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 August 31, 1998 or
[ ]      Transition report pursuant to section 13 or 15(d) of the 
         Securities Exchange Act of 1934
         For the transition period from ____  to  ____

Commission file number   0-8773

                                  CRESTED CORP.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

         Colorado                                           84-0608126
-------------------------------------------------     --------------------------
         (State or other jurisdiction of                    (I.R.S. Employer
         incorporation or organization)                     Identification No.)

         877 North 8th West, Riverton, WY                   82501
-------------------------------------------------     --------------------------
         (Address of principal executive offices)           (Zip Code)

Registrant's telephone Number, including area code:         (307) 856-9272
                                                      --------------------------


                                      NONE
      (Former name, address and fiscal year, if changed since last report)


         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                            YES   X             NO ____

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

               Class                           Outstanding at October 14, 1998
---------------------------------------     ------------------------------------
    Common stock, $.001 par value                    10,302,694 Shares



<PAGE>



                           CRESTED CORP. AND AFFILIATE

                                      INDEX

                                                                       Page No.
PART I.  FINANCIAL INFORMATION

ITEM 1.  Financial Statements.

         Condensed Consolidated Balance Sheets
             August 31, 1998 and May 31, 1998...............................3-4

         Condensed Consolidated Statements of Operations
             Three Months Ended August 31, 1998 and 1997......................5

         Condensed Consolidated Statements of Cash Flows
             Three Months Ended August 31, 1998 and 1997......................6

         Notes to Condensed Consolidated Financial Statements.................7

ITEM 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations.....................8-11

PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings................................................12-13

ITEM 6.  Exhibits and Reports on Form 8-K....................................13

         Signatures..........................................................14


                                        2

<PAGE>



                          PART I. FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS.

                           CRESTED CORP. AND AFFILIATE

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                                      ASSETS
<TABLE>
<CAPTION>

                                                                   August 31,         May 31,
                                                                      1998             1998
                                                                      ----             ----
                                                                  (Unaudited)
<S>                                                              <C>               <C>         
CURRENT ASSETS:
    Cash and cash equivalents                                    $  2,227,600      $  1,012,700
    Accounts receivable
        Trade, net of allowance for doubtful accounts                  62,400            89,500
        Affiliates                                                  1,904,700           939,900
    Current portion of long-term receivable
        Related parties                                               229,500           227,800
    SMP settlement receivable                                            --           2,513,000
    Inventory and other                                                96,600            26,400
                                                                 ------------      ------------
           TOTAL CURRENT ASSETS                                     4,520,800         4,809,300

LONG-TERM NOTES RECEIVABLE
    Related parties                                                    95,500           116,500
    Real estate sale, net of valuation allowance of $882,900          182,500           182,500

INVESTMENTS IN AFFILIATES                                           1,557,800         1,643,300

INVESTMENT IN CONTINGENT WARRANT                                      651,000           651,000

PROPERTIES AND EQUIPMENT                                            5,902,400         5,876,700
    Less accumulated depreciation,
    depletion and amortization                                     (3,285,400)       (3,221,700)
                                                                 ------------      ------------
                                                                    2,617,000         2,655,000

OTHER ASSETS                                                          155,300           153,800
                                                                 ------------      ------------
                                                                 $  9,799,900      $ 10,211,400
                                                                 ============      ============




            See notes to Condensed Consolidated Financial Statements.
</TABLE>

                                        3

<PAGE>



                           CRESTED CORP. AND AFFILIATE

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                 LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>

                                                                August 31,         May 31,
                                                                   1998             1998
                                                                   ----             ----
                                                                (Unaudited)
<S>                                                            <C>             <C>         
CURRENT LIABILITIES:
      Accounts payable and accrued expenses                    $    409,600    $    698,800
      Deferred GMMV purchase option                               2,000,000       2,000,000
      Current portion of long-term debt
         Affiliate                                                6,945,500       6,547,100
         Others                                                     136,900          36,400
                                                               ------------    ------------
TOTAL CURRENT LIABILITIES                                         9,492,000       9,282,300

