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, 2000
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
of incorporation or organization) Identification No.)
215 South State, Suite 650, 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 13,285,581 shares of $.02 par value common stock outstanding as of
May 12, 2000.
<PAGE>
CROWN ENERGY CORPORATION
INDEX
PAGE(S)
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31,
2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Statement of Operations for
the Three Months ended March 31, 2000 and 1999
(unaudited) 5
Condensed Consolidated Statement of Cash Flows for the
Three Months ended March 31, 2000 and 1999 (unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk 19
PART II. Other Information
ITEM 1. Legal Proceedings 19
ITEM 2. Changes in Securities 19
ITEM 3. Defaults upon Senior Securities 20
ITEM 4. Submission of Matters to a Vote of Security Holders 20
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 20
PART III. Signatures 21
2
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<TABLE>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
March 31,
2000 December 31,
[unaudited] 1999
------------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $3,010,849 $4,978,977
Accounts receivable, net of allowance for uncollectible
accounts of $12,349 and $298,000 at March 31, 2000
and December 31, 1999, respectively 3,077,001 5,186,325
Inventory 5,145,585 2,133,866
Prepaid and other current assets 78,471 35,582
------------- -----------
Total Current Assets 11,311,906 12,334,750
PROPERTY PLANT, AND EQUIPMENT, Net 9,248,894 9,237,735
MINORITY INTEREST IN CONSOLIDATED
JOINT VENTURES 446,349 0
INVESTMENT IN AND ADVANCES
TO AN EQUITY AFFILIATE 6,931,835 7,174,920
GOODWILL, Net 4,072,072 4,127,680
OTHER INTANGIBLE ASSETS, Net 162,500 175,000
OTHER ASSETS 212,855 63,768
------------- -----------
TOTAL $32,386,411 $33,113,853
============= ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
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<TABLE>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
March 31,
2000 December 31,
[unaudited] 1999
------------- --------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $1,128,043 $1,132,251
Preferred stock dividends payable 500,000 400,000
Accrued expenses 2,972,490 2,248,055
Long-term debt - estimated current portion 169,593 166,204
Line-of-credit to related party 14,935,222 14,935,222
Other Current Liabilities 26,630 33,937
------------- --------------
Total current liabilities 19,731,978 18,915,669
------------- --------------
MINORITY INTEREST IN CONSOLIDATED
JOINT VENTURES 0 301,699
CAPITALIZATION:
Long-term debt 11,291,946 11,332,681
Redeemable preferred stock 4,853,774 4,839,623
Common stockholders' equity (3,491,287) (2,275,819)
------------- --------------
Total capitalization 12,654,433 13,896,485
------------- --------------
TOTAL $32,386,411 $33,113,853
============= ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
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<TABLE>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
For the Three Months Ended
March 31,
------------------------------------
2000 1999
---------------- --------------
<S> <C> <C>
SALES, Net of demerits $1,316,409 $4,819,084
COST OF SALES 1,964,838 4,729,659
---------------- --------------
GROSS PROFIT (648,429) 89,425
GENERAL AND ADMINISTRATIVE EXPENSES 635,915 585,951
---------------- --------------
INCOME (LOSS) FROM OPERATIONS (1,284,345) (496,526)
---------------- --------------
OTHER INCOME (EXPENSES):
Interest income and other income 303,366 112,251
Interest and other expense (621,888) (382,118)
Equity in losses of unconsolidated equity affiliate (266,925) (229,398)
---------------- --------------
Total other expense, net (585,446) (499,265)
LOSS BEFORE INCOME TAXES
AND MINORITY INTERESTS (1,869,791) (995,791)
---------------- --------------
DEFERRED INCOME TAX BENEFIT 0 0
MINORITY INTEREST IN EARNINGS OF
CONSOLIDATED JOINT VENTURE 768,473 319,696
---------------- --------------
NET LOSS ($1,101,318) ($676,095)
---------------- --------------
NET LOSS PER COMMON SHARE-
Basic ($0.09) ($0.06)
================ ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------
2000 1999
------------- ---------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income (loss) ($1,101,318) ($676,095)
------------- ---------------
Adjustments to reconcile net loss to net cash used by operating
activities:
Amortization, depreciation and depletion 218,426 144,371
Equity in losses of unconsolidated affiliate 266,925 244,559
Minority interest (768,473) (319,697)
Change in assets and liabilities:
Accounts receivable 2,109,324 (520,805)
Inventory (3,011,718) (4,206,752)
Other assets (191,975) 486,214
Accounts payable (4,208) 1,840,910
Accrued expenses 715,917 82,084
------------- ---------------
Total adjustments (665,782) (2,249,116)
------------- ---------------
Net Cash Used in Operating Activities (1,767,100) (2,925,211)
------------- ---------------
Cash Flows From Investing Activities:
Investment in and advances to Crown Asphalt Ridge, LLC (39,000) (936,626)
Acquisition of Cowboy Asphalt Terminal 0 (1,973,511)
Purchase of property and equipment (146,318) (257,392)
------------- ---------------
Net Cash Used by Investing Activities (185,318) (3,167,529)
------------- ---------------
Cash Flows From Financing Activities:
Net change in line of credit from related party 0 2,000,000
Sale of equity interest in subsidiary to a minority shareholder 0 172,550
Capital contributions from partners 20,425 0
Net changes in long-term debt (36,135) 1,259,964
------------- ---------------
Net Cash Used in Financing Activities (15,710) $3,432,514
------------- ---------------
The accompanying notes are an integral part of these consolidated financial statements.
