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 March 31, 1998
----------------------------------------
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 No.)
incorporation or organization)
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 12,668,512 shares of $.02 par value common stock outstanding as of
May 13, 1998.
<PAGE>
CROWN ENERGY CORPORATION
INDEX
-----
PAGE(S)
-------
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31,
1998 (unaudited) and December 31, 1997 3
Condensed Consolidated Statement of Operations for the Three
Months ended March 31, 1998 and 1997 (unaudited) 5
Condensed Consolidated Statement of Stockholder's Equity
(unaudited) 6
Condensed Consolidated Statement of Cash Flows for the
Three Months ended March 31, 1998 and 1997 (unaudited) 7
Notes to Condensed Consolidated Financial Statements
(unaudited) 9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. Other Information
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 13
ITEM 3. Defaults upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 13
PART III. Signatures 14
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
March 31,
1998 December 31,
[unaudited] 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $2,228,839 3,100,765
Trade and other accounts receivable, net of allowance for
doubtful accounts of $75,000 and $75,000 at 1998 and 1997 10,808 10,808
Other current assets 483,951 177,416
---------- ----------
Total Current Assets 2,723,598 3,288,989
PROPERTY AND EQUIPMENT, net 32,395 7,383
EQUITY INVESTMENT IN A LIMITED LIABILITY
COMPANY 3,977,514 3,412,355
OTHER ASSETS 206,033 354,930
TOTAL ASSETS $6,939,540 $7,063,657
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
March 31,
1998 December 31,
[unaudited] 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 7,230 $ 9,535
Other current liabilities 205,297 124,981
------------ ------------
Total Current Liabilities 212,527 134,516
LONG-TERM DEBT 0 0
------------ ------------
Total Liabilities 212,527 134,516
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.005 par value, 1,000,000 shares
authorized, 500,000 $10 series A Cumulative Convertible
Shares issued and outstanding 2,500 2,500
Common stock, $.02 par value, 50,000,000 shares
authorized, 11,722,216 and 11,722,216 issued and
outstanding at 1998 and 1997 234,444 234,444
Common stock subscribed, $.02 par value, 946,296 shares
subscribed 18,926 0
Common stock subscription receivable from related parties (549,166) 0
Capital in excess of par value 10,695,485 10,165,245
Retained deficit (3,675,176) (3,473,048)
------------ ------------
Total Stockholders' Equity 6,727,013 6,929,141
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,939,540 $ 7,063,657
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
March 31,
--------------------------
1998 1997
------------ ------------
REVENUE:
Oil and gas production $ 0 $ 50,503
------------ ------------
Total Revenue 0 50,503
------------ ------------
EXPENSES:
Production costs and related taxes 0 28,157
General and administrative expenses 139,589 82,879
Depletion, depreciation and amortization 1,700 14,912
------------ ------------
Total Expenses 141,289 125,948
------------ ------------
OPERATING LOSS (141,289) (75,445)
------------ ------------
OTHER INCOME (EXPENSES):
Interest and other income 47,227 898
Interest and other expense (6,523) (8,745)
------------ ------------
Total Other Income (Expenses) 40,704 (7,847)
------------ ------------
LOSS BEFORE TAX PROVISION ($100,585) ($ 83,292)
------------ ------------
PROVISION FOR TAXES:
Current tax expense (benefit) 0 0
Deferred tax expense (benefit) 0 (28,170)
------------ ------------
NET LOSS ($100,585) ($ 55,122)
============ ============
NET LOSS PER SHARE ($ 0.01) ($ 0.01)
============ ============
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY
[Unaudited]
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<CAPTION>
Preferred Stock Common Stock Common Common Stock
--------------------- ------------------------ Stock Subscribed
Shares Amount Shares Amount Subscribed Receivable
------- ----------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER
<S> <C> <C> <C> <C> <C> <C>
31, 1997 500,000 $ 2,500 11,722,216 $ 234,444 -- --
Dividends on Preferred
Stock -- -- -- -- -- --
Common stock subscribed -- -- -- -- $ 18,926 ($ 549,166)
Net loss for the three
months ended
March 31, 1998 -- -- -- -- -- --
BALANCE,
March 31, 1998 500,000 $ 2,500 11,722,216 $ 234,444 $ 18,926 ($ 549,166)
=========== ===========
<CAPTION>
Capital in
Excess of Retained
Par Value Deficit Total
----------- ----------- -----------
BALANCE, DECEMBER
<S> <C> <C> <C>
31, 1997 $10,165,245 ($3,473,048) $ 6,929,141
Dividends on Preferred
Stock -- (101,543) (101,543)
Common stock subscribed $ 530,240 -- 0
Net loss for the three
months ended
March 31, 1998 -- (100,585) (100,585)
BALANCE,
March 31, 1998 $10,695,485 ($3,675,176) $ 6,727,013
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows From (To) Operating Activities:
Net income (loss) ($100,585) ($ 55,122)
------------ ------------
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization, depreciation and depletion 1,700 15,912
Non-cash (income) expense 0 5,483
Change in assets and liabilities:
Joint interest and accounts receivable 0 20,216
Other assets (157,638) (26,130)
Accounts payable (2,305) (23,878)
Other current liabilities (21,227) 5,448
Deferred tax liability 0 (28,170)
------------ ------------
Total adjustments (179,470) (31,119)
------------ ------------
Net Cash Used by Operating Activities (280,055) (86,241)
------------ ------------
Cash Flows From (To) Investing Activities:
Additions to oil sand properties 0 (626)
Equity investment in limited liability company (565,159) 0
Purchase of property & equipment (26,712) 0
------------ ------------
Net Cash Provided (Used) in
Investing Activities (591,871) (626)
------------ ------------
Cash Flows From (To) Financing Activities:
Net changes in long-term debt 0 (28,109)
Net proceeds from sale of common stock 0 0
------------ ------------
Net Cash Provided by Financing Activities $ 0 ($ 28,109)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<TABLE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net Increase (Decrease) in Cash: ($ 871,926) ($ 114,976)
=========== ===========
Cash at Beginning of Period $ 3,100,765 $ 142,772
=========== ===========
Cash at End of Period $ 2,228,834 $ 27,796
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ 6,523 3,262
=========== ===========
Income taxes -- --
=========== ===========
</TABLE>
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the period ended March 31, 1998:
None
For the period ended March 31, 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 note
payable.
