SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X]  Annual report pursuant to section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended May 31, 2001 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
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                                  CRESTED CORP.
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             (Exact Name of Registrant as Specified in its Charter)

                 Colorado                                  84-0608126
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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)

Registrant's Telephone Number, including area code:     (307) 856-9271
                                                    ----------------------------

           Securities registered pursuant to Section 12(b) of the Act:
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                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK, $0.001 PAR VALUE
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                                (Title of Class)

         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

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant as of August 17, 2001 computed by reference to the average of
the bid and asked  prices  for the  Registrant's  common  stock as  reported  by
National  Quotation  Bureau  on  Pink  Sheets  for  the  week  then  ended,  was
approximately $1,861,000.

                Class                          Outstanding at August 17, 2001
---------------------------------------     ------------------------------------
   Common Stock, $0.001 par value                    17,088,330  shares

Documents incorporated by reference: Portions of the documents listed below have
been  incorporated  by  reference  into the  indicated  parts of this  report as
specified in the responses to the item numbers involved:
         2001 Annual  Meeting Proxy  Statement for the fiscal year ended May 31,
         2001, into Items 10-13 of Part III of the filing.

Indicate by check mark if disclosure of delinquent filers,  pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the Registrant's  knowledge,  in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]



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                 DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

         This Annual Report on Form 10-K includes  "forward-looking  statements"
within the meaning of Section 21E of the  Securities  Exchange  Act of 1934,  as
amended (the "Exchange Act"). All statements other than statements of historical
fact included in this Report, are forward-looking statements,  including without
limitation  the  statements  under  Management's   Discussion  and  Analysis  of
Financial  Condition and Results of Operations and the  disclosures  about Rocky
Mountain Gas, Inc. and plans for  developing  its coalbed  methane  acreage.  In
addition,  whenever words like "expect,"  "anticipate" or "believe" are used, we
are making forward-looking statements.

         Although we believe that our forward-looking statements are reasonable,
we don't know if our  expectations  will prove to be correct.  Important  future
factors that could cause actual results to differ  materially from  expectations
include:  Domestic consumption rates for natural gas; domestic market prices for
natural gas, uranium,  gold, and molybdenum;  the amounts of gas we will be able
to produce from our coalbed methane  properties;  the availability of permits to
drill and operate coalbed methane wells; whether and when gas transmission lines
will be built to reasonable  proximity to our coalbed  methane  properties;  and
whether and on what terms the capital necessary to develop our properties can be
obtained.  The forward-looking  statements should be carefully considered in the
context of all the information set forth in this Annual Report.

                                     PART I

ITEM 1 AND ITEM 2.  BUSINESS AND PROPERTIES.

(A)      GENERAL.

         Crested  Corp. (a Colorado  corporation  formed in 1970) and its parent
company U.S. Energy Corp.  ("USE") are in the business of acquiring,  exploring,
developing  and/or  selling or leasing  mineral  properties,  and the mining and
marketing of minerals. In this Annual Report, "we", "Company" or "Crested" refer
to Crested Corp. unless otherwise specifically noted.

         In fiscal 2001, we were engaged in minerals, commercial operations, and
contract drilling/construction  operations. In minerals, we have three principal
mineral  sectors:  coalbed methane gas,  uranium and gold  (properties and other
assets included in the latter two sectors are in "care and maintenance" status).
The  uranium  properties  are  located  on Sheep  Mountain  in  Wyoming,  and in
southeast  Utah;  we also hold a royalty  interest  in  uranium  claims on Green
Mountain,  Wyoming,  now held by Kennecott Uranium Company (see below). The gold
property is located near Sutter Creek, California, east of Sacramento. Interests
are held in other mineral properties  (principally  molybdenum),  but are either
non-operating interests or undeveloped claims. We also operate a small oil field
in Montana. Our fiscal year ends May 31.

         The coalbed  methane gas business is conducted  through Rocky  Mountain
Gas, Inc ("RMG," a Wyoming  corporation owned 41.7% by USE and 41.7% by Crested;
Crested is a 70.5% majority-owned  subsidiary of USE, see below).  Properties of
RMG are held in Wyoming and southeastern  Montana. As of the filing date of this
Annual Report,  RMG holds  approximately  257,000 gross mineral acres of coalbed
methane properties:

         For  detailed  information  about our coalbed  methane  properties  and
business strategy, please see "Minerals - Coalbed Methane" below.

         USE and Crested originally were independent companies,  with two common
affiliates (John L. Larsen and Max T. Evans).  In 1980, USE and Crested formed a
joint venture ("USECC") to do business together (unless one or the other elected
not to pursue an individual project). As a result of USE funding certain of

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Crested's obligations from time to time (due to Crested's lack of cash on hand),
and Crested  subsequently  paying  these debts by issuing  common  stock to USE,
Crested  became a  majority-owned  subsidiary  of USE in fiscal 1993.  In fiscal
2001,  Crested  issued  another  6,666,666  shares of its common stock to reduce
Crested's debt owed to USE by $3.0 million,  which  increased USE's ownership of
Crested  to  70.5%.  All of USE's and  Crested's  operations  are in the  United
States.  Principal  executive offices are located in the Glen L. Larsen building
at 877 North 8th Street West, Riverton, Wyoming 82501, telephone 307.856.9271.

         Most of the Company's  operations are conducted  through  subsidiaries,
the USECC joint venture with USE, and jointly-owned  subsidiaries and affiliates
of USE and Crested.

         Until  September 11, 2000,  USE,  USECC and Kennecott  Uranium  Company
("Kennecott")  owned the Green Mountain  Mining Venture  ("GMMV"),  which held a
large uranium  deposit and uranium mill in Wyoming.  On September 11, 2000,  USE
and Crested  settled  litigation  with  Kennecott  involving the GMMV by selling
their interest in the GMMV and its  properties  back to Kennecott for $3,250,000
and  receiving  a royalty  interest in the uranium  properties.  Kennecott  also
assumed  all  reclamation  obligations  on the GMMV  properties.  Other  uranium
properties  and a uranium mill in southeast  Utah are held by Plateau  Resources
Ltd., a  wholly-owned  subsidiary of USE. The Utah uranium  properties  are in a
care and maintenance status.

         The  gold  assets  held by  Sutter  Gold  Mining  Company  ("SGMC"),  a
majority-owned  subsidiary  of USE and a company  owned 3.2% by Crested,  are in
care and  maintenance  status  because the current price of gold does not permit
raising the capital necessary to put the assets into production.

(B)  NARRATIVE DESCRIPTION OF BUSINESS (INCLUDING ITEM 2 - PROPERTIES).

MINERALS

COALBED METHANE

         GENERAL.  Rocky Mountain Gas, Inc.  ("RMG") was incorporated in Wyoming
on November 1, 1999 for business in the coalbed methane  industry in Wyoming and
Montana.  RMG is a  subsidiary  of the Company  (owned 41.7% by USE and 41.7% by
Crested).

         Methane is the primary  commercial  component  of natural gas  produced
from  conventional  gas wells.  Methane also exists in its natural state in coal
seams.  Natural gas produced from  conventional  wells  generally  contain other
hydrocarbons  in varying  amounts which require the natural gas to be processed.
Methane gas  produced  from  coalbeds  generally  contains  only  methane and is
pipeline-quality gas after simple water dehydration.

         Coalbed  methane  production  is similar to  conventional  natural  gas
production  in  terms  of  the  physical  producing  facilities.   However,  the
subsurface  mechanisms  that  allow  gas  movement  to  the  wellbore  are  very
different.  Conventional  natural  gas  wells  require  a porous  and  permeable
reservoir, hydrocarbon migration and a natural structural or stratigraphic trap.
Coalbed  methane gas is trapped  (adsorbed)  in the coal itself and in the water
contained in the pore space,  until released by pressure  changes when the water
in the coal is  removed.  In  contrast to  conventional  gas wells,  new coalbed
methane wells initially produce water for several months. As the formation water
pressure decreases, methane gas is released from the structure.

         Methane is a common  component of coal since methane is created as part
of the calcification process. Coals vary in their methane content as measured by
standard  cubic  feet  per  ton.  Whether  a  coalbed  will  produce  commercial
quantities  of methane gas depends on the coal  quality,  its content of natural
gas per ton of coal, the thickness of the coalbeds,  the reservoir pressure, the
existence of natural fractures, the permeability of the coal, and saturated with
water to help hold methane in coalbed.

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         Due to the shallow coal seams in the Powder River Basin, of Montana and
Wyoming, the drilling, discovery,  development and production of coalbed methane
has  significant  economic  advantages  compared with  conventional  natural gas
targets.  Over the past several years,  coalbed  methane has become an important
source of pipeline quality gas in the United States. Methane gas production from
coalbed   reservoirs  has  grown  from   virtually   nothing  a  decade  ago  to
approximately  seven  percent of the total United States gas  production  today.
Development of coalbed methane in the Powder River Basin of northeastern Wyoming
and  southeastern  Montana  continues  at a high level in  calendar  2001 and is
expected to continue for several years.

         The principal coals in the Powder River Basin ("PRB") include the thick
coal seams of the Tongue River  member of the  Paleocene  Fort Union  Formation,
which  are  among  the  thickest  in the  world.  Individual  coalbeds  range in
thickness  from a few  feet up to 250  feet.  A  typical  well  might  penetrate
multiple  coal zones in depths over a 200 to 1,200 foot range.  Based on reports
filed by other companies with the State of Wyoming, reserves per coalbed methane
well in the PRB can vary  considerably  but a typical  estimate  can  exceed 300
million  cubic feet (MMcf) of gas per well.  Given the expected low drilling and
completion costs, these levels of reserves make coalbed methane wells attractive
to gas companies.

         OVERVIEW OF RMG. As of the filing date of this Annual  Report,  we hold
through our  ownership in RMG  approximately  257,000  gross mineral acres under
leases from the United States Bureau of Land  Management,  the states of Wyoming
and Montana,  and private land owners.  Assuming the exercise of options held by
Suncor Energy Natural Gas America Inc. ("SENGAI"), a subsidiary of Suncor Energy
Inc., (NYSE "SU" Calgary Alberta, Canada), our working interest is 6.25% (5% net
revenue  interest)  on 112,000  acres in the Castle Rock  prospect in  southeast
Montana.  The rest of the Castle Rock prospect is owned 37.5% working  interest,
30% net revenue interest,  by Quaneco,  L.L.C.; and a 50% working interest,  40%
net revenue interest by SENGAI (assuming SENGAI exercises its option).  We own a
25% working  interest  (20% net revenue  interest)  on 74,500 acres in the Kirby
prospect  (southeast  Montana);  and a 50% working interest (from 30% to 50% net
revenue  interest) on 70,500  acres in other  prospects  (all in  Wyoming).  Our
interest  in the  Castle  Rock  prospect  will  revert to 50%  overall if SENGAI
doesn't  exercise  its  option;  in this event,  we would  continue to own a 50%
working interest (40% net revenue interest),  and Quaneco L.L.C. would own a 50%
working interest (40% net revenue  interest) in the Castle Rock prospect.  CCBM,
Inc.  ("CCBM") a subsidiary of Carrizo Oil & Gas, Inc. has the option to acquire
half of our interest in the Castle Rock  prospect on similar  terms as SENGAI if
SENGAI does not exercise its option.  See below.  Our  original  agreement  with
SENGAI would result in  ownership  of a 12.5%  working  interest 10% net revenue
interest,  in Castle Rock,  but one  subsequent  agreement with CCBM resulted in
them owning one half of our position.

         In  fiscal  2000  and  2001,  we spent a total  of  $5,800,000  on land
acquisition  costs for the coalbed  methane  properties  we now hold,  including
$5,500,000 paid to Quaneco L.L.C. to buy a 50% working interest (40% net revenue
interest)  in the Castle  Rock and Kirby  prospects,  and  $51,200 in leases and
related costs for other prospects in Wyoming.

         In fiscal  2001,  we sold to SENGAI an option for 75% (or 37.5% of 50%)
of our  working  interest  in  our  acreage  in the  Castle  Rock  prospect  for
$1,278,800 which was applied to our purchase  commitment with Quaneco L.L.C.; if
the  options  are  exercised  in 2002 and 2003 by  SENGAI,  we will  receive  an
additional  $2,942,800  in February  2002.  In July 2001,  we sold a 50% working
interest  in all our  coalbed  methane  leases  except  Castle  Rock to CCBM for
$7,500,000, plus other considerations. If SENGAI does not exercise its option to
purchase the Castle Rock prospect, CCBM has first right to purchase 50% of RMG's
acreage for additional consideration.

         We also have drilling  programs in place with SENGAI and CCBM for up to
$7,250,000  funded  by each for the  respective  properties  in  which  they are
involved  with us. One of the  drilling  programs  with CCBM started work on the
Clearmont  prospect in Wyoming in August 2001; the drilling  program with SENGAI
on the Castle Rock prospect is  anticipated  to begin in September  2001.  These
first two programs

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should  be  sufficient  to  drill  approximately  60  coalbed  methane  wells to
completion or abandonment  stage.  A third drilling  program (which would be the
second  program  on the  Castle  Rock  prospect)  will be  commenced  if  SENGAI
exercises its option on the first acreage block on the Castle Rock prospect with
SENGAI  paying for up to an additional  $4,000,000  in drilling and  development
costs. We have a carried  working  interest in all of the wells drilled in these
programs.

         As of the filing date for this Annual  Report,  we had set casing on 10
locations  (80 acre spacing  units) on the  Clearmont  prospect and are drilling
twin holes on each prospect into two targeted coal formations.  No reserves have
been  established to date.  Drilling  permits for 10 additional  wells have been
issued for the Clearmont  prospect,  and applications are pending for another 32
permits on the Clearmont prospect,  which are expected to be issued by September
1, 2001.

         We  anticipate  that from 30 to 60 wells  will be drilled by the end of
calendar 2002 under the drilling programs with SENGAI and CCBM. Additionally, we
expect  to  commence  a  drilling  program  to drill 4 to 12 wells on the  Kirby
prospect. Attaining these objectives will depend on when and where the necessary
drilling permits can be obtained.

         After  the  drilling  programs  have  been  completed,   we  will  need
additional capital to continue  development efforts. The Company plans to obtain
the capital from  institutions  and/or joint ventures or other means,  including
the possible sale of disposable Company assets. We have estimated that our total
capital and operating reserve  requirements will be up to $50,000,000 to execute
our coalbed methane  strategy  through  calendar 2003 by developing our existing
properties  beyond the initial drilling programs now in place, and acquiring and
developing more properties. See Item 7.

         PRINCIPAL  AGREEMENTS FOR  DEVELOPMENT OF COALBED  METHANE  PROPERTIES.
Summaries of terms in the three  principal  agreements now in place follow.  The
agreements are filed as exhibits to this Annual Report.

         SUNCOR - OPTION AND FARMIN  AGREEMENT.  On February 8, 2001, RMG closed
the Option and Farmin Agreement with SENGAI.

         By the Option and Farmin  Agreement,  75% of RMG's 50% working interest
(and 25% of Quaneco L.L.C.'s 50% interest) in 112,000 acres in southeast Montana
has been optioned for a cash sale to SENGAI, in two blocks, one of 105,265 acres
which expires February 8, 2002, subject to force majeure (option exercise amount
is $3,684,299 total,  RMG's 75% share would be $2,763,224),  and 6,301 acres for
the second block of acreage expiring on February 8, 2003 (option exercise amount
is $239,452 total, RMG's share would be $179,589).

         In addition, SENGAI has committed to pay for all costs up to $2,000,000
in a $2,250,000 drilling program on the first block of acreage,  starting in the
fall of 2001. RMG will pay the remaining  $250,000 for the drilling  program (on
its behalf and for Quaneco L.L.C.,  which completes RMG's drilling commitment to
Quaneco;  see below).  SENGAI must complete the drilling  program  regardless of
whether it  exercises  the  options.  Upon  exercise  of the first  option,  the
agreement  provides that SENGAI will have "farmed in" for a share of the working
interests  in the first block of acreage,  so that the working  interests in the
first block would be (I) 12.5% RMG (now 6.25% with CCBM owning the other  6.25%;
see "Carrizo - Purchase and Sale  Agreement" ); (ii) 37.5% Quaneco  L.L.C.;  and
(iii) 50% SENGAI.  If the first  option is not  exercised,  all of the work paid
under the  drilling  program  will  benefit RMG (and now Carrizo) and Quaneco in
their respective working interests. If the first option is not exercised, SENGAI
will have no rights in the Castle Rock prospect or in any wells drilled on it.


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         If the first block option is  exercised,  then within 18 months of that
date, SENGAI will pay RMG and Quaneco L.L.C., in proportion to their 75% and 25%
shares  of option  payments,  an  additional  $841,379  for the  first  block of
acreage.  This payment will not be received by the parties in cash,  but will be
made by Suncor  America paying 75% (instead of 50%) of drilling and related well
costs on a second  drilling  program until the 25%  differential  so paid equals
$841,379.  It is  anticipated  this second phase will cover up to  $4,000,000 of
drilling and development costs. To the extent this second phase drilling program
does not  result in SENGAI  spending  enough  to carry RMG and  Quaneco  for the
$841,379 (i.e., pay for RMG's (and CCBM's) and Quaneco's working interest shares
of costs in wells), SENGAI will pay the difference to RMG and Quaneco parties in
cash.

         The first block option must be exercised before SENGAI can exercise the
second block option.

         SENGAI  is the  operator  of  record  for all  activities  in the first
drilling  program,  and will  continue  as operator  for the entire  Castle Rock
prospect (less the second acreage block if the option thereon is not exercised).
The first and second  drilling  programs cover costs to drill,  test,  complete,
production test and shut-in (or plug if not economically viable) coalbed methane
wells.  Gathering  system  construction,  compression and other costs related to
input of gas buyer's transmission line are not included. SENGAI, as operator, is
limited to billing no more than 10% of the  drilling  programs  for its overhead
expenses.

         CARRIZO - PURCHASE AND SALE AGREEMENT. On June 29, 2001, RMG signed and
closed on July 10,  2001 a  Purchase  and Sale  Agreement  with  CCBM,  Inc.,  a
Delaware  corporation which is wholly-owned by Carrizo Oil & Gas, Inc., Houston,
Texas (NMS  "CRZO").  Carrizo  Oil & Gas,  Inc.  is engaged in the  exploration,
development and production of oil and gas,  primarily in the Texas and Louisiana
Gulf Coast  regions.  The agreement  between CCBM and RMG is intended to finance
the further development of the acreage prospective for coalbed methane currently
owned by RMG in Montana and Wyoming,  and to acquire and develop more acreage in
Wyoming.