6
<PAGE>
<CAPTION>
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
For the Three Months Ended
March 31,
-------------------------------
2000 1999
------------- ---------------
Net Increase (Decrease) in Cash: ($1,968,128) (2,660,226)
============= ===============
Cash at Beginning of Period $4,978,977 $3,735,632
============= ===============
Cash at End of Period $3,010,849 $1,075,406
============= ===============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $138,841 $19,148
============= ===============
Income taxes --- ---
============= ===============
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the period ended March 31, 2000:
None
For the period ended March 31, 1999:
On January 27, 1999, the Company issued 317,069 shares of common stock
to its preferred stockholders as payment in full for preferred stock
dividends payable totaling $467,433.
For the period ended March 31, 1998:
None
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
7
<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 March 31, 2000 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, 1999 Annual Report on Form 10-K. The results of operations
for the period ended March 31, 2000 are not necessarily indicative of
the operating results for the full year.
Basis of Presentation - On March 27, 2000, MCNIC delivered to the
Company a notice of default with respect to the working capital loan,
and demanded payment of the outstanding principal balance plus all
interest accrued thereon. Management of the Company believes that the
working capital loan was fully satisfied and replaced by the working
capital line of credit and no default has occurred under the working
capital loan or working capital line of credit. The Company further
believes that MCNIC is improperly attempting to demand repayment of the
working capital loan.
MCNIC, immediately following its notice of default, proposed an
extension on the working capital loan, provided the Company also
relinquishes operational control of Crown Distribution to MCNIC.
Although there can be no assurance that the Company will be able to
resolve these issues with MCNIC on mutually acceptable terms, or that
the Company will ultimately prevail in the event of litigation with
MCNIC, Company management intends to take all actions necessary or
appropriate to assert the Company's rights and preserve its interest in
Crown Distribution and all other aspects of its operations. Management
of the Company believes that MCNIC is improperly attempting to gain
control of Crown Distribution and other aspects of the Company's
operations.
There can be no assurance that the Company will be able to resolve
these issues with MCNIC on mutually acceptable terms, that the Company
will ultimately prevail in the event of litigation with MCNIC or that
such litigation, if any, will not be unduly costly. Further, Company
management intends to take all actions necessary or appropriate to
assert the Company's rights and preserve its rights and assets in Crown
Distribution and other aspects of its operations. In the event MCNIC is
legally able to demand immediate repayment of the working capital loan,
the Company could, and likely would, suffer a material adverse impact
upon its financial liquidity and working capital. For instance, the
Company may have to seek replacement financing on terms and conditions
which are less favorable than it might obtain under other
circumstances. Otherwise, it is conceivable that MCNIC might obtain
possession and legal control over critical Company assets, such as
operating assets of Crown Distribution, the Company's interests in
Crown Distribution, etc. Given the wide range of potential actions
which MCNIC might take, and the equally wide range of defenses,
counterclaims and other actions which the Company might assert and/or
take, it is difficult to predict possible outcomes at this time.
However, interested persons should note the significant and material
risks facing the Company, as well as the related material, negative
impacts the Company would experience in the event the Company does not
prevail in its view of the recent actions taken by MCNIC.
Organization - Crown Energy Corporation (CEC) and its wholly-owned
subsidiaries, Crown Asphalt Corporation (CAC) and Crown Asphalt
Products Company (Capco) (collectively referred to as the "Company"),
are engaged in the mining, production, and selling of asphalt products.
Prior to 1998, the Company was engaged in the production and selling of
oil and gas from leases it operated in the State of Utah through its
previously owned subsidiary, Gavilan Petroleum, Inc. (Gavilan).
Majority Owned Subsidiaries - Capco is the majority-owner of Crown
Asphalt Distribution, LLC (Crown Distribution) and Cowboy Asphalt
Terminal, LLC (CAT LLC). Crown Distribution is a joint venture formed
on July 2, 1998 between Capco and MCNIC Pipeline and Processing Company
(MCNIC) for the purpose of acquiring certain assets of Petro Source
Asphalt Company (Petro Source). Capco owns 50.01% and MCNIC owns 49.99%
of Crown Distribution. Capco is the general manager and operating agent
of Crown Distribution. CAT LLC is a joint venture formed on June 16,
1998 between Capco and Foreland Asphalt Corporation (Foreland). CAT LLC
is an asphalt terminal and storage facility. Crown Distribution owns
66.67% and Foreland owns 33.33% of CAT LLC.
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.
Investment in and Advances to Equity Affiliate - The Company's
investment in Crown Asphalt Ridge LLC (Crown Ridge) is accounted for
using the equity method. Accordingly, the Company's investment is
recorded at cost and adjusted by the Company's share of undistributed
earnings and losses. The excess of the Company's investment in Crown
Ridge over its equity in the related underlying net assets
(approximately $2,168,000) is being amortized over 40 years.
Revenue Recognition - Revenues are recognized when the related product
is shipped.
Income Taxes - The Company utilizes an asset and liability approach for
financial accounting and reporting for income taxes. Deferred income
taxes are provided for temporary differences in the bases of assets and
liabilities as reported for financial statement and income tax
purposes. As of March 31, 2000, all net deferred tax assets were offset
by a valuation allowance.
