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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission file number 0-19365
CROWN ENERGY CORPORATION
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(Exact name of registrant as specified in its charter)
Utah 87-0368981
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1710 West 2600 South, Woods Cross, Utah, 84087
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(Address of principal executive offices, zip code)
(801) 296-0166
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(Registrant's telephone number, including area code)
Not applicable
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(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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X] .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
There were 26,482,388 shares of $0.02 par value common stock
outstanding as of March 31, 2003.
CROWN ENERGY CORPORATION
INDEX
PAGE(S)
PART I. Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2003
(unaudited) and December 31, 2002 3
Condensed Consolidated Statement of Operations for the
Three Months ended March 31, 2003 and 2002 (unaudited) 5
Condensed Consolidated Statement of Cash Flows for the
Three Months ended March 31, 2003 and 2002 (unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk 13
ITEM 4. Controls and Procedures 14
PART II. Other Information
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities 15
ITEM 3. Defaults upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Report on Form 8-K 16
Signatures 17
Certifications 18
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2003 December 31,
[unaudited] 2002
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,222,606 $ 2,723,068
Accounts receivable, net of allowance for uncollectible
accounts of $167,689 and $175,927 respectively 283,728 539,214
Inventory 757,130 604,106
Prepaid and other current assets 196,695 143,977
----------- -----------
Total Current Assets 2,460,159 4,010,365
PROPERTY PLANT, AND EQUIPMENT, Net 8,814,794 8,949,032
OTHER INTANGIBLE ASSETS, Net 12,500 25,000
OTHER ASSETS 215,627 290,399
----------- -----------
TOTAL $11,503,080 $13,274,796
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
3
CROWN ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
March 31, 2003 December 31,
[unaudited] 2002
----------- -----------
CURRENT LIABILITIES
Accounts payable $ 1,719,356 $ 2,349,242
Preferred stock dividends payable 1,100,000 1,000,000
Accrued expenses 154,056 192,878
Accrued interest 255,830 224,508
Long-term debt - current portion 383,479 423,585
----------- -----------
Total current liabilities 3,612,721 4,190,213
MINORITY INTEREST IN CONSOLIDATED
JOINT VENTURES 521,331 507,575
CAPITALIZATION:
Long-term debt 2,381,199 2,442,673
Redeemable preferred stock 5,000,000 5,000,000
Stockholders' equity/(deficit):
Common Stock $0.02 par value 50,000,000 shares authorized
26,482,388 shares outstanding for each period 529,647 529,647
Additional paid in Capital 3,819,417 3,919,417
Stock warrants 186,256 186,256
Accumulated deficit (4,547,491) (3,500,985)
----------- -----------
Stockholders' equity/(deficit) (12,171) 1,134,335
----------- -----------
TOTAL $11,503,080 $13,274,796
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
4
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended
March 31,
2003 2002
----------- -----------
SALES, Net of demerits $ 114,707 $ 468,321
COST OF SALES 773,450 1,312,300
----------- -----------
GROSS PROFIT (LOSS) (658,743) (843,979)
GENERAL AND ADMINISTRATIVE EXPENSES 336,322 622,902
----------- -----------
LOSS FROM OPERATIONS (995,065) (1,466,881)
----------- -----------
OTHER INCOME (EXPENSES):
Interest income and other income 1,328 2,155
Interest and other expense (66,235) (772,424)
----------- -----------
Total other income (expense), net (64,907) (770,269)
----------- -----------
LOSS BEFORE INCOME TAXES
AND MINORITY INTERESTS (1,059,972) (2,237,150)
----------- -----------
DEFERRED INCOME TAX BENEFIT --- ---
MINORITY INTEREST IN EARNINGS OF
CONSOLIDATED JOINT VENTURE 13,472 8,367
----------- -----------
NET LOSS $(1,046,500) $(2,228,783)
----------- -----------
NET LOSS PER COMMON SHARE-
Basic and diluted $ (0.04) $ (0.13)
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
5
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
2003 2002
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (1,046,500) $ (2,228,783)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Amortization, depreciation and depletion 181,304 192,016
Minority interest (13,472) (8,367)
Change in assets and liabilities:
Accounts receivable 255,486 287,941
Inventory (153,024) (418,225)
Prepaid and other assets 22,054 (320,532)
Accounts payable (629,886) 389,665
Accrued expenses and interest (7,500) 754,083
------------ ------------
Total adjustments (345,038) 876,581
------------ ------------
Net cash used in operating activities (1,391,538) (1,352,202)
------------ ------------
Cash flows used in investing activities:
Purchase of property and equipment (34,572) (28,320)
------------ ------------
Cash flows from financing activities:
Capital contributions from partners 27,228 13,614
Payments on long-term debt (101,580) (87,100)
------------ ------------
Net cash used in financing activities $ (74,352) $ (73,486)
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
6
CROWN ENERGY CORPORATION
[Unaudited]
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
For the Three Months Ended
March 31,
2003 2002
------------ ------------
Net Increase (Decrease) in Cash: $ (1,500,462) $ (1,453,918)
============ ============
Cash at Beginning of Period $ 2,723,068 $ 2,652,858
============ ============
Cash at End of Period $ 1,222,606 $ 1,198,940
============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ 43,508 $ 93,649
============ ============
Income taxes --- ---
============ ============
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the period ended March 31, 2003:
During the period, we accrued dividends on preferred stock of
$100,000.