         RMG has  assigned  CCBM  an  undivided  50%  interest  in all of  RMG's
existing  coalbed  properties for a purchase price of $7,500,000 by a promissory
note  payable in  principal  amounts of $125,000  per month plus  interest at an
annual  rate of 8%,  over 41  months  (starting  July 31,  2001)  with a balloon
payment due on the  forty-second  month.  The 50% undivided  interest is pledged
back to RMG to secure the purchase price, and will be released 25% when 33.3% of
the  principal  amount of the  purchase  price is paid,  another  25% when total
principal  payments reach 66.6% of the principal  amount of the purchase  price,
and the balance of the total 50%  undivided  interest  when all of the principal
amount of the  purchase  price,  has been  paid.  The  purchase  price  could be
reduced,  based on  allocations  made by the parties as to each  prospect now in
RMG's  inventory,  if defects  exist in RMG's  acreage and such  defects are not
cured to CCBM's  satisfaction.  RMG  believes  the minor title  defects  already
identified by CCBM will be cured satisfactorily or otherwise accepted by CCBM so
that any  incurable  defects  will not affect  the  purchase  price in  material
amounts.

         To  start  development,  and as  part  of  the  consideration  for  the
acquisition, CCBM has agreed to fund $5,000,000 for an initial drilling program.
On these wells, CCBM will pay for all drilling and completion expenses; RMG will
be "carried"  for its 50%  interest in these wells,  and will not be required to
pay any of such costs. After the initial $5,000,000 has been spent, which should
be sufficient  to drill  between 30 to 40 wells,  RMG and CCBM each will pay for
their 50% share of costs in subsequent  wells.  Without CCBM's consent,  none of
the drilling  funds can be used for  operations  associated  with water disposal
wells,  gas  compression  beyond  100  PSIG,  or for  facilities  downstream  of
compression  beyond 100 PSIG. CCBM will earn a 50% working interest in each well
location (80 acres) and production therefrom. CCBM's ownership so earned will be
earned regardless of the status of payments on the promissory note.

         Drilling  under the CCBM  agreement  started  in August  2001.  Amounts
remaining  out of the  $5,000,000  will be carried  over to drilling  efforts in
calendar 2002 and 2003, or applied to property

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acquisitions,  as agreed upon by the parties. If less than the entire $5,000,000
is spent within two years  (subject to extensions  due to force  majeure),  CCBM
shall pay RMG  one-half the unspent  portion of the  $5,000,000.  However,  this
payment obligation back to RMG is subject to RMG complying with all of the terms
and  provisions  of  the  purchase  and  sale  agreement,  the  joint  operating
agreement,  and the procedures  therein set forth regarding  authorizations  for
expenditures to drill $5,000,000 worth of "reasonable  wells".  This means wells
which meet these economic criteria:  (1) individual well cost (including hook-up
to sales)  must  meet a  projected  internal  rate of return in excess of 15% at
prevailing  market  prices;  (2) the wells  must be on acreage  blocks  that are
touching  and contain  minimum  sizes  (Kirby  prospect,  at least 2,560  acres;
Clearmont,  at least 640 acres; and Arvada, at least 480 acres); and (3) no more
than 10 wells per calendar year at Oyster Ridge will qualify as reasonable.  The
intent of this  provision is for CCBM to spend  $2,500,000  on behalf of RMG. If
CCBM fails to do this despite a total of $5,000,000 of reasonable well proposals
by RMG, then CCBM shall be obligated to pay any remaining unspent portion of the
$2,500,000 directly to RMG.

         In addition to its  one-half  share of  revenues in  proportion  to its
one-half  share of the  working  interest,  CCBM  will be  entitled  to a credit
(applied as a prepayment of the purchase price for the undivided 50% interest in
RMG's  acreage),  equal to 20% of RMG's net revenue  interest from wells drilled
with the $5,000,000 drilling budget, until the amount of that credit in favor of
CCBM equals $1,250,000. This latter amount would be reduced proportionate to any
reductions in purchase price due to title defects (see above).

         RMG is the designated  operator under a Joint Operating Agreement (JOA)
between  RMG and CCBM.  The JOA will  govern all  operations  on the  properties
subject to the  purchase  and sale  agreement  between  RMG and CCBM  subject to
pre-existing JOA's with other entities,  as well as all operations or properties
in the area of mutual interest ("AMI").

         The AMI is established  for a four year term starting June 30, 2001 and
ending June 30,  2005.  It covers the entire  state of  Wyoming,  and the Powder
River Basin of Montana, subject to the pre-existing AMI with Suncor.  Operations
within the AMI will be governed by the JOA between RMG and CCBM.

         All operations  subject to the Carrizo  Agreement will be overseen by a
management committee,  with two members each from CCBM and RMG. All four members
must be present in person or by proxy to conduct a management committee meeting,
to be held at least  quarterly.  However,  RMG shall have a tie-  breaking  vote
concerning all general operations until the $5,000,000  drilling  commitment has
been expended and until the purchase  price has been paid.  Once the  $5,000,000
drilling  commitment  has been expended and the full purchase price is paid, RMG
will allocate  (with  Quaneco's  consent) to CCBM one of RMG's  managing  member
positions  with  Powder  River Gas LLC,  which is the  operative  entity for the
Montana acreage RMG holds with Quaneco L.L.C.

         With respect to the Castle Rock  prospect in Montana,  which is subject
to the agreement with SENGAI,  RMG will be entitled to all cash proceeds paid by
SENGAI to RMG if SENGAI  exercises its option  (deadline  February 8, 2002).  If
SENGAI doesn't  exercise its option,  CCBM will have the right to increase their
ownership up to 50% of RMG's  interest in the subject  112,000 acres in Montana,
for the  equivalent  value per net mineral  acre that would have been due to RMG
under the Suncor  Agreement.  If CCBM does not exercise this purchase right, all
the acreage will belong  solely to RMG and that acreage will be removed from the
AMI with  CCBM  except  the  wells and  acreage  earned in the phase I  drilling
program.  In the meantime,  with respect to SENGAI's initial drilling program on
this  acreage,  RMG will be  entitled  to have  CCBM pay for  $225,000  of RMG's
drilling obligations;  for this funding (part of the $5,000,000 drilling program
with CCBM),  CCBM will receive an undivided 6.25% working  interest on each well
so drilled and the 80 acre spacing  allocated to each such well, ie. one-half of
our 12.5% working interest, during the 2001 SENGAI drilling program.


                                        7

<PAGE>



         Under the agreement, CCBM will use its best efforts to seek out, obtain
and secure  financing  to raise no less than  $20,000,000  to be used to acquire
more  properties  in the AMI. If CCBM's  efforts are not  successful by June 30,
2002,  the AMI shall be reduced to a 6 mile radius from all existing  properties
held  jointly by RMG and CCBM  unless RMG  agrees to an  extension  of this time
frame to no later than December 31, 2002.

         QUANECO - AGREEMENT.  On January 3, 2000,  RMG  purchased a 50% working
interest and 40% net revenue  interest in the Castle Rock and Kirby prospects in
the PRB of southeast  Montana  consisting of  approximately  185,000 net mineral
acres from Quaneco,  L.L.C.  (formerly Quantum Energy, L.L.C. , Cleveland,  Ohio
and Oklahoma City, Oklahoma). The acreage includes 88,410 net acres of BLM land,
14,916 net acres of state land  (Montana),  and 82,775 net acres of fee land. In
fiscal 2000 and 2001, RMG paid the cash purchase price of $5,500,000.

         A separate  provision in the Agreement required RMG to spend $2,500,000
to drill and complete 25 wells,  as  identified  and agreed to by the  operating
company Powder River Gas, LLC (see below).  Under the subsequent  agreement with
SENGAI,  SENGAI  will pay  $2,000,000  in their first  drilling  program on this
prospect,  and RMG will pay $250,000.  Of this amount,  $225,000 will be paid to
RMG by CCBM and paid  over to  SENGAI,  leaving  RMG  with a net  obligation  of
$25,000 which has already been met. RMG has  previously  performed work and paid
costs  for a credit  of  approximately  $250,000  on the  Castle  Rock and Kirby
prospects,  such that when RMG pays the $250,000 for its share of SENGAI's first
drilling  program,  all of RMG's drilling  obligations to Quaneco will have been
fulfilled, and RMG's, Quaneco's and SENGAI's working interests will be as agreed
with  SENGAI  (see  above),  and CCBM  will own  one-half  RMG's  12.5%  working
interests, or 6.25%.

         The Kirby prospect,  owned originally by RMG and Quaneco,  and now CCBM
as well, is operated through Powder River Gas, LLC, a Wyoming limited  liability
company.  Initial CBM well sites have been selected by the management  committee
in  which  Quaneco  and  RMG  currently  have  equal  representation;  drilling,
completion  and  gathering  system costs will be authorized by the committee and
funded according to the working interests of each owners. USECC has the right to
provide drilling services on the first 25 wells drilled by Powder River Gas, LLC
based on  competitive  drilling  rates in the area  surrounding  the wells to be
drilled.  Thereafter,  USECC will have the right to submit bids on a competitive
basis to Powder River Gas LLC for drilling contracts on additional acreage. CCBM
has  recently  acquired  50% of RMG's  interest in the Kirby  prospects  leaving
ownership interest at 25% RMG, 25% CCBM, and 50% Quaneco.

         PROSPECTS  AND ACREAGE.  Our  prospects  and acreage are located in the
Powder River Basin in Montana and Wyoming,  and in the Wind River,  Green River,
Washakie and Big Horn basins of Wyoming:

         Castle Rock, Powder River County, MT                  112,000 acres
         Kirby, Big Horn and Rose Bud Counties, MT              74,500 acres
         Oyster Ridge, Lincoln and Uinta County, WY             63,000 acres
         Clearmont, Sheridan County, WY                          4,000 acres
         Sussex, Johnson County, WY                                640 acres
         Finley, Converse County, WY                               160 acres
         Baggs North, Carbon County, WY                            120 acres
         Gillette North, Campbell County, WY                        80 acres
         Arvada, Campbell County, WY                               540 acres

         CASTLE ROCK: The Castle Rock project consists of approximately  112,000
acres located in the north eastern portion of the Powder River Basin of Montana,
west of Broadus,  Montana.  Coals  present are in the Tongue River member of the
Fort Union formation and appear comparable to coals currently being developed

                                        8

<PAGE>



by other  operators  south of the Castle Rock acreage  near the  Montana/Wyoming
border.  The proposed Bison  pipeline,  tentatively  scheduled for completion in
2003, will cross the property if constructed as currently planned.  The Northern
Border  pipeline  is located  200 miles to the  north.  The  federal  leases are
generally 10 year term and fee and state leases are  generally  two to five year
term.

         KIRBY: The Kirby project consists of approximately 74,500 acres located
in the northwestern  portion of the Powder River Basin in Montana located in Big
Horn and Rosebud Counties, Montana, north of Sheridan, Wyoming. Coals are in the
lower portion of the tertiary Fort Union formation and are similar to productive
coals in the Wyoming  portion of the Powder  River Basin to the south.  Redstone
(recently  acquired by Montana  Dakota  Utilities) has  established  significant
coalbed methane production 12 miles south of Kirby at the CX field. At least two
other  operators are  currently  planning to drill and develop  nearby  acreage.
CMS's  Bighorn Gas Gathering  recently  extended a new 20" pipeline to within 10
miles of the Kirby project. Exploration drilling is currently scheduled to begin
at Kirby during the fall of 2001.

         OYSTER RIDGE: The Oyster Ridge project consists of approximately 63,000
acres located in  southwestern  Wyoming in the Ham's Fork Coal Field adjacent to
the Green River Basin.  RMG and CCBM has a 100% working  interest in most of the
properties  subject to a 25% participation  option held by Anadarko Petroleum on
43,000 acres.  The area is prospective for coalbed  methane  production from two
primary  Cretaceous  age coals,  the Frontier and the  Adaville.  The Kern River
pipeline which services southern California,  crosses the property.  Exploratory
drilling and completion operations on previously drilled wells resumed at Oyster
Ridge in June of 2001.

         CLEARMONT:  The Clearmont project consists of approximately 6,000 gross
acres  located in the western  Powder River Basin of Wyoming.  RMG (and now CCBM
jointly)  owns  working  interests  ranging  from  25%  to  100%.  The  area  is
characterized  by several  shallow Fort Union  coalbeds (most notable the Roland
and  Anderson  coals) as well as  several  deeper  coals  that hold  significant
exploration potential. Substantial coalbed methane production and development is
ongoing in the immediate area including  Federated's  Box Elder Creek project 12
miles to the west and the  Pennaco/CMS  Wild Horse Creek project 15 miles to the
east.  The  Clearmont  project is located at the  convergence  of the WBI Bitter
Creek and the Bighorn  Sheridan  Lateral  pipelines.  A 20 well  exploration and
development  drilling  program began at Clearmont in August 2001 and could be in
production in 2002 depending on drilling results and gas prices.

         SUSSEX:  RMG and CCBM hold 640 acres in this  project  area  located in
Johnson County, Wyoming. This State lease lies 3 miles south of Sussex, Wyoming.
RMG has a 100% working interest.

         FINLEY:  RMG and CCBM hold 160 acres in this  project  area  located in
Converse  County,  Wyoming.  This  prospect  is a State  lease 12 miles  east of
Edgerton, Wyoming. Review for a two well test is underway.

         BAGGS NORTH: This prospect contains 120 acres located in Carbon County,
Wyoming.  This State lease is located 7 miles north of Baggs,  Wyoming.  RMG and
CCBM hold a 100% working interest in this prospect.

         GILLETTE NORTH:  RMG and CCBM holds a 100% working interest in 80 acres
in this project area located in Campbell County,  Wyoming. This State lease lies
at the north end of the City of Gillette. Potential exists for one billion cubic
feet of gas on this 80 acres alone.  Existing  coalbed  methane wells lay in the
section  immediately  north.  Permitting of 2 wells has begun on RMG's property.
RMG intends to conduct test drilling and production techniques in this area that
lies in the heart of the current coalbed methane play in the Gillette area.


                                        9

<PAGE>



         ARVADA:  This prospect  contains 540 acres located in Campbell  County,
Wyoming.  RMG and  CCBM  hold a 100%  working  interest,  and a 60% net  revenue
interest.

         COALBED METHANE WELL PERMITTING

         Drilling coalbed methane wells requires  obtaining permits from various
governmental  agencies.  The ease of obtaining the necessary  permits depends on
the type of mineral  ownership  and the state in which the  property is located.
Intermittent  delays  in the  permitting  process  can  reasonably  be  expected
throughout  the  development  of any play.  For  example,  there is  currently a
temporary  moratorium for drilling  coalbed methane wells on fee and state lands
in Montana.  We may shift our exploration and development  strategy as needed to
accommodate the permitting  process.  As with all governmental permit processes,
there is no assurance  that  permits will be issued in a timely  fashion or in a
form consistent with our plan of operations.

         On March 16, 2000, the Northern Plains Resource Council,  Inc. ("NPRC")
filed  suit  against  the  Montana  Board  of Oil and Gas  Conservation  (Board)
requesting  an  order  of the  court  compelling  the  defendant  to  prepare  a
Supplemental   Environmental  Impact  Statement  ("SEIS")  for  coalbed  methane
development,  which could further delay development. RMG and others have filed a
motion to intervene to  participate  in this  litigation and to ensure that some
drilling  can be  performed  during any  environmental  analysis.  The Board has
agreed to limit  issuance of CBM well permits to 200 pending  completion  of the
SEIS which is currently scheduled to be completed in the Spring of 2002.

         The Wyodak  Environmental  Impact  Statement (EIS) for the Powder River
Basin in Wyoming issued in the fall of 1999, allowed the permitting of 5,000 CBM
wells to be drilled on Federal lands in Wyoming. More CBM well applications have
been submitted  causing the BLM to begin a second EIS for the Powder River Basin
Area in Wyoming.  The new EIS was to commence in early summer 2000.  Development
on Federal  lands in Wyoming has been stopped with the balance of the Wyodak EIS
permitted wells (4,000) occurring on fee and state lands. The BLM has started an
environmental  assessment ("EA") reviewing  drainage issues which could allow an
additional 1,500 new CBM well permits in the same region. This was scheduled for
scoping in early April 2000 with  completion  expected  the  following  October.
Completion  has been delayed and is not expected  until late 2001 or early 2002.
Again,  there is no assurance that the EA and EIS will  negatively  impact RMG's
business or operations.

         In  addition,  the  Wyoming and Montana  Departments  of  Environmental
Quality have regulations applying to the surface disposal of water produced from
CBM drilling  operations.  CBM operators are currently seeking changes in permit
requirements  and department  policy that would allow operators more flexibility
to discharge  water on the  surface.  If these  changes are not made,  it may be
necessary to install and operate treatment facilities or drill disposal wells to
reinject the produced water back into the underground  rock formations  adjacent
to the  coal  seams  or  lower  sandstone  horizons.  If we  cannot  obtain  the
appropriate  permits or if applicable  laws or  regulations  require water to be
disposed of in an alternative  manner,  the costs to dispose produced water will
likely increase.  These costs could have a material effect on operations in this
area, including  potentially  rendering future production and development in the
affected areas uneconomic.

         In Montana,  we have pending  applications to the BLM for approximately
60 permits to drill into shallow gas sand  formations  on Federal land held with
Quaneco and would be converted to production status upon receiving approval from
the  Montana  Board of Oil and Gas.  These wells would  evaluate  potential  CBM
production  as well as  conventional  gas.  Regarding  other  acreage  held with
Quaneco in Montana,  the State of Montana may lift its  moratorium for CBM wells
on private and state ground in Montana,  and start  issuing new permits on these
lands in Spring 2002 (a voluntary  moratorium is currently in place for wells on
private and state ground in Montana).  We have not  determined to what extent we
will  participate in this procedure,  and are evaluating how best to protect our
position to have reasonable exploration for CBM wells proceed on state

                                       10

<PAGE>



and fee ground.  We have  permits in place until Spring 2002 in order to conduct
exploration  in  expectation  that  commercial  production  will be  approved on
completion of the EIS and EA.

         In August 2001,  Montana and Wyoming  announced an agreement  for water
quality officials in both states to coordinate  monitoring of water flows in the
Powder River and Little  Powder  River  drainages,  to  determine  the impact of
coalbed  methane well water  production  on river water.  Although  usually well
water is potable,  it may contain high sodium absorption ratios which can impair
use of the water for  irrigation  purposes in clay-based  soils.  The respective
agencies  will  propose  regulations  to  establish   thresholds  for  potential
pollutants and require strict  monitoring by local water quality  officials.  If
test  results  indicate  some well water  flows  adversely  impact  river  water
quality, operators could be required to put the water flow into holding ponds or
take other steps to eliminate or reduce water flows or  pollutants in the water.
Implementation of the agreement is expected to benefit continued coalbed methane
development in these areas by opening up the water discharge  permitting process
in the affected areas.  Currently, we don't have acreage which would be impacted
by these regulations but future acreage could be acquired in the affected areas.