8
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Loss Per Share - Effective for the year ended December 31, 1997, the
Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, Earnings Per Share. Accordingly, net loss per common share
computed under the basic method uses the weighted average number of the
Company's common shares outstanding. The effect of common shares from
stock options, warrants, and convertible securities is not considered
in the loss per share computations as such common stock equivalents are
anti-dilutive.
Cash and Cash Equivalents - 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.
Use of Estimates in Preparing Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
Inventory - Inventories consist principally of asphalt hydrocarbons and
chemical supplies which are valued at the lower of cost (computed on a
first-in, first-out basis) or market.
Long-Lived Assets - The Company evaluates the carrying value of
long-term assets including intangibles based on current and anticipated
undiscounted cash flows and recognizes impairment when such cash flows
will be less than the carrying values. Measurement of the amount of
impairments, if any, is based upon the difference between carrying
value and fair value. There were no impairments as of March 31, 2000
and December 31, 1999.
Goodwill - The Company has recorded the amount paid for Petro Source in
excess of the fair value of the net tangible assets acquired at the
date of acquisition as goodwill. Such goodwill is amortized using the
straight-line method over 20 years.
Asphalt Demerits - Crown's subsidiary, Capco, blends asphalt for sale
to contractors and state agencies. The asphalt sold must meet certain
specifications for a particular application. If the asphalt sold does
not meet these specifications for whatever reason, the asphalt supplier
may be held liable for possible damages (asphalt demerits) therefrom.
Management believes that the Company's product liability insurance
would cover any significant damages.
Environmental Expenditures - Environmental related restoration and
remediation costs are recorded as liabilities when site restoration and
environmental remediation and clean-up obligations are either known or
considered probable, and the related costs can be reasonably estimated.
Other environmental expenditures, that are principally maintenance or
preventative in nature, are recorded when expended and expensed or
capitalized as appropriate.
Comprehensive Income - In 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income". SFAS 130 requires that an enterprise
(a) classify items of other comprehensive income by
9
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from additional
paid-in capital, retained earnings, and stockholders' equity. The
Company does not currently have any components of comprehensive income
other than net loss.
Segment Reporting - In 1998, the Company adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information,
which redefined how business enterprises report information about
operating segments in annual financial statements. The statement also
establishes standards for related disclosures about products and
services, geographical areas, and major customers. The Company operates
primarily in the production, manufacturing, and distribution of
asphalt. The Company's operations and sales are dispersed throughout
Utah, Arizona, Nevada, Wyoming, Idaho and Colorado and could be
adversely affected by economic downturns in these states and by federal
or state funding policies related to road construction or improvements.
Derivative Instruments and Hedging - In June 1998, the FASB issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities,
which supersedes SFAS No. 80, Accounting for Futures Contracts, SFAS
No. 105, Disclosure of Information About Financial instruments with
Off-Balance-Sheet Risk and Financial instruments with Concentration of
Credit Risk, and SFAS No. 119, Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments, and also amends
certain aspects of other SFAS's previously issued. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS No. 133
is effective for the Company's financial statements for the year ending
December 31, 2001. The Company does not expect the impact of SFAS No.
133 to be material in relation to its financial statements.
Stock-Based Compensation - The Company has elected to continue to apply
Accounting Principles Board (APB) Opinion 25 (as permitted by SFAS No.
123, Accounting for Stock-Based Compensation). The appropriate
disclosures required by SFAS No. 123 are included in Note 8.
NOTE 2 - ACQUISITION OF ASSETS
Acquisition of Cowboy Asphalt Terminal Property - On January 9, 1999,
CAT LLC acquired the Cowboy Terminal Property for $1,973,511. CAT LLC
paid deposits totaling $496,441 during 1998. In addition, CAT LLC paid
$195,000 in cash at closing and executed and delivered a promissory
note in the amount of $1,282,070. This promissory note is payable in 84
equal monthly installments of $20,627 beginning on February 1, 1999 and
ending on January 1, 2006. The note bears interest at the rate of 9%
and is secured by a deed of trust encumbering the Cowboy Terminal
Property. The acquisition was accounted for as a purchase.
Acquisition of Rawlins Asphalt Terminal - On May 12, 1999, the Company
acquired the Rawlins Asphalt Terminal and inventory for $2,291,571 from
S&L Industrial (S&L). The purchase price consists of the Company
assuming S&L's debt of approximately $1,800,000, entering into a note
payable to S&L for $225,000, and a cash payment of $266,571.The Company
has been notified by MCNIC that it will participate in this acquisition
and will fund one-half of all costs.
10
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 3 - PROCESSING AGREEMENT EXPIRATION
The Company, through its subsidiary, Crown Distribution had an
agreement with Santa Maria Refining Company (SMRC) and SABA Petroleum
whereby Crown Distribution purchased crude oil for processing at the
Santa Maria Refinery, and marketed the slate of products produced,
primarily asphalt. This agreement was acquired through the acquistion
of Petro Source Asphalt Company in 1998. Revenues resulting from the
agreement were approximately $4.8 million in 1999. This amount
represents substantially all of the Company's revenue for the period
due the seasonal nature of the Company's other asphalt distribution
operations. The Company expects to offset this loss of revenue with
revenue from its recent acquisitions and its future acquisitions. SMRC
extended the agreement, which expired on December 31, 1998, to April
30, 1999. As anticipated, the agreement was not extended subsequent to
April 30, 1999.