LONG-TERM DEBT                                                       36,000          42,100

RECLAMATION LIABILITY                                               725,900         725,900

COMMITMENTS AND CONTINGENCIES

FORFEIT ABLE COMMON STOCK, $.001 par value
      65,000 shares issued, forfeit able until earned                43,900          43,900

SHAREHOLDERS' (DEFICIT) EQUITY:
      Preferred stock, $.001 par value;
         100,000 shares authorized;
         none issued or outstanding                                    --              --
      Common stock, $.001 par value;
         20,000,000 shares authorized;
         10,237,694 shares issued and outstanding                    10,200          10,200
      Additional paid-in capital                                  6,375,400       6,375,400
      Accumulated deficit                                        (6,883,500)     (6,268,400)
                                                               ------------    ------------
                                                                   (435,000)        117,200
                                                               ------------    ------------
                                                               $  9,799,900    $ 10,211,400
                                                               ============    ============



            See notes to Condensed Consolidated Financial Statements.
</TABLE>

                                        4

<PAGE>



                           CRESTED CORP. AND AFFILIATE

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                  Three Months Ended
                                                      August 31,
                                           -----------------------------
                                              1998               1997
                                              ----               ----
                                           (Unaudited)        (Unaudited)
<S>                                        <C>               <C>         
REVENUES:
    Mineral revenue                        $     24,500      $    458,100
    Commercial operations                       329,800           220,700
    Interest                                     37,400            28,300
    Oil sales                                     9,500            24,300
    Management fees and other                   220,900           155,000
    Gain on sale of assets                         --                 400
                                           ------------      ------------
                                                622,100           886,800

COSTS AND EXPENSES:
    Mineral operations                     $    327,200      $    187,400
    Commercial operations                       202,200            64,400
    General and administration                  627,100           330,100
    Oil production                               11,100             7,300
    Interest expense                              6,700             4,400
                                           ------------      ------------
                                              1,174,300           593,600
                                           ------------      ------------

(LOSS) INCOME BEFORE EQUITY IN LOSS OF
    AFFILIATE AND INCOME TAX PROVISION         (552,200)          293,200

EQUITY IN LOSS OF AFFILIATE                     (62,900)          (47,300)
                                           ------------      ------------

(LOSS) INCOME BEFORE PROVISION
    FOR INCOME TAXES                           (615,100)          245,900

PROVISION FOR INCOME TAXES                         --                --
                                           ------------      ------------

NET (LOSS) INCOME                          $   (615,100)     $    245,900
                                           ============      ============

NET (LOSS) INCOME PER SHARE,
    BASIC AND DILUTED                      $       (.06)     $        .02
                                           ============      ============

BASIC WEIGHTED AVERAGE
    SHARES OUTSTANDING                       10,237,694        10,237,694
                                           ============      ============

DILUTED WEIGHTED AVERAGE
    SHARES OUTSTANDING                       10,302,694        10,302,694
                                           ============      ============



            See notes to Condensed Consolidated Financial Statements.
</TABLE>

                                        5

<PAGE>



                           CRESTED CORP. AND AFFILIATE

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                   Three Months Ended
                                                                       August 31,
                                                             -----------------------------
                                                                 1998             1997
                                                                 ----             ----
                                                              (Unaudited)      (Unaudited)
<S>                                                          <C>              <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income                                          $  (615,100)     $   245,900
  Adjustments to reconcile net (loss) income to net cash
      provided by (used in) operating activities:
         Depreciation, depletion and amortization                 63,700           44,100
         Equity in loss of affiliates                             62,900           47,300
      Net changes in components
         of working capital                                    1,218,400         (783,400)
                                                             -----------      -----------
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES                                           729,900         (446,100)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Deferred GMMV purchase option                                     --          2,000,000
  Decrease (increase) in long-term receivables                    19,300          (15,800)
  Investments in affiliates                                         --            (95,800)
  Purchases of property and equipment                            (25,700)         (32,000)
  Increase in other assets                                        (1,400)            --
                                                             -----------      -----------
NET (CASH USED) PROVIDED BY
   INVESTING ACTIVITIES:                                          (7,800)       1,856,400