         GATHERING AND TRANSMISSION OF CBM GAS

         Companies  involved in CBM  production  generally  outsource  their gas
gathering,  compression and transmission. We intend to outsource compression and
gathering  needs as well,  possibly  on a  competitive  basis with  transmission
companies  in  the  immediate  area.   Negotiations  with  various  transmission
companies  have  been  initiated  in  order  to  better  manage  future  capital
investment, but no contracts have been signed to date.

         Coalbed  methane  production  growth  in the  Powder  River  Basin  has
historically  been  impeded by a  shortage  of  gathering  system  capacity  and
transport  capacity  out of the Basin.  However,  two large  diameter  gathering
pipelines  were completed in September 1999 and a third was ready for service in
early 2000.  The two completed  pipelines will provide an additional 900 million
cubic feet, (MMcf), of daily gas capacity as set forth below:

         Fort Union Gas  Gathering,  LLC's  106-mile,  24"  gathering  pipeline,
commenced operations September 1, 1999, with an initial capacity of 450 MMcf per
day; and

         Thunder Creek Gas Services,  LLC's  126-mile,  24" gathering  pipeline,
commenced operations September 1, 1999, with an initial capacity of 450 MMcf per
day.

         Additionally,  CMS Energy's 110-mile,  Big Horn Gas Gathering pipeline,
that connects to the northern terminus of the Fort Union pipeline, is continuing
to be expanded  in length and has an initial  capacity of 256 MMcf per day which
can  readily  be  upgraded  to 500 MMcf per day with  the  addition  of  booster
compression.  Further,  on June 19, 2000,  Big Horn Gas Gathering  announced the
extension of its pipeline to serve producers in the Sheridan area. This 50+ mile
extension will place a 20" high pressure  pipeline within 5 miles of the Montana
border and within close proximity to the  development  planned by RMG, CCBM, and
Quantum on their Kirby Prospect area.

         Wyoming  Interstate  Gas Company's  143-mile,  24" Medicine Bow Lateral
pipeline  commenced  operations in November 1999 with an initial capacity of 260
MMcf per day. This pipeline  will  transport  natural gas from the Thunder Creek
and  Fort  Union  pipelines  at the  south  end of the  Powder  River  Basin  to
interconnect with multiple  interstate  pipelines  accessing markets to the east
and along the front range of Colorado.  This system is already being expanded as
demand for  transportation  space grows.  Further  transmission  lines are being
planned by other companies in the area.


                                       11

<PAGE>



OTHER OIL & GAS PROPERTIES

         FORT PECK LUSTRE  FIELD  (MONTANA).  We operate a small oil  production
facility  (three  wells)  at the  Lustre  Oil  Field  on  the  Ft.  Peck  Indian
Reservation  in  northeastern  Montana.  We receive a fee based on oil produced.
This fee and other assets of the Company collateralize a $750,000 line of credit
from a bank.

MINERALS - URANIUM

         GENERAL.  We have  interests in several  uranium-bearing  properties in
Wyoming  and Utah and in a  uranium  processing  mill in  southeastern  Garfield
County, Utah (the "Shootaring Mill"). All the uranium- bearing properties are in
areas which produced  significant  amounts of uranium in the 1970s and 1980s. At
some future date,  we could develop and operate  these  properties  (directly or
through a subsidiary company or a joint venture) to produce uranium concentrates
("U3O8") for sale to public  utilities that operate nuclear powered  electricity
generating plants.  However,  until uranium oxide prices improve  significantly,
all of the uranium  properties are in a care and maintenance mode,  meaning work
is  performed to keep the assets in stand-by  mode and ready for later  activity
and  permitting  work is done  as  needed  (monitoring  and  reporting)  to keep
existing permits in effect.

         SHEEP MOUNTAIN - WYOMING

         Unpatented  lode mining claims,  underground and open pit uranium mines
and mining  equipment  in the Crooks Gap area are  located on Sheep  Mountain in
Fremont County,  Wyoming and are adjacent to and west of the GMMV mining claims.
From December 21, 1988 to June 1, 1998, these assets were held by Sheep Mountain
Partners ("SMP"). On June 1, 1998, USECC received back from SMP all of the Sheep
Mountain  mineral  properties and equipment,  in partial  settlement of disputes
with Nukem,  Inc.  ("Nukem") and its subsidiary Cycle Resource  Investment Corp.
("CRIC"). The Judgment against Nukem impressing the CIS uranium supply contracts
in constructive trust with SMP remain in dispute.  See "Legal  Proceedings." The
Sheep  Mountain Mines 1 and 2 were first  operated by Western  Nuclear,  Inc., a
subsidiary of Phelps Dodge Corporation, in the late 1970s.

THE  PROPERTY  INTERESTS  OF USE  IN  UTAH  THROUGH  PLATEAU  RESOURCES  LIMITED
("PLATEAU") ARE:

         Plateau Resources Limited is a wholly-owned subsidiary of USE. However,
Crested  owns an  interest in any future  cash flows of  Plateau.  See  "Plateau
Shootaring Canyon Mill" below.

         The Tony M Mine properties contains underground uranium deposits in San
Juan County, Utah, and are located partially on Utah State leases.

         Plateau  is the lessee of the Tony M Mine  properties  and has posted a
bond securing Plateau's obligations to reclaim these properties. The Tony M mine
was  originally  developed by Plateau at the time Plateau was owned by Consumers
Power Company ("CPC"),  a Michigan public utility.  Significant areas of uranium
mineralization   have  been  accessed  and   delineated  by  the  prior  owner's
underground workings.  When the Tony M Mine was in production (while Plateau was
owned by CPC), it produced ore containing  from three to eight pounds of uranium
concentrates  per ton. Some of this ore was processed at the Shootaring Mill. In
addition,  low grade  uranium ore was  stockpiled  at the Tony M Mine and at the
Shootaring Mill.

         Plateau also  acquired the Velvet Mine and the nearby Woods  Complex in
the Lisbon Valley area in southeastern Utah. The Velvet Mine was fully developed
and permitted by its prior owner and is located  approximately 178 miles by road
from the Shootaring  Mill.  The Woods Complex was formerly an operating  uranium
mine with a remaining undeveloped resource.  Access to this resource would be by
extending a drift

                                       12

<PAGE>



approximately  2,500 feet from the former Woods Mine. The Woods Mine property is
not permitted, but we do not expect difficulty in obtaining a new permit, should
we seek one, because the surface  facilities would occupy the site that has been
disturbed from previous operations.

THE GREEN MOUNTAIN MINING VENTURE ("GMMV") PROJECT

         GMMV.  In fiscal 1991,  USE and USECC entered into an agreement to sell
50 percent of their interests in the Green Mountain uranium claims,  and certain
other rights, to Kennecott Uranium Company ("KUC" or "Kennecott"),  a subsidiary
of Kennecott Energy and Coal Company of Gillette,  WY. Kennecott Energy and Coal
Company  is a  subsidiary  of Rio Tinto  plc,  formerly  RTZ plc of  London.  In
consideration  of the sale to  Kennecott,  we received  $15,000,000  cash (USE's
share was  $12,600,000  and the  balance was  Crested's),  and a  commitment  by
Kennecott  to fund  the  first  $50,000,000  of GMMV  expenditures  pursuant  to
Management  Committee budgets. At the same time USE and USECC (the "USE Parties)
and Kennecott  formed the GMMV and entered into a joint venture  agreement  (the
"GMMV Agreement") to develop,  mine and mill uranium ore from the Green Mountain
Claims,  and  market  uranium  oxide.  For  detailed  explanation  of  the  GMMV
agreement, please see Crested's. 1999 Form 10-K at pages 6 and 7, and footnote F
to the financial statements.

         The GMMV holds 521 unpatented  lode mining claims (the "Green  Mountain
Claims") on Green Mountain in Fremont County,  Wyoming,  including 105 claims on
which the Round Park (Jackpot)  uranium  deposit is located,  and the Sweetwater
Mill,  (approximately 23 miles south of the proposed Jackpot Mine)., are held by
the Green Mountain Mining Venture  ("GMMV"),  which until September 11, 2000 was
owned 50% by Kennecott and 50% by USE and USECC.

         In fiscal  2000,  Kennecott  filed a lawsuit to  dissolve  the GMMV and
Crested and the USE Parties counterclaimed for damages. This lawsuit was settled
on September  11, 2000.  Kennecott  paid USECC  $3,250,000 to acquire all of our
(and USE's and USECC's)  interest in the GMMV, its properties and the Sweetwater
Uranium Mill (with certain  exceptions),  and all parties' claims in the lawsuit
have  been   dismissed.   Kennecott  also  assumed  all  reclamation  and  other
liabilities  associated with the GMMV, its  properties,  the Sweetwater Mill and
all  liabilities  associated  with the GMMV since its  inception,  including the
historical  liabilities  associated  with  the  Sweetwater  Mill  prior  to  its
acquisition  by the GMMV.  We and USE  together  have  retained a 4% net profits
royalty in any future uranium oxide produced from the GMMV mining claims through
the Sweetwater Mill (currently in a standby mode and not operational).

         The ion exchange facility on the Sheep Mountain  properties will not be
transferred to Kennecott,  nor will the cleanup liabilities associated therewith
be assumed by  Kennecott.  However,  we (and USE) and  Kennecott  have agreed to
cooperate in the disposal of the facility into the  Sweetwater  Mill's  disposal
and impoundment  areas. Also, certain items of mining equipment held by the GMMV
were assigned to us and were removed from the GMMV properties in fiscal 2001.

         At such time as Kennecott has completed  necessary  reclamation work on
the Green  Mountain  unpatented  lode mining  claims  (including  the Round Park
uranium  deposit  proposed to be mined through the Jackpot  Mine)  Kennecott may
quit claim all such mining claims to USE,  Crested and USECC, as well as certain
equipment  currently  being used at the mine (including a compressor and standby
generator). Kennecott plans to keep the Sweetwater Mill.

         PROPERTIES

         The Green  Mountain  Claims  include the Big Eagle  Properties on Green
Mountain, which contain substantial uranium mineralization,  and are adjacent to
other mining claims.  The Big Eagle  Properties  contain two open-pit  mines, as
well  as  related  roads,  utilities,  buildings,  structures,  equipment  and a
stockpile of

                                       13

<PAGE>



500,000 tons of uranium  material with a grade of  approximately  .05% U3O8. The
assets include two buildings (38,000 square feet and 8,000 square feet) formerly
used by Pathfinder Mines Corporation ("PMC") in mining operations.

         The Round Park (Jackpot) mining claims,  previously owned by USE before
formation of the GMMV,  contain deposits of uranium which have been estimated to
contain 52,000,000 pounds of U3O8; the grade averages 4.6 pounds of U3O8 per ton
of mineralized material.  The GMMV had planned to mine this mineralized material
from two  decline  tunnels  (-17  percent  slope)  in the  Jackpot  Mine  driven
underground  from  the  south  side of Green  Mountain.  The  first  of  several
mineralized horizons in the Round Park deposits,  is about 2,300 feet vertically
down from the surface of Green Mountain. This work was halted in July 1998.

         PLATEAU'S SHOOTARING CANYON MILL

         ACQUISITION OF PLATEAU RESOURCES LIMITED  ("PLATEAU").  In August 1993,
USE purchased from Consumers Power Company ("CPC"), all of the outstanding stock
of Plateau which owns the Shootaring Canyon uranium  processing mill and support
facilities  in  southeastern  Utah (the  "Shootaring  Mill") for a nominal  cash
consideration.  The Shootaring  Mill holds a source  materials  license from the
NRC. In the purchase of the stock from CPC,  USE agreed to various  obligations,
as  disclosed  in USE's  1998  Form 10-K at pages 15 and 16.  Subsequent  to the
closing  of the  acquisition,  USE  and  Crested  agreed  that  after  Plateau's
unencumbered cash had been depleted,  USE and Crested each would assume one-half
of Plateau's  obligations,  and share equally in Plateau's operating cash flows,
pursuant  to  the  USECC  Joint  Venture.   For  detailed   explanation  of  the
transaction, please see Crested's 1998 Annual Report on Form 10-K at page 13.

         SHOOTARING  MILL AND  FACILITIES.  The  Shootaring  Mill is  located in
southeastern  Utah and occupies 19 acres of a 265 acre plant site.  The mill was
designed to process 750 tpd,  but only  operated on a trial basis for two months
in mid-summer of 1982. In 1984,  Plateau placed the mill on standby  because CPC
had canceled the construction of an additional nuclear energy plant.

         Plateau  also owns  approximately  90,000  tons of uranium  mineralized
material  stockpiled  at  the  mill  site  and  approximately  172,000  tons  of
mineralized  material  stockpiled at the Tony M Mine.  Included with mill assets
are tailings cells, laboratory facilities, equipment shop and inventory. The NRC
issued a license  to Plateau  authorizing  production  of uranium  concentrates,
however,  since the mill was shut down, only maintenance and required safety and
environmental  inspection  activities  were  performed and the source  materials
license with the NRC was for standby operations only. Plateau applied to the NRC
to convert the source  materials  license from standby to  operational  and upon
increasing the reclamation  bond, the NRC issued the new license on May 2, 1997.
Plateau has a cash bond in favor of the NRC in the amount of $8,511,200  plus an
additional $1,136,800 in government securities for bonding future reclamation.

         Plateau  obtained  approval of a water control  permit for the tailings
cell from the Utah Water  Control  Division  and is awaiting the NRC's review of
the operating  license  conditions so Plateau can continue with  construction of
tailing facilities if it so desires.

         TICABOO TOWNSITE

         Plateau  owns  Canyon  Homesteads,  Inc.,  a  Utah  corporation,  which
developed the Ticaboo, Utah townsite 3.5 miles south of the Shootaring Mill. The
townsite  includes a motel,  restaurant,  lounge,  convenience  store and single
family,  mobile home and  recreational  vehicle sites (all with utility access),
located on a State of Utah lease near Lake  Powell,  and is being  operated as a
commercial  enterprise.  An  amendment  was entered into on April 1, 1997 on the
Utah State lease covering the Ticaboo Townsite whereby

                                       14

<PAGE>



the State will convey fee title  portions of the  Townsite  lease to Canyon on a
sliding  scale  basis as they are  sold.  USE and  Crested  are  developing  the
Townsite in limited fashion and are selling home and mobile home sites.

         SHEEP MOUNTAIN PARTNERS ("SMP")

         SMP PARTNERSHIP. In February 1988, USECC acquired uranium mines, mining
equipment and  mineralized  properties  (Sheep  Mountain Mines) at Crooks Gap in
south-central  Fremont County,  Wyoming, from Western Nuclear, Inc. These Crooks
Gap mining  properties  are adjacent to the Green Mountain  uranium  properties.
USECC  mined and milled  uranium  ore from one of the  underground  Sheep  Mines
during  fiscal  1988 and 1989.  Production  ceased in fiscal  1989 after SMP was
formed,  because uranium could be purchased from the spot market at prices below
the mining and milling costs of USECC.  In December 1988,  USECC sold 50 percent
of the  interests  in the Crooks Gap  properties  to  Nukem's  subsidiary  Cycle
Resource  Investment  Corporation  ("CRIC")  for cash.  The  parties  thereafter
contributed  the properties to and formed Sheep Mountain  Partners  ("SMP"),  in
which USECC received an undivided 50 percent interest. SMP is a Colorado general
partnership  formed on December 21, 1988,  between USECC and Nukem, Inc. then of
Stamford,  CT ("Nukem")  through its  wholly-owned  subsidiary  CRIC. Each group
provided one-half of $315,000 to purchase equipment from Western Nuclear,  Inc.;
USECC also  contributed  its interests in three uranium supply  contracts to SMP
and agreed to be  responsible  for  property  reclamation  obligations.  The SMP
Partnership  agreement  provided  that each partner  generally  had a 50 percent
interest in SMP net profits, and an obligation to contribute 50 percent of funds
needed for partnership programs or discharge of liabilities.  Capital needs were
to have been met by loans,  credit lines and  contributions.  Nukem is a uranium
brokerage and trading concern.

         SMP  was  directed  by  a  management  committee,  with  three  members
appointed by USECC and three members appointed by Nukem/CRIC.  The committee has
not met since 1991 as a result of the SMP arbitration/litigation.  During fiscal
1991, disputes arose between the SMP partners which resulted in litigation.  See
Item 3, Legal Proceedings.

         PROPERTIES.  Until June 1, 1998,  SMP owned 80  unpatented  lode mining
claims on the Crooks Gap properties, including two open-pit and five underground
uranium  mines and an  inventory of uranium  ore. In  connection  with a partial
settlement of litigation/arbitration  between USECC and Nukem/CRIC, SMP conveyed
these mineral  properties and equipment to USECC. Any future production from the
properties  will  continue  to be subject to  sliding-scale  royalty  payable to
Western Nuclear,  Inc. (1% to 4% on recovered uranium  concentrates).  As of the
filing date of this Annual Report,  USE , Crested and/or USECC own 98 unpatented
lode mining  claims and a 644 acre Wyoming State Mineral Lease in the Crooks Gap
area.

         An ion exchange plant is located on the properties which can be used to
remove natural soluble uranium from mine water.  USECC began reclamation of this
facility during the first quarter of fiscal 2002. The plant is being disposed of
at the Sweetwater Mill impoundment facility (see above).

         PERMITS. Permits to operate existing mines (now in care and maintenance
status) on the Crooks Gap  properties  have been issued by the State of Wyoming.
Amendments  are needed to open new mines within the permit area.  As a condition
to issuance of the permits, a NPDES water discharge permit under the Clean Water
Act has been obtained.  Monitoring and treatment of water removed from the mines
and discharged in nearby Crooks Creek is generally required. During the past two
years, USECC did not discharge  wastewater into Crooks Creek, and the mine water
is presently being discharged into the USECC McIntosh Pit.


                                       15

<PAGE>



         URANIUM MARKET INFORMATION.

         URANIUM SPOT MARKET. Uranium restricted spot prices were $8.75/lb. U3O8
on June 30,  2001,  an  increase of 8% from $8.10 at June 30,  2000.  During the
first half of 2001, total spot market volume was  approximately 7 million pounds
U308 which was about the same volume as the first quarter of 2000.

         URANIUM LONG-TERM MARKET.  The long-term market has been active in 2001
with the  long-term  contracts  reported by market  analysts to have exceeded 35
million  pounds  of U3O8  during  the  first  half of 2001.  The  uranium  price
indicator  published by Tradetech was at $10.00 per pound U3O8 at June 30, 2001,
up from the $9.75 at beginning of the second quarter of 2001.