NOTE 4 - WORKING CAPITAL LINE OF CREDIT
MCNIC elected to extend a working capital revolving line of credit to
Crown Distribution in lieu of the Company completing a line with an
outside financial institution. As of March 31, 2000, this line had a
balance of approximately $14,935,222 and accrues interest at 8%.
Through the period ended March 31, 2000, $1,456,507 in interest had
been accrued. This line is repaid solely out of the cash flow from
Crown Distribution. The Company has received a notice of default of a
working capital loan from MCNIC made in conjucntion with the Petro
Source asset acquisition. (see "Part II, Item 3. Defaults upon Senior
Securities").
NOTE 5 - LONG TERM DEBT
Long-term debt consists of the following at March 31, 2000:
Debt with Hancock-Geisler R.I.C., interest at 9%, with
monthly principal and interest payments of $20,627 for
82 months $ 1,120,159
Debt with Community First National Bank, interest at
prime plus 1 %, with monthly payments of $13,600 through
May 12, 2001 with additional principal payments due in
2000 and 2001 of $60,000 and $66,000 respectively, based
on cash flow from Capco only. Balance as of May 12, 2001
to be amortized over 13 years. $ 1,798,778
Debt with S&L Industrial, interest at LIBOR with annual
payments equal to the greater of 25% of the Rawlins
Terminal cash flow after debt service or principal and
interest payments annualized over 10 years. Such amount
will be reduced because certain representations of S&L
were not satisfied. $ 225,000
Preferential Capital Contribution in Crown Distribution
with MCNIC, interest at 15%, with annual principle and
Interest installments equal to 50% of the net cash flows
(as defined) of Crown Distribution. This debt is secured
by all of the assets of Crown Distribution and is
repayable solely from Crown Distribution's cash flow and
in non-recourse to the Company. $ 5,325,723
11
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 5 - LONG TERM DEBT- (continued)
Debt with MCNIC, interest at prime plus 1%, with monthly
payments of $20,757 through July 20, 2001 with
additional payments due in 2000 and 2001 based upon the
Company's cash flow. Balance as of July 20, 2001 to be
amortized over 13 years. $ 2,991,869
Less estimated current portion $ (169,593)
-----------
Long-term portion $11,291,946
===========
NOTE 6 - CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentration of
credit risk consist principally of trade receivables. The Company's
policy is to evaluate, prior to shipment, each customer's financial
condition and determine the amount of open line credit to be extended.
It is also the Company's policy to obtain adequate letters of credit or
other acceptable security as collateral for amounts in excess of the
open line.
NOTE 7 - CAPITAL TRANSACTIONS
Preferred Stock - The Company is authorized to issue 1,000,000
preferred shares, par value $.005 per share. On November 4, 1997, the
Company completed the sale of 500,000 shares of its Series A Cumulative
Convertible Preferred Stock ("Series A Preferred") pursuant to a stock
purchase agreement dated September 25, 1997 for an aggregate sales
price of $5,000,000. Each share of Series A Preferred is convertible at
the option of its holder, at any time, into 8.57 shares of common stock
of the Company. At the date of the issuance of the preferred stock, the
embedded conversion price was $1.17 and the estimated fair value of the
common stock was $1.03. Dividends accrue on the outstanding Series A
Preferred at the rate of 8% per annum and may be paid through cash or
common shares of the Company at the option of the holder. Subject to
the holder's right to convert the Series A Preferred, the Company may
redeem the Series A Preferred at any time from the date on which it is
issued at a percentage of the Series A Preferred's stated value of $10
per share; 130% of stated value if redemption occurs within thirty-six
months of the date of issuance, 115% of stated value if redemption
occurs between thirty-six and forty-eight months after the date of
issuance, 110% of stated value if redemption occurs between forty-eight
and sixty months after the date of issuance, and 100% if redemption
occurs thereafter. The holder of the Series A Preferred may also
require the Company to redeem the Series A Preferred after the eighth
anniversary of the Series A Preferred's issuance. The holders of the
Series A Preferred shall have the right, but shall not be obligated, to
appoint 20% of the Company's Board of Directors. The Company may not
alter the rights and preferences of the Series A Preferred, authorize
any security having liquidation preference, redemption, voting or
dividend rights senior to the Series A Preferred, increase the number
of Series A Preferred, reclassify its securities or enter into
specified extraordinary events without obtaining written consent or an
affirmative vote of
12
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CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 7 - CAPITAL TRANSACTIONS - (continued)
at least 75% of the holders of the outstanding shares of the Series A
Preferred stock. All voting rights of the Series A Preferred expire
upon the issuance by the Company of its notice to redeem such shares.
The shares of common stock issuable upon conversion of the Series A
Preferred are subject to adjustment upon the issuance of additional
shares of the Company's common stock resulting from stock splits, share
dividends, and other similar events as well as upon the issuance of
additional shares or options which are issued in connection with the
Company's equity investment or as compensation to any employee,
director, consultant, or other service provider of the Company or any
subsidiary, other than options to acquire up to 5% of the Company's
common stock at or less than fair market value.