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment on long-term debt                                       (6,100)         (11,700)
  Increase in long-term debt                                     100,500             --
  Net activity on debt to affiliate                              398,400           16,200
                                                             -----------      -----------
NET CASH PROVIDED BY
  FINANCING ACTIVITIES                                           492,800            4,500
                                                             -----------      -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                      1,214,900        1,414,800

CASH AND CASH EQUIVALENTS AT
  BEGINNING OF PERIOD                                          1,012,700           37,100
                                                             -----------      -----------

CASH AND CASH EQUIVALENTS AT
  END OF PERIOD                                                2,227,600        1,451,900
                                                             -----------      -----------

SUPPLEMENTAL DISCLOSURES:

  Interest paid                                              $     6,700      $     4,400
                                                             ===========      ===========



            See notes to Condensed Consolidated Financial Statements.

                                        6

<PAGE>



                                  CRESTED CORP.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


         1) The Condensed  Consolidated  Balance Sheet as of August 31, 1998 the
Condensed  Consolidated  Statements of  Operations  and Cash Flows for the three
months  ended  August 31, 1998 and 1997,  have been  prepared by the  Registrant
without  audit.  The Condensed  Consolidated  Balance Sheet at May 31, 1998, has
been taken from the audited  financial  statements  included in the Registrant's
Annual Report on Form 10-K filed for the year then ended.  In the opinion of the
Registrant,  the  accompanying  financial  statements  contain  all  adjustments
(consisting of only normal recurring  accruals)  necessary to fairly present the
financial  position of the  Registrant  and its affiliate as of August 31, 1998,
the results of  operations  and cash flows for the three months ended August 31,
1998.

         2) 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 financial
statements be read in conjunction with the Registrant's May 31, 1998 Form 10- K.
The results of operations for the periods ended August 31, 1998 and 1997 are not
necessarily indicative of the operating results for the full year.

         3) The condensed  consolidated  financial  statements of the Registrant
include its proportionate  share of the accounts of USECB Joint Venture ("USECB"
or "USECC")  which is owned 50% by Registrant  and 50% by  Registrant's  parent,
U.S. Energy Corp. ("USE"). All material  inter-company profits and balances have
been eliminated.

         4) Debt at May 31, 1998 and August 31, 1998  consists  primarily of the
balance on a note  payable to the  Registrant's  parent  USE of  $6,547,100  and
6,945,500, respectively. The remaining long-term debt of $172,900 is for various
equipment  purchases  and the  financing of annual  insurance  premiums  through
financial institutions.

         5) The reclamation  liability of $725,900  represents the  Registrant's
share of the  liability  at the Sheep  Mountain  Mines in the  Crooks Gap Mining
District. This reclamation work may be performed over several years and will not
be commenced until such time as all the uranium mineralization  contained in the
properties is produced or the properties are  abandoned.  It is not  anticipated
that either of these events will occur for sometime into the future.

         6) In February  1997,  SFAS No. 128 "Earnings per Share" was issued and
specifies the computation, presentation and disclosure requirements for earnings
per share.  SFAS 128 is effective for periods ended after  December 15, 1997 and
requires  retroactive  restatement  of prior  period  earnings  per  share.  The
statement  replaces "primary earnings per share" with "basic earnings per share"
and  replaces  "fully  diluted  earnings per share" with  "diluted  earnings per
share."  Adoption  of SFAS  128  did not  have  an  effect  on the  Registrant's
previously reported net income (loss) per common share.

         7)  Certain  reclassifications  have  been  made in the  May  31,  1998
financial statements to conform to the classifications used in August 31, 1998.