The Company converted accrued interest of $5,483 into notes
payable.
The accompanying notes are an integral part of these financial statements.
8
<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
March 31, 1998 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, 1997 audited financial
statements. The results of operations for the period ended March
31, 1998 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. Crown acquired 100% of BVRC on
September 30, 1992. On August 6, 1997, the name of the
corporation was changed to Crown Asphalt Corporation ["CAC"]. On
September 1, 1997, the corporation entered into a joint venture
with MCNIC Pipeline and Processing Company to construct and
operate an asphalt production facility at Asphalt Ridge (See Note
3 - Formation of Joint Venture). The Company's asphalt business
is its primary business activity.
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.
(See Note 2 - Sale of Subsidiary)
Crown Asphalt Products Company ("Crown Products") was formerly
known as Energy Technologies Corporation. Crown Products was
formed in 1991, but until recently has been a dormant entity. The
Company recently activated Crown Products for the purpose of
developing an asphalt marketing and distribution business.
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.
9
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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. Production is projected to commence in
June, 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. 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 - 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. As of March 31, 1998, the promissory note had a balance
of $75,000 of which the Company has established a reserve of
$75,000.
NOTE 3 - FORMATION OF JOINT VENTURE
On August 1, 1997, Crown's wholly-owned subsidiary, Crown Asphalt
Corporation, ("Crown Asphalt") entered into a joint venture with
MCNIC Pipeline & Processing, Inc., ("MCNIC"), a subsidiary of MCN
Energy Group, Inc. ("MCN"), a large diversified energy holding
company with approximately $4 billion in assets. The joint
venture will operate through Crown Asphalt Ridge, L.L.C., a Utah
limited liability company, (the "L.L.C.") and will be devoted to
extracting commercially marketable products from Crown Asphalt's
oil sands reserves (the "Reserves") located at Asphalt Ridge in
eastern Utah.
MCNIC and Crown will initially hold sharing ratios of 75% and
25%, respectively, in profits, losses and obligations of the
L.L.C. The forgoing ratios will be adjusted to provide each party
with a 50% sharing ratio upon the achievement of certain payouts
to MCNIC. Crown Asphalt's required capital contribution to the
L.L.C. consists of (i) Crown Asphalt's rights under certain
equipment leases with a fair market value of up to $3.5 million
to be obtained by Crown Asphalt; (ii) the Sublicense of Crown's
proprietary oil sands refining technology from Park Guymon
Enterprises, Inc.; (iii) the capital reserves (which were valued
10
<PAGE>
at the time of the formation of the L.L.C. at $500,000) and (iv)
an amount of cash, if any, needed to bring Crown Asphalt's
capital contributions up to 25% of the capital required to
construct the initial oil sands refining plant. After giving
effect to the value of the items described above, MCNIC, in turn,
will be required to fund 75% of the cash required to construct
the Initial Plant contemplated by the L.L.C.'s Operating
Agreement. It is presently estimated that such Initial Plant will
cost $19 million to construct.
NOTE 4 - SALE OF PREFERRED STOCK
On November 4, 1997, Crown completed the sale of 500,000 shares
of its 8% Class A Cumulative Convertible Preferred Stock ("Series
A Preferred Stock") to Enron Capital & Trade Resources Corp.
("ECT") pursuant to a Stock Purchase Agreement dated September
25, 1997 for an aggregate sales price of $5 million. Crown issued
45,000 shares and received $450,000 on the execution of the Stock
Purchase Agreement. The Series A Preferred are convertible at the
option of its holders into 24% of the Common Stock of Crown.
Dividends shall accrue on the outstanding Series A Preferred
shares at the rate of 8% per annum and may be paid through cash
or common shares of Crown at the option of the holder.
