SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

(Mark One)
[ ]  Annual report pursuant to section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the fiscal year ended _______________ or
[X]  Transition report pursuant to section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the transition period from June 1, 2002 to
     December 31, 2002
Commission file number 0-8773

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

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

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

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

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

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

                         COMMON STOCK, $0.001 PAR VALUE
--------------------------------------------------------------------------------
                                (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 February 28, 2003 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 $2,246,200.

                 Class                         Outstanding at March 24, 2003
---------------------------------------     ------------------------------------
    Common Stock, $0.001 par value                   17,114,276  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:

         Proxy Statement for the Meeting of Shareholders to be held June 2003,
into 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 ]



<PAGE>



                 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. In this Annual Report,
"we", "Company" or "Crested" refer to Crested Corp. unless otherwise
specifically noted.

     During the seven months ended December 31, 2002, most of our business
activity with our parent USE was directed to acquiring acreage, drilling
exploratory wells and testing the wells on coalbed methane properties. RMG also
negotiated the purchase of a coalbed methane ("CBM") producing field. Coalbed
methane gas activities are conducted through Rocky Mountain Gas, Inc. ("RMG"), a
Wyoming corporation owned 51.1% by USE and 40.4% by Crested. At December 31,
2002, Crested was 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 281,886 gross mineral acres
of coalbed methane properties.

     We also hold an interest in cash flow produced from commercial properties,
most of which are located in Utah that were acquired as a part of a uranium
property and mill acquisition. During the seven months ended December 31, 2002,
only the commercial properties produced revenues. However, presently the
Company's business priority is focused mainly on CBM; mining activities may be
reactivated in the future if the commodities' prices improve and the capital
markets for mining improve significantly.

     The Company also owns interests in mining assets, all of which now are in
"shut down" 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 in Sutter Creek, California, east of Sacramento.
Interests are held in other mineral properties (principally molybdenum), but are
either non-operating interests or undeveloped claims.

                                        2

<PAGE>



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

     The Company and USE originally were independent companies, with two common
affiliates (John L. Larsen and Max T. Evans; Mr. Evans died in February 2002).
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 the Company's obligations from time to
time (due to the Company's lack of cash on hand), and the Company subsequently
paying these debts by issuing common stock to USE, the Company became a
majority-owned subsidiary of USE in fiscal 1993. In fiscal 2001, the Company
issued another 6,666,666 shares of its common stock to reduce the Company's debt
owed to USE by $3.0 million, which increased USE's ownership of the Company to
70%. All of the operations of the Company and USE 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 the USECC Joint
Venture ("USECC") with USE, and jointly-owned subsidiaries and affiliates of the
Company and USE. Assets, liabilities and operations of USECC are not
consolidated on the Company's financial statements as it is accounted for by the
Company under the equity method of accounting.

     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 USECC settled litigation with Kennecott involving the GMMV by selling their
interest in the GMMV and its properties back to Kennecott for $3,250,000,
receiving a royalty interest in the uranium properties and miscellaneous
equipment. 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 mineral properties held by Sutter Gold Mining Company ("SGMC"), a
majority-owned subsidiary of USE and the Company (owned 3.2% by Crested), are in
shut down status. The historical market price of gold has not permitted raising
the capital necessary to put the properties into production. During the first
quarter of 2003, gold prices increased to a level which allowed the Company to
begin to market the property.

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

COALBED METHANE (AND INACTIVE MINING PROPERTIES)

     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 51.1% by USE and 40.4% by the Company as of
December 31, 2002).

     As of the filing date of this Annual Report, RMG holds leases and options
on approximately 281,886 gross acres of federal, state and private (fee) land in
the Powder River Basin ("PRB") of Wyoming and Montana and the Green River Basin
of Wyoming. As of the filing date of this Annual Report, there are 24 producing
CBM wells on the acreage, all located in the Bobcat Field (1,940 gross acres in
the Bobcat Field which was acquired in June 2002). RMG holds a 27.6% working
(22% net revenue) interest in the Bobcat Field.