                                        7

<PAGE>



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 the Registrant's  liquidity,  capital  resources and
results of operations during the periods included in the accompanying  financial
statements.

LIQUIDITY AND CAPITAL RESOURCES

         During the quarter  ended  August 31,  1998,  the  Registrant  received
$2,513,000  in cash as a result of a partial  settlement  of the Sheep  Mountain
Partners ("SMP") arbitration. This increased the cash position of the Registrant
at August 31, 1998 to  $2,227,600  or a net  increase for the quarter in cash of
$1,214,900.  Other  increases in components of working capital were increases in
Inventory and other of $70,200 and Accounts  Receivable  Affiliates of $964,800.
Inventory and other increased by $70,200 as a result of prepaid  insurance being
paid  for  during  the  quarter  ended  August  31,  1998.  Accounts  Receivable
Affiliates increased due to the Registrant and USE advancing funds for the Green
Mountain Mining Venture ("GMMV") operations that have not yet been reimbursed by
the GMMV from the proceeds of the loan from Kennecott Uranium Company ("KUC").

         The major  component of decreased  working  capital  during the quarter
ended August 31, 1998, is an increase in the current  portion of long-term debt.
Long term debt and the current  portion of long term debt  increased by $492,800
during the quarter  ended August 31, 1998.  This increase is due to amounts owed
the Company's parent U.S. Energy Corp. ("USE") for shared expenses that USE paid
on behalf of both companies.  These expenses during the quarter ended August 31,
1998  consisted  primary of payroll  expense which  increased the debt to USE by
$398,400. The other increase in debt was as a result of financing the Registrant
and USE's annual insurance premium, which increased debt by $100,500.

CAPITAL RESOURCES

         GENERAL:  The primary source of the Registrant's  capital resources for
the  remaining  nine  months of fiscal  1999 are the cash on hand at August  31,
1998; the potential receipt of cash from the SMP Arbitration Award once the 10th
Circuit Court of Appeals rules on the Nukem appeal;  possible  equity  financing
from affiliated companies, and proceeds under the line of credit. The Registrant
will  continue to rely on USE to provide  funding for its  expenditures  for the
remaining nine months of fiscal 1999. Additionally,  the Registrant and USE will
continue to offer for sale various  non-core assets such as equipment,  lots and
homes in Ticaboo, real estate holdings in Wyoming, Colorado and Utah and mineral
interests.  Interest,  rentals of real estate  holdings and equipment,  aircraft
chartering and aviation fuel sales, also will provide cash.

         LINE OF CREDIT: The Registrant and USE have a $1,000,000 line of credit
with a  commercial  bank.  The line of credit is secured by various  real estate
holdings and equipment  belonging to the  Registrant  and USE. It is anticipated
that this line of credit  may be used to  finance  short  term  working  capital
needs.

         FINANCING: Equity financing for Sutter Gold Mining Company ("SGMC") and
Plateau Resources Ltd. ("Plateau") are dependent on the market price of gold and
uranium  among other  conditions.  As of August 31,  1998,  the prices for these
metals  remained  depressed  and it is not known  when they  will  recover.  The
Registrant  and USE continue to be optimistic  concerning the future markets for
these metals but cannot accurately forecast what the prices will be in the short
or long term markets. If the price for these metals do not increase in the short
term, the working capital of Registrant and USE will be impacted  negatively due
to holding costs of the  properties  and the ability of raising  equity  funding
could be impaired.


                                        8

<PAGE>



         SUMMARY:  The Registrant  believes that cash on hand at August 31, 1998
as well as proceeds  from its line of credit,  if needed,  and the  Registrant's
continued reliance on USE, will be adequate to fund working capital requirements
through fiscal 1999. However,  these capital resources will not be sufficient to
provide the funding for major  capital  expansions of the  Registrant's  mineral
properties.

