,527) (103,037)
OTHER INCOME (EXPENSES):
Interest and other income 588 2,489
Gain (loss) on sale of properties 0 0
Interest and other expense (745,300) (5,410)
Total Other Income (Expenses) (744,712) (2,921)
INCOME (LOSS) BEFORE TAX PROVISION ($834,239)($105,958)
PROVISION FOR TAXES:
Current tax expense (benefit) 0 0
Deferred tax expense (benefit) (345,663) (36,026)
NET INCOME (LOSS) ($488,576) ($69,932)
NET INCOME (LOSS) PER SHARE ($0.04) ($0.01)
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
For the Six Months Ended
June 30,
1997 1996
REVENUE:
Oil and gas production $77,496 $99,993
Total Revenue 77,496 99,993
EXPENSES:
Production costs and related taxes 54,653 62,824
General and administrative expenses 163,998 230,820
Depletion, depreciation and amortization 23,817 30,068
Total Expenses 242,468 323,712
OPERATING INCOME (LOSS) (164,972) (223,719)
OTHER INCOME (EXPENSES):
Interest and other income 1,486 5,104
Gain (loss) on sale of properties 0 0
Interest and other expense (754,045) (10,666)
Total Other Income (Expenses) (752,559) (5,562)
INCOME (LOSS) BEFORE TAX PROVISION ($917,531)($229,281)
PROVISION FOR TAXES:
Current tax expense (benefit) 0 0
Deferred tax expense (benefit) (373,833) (77,956)
NET INCOME (LOSS) ($543,698)($151,325)
NET INCOME (LOSS) PER SHARE ($0.05) ($0.01)
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY
[Unaudited]
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Common Stock Capital in
Excess of Retained
Shares Amount Par Value (Deficit) Total
BALANCE,
DECEMBER
31, 1996 11,430,571 $228,611 $5,497,772 ($2,255,127) $3,471,256
Net Income
(loss) for
the six
months ended
June 30,
1997 --- --- --- (543,698) (543,698)
Shares issued
for services
at $.86 to
to $1.00
per share 45,000 900 42,706 --- 43,606
Shares issued
for payment
of note
payable 25,894 518 12,591 --- 13,109
BALANCE,
June 30,
1997 11,501,465 $230,029 $5,553,069 ($2,798,825) $2,984,273
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
1997 1996
<TABLE>
<S> <C> <C> <C>
Cash Flows From (To) Operating Activities:
Net income (loss) ($543,698) ($151,325)
Adjustments to reconcile net loss to
net cash used by operating activities:
Common Stock issued for commissions 0 40,000
Amortization, depreciation and
depletion 23,817 30,067
Net effect of sale of subsidiary 903,430 0
Change in assets and liabilities:
Joint interest and accounts
receivable 30,379 23,146
Other assets (98,800) (23,209)
Accounts Payable (51,345) (115,155)
Other current liabilities (83,769) 46,567
Deferred tax liability (373,833) (77,956)
Total adjustments 349,879 (76,540)
Net Cash Used by Operating Activities (193,819) (227,865)
Cash Flows From (To) Investing Activities:
Additions to oil sand properties (39,632) (32,424)
Net Proceeds from sale of oil and
gas properties 0 0
Net Cash Provided (Used) in
Investing Activities (39,632) (32,424)
Cash Flows From (To) Financing Activities:
Net changes in long-term debt (32,547) 4,343
Net proceeds from issuance of
convertible debenture 150,000 0
Net proceeds from sale of
common stock 0 335,000
Net Cash Provided by Financing Activities $117,453 $339,343
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
<TABLE>
<S> <C> <S> <C> <C> <C>
For the Six Months Ended
June 30,
1997 1996
Net Increase (Decrease) in Cash: ($115,998) $79,054
Cash at Beginning of Period $142,772 $97,247
Cash at End of Period $26,774 $176,300
Supplemental Disclosure of Cash Flow
Information
Cash paid during the period:
Interest $4,844 $3,104
Income taxes --- ---
Supplemental Schedule of Non-cash Investing and Financing
Activities:
For the period ended June 30, 1997:
The Company issued 45,000 shares of common stock in
payment of accounts payable and oil sand costs.
The Company issued 25,894 shares of common stock in
payment of a note payable.
The Company converted accrued interest of $13,142
into notes payable.
For the period ended June 30, 1996:
The Company issued 191,547 shares of common stock
in payment of $89,375 in current liabilities and
$90,000 in project costs.
The Company issued 10,000 shares of common stock to
restructure an oil sand lease.