     Through December 31, 2002, 70 CBM wells have been drilled, almost all with
funds provided by industry partner CCBM, Inc. ("CCBM") ( a wholly owned
subsidiary of Carrizo Oil and Gas, Inc. of Houston, Texas) and former industry
partner SENGAI (see below). Seven of these wells were drilled in the Bobcat

                                        3

<PAGE>



Field. Except for the wells in the Bobcat field, reserves have not been
established for any of the properties on which these wells were drilled.

     Subject to production of coalbed methane gas by July 2003, an independent
reserve evaluation for the Clearmont prospect will be completed in the third or
fourth quarter 2003. This prospect was acquired as unexplored acreage in former
fiscal year 2001; drilling started there in former fiscal year 2002. The
dewatering process at Clearmont is underway. See "Acquisition and Exploration
Capital Expenditures" below.

     Castle Rock and Kirby are very large and will require the drilling of
numerous exploratory wells and extended dewatering periods for each group or
"pod" of wells (from 6 to 18 months after drilling and completion) before an
assessment of reserves can be made. In areas where no other wells on adjacent
properties are dewatering the coal seam, the dewatering process could take as
long as 24 months.

     Among the uncertainties we face in the process of determining if our
coalbed methane investments will yield value are the following: Prices for gas
sold in the Powder River Basin are currently the lowest in the United States and
may not improve enough, over a sustained time period, to make many properties
economic; capital (in addition to RMG's one half of the remaining balance under
the CCBM $5.0 million drilling commitment which was $893,300 at December 31,
2002) to continue exploration efforts may be needed but not available; and
permitting issues may delay further work. An unfavorable confluence of these
uncertainties, if realized, could result in a write-down of the carrying value
of properties which don't produce enough gas at low prices to be economic; the
write-down of the carrying value of other properties which need more wells
drilled and dewatered to improve the economics of production; and/or the delay
(whether from lack of capital or permitting problems) in establishing reserves
for the larger prospects where many wells will have to be drilled to assess
their value.

     GAS RESERVES

     The following table sets forth estimated net proved gas reserves and the
present value (discounted 10%, referred to as the "PV10") of such reserves as of
December 31, 2002 for RMG's producing properties. The reserve data and the
present value as of that date were prepared by Ryder Scott Company, independent
petroleum engineers. For further information, see Ryder Scott's reserve report
included as an exhibit to this Annual Report.

     The PV10 value was prepared using constant prices as of the calculation
date, discounted at 10% per annum on a pre-income tax basis, and is not intended
to represent the current market value of the estimated gas reserves owned by
RMG. Note that the PV10 discount factor has been calculated net of ad valorem
and production taxes, but before income taxes. The PV10 discount factor is not
the same as the standardized measure of present value calculations which are
determined on an after-income tax basis.

                                Proved Reserves     Proved Reserves
                                   Developed          Undeveloped         Total
                                   ---------          -----------         -----

Coalbed methane gas (Mmcf)*             489.7               95.9           585.6
PV10 Value                          $ 793,482          $  94,947       $ 888,429

*Million cubic feet

         These estimates of proved reserves have been filed with the Securities
and Exchange Commission, and have not been included in reports to other federal
agencies.


                                        4

<PAGE>



     Note that there are numerous uncertainties inherent in estimating gas
reserves and their estimated values, including many factors beyond the control
of RMG. The reserve data in this Annual Report are only estimates. Reservoir
engineering is a subjective process of estimating underground accumulations of
gas that cannot be measured exactly. Estimates of economically recoverable gas,
and the future net cash flows which may be realized from the reserves,
necessarily depend on a number of variable factors and assumptions, such as
historical production from the area compared with production from other areas,
the assumed effects of regulations by government agencies, assumptions about
future gas prices and operating costs, severance and excise taxes, development
costs, and work-over and remedial costs. The outcomes in fact may vary
considerably from the assumptions.