CAPITAL REQUIREMENTS

         GENERAL:  The primary requirements for the Registrant's working capital
during the remainder of fiscal 1999 are expected to be the costs associated with
the development  activities of Plateau, care and maintenance costs of the former
SMP mineral properties acquired from SMP last June, payments of holding fees for
mining claims,  the  Registrant's  portion of the costs associated with the GMMV
properties and corporate general and administrative expenses.

         SGMC: The Registrant owns a minority  interest in SGMC and is therefore
not directly responsible for the ongoing administrative and development costs of
the properties  owned by SGMC.  Through its  affiliation  with USE however,  the
Registrant  assists  in the  efforts  to  secure  financing  to  place  the SGMC
properties into production.

         SMP:  As part of a  settlement  agreement  reached  during  the  fourth
quarter of 1998, the SMP mines and associated properties were transferred to the
Registrant  and USE. The holding and  reclamation  costs  associated  with these
mining properties are the  responsibility of the Registrant and USE. The holding
costs historically have been approximately $85,000 per month. The Registrant and
USE continue to search for improved  techniques  that will reduce these  monthly
costs.  The future  reclamation  costs on the SMP  properties  are  covered by a
reclamation bond which is secured by the pledge of certain of the Registrant and
USE's real estate assets. The dollar amount for the reclamation bond is reviewed
annually  by the state  regulatory  agencies.  The  Registrant's  portion of the
reclamation  liability  on the  SMP  properties  is  $725,900  and is  shown  as
"Reclamation liability " within the condensed consolidated balance sheet.

         It is not  anticipated  that the SMP  properties  will be  placed  into
production  during Fiscal 1999. The Registrant and USE have  determined that the
SMP mining  properties  should be maintained  and prepared for production in the
future  when the price of uranium  increases  into the $15 per pound range or at
such  time as the  Registrant  and USE are able to  obtain  long  term  delivery
contracts with favorable price terms and the Sweetwater Mill (which is owned and
operated by the GMMV) is placed into production.  There are no major reclamation
obligations  during the balance of Fiscal 1999 that the  Registrant  and USE are
aware of on the properties.

         In  addition  to  receiving  the  SMP  mining  properties  back  in the
settlement of a portion of the SMP  arbitration  issues,  the Registrant and USE
also received one of the market related delivery  contracts which had previously
belonged to SMP.  There is one  delivery  under this  contract  during the third
quarter of Fiscal 1999. The delivery  requirement  was sold to a third party and
the  Registrant  and USE will make a nominal amount of profit on the sale during
the third  quarter  of 1999.  As of  August  31,  1998,  the  Registrant  has no
additional delivery or financing commitments for the sale or purchase of uranium
during Fiscal 1999.

         GMMV:  During  July 1998,  the GMMV  Management  Committee  unanimously
agreed to place the Jackpot Mine and Sweetwater  Mill on active standby  status.
This  decision was made as a result of  uncertainties  in the short term uranium
market.  These same  uncertainties have made the financing of the acquisition of
Kennecott's  interest in the GMMV more  difficult.  The  Registrant and USE have
until October 31, 1998 to complete the financing efforts to purchase Kennecott's
interest. It appears unlikely that the financing will be successfully  completed
and the Acquisition Agreement which, was signed on June 23, 1997, will expire on
October 31, 1998.


                                        9

<PAGE>



         After  October  31,  1998 the mines and the mill  will  continue  to be
maintained. Kennecott's obligation to fund the first $50 million in expenditures
is now satisfied and the  Registrant and USE will be obligated to fund their 50%
of the  ongoing  costs.  The  Management  Committee  of the  GMMV  is  currently
discussing what level of expenditures should be made to maintain the properties.
A final decision on these  expenditures has not been reached but the Registrant,
USE and  Kennecott  are desirous  that the expenses be held to a minimum.  It is
anticipated that if the annual expenditures do not exceed $2 million for standby
and maintenance  that the Registrant and USE, will be able to fund their portion
of this commitment through fiscal 1999.

