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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal quarter ended September 30, 2003 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 0-6814
U.S. ENERGY CORP.
- --------------------------------------------------------------------------------
(Exact Name of Company as Specified in its Charter)
Wyoming 83-0205516
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 North 8th West, Riverton, WY 82501
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (307) 856-9271
----------------
Not Applicable
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Former name, address andfiscal year, if changed since last report)
Check whether the Company: (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 Company was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES X NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
--- ---
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 13, 2003
- -------------------------------- -----------------------------------
Common stock, $.01 par value 12,738,677 Shares
U.S. ENERGY CORP. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements. Page No.
Condensed Consolidated Balance Sheets
September 30, 2003 (unaudited) and December 31, 2002 . . 3-4
Condensed Consolidated Statements of
Operations for the Three and Nine Months Ended
September 30, 2003 and 2002 (unaudited) . . . . . . . . 5-6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2003 and 2002 (unaudited) . 7-8
Notes to Condensed Consolidated
Financial Statements (unaudited) . . . . . . . . . . . . . 9-12
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 13-20
ITEM 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . 20
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 2. Changes in Securities and Use of Proceeds . . . . . . . . . . 21
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 21-22
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Certifications . . . . . . . . . . . . . . . . . . . . . . . . . 24-27
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2003 2002
--------------- --------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,951,100 $ 1,741,000
Accounts receivable
Trade, net of allowance of $27,800 162,000 1,655,700
Affiliates 146,400 117,600
Current portion of long-term notes receivable, net 115,300 165,900
Assets held for resale & other 766,200 1,061,100
Inventory 16,600 14,000
Total current assets 4,157,600 4,755,300
INVESTMENTS:
Non-affiliated company 922,600 --
Restricted investments 9,907,700 9,911,700
--------------- --------------
Total investments and advances 10,830,300 9,911,700
PROPERTIES AND EQUIPMENT: 14,167,000 19,802,300
Less accumulated depreciation,
depletion and amortization (6,812,000) (7,214,800)
--------------- --------------
Net property and equipment 7,355,000 12,587,500
OTHER ASSETS:
Note receivable 2,909,500 --
Notes receivable employees -- 48,800
Deposits and other 798,200 887,300
Total other assets 3,707,700 936,100
--------------- --------------
$ 26,050,600 $ 28,190,600
=============== ==============
U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
2003 2002
--------------- --------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,375,700 $ 1,592,800
Prepaid drilling costs 26,000 134,400
Current portion of long-term debt 237,700 317,200
--------------- --------------
Total current liabilities 1,639,400 2,044,400
LONG-TERM DEBT 2,317,400 2,820,600
ASSET RETIREMENT OBLIGATIONS 7,566,200 8,906,800
OTHER ACCRUED LIABILITIES 3,454,300 2,319,900
DEFERRED TAX LIABILITY 1,144,800 1,144,800
MINORITY INTERESTS 864,600 587,400
COMMITMENTS AND CONTINGENCIES
FORFEITABLE COMMON STOCK, $.01 par value
465,880 and 500,788 shares issued, forfeitable until earned 2,726,600 3,009,900
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value; unlimited shares authorized;
12,377,628 and 11,826,396 shares issued, respectively 123,800 118,300
Additional paid-in capital 51,781,300 48,877,100
Accumulated deficit (42,312,200) (38,407,700)
Treasury stock at cost,
966,306 and 959,725 shares, respectively (2,765,100) (2,740,400)
Unallocated ESOP contribution (490,500) (490,500)
--------------- --------------
TOTAL SHAREHOLDERS' EQUITY 6,337,300 7,356,800
--------------- --------------
$ 26,050,600 $ 28,190,600
=============== ==============
U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
OPERATING REVENUES:
Real estate operations $ 67,900 $ 279,600 $ 247,300 $ 439,200
Gas sales 2,300 35,100 287,400 55,000
Management fees 49,100 88,800 193,600 151,800
119,300 403,500 728,300 646,000
OPERATING COSTS AND EXPENSES:
Real estate operations 80,300 134,700 211,800 277,200
Gas operations 8,600 119,500 299,900 215,600
Mineral holding costs 579,100 226,100 1,585,700 690,400
General and administrative 1,439,700 1,248,200 4,204,000 3,677,900
Provision for doubtful accounts -- -- -- 171,200
2,107,700 1,728,500 6,301,400 5,032,300
------------ ------------ ------------ ------------
OPERATING LOSS: (1,988,400) (1,325,000) (5,573,100) (4,386,300)
OTHER INCOME & EXPENSES:
Gain (loss) on sales of assets 152,600 (3,000) 195,000 226,700
(Loss) on sale of investment (95,000) -- (54,400) --
Interest income 92,600 191,300 447,100 501,200
Interest expense (71,300) (131,700) (503,700) (259,900)
78,900 56,600 84,000 468,000
------------ ------------ ------------ ------------
LOSS BEFORE MINORITY INTEREST,
PROVISION FOR INCOME TAXES,
DISCONTINUED OPERATIONS AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (1,909,500) (1,268,400) (5,489,100) (3,918,300)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARIES 16,500 17,900 194,100 66,200
------------ ------------ ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES
DISCONTINUED OPERATIONS AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (1,893,000) (1,250,500) (5,295,000) (3,852,100)
PROVISION FOR INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (1,893,000) (1,250,500) (5,295,000) (3,852,100)
DISCONTINUED OPERATIONS, NET OF TAX (88,700) (31,200) (225,100) 57,100
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE -- -- 1,615,600 --
------------ ------------ ------------ ------------
NET LOSS (1,981,700) (1,281,700) (3,904,500) (3,795,000)
PREFERRED STOCK DIVIDENDS -- -- -- (37,500)
------------ ------------ ------------ ------------
NET LOSS AVAILABLE
TO COMMON SHAREHOLDERS $(1,981,700) $(1,281,700) $(3,904,500) $(3,832,500)
============ ============ ============ ============
NET LOSS PER SHARE BASIC AND DILUTED
FROM CONTINUED OPERATIONS $ (0.17) $ (0.12) $ (0.48) $ (0.37)
FROM DISCONTINUED OPERATIONS (0.01) * (0.02) 0.01
FROM EFFECT OF ACCOUNTING CHANGE -- -- 0.15 --
------------ ------------ ------------ ------------
$ (0.18) $ (0.12) $ (0.35) $ (0.36)
============ ============ ============ ============
BASIC AND DILUTED WEIGHTED
AVERAGE SHARES OUTSTANDING 11,127,796 10,664,312 11,108,865 10,512,484
============ ============ ============ ============
* Less than $0.01 per share.