     Estimates of the economically recoverable quantities of gas attributable to
any particular property, the classification of reserves as to proved developed
and proved undeveloped based on risk of recovery, and estimates of the future
net cash flows expected from the properties, as prepared by different engineers
or by the same engineers but at different times, may vary substantially, and the
estimates may be revised up or down as assumptions change.

     It is likely that actual production volumes, revenues from production, and
the amount of money spent on a property's reserves, will vary from the
estimates. These variances could be material.

     The PV10 discount factor, which is required by the Securities and Exchange
Commission for use in calculating discounted future net cash flows for reporting
purposes, is not necessarily the most appropriate discount factor, based on
interest rates in effect in the financial markets, and risks associated with the
gas business.

     Generally, the volume of gas production declines as reserves are depleted,
with the rate of decline depending on reservoir characteristics. Except to the
extent we conduct successful exploration and development activities, or acquire
properties with proved reserves, or both, our proved reserves will decline with
production. Therefore, our future production depends on finding or acquiring
more reserves.

     The business of exploring for, developing, or acquiring reserves is capital
intensive. To the extent operating cash flow is reduced and external capital
becomes unavailable or limited, RMG's ability to make the necessary capital
investment to maintain or expand RMG's gas reserves asset base would be
impaired. There is no assurance future exploration, development, and acquisition
activities will result in additional proved reserves. Even if revenues increase
because of higher gas prices, increased exploration and development costs could
neutralize cash flows from the increased revenues.

     VOLUMES, PRICES AND GAS OPERATING EXPENSE

     This table shows RMG's 27.6% working (22% net revenue) volumes of gas
produced, average sales prices received for gas sold, and average production
costs associated with RMG's gas sales for the seven months ended December 31,
2002, all from the Bobcat Field.

                                              Seven Months Ended
                                               December 31, 2002
                                               -----------------

          Sales volumes (Mcf)                        64,315
          Average sales price per Mcf(1)              $1.86
          Average cost (per Mcf)(2)                   $1.91



                                        5

<PAGE>



(1)  The Bobcat Field gas (the only property in production at the filing date of
     this Annual Report) has an energy content of .96 to .98 MMBtu per 1 Mcf.
     From time to time, we have sold some of the production at a set price and
     the balance at daily market prices. During the seven months ended December
     31, 2002, RMG sold 22.6% of its share of production at contract prices and
     77.4% at the market.

(2)  Includes direct lifting costs (labor, repairs and maintenance, materials
     and supplies, workover costs, insurance and property, gathering,
     compression, marketing and severance taxes).

     ACQUISITION AND EXPLORATION CAPITAL EXPENDITURES

     From inception on November 1, 1999 through December 31, 2002, RMG incurred
net acquisition (purchase price and holding costs) and exploration costs
(drilling and completion) on CBM properties of approximately $4,904,000, which
does not include approximately $1,606,700 funded by CCBM on RMG's behalf for
lease hold, drilling and completion costs. Unproved CBM properties have been
reduced by $2,250,000 to reflect the reduction of the full cost price as a
result of the principal payment made by CCBM under its agreement with RMG.

     The following table shows certain information regarding the gross costs
incurred by RMG

<TABLE>
<CAPTION>
                                  Seven Months Ended
                                     December 31,               Year Ended May 31,
                                        2002                 2002               2001
                                   -------------         -----------        -----------
<S>                                <C>                   <C>                <C>
          Acquisition costs        $     936,200         $   192,600        $   870,600
          Exploration                     97,200              87,400            283,900
                                   $   1,033,400         $   280,000        $ 1,154,500
</TABLE>

     The acquisition costs included amounts paid for properties, delay rentals,
lease option payments, and general and administrative costs directly
attributable to the acquisitions.