For the period ended March 31, 2002:
On February 28, 2002, we issued 13,793,103 shares of common
stock to our preferred Stockholders as a payment for preferred
stock dividends payable totaling $200,000.
During the period, we accrued dividends on preferred stock of
$100,000 and $14,151 of accretion on preferred stock.
7
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We have prepared the accompanying consolidated financial statements
without an audit. In our opinion, all adjustments (which include only
normal recurring adjustments) necessary to present fairly our financial
position as of March 31, 2003, results of operations and cash flows for
the three months ended March 31, 2003, and 2002 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 our December 31,
2002 Annual Report on Form 10-K. The results of operations for the
period ended March 31, 2003, are not necessarily indicative of the
operating results for the full year.
Summary of Disputes - We have three outstanding complaints that have
been filed against us. One filed by Geneva Rock Products, Inc., one
filed by Oriental New Investments, Ltd., and one filed by S & L
Industrial. The first of the two foregoing actions were described in
detail in our Annual Report on Form 10-K for the year ending December
31, 2002. The S & L Industrial action is discussed in more detail in
Part II Item 1. Legal Proceedings.
Organization - Crown Energy Corporation ("CEC") and its wholly-owned
subsidiary, Crown Asphalt Products Company ("CAPCO") and Crown
Distribution, an entity in which CAPCO and CEC now own all interests
(collectively referred to as the "Company"), are engaged in the
production, manufacturing, distribution and selling of asphalt
products. Crown Distribution owns a majority interest in Cowboy Asphalt
Terminal, L.L.C. ("CAT, LLC"). CAT, LLC is a joint venture formed on
September 16, 1998, between CAPCO and Foreland Asphalt Corporation
("Foreland"), which owns 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 or majority-owned
subsidiaries. All significant inter-company transactions have been
eliminated in consolidation.
NOTE 2 - CAPITAL TRANSACTIONS
Preferred Stock - In September 1997, we sold to an unrelated third
party for $5.0 million in cash 500,000 shares of $10 Series A
Cumulative Convertible Preferred Stock and a warrant to purchase
925,771 shares at $0.002 per share. In February 2002, the Series A
Preferred Stock, the warrant, and all associated rights were purchased
from the original holder by Manhattan Goose, LLC, which was then owned
32.5% by Jay Mealey, our Chief Executive Officer, President and a
director, and 67.5% by other directors and unrelated parties. During
2002, we paid accrued dividends on the Series A Preferred Stock of
$400,000 in cash and $200,000 in 13,793,103 shares of common stock, or
at $0.0145 per share, the approximate market price on the date of
payment. In November 2002, Jay Mealey acquired the other 67.5%
membership interests in Manhattan Goose and simultaneously conveyed all
membership interests to the Mealey Family Limited Partnership, which is
the current holder of the Series A Preferred Stock, the warrant, all
associated rights, and accrued dividends. Mr. Mealey owns 48.5% of the
Mealey Family Limited Partnership and is its general partner and his
immediate family is its beneficiary.
8
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
As of December 31, 2002, and March 31, 2003, there were dividends
payable to the holder of the Series A Preferred Stock of $1.0 million
and $1.1 million, respectively, that may, at the election of the holder
be taken in cash or common stock. At the market price of $0.018 per
share as of April 8, 2003, 61,111,111 shares of common stock would have
to be issued to satisfy the dividend payable. The Series A Preferred
Stock is convertible to 4,285,000 shares of common stock, if so elected
by the holder of the Series A Preferred Stock.