U.S. ENERGY CORP. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30
--------------------------
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,904,500) $(3,795,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest in loss of consolidated subsidiaries (194,100) (66,200)
Depreciation and amortization 453,000 430,200
Accretion of asset retirement obligations 275,000 --
Noncash services 1,048,900 --
Amortization of debt discount 393,500 83,800
Gain on sale of assets (10,300) (191,300)
Noncash cumulative effect of accounting change (1,615,600) --
Noncash compensation 133,600 251,300
Lease holding costs 50,000 --
Net changes in assets and liabilities (75,800) 857,200
NET CASH USED IN OPERATING ACTIVITIES (3,446,300) (2,430,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration of coalbed methane gas properties (134,800) (389,500)
Proceeds from sale of gas interests 2,708,300 1,125,000
Proceeds from sale of property and equipment 1,395,200 270,200
Net change in restricted investments 4,000 (86,300)
Purchase of poperty and equipment (75,200) (70,000)
Net change in investments in affiliates 140,000 413,500
NET PROVIDED BY INVESTING ACTIVITIES 4,037,500 1,262,900
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 868,800 960,800
Proceeds from issuance of stock by subsidiary 650,000 --
Payment of dividends on preferred stock -- (37,500)
Proceeds from third party debt 2,600 482,300
Repayments of third party debt (902,500) (335,200)
NET CASH PROVIDED BY FINANCING ACTIVITIES 618,900 1,070,400
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,210,100 (96,700)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,741,000 2,107,300
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,951,100 $ 2,010,600
============ ============
SUPPLEMENTAL DISCLOSURES:
Income tax paid $ -- $ --
============ ============
Interest paid $ 503,700 $ 126,200
============ ============
NON CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets through issuance of debt $ 26,300 $ 137,800
============ ============
Acquisition of assets through issuance of stock $ -- $ 198,500
============ ============
Issuance of stock as deferred compensation $ 151,900 $ 261,300
============ ============
Issuance of stock to satisfy debt $ 100,000 $ --
============ ============
Issuance of stock for retired employees $ 435,200 $ --
============ ============
Issuance of stock for services $ 84,000 $ 657,000
============ ============
Satisfaction of receivable - employee
with stock in company $ 20,500 $ 20,600
============ ============
U.S. ENERGY CORP. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) The Condensed Consolidated Balance Sheet as of September 30, 2003 and
the Condensed Consolidated Statements of Operations and Cash Flows for the three
and nine months ended September 30, 2003 and 2002, respectively, have been
prepared by the Company without audit. The Condensed Consolidated Balance Sheet
at December 31, 2002 has been taken from the audited financial statements
included in the Company's Annual Report on Form 10-K for the period then ended.
In the opinion of the Company, the accompanying financial statements contain all
adjustments (consisting of only normal recurring accruals except for the
cumulative effect of a change in accounting principle in 2003) necessary to
present fairly the financial position of the Company as of September 30, 2003
and 2002; the results of operations for the three and nine months ended
September 30, 2003 and 2002; and cash flows for the nine months ended September
30, 2003 and 2002.
2) Certain reclassifications have been made in the December 31, 2002
financial statements to conform to the classifications used in the September 30,
2003 financial statements.
3) Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It is
suggested that these financial statements be read in conjunction with the
Company's December 31, 2002 Form 10-K. The results of operations for the periods
ended September 30, 2003 and 2002 are not necessarily indicative of the
operating results for the full year.
4) The consolidated financial statements of the Company include its
majority-owned and controlled subsidiaries: Energx Ltd. ("Energx")(90%), Crested
Corp. ("Crested")(70.5%), Plateau Resources Limited ("Plateau")(100%), Sutter
Gold Mining Co. ("SGMC")(66.3%), Yellow Stone Fuels Corp. ("YSFC")(35.9%), Four
Nines Gold, Inc. ("FNG")(50.9%), Rocky Mountain Gas, Inc.("RMG")(89.2%),and the
USECC joint venture ("USECC"), a consolidated joint venture which is equally
owned by the Company and Crested, through which the bulk of their operations are
conducted. All material intercompany profits and balances have been eliminated.
5) The Internal Revenue Service (IRS) has audited and closed the Company's
tax years through May 31, 2000 with no change in the amount of tax due.
6) Components of Properties and Equipment at September 30, 2003 consist of
coalbed methane properties, land, buildings and equipment.
Accumulated
Amortization
Cost and Depreciation Net Value
----------- ------------------ ----------
Coalbed methane and oil properties $ 3,042,000 $ (1,773,600) $1,268,400
Buildings, land and equipment. . . 11,125,000 (5,038,400) 6,086,600
----------- ------------------ ----------
$14,167,000 $ (6,812,000) $7,355,000
=========== ================== ==========
The Company has impaired a portion of historical costs associated with its
properties in prior periods. The Company will provide additional impairments if
necessary in the future.
7) The Company presents basic and diluted earnings per share in accordance
with the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share". Basic earnings per common share is based on the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed based on the weighted average number of common shares
outstanding adjusted for the incremental shares attributed to outstanding
options to purchase common stock, if dilutive. Potential common shares relating
to options and warrants are excluded from the computation of diluted earnings
(loss) per share, because they were antidilutive, totaled 4,095,737 and
2,732,021 at September 30, 2003 and September 30, 2002, respectively. Stock
options and warrants have a weighted average exercise price of $2.90 and $2.78
at September 30, 2003 and September 30, 2002, respectively.
8) Accrued asset retirement obligations and holding costs of $7,566,200 at
September 30, 2003 and $8,906,800 at December 31, 2002 are primarily the
reclamation liability at the former SMP mining properties in Wyoming and the
reclamation and holding liabilities at the Shootaring Uranium Mill in southern
Utah. Previously, the Company recognized asset retirement obligations based upon
the estimated undiscounted cash flows of the liability.