The Company converted accrued interest of $8,121
into notes payable.
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO 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 June 30, 1997 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, 1996 audited financial
statements. The results of operations for the period
ended June 30, 1997 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.
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. Gavilan was
sold on July 2, 1997 for $150,000. The sale was
retroactive to June 1, 1997 and, accordingly, is
accounted for in these financial statements. (See Note
3 - Sale of Subsidiary)
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.
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 1998. The Company reviews its investment
in oil sand properties for impairment whenever events or
changes in circumstance indicate that the carrying amount
of the investment may not be recoverable. The Company's
basis of determining the recoverability of its investment
is based on estimated future cash flows expected to
result from the extraction and production of products
from the oil sands. The Company is unaware of any events
or changes in circumstance that would merit a review for
impairment, however, the Company's estimated future cash
flows from its investment in oil sands exceeds the
carrying value of the investment, thus there is no
current impact from the adoption of SFAS 121.
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 are typical of similar
companies in the industry.
NOTE 3 - SALE OF SUBSIDIARY
On July 2, 1997, the Company entered into a stock
purchase agreement with Road Runner Oil, Inc.("RRO") to
sell 100% of its interest in its wholly-owned subsidiary,
Gavilan Petroleum, Inc.("Gavilan"). Gavilan operated oil
and natural gas properties. Under the terms of the sale,
the Company transferred to RRO all of the issued and
outstanding stock of Gavilan and in exchange received
$25,000 at closing and a promissory note under which it
will be paid $50,000 within 30 days of closing; $25,000
within 120 days of closing; and the remaining $50,000
within 180 days of closing. The note is secured by a
pledge of the Gavilan stock. The price was negotiated at
arms length between the Company and RRO.
The pro forma effects of the transaction for the year
ended December 31, 1996 are as follows: Total assets
would have been reduced from $4,591,374 to $3,468,599, a
decrease of $1,122,775 (24%). Total liabilities would
have been reduced from $1,120,118 to $923,019, a decrease
of $197,099 (18%). Revenues would have decreased from
$224,855 to $11,226, a decrease of $213,629 (95%). Net
loss before income taxes would have increased from a loss
of $550,630 for the year ended December 31, 1996 to a
loss of $445,818, a decrease of $104,812 (19%).
NOTE 4 - CONVERTIBLE DEBENTURE AGREEMENT
On May 6, 1997, the Company entered into a Convertible
Debenture Agreement ("Agreement") with Oriental New
Investments, Ltd., a Hong Kong corporation ("ONI").
Pursuant to the Agreement, on May 13, 1997, the Company
issued a 9% Convertible Debenture (the "Debenture") to
ONI in the principal amount of $150,000. No underwriters
or placement agents were utilized by either the Company
or ONI in negotiating the Agreement or in issuing the
Debenture. The Debenture was issued pursuant to the
exemption from registration under Section 5 of the
Securities Act of 1933, as amended, provided by Rule 903
of Regulation S.
Under the terms of the Debenture, payment of interest
only is due and payable quarterly commencing July 31,
1997. Payment of the remainder of the accrued interest
and all principal under the Debenture is due November 13,
1997 (the "Due Date"). At any time following July 13,
1997, the holder of the Debenture may elect to convert
the principal and accrued interest under the Debenture,
in whole or in part, to shares of the Company's common
stock at 65% of the average closing bid price as reported
on the NASD Electronic Bulletin Board for the ten (10)
preceding business days. In addition, at any time prior
to the Due Date, the Company may elect to prepay, without
penalty or premium, the outstanding principal or accrued
interest, in whole or in part, upon fifteen (15) days
written notice to the holder of the Debenture.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
RESULTS OF OPERATIONS
For the three month period ended June 30, 1997, compared to the
three months ended June 30, 1996.
Oil and gas revenue decreased from $55,441 for the three
months ended June 30, 1996 to $26,993 for the three months ended
June 30, 1997, a decrease of $28,448 (51%). This decrease was
primarily due to the sale of the Company's wholly-owned subsidiary,
Gavilan Petroleum, Inc., which was effective June 1, 1997.
Oil and gas production costs decreased from $32,953 for the
three months ended June 30, 1996 to $26,496 for the three months
ended June 30, 1997, a decrease of $6,457 (20%). This decrease was
primarily due to the sale of the Company's wholly-owned subsidiary,
Gavilan Petroleum, Inc., which was effective June 1, 1997.
General and administrative expenses decreased from $109,645
for the three months ended June 30, 1996 to $81,119 for the three
months ended June 30, 1997, a decrease of $28,526 (26%). This
change was primarily due to a decrease in consulting expenses.