We currently have an authorized capital of 50.0 million shares of
common stock, of which approximately 26.5 million shares are issued and
outstanding and approximately 3.1 million shares are reserved for
issuance on the exercise of outstanding options and warrants, for a
total of approximately 29.6 million shares, excluding the shares
issuable on conversion of the Series A Preferred Stock, the payment of
accrued dividends thereon, and exercise of the warrant. Therefore,
there are only approximately 20.4 million shares available for issuance
under the Series A Preferred Stock on conversion or the payment of
dividends or on exercise of the warrant. We have not undertaken to
renegotiate with the Mealey Family Limited Partnership any of the terms
of the Series A Preferred Stock or the warrant, do not know whether we
will attempt to do so, and have not analyzed our obligations or
responsibilities if Mealey Family Limited Partnership would elect to
convert the Series A Preferred Stock, demand payment of the dividends
in common stock, or exercise the warrant.
NOTE 3 - COMMON STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
At March 31, 2003, and December 31, 2002, common stockholders' equity
and redeemable preferred stock consists of the following:
2003 2002
----------- -----------
Redeemable preferred stock - $0.005 par value; 1,000,000 shares
authorized; $10.00 stated value; 500,000 Series A cumulative
convertible shares issued and outstanding; original estimated
fair market value of $4,716,981, accretion of $0.00 and $47,169
for the periods ended March 31, 2003, and December 31, 2002,
respectively, toward the stated value of $5,000,000 $ 5,000,000 $ 5,000,000
=========== ===========
Common stockholders' equity:
Common stock, $0.02 par value; 50,000,000 shares
authorized; 26,482,388 shares issued and outstanding
at March 31, 2003, and December 31, 2002, respectively $ 529,647 $ 529,647
Additional paid-in capital 3,819,417 3,919,417
Stock warrants outstanding; 400,000 at
March 31, 2003, and December 31, 2002 186,256 186,256
Accumulated deficit (4,547,491) (3,500,985)
----------- -----------
Total $ (12,171) $ 1,134,335
=========== ===========
9
CROWN ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 4 - PROFIT/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 three months ended
March 31, 2003 and March 31, 2002:
2003 2002
--------------------------- -----------------------------
Loss Per Share Loss Per Share
---- --------- ---- ---------
Net Profit (Loss) $(1,046,500) $(0.04) $(2,228,783) $(0.13)
Redeemable preferred stock
dividends and accretion (100,000) --- (114,151) ---
----------- ------ ----------- ------
Net profit (loss) attributable to
common stockholders $(1,146,500) $(0.04) $(2,342,934) $(0.13)
=========== ====== =========== ======
Weighted average common shares
outstanding - basic and diluted 26,482,388 18,386,539
We had at March 31, 2003, and December 31, 2002, incremental options
and warrants to purchase, 3,988,919 shares and 3,163,148 shares of
common stock, respectively, that were not included in the computation
of diluted earnings (loss) per share because their effect was
anti-dilutive. We also had preferred stock outstanding at March 31,
2003, and December 31, 2002, which is convertible into approximately
4,285,000 shares of common stock that was not included in the
computation of diluted loss per share as its effect was anti-dilutive.
Accordingly, diluted loss per share does not differ from basic loss. As
of March 31, 2003, there were preferred stock dividends payable in the
amount of $1,100,000. Pursuant to the designations and preferences of
the preferred stock, the foregoing dividends could be satisfied, at the
option of the holder, by the issuance of shares of the Company's common
stock in lieu of cash payments at the "fair market value" of the common
stock as defined in the designations and preferences. At the market
price of $0.018 per share as of March 31, 2003, 61,111,111 shares of
common stock would have to be issued to satisfy the dividend payable.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our 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 that express, either directly or by implication, management's
beliefs, expectations or intentions regarding our future performance or future
events or trends that may affect us or our 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 our 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 risk of loss of certain operating assets serving as collateral
to secure financing, and other similar risks inherent in our operations or in
business operations generally. Any such risks or uncertainties, either alone or
in combination with other factors, may cause our actual results, performance or
achievements to differ materially from our 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, 2003, we had cash and other current assets of $2.5
million, as compared to cash and other current assets of $4.0 million at
December 31, 2002. The decrease of approximately $1.5 million was generally due
to the net loss incurred during the period, and a pay down of accounts payable.
Our business is capital intensive and requires a working capital credit facility
to operate efficiently. We have not had such a credit facility since 1999, which
has resulted both in lower revenues and lowered profitability. We seek to
diminish part of our working capital constraints by structuring supply
arrangements; however, there can be no guarantee we will be able to accomplish
such arrangements.
