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, 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 (I.R.S. Employer Identification No.)
of 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
August 14, 1998.
<PAGE>
CROWN ENERGY CORPORATION
INDEX
PAGE(S)
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30,
1998 (unaudited) and December 31, 1997 3
Condensed Consolidated Statement of Operations for the Three
Months ended June 30, 1998 and 1997 (unaudited) 5
Condensed Consolidated Statement of Operations for the Six
Months ended June 30, 1998 and 1997 (unaudited) 6
Condensed Consolidated Statement of Cash Flows for the
Six Months ended June 30, 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 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
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<TABLE>
<CAPTION>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1998 December 31,
[unaudited] 1997
CURRENT ASSETS:
<S> <C> <C>
Cash $861,376 $3,100,765
Trade and other accounts receivable, net of allowance for
doubtful accounts of $75,000 and $75,000 at 1998 and 1997 192,954 10,808
Inventory 294,764 0
Other current assets 776,454 177,416
------------ ------------
Total Current Assets 2,125,548 3,288,989
PROPERTY AND EQUIPMENT, net 183,371 7,383
EQUITY INVESTMENT IN A LIMITED LIABILITY
COMPANY 4,397,438 3,412,355
OTHER ASSETS 235,035 354,930
----------- ------------
TOTAL ASSETS $6,941,392 $7,063,657
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
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<TABLE>
<CAPTION>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
1998 December 31,
[unaudited] 1997
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $42,305 $9,535
Dividends payable 270,986 0
Other current liabilities 53,259 124,981
Total Current Liabilities 366,550 134,516
---------------- ----------
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, 12,668,512 and 11,722,216 issued and
outstanding at 1998 and 1997, respectively 253,370 234,444
Capital in excess of par value 10,695,485 10,165,245
Common stock subscription receivable from related parties (572,058) 0
Retained deficit (3,804,455) (3,473,048)
---------------- --------------
Total Stockholders' Equity 6,574,842 6,929,141
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,941,392 $7,063,657
============== ==============
</TABLE>
4
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<TABLE>
<CAPTION>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
June 30,
1998 1997
REVENUE:
<S> <C> <C>
Asphalt revenue $186,929 $0
Oil and gas production 0 26,993
------------- ---------------
Total Revenue 186,929 26,993
-------------- ---------------
EXPENSES:
Production costs and related taxes 0 26,496
Cost of goods sold 123,140 0
Operating expenses 816 0
General and administrative expenses 111,465 81,119
Depletion, depreciation and amortization 7,951 8,905
---------------- --------------
Total Expenses 243,372 116,520
-------------- --------------
OPERATING LOSS (56,443) (89,527)
--------------- --------------
OTHER INCOME (EXPENSES):
Interest and other income 30,851 588
Interest and other expense (350) (745,300)
---------------- ---------------
Total Other Income (Expenses) 30,501 (744,712)
--------------- --------------
LOSS BEFORE TAX PROVISION ($25,942) ($834,239)
--------------- --------------
PROVISION FOR TAXES:
Deferred tax expense (benefit) 0 (345,663)
--------------- ----------------
NET LOSS ($25,942) ($488,576)
=============== ===============
BASIC AND DILUTED NET LOSS PER SHARE ($0.00) ($0.04)
=============== ===============
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended
June 30,
1998 1997
REVENUE:
<S> <C> <C>
Asphalt revenue $186,929 $0
Oil and gas production 0 77,496
------------- ------------
Total Revenue 186,929 77,496
-------------- --------------
EXPENSES:
Production costs and related taxes 0 54,653
Cost of goods sold 123,140 0
Operating expenses 816 0
General and administrative expenses 250,361 163,998
Depletion, depreciation and amortization 9,651 23,817
------------- ------------
Total Expenses 383,968 242,468
-------------- -------------
OPERATING LOSS (197,039) (164,972)
-------------- -------------
OTHER INCOME (EXPENSES):
Interest and other income 78,078 1,486
Interest and other expense (6,873) (754,045)
----------------- -------------
Total Other Income (Expenses) 71,205 (752,559)
----------------- ------------
LOSS BEFORE TAX PROVISION ($125,834) ($917,531)
-------------- ------------
PROVISION FOR TAXES:
Deferred tax expense (benefit) 0 (373,833)
-------------- -------------
NET LOSS ($125,834) ($543,698)
============== ===========
BASIC AND DILUTED NET LOSS PER SHARE ($0.01) ($0.05)
============= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
1998 1997
Cash Flows From (To) Operating Activities:
<S> <C> <C>
Net income (loss) ($125,834) ($543,698)
--------- ---------
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization, depreciation and depletion 9,651 23,817
Non-cash (income) expense (22,892) 0
Net effect of sale of subsidiary 0 903,430
Change in assets and liabilities:
Accounts receivable (182,146) 30,379
Inventory (294,764) 0
Other assets (479,143) (98,800)
Accounts payable 32,770 (51,345)
Other current liabilities (6,308) (83,769)
Deferred tax liability 0 (373,833)
--------- ---------
Total adjustments (942,832) (349,879)
--------- ---------
Net Cash Used by Operating Activities (1,068,666) (193,819)
--------- ---------
Cash Flows From (To) Investing Activities:
Additions to oil sand properties 0 (39,632)
Equity investment in limited liability company (985,083) 0
Purchase of property & equipment (185,639) 0
--------- ---------
Net Cash Used by
Investing Activities (1,170,722) (39,632)
--------- ---------
Cash Flows From (To) Financing Activities:
Net changes in long-term debt 0 (32,547)
Net proceeds from issuance of convertible debenture 0 150,000
--------- ---------
Net Cash Used by Financing Activities $0 ($117,453)
--------- ---------
</TABLE>
7
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<TABLE>
<CAPTION>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
For the Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Net Decrease in Cash: ($2,239,389) ($115,998)
=========== =========
Cash at Beginning of Period $3,100,765 $142,772
=========== =========
Cash at End of Period $861,376 $26,774
=========== =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $6,873 $4,844
=========== =========
Income taxes --- ---
=========== =========
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the period ended June 30, 1998:
The Company issued 946,296 shares of common stock for notes
receivable.