Common Stock Warrant - In conjunction with the issuance of the
preferred stock described above, the Company issued a warrant to the
holders of the preferred stock. The fair value of the warrant at the
date of issuance was estimated to be $283,019 and was recorded to
additional paid-in capital and as a reduction to the stated value of
the preferred stock. The reduction in preferred stock is being accreted
over the five-year period from the date of issuance to the earliest
exercise date of the warrant. Upon the fifth anniversary of the
issuance of the preferred stock, the warrant becomes exercisable, at
$.002 per share, into the number of common shares of the Company equal
to (a) [$5,000,000 plus the product of (i) ($5,000,000 multiplied by
(ii) 39% (internal rate of return) multiplied by (iii) 5 years]
(14,750,000), minus (b) the sum of (i) all dividends and other
distributions paid by the Company on the preferred stock or on the
common stock received upon conversion of the preferred stock plus (ii)
the greater of the proceeds from the sale of any common stock received
by the holder upon the conversion of the preferred stock prior to the
fifth anniversary date or the Terminal Value (as defined) of such
common stock sold before the fifth anniversary plus (iii) the terminal
value of the preferred stock and common stock received upon conversion
of the preferred stock then held, divided by (c) the fair market value
of the Company's common stock on a weighted average basis for the 90
days immediately preceding the fifth anniversary date of the issuance
of the preferred stock. Terminal Value is defined as the sum of (i) the
shares of common stock into which the preferred stock then held is
convertible, plus (ii) shares of common stock received upon conversion
of preferred stock, multiplied by the fair market value of the
Company's common stock on a weighted average basis for the 90 days
immediately preceding the fifth anniversary date of the issuance of the
preferred stock. The warrants will expire in 2007.
13
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 8 - COMMON STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
At March 31, 2000 and December 31, 1999, common stockholders' equity
and redeemable preferred stock consists of the following:
2000 1999
Redeemable preferred stock - $.005 par value;
1,000,000 shares authorized; $10.00 stated
value; 500,000 Series A cumulative
convertible shares issued and outstanding;
original estimated fair value of
$4,716,981, accretion of $14,151 and
$56,604 for the periods ended March 31,
2000 and December 31, 1999, respectively,
toward the stated value of $5,000,000 $ 4,853,774 $ 4,839,623
=========== ===========
Common stockholders' equity: Common stock,
$.02 par value; 50,000,000 shares
authorized; 13,285,581 and 12,968,512
shares issued and outstanding at March 31,
2000 and December 31, 1999, respectively $ 265,711 $ 265,711
Additional paid-in capital 5,777,677 5,791,828
Stock warrants outstanding; 683,750 at March
31, 2000 and December 31, 1999,
respectively 243,574 243,574
Common stock subscription receivable from
officers (549,166) (549,166)
Retained deficit (9,229,083) (8,027,766)
----------- -----------
Total $(3,491,287) $(2,275,819)
=========== ===========
NOTE 9 - LOSS PER SHARE
The following table is a reconciliation of the net loss numerator of
basic and diluted net loss per common share for the years ended March
31, 2000 and March 31, 1999:
2000 1999
---- ----
Loss Loss
Loss Per Share Loss Per Share
Net Loss ($1,101,318) ($676,095)
Redeemable preferred stock dividends (100,000) (100,000)
---------- --------
Net loss attributable to
common stockholders ($1,201,318) ($0.09) ($776,095) ($0.06)
========== ===== ======== =====
Weighted average common shares
outstanding - basic and diluted 13,285,581 13,193,983
========== ==========
14
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 9 - LOSS PER SHARE - (continued)
The Company had at March 31, 2000 and December 31, 1999, incremental
options and warrants to purchase, computed under the treasury stock
method, 668,256 shares of common stock that were not included in the
computation of diluted earnings per share because their effect was
anti-dilutive. The Company also has preferred stock outstanding at
March 31, 2000 and December 31, 1999 which is convertible into
approximately 4,300,000 shares of common stock that was not included in
the computation of diluted earnings per share as its effect was
anti-dilutive. Accordingly, diluted earnings per share does not differ
from basic earnings.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial
condition, results of operations and related matters includes a number
of forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Forward-looking statements include, by way of illustration and
not limitation, statements containing the words "anticipates",
"believes", "expects", "intends", "future" and words of similar import
which express, either directly or by implication, management's beliefs,
expectations or intentions regarding the Company's future performance
or future events or trends which may affect the Company or its results
of operations.
Forward-looking statements are subject to known and unknown risks,
uncertainties and other factors, including but not limited to changes
in economic conditions generally or with respect to the Company's
asphalt products market in particular, new or increased governmental
regulation, increased competition, shortages in labor or materials,
delays or other difficulties in shipping or transporting the Company's
products, continued or additional technical or operational difficulties
at the facility of Crown Ridge, difficulties in integrating the
Company's recent joint venture and acquisition related businesses and
other similar risks inherent in the Company's operations or in business
operations generally. Any such risks or uncertainties, either alone or
in combination with other factors, may cause the actual results,
performance or achievements of the Company to differ materially from
its anticipated future results, performance or achievements (which may
be expressed or implied by such forward looking statements).
Consequently, the following management's discussion and analysis,
including all forward-looking statements contained therein, is
qualified and limited by the foregoing cautionary factors. Interested
persons are advised to consider all forward-looking statements within
the context of such cautionary factors.