Our business requires a large amount of working capital to purchase and
store inventory and for accounts receivable and general operations. We do not
have adequate working capital to operate our business currently and must rely on
outside third-party sources to finance that requirement. We have not had outside
working capital financing since 1999. Although the settlement of our obligation
to MCNIC in late 2002 releases much of the encumbrance on our assets, we believe
it will continue to be very difficult to obtain the working capital needed to
operate the business. However, to date, we have been unable to obtain adequate
financing on acceptable terms, and we cannot assure that we will be able to. We
continue to explore avenues to obtain working capital financing, including
supplier financing, through-put arrangements, structured supply arrangements and
joint ventures with industry participants, facility leasing and conventional
financing from commercial sources. Given our financial condition, generally,
outside working capital funding requires personal guarantees, and our officers
and directors have been unwilling to provide such guarantees for our benefit as
a publicly-held company. Our failure to obtain the necessary working capital
financing will likely continue to have a significant negative impact on our
future operations and may make it unable for us to continue.
A portion of our accounts receivable is subject to the risks and
uncertainties of litigation and related collection risks. See "Item 3. Legal
Proceedings." In the event that we are unable to collect our current accounts
receivables, we are unable to secure the necessary working capital line of
credit for our operations, our operating losses and working capital deficits
continue, or if we are unable to recoup our losses, we may not have sufficient
capital to operate through 2003.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
As of March 31, 2003, we had a working capital deficit of approximately
$1.2 million, an accumulated deficit of $4.5 million, and stockholders' deficit
attributable to the common stock of $12,171. Our auditor's report on our
financial statements for the year ended December 31, 2002, as for prior years,
contained an explanatory paragraph about our ability to continue as a going
concern. We continue to suffer from shortages of working capital needed to
optimize operating economies. Further, our operating history and the prevailing
current conditions in the investment markets generally have made it difficult to
obtain outside equity capital. Given our financial condition, generally, outside
working capital funding requires personal guarantees, and our officers and
directors have been unwilling to provide such guarantees for our benefit as a
publicly-held company. The market price for our common stock has ranged from a
low of $0.008 to a high of $0.055 during 2002, closing on March 28, 2003, at
$0.018 per share. Finally, we have reviewed the costs required to meet
regulatory and stockholder requirements associated with being a publicly held
company subject to the periodic reporting, proxy and other requirements under
the Securities Exchange Act along with the increased cost of insurance and other
burdens we believe result from the enactment of the Sarbanes-Oxley Act of 2002,
particularly for a small company such as us.
In view the foregoing, in March 2003, our board of directors, which
includes affiliates of our principal stockholders, authorized management to
investigate available alternatives for a so-called "going private" transaction,
with the effect that we would become privately held by our current principal
stockholders, subject to satisfying various regulatory requirements. This
investigation will include a review of available alternatives and their related
legal, financial, regulatory and related considerations. In connection with that
investigation, management may seek a third party valuation of our Company and
the interests of our minority stockholders from a financial point of view. We
cannot give any assurance of when or if a going private transaction will take
place or describe the terms on which it might be proposed or completed.
We continue to consider other asphalt-related business opportunities to
complement our existing asphalt distribution capabilities. However, we
anticipate that many opportunities may require additional capital, and we cannot
assure that we can obtain additional capital required to finance such
opportunities on acceptable terms and conditions.
A portion of our accounts receivable is subject to the risks and
uncertainties of litigation and related collection risks. See "Item 3. Legal
Proceedings." In the event that we are unable to collect our current accounts
receivables, we are unable to secure the necessary working capital
line-of-credit for our operations, our operating losses and working capital
deficits continue, or if we are unable to recoup our losses, we may not have
sufficient capital to operate through 2003.
Accounting Policies
Inventory consists principally of refined products and chemical
supplies, which are valued at the lower of cost (computed on a first in, first
out basis) or market.
Revenue recognition for sales of product is recognized when a contract
is executed or a valid purchase order has been received, product has been
shipped, the selling price is fixed or determinable, and collectibility is
reasonably assured.
Property, plant and equipment are recorded at cost and are depreciated
over the estimated useful lives of the related assets. Depreciation is computed
using the straight-line method for financial reporting purposes. The estimated
useful lives of property, plant, and equipment are as follows:
Plant and improvements and tankage 10-30 years
Equipment 7 years
Vehicles 5 years
Computer equipment, furniture and fixtures 3 years
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of receivables. In the normal
course of business, the Company performs ongoing credit evaluations of its
customers and maintains allowances for possible losses that, when realized, have
been within the range of management's expectations.
The Company maintains its cash in bank deposit accounts that, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit risk
on cash and cash equivalents.