         GOLD

         SUTTER GOLD MINE (CALIFORNIA)

         SUTTER GOLD MINING COMPANY. In fiscal 1991, USE acquired an interest in
the underground  Sutter Gold Mine and related  properties (the "SGM") located in
the Mother Lode Mining District of Amador County, California. The entire Lincoln
Project  is now owned by  Sutter  Gold  Mining  Company,  a Wyoming  corporation
("SGMC"),  a  majority-owned  subsidiary  of USE  and a  company  owned  3.2% by
Crested.

         SGMC has a plan to put the SGM into production. However, implementation
of this plan will require substantial  capital financing.  Persistent low prices
for gold  have  made  financing  difficult,  and in fiscal  1999  resulted  in a
substantial  write down of the SGMC  assets.  See  "Managements  Discussion  and
Analysis of Financial Condition and Results of Operations" for fiscal 1999.

         Due to the depressed gold price and lack of available funding, SGMC has
deferred the start of construction of a 1,000  ton-per-day gold mill complex and
development  of the  underground  mine.  The tourist  visitor's  center has been
leased  to a third  party  for  $1,500  per  month  plus a 4% gross  royalty  on
revenues.  There is one caretaker  employee at the Sutter operation.  Except for
limited  infrastructure  improvements  in  2000,  the  assets  are in a care and
maintenance mode and the exploration permits are being kept current as necessary
with the current thinking of moving the project from a "large" mine to that of a
smaller ton per day operation.

         PROPERTIES.  SGMC holds  approximately 216 acres of surface and mineral
rights (owned),  54 acres of surface rights (owned),  55 acres of surface rights
(leased),  154 acres of mineral rights (leased), and 366 acres of mineral rights
(owned),  all on  patented  mining  claims  near Sutter  Creek,  Amador  County,
California. The properties are located in the western Sierra Nevada Mountains at
from 1,000 to 1,500 feet in elevation;  year round climate is temperate.  Access
is by California  State Highway 16 from  Sacramento to California  State Highway
49, then by paved county road approximately .4 mile outside of Sutter Creek.

         Surface and mineral rights holding costs will be approximately  $90,000
from June 1, 2001  through  May 31,  2002.  Property  taxes for fiscal  2001 are
estimated to be $30,000.

         The leases are for varying  terms,  and require  rental  fees,  advance
production royalties, real property taxes and insurance.

         PERMITS AND FUTURE  PLANS.  In August 1993,  the Amador County Board of
Supervisors  issued a Conditional Use Permit ("CUP")  allowing mining of the SGM
and  milling  of  production,  subject  to  conditions  relating  to  land  use,
environmental and public safety issues,  road construction and improvement,  and
site  reclamation.  The  permit  will  allow  construction  of the mine and mill
facilities in stages as the project gets

                                       16

<PAGE>



underway, thereby reducing initial capital outlays. Additional permits (for road
work, dust control and construction of mill and other surface improvements) need
to be applied for in due course. In August and September 1998, the Amador County
Board of Supervisors certified the Final Subsequent  Environmental Impact Report
("FSEIR") and approved all of the  amendments  requested by SGMC.  Amendments to
the CUP will  remove  two  tailings  dams,  eliminate  the  need to use  cyanide
on-site,   and  eliminate  mine  related  traffic  on  two  county  roads.   The
certification  and decision has been  challenged  in a lawsuit  filed by a local
citizens' group, currently under appeal, see "Legal Proceedings."

         VISITOR'S CENTER. In fiscal 2000, SGMC spent approximately $298,000 for
surface  infrastructure  related to improving  access to the mine site, and to a
lesser  extent  tourist  related  improvements.  The  visitors  center  is being
operated by a third party.

         MOLYBDENUM

         As a holder of royalty,  reversionary  and certain  other  interests in
properties located at Mt. Emmons near Crested Butte,  Colorado,  USE and Crested
are entitled to receive annual advance royalties of 50,000 pounds of molybdenum,
or cash equivalent. AMAX Inc. (which was acquired by Cyprus Minerals Company and
was renamed Cyprus Amax Minerals Company in November 1993 and was acquired later
by Phelps  Dodge)  delineated a deposit of molybdenum  containing  approximately
146,000,000 tons of mineralization  averaging 0.43% molybdenum  disulfide on the
properties of USE and Crested.

         Advance royalties are paid in equal quarterly  installments  until: (I)
commencement of production;  (ii) failure to obtain certain  licenses,  permits,
etc., that are required for production; or (iii) AMAX's return of the properties
to USE and Crested.  The advance royalty payments reduce the operating royalties
(6%  of  gross  production  proceeds)  which  would  otherwise  be  due  out  of
production.  There  is no  obligation  to repay  the  advance  royalties  if the
property is not placed in  production.  Phelps Dodge ceased making the quarterly
installments in July 2001.

         The  Agreement  with AMAX also  provides  that USE and Crested  receive
$2,000,000  when the Mt. Emmons  properties are put into  production and, in the
event AMAX sells its interest in the properties,  USE and Crested are to receive
15% of the first  $25,000,000  received by AMAX.  USE and Crested have  asserted
that the  acquisition  of Cyprus  Amax by Phelps  Dodge  would  entitle  USE and
Crested to such payment,  and that position has been  presented to Phelps Dodge,
the successor  company to Cyprus Amax. This position has been rejected by Phelps
Dodge and USE and Crested are  considering  remedies.  USE recognized  $108,500,
$132,600 and $150,600 of revenues in fiscal 2001,  2000 and 1999 related to this
royalty interest.

         COMMERCIAL OPERATIONS

         REAL ESTATE AND OTHER COMMERCIAL OPERATIONS.  We own varying interests,
alone and with USE, in affiliated  companies  engaged in real estate,  and other
commercial  businesses.  The affiliated  organizations include Western Executive
Air, Inc. ("WEA") and Canyon Homesteads,  Inc. (through Plateau).  Activities of
these and other  subsidiaries  in the business  sectors  include  ownership  and
management  of a  commercial  office  building,  the  townsite of Jeffrey  City,
Wyoming (until recently) and the townsite,  motel,  convenience  store and other
commercial facilities in Ticaboo, Utah.

         WYOMING. USE and Crested own a 14-acre tract in Riverton, Wyoming, with
a two-story 30,400 square foot office building (including  underground parking).
The first floor is rented to affiliates,  nonaffiliates and government agencies;
the second floor is occupied by the USE and  Crested.  The property is mortgaged
to the WDEQ as security for future reclamation work on the Sheep Mountain Crooks
Gap uranium properties.


                                       17

<PAGE>



         USE  and  Crested  (through  WEA)  also  owns  a  fixed  base  aircraft
operation,  with fuel sales, and aircraft maintenance,  at the Riverton Regional
Airport, including a 10,000 square foot aircraft hangar and 7,000 square feet of
associated offices and facilities. This operation is located on land leased from
the City of Riverton  for a term ending  December  16,  2005,  with an option to
renew on mutually agreeable terms for five years.

         USE and Crested  also own 17  semi-developed  lots on 26.8 acres and 63
acres of undeveloped land near the Riverton Regional Airport, and three mountain
sites covering 16 acres in Fremont County, Wyoming.

         USECC owned  various  buildings,  290 city lots and/or tracts and other
properties at the Jeffrey City townsite in  south-central  Wyoming,  where about
130 people presently live. USECC sold these properties during May 2001.

         COLORADO.  In connection  with the AMAX  transaction  on the Mt. Emmons
molybdenum  properties  near Crested Butte,  Colorado,  USECC acquired an option
from AMAX (later Cyprus Amax) to purchase approximately 57 acres for $200,000 in
Mountain Meadows Business Park, Gunnison,  Colorado. See "Minerals - Molybdenum"
above.  The property was zoned  commercial  and  industrial,  and is adjacent to
Western State College.  In fiscal 1995, USECC and Cyprus Amax agreed to exercise
the  option by USE and  Crested  agreeing  to forego  six  quarters  of  advance
royalties  from Cyprus  Amax (the  option  purchase  price was  $200,000),  plus
payment  of  certain  expenses  i.e.  real  property  taxes  from 1987 and other
expenses  amounting  to  $19,358.  Thereafter,  USE and  Crested  signed  option
agreements with Pangolin Corporation,  a Park City, Utah developer,  for sale of
the 57 acres, and a separate parcel owned in Gunnison County, Colorado.

         Although initial payments on the option  agreements were received,  the
developer  is in  default  on the  balance.  In July  1998,  USE filed a lawsuit
seeking  recovery of the balance owing on promissory  notes and  contracts.  See
"Item 3 - Legal Proceedings."

         UTAH PROPERTIES.  Canyon Homesteads, Inc. (a Plateau subsidiary) owns a
majority  interest  in a joint  venture  which  holds the  Ticaboo  Townsite  in
Ticaboo,  Utah  (see  "Minerals  -  Uranium-Shootaring  Canyon  Mill  -  Ticaboo
Townsite"  above).  In fiscal 1995,  USE  acquired the minority  interest in the
joint venture from a nonaffiliate.

         Commercial  operations are not dependent upon a single  customer,  or a
few customers,  the loss of which would have a materially  adverse effect on the
Company.

                            RESEARCH AND DEVELOPMENT

         No research and development expenditures have been incurred,  either on
the Company's  account or sponsored by  customers,  during the past three fiscal
years.

                                  ENVIRONMENTAL

         GENERAL.  Operations  are subject to various  federal,  state and local
laws and  regulations  regarding the discharge of materials into the environment
or otherwise relating to the protection of the environment,  including the Clean
Air Act,  the Clean  Water Act,  the  Resource  Conservation  and  Recovery  Act
("RCRA"),  and the Comprehensive  Environmental  Response Compensation Liability
Act  ("CERCLA").  With  respect  to  mining  operations  conducted  in  Wyoming,
Wyoming's  mine  permitting   statutes,   Abandoned  Mine  Reclamation  Act  and
industrial  development and siting laws and regulations  also impact us. Similar
laws and  regulations in California  affect SGMC operations and in Utah laws and
regulations effect Plateau's operations.

                                       18

<PAGE>



         Management  believes the Company complies in all material respects with
existing environmental regulations.

         CROOKS  GAP.  An  inoperative  ion  exchange  facility  at  Crooks  Gap
currently holds a NRC license for possession of uranium  operations  byproducts.
USE applied to the NRC for  permission to  decommission  and  decontaminate  the
plant,  dispose low level waste into the Sweetwater Mill tailings cell, which is
currently underway and is anticipated to be completed in September 2001.

         OTHER   ENVIRONMENTAL   COSTS.   Actual  costs  for   compliance   with
environmental  laws may vary  considerably  from estimates,  depending upon such
factors as changes in environmental laws and regulation (e.g., the new Clean Air
Act), and conditions  encountered in minerals  exploration  and mining.  USE and
Crested do not anticipate  that  expenditures to comply with laws regulating the
discharge of materials into the environment,  or which are otherwise designed to
protect  the  environment,  will  have any  substantial  adverse  impact  on the
competitive position of the Company.

                                    EMPLOYEES

         Crested has no full-time employees.  Payroll expense has been shared by
USE and Crested since 1981. Crested uses approximately 50 percent of the time of
USE employees, and reimburses USE accordingly. USE had 55 full-time employees as
of August 26, 2001.

                              MINING CLAIM HOLDINGS

         TITLE.  Nearly all the uranium mining properties held by the GMMV, USE,
Crested,  USECC and Plateau are on federal unpatented claims.  Unpatented claims
are located upon federal  public land pursuant to procedure  established  by the
General  Mining Law.  Requirements  for the  location of a valid mining claim on
public land  depend on the type of claim being  staked,  but  generally  include
discovery  of  valuable  minerals,  erecting a  discovery  monument  and posting
thereon a location  notice,  marking the boundaries of the claim with monuments,
and  filing a  certificate  of  location  with the  county in which the claim is
located and with the BLM. If the statutes and  regulations for the location of a
mining claim are complied with, the locator obtains a valid  possessory right to
the contained  minerals.  To preserve an otherwise  valid claim, a claimant must
also pay certain rental fees annually to the federal government  (currently $100
per  claim) and make  certain  additional  filings  with the county and the BLM.
Failure  to pay such fees or make the  required  filings  may  render the mining
claim  void  or  voidable.   Because  mining  claims  are   self-initiated   and
self-maintained,  they possess some unique  vulnerabilities  not associated with
other types of property interests. It is impossible to ascertain the validity of
unpatented  mining claims  solely from public real estate  records and it can be
difficult or  impossible  to confirm that all of the  requisite  steps have been
followed  for  location  and  maintenance  of a  claim.  If the  validity  of an
unpatented  mining claim is challenged by the  government,  the claimant has the
burden of proving the present  economic  feasibility of mining minerals  located
thereon.  Thus,  it is  conceivable  that during times of falling  metal prices,
claims which were valid when located could become invalid if challenged.

         RMG's properties and mineral leases of BLM, state and fee lands require
annual cash  payments of  approximately  $233,000  during  fiscal  2002.  RMG is
obligated for $48,900 of this amount to keep the leases in effect.

         PROPOSED  FEDERAL  LEGISLATION.  The U.S.  Congress has, in legislative
sessions  in recent  years,  actively  considered  several  proposals  for major
revision of the General  Mining Law,  which  governs  mining  claims and related
activities on federal public lands. If any of the recent  proposals  become law,
it could result in the imposition of a royalty upon  production of minerals from
federal lands and new requirements for mined

                                       19

<PAGE>



land reclamation and other  environmental  control measures.  It remains unclear
whether the current  Congress  will pass such  legislation  and, if passed,  the
extent such new  legislation  will affect existing mining claims and operations.
The effect of any  revision of the General  Mining Law on  operations  cannot be
determined   conclusively  until  such  revision  is  enacted;   however,   such
legislation could materially  increase the carrying costs of mineral  properties
which are located on federal  unpatented mining claims,  and could increase both
the capital and operating costs for such projects and impair the ability to hold
or develop such properties.

                            ITEM 3. LEGAL PROCEEDINGS

         Material pending  proceedings are summarized  below.  Other proceedings
which  were  pending  in fiscal  2000 have been  settled  or  otherwise  finally
resolved.

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 (District of Colorado)
in Civil No. 91B1153.  Later,  USECC filed another suit for the standby costs at
the SMP mines against SMP in the Colorado State Court.  The Federal Court stayed
both the arbitration proceedings and the State Court case. In February 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.

         The AAA panel (the "Panel") entered an Order and Award (the "Order") in
April 1996 and clarified the Order on July 3, 1996,  finding  generally in favor
of USE and  Crested  on  certain  of their  claims  (including  the  claims  for
reimbursement for standby maintenance expenses and profits denied SMP in Nukem's
trading of  uranium);  in favor of  Nukem/CRIC  and  against  USE and Crested on
certain  other  claims,  and  imposing  a  constructive  trust in favor of Sheep
Mountain  Partners on uranium  contracts Nukem entered into to purchase  uranium
from CIS republics.  USECC filed a petition for confirmation of the Order and on
June 30, 1997,  and the U.S.  District  Court  confirmed the Order in its Second
Amended Judgment (the "Judgment").  Thereafter, Nukem/CRIC appealed the Judgment
to the 10th Circuit Court of Appeals ("CCA").

         A three  judge  panel of the 10th CCA issued an Order and  Judgment  on
October 22, 1998, which unanimously affirmed the Federal District Court's Second
Amended Judgment without modification. The ruling affirmed (I) the imposition of
a constructive  trust in favor of SMP on Nukem's rights to purchase CIS uranium,
the uranium acquired pursuant to those rights,  and the profits  therefrom;  and
(ii) the damage award against Nukem/CRIC.  As a result of the ruling of the 10th
CCA, USE and Crested received an additional  $6,077,264  (including interest and
court  costs)  from Nukem in  February  1999 for a total net  monetary  award of
$15,468,625 in the  arbitration/litigation,  and equitable relief in the form of
USE's and Crested's interest in SMP, which holds the constructive trust over the
CIS contracts.  Nukem/CRIC filed two motions for entry of final  satisfaction of
Judgment.  The U.S. District Court denied both motions,  Nukem again appealed to
the 10th CCA, which again affirmed the District  Court's  ruling,  and held that
Nukem/CRIC had not  demonstrated  that the Judgment had been  satisfied  because
they had not provided USECC with an accounting of the partnerships assets.

         In February 2001, the U.S. District Court appointed a Special Master to
determine the amounts, if any, owed by Nukem to SMP pursuant to the constructive
trust.  The  Special  Master  entered  an Order on July 2,  2001  regarding  the
formulation  of an  accounting  plan.  The District  Court has set a hearing for
October 5, 2001 on the status of the accounting.

                                       20

<PAGE>



CONTOUR DEVELOPMENT LITIGATION

         On July 28,  1998,  USE filed a lawsuit in the United  States  District
Court, Denver, Colorado, Case No. 98WM1630, 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 real estate owned by
USE and  Crested  in  Gunnison,  Colorado.  The  Contour  defendants  asserted a
counterclaim  asking for payment of attorneys fee and costs.  Discovery has been
completed  and the final  pretrial  conference is scheduled for October 2, 2001,
when the court will schedule the trial date. Trial is expected in early 2002.

         See  "Business  -  Commercial   Operations  -  Real  Estate  and  Other
Commercial Operations - Colorado Properties" above.

SGMC LITIGATION

         In 1993, Amador County issued a conditional use permit ("CUP") to allow
SGMC  to  develop  the SGM  near  the  town  of  Sutter  Creek,  Amador  County,
California.  A number of  conditions  were  attached to the  original  CUP which
accommodated  local citizen and government  agency  concerns about noise,  waste
disposal, traffic and other aspects of the proposed mining operation.

         In 1997 and 1998, SGMC proposed  amendments to the CUP for a new design
of the SGM which  would  lower its  environmental  impact by  reducing  traffic,
potentially  eliminating  the use of cyanide  on-site,  and  removing  two large
tailings  dams which would have been built to hold mine and mill waste.  The new
design  also would  significantly  reduce  capital and  operating  costs for the
mine/mill  complex,  but cover more land for waste disposal and other  purposes.
The certification  and approval by the Amador County Planning  Commission of the
Final  Subsequent  Environmental  Impact Report  ("FSEIR") and CUP amendments on
July 14, 1998 was appealed (by a local citizens project opposition group) to the
Amador County Board of  Supervisors.  In August and September 1998, the Board of
Supervisors certified the FSEIR and approved the amendments to the CUP.