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.
</TABLE>
8
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated 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, 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
consolidated financial statements. The results of operations
for the period ended June 30, 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 BVRC 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
inter-company transactions have been eliminated in
consolidation.
9
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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 June 30,
1998, the promissory note had a balance of $75,000 of which
the Company has established a reserve of $75,000. This matter
is currently in dispute. "See Legal Proceedings."
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 Asphalt 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 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.
10
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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.
NOTE 7 - ACCOUNTING STANDARDS
Reporting Comprehensive Income - In June 1997, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. SFAS No.130
requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement
and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of
financial position.
11
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Effective January 1, 1998, the Company adopted the provisions
of SFAS No. 130. Accordingly, the Company determined that no
transactions were considered to be an additional component of
comprehensive income. Therefore, comprehensive income (loss)
equaled net income (loss) for the three and six-month periods
ended June 30, 1998 and 1997.
NOTE 8 - YEAR 2000
In 1998, the Company began the conversion of its principal
computer software systems to a new integrated system to
support future growth and improve productivity. Management
believes that an additional benefit of the conversion will be
compliant with Year 2000 requirements without material
additional expenditures or a material adverse effect on the
Company's financial position, results of operations or
liquidity. The Company also has third-party customers,
financial institutions, vendors and others with which it
conducts business. While the Company believes that these
third-party vendors and customers will successfully address
Year 2000 issues in a timely manner, it is possible that a
series of failures by third parties could have a material
adverse effect on the Company's results of operations in
future years.
12
<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, 1998, compared to the three months
ended June 30, 1997.
Asphalt revenue increased from $0 for the three months ended June 30,
1997 to $186,929 for the three months ended June 30, 1998. This increase was due
to revenue from the Company's recently activated asphalt distribution company,
Crown Asphalt Products Company.
Oil and gas revenue decreased from $26,993 for the three months ended
June 30, 1997 to $0 for the three months ended June 30, 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 $26,496 for the three
months ended June 30, 1997 to $0 for the three months ended June 30, 1998. This
decrease was due to the sale of the Company's wholly-owned subsidiary, Gavilan
Petroleum, Inc., which was effective June 1, 1997.
Cost of goods sold and operating expenses represent costs related to
the Company's recently activated asphalt distribution company, Crown Asphalt
Products Company.
General and administrative expenses increased from $81,119 for the
three months ended June 30, 1997 to $111,465 for the three months ended June 30,
1998, an increase of $30,346 (37%). This change was due to increased costs
related to the Company's investment in the joint venture with MCNIC and
additional costs related to the Company's recently activated asphalt
distribution company, Crown Asphalt Products Company.
Depletion, depreciation and amortization decreased from $8,905 for the
three months ended June 30, 1997 to $7,951 for the three months ended June 30,
1998. This decrease was due to the sale of the Company's wholly-owned
subsidiary, Gavilan Petroleum, Inc., which was effective June 1, 1997 and was
partially offset by depreciation on new assets acquired related to the Company's
growth.
Other Income (Expense) fluctuated from total expenses of $744,712 for
the three months ended June 30, 1997 to Other Income of $30,501 for the three
months ended June 30, 1998. This fluctuation was primarily due to interest
income on the Company's cash reserves and a loss on the sale of the Company's
wholly-owned subsidiary, Gavilan Petroleum, Inc., which was effective June 1,
1997.
For the six month period ended June 30, 1998, compared to the six months ended
June 30, 1997.
Asphalt revenue increased from $0 for the six months ended June 30,
1997 to $186,929 for the six months ended June 30, 1998. This increase was due
to revenue from the Company's recently activated asphalt distribution company,
Crown Asphalt Products Company.
Oil and gas revenue decreased from $77,496 for the six months ended
June 30, 1997 to $0 for the six months ended June 30, 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 $54,653 for the six months
ended June 30, 1997 to $0 for the six months ended June 30, 1998. This decrease
was due to the sale of the Company's wholly-owned subsidiary, Gavilan Petroleum,
Inc., which was effective June 1, 1997.