The Company has shut down the mine properties for which it is responsible
for the reclamation expense. These expenses are scheduled to be completed over
the next seven years. The Company cannot predict the exact amount of such future
reclamation liabilities. Estimated future reclamation costs are based upon the
Company's best engineering estimates and legal and regulatory requirements.
Effective January 1, 2003, the Company adopted SFAS No. 143, "Accounting
for Asset Retirement Obligations." The statement requires the Company to record
the fair value of the reclamation liability on its shut down mining properties
as of the date that the liability is incurred with a corresponding increase in
the properties. The statement further requires that the Company review the
liability each quarter to determine whether its estimates of timing or cash
flows have changed as well the accretion of the total liability on a quarterly
basis for the passage of time.
The Company will also deduct from the accrued liability any actual funds
expended for reclamation during the quarter in which it occurs. As a result of
the Company taking impairment allowances in prior periods on its shut down
mining properties, it has no remaining book value for these properties. All
changes in estimates will therefore be charged to operations in the quarter in
which they are recorded. Accretion expense of $91,700 was recorded for each of
the three month periods ended March 31, 2003, June 30, 2003 and September 30,
2003.
The following is a reconciliation of the total liability for asset
retirement obligations (unaudited)
Balance December 31, 2002 $ 8,906,800
Impact of adoption of SFAS No. 143 (1,615,600)
Addition to Liability --
Liability Settled --
Accretion Expense - 8% discount rate 275,000
-------------
Balance September 30, 2003 $ 7,566,200
=============
The following table shows what the Company's net loss and net loss per
share would have been in the three and nine months ended September 30, 2003 and
2002 as if the provisions of SFAS No. 143 had been applied in those periods.
Three months ended Nine months ended
September 30 September 30
-------------------------- --------------------------
2003 2002 2003 2002
NET LOSS:
Reported net loss $(1,981,700) $(1,281,700) $(3,904,500) $(3,795,000)
Cumulative effect of adoption
of SFAS No. 143 -- -- 1,615,600 --
Pro-Forma SFAS No. 143 accretion -- (91,700) -- (275,000)
------------ ------------ ------------ ------------
Adjusted net loss $(1,981,700) $(1,373,400) $(2,288,900) $(4,070,000)
============ ============ ============ ============
PER SHARE OF COMMON STOCK:
Reported net loss $ (0.18) $ (0.12) $ (0.35) $ (0.36)
Cumulative effect of adoption
of SFAS No. 143 -- -- .15 $ --
Pro-Forma SFAS No. 143 accretion -- (0.01) -- (0.03)
------------ ------------ ------------ ------------
Adjusted net loss $ (0.18) $ (0.13) $ (0.20) $ (0.39)
============ ============ ============ ============
9) The Company has two Incentive Stock Option Plans in place as of
September 30, 2003. In October 1995, the FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation", which requires the Company to record non-employee
stock-based compensation at fair value. In December 2002, the FASB issued SFAS
No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure".
The Company has adopted the disclosure requirements of SFAS No 148 and has
elected to continue to record employee compensation expense utilizing the
intrinsic value method permitted under Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees" and its related
interpretations. Accordingly, any deferred compensation expense is recorded for
stock options based on the excess of the market value of the common stock on the
date the options were granted over the aggregate exercise price of the options.
This deferred compensation will be amortized over the vesting period of each
option. There were no options granted to employees under the two plans during
either the three or nine months ended September 30, 2003.
10) The Company has reviewed current outstanding statements from the
Financial Accounting Standards Board and does not believe that any of those
statements will have a material adverse affect on the financial statements of
the Company when adopted.
11) The accompanying condensed financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. We
have sustained substantial losses from operations in recent years, and such
losses have continued through September 30, 2003. In addition, we have used,
rather than provided, cash in our operations.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the condensed
consolidated accompanying balance sheet is dependent upon continued operations
of the Company, which in turn is dependent upon our ability to meet our
financing requirements on a continuing basis, to maintain present financing, and
to succeed in our future operations.
On August 1, 2003, we received a Judgment entered by the United States
District Court of Colorado wherein we were awarded a Judgment of $20,044,180 in
the Nukem case. If collection of this Judgment is successful, it would provide
significant working capital to the Company. See Part II, Item 1 and "Forward
Looking Statements" disclosures.
We also continue to pursue several items that will help us meet our future
cash needs. We are currently working with several different sources, including
both strategic and financial investors, in order to raise sufficient capital to
finance our continuing operations. Although there is no assurance that funding
will be available, we believe that our current business plan, if successfully
funded, will significantly improve our operating results and cash flow in the
future.
12) On August 1, 2003, the Company sold its interest in the Ticaboo
Townsite in southern Utah as the result of Plateau Resources Limited, a
wholly-owned subsidiary of the Company entering into a Stock Purchase Agreement
to sell all the outstanding shares of Canyon Homesteads, Inc. ("Canyon") to The
Cactus Group LLC, a newly formed Colorado limited liability company. The Cactus
Group purchased all of the outstanding stock of Canyon for $3,470,000. Of that
amount, $349,300 was paid in cash at closing and the balance of $3,120,700 is to
be paid under the terms of a promissory note.
The sale did not qualify for gain recognition under the full accrual
method. A gain of $1,295,700 was deferred and reported as other accrued
liabilities in the consolidated balance sheet at September 30, 2003. The sale
will be recognized by the installment method as cash payments are received from
the purchaser. An installment note receivable of $2,909,500 at September 30,
2003 will be reduced as payments are received.
Pursuant to the note agreement, the Company is to receive $5,000 per month
for the months of November 2003 to March 2004 and $10,000 for the months of
November 2004 to March 2005 and $24,000 per month for the months of April to
October 2004 and $24,000 per month on a monthly basis after March of 2005 from
The Cactus group until August of 2008. At which time, a balloon payment of $2.8
million is due. The note is secured with all the assets of The Cactus Group and
Canyon along with personal guarantees by the six principals of The Cactus Group.