         Expenditures  through  July 1998  were  covered  under the $16  million
dollar loan from Kennecott Energy pursuant to the Acquisition  Agreement.  As of
the filing of this report,  all those costs had not been paid to the  Registrant
and USE by the GMMV.  The Management  Committee of GMMV is currently  evaluating
the billings and it is anticipated that they will be completely  resolved in the
second quarter of Fiscal 1999.

         PLATEAU:  Plateau  owns  and  operates  the  Ticaboo  Townsite,  motel,
convenience  store and restaurant.  Additionally  Plateau owns and maintains the
Tony M uranium mine and  Shootaring  Uranium mill.  The  Registrant  and USE are
currently working to obtain the necessary permits from the NRC and State of Utah
to place the Shootaring mill into production. The Registrant and USE are seeking
debt or equity  financing  of between $6 million  and $9 million to put the mill
and Tony M mine into  production.  Until such time as the  financing is received
and profitable  contracts are obtained,  the Registrant and USE will not put the
properties owned by Plateau into production. Historically, the net holding costs
of the Plateau properties have been $70,000 per month.

         YELLOW STONE FUELS CORP. ("YSFC"):  In Management's  opinion,  YSFC has
sufficient  cash to  complete  its  projected  1999  exploration  program on its
in-situ uranium properties.  As of August 31, 1998, YSFC owed the Registrant and
USE $400,000 on a  convertible  promissory  note plus interest at 10% per annum.
YSFC is indebted to the Registrant and USE for the promissory note, the interest
accrued on the note and  additional  amounts  that the  Registrant  and USE have
advanced for YSFC for a total indebtedness at August 31, 1998 of $709,900.  YSFC
has sufficient cash on hand to retire this indebtedness.  YSFC has indicated its
desire to pay the total  indebtedness  in cash but it is not certain that a cash
payment will occur as YSFC may elect, at its option,  to pay the promissory note
with shares of its common stock.

         TERM DEBT AND OTHER OBLIGATIONS:  Debt to non-related parties at August
31, 1998 was  $172,900 as compared to $78,500 at May 31,  1998.  The increase in
debt to  non-related  parties  consists  primary of debt due on the financing of
annual insurance premiums. The balance of the debt to non-related parties is for
the purchase of various pieces of heavy equipment and bears  different  interest
rates and has various maturity dates. All payments on the debt are current.

         As of August 31, 1998,  the Registrant was indebted to USE in the total
amount of $6,945,500.  USE has not indicated that it will call the debt,  (which
is backed by a promissory  note),  when it is due. The  Registrant  will need to
either  retire the note with shares of its common  stock;  pay the debt with any
monies received from the SMP Arbitration Award if additional cash is received or
negotiate with USE to extend the note and or negotiate an alternative  method of
repayment.

         RECLAMATION  OBLIGATIONS:  It  is  not  anticipated  that  any  of  the
Registrant's  working capital will be used in Fiscal 1999 for the reclamation of
any of its mineral property  interests.  The reclamation costs are long term and
are either bonded  through the use of cash bonds or the pledge of assets.  It is
not anticipated  that any of the mining  properties in which the Registrant owns
an interest of will enter the reclamation phase prior to May 31, 1999.


                                       10

<PAGE>



         OTHER:  The  Registrant  and USE currently are not in production on any
mineral  properties,  and  development  work continues on several of their major
investments.  The Registrant and USE are not using hazardous substances or known
pollutants  to any great  degree in these  activities.  Consequently,  recurring
costs for managing hazardous substances, and capital expenditures for monitoring
hazardous substances or pollutants have not been significant. The Registrant and
USE are also not aware of any claims for  personal  injury or  property  damages
that need to be accrued or funded.

         The tax years  through May 31, 1992 are closed  after audit by the IRS.
On October 5, 1998 the Registrant and USE met with the Appeals Office of the IRS
in Denver, Colorado to discuss resolving issues raised for Fiscal 1993 and 1994.
The  Registrant  and USE have  resolved all  outstanding  issues for those years
without  incurring any cash  commitments  for  additional  taxes due. The IRS is
currently concluding its review of Fiscal 1995 and 1996 for both companies,  but
no final reports have been issued therefore no representations can be made as to
their ultimate outcome.