         On September  28, 1998, a lawsuit was filed in Amador  County  Superior
Court,  California (Case No. 98 CV 3298) by Concerned  Citizens of Amador County
as  plaintiffs,  against  the County of Amador and the  Amador  County  Board of
Supervisors,  and  against  SGMC  as a  real  party  in  interest.  The  lawsuit
challenges  the  actions  of  Amador  County  and its  Board of  Supervisors  in
certifying  the FSEIR and  approving the amended CUP. A hearing was held on June
7, 1999 and the Court denied all claims by the plaintiffs Concerned Citizens who
appealed the decision. Oral arguments were made to the appellate court on August
20, 2001 and a decision is expected soon.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         A meeting of shareholders  was held at the Company's  offices at 877 N.
8th W., Riverton, WY on Friday, December 8, 2000 commencing at 10:00 a.m.

         The only matter for shareholder  consideration was the election of five
directors (John L. Larsen, Max T. Evans, Daniel P. Svilar, Michael D. Zwickl and
Kathleen  R.  Martin),  and they were so elected to serve  until the next annual
meeting and until their successors are qualified.

INFORMATION CONCERNING EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS.

         The following  information is provided  pursuant to Instruction 3, Item
401 of Reg. S-K,  regarding certain of the executive officers of USE who are not
also directors.

                                       21

<PAGE>



         ROBERT SCOTT LORIMER, age 50, has been the Chief Accounting Officer for
both USE and  Crested for more than the past five years.  Mr.  Lorimer  also has
been Chief  Financial  Officer for both of these  companies  since May 25, 1991,
their Treasurer since December 14, 1990, and Vice President  Finance since April
1998.  He  serves  at  the  will  of  each  board  of  directors.  There  are no
understandings  between Mr.  Lorimer and any other person,  pursuant to which he
was named as an officer, and he has no family relationship with any of the other
executive  officers or directors of USE or Crested.  During the past five years,
he has not been involved in any Reg. S-K Item 401(f) listed proceeding.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

(a)      Market information.
         ------------------

         The principal trading market for the Registrant's  Common Stock,  $.001
par value, is the over-the- counter market.  Prices are reported by the National
Quotation  Bureau on Pink Sheets.  The range of high and low bid  quotations for
the Common  Stock is set forth below for each  quarter in the two most  recently
completed  fiscal years.  Retail  markup or markdown,  or  commissions,  are not
reflected.

                                                   High          Low
                                                   ----          ---

         Fiscal year ended May 31, 2001
         ------------------------------
              Fourth quarter ended 5/31/01         $0.50        $0.26
              Third quarter ended 2/28/01           0.38         0.13
              Second quarter ended 11/30/00         0.25         0.11
              First quarter ended 8/31/00           0.25         0.15

         Fiscal year ended May 31, 2000
         ------------------------------
              Fourth quarter ended 5/31/00         $0.32        $0.15
              Third quarter ended 2/29/00           0.45         0.20
              Second quarter ended 11/30/99         0.45         0.20
              First quarter ended 8/31/99           0.50         0.34

(b)      Holders.

         (b)(1) At August 24, 2001 there were 1,772  stockholders  of record for
Crested common stock.

         (b)(2)  Not applicable.

(c) Crested has not paid any cash  dividends  with respect to its common  stock.
There are no contractual  restrictions on Crested's present or future ability to
pay cash dividends,  however, Crested intends to retain any earnings in the near
future for operations.

(d) During the year ended May 31,  2001,  Crested  issued  40,000  shares of its
Common Stock to its outside directors for services rendered.


                                       22

<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                                      May 31,
                                 -----------------------------------------------------------------------------
                                      2001           2000             1999            1998            1997
                                      ----           ----             ----            ----            ----

<S>                              <C>             <C>             <C>             <C>             <C>
Current assets                   $      3,200    $      3,000    $     46,600    $     32,000    $     11,300
Current liabilities                 5,740,200      10,230,200       7,015,200       6,545,100       6,021,400
Working capital                    (5,737,000)    (10,227,200)     (6,968,600)     (6,513,100)     (6,010,100)
Total assets                        6,221,100       6,495,800       4,742,200       9,431,900       5,699,100
Long-term obligations(1)              964,000         964,000         725,900         725,900         725,900
Shareholders' equity/(deficit)       (493,200)     (4,742,300)     (1,822,500)        117,200      (1,092,300)
<FN>

(1) Includes  $748,400 of accrued  reclamation  costs on uranium  properties for fiscal 2001;  $748,400 for 2000;
and $725,900 for each of fiscal 1999,  1998 and 1997, respectively.
</FN>
</TABLE>

<TABLE>
<CAPTION>
                                                            For Years Ended May 31,
                               ------------------------------------------------------------------------------------
                                    2001             2000              1999             1998             1997
                                    ----             ----              ----             ----             ----

<S>                            <C>               <C>              <C>               <C>              <C>
Revenues                       $  3,891,500      $     73,100     $      86,800     $    270,800     $    181,800
Income (loss) before
   equity in loss of
   affiliates and
   income taxes                   3,702,400          (194,600)         (786,100)          58,500         (623,700)
Equity in (loss) gain
   of affiliates                 (2,496,700)       (5,085,200)       (1,165,600)       1,151,000       (1,046,600)
                               ------------      ------------     -------------     ------------     -------------

Net income (loss)              $  1,205,700      $ (5,279,800)    $  (1,951,700)    $  1,209,500    $  (1,670,300)
                               =============     ============     =============     ============    =============

Net income (loss)
   per share                   $        .12      $       (.51)    $        (.19)    $        .12    $        (.16)
                               =============     ============     =============     ============    =============

Cash dividends per share       $        -0-      $        -0-     $          -0-    $       -0-     $         -0-
                               =============     =============    ==============    ============    ==============
</TABLE>


ITEM 7.  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  Company's  liquidity,  capital  resources and
results of operations during the periods included in the accompanying  financial
statements.  The discussion  contains  forward-looking  statements  that involve
risks and  uncertainties.  Due to  uncertainties in the minerals  business,  the
Company's actual results may differ materially from the results discussed in any
such forward-looking statements.

LIQUIDITY AND CAPITAL RESOURCES

         As of May 31, 2001, we had a working  capital  deficit of $5,737,000 as
compared to a working  capital  deficit of $10,227,200 as of May 31, 2000.  This
reduction in the working  capital deficit of $4,490,200 was primarily due to the
settlement of the litigation with  Kennecott,  which resulted in the recognition
of  $2,000,000  of deferred  revenue,  and the  reduction  of debt to our parent
company U.S. Energy Corp. ("USE").

         As a result of the settlement with Kennecott, we were able to recognize
$2,000,000 in revenues which had previously been carried as a deferred  purchase
option.  This is a non-cash  reduction of the working  capital deficit as we had
received the cash from the deferred  purchase option in a previous  period.  The
other major  reduction  in the working  deficit  balance was the  retirement  of
$3,000,000 in debt to USE by issuing 6,666,666

                                       23

<PAGE>



shares of our common  stock to USE.  These  amounts plus the increase in cash of
$200, less the increase in debt to USE of $510,000 during the year,  resulted in
the net change in working capital deficit of $4,490,200.

         Although operations resulted in net income of $1,205,700,  the majority
of  this  net  income  came  as a  result  of the  non-cash  recognition  of the
$2,000,000 deferred purchase option from Kennecott. Operations did generate cash
from the receipt of advance  royalties  on the Mt.  Emmons  property of $60,300;
interest  of $200;  a cash  payment  of  $1,566,400  from  the  GMMV  litigation
settlement,  and  $264,600  from the sale of certain  real  estate  property  in
Colorado.

         Investing   activities  consumed  $2,221,800  during  fiscal  2001.  We
invested an  additional  $1,076,200  in Rocky  Mountain  Gas,  Inc.  ("RMG") and
$1,141,600 in USECB.  These  investment  amounts were offset by equity losses of
$2,210,600  and  $286,100 in USECB and RMG,  respectively  for a net decrease in
investments of $278,900.  This decrease in investments was offset by an increase
in miscellaneous  other  investments.  Other activities in investing  activities
were proceeds from the sale of assets of $138,500.

         Financing  activities  generated  $510,000  in  cash  as  a  result  of
increased debt to USE.

         During  fiscal 2001,  40,000  shares of  restricted  common  stock,  at
market, were issued to our outside directors as non-cash compensation.

CAPITAL RESOURCES

         The primary source of the Company's capital resources are cash on hand;
a line of credit, and the continued reliance on USE to fund our portion of costs
associated with operations and general and administrative activities.

         We,  jointly with USE, have a $750,000 line of credit with a commercial
bank. The line of credit is secured by certain of our joint real estate holdings
and  equipment.  At the date of this  report,  the line of credit had been drawn
down by  $350,000.  The line of credit  is being  used for  short  term  working
capital needs associated with operations.

         The  capital  resources  at May 31,  2001,  will not be  sufficient  to
provide funding for the  maintenance of our gold and uranium  properties and the
planned development of our coalbed methane gas properties. Our subsidiary,  RMG,
is seeking  additional  equity or industry  partner  financing  arrangements  to
develop its coalbed methane properties.

CAPITAL REQUIREMENTS

         The primary requirements for our working capital during fiscal 2002 are
expected  to  be  development  of  coalbed  methane  properties;   the  cost  of
maintaining our uranium properties;  the SGMC gold properties holding costs, and
general and  administrative  costs.  Should USE elect not to fund our portion of
the operations, our capital requirements will be significantly reduced. However,
if USE does elect to provide such funding,  we will be further  indebted to USE,
which  ultimately  could result in our paying that debt by issuing more stock to
USE, or by a reduction of our ownership interests in the subject subsidiaries.

                    DEVELOPMENT OF COALBED METHANE PROPERTIES

         The majority of the fiscal 2002  development  costs associated with the
coalbed methane  properties of RMG has been funded through third party contracts
that RMG entered into. Under one of these agreements,  as to properties  drilled
that are owned only 50% by RMG, we may be required  to fund the  drilling  costs
for the interest ownership of the remaining parties,  if they don't participate.
Should we be required to fund any

                                       24

<PAGE>



non-participating  entities  portion  of the  development  programs,  there is a
back-in provision on each property which gives RMG a disproportionate  amount of
the production  revenues  until our costs and  additional  amounts are recovered
before the non-participating parties begin to receive production funds.

                         MAINTAINING URANIUM PROPERTIES

         SMP URANIUM PROPERTIES

         The care and  maintenance  costs  associated  with the  Sheep  Mountain
uranium  mineral  properties,   of  which  we  are  responsible  for  50%,  were
approximately  $33,300 per month during  fiscal  2001.  We continue to implement
cost cutting measures to reduce the holding cost while at the same time preserve
the asset.  We are obligated to reclaim the GMIX plant which was used to extract
uranium  from mine  waters.  We have begun the  process of  reclamation  and are
dismantling  and moving the GMIX plant to the Sweetwater Mill which was an asset
of the  GMMV,  but  is now  owned  by  Kennecott.  It is  anticipated  that  the
reclamation will be completed during the second quarter of fiscal 2002. Costs of
such reclamation are dependent on the work that maybe required by the regulatory
agencies as the project progresses.

         PLATEAU RESOURCES URANIUM PROPERTIES

         We are contractually  obligated to fund 50% of the cash requirements of
Plateau  and  also  share  in  50% of  any  cash  receipts  of  Plateau.  USE is
responsible  for the  other  50%.  Plateau  owns the  Ticaboo  townsite,  motel,
convenience store, boat storage, restaurant and lounge. Prior to fiscal 2002, we
operated  all of these  entities.  A decision  was made to lease out all but the
motel operations during fiscal 2002. This decision relieved us of the obligation
and expense of employees, inventory and risk of loss.

         Additionally,  Plateau owns and  maintains  the Tony M uranium mine and
Shootaring  Canyon  Uranium  Mill.  We are pursuing  alternative  uses for these
properties including the potential sale of the uranium mill.

         SUTTER GOLD MINING COMPANY GOLD PROPERTIES

         Due to the depressed  market price of gold, the development of the gold
properties has been deferred into the future.  SGMC developed a tourism business
at the  properties  until  such  time as the price  for gold  recovers.  We have
determined  to lease out the tourism  business to a third  party.  The  revenues
received  from the lease cover a majority of our holding costs  associated  with
the mining property. We have one employee at the SGMC properties to preserve the
core assets and  properties.  SGMC is in the process of evaluating the potential
of selling  certain of the non essential  land positions that it has acquired in
developing a mine plan.  We are  obligated  to fund 11% of the costs  associated
with SGMC.

                                  DEBT PAYMENTS

         As a result of USE funding our  obligations,  we are indebted to USE in
the amount of  $5,740,200  as of May 31, 2001. At May 31, 2000, we were indebted
to USE in the amount of  $8,230,200.  We became  further  indebted to USE during
fiscal 2001 in the amount of $510,000.  We negotiated with USE on the retirement
of the debt  during  fiscal  2001.  USE agreed to take  6,666,666  shares of our
common stock valued at $3,000,000 as partial  retirement of the debt due USE. If
we are not able to generate cash flows or continue to negotiate  favorable terms
with USE, it is uncertain how we will retire this debt.

                            FEDERAL INCOME TAX ISSUES

         The tax years through May 31, 1996 are closed after audit by the IRS.


                                       25

<PAGE>



                                RECLAMATION COSTS

         With the  exception of any amounts that may become  needed in excess of
the cash bond on the GMIX reclamation project, it is not anticipated that any of
our working  capital will be used in fiscal 2002 for the  reclamation  of any of
our mineral property  interests.  The reclamation  obligations are long term and
are either bonded through the use of cash bonds or the pledge of assets.

         The  reclamation   liability  on  the  Plateau  uranium  properties  is
$7,382,100.  This  liability  is fully  funded  by cash  investments  which  are
recorded as long term restricted assets within Plateau.

         The reclamation costs of the Sheep Mountain  properties are $1,496,800,
$748,400 of which is reflected on the Company's  balance  sheets and are covered
by a reclamation bond which is secured by a pledge of certain of our real estate
assets.

         The reclamation of SGMC gold properties is approximately  $27,900. This
reclamation obligation is bonded with a cash bond.

RESULTS OF OPERATIONS

FISCAL 2001 COMPARED TO FISCAL 2000

         Revenues   for  the  fiscal   year  ended  May  31,   2001,   increased
significantly to $3,891,500 from revenues for the fiscal year ended May 31, 2000
of $73,100.  This increase was as a result of the  recognition of the litigation
settlement with Kennecott. Of the $3,566,400 recognized as revenues,  $2,000,000
was a non-cash  recognition of a deferred purchase option.  This purchase option
was paid in cash 1997 by  Kennecott.  The balance of the revenues  recognized as
litigation  settlement of $1,566,400 is the cash portion of the payments made by
Kennecott, net of accounts receivable for operations at the GMMV properties.

         Other  revenues  increased  by $259,600  to  $264,600.  These  revenues
reflect the sale of certain Colorado real estate holdings.

         Costs and expenses  decreased by $78,600 during fiscal 2001 from fiscal
2000.  This decrease was as a result of a reduction of staff and the curtailment
of activities. The other increase in net income was a reduction of equity losses
of affiliates of $2,588,500.

         Operations for fiscal 2001,  resulted in net income of  $1,205,700,  or
$0.12 per share fully diluted, as compared to a loss of $5,279,800, or $0.51 per
share fully diluted, for fiscal 2000.

FISCAL 2000 COMPARED TO FISCAL 1999

         There was a reduction of revenues of $13,700 to $73,100  during  fiscal
2000 from the revenues  recognized  during fiscal 1999.  The major  reduction in
revenues  was a  reduction  in mineral  revenue of $9,300.  This  reduction  was
because of no uranium deliveries being made during fiscal 2000.

         Costs and  expenses  were  reduced  from  $872,900  in  fiscal  1999 by
$605,200 to $267,700 in fiscal 2000. This reduction was primarily as a result of
no impairment on investments  being taken during fiscal 2000 while an impairment
of $651,000 was taken on investments in fiscal 1999.  General and administrative
expenses increased by $45,800 during fiscal 2000 to $267,700.  This increase was
due primarily to increased  staff to  participate  in the contract  drilling and
construction  activities.  Another decrease in net income was an increase in the
equity in loss of affiliates of $3,919,600 during fiscal 2000.


                                       26

<PAGE>



         Operations  resulted in a loss of  $5,279,800  or $0.51 per share fully
diluted as compared  to a loss of  $1,951,700  or $0.19 per share fully  diluted
during fiscal 1999.

FUTURE OPERATIONS

         We have generated losses in two of the last three years, as a result of
holding  costs and  permitting  activities  in the  mineral  segment  along with
impairments of mineral  assets.  We have  maintained  some of our investments in
gold and uranium  properties  that  continue to generate no operating  revenues.
These properties  require  expenditures  for items such as permitting,  care and
maintenance,  holding  fees,  corporate  overhead and  administrative  expenses.
Success in the  minerals  industry is dependent on the price that a producer can
receive for its  minerals.  We cannot  predict what the long term price for gold
and uranium will be and therefore  cannot  predict when, or if, we will generate
net  income  from  these  operations.  We  believe  we have  sufficient  capital
resources to maintain our mineral  properties on a standby basis through  fiscal
2002.  Development  activities  of  the  mineral  properties  and  expansion  of
commercial operations are dependent on the Company obtaining equity financing or
commercial  loans. It may also be necessary to generate cash through the sale of
equipment or other assets.

         At May 31, 2001, we are committed to be in the coalbed methane business
well into the future. Uranium prices and market projections are being evaluated.
Decisions to liquidate part or all of the Company's  uranium  holdings are being
considered.  We are also  evaluating  our commitment to the gold business and at
what time the price for gold may recover.

EFFECTS OF CHANGES IN PRICES

         Mineral  operations are significantly  affected by changes in commodity
prices. As prices for a particular  mineral  increase,  prices for prospects for
that mineral also increase,  making  acquisitions of such properties costly, and
sales  advantageous.  Conversely,  a price decline  facilitates  acquisitions of
properties  containing  that mineral,  but makes sales of such  properties  more
difficult. Operational impacts of changes in mineral commodity prices are common
in the mining industry.

         NATURAL  GAS.  Our  decisions  to expand into the  coalbed  methane gas
industry were predicated on the  projections for natural gas prices.  We believe
that the energy  demands of the United  States of America will  sustain  natural
prices at their current levels or higher during the foreseeable future.

         URANIUM AND GOLD. Changes in the prices of uranium and gold will affect
our  operational  decisions  the most.  Currently,  both gold and uranium are at
historical low prices. We continually evaluate market trends and data. We do not
plan to go forward  with any  additional  development  of our  uranium  and gold
properties  until the  market  price  for  these  metals  obtain  and  remain at
profitable levels.