As additional consideration for the sale, the Company will also receive the
first $210,000 is gross proceeds from the sale of either single family or mobile
home lots in Ticaboo.
13) During the quarter ended September 30, 2003, the Company issued 163,754
shares of common stock as a result of the exercise of options by employees and
former employees and 37,336 shares from the execution of investor warrants.
The dollar values of the issuances was $381,371 from the exercise of
employee options and $135,903 from the exercise of investor warrants.
14) Subsequent Event - On October 31, 2003 The Company's wholly owned
subsidiary Plateau Resources Limited (PRL) received approval from the U.S.
Nuclear Regulatory Commission (NRC) to release about $2.9 Million of excess
reclamation bond funds on the Shootaring Canyon Uranium Mill located in
southeastern Utah. In 1993, when the Company acquired the Mill, PRL had posted a
surety reclamation bond with the NRC of $2.5 Million for the reclamation of the
Shootaring Canyon Uranium Mill. In fiscal 1997, PRL requested that the status of
the Mill license be changed from standby to operational. As a result of the
change of the Mill license to operational status, the NRC required that the cash
bond be increased to $6.7 Million. Due to uranium market conditions in 2002, PRL
decided to change the license status from operational back to reclamation and
filed a new reclamation plan. The NRC has reviewed the revised reclamation and
decommissioning plan and has agreed to a $6.1 million reclamation plan. The NRC
therefore approved the release of $2.9 Million which had been accrued as
interest from the existing cash bond to PRL and retained $6.1 Million to cover
the new reclamation plan.
U.S. ENERGY CORP. & SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS.
- --------------
The following is Management's Discussion and Analysis of significant
factors which have affected our liquidity, capital resources and results of
operations during the periods included in the accompanying financial statements.
For a detailed explanation of the Company's Business Overview, it is suggested
that Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three and nine months ended September 30, 2003 be read in
conjunction with the Company's Form 10-K for the year ended December 31, 2002.
The discussion contains forward-looking statements that involve risks and
uncertainties. Due to uncertainties in our business, actual results may differ
materially from the discussion below.
OVERVIEW OF BUSINESS
The Company owns controlling interest in a uranium mine and mill in
southern Utah; uranium mines in central Wyoming; a gold property in California;
coalbed methane properties in southwest Wyoming and the Powder River Basin in
Wyoming and Montana; and various real estate holdings. The mine properties are
all shut down. All these properties are held in conjunction with the Company's
subsidiary, Crested Corp. ("Crested") through the USECC joint venture between
the two companies, and the coalbed methane business is conducted through our
subsidiary, Rocky Mountain Gas, Inc. ("RMG").
The acquisition, exploration and development of coalbed methane properties
is our only recurring business activity at the present time.
CRITICAL ACCOUNTING POLICIES
- ------------------------------
OIL AND GAS PRODUCING ACTIVITIES - Through our subsidiary, RMG, we follow
the full cost method of accounting for oil and gas properties. Accordingly, all
costs associated with acquisition, exploration, and development of oil and gas
reserves, including directly related overhead costs, are capitalized.
All capitalized costs of oil and gas properties subject to amortization and
the estimated future costs to develop proved reserves, are amortized on the
unit-of-production method using estimates of proved reserves. Investments in
unproved properties and major exploration and development projects are not
amortized until proved reserves associated with the projects can be determined.
The status of unproved properties are reviewed periodically to ascertain whether
any impairment has occurred. Such assessments could cause the Company to reduce
the carrying values of the properties.
In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present value,
discounted at a 10-percent interest rate of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower of
cost or fair market value of unproved properties.
The discounted present value of proved natural gas reserves is a major
component of the ceiling calculation and requires many subjective judgments.
Estimates of reserves are forecasts based on engineering and geological
analyses. Different reserve engineers may reach different conclusions as to
estimated quantities of natural gas reserves based on the same information. Our
reserve estimates have been prepared by independent consultants in the past. The
passage of time provides more qualitative information regarding reserve
estimates, and revisions are made to prior estimates based on updated
information. However, there can be no assurance that more significant revisions
will not be necessary in the future. Significant downward revisions could result
in a full cost write-down. In addition to the impact on calculation of the
ceiling test, estimates of proved reserves are also a major component of the
calculation of depletion.
While the quantities of proved reserves require substantial judgment, the
associated price of natural gas reserves that are included in the discounted
present value of our reserves are objectively determined. The ceiling
calculation requires prices and costs in effect as of the last day of the
accounting period are generally held constant for the life of the properties. As
a result, the present value is not necessarily an indication of the fair value
of the reserves. Natural gas prices have historically been volatile and the
prevailing prices at any given time may not reflect our Company's or the
industry's forecast of future prices.
RECLAMATION LIABILITIES - The Company's policy is to accrue the liability
for future reclamation costs of its mineral properties under SFAS 143 based on
the current estimate of the future reclamation costs as determined by internal
and external experts. The present value of the obligation is accreted each
period as the date of the obligation approaches.
RECENT ACCOUNTING PRONOUNCEMENTS
- ----------------------------------
SFAS NO. 143 - The Company has implemented the Financial Accounting
Standards Board issued SFAS No. 143 "Accounting for Asset Retirement
Obligations" effective January 1, 2003. The statement requires the Company to
record the fair value of a liability for legal obligations associated with the
retirement of obligations of tangible long-lived assets in the period in which
it is incurred. The Company's reclamation liabilities on its mining properties
are subject to SFAS No. 143. See note 8 of the interim financial statements for
details of the adoption.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 expands the information
disclosures required by guarantors for obligations under certain types of
guarantees. It also requires initial recognition at fair value of a liability
for such guarantees. The initial recognition and initial measurement provisions
of this Interpretation are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002, irrespective of the guarantor's
fiscal year-end. The disclosure requirements in the Interpretation are effective
for financial statements of interim or annual periods ending after December 15,
2002. The Company has historically issued guarantees only on a limited basis and
FIN 45 has not had a material effect on its 2003 financial statements.