Liquidity and Capital Resources
At March 31, 2000, the Company had cash and other current assets of
$11,311,906 as compared to cash and other current assets of $12,334,750
at December 31, 1999. The decrease of $1,022,844 was primarily due to
the Company's asphalt inventory winterfill program whereby the Company
purchases asphalt during the winter months, when prices are lower, for
storage and subsequent sale during the asphalt season, typically during
the months from April through October. The Company's majority owned
subsidiary, Crown Asphalt Distribution, L.L.C. ("Crown Distribution")
accounted for almost all of the Company's cash and other current
assets. As of March 31, 2000, Crown Distribution had cash and other
current assets of approximately $10.9 million, consisting of roughly $
2.8 million of cash, $5.1 million in inventory and $3.0 million in
accounts receivable, excluding related party balances. Crown
Distribution's business requires a working capital line of credit.
MCNIC Pipeline & Processing Company ("MCNINC"), the minority interest
owner, elected to provide such line under the same terms as had been
offered to the Company by a third party bank and to replace a prior
loan with this working capital line. The Company has accrued interest
on the line at an interest rate of 8%. At March 31, 2000, the line had
an outstanding principal balance of $14,935,222.
On March 27, 2000, MCNIC delivered to the Company a notice of default
with respect to the working capital loan, and demanded payment of the
outstanding principal balance plus all interest accrued thereon.
Management of the Company believes that the working capital loan was
fully satisfied and replaced by the working capital line of credit and
no default has occurred under the working capital loan or working
capital line of credit. The Company further believes that MCNIC is
improperly attempting to demand repayment of the working capital loan.
MCNIC, immediately following its notice of default, proposed an
extension on the working capital loan, provided the Company also
relinquishes operational control of Crown Distribution to MCNIC.
Although there can be no assurance that the Company will be able to
resolve these issues with MCNIC on mutually acceptable terms, or that
the Company will ultimately prevail in the event of litigation with
MCNIC, Company management intends to take all actions necessary or
appropriate to assert the
16
<PAGE>
Company's rights and preserve its interests in Crown Distribution and
all other aspects of its operations. Management of the Company believes
that MCNIC is improperly attempting to gain control of Crown
Distribution and other aspects of the Company's operations.
There can be no assurance that the Company will be able to resolve
these issues with MCNIC on mutually acceptable terms, that the Company
will ultimately prevail in the event of litigation with MCNIC or that
such litigation, if any, will not be unduly costly. Further, Company
management intends to take all actions necessary or appropriate to
assert the Company's rights and preserve its rights and assets in Crown
Distribution and other aspects of its operations. In the event MCNIC is
legally able to demand immediate repayment of the working capital loan,
the Company could, and likely would, suffer a material adverse impact
upon its financial liquidity and working capital. For instance, the
Company may have to seek replacement financing on terms and conditions
which are less favorable than it might obtain under other
circumstances. Otherwise, it is conceivable that MCNIC might obtain
possession and legal control over critical Company assets, such as
operating assets of Crown Distribution, the Company's interests in
Crown Distribution, etc. Given the wide range of potential actions
which MCNIC might take, and the equally wide range of defenses,
counterclaims and other actions which the Company might assert and/or
take, it is difficult to predict possible outcomes at this time.
However, interested persons should note the significant and material
risks facing the Company, as well as the related material, negative
impacts the Company would experience in the event the Company does not
prevail in its view of the recent actions taken by MCNIC.
On the other hand, interested persons should note that, subject of
course to available equitable and other creditor remedies, neither the
MCNIC working capital loan or working capital line to Crown
Distribution contain cross-default provisions giving MCNIC any right to
declare a default or to seek control or possession over the assets or
operations of Crown Ridge or the Company's interest in Crown Ridge.
The Company also owed MCNIC an additional $5,325,723 at March 31, 2000
with respect to the preferential capital contribution that funded Crown
Distribution's acquisition of the assets of Petro Source Asphalt
Company. The preferential capital contribution requires payment of a
15% rate of return and is payable solely from 50% of the cash flow from
Crown Distribution's operations.
The Company believes its asphalt distribution business, which is
operated through its wholly owned subsidiary, Crown Asphalt Products
Company ("CAPCO"), is a business whose success is not dependent on the
Company's interest in the Crown Ridge facility. However, the asphalt
distribution business is capital intensive and requires substantial
investments to acquire terminal storage, blending, and raw material
assets. For instance, the Rawlins, Wyoming asphalt terminal, acquired
by CAPCO in 1999, has not yet generated positive cash flow and requires
working capital to fund its ongoing operations. Under the Company's
contractual relationship with MCNIC, MCNIC has certain rights to
participate in additional business opportunities, if any, which may be
pursued by the Company. MCNIC has agreed to jointly own the Rawlins
asphalt terminal in a new, separate joint venture, Crown Distribution
II. Assuming that both the Company and MCNIC satisfy their respective
obligations to contribute assets to and otherwise fund Crown
Distribution II, it is anticipated that Crown Distribution II will be
owned 50.01% by the Company and 49.99% by MCNIC. The final operating
agreement for Crown Distribution II was not completed as of the date of
this Report, and no assets have been contributed to Crown Distribution
II. The Company expects that MCNIC will fund its proportionate share of
all costs and losses retroactive to the acquisition date of May 12,
1999. Additionally, the Rawlins asphalt terminal will require a
separate working capital line of credit to operate the business, which
line of credit the Company expects will be jointly funded by MCNIC and
the Company. Therefore, until such time as the Rawlins asphalt terminal
generates positive cash flow, the Company expects that the operations
at the Rawlins asphalt terminal will require working capital provided
by the Company.