RESULTS OF OPERATIONS

THREE MONTHS ENDED AUGUST 31, 1998 COMPARED TO THREE MONTHS ENDED AUGUST 31, 1997

         During the three months ended August 31, 1998,  revenues decreased from
the same period of the previous year by $264,700 to total  revenues of $622,100.
The major reduction resulted from the Registrant not receiving any revenues from
the delivery of uranium from one SMP  contract.  During the quarter ended August
31, 1997, the Registrant recognized $429,300 in revenue from the profits derived
from a SMP contract delivery.  No such revenues were recognized during the three
months ended August 31, 1998. Revenues from Commercial Operations and Management
Fees  increased  by $109,100  and $65,900  respectively  during the three months
ended August 31, 1998 over the same period of the  previous  year as a result of
equipment rental to the GMMV and increased expenditures at the GMMV on which the
Registrant recognized a management fee.

         Costs and expenses for the quarter  ended August 31, 1998  increased by
$580,700  over the same period of the  previous  year.  The primary  increase in
costs  came  as a  result  of  increased  activity  on  mineral  properties  and
commercial  operations  along with an  increase  in general  and  administrative
overhead to supervise the increased  activity.  The Registrant and USE also paid
bonuses to four employees as recognition of the  extraordinary  dedication  they
had given to their work in the SMP arbitration/litigation.  These bonuses, which
included taxes due, were $561,000.  The projects which are being developed,  are
currently  not in the  production  phase do not  generate  cash  flow.  With the
decline in the market price of uranium,  it is  anticipated  that the properties
will not be placed into  production in Fiscal 1999.  However a decision was made
in July 1998 to place the GMMV mines on active standby status. The Registrant is
therefore anticipating reductions in costs.

         As a result of the  reduced  revenues  and  increased  costs  discussed
above,  operations  for the quarter  ended August 31, 1998 resulted in a loss of
$615,100  or $0.06 per share as  compared  to a profit of  $245,900 or $0.02 per
share for the quarter ended August 31, 1997.




                                       11

<PAGE>



                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

SHEEP MOUNTAIN PARTNERS ARBITRATION/LITIGATION

         In 1991,  disputes arose between  USE/Crested,  and Nukem, Inc. and its
subsidiary Cycle Resource  Investment Corp.  ("CRIC"),  concerning the formation
and operation of the Sheep Mountain Partners  partnership for uranium mining and
marketing,  and activities of the parties outside SMP.  Arbitration  proceedings
were  initiated  by CRIC in June 1991 and in July  1991,  USECC  filed a lawsuit
against Nukem,  CRIC and others in the U.S.  District Court of Colorado.  Later,
USECC filed  another suit for the standby  costs at the SMP mines against SMP in
the Colorado State Court.  The Federal Court stayed the arbitration  proceedings
and the State Court case was also  stayed.  In fiscal  1994,  all of the parties
agreed to exclusive and binding  arbitration of the disputes before the American
Arbitration  Association,  ("AAA") for which the legal claims made by both sides
included fraud and misrepresentation,  breach of contract, breach of duties owed
to the SMP partnership, and other claims.

          Following  hearings  before a three member panel of the AAA, the Panel
entered an Order and Award in April 1996 and  supplemented  in July 1996,  which
were  ultimately  confirmed by the U.S.  District Court of Colorado.  Please see
"Item 3. Legal Proceedings " of the Registrant's 1998 Form 10-K for more details
of this arbitration/litigation. Nukem appealed the decision of the U.S. District
Court to the 10th  Circuit  Court of Appeals and on  September  24,  1998,  oral
arguments  were made to a three judge panel.  The Court has not yet ruled on the
appeal.