Results of Operations
For the three month period ending March 31, 2003, compared to the three
month period ending March 31, 2002
Total revenue decreased from $468,321 for the three-month period ended
March 31, 2002, to $114,707 for the three-month period ended March 31, 2003, a
decrease of $353,614. Cost of sales decreased from $1,312,300 for the same
period in 2002 to $773,450 for the same period in 2003, a decrease of $538,850.
The decrease in revenues was primarily the result of a decrease in sales volume
of approximately 2,561 tons. In 2002, mild weather enabled us to supply a
contract with an early season start, while, as is more typically the case, in
2003 the weather in our area did not allow for early season work. The decrease
in cost of sales in the 2003 interim period is primarily the result of the
reduced volume of asphalt sold and a reduction of operating expenses in
preparing the facilities for 2003.
General and administrative expenses decreased from $622,902 for the
three-month period ended March 31, 2002, to $336,322 for the three-month period
ended March 31, 2003, a decrease of $286,580. This decrease is primarily due to
decreased legal expenses, rent expense for our administrative offices, and a
reduction in salaries and wages.
Net other income/expenses decreased from an expense of $770,269 for the
three-month period ended March 31, 2002, to $64,907 for the three-month period
ended March 31, 2003, a decrease of $705,362. This decrease is primarily due to
the extinguishment of debt through a settlement with MCNIC on October 16, 2002.
Minority interest of $13,472 represents Foreland's approximate 33%
interest in the loss of CAT, LLC.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We do not believe we are subject to material market risks, such as
interest rate risks, foreign currency exchange rate risks, or similar risks, and
therefore, we do not engage in transactions, such as hedging or similar
transactions in derivative financial instruments, intended to reduce our
exposure to such risks. However, we are subject to general market fluctuations
related to the purchase of base stock asphalt and may suffer reduced operating
margins to the extent our increased costs are not passed through to our
customers. Such prices generally fluctuate with the price of crude oil.
We are also subject to certain price escalation and de-escalation
clauses in our asphalt distribution sales contracts. We supply 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. We include such de-escalation risk into our bid
prices and do not believe we have material exposure to risk resulting from these
regulations.
13
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Based on their evaluations as of a date within 90 days of the filing
date of this report, the principal executive officer and principal financial
officer of the Company have concluded that the Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act) are effective to ensure that information required to be disclosed
by the Company in reports that the Company files or submits under the Securities
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission.
(b) Changes in internal controls
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these internal controls
subsequent to the date of their most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 9, 2003, an action was filed against us by S & L Industrial in
the Fifth Judicial District of Big Horn County, Wyoming. In the action, S & L
seeks to recover amounts which were offset by us against the purchase price
under our asset purchase agreement with S & L due to deficiencies which we felt
existed with regard to the purchased assets. The assets purchased from S & L
comprise our Rawlins terminal in Rawlins, Wyoming. S & L disputes our offsets.
We have not yet answered S & L's claim but intend to vigorously contest
its charges. Due to the very early stages of the action, there can be no
assurance that we will ultimately prevail or what the outcome will be.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As noted elsewhere in this report, as of September 30, 2002, there were
arrearages in the amount of $1,100,000 on dividends on our preferred stock.
Pursuant to the designations and preferences of the preferred stock, the
foregoing arrearages could be satisfied, at the option of the holder, by the
issuance of shares of our common stock in lieu of cash payments at the "fair
market value" of the common stock as defined in the designations and
preferences. As of March 31, 2003, approximately 61,111,111 shares of common
stock would have been issuable at the then "fair market value" in satisfaction
of the preferred stock dividend arrearages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
15
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits: The following exhibits are included as part of this
report:
SEC
Exhibit Reference
Number Number Title of Document Location
- --------------------------------------------------------------------------------
99.01 99 Certification Pursuant to 18 U.S.C. Section This filing
1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer)
- --------------------------------------------------------------------------------
99.02 99 Certification Pursuant to 18 U.S.C. Section This filing
1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer)
(b) Reports on Form 8-K: We did not file any reports on Form 8-K for
the quarter ended March 31, 2003.
16
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, 2003 By: /s/ Jay Mealey
-----------------------------------
Jay Mealey, Chief Executive Officer
Date: May 15, 2003 By: /s/ Alan Parker
-----------------------------------
Alan Parker, Controller
17
CERTIFICATION
I, Jay Mealey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Crown Energy
Corporation;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Jay Mealey
- ----------------------------
Jay Mealey
Principal Executive Officer
18
CERTIFICATION
I, Alan L. Parker, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Crown Energy
Corporation;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Alan L. Parker
- ----------------------------
Alan L. Parker
Principal Financial Officer
19