The Company remains open to other asphalt related business
opportunities to complement its existing asphalt distribution
capabilities. There can be no assurance that the Company can obtain
additional capital financing required to finance such transactions on
acceptable terms and conditions.
The Company has a portion of its accounts receivable subject to the
risks and uncertainties of litigation (See "Part II, Item 1. Legal
Proceedings") and subject to related collection risks.
17
<PAGE>
In the event that the Company is unable to collect these amounts, or
the Company is unable to secure the necessary working capital line from
third party sources (such as MCNIC) for the Rawlins asphalt terminal,
or if the Company's operating losses and working capital deficits
continue, the Company may not have sufficient capital to operate
through 2000. Thus, the risk exists that the Company may not be able to
continue as a going concern. Furthermore, if Crown Ridge approves an
additional capital contribution for the modification to the facility
and the Company is unable to finance its approximate 25% of such
capital contribution, its sharing ratio in Crown Ridge may be diluted.
As of March 31, 2000, the Company has made cash contributions of
approximately $5.7 million to Crown Ridge. During the start-up of the
Crown Ridge Facility mechanical and process difficulties were
experienced that affected production economics. Crown Ridge is
currently conducting a pilot study to develop a solution to these
problems. Should such delays continue, or should the Facility be unable
to operate economically, the Company believes this would significantly
impact Crown Ridge's ability to continue as a going concern and would
adversely impact the Company's operations and financial condition.
Results of Operations
2000 vs. 1999
Total revenue decreased from $4,819,084 for the period ended March 31,
1999 to $1,316,409 for the period ended March 31, 2000, a decrease of
$3,502,675. Cost of sales also decreased from $4,729,659 for the period
ended March 31,1999 to $1,964,838 for the period ended March 31, 2000,
a decrease of $2,764,821. The decreases in both sales and revenues and
costs of sales were primarily due to the termination of the Company's
processing agreement with the Santa Maria Refinery on April 30, 1999.
However, favorable weather conditions, allowed the Company's asphalt
terminal distribution operations to generate revenue of $1,316,409 for
the period ended March 31, 2000. Generally, the asphalt distribution
operations are seasonal and the Company did not expect significant
revenues during this period. Company management expects that the
asphalt terminal distribution operations will be the Company's primary
means of future growth.
General and administrative expenses increased from $585,981 for the
period ended March 31, 1999 to $635,915 for the period ended March 31,
2000, an increase of $49,934. The Company's overhead increased as it
increased its asphalt distribution business subsequent to the
acquisition of the Rawlins asphalt terminal.
Interest and other income/expenses increased from net other expense of
$499,265 for the period ended March 31, 1999 to net other expenses of
$585,446 for the period ended March 31, 2000, an increase of $86,181.
The 2000 total was comprised of interest costs related to the Company's
working capital line and preferential loan for its asphalt distribution
business of $621,888 and expenses of $266,925 related to equity in the
losses of Crown Ridge. These amounts were partially offset by interest
income and other income of $303,366.
Minority interest of $768,473 represents MCNIC's approximate 49%
interest in the losses of Crown Distribution and Foreland's approximate
33% interest in the loss of CAT, LLC.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company does not believe it is subject to the material risks of loss related
to certain market risks, such as interest rate risks, foreign currency exchange
rate risks or similar risks, and therefore the Company does not engage in
transactions, such as hedging or similar transactions in derivative financial
instruments, intended to reduce its exposure to such risks. However, the Company
is subject to general market fluctuations related to the purchase of its
basestock asphalt and may suffer reduced operating margins to the extent its
increased costs are not passed through to its customers. Such prices generally
fluctuate with the price of crude oil. The Company is prevented in certain
contracts with MCNIC from utilizing any hedging strategies to minimize any
market price changes. The Company believes the inability to protect itself from
market fluctuations may negatively impact its profit margins.
The Company is also subject to certain price escalation and de-escalation
clauses in its asphalt distribution sales contracts. The company supplies
asphalt to projects in certain states where regulations provide for escalation
and de-escalation of the price for such asphalt relative to the price difference
from the time the project is awarded to the successful bidding company and the
time the project is completed. The Company includes such de-escalation risk into
its bid process and does not believe it has material exposure to risk resulting
from these regulations.
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 # 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
allegedly 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 Plaintiff's 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
the corporate records to the Plaintiffs. On March 8, 2000, the Company filed an
answer denying liability and filed a counterclaim against Road Runner and
Gavilan for breach of contract and declaratory judgment. The Company is
uncertain as to whether or not the outstanding balance under the promissory note
is collectible by the Company.