     As of the filing of this Annual Report, RMG holds leases and options to
develop approximately 281,886 gross mineral acres (including 43,711 acres we
have options on - see "Oyster Ridge below) under leases from the United States
Bureau of Land Management, the states of Wyoming and Montana, and private
landowners. Table 1 shows the total gross and net lease acres held in each
prospect, and the amount of such acreage held by RMG and by companies with which
RMG has agreements (CCBM, Inc. and Quaneco, L.L.C.). These agreements are
summarized under "Carrizo - Purchase and Sale Agreement" and "Quaneco -
Agreement." Acreage data assumes CCBM completes its obligations; CCBM will own
its 50% working interest in wells drilled under CCBM's drilling fund commitment,
but if CCBM does not complete its purchase obligations, CCBM would be entitled
to a reduced working interest in the remaining undrilled acreage.

     The 281,886 gross acres does not include approximately 50,600 acres RMG has
options to purchase. See "New Options Acreage."

     CCBM currently has purchase rights to acquire a 6.25% working interest in
the Castle Rock prospect, and owns a 6.25% working interest in eight wells in
Castle Rock, which were drilled by Suncor Energy Natural Gas America, Inc.
("SENGAI"). RMG's and CCBM's interests in the Castle Rock prospect, as shown in
Table 1, reflect the completion of SENGAI's drilling program in late calendar
2001. SENGAI elected not to exercise its option under an Option and Farmin
Agreement on February 8, 2002.

     Prospects are evaluated for coal potential using available public and
industry data, taking into account proximity to other positions held by RMG and
existing or planned gas transmission lines, and whether drilling


                                        6

<PAGE>



and production permits can be obtained and the costs thereof. The final decision
to acquire a prospect is made by the president of RMG. Well drilling and testing
is done by outside contract drilling companies. Drilling results (cores, gas and
water flow rates, and other data) are evaluated by RMG staff, using customary
technical methods, to determine if any zones encountered in the well should be
completed for production. Completion requires setting casing pipe down to the
zone(s), installing pumps, and installing and setting up the necessary surface
equipment (for example, water disposal lines and water holding tanks for
evaluation wells in Montana, pending production permitting approval and water
holding ponds in Wyoming), and dewatering the well sufficiently so production
can start. The decision whether to complete the well is made by RMG's president.

     Table 1 reflects RMG's, Quaneco's and CCBM's acreage position as of the
filing of this Report. Table 1 does not reflect the reduction in net acreage
held by RMG if Anadarko Petroleum, Inc. exercises its option to back-in for a
25% working interest on 43,711 gross acres within the Oyster Ridge prospect.
Also, 43,711 of the acres shown as held in Oyster Ridge assume we continue to
earn acreage under the drill-to-earn-acreage provisions of the option agreement
with Anadarko. See "Description of Prospects - Oyster Ridge" below.

<TABLE>
<CAPTION>
TABLE 1

----------------------------------------------------------------------------------------
      Project
      and Date        Gross Lease     Net Lease     RMG Net     Quaneco Net     CCBM Net
      Acquired           Acres          Acres        Acres         Acres         Acres
----------------------------------------------------------------------------------------
<S>                      <C>           <C>          <C>            <C>           <C>
    Castle Rock          123,840       111,567      48,811         55,784        6,973
     Jan. 2000
       Kirby              81,494        75,122      18,933         37,256       18,933
     Jan. 2000
    Bobcat June            1,940         1,940         530              0          530
        2002
    Oyster Ridge          65,247        65,247      25,729              0       25,729
     Dec. 1999
     Clearmont             6,465         3,905       1,953              0        1,953
     Jan. 2000
       Sussex                640           640         320              0          320
     Jan. 2000
       Finley                160           160          80              0           80
     Jan. 2000
    Baggs North              120           120          60              0           60
     Jan. 2000
   Gillette North             80            80          40              0           40
     Jan. 2000
       Arvada              1,900         1,700         850              0          850
     Jan. 2000
----------------------------------------------------------------------------------------
       TOTAL             281,886       260,481      97,306         93,040       55,468
----------------------------------------------------------------------------------------
</TABLE>