Disclosures required by FIN 45 are not required because the Company does not
have any existing guarantees at September 30, 2003.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), which addresses consolidation by
business enterprises where equity investors do not bear the residual economic
risks and rewards. These entities have been commonly referred to as
"special-purpose entities". Companies are required to apply the provision of FIN
46 prospectively for all variable interest entities created after January 31,
2003. For public companies, all interest acquired before February 1, 2003 must
follow the new rules in accounting periods beginning after June 15, 2003. The
Company has determined that the adoption of the provisions of FIN 46 did not
have a material impact on its financial condition or results of operations.
The Company has reviewed current outstanding statements from the Financial
Accounting Standards Board and does not believe that any of those statements
will have a material adverse affect on the financial statements of the Company
when adopted.
LIQUIDITY AND CAPITAL RESOURCES
On June 23, 2003, the Company's subsidiary RMG and its joint venture
partner, CCBM, Inc. ("CCBM") a subsidiary of Carrizo Oil and Gas of Houston,
Texas ("Carrizo"), contributed their equal interest in certain coalbed methane
(CBM) properties into a newly formed Delaware corporation, Pinnacle Gas
Resources, Inc. ("Pinnacle") in exchange for common stock of Pinnacle. At the
time of the formation of Pinnacle, CCBM did not completely own its interest in
the contributed CBM properties since the promissory note executed by CCBM to RMG
for the purchase of the properties in June 2001, was not fully paid. Therefore,
CCBM made a cash payment to RMG at the time of the formation of Pinnacle in the
amount of $1,826,200. (See the Form 8-K filed July 15, 2003 for further
information on the Pinnacle transaction.) This payment, along with the receipt
of $1,618,800, from the sale of common stock by the Company and RMG, and the
collection of an account receivable in the amount of $1,163,000 for the sale of
real estate owned by Sutter Gold Mining Company ("Sutter"), are the primary
reasons for the increase of $1,210,100 in cash during the nine months ended
September 30, 2003.
These increases in cash are the primary contributors in the small decrease
of the Company's liquidity during the nine months ended September 30, 2003. The
Company's working capital decreased by $192,700 during the nine months ended
September 30, 2003 from $2,710,900 at December 31, 2002 to $2,518,200 at
September 30, 2003.
During the nine months ended September 30, 2003, operations consumed
$3,446,300. Other major uses of cash during the nine months ended September 30,
2003, were for the exploration of coalbed methane properties, which consumed
$134,800 and the retirement of long term debt in the amount of $902,500. The
majority of the debt retirement was debt associated with real estate owned and
sold by Sutter in the amount of $513,300 and the payment of $273,900 of debt
relating to the Ticaboo properties.
The Company issued common stock and warrants valued at $1,048,900 for the
payment of services during the nine months ended September 30, 2003. These
services were incurred primarily in relation to the contracts associated with
the formation of Pinnacle and for legal services. The Company issued 50,000
shares of common stock and warrants to purchase 50,000 additional shares of
common stock with an exercise price of $5.00 per share to the consulting firm of
Sanders Morris Harris, Inc. of Houston, TX, which assisted the Company and RMG
in the transactions related to the formation of Pinnacle. The Company also
issued 34,000 shares of common stock to the legal firm that is representing the
Company in other litigation as partial payment of its legal expenses.
The Company entered into two convertible debt agreements during prior
periods. The two combined debts total $1.5 million and are convertible at the
owners' option into common stock of the Company. During the nine months ended
September 30, 2003, $100,000 of convertible long term debt was retired upon the
conversion of the debt to 33,333 shares of common stock at the request of one of
the debt holders. The owners of the convertible debt also have warrants to
purchase shares of the Company's common stock. Due to these beneficial
conversion features of the debt, a discount was recognized on the debt. The
discount is amortized over the term of the debt. The amount of amortization
recognized during the nine months ended September 30, 2003 was $393,500.
Effective January 1, 2003, the Company adopted SFAS No. 143, "Accounting
for Asset Retirement Obligation". As a result of the valuation made to implement
SFAS No. 143, the Company recognized $1,615,600 in income as the valuation of
the reclamation liability was over accrued. The Company also recorded an
accretion expense of its total reclamation liability of $275,000 during the nine
months ended September 30, 2003.
Investing activities during the nine months ended September 30, 2003,
generated $4,037,500. This increase in cash was primarily as a result of the
monthly payments that CCBM made during the nine months ended September 30, 2003
pursuant to its promissory note to RMG and the payment made to fully pay that
portion of the note which was ascribed to the properties contributed to Pinnacle
as discussed above. All payments from CCBM were applied against the full cost
pool of coalbed methane properties. Additionally, on August 14, 2003, the
Company sold its interest in the Ticaboo Townsite in southern Utah when Plateau
Resources Limited, a wholly-owned subsidiary of the Company entered into a Stock
Purchase Agreement to sell all the outstanding shares of Canyon Homesteads, Inc.
("Canyon") to The Cactus Group LLC, a newly formed Colorado limited liability
company. The Cactus Group purchased all of the outstanding stock of Canyon for
$3,470,000. Of that amount, $349,300 was paid in cash at closing and the balance
of $3,120,700 is to be paid under the terms of a promissory note.
The sale did not qualify for gain recognition under the full accrual
method. A gain of $1,295,700 was deferred and reported as other accrued
liabilities in the consolidated balance sheet at September 30, 2003. The sale
will be recognized by the installment method as cash payments are received form
the purchaser. An installment note receivable of $2,909,500 at September 30,
2003 will be reduced as payments are received.
Pursuant to the note agreement, the Company is to receive $5,000 per month
for the months of November 2003 to March 2004 and $10,000 for the months of
November 2004 to March 2005 and $24,000 per month for the months of April to
October 2004 and $24,000 per month on a monthly basis after March of 2005 from
the Cactus Group until August of 2008, at which time, a balloon payment of $2.8
million is due. The note is secured with all the assets of The Cactus Group and
Canyon along with personal guarantees by the six principals of The Cactus Group.
As additional consideration for the sale, the Company will also receive the
first $210,000 in gross proceeds from the sale of either single family or mobile
home lots in Ticaboo.
Financing activities provided $618,900 during the nine months ended
September 30, 2003. The primary source of the cash provided by financing
activities came as a result the issuance of common stock by the Company and RMG.