         MOLYBDENUM  AND OIL.  Changes in prices of molybdenum and petroleum are
not  expected  to  materially  affect  our  operations  during  fiscal  2002.  A
significant  and sustained  increase in demand for molybdenum  would be required
for the  development  of the Mt. Emmons  properties by Phelps Dodge since it has
other producing mines.

ITEM 8.  FINANCIAL STATEMENTS

         Financial statements meeting the requirements of Regulation S-X for the
Company follow immediately.


                                       27

<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To Crested Corp.:

We have audited the  accompanying  balance  sheet of CRESTED  CORP.  (a Colorado
corporation)  as of May 31,  2001  and the  related  consolidated  statement  of
operations,  shareholders'  equity  (deficit)  and cash  flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Crested Corp. as of May 31,
2001 and the results of their  operations and their cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue  as a going  concern.  As  discussed  in Note A to the  financial
statements, the Company has experienced significant losses from operations prior
to fiscal  2001.  In  addition,  the  Company has a working  capital  deficit of
approximately $5,737,000 as of May 31, 2001, the substantial portion of which is
owed to affiliated  entities.  These factors raise  substantial  doubt about the
ability of the  Company to continue as a going  concern.  Management's  plans in
regards to these matters are also described in Note A. The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.




                                                 GRANT THORNTON LLP


Denver, Colorado,
July 27, 2001


                                       28

<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Crested Corp.:

We have audited the  accompanying  balance  sheet of CRESTED  CORP.  (a Colorado
corporation)  as of May 31, 2000,  and the related  consolidated  statements  of
operations,  shareholders'  equity  (deficit) and cash flows for each of the two
years in the period  ended May 31,  2000.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Crested Corp. as of May 31,
2000,  and the results of operations and cash flows for each of the two years in
the  period  ended  May 31,  2000,  in  conformity  with  accounting  principles
generally accepted in the United States.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue  as a going  concern.  As  discussed  in Note A to the  financial
statements,   the  Company  continued  to  experience  significant  losses  from
operations  during fiscal 2000. In addition,  the Company has a working  capital
deficit of approximately $10,227,200 as of May 31, 2000, the substantial portion
of which is owed to affiliated  entities.  These factors raise substantial doubt
about the ability of the Company to  continue as a going  concern.  Management's
plans in regards to these  matters are also  described in Note A. The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.




                                                 ARTHUR ANDERSEN LLP


Denver, Colorado,
September 11, 2000


                                       29

<PAGE>


                                  CRESTED CORP.
                                  BALANCE SHEET
                                     ASSETS
<TABLE>
<CAPTION>
                                                                          May 31,
                                                               ----------------------------
                                                                   2001            2000
                                                               -----------     ------------
CURRENT ASSETS:
<S>                                                            <C>             <C>
   Cash and cash equivalents                                   $     3,200     $     3,000

INVESTMENTS IN AFFILIATES                                        6,205,800       6,342,200

PROPERTIES AND EQUIPMENT:
   Machinery and equipment                                          10,000         467,600
   Developed oil properties, full cost method                      886,800         886,800
                                                               -----------     -----------
                                                                   896,800       1,354,400
   Less accumulated depreciation,
     depletion and amortization                                   (886,800)     (1,205,900)
                                                               -----------     -----------
                                                                    10,000         148,500
OTHER ASSETS:
     Other assets                                                    2,100           2,100
                                                               -----------     -----------
                                                               $ 6,221,100     $ 6,495,800
                                                               ===========     ===========
</TABLE>

                      LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>

CURRENT LIABILITIES:
<S>                                                            <C>             <C>
     Deferred GMMV purchase option                             $       --      $  2,000,000
     Debt to affiliate                                            5,740,200       8,230,200
                                                               ------------    ------------
       Total current liabilities                                  5,740,200      10,230,200

COMMITMENT TO FUND EQUITY INVESTEES                                 215,600         215,600

RECLAMATION LIABILITY                                               748,400         748,400

COMMITMENTS AND CONTINGENCIES (Note K)

FORFEITABLE COMMON STOCK, $.001 par value;
   15,000 and 65,000 shares issued, forfeitable until earned         10,100          43,900

SHAREHOLDERS' EQUITY (DEFICIT)
   Preferred stock, $.001 par value;
     100,000 shares authorized;
     none issued or outstanding                                        --              --
   Common stock, $.001 par value;
     20,000,000 shares authorized;
     17,073,330 and 10,316,664 shares
     issued and outstanding                                          17,200          10,400
   Additional paid-in capital                                    11,783,800       8,747,200
   Accumulated deficit                                          (12,294,200)    (13,499,900)
                                                               ------------    ------------
       Total shareholders' deficit                                 (493,200)     (4,742,300)
                                                               ------------    ------------
                                                               $  6,221,100    $  6,495,800
                                                               ============    ============
</TABLE>


         The accompanying notes to consolidated financial statements are
                    an integral part of these balance sheets.


                                       30

<PAGE>



                                  CRESTED CORP.
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                           Year Ended May 31,
                                             ---------------------------------------------
                                                2001              2000            1999
                                             ------------    -------------   -------------
REVENUES:
<S>                                          <C>             <C>             <C>
   Mineral revenues                          $     60,300    $     66,000    $     75,300
   Interest                                           200           2,100           1,500
   Litigation settlements, net                  3,566,400            --              --
   Management fees and other                      264,600           5,000          10,000
                                             ------------    ------------    ------------
                                                3,891,500          73,100          86,800

COSTS AND EXPENSES:
   General and administrative                $    189,100    $    267,700    $    221,900
   Write-off of investment in contingent
     stock warrant                                   --              --           651,000
                                             ------------    ------------    ------------
                                                  189,100         267,700         872,900
                                             ------------    ------------    ------------

INCOME (LOSS) BEFORE
   EQUITY IN LOSS OF AFFILIATES
   AND INCOME TAXES                             3,702,400        (194,600)       (786,100)

EQUITY IN LOSS OF AFFILIATES                   (2,496,700)     (5,085,200)     (1,165,600)
                                             ------------    ------------    ------------

INCOME (LOSS) BEFORE
   INCOME TAXES                                 1,205,700      (5,279,800)     (1,951,700)

INCOME TAXES                                         --              --              --
                                             ------------    ------------    ------------

NET INCOME (LOSS)                            $  1,205,700    $ (5,279,800)   $ (1,951,700)
                                             ============    ============    ============

NET INCOME (LOSS)
   PER SHARE, BASIC AND DILUTED              $        .12    $       (.51)   $      (0.19)
                                             ============    ============    ============

BASIC WEIGHTED AVERAGE
   SHARES OUTSTANDING                          10,448,505      10,361,149      10,315,091
                                             ============    ============    ============

DILUTED WEIGHTED AVERAGE
   SHARES OUTSTANDING                          10,506,499      10,361,149      10,315,091
                                             ============    ============    ============
</TABLE>


           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.


                                       31

<PAGE>



                                  CRESTED CORP.
                       STATEMENTS OF SHAREHOLDERS' DEFICIT


<TABLE>
<CAPTION>
                                             Common Stock          Additional                      Total
                                     -------------------------      Paid-In      Accumulated     Shareholders'
                                       Shares         Amount        Capital        Deficit         Deficit
                                       ------         ------     -------------  -------------   -------------

<S>                                  <C>          <C>            <C>            <C>             <C>
Balance, June 1, 1998                10,237,694   $     10,200   $  6,375,400   $ (6,268,400)   $    117,200

Issuance of stock to directors           46,970            100         11,900           --            12,000

Net loss                                   --             --             --       (1,951,700)     (1,951,700)
                                     ----------   ------------   ------------   ------------    ------------

Balance, May 31, 1999                10,284,664         10,300      6,387,300     (8,220,100)     (1,822,500)

Issuance of stock to directors           32,000            100         12,700           --            12,800

Unrealized gain from sale
   of investee stock                       --             --        1,121,300           --         1,121,300

Non-cash compensation
   paid by equity investee                 --             --        1,225,900           --         1,225,900

Net loss                                   --             --             --       (5,279,800)     (5,279,800)
                                     ----------   ------------   ------------   ------------    ------------

Balance, May 31, 2000                10,316,664         10,400      8,747,200    (13,499,900)     (4,742,300)

Issuance of stock
   to directors                          40,000           --            9,600           --             9,600

Issuance of stock
   to retire debt                     6,666,666          6,700      2,993,300           --         3,000,000

Forfeitable shares earned                50,000            100         33,700           --            33,800

Net income                                 --             --             --        1,205,700       1,205,700
                                     ----------   ------------   ------------   ------------    ------------

Balance May 31, 2001                 17,073,330   $     17,200   $ 11,783,800   $(12,294,200)   $   (493,200)
                                     ==========   ============   ============   ============    ============
<FN>
Shareholders'  Deficit at May 31, 2001 does not include 15,000 shares  currently issued but
forfeitable if certain conditions are not met by the recipients.
</FN>
</TABLE>

           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.


                                       32

<PAGE>



                                  CRESTED CORP.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       Year Ended May 31,
                                                          ------------------------------------------
                                                             2001            2000            1999
                                                          ------------   ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                       <C>            <C>            <C>
   Net income (loss)                                      $ 1,205,700    $(5,279,800)   $(1,951,700)
   Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
       Equity in loss of affiliates                         2,496,700      5,085,200      1,165,600
       Write-off of investment in
         contingent stock warrant                                --             --          651,000
       Deferred GMMV purchase option                       (2,000,000)          --             --
       Non-cash compensation                                    9,600         12,800         12,000
       Net changes in assets and liabilities                     --           69,500        (36,800)
                                                          -----------    -----------    -----------
NET CASH PROVIDED BY (USED IN)
    OPERATING ACTIVITIES                                    1,712,000       (112,300)      (159,900)
                                                          -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Investments in affiliates                               (2,360,300)    (1,253,400)      (332,400)
   Proceeds from sale of property and equipment               138,500           --             --
                                                          -----------    -----------    -----------

NET CASH (USED IN)
    INVESTING ACTIVITIES                                   (2,221,800)    (1,253,400)      (332,400)
                                                          -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in long-term debt to affiliates                   510,000      1,323,700        506,900
                                                          -----------    -----------    -----------

NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                                           200        (42,000)       (14,600)

CASH AND CASH EQUIVALENTS,
   Beginning of year                                            3,000         45,000         30,400
                                                          -----------    -----------    -----------

CASH AND CASH EQUIVALENTS,
   End of year                                            $     3,200    $     3,000    $    45,000
                                                          ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURES:
   Interest paid                                          $      --      $      --      $      --
                                                          ===========    ===========    ===========

   Income taxes paid                                      $      --      $      --      $     7,900
                                                          ===========    ===========    ===========

NONCASH INVESTING AND FINANCING ACTIVITIES:

   Issuance of common stock to directors
     for services rendered                                $     9,600    $    12,800    $    12,000
                                                          ===========    ===========    ===========

   Issuance of stock for affiliate debt                   $ 3,000,000    $      --      $      --
                                                          ===========    ===========    ===========
</TABLE>


           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.


                                       33

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001


A.       BUSINESS ORGANIZATION AND OPERATIONS:

         Crested Corp.  (the  "Company" or "Crested")  was  incorporated  in the
State of  Colorado  on  September  18,  1970.  It  engages  in the  acquisition,
exploration,  sale  and/or  development  of  mineral  and  coalbed  methane  gas
properties, the production of petroleum properties and marketing of minerals and
methane gas. Principal mineral interests are in uranium,  coalbed methane,  gold
and molybdenum.  However,  none are producing at the present time. During fiscal
2000, the Company entered into the methane gas business.  Currently, the Company
also holds various real properties used in commercial operations.  Most of these
activities are conducted  through the joint venture  discussed below and in Note
B.

         The  Company  and U.S.  Energy  Corp.  ("USE"),  an  approximate  70.5%
shareholder of the Company,  were engaged in the standby and  maintenance of two
uranium  properties,   one  a  joint  venture  with  Kennecott  Uranium  Company
("Kennecott")  known as the Green  Mountain  Mining  Venture  ("GMMV"),  and the
second known as Sheep  Mountain  Partners  ("SMP").  Both of these ventures have
been involved in significant litigation (see Note K). All issues and disputes in
the  litigations  have been  resolved  with the  exception of certain  marketing
rights and the profits therefrom on certain CIS related uranium sales contracts.
The  resolution  of the other  issues  resulted  in the  payment  of cash to the
Company and USE and the Company and USE receiving the SMP mineral properties and
one  uranium  delivery  contract.  The  remaining  outstanding  issue in the SMP
litigation is the accounting  relating to the  constructive  trust  impressed on
Nukem's  purchase  contracts  with  three CIS  republics.  The  litigation  with
Kennecott  was settled on September  11,  2000.  Sutter Gold Mining  Company,  a
Wyoming   corporation,   manages  the  Company's  and  USE's  interest  in  gold
properties.  Rocky  Mountain  Gas,  Inc.  ("RMG"),  was formed in fiscal 2000 to
consolidate  all coalbed  methane  gas  operations  of the Company and USE.  The
Company owns and controls approximately 41% of RMG as of May 31, 2001.

         The Company has generated  significant  net losses prior to fiscal 2001
resulting in an  accumulated  deficit of  approximately  $12,294,200  at May 31,
2001. The Company also has a working capital deficit of approximately $5,737,000
at May 31, 2001 that includes  $5,740,200 due to USE. The Company's cash balance
increased  from  $3,000 at the prior  year-end  to  $3,200 at May 31,  2001.  At
year-end,  the Company does not have  sufficient  cash flows from  operations or
cash on hand to meet its  obligations.  All of these factors  raise  substantial
doubt about the  Company's  ability to continue  as a going  concern  during the
upcoming year. The Company has historically relied on, and continues to rely on,
advances from USE to fund its current  operating  requirements.  It is uncertain
whether this funding will  continue.  The Company and USE have recently  reduced
their staff to reduce overhead  costs.  The Company also has certain assets that
are unencumbered that could be sold to generate cash.  However,  there can be no
assurances  that any funds  generated  will be  sufficient to meet the Company's
obligations  as they come due or that  Company  assets  could be  liquidated  in
excess of their carrying values.  The Company  continues to believe that it will
ultimately  receive more cash from the final  settlement of the SMP  litigation.
Nevertheless,  there is no  assurance  that the Company  will be  successful  in
meeting its obligations during the upcoming year.


                                       34

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

         The Company  adopted EITF 00-01,  "Balance  Sheet and Income  Statement
Display  Under the Equity Method for  Investments  in Certain  Partnerships  and
Other  Unincorporated  Joint  Ventures,"  effective June 1, 2000.  This standard
requires  the  Company to account  for its  investment  with USE in USECB  Joint
Venture ("USECB") using the equity method of accounting.  The Company previously
consolidated its proportional  ownership in USECB (50%) for financial  reporting
purposes.  The adoption of this standard did not impact the net income (loss) of
the Company,  but did have a material  effect of the financial  position and the
presentation of the Company's financial statements.  All prior periods have been
restated.

INVESTMENTS

         Investments in other joint ventures and 20% to 50% owned  companies are
accounted  for  using  the  equity  method.  The  Company  accounts  for  its 8%
investment in USE also using the equity method because the Company is controlled
by USE.  The  Company's  investment  in SGMC is  accounted  for using the equity
method  due to its  status as a  subsidiary  of USE (see Note E).  All  material
intercompany profits, transactions and balances have been eliminated.

CASH EQUIVALENTS

         The Company  considers  all highly  liquid  investments  with  original
maturities of three months or less to be restricted cash equivalents.

PROPERTIES AND EQUIPMENT

         Land, buildings,  improvements and other equipment are carried at cost.
Depreciation  of  buildings,  improvements,  aircraft  and  other  equipment  is
provided principally by the straight-line method over estimated useful lives.

         The Company  capitalizes  all costs  incidental to the  acquisition and
development of mineral  properties as incurred.  Mineral  exploration  costs are
expensed  as  incurred.  The  costs  of  mine  development  are  deferred  until
production  begins  as these  costs  will be  recovered  through  future  mining
operations.  Once commercial  production begins, mine development costs incurred
to maintain  production  will be amortized using a units-of-  production  method
over the estimated reserves of the ore-body.  Costs are charged to operations if
the  Company  determines  that an ore  body is no  longer  economic.  Costs  and
expenses related to general corporate overhead are expensed as incurred.

         The Company  follows 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 including the estimated
future costs to develop proved reserves, are amortized on the unit-of-production
method using estimates of proved reserves. Investments in

                                       35

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


unproved  properties  and major  development  projects are not  amortized  until
proved  reserves  associated  with  the  projects  can be  determined  or  until
impairment occurs. If the results of an assessment  indicate that the properties
are impaired,  the amount of the impairment is added to the capitalized costs to
be amortized.

         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.

         Sales  of  proved  and  unproved   properties   are  accounted  for  as
adjustments of capitalized  costs with no gain or loss  recognized,  unless such
adjustments would significantly alter the relationship between capitalized costs
and proved reserves of oil and gas, in which case the gain or loss is recognized
in income.  Abandonments  of  properties  are accounted  for as  adjustments  of
capitalized costs with no loss recognized.

         The Company and USE have acquired  substantial  mining  property assets
and associated facilities at minimal cash cost, primarily through the assumption
of reclamation and environmental liabilities.  Certain of these assets are owned
by various ventures in which the Company is either a partner or venturer.

LONG-LIVED ASSETS

         The Company  evaluates its long-lived assets for impairment when events
or changes in circumstances indicate that the related carrying amount may not be
recoverable.  If the sum of estimated future cash flows on an undiscounted basis
is less than the carrying  amount of the related asset,  an asset  impairment is
considered  to exist.  The related  impairment  loss is  measured  by  comparing
estimated  future cash flows on a discounted basis to the carrying amount of the
asset. Changes in significant  assumptions underlying future cash flow estimates
may have a material  effect on the Company's  financial  position and results of
operations.  An uneconomic  commodity market price, if sustained for an extended
period of time,  or an  inability to obtain  financing  necessary to develop the
mineral interests may result in asset impairment. As of May 31, 2001, management
believes no further impairment of the Company's long-lived assets exists.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying  amount of cash  equivalents  receivables,  other  current
assets, accounts payable and accrued expenses approximates fair value because of
the short term nature of those instruments.  The recorded amounts for short-term
and  long-term  debt  approximate  fair value due to the variable  nature of the
interest rates.

REVENUE RECOGNITION

         Advance  royalties  which are repayable only from future  production or
which are non-refundable are recognized as revenue when received. Non-refundable
option deposits are recognized as revenue when the option expires.

         Revenues from uranium sales are recognized upon delivery.  Revenues are
recognized  from the rental of certain  assets  ratably  over the related  lease
terms. Revenues from commercial operations, which represents

                                       36

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


primarily  real  estate  activity,  and an  airport  fixed base  operation,  are
recognized  as  goods  and  services  are  delivered.  Oil  and gas  revenue  is
recognized at the time of product delivery.