     RMG owns a 25% working interest (20% net revenue interest) on 81,494 gross
and 75,122 net acres in the Kirby prospect (southeast Montana) and a 50% working
interest (from 30% to 50% net revenue interest) on 73,792 net acres in other
prospects (all in Wyoming), and a 27.6% working (22% net revenue) interest in
Bobcat. RMG owns a 43.75% working interest (35% net revenue interest) in the
Castle Rock prospect on 123,840 gross and 111,567 net acres in southeast
Montana. CCBM can purchase a 6.25% working interest in RMG's acreage (6,973 net
acres) of the Castle Rock prospect if they meet certain payment obligations. In
July 2001, RMG sold a 50% working interest in all RMG's coalbed methane leases,
except at Castle Rock, to CCBM for $7,500,000, plus other considerations, and
CCBM purchased a 27.6% working (22% net

                                        7

<PAGE>



revenue) interest in Bobcat at the same time RMG purchased its interest in
Bobcat. The acreage data above reflects these transactions.

     CCBM agreed to pay up to $5,000,000 for drilling and completing coalbed
methane wells on the properties owned by RMG and CCBM. Drilling started on the
Clearmont prospect in Wyoming in August 2001. This drilling program should be
sufficient to drill a total of approximately 60 coalbed methane wells to
completion or abandonment stage. RMG has a carried working interest in all of
the wells drilled in these programs.

     As of the filing of this Report, RMG had set casing on 33 wells (80 acre
spacing units) and have plugged and abandoned one of those wells at the
Clearmont prospect. No reserves have been established to date on the Clearmont
property. Drilling permits for 61 additional wells have been issued for
Clearmont.

     A total of 70 wells have been drilled on RMG acreage through December 31,
2002: 5 in former fiscal year 2001 and 53 in former fiscal year 2002 and 12 in
the seven months ended December 31, 2002. Nineteen of the wells were drilled by
SENGAI in Castle Rock under the terms of a option and farmin agreement. Eleven
of those 19 wells were stratigraphic wells and will be reclaimed by SENGAI; 8 of
those 19 wells were completed and are owned by RMG (93.75% working interest) and
CCBM (6.25% working interest), as Quaneco opted out of maintaining a working
interest in the 8 wells. Other than the Castle Rock and Bobcat wells, RMG and
CCBM both have a 50% working interest in all of these wells (see Table 2 below).
For information on the 19 wells drilled by SENGAI in Castle Rock, see "SENGAI -
Option and Farmin Agreement" below.

     As of December 31, 2002, CCBM and RMG have spent approximately $3,171,900
of the $5,000,000 drilling fund. RMG is relying on the $1,828,100 balance to pay
for continued drilling and completion work on the RMG properties. Like previous
wells drilled with the CCBM drilling fund, RMG will have a 50% carried working
interest with no financial obligation to RMG for drilling and completion costs
until after CCBM has spent $5,000,000. Work would be delayed if CCBM were not
able to fund these costs. Presently, RMG does not have the capital resources to
fund these costs, and would have to obtain the necessary capital from other
industry partners or from sale of equity in RMG.

     Future annual financial obligations for RMG's coalbed methane properties
consist of approximately $323,200 gross in rental fees to Lessors for the new
calendar fiscal year 2003 ($109,600 net to RMG).

     Table 2 shows the wells drilled on RMG's prospects from June 1, 2000
through December 31, 2002. Under the agreement with CCBM, RMG has a carried
working interest in all these wells (with the exception of a $156,600 payment
that was made by RMG to cover 50% of a non-consent cost for 12 wells); CCBM also
paid $156,600 to cover 50% of their cost in acquiring a non-consent working
interest in those 12 wells. RMG had a carried working interest in the 8 Castle
Rock wells which were completed (out of the 19 drilled in that prospect), as
SENGAI paid all costs under their drilling program completed in December 2001.
RMG owns a 93.75% working interest and CCBM owns a 6.25% working interest in the
8 Castle Rock wells.