Common stock was issued by the Company as a result of the exercise of options
and warrants, and RMG completed a private placement. See Part II Item 2, Changes
in Securities.
CAPITAL RESOURCES
The primary sources of our capital resources during the balance of 2003 are
cash on hand; collection of receivables; receipt of monthly payments from CCBM
for the purchase of the balance of its interest in RMG's coalbed methane
properties; receipt of payments on the Cactus note from the sale of Ticaboo;
CCBM funding of drilling and exploration programs; sale of excess mine,
construction and drilling equipment; sale of real estate properties which are no
longer needed in the core business of the Company; sale of partial ownership
interests in exploration properties; proceeds under the line of credit and
equity financing by the Company or its subsidiaries.
Drilling and exploration capital requirements of RMG will be initially
funded during the balance of 2003 from the CCBM work commitment. As of September
30, 2003, there was a balance of $638,400 available to RMG under the CCBM work
commitment. Of this amount, CCBM is committed to expend $319,200 on behalf of
RMG. Under a separate agreement RMG has used a portion of the drilling
commitment to participate in the drilling of Gulf Coast wells, which are
operated by Carrizo. As of the date of this report, a total of $325,600 had been
expended for the drilling of two wells. The results of the drilling program have
not yet been completely determined, however all indications are that the first
well in which RMG participated may be a dry hole. We participated in the Gulf
Coast wells to diversify our exposure to natural gas opportunities. While these
wells are more expensive to drill and complete than coalbed methane wells, a
successful well could provide production much faster than coalbed methane
projects, which require multiple wells and a lengthy de-watering process before
production begins.
After CCBM paid the amount required on the properties contributed to
Pinnacle, there remained a balance of $1,021,700 at September 30, 2003 due RMG
from CCBM under its purchase agreement. Under the terms of the modified
promissory note, this amount will continue to be paid at the rate of $52,800 per
month plus interest until November 2004 at which time, a balloon payment of
$337,400 is due. CCBM's interest in RMG's coalbed methane properties is pledged
as security for the note to RMG. CCBM can discontinue making payments at any
time subject to certain earn-in provisions and penalties.
The Company, RMG and CCBM are actively seeking additional financing to
acquire additional coalbed methane acreage and complete the drilling on existing
properties as well as expand current operations. No assurance can be given that
such financing efforts will be successful. Management of the Company however
believes that the future of the natural gas business is very good and that
financing will be available at some point to develop RMG's properties.
On October 31, 2003, Plateau received the release of $2.9 million of excess
bond collateral on its Shootaring Canyon Mill site. (See note 12 to Financial
Statement)
We currently have a $750,000 line of credit with a commercial bank. At
September 30, 2003, the entire line of credit was available to the Company.
We have been involved in litigation with Nukem, Inc. involving Sheep
Mountain Partners, ("SMP") for the past twelve years. On August 1, 2003, the
company received a Judgment from the U.S. District Court of Colorado in the
amount of $20,044,184 be entered against Nukem, Inc. The Judgment was entered
and defendant Nukem posted a supersedeas bond in the full amount of the Judgment
plus interest for one year, which was approved by the Court. Nukem filed a
motion to alter and amend portions of the Order and Judgment and a motion to
remand the case to the Arbitration Panel. USE and Crested also filed a motion to
alter and amend certain portions of the Order and Judgment. In the event that
the Company and Crested prevail, one half of the award belongs to the company.
See Item 1 Part II Legal Proceedings.
CAPITAL REQUIREMENTS
EXPLORATION OF COALBED METHANE PROPERTIES
- ---------------------------------------------
The majority of the 2003 exploration costs associated with the coalbed
methane properties of RMG has been funded through the CCBM agreement. Under the
CCBM purchase and sale agreement, if properties are drilled that are owned 50%
by RMG, we may be required to fund the drilling costs for the interest ownership
of the remaining non-participating parties. Should we be required to fund any
non-participating entities portion of the exploration programs, there is a
back-in provision on each property, which gives RMG a disproportionate amount of
the production revenues until our cost and additional amounts are recovered
before the non-participating parties begin to receive production funds.
MAINTAINING MINERAL PROPERTIES
- --------------------------------
SMP URANIUM PROPERTIES
The holding costs associated with the uranium properties in Wyoming
formerly owned by Sheep Mountain Partners ("SMP") are approximately $8,500 per
month. We continue to implement cost cutting measures to reduce the holding
costs while at the same time preserving the properties. We have begun the
process of reclamation on certain of these properties and will continue to do
work during 2003. It is estimated that approximately $140,000 in reclamation
work will be completed on the SMP properties during 2003.
PLATEAU RESOURCES URANIUM PROPERTIES
Plateau owned the Ticaboo Townsite, which included a motel, convenience
store, boat storage, restaurant and lounge. Prior to fiscal 2002, we operated
all of these entities. A decision was made during fiscal 2002 to lease out all
but the motel operation. On August 14, 2003, these operations were sold to The
Cactus Group through a Stock Purchase Agreement, whereby Plateau's 100% stock
ownership in Canyon Homesteads, Inc. was sold. The operations from Ticaboo have
been reclassified as discontinued operations for the three and nine month
periods ended September 30, 2003 and 2002 on the Statement of Operations.
Additionally, Plateau continues to own and maintain the Tony M uranium mine
and Shootaring Canyon uranium mill. We are pursuing alternative uses for these
properties including the potential sale or reclamation of the mine and uranium
mill.
SUTTER GOLD MINING COMPANY PROPERTIES ("SGMC")
We have two employees at the SGMC properties to preserve the core
properties. SGMC sold certain of the non-essential land positions during 2003.
SGMC is also considering other alternatives such as equity financing or
obtaining industry partners to develop the property.
Carrying values for the SGMC remaining properties, as of September 30,
2003, are lower than the fair market value of the properties.
DEBT PAYMENTS
- --------------
Debt to non-related parties at September 30, 2003 was $2,555,100. $1.4
million of this debt is convertible debt to two investors. On October 28, 2003,
the investors and the Company amended the convertible debt to make payment of
the interest and principal mandatory in common stock and extended the due date
of the debt to December 31, 2004.