Cost of goods sold and operating expenses represent costs related to
the Company's recently activated asphalt distribution company, Crown Asphalt
Products Company.
13
<PAGE>
General and administrative expenses increased from $163,998 for the six
months ended June 30, 1997 to $250,361 for the six months ended June 30, 1998,
an increase of $86,363 (53%). This change was due to increased costs related to
the Company's investment in the joint venture with MCNIC and additional costs
related to the Company's recently activated asphalt distribution company, Crown
Asphalt Products Company.
Depletion, depreciation and amortization decreased from $23,817 for the
six months ended June 30, 1997 to $9,651 for the six months ended June 30, 1998.
This decrease was due to the sale of the Company's wholly-owned subsidiary,
Gavilan Petroleum, Inc., which was effective June 1, 1997 and was partially
offset by depreciation on new assets acquired related to the Company's growth.
Other Income (Expense) fluctuated from total expenses of $752,559 for
the six months ended June 30, 1997 to Other Income of $71,205 for the six months
ended June 30, 1998. This fluctuation was primarily due to interest income on
the Company's cash reserves and a loss on the sale of the Company's wholly-owned
subsidiary, Gavilan Petroleum, Inc., which was effective June 1, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and other current assets of
$2,125,548 as compared to cash and other current assets of $3,288,989 at
December 31, 1997. This decrease of $1,163,441 was due to equity contributions
to the Crown Asphalt Ridge, L.L.C. ("Crown Ridge") and a loss from operations.
As of June 30, 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.
On July 2, 1998, Crown Asphalt Distribution, L.L.C. ("Crown
Distribution"), a newly formed limited liability company, the sole members of
which are MCNIC Pipeline & Processing Company, a Michigan corporation ("MCNIC")
and Crown Asphalt Products Company ("CAPCO"), a wholly owned subsidiary of Crown
Energy Corporation, completed the acquisition of the inventory and assets of
Petro Source Asphalt Company, a Texas corporation, including asphalt supply and
marketing contracts, owned and leased equipment, personal property, fixtures,
equipment leases, real estate leases, technology licenses, other related
agreements, certain intellectual property, products inventory, and ownership,
leasehold or other contractual interests in and to asphalt distribution
facilities in Utah, Colorado, Nevada and Arizona and a refinery in Santa Maria,
California (the "Acquired Assets").
Crown Distribution is equally owned by CAPCO and MCNIC, a wholly owned
subsidiary of MCN Energy Group, Inc. It is contemplated that the business of
Crown Distribution will be operated by CAPCO. No officer, director or affiliate
of the Registrant has a material relationship with the Seller. The Acquired
Assets (excluding products inventory) were purchased for $7.5 million, the
amount determined by the parties to be the fair market value of such assets,
with capital contributed to Crown Distribution by MCNIC. The products inventory
had an agreed upon fair market value of $6,797,932 and was purchased with the
proceeds of a loan to Crown Distribution from MCNIC. Because of the uncertainty
concerning the manner or extent in which the above-described transaction will
impact the Company and its operations, management believes that further
discussion of the matter in this section at this time would be inappropriate.
14
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings
On May 21, 1998, Road Runner Oil, Inc. ("Road Runner") and
Gavilan Petroleum, Inc. ("Gavilan") filed an action in the Third Judicial
District Court, Salt Lake County, State of Utah, as Civil Number 98-0905064
against the Company and its President. The action relates to the purchase by
Road Runner of 100% of the stock of Gavilan in 1997, and generally seeks to (i)
obtain corporate records of Gavilan in the Company's possession relating to the
amount of oil and gas royalties potentially owed to third parties prior to the
aforementioned stock sale, and (ii) to determine the amount of royalties owed.
The action further alleges, on behalf of Gavilan, claims of breach of fiduciary
duty, professional negligence and mismanagement against the Company's President
for alleged mismanagement of Gavilan's affairs. The Plaintiffs seek injunctive
relief requiring the tendering by the Company of the referenced records and such
damages as may be proven at trial. The Company believes that the Plaintiffs
claims are groundless and that it is entitled to payment of the $75,000 still
owed by Road Runner as part of the purchase price for Gavilan. In addition,
since the action was filed, the Company has tendered substantial quantities of
corporate records to the Plaintiffs for their review. On June 17, 1998, an order
was entered granting an open extension to the Company of its obligation to file
an answer to the above-described Complaint so that the parties may informally
pursue a settlement, if any, of the matter.
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
The Company filed a Form 8-K on June 8, 1998, to report a
change in auditors. The Company also filed a Form 8-K on July
17, 1998, to report the acquisition of the inventory and
assets of Petro Source Asphalt Company.
16
<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, 1998 By: /s/ JAY MEALEY
------------------------------------ -------------------------
Jay Mealey, President
Date: August 14, 1998 By: /s/ RICHARD S. RAWDIN
------------------------------------ -------------------------
Richard S. Rawdin,
Vice President of Finance
16
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