     With the exceptions noted above, RMG has had a carried interest in all the
wells on the Oyster Ridge, Clearmont and Arvada prospects. Table 2 lists the
number of wells drilled, the total exploration costs and the remaining number of
wells currently permitted for drilling as of December 31, 2002.


                                        8



<TABLE>
<CAPTION>

TABLE 2                                      ROCKY MOUNTAIN GAS, INC.


-----------------------------------------------------------------------------------------------------------------------
   Prospect           FY 2001               FY 2002              New Year 2002                TOTAL           Remaining
                 (6/1/00-5/31/01)      (6/1/01-5/31/02)        (6/1/02-12/31/02)                               Permits
                 Wells       $         Wells        $            Wells       $          Wells        $
-----------------------------------------------------------------------------------------------------------------------
<S>                <C>  <C>             <C>   <C>               <C>  <C>               <C>   <C>                 <C>
Castle Rock        3    $  283,900      19    $  2,500,000      0    $      4,300      22    $  2,788,200        16
-----------------------------------------------------------------------------------------------------------------------
Kirby              0           -0-       0             -0-      0             -0-       0             -0-         8
-----------------------------------------------------------------------------------------------------------------------
Oyster Ridge       2       150,500       5         464,200      0           3,400       7         618,100         0
-----------------------------------------------------------------------------------------------------------------------
Clearmont          0           -0-      28       1,470,400      5         474,700       33***   1,945,100        61
-----------------------------------------------------------------------------------------------------------------------
Arvada             0           -0-       1          64,800      0             -0-       1          64,800         6
-----------------------------------------------------------------------------------------------------------------------
Bobcat             0           -0-      **                      7         528,500       7         528,500        14
-----------------------------------------------------------------------------------------------------------------------
TOTAL              5    $  434,400      53    $  4,499,400     12    $  1,010,900      70    $  5,944,700        105
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

     *        19 of these wells were drilled by SENGAI
     **       18 wells had been drilled by previous owner
     ***      one well plugged and abandoned

     CARRIZO - PURCHASE AND SALE AGREEMENT. On July 10, 2001, RMG closed a
Purchase and Sale Agreement with CCBM, Inc., a Delaware corporation which is
wholly-owned by Carrizo Oil & Gas, Inc., Houston, Texas (NMS "CRZO"). The
agreement between CCBM and RMG is intended to finance the further exploration of
the acreage prospective for coalbed methane currently owned by RMG in Montana
and Wyoming, and to acquire and develop more acreage in Wyoming and the Powder
River Basin of Montana.

     RMG has assigned CCBM an undivided 50% interest in all of RMG's existing
coalbed methane properties (with the exception of Castle Rock of which only a
6.25% working interest was assigned) 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. These properties consisted of the Kirby,
Oyster Ridge, Clearmont, Sussex, Finley, Baggs North, and Gillette North
properties. 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
($2,500,000) of the purchase price is paid, another 25% when total principal
payments reach 66.6% of the principal amount ($5,000,000) of the purchase price,
and the balance of the total 50% undivided interest when all of the principal
amount ($7,500,000) of the purchase price, has been paid.

     CCBM has the right to participate in other properties RMG may acquire (like
the Bobcat property) under the area of mutual interest ("AMI"), see "Agreement
for Purchase of the Bobcat Property" above, and "Carrizo - Purchase and Sale
Agreement" in the Annual Report (Form 10-K) for the former fiscal year ended May
31, 2002.

     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.

     RMG is the designated operator under a Joint Operating Agreement between
RMG and CCBM, which governs all operations on the properties subject to the
Purchase and Sale Agreement between RMG and

                                        9

<PAGE>



CCBM subject to pre-existing JOA's with other entities, and operations or
properties in the area of mutual interest ("AMI"). The AMI four-year term ends
June 30, 2005. It covers the entire state of Wyoming, and the Powder River Basin
of Montana, but will be reduced if CCBM does not obtain at least $20 million for
future property acquisitions.