TICABOO TOWNSITE LITIGATION

         In fiscal 1998, a prior contract operator of the Ticaboo restaurant and
lounge,  and two employees  supervising the motel and convenience  store in Utah
(owned by Canyon  Homesteads,  Inc.) sued USE,  Crested and others in Utah State
Court.  After a five  day  trial,  a jury  denied  the  claims  of two of  three
plaintiffs but awarded the third plaintiff  $156,000 in damages against USE. USE
has filed motions  including a motion for judgment  notwithstanding  the verdict
("JNOV"), and the motions are pending. USE intends to appeal the judgment if the
motion for JNOV is not granted.

BGBI LITIGATION

         USE and Crested are  defendants  and  counter-  or  cross-claimants  in
certain  litigation in the District Court of the Fifth Judicial  District of Nye
County,  Nevada,  brought by Bond Gold Bullfrog Inc.  ("BGBI") on July 30, 1991.
BGBI (now known as Barrick  Bullfrog,  Inc.) is an affiliate of Barrick Corp., a
large  international  gold  producer  headquartered  in  Toronto,   Canada.  The
litigation  primarily concerns extra lateral rights associated with two patented
mining claims owned by Parador  Mining  Company Inc.  ("Parador")  and initially
leased to a  predecessor  of BGBI,  which  claims are in and  adjacent to BGBI's
Bullfrog open pit and underground mine. USE and Crested assert certain interests
in the claims under an April 1991  assignment  and lease with Parador,  which is
subject  to  the  lease  to  BGBI's  predecessor.  Please  see  "Item  3,  Legal
Proceedings  "  of  Registrant's  1998  Form  10-K  for  more  details  of  this
litigation.  The record on appeal has been filed with the Nevada  Supreme  Court
and the  Registrant,  USE and Parador have until  January 26, 1999 to file their
opening brief and appendix.


                                       12

<PAGE>



DEPARTMENT OF ENERGY LITIGATION

         On July 20, 1998, eight uranium mining companies with operations in the
United  States  (including  USE,  Crested,  YSFC) and the Uranium  Producers  of
America (a trade  organization)  filed a  complaint  against  the United  States
Department  of Energy  (the  "DOE")  in a  lawsuit  (file no. 98 CV 1775) in the
United  States  District  Court,  Cheyenne,  Wyoming.  Please see "Item 3. Legal
Proceedings  " of  Registrant's  1998  Form  10-  K for  more  details  of  this
litigation.  The DOE has filed a motion to dismiss the  complaint  claiming that
the U.S.  Congress  withdrew its consent to be sued in connection  with the USEC
Inc.  privatization and that USEC Inc. must be joined as an indispensable party.
The motion is pending.

CONTOUR DEVELOPMENT LITIGATION

         On July 28,  1998,  USE filed a lawsuit in the United  States  District
Court, Denver, Colorado against Contour Development Company, L.L.C. and entities
and persons  associated  with Contour  Development  Company,  L.L.C.  (together,
"Contour")  seeking  compensatory  and  consequential  damages of more than $1.3
million from the  defendants  for  dealings in certain  real estate.  Please see
"Item 3. Legal  Proceedings " of Registrant's 1998 Form 10-K for more details on
this litigation.  USE has filed an Amended Complaint adding  additional  parties
defendant and no responsive pleading has been filed to the Amended Complaint.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits.  None.

         (b)  Reports on Form 8-K.  The  Registrant  did not file any Reports on
Form 8-K during the quarter ended August 31, 1998.


                                       13

<PAGE>


                                   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, there unto duly authorized.

                                                    CRESTED CORP.
                                                    (Registrant)



Date:  October 14, 1998                     By:         /s/ John L. Larsen
                                                    ----------------------------
                                                    JOHN L. LARSEN,
                                                    Chairman and Vice President



Date:  October 14, 1998                     By:         /s/ Robert Scott Lorimer
                                                    ----------------------------
                                                    ROBERT SCOTT LORIMER,
                                                    Principal Financial Officer
                                                    and Chief Accounting Officer


                                       14

<PAGE>




</TABLE>