INCOME TAXES

         The Company accounts for income taxes under the provisions of Statement
of Financial Accounting  Standards No. 109 ("SFAS 109"),  "Accounting for Income
Taxes".  This statement  requires  recognition of deferred income tax assets and
liabilities  for the expected future income tax  consequences,  based on enacted
tax laws, of temporary differences between the financial reporting and tax bases
of assets, liabilities and carry forwards.

         SFAS 109 requires  recognition  of deferred tax assets for the expected
future effects of all deductible temporary differences,  loss carry-forwards and
tax credit  carry-forwards.  Deferred  tax assets  are then  reduced,  if deemed
necessary, by a valuation allowance for any tax benefits which, based on current
circumstances, are not expected to be realized.

NET (LOSS) INCOME PER SHARE

         The Company  reports net (loss) income per share  pursuant to Statement
of Financial  Accounting  Standards No. 128 ("SFAS 128"). SFAS 128 specifies the
computation,  presentation  and disclosure  requirements for earnings per share.
Basic  earnings per share is computed  based on the weighted  average  number of
common shares  outstanding.  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.

COMPREHENSIVE INCOME

         There  are no  components  of  comprehensive  income  which  have  been
excluded from net income and, therefore,  no separate statement of comprehensive
income has been presented.

USE OF ESTIMATES

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions.  These  estimates and  assumptions  affect the reported  amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

RECLASSIFICATIONS

         Certain  reclassifications  have been made in the prior year  financial
statements to conform with the 2001 presentation.


                                       37

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


C.       RELATED-PARTY TRANSACTIONS:

         The Company does not have  employees,  but utilizes USE's employees and
pays for one-half of these costs under the USECC Joint  Venture  Agreement.  The
Board of Directors  of USE adopted the U.S.  Energy Corp.  1989  Employee  Stock
Ownership Plan ("ESOP") in 1989, for the benefit of USE's  employees.  In fiscal
2001, 2000 and 1999, the Board of Directors of USE contributed  53,837,  123,802
and 89,600  shares of USE stock to the ESOP at prices of $5.35,  $3.00 and $4.00
per share, respectively. The Company is responsible for one-half of the value of
these  contributions or $144,000,  185,700 and $179,200 in fiscal 2001, 2000 and
1999, respectively.

D.       INVESTMENTS IN AFFILIATES:

         The Company's investments in affiliates are as follows:

<TABLE>
<CAPTION>
                                                                      At May 31,
                                                 ---------------------------------------------
                                                  Ownership          2001             2000
                                                  ---------      ------------     ------------

<S>                                                 <C>          <C>              <C>
         Rocky Mountain Gas, Inc. ("RMG")           41.0%        $   790,100      $ 1,076,200
         USECC                                      50.0%          5,409,000        6,478,000
         SGMC                                        3.2%            (85,500)         (85,500)
         YSFC                                       13.2%           (130,100)        (130,100)
         USE (Note B)                                8.0%              --                --
         Others                                     various           14,600           14,600
</TABLE>

         $6,205,800  and  $6,342,200  of  these  investments  are  presented  as
investments in affiliates in the accompanying  balance sheets as of May 31, 2001
and  2000,  respectively.  A  liability  of  $215,600  has been  presented  as a
commitment  to fund equity  investees as of May 31, 2001 and 2000,  respectively
for these investments in affiliates that the Company must fund.

         Equity (loss) gain from investments  accounted for by the equity method
is as follows:

<TABLE>
<CAPTION>
                                                           Year Ended May 31,
                                            -----------------------------------------------
                                                2001              2000            1999
                                            -------------    -------------    -------------

<S>                                         <C>              <C>              <C>
         USECC                              $ (2,210,600)    $ (3,666,600)    $    494,200
         SGMC                                    --               --              (489,100)
         YSFC                                    --               --               (75,400)
         RMG                                    (286,100)      (1,270,900)         --
         USE                                     --              (147,700)      (1,095,300)
                                            -------------    ------------     ------------
                                            $ (2,496,700)    $ (5,085,200)    $ (1,165,600)
                                            =============    ============     ============
</TABLE>


                                       38

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


                       CONDENSED COMBINED BALANCE SHEETS:
                                EQUITY INVESTEES

<TABLE>
<CAPTION>
                                                                        2001             2000
                                                                   -------------     -------------

<S>                                                                <C>                  <C>
         Current assets                                            $  15,782,300        15,705,500
         Non-current assets                                           18,950,100        24,760,800
                                                                   -------------     -------------
                                                                   $  34,632,400     $  40,466,300
                                                                   ============      =============

         Current liabilities                                       $   6,050,100     $   7,961,700
         Reclamation and other liabilities                            14,168,500        13,026,700
         Excess in assets                                             14,413,800        19,477,900
                                                                   -------------     -------------
                                                                   $  34,632,400     $  40,466,300
                                                                   =============     =============
</TABLE>


                  CONDENSED COMBINED STATEMENTS OF OPERATIONS:
                                EQUITY INVESTEES

<TABLE>
<CAPTION>
                                                                Year Ended May 31,
                                                 --------------------------------------------------
                                                      2001             2000             1999
                                                 --------------    --------------    --------------
<S>                                              <C>               <C>               <C>
         Revenues                                $   8,919,100     $   5,542,400     $   9,195,600
         Costs and expenses                        (11,221,000)      (16,452,100)      (24,666,000)
                                                 --------------    -------------     -------------
         Net loss                                $  (2,301,900)    $ (10,909,700)    $ (15,470,400)
                                                 ==============    =============     =============
</TABLE>

         Condensed  combined  balance sheets and statements of operations of the
Company's equity investees include USECC, RMG, SGMC, YSFC and USE.

E.       MINERAL TRANSACTIONS AND MINING PROPERTIES:

GMMV

         During fiscal 1990,  the Company and USE entered into an agreement with
Kennecott,  a wholly- owned, indirect subsidiary of The RTZ Corporation PLC, for
Kennecott to acquire a 50% interest in certain  uranium  mineral  properties  in
Wyoming known as the Green Mountain Properties.  During the life of the venture,
the parties entered into various amendments to the GMMV Agreement.

         As a result of sustained  depressed uranium prices, the GMMV properties
were  maintained on a standby  basis.  During fiscal 2000,  certain  differences
arose in the GMMV and Kennecott sued the Company and USE. On September 11, 2000,
the parties  settled all disputes and  Kennecott  paid the Company and USE $3.25
million and assumed  reclamation  liability for the Sweetwater Mill, Jackpot and
Big Eagle Mine properties. (Note J.)


                                       39

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


SMP

         During fiscal 1989,  USE and Crested,  through  USECC,  entered into an
agreement to sell a 50% interest in their Sheep  Mountain  properties to Nukem's
subsidiary CRIC. USECC and CRIC immediately  contributed  their 50% interests in
the  properties  to a  newly-formed  partnership,  SMP. SMP was  established  to
further develop and mine the uranium claims on Sheep  Mountain,  acquire uranium
supply contracts and market uranium.  Certain  disputes arose among USECC,  CRIC
and its parent Nukem,  Inc. over the operation of SMP.  These disputes have been
in  litigation/arbitration  for the past ten years. See Note J for a description
of the investment and a discussion of the related litigation/arbitration.

         Due to the litigation and arbitration proceedings involving SMP for the
past 10 years,  the Company has expensed all of its costs related to SMP and has
no  carrying  value  of its  investment  in SMP for 2001 and  2000.  No  amounts
attributable  to SMP for fiscal 2001,  2000 and 1999 are included in the Balance
Sheets or Statements of Operations of the Company's equity  investees  presented
above.

PHELPS DODGE

         During  prior years,  the Company and USE conveyed  interests in mining
claims  to AMAX  Inc.  ("AMAX")  in  exchange  for  cash,  royalties,  and other
consideration.  AMAX merged  with  Cyprus  Minerals  ("Cyprus  Amax")  which was
purchased by Phelps Dodge Mining Company  ("Phelps  Dodge") in December of 1999.
The properties have not been placed into production as of May 31, 2001.

         Cyprus  Amax paid the  Company  and USE an annual  advance  royalty  of
50,000 (25,000 lbs. each) pounds of molybdenum (or its cash equivalent).  During
fiscal 2000,  Phelps Dodge  assumed this  obligation  and made its first advance
royalty payment to the Company and USE during the first quarter of 2001.  Phelps
Dodge is entitled to a partial credit  against future  royalties for any advance
royalty  payments  made, but such royalties are not refundable if the properties
are not placed into  production.  The  Company  recognized  $60,300,  66,000 and
$75,300 of revenue from the advance  royalty  payments in fiscal 2001,  2000 and
1999 respectively. If Phelps Dodge formally decides to place the properties into
production, it is obligated to pay $2,000,000 to the Company and USE.

         The Company and USE have recently  entered into discussions with Phelps
Dodge  concerning  the  purchase of the  properties  from Cyprus  Amax.  Per the
contract  with  AMAX,  the  Company  and USE  are to  receive  15% of the  first
$25,000,000,  or $3,750,000,  if the properties are sold,  which the Company and
USE  believe has  occurred.  It is not known how these  discussions  with Phelps
Dodge will be resolved.

SUTTER GOLD MINING COMPANY

         Sutter Gold Mining Company  ("SGMC") was established in 1990 to conduct
operations  on mining  leases and to produce  gold from the  Lincoln  Project in
California.

         SGMC is in the development stage and additional development is required
prior to the commencement of commercial  production.  SGMC has not generated any
significant revenue and has no assurance of future revenue.  All acquisition and
mine  development  costs  since  inception  have been  capitalized.  Since  test
production in 1992,  SGMC has focused its efforts on obtaining a reserve  study,
developing a mine plan and

                                       40

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


obtaining a partner to assist in the  financing of its mineral  development  and
ultimate production.  Due to the decline in the spot price for gold and the lack
of adequate  financing,  SGMC has put the development of the mine on hold. Until
the time when development begins, SGMC requires capital  contributions from USE,
Crested or other sources of financing to maintain its current  activities.  SGMC
will  continue  to be  considered  in the  development  stage  until the time it
generates significant revenue from its principal operations.

         During  fiscal  2000,  a  visitor's  center  was  developed  and became
operational.  Management  has  leased the  visitor's  center out in an effort to
cover  stand-by  costs of the mine until such time as the market  price for gold
increases to levels that will allow economic  operation of the mineral property.
The  Visitor's  Center is a new  venture  and the  outcome of its  operation  is
uncertain.

PLATEAU RESOURCES LIMITED

         During fiscal 1994, USE entered into an agreement with Consumers  Power
Company  to  acquire  all the issued  and  outstanding  common  stock of Plateau
Resources  Limited  ("Plateau"),  a Utah  corporation.  Plateau  owns a  uranium
processing  mill and support  facilities  and certain  other real estate  assets
through its wholly-owned  subsidiary,  Canyon Homesteads,  Inc., in southeastern
Utah.  USE paid nominal cash  consideration  for the Plateau stock and agreed to
assume all environmental liabilities and reclamation bonding obligations. At May
31,  2001,  Plateau  had a cash  security in the amount of  $9,664,000  to cover
reclamation  of the  properties  (see  Note  J).  Although  the  Company  has no
ownership  in  Plateau,  Directors  of the Company and USE have agreed to divide
equally a portion of certain reclamation obligations above a defined amount, and
will share equally in the cash flows derived from operations.

         The Company and USE are currently  evaluating  the best  utilization of
Plateau's assets. Evaluations are ongoing to determine when, or if, the mine and
mill properties  should be placed into  production.  The primary factor in these
evaluations  relates to uranium  market  prices.  Commercial  revenues are being
generated  from the townsite  assets which include a motel,  convenience  store,
lounge/restaurant, boat storage facility and housing.

ROCKY MOUNTAIN GAS, INC.

         During fiscal 2000,  the Company and USE organized  Rocky Mountain Gas,
Inc.  ("RMG") to enter into the coalbed methane gas business.  RMG is engaged in
the  acquisition of coalbed  methane gas properties and the future  exploration,
development  and production of methane gas from those  properties.  RMG is owned
41% by the Company and 41% by USE. RMG sold 55,500 and  1,206,333  shares of its
common stock in a private  placement during fiscal 2001 and 2000,  respectively.
Net proceeds from the sale of this common stock totaled $3,721,900.

         RMG entered into an agreement with Quantum Energy,  L.L.C.  ("Quantum")
on  January 3, 2000 to  purchase  a 50%  working  interest  and 40% net  revenue
interest in approximately  185,000 acres of unproven leasehold  interests in the
Powder River Basin of Southeastern  Montana.  The terms of the Quantum agreement
included  payments of $3,200,000  upon  closing,  $1,000,000 on or before May 1,
2000 and $1,300,000 on or before December 31, 2000. All payments through May 31,
2001 were made to Quantum.


                                       41

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


F.  OIL AND GAS INFORMATION:

         Costs  related  to the oil  and  gas  activities  of the  Company  were
incurred as follows for the years ended May 31:

<TABLE>
<CAPTION>
                                                                                   2001             2000
                                                                                -----------     -----------
<S>                                                                             <C>             <C>
         Company's share of equity method investees' cost of
              porperty acquisition, exploration and development                 $   473,300     $ 1,938,100
</TABLE>

The  Company  had the  following  aggregate  capitalized  costs  relating to the
Company's oil and gas activities at May 31:

<TABLE>
<CAPTION>
<S>                                                                             <C>             <C>
         Proved oil and gas properties                                          $   886,800     $   886,800
              Less accumulated depreciation, depletion and amortization             886,800         886,800
                                                                                -----------     -----------

                                                                                $    --         $    --
                                                                                ===========     ===========
         Company's share of equity method investees'
              net capitalized costs                                             $ 2,411,500     $ 1,938,100
                                                                                ===========     ===========
</TABLE>

Depreciation,  depletion  and  amortization  expense was $0 and $0 for the years
ended May 31, 2001 and 2000, respectively.

G.  DEBT:

         Obligations  of the Company  consist of advances  payable to USE, which
are due upon demand. The obligation is due to U.S. Energy for funding a majority
of the operations of USECC, of which 50% is the  responsibility  of the Company.
All  advances  payable to USE are  classified  as current as of May 31, 2001 and
2000 as a result of USE's unilateral ability to modify the repayment terms.

<TABLE>
<CAPTION>
                                                                              May 31,
                                                                -------------------------------
                                                                    2001               2000
                                                                -------------     -------------
<S>                                                             <C>               <C>
         Advances payable - U.S. Energy
              balance payable  in full on
              demand (see Note A)                               $  5,740,200      $  8,230,200
                                                                =============     ============
</TABLE>

         The Company  negotiated a reduction of $3 million on the debt to USE by
issuing  6,666,666  shares of its common  stock to USE during the year ended May
31, 2001.

         As of May 31, 2001, the Company and USE had a $1,000,000 line of credit
with a  commercial  bank.  The line of credit bore  interest at a variable  rate
(8.00% as of May 31, 2001). The weighted average interest rate for 2001 and 2000
was 9.9%. As of May 31, 2001,  $850,000 was  outstanding on this line of credit,
one half of which is the Company's obligation. This line of credit is secured by
a share of the net  proceeds  of fees from  production  of oil wells and certain
assets of USECC.  As of August 17, 2001 the line of credit had been paid down to
$350,000  and the limit on the line of credit was reduced to $750,000 due to the
sale of certain of the collateral after May 31, 2001.

                                       42

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


H.       INCOME TAXES:

         The  components  of  deferred  taxes as of May 31, 2001 and 2000 are as
follows:

<TABLE>
<CAPTION>
                                                                              May 31,
                                                                -----------------------------------
                                                                     2001                  2000
                                                                --------------       --------------
         Deferred tax assets:
<S>                                                             <C>                  <C>
              Deferred compensation                             $     131,200        $     131,200
              Deferred gains                                          106,100              106,100
              Non-deductible reserves                                 288,500              779,900
              Net operating loss carry-forwards                     2,560,500            3,831,900
              Tax credits                                              15,000               15,000
         Tax basis in excess of book                                  876,800              842,700
                                                                -------------        -------------
         Total deferred tax assets                                  3,978,100            5,706,800

         Deferred tax liabilities:
              Development and exploration costs                       (36,100)             (51,800)
                                                                -------------        -------------
         Total deferred tax liabilities                               (36,100)             (51,800)
                                                                -------------        -------------

         Net deferred tax assets - all non-current                  3,942,000            5,655,000

         Valuation Allowance                                       (3,942,000)          (5,655,000)
                                                                -------------        -------------
         Net deferred tax asset                                 $    --              $    --
                                                                =============        =============
</TABLE>

         At May 31,  2001,  the Company had  available,  for federal  income tax
purposes,  net operating loss  carry-forwards of approximately  $7,538,000 which
expire in 2006 through 2021. The Company has  established a valuation  allowance
for the full amount of the net deferred tax assets due to the  recurring  losses
of the Company and the  uncertainty of the Company's  ability to generate future
taxable income to utilize the NOL carry-forwards.

         The income tax  provision  is  different  from the amounts  computed by
applying the  statutory  federal  income tax rate to income  before  taxes.  The
reasons for these differences are as follows:

<TABLE>
<CAPTION>
                                                                               Year Ended May 31,
                                                              ----------------------------------------------
                                                                  2001              2000            1999
                                                              -------------     -------------    -----------

<S>                                                           <C>               <C>              <C>
         Expected federal income tax expense (benefit)        $     410,000     $ (1,795,100)    $ (663,600)
         Losses from subsidiaries not consolidated
              for tax purposes, utilization of net
              operating losses and other                          (861,400)          406,200        788,600
         Valuation allowance                                    (1,271,400)        1,388,900       (125,000)
                                                              ------------      ------------     ----------
         Income taxes                                         $     --          $    --          $ --
                                                              =============     =============    ==========
</TABLE>

         There were no taxes payable as of May 31, 2001, 2000 or 1999.