Principal and interest payments on the balance of long term debt during the
balance of 2003 is approximately $34,400.
RECLAMATION COSTS
- ------------------
The asset retirement obligations are long term and are either bonded
through the use of cash bonds or the pledge of assets. It is anticipated that
$140,000 of reclamation work on the SMP properties and $100,000 on the southern
Utah uranium mine properties will be performed during 2003. The Company has
submitted a reclamation plan to the Nuclear Regulatory Commission ("NRC") for
the reclamation of the Shootaring Uranium Mill. The Company will begin portions
of the Shootaring reclamation during 2004.
The asset retirement obligation on the Plateau uranium mining and milling
properties in Utah at September 30, 2003 is $5,317,700, which is reflected on
the Balance Sheet as a reclamation liability. This liability is fully funded by
cash investments that are recorded as long term restricted assets.
(See Note 12 to Financial Statement.)
The asset retirement obligation of the Sheep Mountain uranium properties in
Wyoming at September 30, 2003 is $2,220,700 which amount is self bonded by a
pledge of certain of our real estate assets.
RESULTS OF OPERATIONS
- -----------------------
During the three and nine months ended September 30, 2003, the Company
recorded a net loss of $1,981,700 and $3,904,500, respectively, from operations
as compared to a net loss of $1,281,700 and $3,795,000 for the same three and
nine months of the previous year. The increase in the net loss from operations
is primarily as a result of increased mineral holding costs of $895,300 and
$353,000; and general and administrative costs of $526,100 and $191,500, for the
three and nine months ended September 30, 2003. These increases in costs relate
to the professional services paid in either cash or stock for legal and
consulting services in the Nukem and Phelps Dodge litigation and the formation
of Pinnacle.
During the nine months ended September 30, 2002, the Company recognized a
provision for doubtful accounts of $171,200. No provision for doubtful accounts
was necessary during the nine months ended September 30, 2003. Management fees
increased during the nine months ended September 30, 2003 over the same period
of the previous year by $41,800 as a result of increased activities in the
coalbed methane business segment. Management fees decreased by $39,700 during
the three months ended September 30, 2003 as a result of the formation of
Pinnacle and the discontinuation of the management of the production which was
contributed to Pinnacle.
During the three and nine months ended September 30, 2003, the Company
recorded $503,700 and $71,300 in interest expense as compared with $259,900 and
$131,700 in interest expense during the three and nine months ended September
30, 2002. The increase in interest expense for the nine months ended September
30, 2003 is primarily related to the payment of interest on the convertible
notes as well as the amortization of the discount recognized on those notes at
the time they were initiated.
As a result of the sale of Ticaboo on August 14, 2003, the disposal date,
the motel and real estate operations segment have been reclassified as a
discontinued operation on the condensed statements of operations for the three
and nine months ended September 30, 2003 and 2002. The Company recognized loss
of $31,200 and a gain of $57,100 from such operations during the three and nine
months ended September 30, 2002 and a loss of $88,700 and $225,100 from the same
operations for the three and nine month periods ended September 30, 2003. The
reduction in profits from this business segment are due to reduced tourist
business because of the drought in southern Utah which had a direct effect on
the number of visitors to Lake Powell.
The Company recorded non-cash income of $1,615,600 during the nine months
ended September 30, 2003 as a result of the implementation of SFAS No. 143. The
Company also recorded a non-cash accretion expense related to the reclamation of
the SMP and Plateau mine and mill properties of $91,700 and $275,000 during the
three and nine months ended September 30, 2003 as a result of the adoption of
SFAS No. 143.
The Company recognized net losses of $1,981,700 or $0.18 per share and
$3,904,500 or $0.35 per share, respectfully, during the three and nine months
ended September 30, 2003. During the three and nine months ended September 30,
2002 the Company recorded losses of $1,281,700 or $0.12 per share and $3,832,500
or $0.36 per share. The increase in the loss for the three month periods of
$700,000 was primarily as a result of the major increase in expenses related to
one time legal and consulting fees incurred in the formation of Pinnacle, and
the accounting in the Nukem - SMP case. There was also an increase of $72,000
in the loss during the nine months ended September 30, 2003 over the same period
of the previous year. This increase was also due to the legal and accounting
expenses in the Nukem and Phelps Dodge cases. These increases were offset by
the cumulative effect caused by the implementation of SFAS 143 of $1.6 million.
Management believes the continued implementation of the basic business plan will
continue to improve net operating results.
ITEM 4. CONTROLS AND PROCEDURES
-------------------------
In the 90 day period before the filing of this report, the chief executive
and chief financial officers of the Company have evaluated the effectiveness of
the Company's disclosure controls and procedures. These disclosure controls and
procedures are those controls and other procedures we maintain, which are
designed to insure that all of the information required to be disclosed by the
Company in all its periodic reports filed with the SEC is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in its reports filed or submitted under the Securities
Exchange Act of 1934 is accumulated and communicated to Company management,
including the chief executive and chief financial officer of the Company, as
appropriate to allow those person to make timely decisions regarding required
disclosure.
Subsequent to the date when the disclosure controls and procedures were
evaluated, there have not been any significant changes in the Company's
disclosure controls or procedures or in other factors that could significantly
affect such controls or procedures. No significant deficiencies or material
weaknesses in the controls or procedures were detected, so no corrective actions
needed to be taken.
FORWARD LOOKING STATEMENTS
- ----------------------------
The statements contained in all parts of this document, including, but not
limited to, those relating to the Company's schedules, estimates or results of
future drilling, budgeted and other future capital expenditures, use of offering
proceeds, outcome and effects of litigation, the ability of expected sources of
liquidity to implement its business strategy, level of risk and capital and any
other statements regarding future operations, financial results, business plans
and cash needs and other statements that are not historical facts are forward
looking statements. When used in this document, the words "anticipate,"
"estimate," "expect," "may," "project," "believe" and similar expressions are
intended to be among the statements that identify forward looking statements.