On July 12, 1999, Morrison Knudsen Corporation ("MK") filed a Complaint
in the Eighth Judicial District Court, Uintah County, State of Utah, alleging
that Crown Asphalt Corporation ("CAC")had breached an agreement whereby MK would
provide certain mining services for CAC at Crown Ridge's Facility in Uintah
County, Utah (the "Project"). MK seeks damages in the amount of $303,873.42 plus
interest. MK also seeks foreclosure of a mechanics' and mining lien on the
Project. Crown has denied MK's allegations and will vigorously oppose the claims
of MK. Although Crown believes that it has substantial and material defenses to
the claims of MK, there can be no assurance that the Company will ultimately
prevail or that judgment will not be entered against it.
On July 14, 1999, Crown Distribution and Capco filed an action in the
United States District Court for the Central District of California, Southern
Division, against Santa Maria Refining Company ("SMRC"), SABA Petroleum Company
("SABA") and Greka Energy Corporation ("Greka"). The claims include causes of
action for breach of contract, breach of the covenant of good faith and fair
dealing, conversion, fraud, claim and delivery, unjust enrichment and
constructive trust, unfair competition, declaratory relief and specific
performance. These claims arise out of the Defendant's alleged termination of
the Processing Agreement and subsequent refusal to deliver asphalt to Crown
Distribution. Discovery of facts and testimony related to issues arising in the
lawsuit has commenced. Trial has been scheduled for November of 2000. It is
anticipated that the damages caused by the Defendant's actions could be
substantial. Although Crown Distribution will attempt to recoup those damages
from SMRC, SABA and Greka, due to the uncertainties inherent in any litigation
proceeding, there can be no assurance that Crown Distribution or Capco will
ultimately prevail.
On July 28, 1999 Robert Ryan Zimmerman, d/b/a Asphalt Supply & Service,
Inc., Robert A. Zimmerman, d/b/a Inoco, Inc., and Connie R. Zimmerman, d/b/a
Interstate Asphalt Company, (collectively, the "Zimmerman") filed an application
for preliminary injunction, temporary restraining order, and declaratory
judgment in the First Judicial District Court, Lewis & Clark County, State of
Montana, against the Company, Capco and the Company's President. The action
relates to Capco's agreement to purchase from the Zimmerman two separate asphalt
terminals located, respectively, in Laurel, Montana and Williston, North Dakota,
as well as their asphalt products related inventory and certain contractual
agreements. The action generally seeks a declaration that the Zimmerman remains
the owners and operators of the purchased asphalt terminals, as well as a
preliminary injunction and temporary restraining order.
On December 8, 1999, the Company and Capco filed a complaint in the
Federal District Court in Montana alleging that the Zimmerman breached the asset
purchase agreement by failing to comply with certain terms and conditions,
whereby the Company has been damaged. In February 2000, the Company and Capco
entered a settlement agreement with the Zimmerman to resolve the foregoing
disputes. On April 17, 2000, pursuant to the settlement agreement, the Zimmerman
delivered the sum of $320,000 to the Company in exchange for a release of all
claims and rescission of the Company's acquisition of the asphalt terminals.
On January 25, 2000, Oriental New Investments, Ltd. ("Oriental") filed
a Complaint against the Company in the Third Judicial District Court, Salt Lake
County, Utah. The action relates to a 1997 convertible debenture and replacement
convertible debenture issued by the Company to Oriental. The action seeks to
recover from the Company $50,000 liquidated damages, plus interest, and
attorneys fees and costs, for alleged breaches of the convertible debentures.
The Company answered the Complaint on March 1, 2000, denying any and all
liability, and believes that Oriental's claims are meritless. The Company will
vigorously defend its position that Oriental's claims are meritless. However,
due to the uncertainties inherent in any litigation proceeding, there can be no
assurance that the Company will ultimately prevail.
ITEM 2. Changes in Securities
None.
19
<PAGE>
ITEM 3. Defaults upon Senior Securities
On March 27, 2000, MCNIC delivered to the Company a notice of default
with respect to the working capital loan, and demanded payment of the
outstanding principal balance plus all interest accrued thereon. Management of
the Company believes that the working capital loan was fully satisfied and
replaced by the working capital line of credit and no default has occurred under
the working capital loan or working capital line of credit. At March 31, 2000,
the line had an outstanding principal balance of $14,935,222. The Company
further believes that MCNIC is improperly attempting to demand repayment of the
working capital loan. See "Part I - Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
The Company has decided to postpone its 2000 Annual Meeting of
Shareholders until a future date to be determined. The Annual Meeting was
tentatively scheduled for June 21, 2000. The Company is presently evaluating its
options and strategic alternatives and believes postponing its Annual Meeting
will enable it to further explore and evaluate such matters and to present any
related matters, if required under applicable corporate laws, to shareholders at
the Annual Meeting.
ITEM 6. Exhibits and Reports on Form 8-K
20
<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 15, 2000 By: /s/ JAY MEALEY
-------------------------------
Jay Mealey, Chief Executive Officer
Date: May 15, 2000 By: /s/ ALEXANDER L. SEARL
-------------------------------
Alexander L. Searl, Chief Operating
and Financial Officer
21
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,010,849
<SECURITIES> 0
<RECEIVABLES> 3,089,350
<ALLOWANCES> 12,349
<INVENTORY> 5,145,585
<CURRENT-ASSETS> 11,311,906
<PP&E> 9,969,582
<DEPRECIATION> (720,688)
<TOTAL-ASSETS> 32,386,411
<CURRENT-LIABILITIES> 19,731,978
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4,853,774
0
<COMMON> 265,711
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<INCOME-TAX> 0
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