Depletion, depreciation and amortization decreased from
$15,880 for the three months ended June 30, 1996 to $8,905 for the
three months ended June 30, 1997, a decrease of $6,975 (44%).
This decrease was primarily due to the sale of the Company's
wholly-owned subsidiary, Gavilan Petroleum, Inc., which was
effective June 1, 1997.
Other income (expense) decreased $741,791 from the three
months ended June 30, 1997. This decrease was primarily due to a
loss of $733,361 which was recorded on the sale of the Company's
wholly-owned subsidiary, Gavilan Petroleum, Inc.
For the six month period ended June 30, 1997, compared to the six
months ended June 30, 1996.
Oil and gas revenue decreased from $99,993 for the six months
ended June 30, 1996 to $77,496 for the six months ended June 30,
1997, a decrease of $22,497 (22%). This decrease was primarily due
to the sale of the Company's wholly-owned subsidiary, Gavilan
Petroleum, Inc., which was effective June 1, 1997.
Oil and gas production costs decreased from $62,824 for the
six months ended June 30, 1996 to $54,653 for the six months ended
June 30, 1997, a decrease of $8,171 (13%). This decrease was
primarily due to the sale of the Company's wholly-owned subsidiary,
Gavilan Petroleum, Inc., which was effective June 1, 1997.
General and administrative expenses decreased from $230,820
for the six months ended June 30, 1996 to $163,998 for the six
months ended June 30, 1997, a decrease of $66,822 (29%). This
change was primarily due to a decrease in consulting expenses.
Depletion, depreciation and amortization decreased from
$30,068 for the six months ended June 30, 1996 to $23,817 for the
six months ended June 30, 1997, a decrease of $6,251 (21%). This
decrease was primarily due to the sale of the Company's wholly-
owned subsidiary, Gavilan Petroleum, Inc., which was effective June
1, 1997.
Other income (expense) decreased $746,997 from the six months
ended June 30, 1997. This decrease was primarily due to a loss of
$733,361 which was recorded on the sale of the Company's wholly-
owned subsidiary, Gavilan Petroleum, Inc.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and other current
assets of $344,096 as compared to cash and other current assets of
$245,931 at December 31, 1996. The increase of $98,165 was
primarily due to proceeds from the sale of the Company's
subsidiary, Gavilan Petroleum, Inc., of $150,000 and the issuance
of a $150,000 convertible debenture. This increase was partially
offset by a loss from operations and payments on notes payable.
Total debt increased from $182,093 in long-term debt and
$185,984 in current portion of long-term debt at December 31, 1996
to $126,786 in long-term debt and $293,635 in current portion of
long-term debt at June 30, 1997. This increase was due to the
issuance of a $150,000 convertible debenture. The increase was
partially offset by a reduction in debt from the sale of Gavilan of
$65,139 and principal payments made during the period.
The Company's primary objective is to complete financing for
construction and start-up of its commercial asphalt production
facility. The Company is seeking to raise approximately
$20,000,000 through a combination of equity and debt or project
financing. The Company is evaluating financing alternatives with
several investor groups who are in the process of completing their
due diligence on the project. No assurance can be given that
financing will be available or, if available, that it will be
available on acceptable terms. If such 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 funding is not
available, the Company may be required to significantly curtail or
cease its operations.
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
The Company filed a Form 8-K on June 11, 1997, to report
the issuance of a $150,000 convertible debenture. The
Company also filed a Form 8-K on July 2, 1997 to report
the sale of its wholly-owned subsidiary, Gavilan
Petroleum, Inc.
<PAGE>
PART III. - SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CROWN ENERGY CORPORATION
(Registrant)
Date: August 14, 1997 By: /s/ JAY MEALEY
Jay Mealey, President
Date: August 14, 1997 By: /s/ RICHARD S. RAWDIN
Richard S. Rawdin,
Vice President of Finance
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000876528
<NAME> CROWN ENERGY CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 26,774
<SECURITIES> 0
<RECEIVABLES> 13,022
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 344,096
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,647,789
<CURRENT-LIABILITIES> 141,553
<BONDS> 0
<COMMON> 230,029
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,647,789
<SALES> 77,496
<TOTAL-REVENUES> 77,496
<CGS> 54,653
<TOTAL-COSTS> 242,468
<OTHER-EXPENSES> 734,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,436
<INCOME-PRETAX> (917,531)
<INCOME-TAX> (373,833)
<INCOME-CONTINUING> (543,698)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (543,698)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