Subject to the holders' right to convert the Series A Preferred,
Crown may redeem the Series A Preferred at any time from the date
on which it is issued at the following prices: (i) if such
redemption occurs prior to 36 months, the redemption price shall
be 130% of the Series A Preferred's "Stated Value" ($10); (ii) if
prior redemption occurs after 36 months but prior to 48 months,
the redemption price shall be 115% of the Stated Value; (iii) if
redemption occurs after 48 months but prior to 60 months from the
date of issuance, the Series A Preferred may be redeemed at 110%
of the Series A Preferred's Stated Value; and (iv) if redemption
occurs after 60 months from the date of the issuance, the
redemption price shall be 100% of the Series A Preferred's Stated
Value. The holder of the Series A Preferred may require Crown to
redeem 125,000 shares of the Series A Preferred on the eighth
anniversary of its issuance and the like amount on the ninth
anniversary of it issuance, with all remaining Series A Preferred
to be redeemed on the tenth anniversary of its issuance at a per
share price no lower than the Stated Value.
NOTE 5 - CONCENTRATION OF CREDIT RISK
The realization of the Company's investment in oil sand
properties is dependent on the success of the joint venture with
MCNIC to successfully complete construction of its asphalt
production facility and profitably sell the related asphalt
products. The company currently has not generated any significant
revenues through the sale of asphalt products from its mine at
Asphalt Ridge in eastern Utah and the company currently does not
have any other method of generating revenues.
NOTE 6 - EXERCISE OF STOCK OPTIONS
On January 2, 1998, certain officers, directors and employees of
the Company exercised 946,296 options to purchase common stock
for $549,166 in notes receivable. The notes bear interest at the
prime rate, adjusted the 1st day of each calendar quarter, and
are payable on or before January 2, 2003.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
-----------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
For the three month period ended March 31, 1998, compared to the three months
ended March 31, 1997.
- --------------------------------------------------------------------------------
Oil and gas revenue decreased from $50,503 for the three months ended
March 31, 1997 to $0 for the three months ended March 31, 1998. This decrease
was 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 $28,157 for the three months
ended March 31, 1997 to $0 for the three months ended March 31, 1998. This
decrease was due to the sale of the Company's wholly-owned subsidiary, Gavilan
Petroleum, Inc., which was effective June 1, 1997.
General and administrative expenses increased from $82,879 for the three
months ended March 31, 1997 to $139,589 for the three months ended March 31,
1998, an increase of $56,710 (68%). This change was due to increased costs
related to the Company's investment in the joint venture with MCNIC.
Depletion, depreciation and amortization decreased from $14,912 for the
three months ended March 31, 1997 to $1,700 for the three months ended March 31,
1998. This decrease was due to the sale of the Company's wholly-owned
subsidiary, Gavilan Petroleum, Inc., which was effective June 1, 1997.
Other Income (Expense) fluctuated from total expenses of $7,847 for the
three months ended March 31, 1997 to Other Income of $40,704 for the three
months ended March 31, 1998. This fluctuation was primarily due to interest
income on the Company's cash reserves.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1998, the Company had cash and other current assets of
$2,723,598 as compared to cash and other current assets of $3,288,989 at
December 31, 1997. This decrease of $565,391 was due to equity contributions to
the Crown Asphalt Ridge, L.L.C. ("Crown Ridge") and a loss from operations. As
of March 31, 1998, the Company had no long-term debt obligations and believes it
has sufficient capital to meet all of its current working capital requirements
and its share of Crown Ridge's budgeted capital requirements.
In addition, the Company will incur its proportionate share of operating
expenses of Crown Ridge until such time that Crown Ridge's operations become
profitable. Furthermore, should Crown Ridge incur unforeseen additional capital
costs, the Company is obligated to pay its proportionate share of such costs.
The Company believes it has sufficient capital to cover such obligations.
However, there can be no assurance that such additional obligations can be met.
12
<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
Exhibit Name
------- ----
27 Financial Data Schedule
During the quarter ended March 31, 1998, there were no reports
filed on Form 8-K.
13
<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: May 13, 1998 By: /s/ JAY MEALEY
----------------------- -----------------------------------------
Jay Mealey, President
Date: May 13, 1998 By: /s/ RICHARD S. RAWDIN
----------------------- -----------------------------------------
Richard S. Rawdin, Vice President of Finance
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 228839
<SECURITIES> 0
<RECEIVABLES> 85808
<ALLOWANCES> 75000
<INVENTORY> 0
<CURRENT-ASSETS> 2723598
<PP&E> 32395
<DEPRECIATION> 1700
<TOTAL-ASSETS> 6939540
<CURRENT-LIABILITIES> 212527
<BONDS> 0
0
2500
<COMMON> 234444
<OTHER-SE> 6490069
<TOTAL-LIABILITY-AND-EQUITY> 6939540
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 141289
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6523
<INCOME-PRETAX> (100585)
<INCOME-TAX> 0
<INCOME-CONTINUING> (100585)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100585)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