Such statements involve risks and uncertainties, including, but not limited to,
those relating to the Company's dependence on its exploratory drilling
activities, the volatility of natural gas prices, operating risks of natural gas
operations, the Company's dependence on its key personnel, factors that affect
the Company's ability to manage its growth and achieve its business strategy,
risks relating to, limited operating history, technological changes, significant
capital requirements of the Company, the potential impact of government
regulations in the United States and elsewhere, litigation, competition, the
uncertainty of reserve information and future net revenue estimates, property
acquisition risks, availability of equipment, weather and other factors detailed
in the Company's Annual Report on Form 10-K for the year ended December 31,
2002. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially from
those discussed.
Although the U.S. District Court of Colorado has ordered Nukem to pay USE
and Crested Corp. approximately $20,000,000, Nukem's payment of the judgment
will be delayed by the appeals process. See Part II, Item 1, below. It is
also possible that the amount of the Judgment may change.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
------------------
On July 30, 2003, U.S. Energy Corp. ("USE") and Crested Corp. (" Crested")
received an Order and thereafter a Judgment on August 1, 2003 from the U.S.
District Court of Colorado wherein Chief Judge Lewis T. Babcock entered an Order
that Judgment be entered against Nukem/CRIC ("Nukem") in favor of the Company
and Crested in the total amount of $20,044,184. The Judgment was entered and
defendant Nukem posted a supersedeas bond in the full amount of the Judgment
plus interest of $231,400 for one year, which was approved by the Court. Nukem
filed a motion to alter and amend portions of the Order and Judgment and a
motion to remand the case to the Arbitration Panel. The Company and Crested
also filed a motion to alter and amend certain portions of the Order and
Judgment. These motions were filed under seal and on September 10, 2003, the
District Court overruled Nukem's motions and on September 11, 2003 the Court
overruled the motion of the Company and Crested. On October 3, 2003, Nukem, as
Appellants filed a Notice of Appeal to the 10th Circuit Court of Appeals and
thereafter on October 15, 2003, the Company and Crested filed a Notice of
Cross-Appeal to the 10th Circuit. Appellant's opening brief is due in December
2003 and Appellees' (USE/Crested) brief is due in January 2004.
No other material developments in the other pending Legal Proceedings have
occurred since they were last reported by the Company in Item 1 of its Form 10-Q
for the quarter ended June 30, 2003.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------------
(c) During the quarter ended September 30, 2003, the Company issued
163,754 shares of common stock as a result of the exercise of options by
employees and former employees and 37,336 shares from the execution of investor
warrants. Issuance of shares on a exercise of the options was registered on
Form S-8; the shares issued on exercise of the investor warrants were issued as
restricted securities with resale registered on Form S-3.
The dollar values of the issuances was $381,371 from the exercise of
employee options and $135,903 from the exercise of investor warrants.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits.
31 Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a)
32 Certification Pursuant to Section 1350 of Chapter 63 of title 18
ofthe United States Code
(b) REPORTS ON FORM 8-K. The Company filed six reports on Form 8-K for the
quarter ended September 30, 2003. The events reported were as follows:
1. The report filed on July 15, 2003, under Item 5 and 7, referred
to the Company's subsidiary, Rocky Mountain Gas, Inc. and the
formation of Pinnacle Gas Resources, Inc.
2. The report filed on July 21, 2003, under Item 5, referred to the
Company's subsidiary, Rocky Mountain Gas, Inc. and the formation
of Pinnacle Gas Resources, Inc.;
3. The report filed on August 1, 2003, under Item 5, referred to the
Order received form the U.S. District Court which ordered Nukem,
Inc. to pay the Company and USE $20,044,184;
4. The report filed on August 15, 2003, under Item 5, referred to
the sale of the Ticaboo Townsite in southern Utah to the Cactus
Group, LLC;
5. The report filed on August 27, 2003, under Item 5, referred to a
motion filed by Nukem to approve supersedeas bonds in the amount
of $20,275,600;
6. The report filed on September 19, 2003, under Item 5, referred to
orders from the U.S. District Court in the Nukem Litigation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
U.S. ENERGY CORP.
(Company)
Date: November 13, 2003 By: /s/ John L. Larsen
--------------------------------------
JOHN L. LARSEN,
CHAIRMAN and CEO
Date: November 13, 2003 By: /s/ Robert Scott Lorimer
--------------------------------------
ROBERT SCOTT LORIMER
Principal Financial Officer and
Chief Accounting Officer
CERTIFICATION
-------------
I, John L. Larsen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Energy Corp.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) (Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release 34-47986);
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Dated this 13th day of November, 2003.
/s/ John L. Larsen
---------------------------------------
John L. Larsen,
Chief Executive Officer
CERTIFICATION
-------------
I, Robert Scott Lorimer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Energy Corp.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) (Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release 34-47986);
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Dated this 13th day of November, 2003.
/s/ Robert Scott Lorimer
-----------------------------------------
Robert Scott Lorimer,
Chief Financial Officer
EXHIBIT 32
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
as adopted pursuant to
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, John L. Larsen, the Chief Executive Officer of U.S. Energy Corp.,
certify that (i) the Quarterly Report on Form 10-Q for the period ended
September 30, 2003, as filed by the Company with the Securities and Exchange
Commission, to which this Certification is an Exhibit, fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934, as
amended; and (ii) the information contained in the Quarterly financial
statements fairly presents, in all material respects, the financial condition
and results of operations of U.S. Energy Corp.
/s/ John L. Larsen
-----------------------------------------
John L. Larsen
Chief Executive Officer
Date: November 13, 2003
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been
provided to U.S. Energy Corp. and will be retained by U.S. Energy Corp. and
furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
as adopted pursuant to
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Scott Lorimer, the Chief Financial Officer of U.S. Energy Corp.,
certify that (i) the Quarterly Report on Form 10-Q for the period ended
September 30, 2003, as filed by the Company with the Securities and Exchange
Commission, to which this Certification is an Exhibit, fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934, as
amended; and (ii) the information contained in the Quarterly financial
statements fairly presents, in all material respects, the financial condition
and results of operations of U.S. Energy Corp.
/s/ Robert Scott Lorimer
-----------------------------------------
Robert Scott Lorimer
Chief Financial Officer
Date: November 13, 2003
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been
provided to U.S. Energy Corp. and will be retained by U.S. Energy Corp. and
furnished to the Securities and Exchange Commission or its staff upon request.