                                       43

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


I.       SHAREHOLDERS' EQUITY:

         The Boards of Directors of the Company from time to time,  issued stock
bonuses to certain  directors,  employees  and third  parties.  These shares are
forfeitable  to the Company until  earned.  The Company is  responsible  for the
compensation  expense  related to these  issuances.  For the years ended May 31,
2001 and 2000, the Company did not recognize compensation expense resulting from
these  issuances.  A schedule of forfeitable  shares for Crested is set forth in
the following table:
<TABLE>
<CAPTION>

           Issue                          Number             Issue             Total
           Date                          of Shares           Price         Compensation
           ----                          ---------           -----         ------------

<S>                                      <C>                 <C>           <C>
         June 1990                       25,000              $1.06         $     26,562
         December 1990                    7,500                .50                3,750
         January 1993                     6,500                .22                1,430
         January 1994                     6,500                .28                1,828
         January 1995                     6,500                .19                1,230
         January 1996                     5,000                .3125              1,600
         January 1997                     8,000                .9375              7,500
                                        -------                            ------------
         Balance at
           May 31, 2000                  65,000                                 $43,900
         Release of Earned Shares       (50,000)                                (33,800)
                                        -------                            ------------
         Balance at
           May 31, 2001                  15,000                            $     10,100
                                        ========                           =============
</TABLE>

J.       COMMITMENTS, CONTINGENCIES AND OTHER:

LEGAL PROCEEDINGS

SHEEP MOUNTAIN PARTNERS ARBITRATION/LITIGATION

         The partners in SMP have been involved in a legal dispute over the past
10 years. After a ruling from the American  Arbitration  Association  ("AAA") on
the matter, in April 1996,  Nukem,  Inc., asked for and received a remand to the
AAA Panel of the  ruling.  The Panel  clarified  its order on July 3, 1996.  The
Panel's Orders were  confirmed by the U.S.  District Court of Colorado and Nukem
appealed to the 10th  Circuit  Court of Appeals  ("CCA").  The CCA  affirmed the
lower  Court's  Judgment.  Nukem moved for  Satisfaction  of Judgment  which was
denied  by the  District  Court.  Nukem  again  appealed  but the 10th CCA ruled
against  Nukem and  affirmed  the lower  Court's  order  holding that Nukem must
account to Sheep Mountain Partners on the CIS contracts. The U.S. District Court
has appointed a Special  Master to determine  the value of the purchase  rights,
the pounds of uranium  purchased under those rights and the profits therefrom as
ordered  in  the  Judgment.  The  Special  Master  is  currently  conducting  an
accounting.

         KENNECOTT LITIGATION

         On November 10, 1999,  Kennecott  Uranium Company and Kennecott  Energy
Company  ("Kennecott") filed a civil action against defendants Crested,  USE and
USECC in the Sixth Judicial District

                                       44

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


Court, Campbell County,  Wyoming, No. 224006. On September 11, 2000, the parties
entered into a settlement agreement to resolve all issues in the lawsuit.  Under
the  settlement  agreement,  USECC sold all of its interests in the GMMV and the
GMMV properties,  to an affiliate of Kennecott.  The purchase  consideration was
$3,250,000  in cash of  which  the  Company  received  $1,625,000,  and a 4% net
profits  royalty  interest in certain of the mining  claims at the Big Eagle and
Jackpot  Mines.  Kennecott  assumed  all  reclamation  obligations  on the  GMMV
properties.

         SUTTER GOLD MINING COMPANY LITIGATION

         On September  28, 1998, a lawsuit was filed in Amador  County  Superior
Court, California by Concerned Citizens of Amador County as plaintiffs,  against
the County of Amador,  the Amador County Board of  Supervisors,  and Sutter Gold
Mining Company as a real party in interest.  The lawsuit  challenges the actions
of Amador County and its Board of Supervisors in certifying the Final Subsequent
Environmental  Impact Report (FSEIR) and approving the amended  Conditional  Use
Permit (CUP).

         A  hearing  was held on June 7,  1999,  and on  August  30,  1999,  the
Honorable Susan C. Harlan, Judge of the Superior Court in Amador County,  issued
a detailed  written  Memorandum  of  Opinion,  denying  every cause of action of
Appellants'/Petitioners'  Petition  for  writ  of  Mandate,  and  upholding  the
County's  certification  of the  FSEIR  and  approval  of the  amended  CUP.  In
September 1999, the Concerned  Citizens  appealed Amador County Superior Court's
decision  to the Court of Appeals  of the State of  California  Third  Appellate
District.  On appeal,  Appellants  presented a more targeted approach,  alleging
only  two  violations  of the  Planning  and  Zoning  Law and two  violation  of
California Environmental Quality Act. SGMC and the County filed their respective
Respondent Briefs. Oral arguments were made to the Appellate Court on August 20,
2001. A decision is expected soon.

         CONTOUR DEVELOPMENT LITIGATION

         On July 28,  1998,  USE and the  Company  filed a lawsuit in the United
States District Court,  Denver,  Colorado,  Case No.  98WM1630,  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 real  estate  owned by USE and  Crested in  Gunnison,  Colorado.  The Contour
defendants  asserted a counter claim asking for payment of  attorney's  fees and
costs.  Discovery  has been  completed  and the  final  pretrial  conference  is
scheduled  for  October 2, 2001,  when the court will  schedule  the trial date.
Trial is expected in early 2002.

RECLAMATION AND ENVIRONMENTAL LIABILITIES

         Most of the  Company's  and USE's  mine  development,  exploration  and
operating  activities are subject to federal and state  regulations that require
the  Company  and USE to protect  the  environment.  The Company and USE conduct
their mining operations in accordance with these regulations.  The Company's and
USE's current estimates of their reclamation obligations and their current level
of expenditures to perform ongoing  reclamation may change in the future. At the
present time, however,  the Company and USE cannot predict the outcome of future
regulation  or impact on costs.  Nonetheless,  the Company and USE have recorded
their best estimate of future  reclamation  and closure costs based on currently
available facts, technology and enacted laws and regulations. Certain regulatory
agencies, such as the Nuclear Regulatory Commission

                                       45

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


("NRC"),  the Bureau of Land  Management  ("BLM") and the Wyoming  Department of
Environmental  Quality  ("WDEQ")  review the  Company's  and USE's  reclamation,
environmental and decommissioning  liabilities, and the Company and USE believes
the  recorded  amounts are  consistent  with those  reviews and related  bonding
requirements.  To the extent that  planned  production  on their  properties  is
delayed,  interrupted or discontinued  because of regulation or the economics of
the  properties,  the future  earnings of the Company and USE would be adversely
affected.   The  Company  and  USE  believe  they  have  accrued  all  necessary
reclamation  costs and there are no additional  contingent  losses or unasserted
claims to be disclosed or recorded. The Company and USE have not disposed of any
properties  for  which  they  have a  commitment  or are  liable  for any  known
environmental liabilities.

         The  majority  of the  Company's  and USE's  environmental  obligations
relate to former mining  properties  acquired by the Company and USE.  Since the
Company and USE currently do not have  properties in  production,  the Company's
and USE's policy of providing for future reclamation and mine closure costs on a
unit-of-production basis has not resulted in any significant annual expenditures
or  costs.  For the  obligations  recorded  on  acquired  properties,  including
site-restoration,   closure  and  monitoring  costs,   actual  expenditures  for
reclamation  will occur over several years,  and since these  properties are all
considered future production  properties,  those expenditures,  particularly the
closure costs,  may not be incurred for many years.  The Company and USE also do
not  believe  that any  significant  capital  expenditures  to monitor or reduce
hazardous substances or other environmental impacts are currently required. As a
result,  the  near  term  reclamation  obligations  are not  expected  to have a
significant impact on the Company's liquidity.

         As of  May  31,  2001,  estimated  reclamation  obligations,  including
standby  costs,   related  to  the  above  mentioned  mining   properties  total
$8,906,800. Crested's portion of this obligation is $748,400, which is reflected
on the balance sheet of the Company.  The remaining  balance of $8,158,400 is an
obligation of USE and its other affiliates,  (excluding Crested). The Company is
however  obligated  for  50% of any  reclamation  costs  in  excess  of  current
estimated  reclamation  obligations.  However,  the Company does not expect that
estimated reclamation costs will be exceeded.

         The  Company  and  USE  currently  have  four  mineral   properties  or
investments that account for most of their environmental obligations, SMP, GMMV,
Plateau and SGMC.  The  environmental  obligations  and the nature and extent of
cost sharing arrangements with other potentially responsible parties, as well as
any  uncertainties  with  respect  to joint and  several  liability  of each are
discussed in the following paragraphs:

SMP

         The  Company  and  USE are  equally  responsible  for  the  reclamation
obligations, environmental liabilities and liabilities for injuries to employees
in  mining  operations  with  respect  to the  Sheep  Mountain  properties.  The
reclamation obligations,  which are established by regulatory authorities,  were
reviewed by the Company,  USE and the regulatory  authorities during fiscal 2001
and  the  balance  in the  reclamation  liability  account  at May  31,  2001 of
$1,496,800  (1/2 accrued by Crested) is believed by  management  to be adequate.
The  obligation  will be satisfied  over the life of the mining project which is
estimated to be at least 20 years.  The Company and USE are self bonded for this
obligation by mortgaging certain of their real estate assets, including the Glen
L. Larsen building, and by posting cash bonds.


                                       46

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  MAY 31, 2001
                                   (CONTINUED)


GMMV

         During  fiscal  1991,  the Company and USE acquired  developed  mineral
properties  on Green  Mountain  known as the Big Eagle  Property.  The GMMV also
acquired a uranium mill known as the Sweetwater  Mill. As part of the settlement
of the GMMV  litigation  with  Kennecott  in  September  2000,  the  Company was
released from any and all reclamation and environmental  obligations  related to
the GMMV.

SUTTER GOLD MINING COMPANY

         SGMC's  mineral  properties  are  currently on standby  status and have
never  been in  production.  Reclamation  obligations  are  covered by a $27,800
reclamation  cash bond which SGMC has recorded as a reclamation  liability as of
May 31, 2001.

PLATEAU RESOURCES, LIMITED

         The  environmental  and  reclamation   obligations  acquired  with  the
acquisition of Plateau  include  obligations  relating to the  Shootaring  Mill.
Based on the bonding  requirements,  Plateau  transferred  $2,500,000 to a trust
account as financial  surety to pay future costs of mill  decommissioning,  site
reclamation and long-term site  surveillance.  In fiscal 1997, Plateau increased
the NRC surety to a cash bond of $6,784,000 in order to have its standby license
changed  by the NRC to  operational.  As of May 31,  2001,  Plateau  held a cash
deposit for reclamation in the amount of $9,664,000  which  management  believes
will satisfy the obligation of reclamation.

EXECUTIVE COMPENSATION

         The  Company  and USE are  committed  to pay the  estates of certain of
their officers one years' salary and an amount to be determined by the Boards of
Directors, for a period of up to five years thereafter.  This commitment applies
only in the event of the death or total  disability  of those  officers  who are
full-time  employees  of the Company at the time of total  disability  or death.
Certain  officers and employees have employment  agreements with the Company and
USE.

K.       SUBSEQUENT EVENT

         Subsequent to May 31, 2001,  the Company  through its now  consolidated
subsidiary began drilling operations on its coalbed methane properties.



                                       47

<PAGE>



ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

         (a) During the previous eleven years,  Arthur Andersen,  LLP of Denver,
Colorado  was  engaged  as the  independent  accountant  to audit the  Company's
financial statements.  Arthur Andersen LLP has reported on all fiscal years from
May 31, 1990 through May 31, 2000,  and assisted in  Management's  review of the
Company's  financial  statements  for the  quarters  ended  August 31,  2000 and
November 30, 2000. On September 8, 2000, the Company's board of directors at the
recommendation  of its audit committee,  ordered its Chief Financial  Officer to
seek bids from various accounting firms to conduct its annual audits.

(I) On January 31, 2001,  Arthur Andersen LLP was advised by the Company that it
had been replaced.

(II) Arthur  Andersen  LLP's audit reports for the last two fiscal years did not
contain an adverse  opinion  or a  disclaimer  of  opinion;  however,  they were
modified for the  uncertainty  as to the ability of the Company to continue as a
going concern.

(III) The decision to change accountants was made by the board of directors.

(IV) During the two most recent fiscal years and during the interim  period from
May 31, 2000 to the date of replacement of  independent  accountant,  there have
been no  disagreements  with  Arthur  Andersen  LLP on any matter of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure.

(V)      Not applicable.

(b) On January 31, 2001,  the Company  engaged Grant Thornton LLP of Suite 1800,
1600  Broadway,  Denver,  Colorado  80202  as its  new  independent  accountant,
pursuant to the recommendation of the audit committee.

         The concurrence letter from Arthur Andersen LLP was filed as an exhibit
to the Form 8-K Report  reporting  the change in  accountants,  filed in January
2001.

                                    PART III

         In the event a definitive  proxy  statement  containing the information
being  incorporated by reference into this Part III is not filed within 120 days
of May 31, 2001, we will file such information under cover of a Form 10-K/A.

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The  information  required  by Item 10 with  respect to  directors  and
certain  executive  officers is  incorporated  herein by  reference to the proxy
statement for the 2001 Annual Meeting of Shareholders. The information regarding
the remaining executive officer is contained in Part I of this report.

ITEM 11.          EXECUTIVE COMPENSATION.

         The information required by Item 11 is incorporated herein by reference
to the proxy statement for the 2001 Annual Meeting of Shareholders.


                                       48

<PAGE>



ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information required by Item 12 is incorporated herein by reference
to the proxy statement for the 2001 Annual Meeting of Shareholders.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by Item 13 is incorporated herein by reference
to the proxy statement for the 2001 Annual Meeting of Shareholders.

                                     PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES,
                  REPORTS AND FORM 8-K.

(a)  The following financial statements are filed as a part of this
     Report as Item 8:

                                                                        Page No.
                                                                        --------
(1)  Financial Statements

     Registrant and Affiliate

     Report of Independent Public Accountants
     Grant Thornton LLP.......................................................28

     Report of Independent Public Accountants
     Arthur Andersen LLP......................................................29

     Consolidated Balance Sheets - May 31, 2001 and 2000......................30

     Consolidated Statements of Operations
     for the Years Ended May 31, 2001, 2001 and 1999 .........................31

     Consolidated Statements of Shareholders'
     Equity for the Years Ended May 31, 2001, 2000 and 1999...................32

     Consolidated Statements of Cash Flows
     for the Years Ended May 31, 2001, 2000 and 1999..........................33

     Notes to Consolidated Financial Statements............................34-47

(2)  N/A



                                       49

<PAGE>



(3)  Exhibits Required to be Filed.


   Exhibit                                                           Sequential
      No.                   Title of Exhibit                          Page No.
--------------          --------------------------                   ----------

     3.1          Restated Articles of Incorporation.........................[1]

     3.2 - 3.3    [intentionally left blank]

     3.4          By-Laws....................................................[2]

     4.1          USE 1998 Incentive Stock Option Plan
                  and Form of Stock Option Agreement........................ [6]

     4.2          Form of Stock Option Agreement and
                  Schedule, Options granted 1992 ............................[4]

     4.3          Form of Stock Option Agreement and
                  Schedule, Options granted 1/96.............................[4]

     4.4          USE Restricted Stock Bonus Plan
                  as Amended through 2/94....................................[4]

     4.5          Amendment to USE 1998 Incentive Stock Option Plan
                  (To Include Family Transferability of Options
                  Under SEC Rule 16b).........................................53

     4.6          Form of Stock Option Agreement and
                  Schedule, Options granted January 10, 2001...............54-58

     4.7          USE 1996 Stock Award Program (Plan)........................[5]

     4.8          USE Restated 1996 Stock Award Plan and Amendment
                  to USE 1990 Restricted Stock Bonus Plan....................[5]

     10.1         Promissory Note from Crested to USE (5/31/97)..............[5]

     10.2         Management Agreement - USE - CC............................[3]

     10.3         Joint Venture Agreement - Registrant and USE...............[2]

     10.4 - 10.58  [intentionally left blank]

     10.59        Closing Agreement - Addendum to Agreement
                  for Purchase and Sale of Assets (see Exhibit 10.60)......59-62

     10.60        Agreement for Purchase and Sale of Assets
                  (Rocky Mountain Gas, Inc. and Quantum Energy LLC) .........[7]


                                       50

<PAGE>



     10.61        Purchase and Sale Agreement
                  CCBM, Inc. (subsidiary of Carrizo Oil & Gas, Inc.)
                  and Rocky Mountain Gas, Inc..................................*

     16           Concurrence Letter from Arthur Andersen LLP
                  on Change of Accounting Firms..............................[8]

     21           Subsidiaries of Registrant..................................63

     * To be filed by amendment.

By Reference

     [1]          Incorporated by reference from the  like-numbered  exhibits to
                  the Registrant's Form 10-K for the year ended May 31, 1989.

     [2]          Incorporated by reference from the  like-numbered  exhibits to
                  the Registrant's Form 10-K for the year ended May 31, 1990.

     [3]          Incorporated by reference from the  like-numbered  exhibits to
                  the Registrant's Form 10-K for the year ended May 31, 1991.

     [4]          Incorporated by reference from the like- numbered  exhibits of
                  the Registrant's Form 10-K for the year ended May 31, 1996.

     [5]          Incorporated by reference from the like- numbered  exhibits of
                  the Registrant's Form 10-K for the year ended May 31, 1997.

     [6]          Incorporated by reference from the like- numbered  exhibits of
                  the Registrant's Form 10-K for the year ended May 31, 1998.

     [7]          Incorporated by reference from the like-number  exhibit of the
                  Registrant's Form 10-K for the year ended May 31, 2000.

     [8]          Incorporated by reference from the like-number exhibit of the
                  Registrant's 8-K filed on February 8, 2001.

(b)  Reports filed on Form 8-K.

                  During the fourth  quarter of the fiscal year ended on May 31,
                  2001, the Registrant filed no reports on Form 8-K.

(c) Required  exhibits follow the signature page and are listed above under Item
14 (a)(3).

(d) Required financial statement schedules are listed and attached hereto in
Item 14(a)(2).



                                       51

<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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.

                                            CRESTED CORP.
                                            (Registrant)


Date:    August 28, 2001               By:        /s/  John L. Larsen
                                            ------------------------------------
                                            JOHN L. LARSEN,
                                            Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.


Date:    August 28, 2001               By:       /s/ John L. Larsen
                                            ------------------------------------
                                            JOHN L. LARSEN, Director


Date:    August 28, 2001               By:       /s/  Max T. Evans
                                            ------------------------------------
                                            MAX T. EVANS, Director


Date:    August 28, 2001               By:       /s/  Daniel P. Svilar
                                            ------------------------------------
                                            DANIEL P. SVILAR, Director


Date:    August 28, 2001               By:       /s/  Michael D. Zwickl
                                            ------------------------------------
                                            MICHAEL D. ZWICKL, Director


Date:    August 28, 2001               By:       /s/  Kathleen R. Martin
                                            ------------------------------------
                                            KATHLEEN R. MARTIN, Director


Date:    August 28, 2001               By:       /s/  Robert Scott Lorimer
                                            ------------------------------------
                                            ROBERT SCOTT LORIMER,
                                            Principal Financial Officer and
                                            Chief Accounting Officer



                                       52

<PAGE>