     Under the Purchase and Sale agreement with CCBM, CCBM will use its best
efforts to obtain financing to raise no less than $20,000,000 to be used by RMG
to acquire more properties in the AMI. CCBM would have a 50% working interest in
properties so acquired. If CCBM's efforts were not successful by June 30, 2002,
the AMI was to be reduced to a 6-mile radius from all existing properties held
jointly by RMG and CCBM. As of December 31, 2002, CCBM has not been successful
in its efforts to raise the $20,000,000 land acquisition fund. RMG has agreed
verbally not to invoke this provision of the contract, which CCBM has agreed to
continue to pursue sources of capital to fund the $20,000,000 commitment.

     A management committee oversees all operations subject to the Purchase and
Sale Agreement, with two members each from CCBM and RMG, however, RMG shall have
a tie-breaking vote 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.

     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 Powder River Basin 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 88,409 net
acres of Bureau of Land Management ("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
Quaneco the cash purchase price of $5,500,000 for the acreage plus a drilling
commitment of $2,500,000.

     For information on the Quaneco agreement, see "Quaneco Agreement" in the
Annual Report (Form 10-K) for the former fiscal year ended May 31, 2002.

     SENGAI - OPTION AND FARMIN AGREEMENT.

     For information on the Quaneco agreement, see "SENGAI Option and Farmin
Agreement" in the Annual Report (Form 10-K) for the former fiscal year ended May
31, 2002.

     NEW OPTIONS ACREAGE

     In December 2002, RMG signed an option to acquire producing, proven and
undeveloped CBM properties from an undisclosed party. The optioned properties
are reported to be producing CBM from 184 wells producing from various coal
seams ranging from 400 to 500 feet in depth. Working interest in these wells
range from 27% to 100% and net revenue interest ranges from 21% to 98%. Deeper
coals could be prospective for development, and operational and infrastructure
improvements (and drilling more wells) could enhance current production. The
properties include various gas gathering contracts, gas purchasing contracts and
additional drilling permits. This option expires April 15, 2003.

     In February 2003, RMG signed a separate option with the same party to
acquire additional gross acres of undeveloped acreage. There are reported to be
10 completed shut-in wells on the properties. A portion of the optioned acreage
under option offsets production from adjoining properties belonging to other
parties, and pipelines traverse portions of the acreage. This option expires May
1, 2003.


                                       10

<PAGE>



     As of the filing of this Annual Report, RMG is conducting due diligence
review of the acreage under the options. Ryder Scott Company, independent
petroleum engineers, is preparing reserve evaluations of the producing
properties under option. Results of the reserve reports will determine whether,
and at what price, RMG will proceed to negotiate the purchase of one or both
properties. Closing is subject to RMG raising sufficient capital. CCBM will have
the right to purchase one-half the interests RMG purchases in the acreage.

     DESCRIPTION OF PROSPECTS

     Leases of federal mineral rights are obtained from the United States Bureau
of Land Management and expire from 2004 to 2009, unless RMG establishes
production on the lease, in which event the lease is held so long as coalbed
methane or other gas or oil is produced. A royalty interest of 12.5% on the
production is paid to the BLM. State leases expire from 2003 to 2004 in Wyoming
and Montana, unless RMG establishes production on the lease, in which event the
lease is held so long as coalbed methane or other gas or oil is produced. The
royalty paid to the State of Wyoming is from 12.5 % to 16.67%, and 12.5% to the
State of Montana. Annual renewal fees for non-producing Federal leases is $1.50
to $2.00 per acre, and $1.00 and $1.50 for non-producing Wyoming and Montana
leases.

     An environmental group has filed a lawsuit against the BLM, RMG and others,
challenging the validity of numerous BLM leases in the Powder River Basin of
Montana. See Item 3, Legal Proceedings ("Rocky Mountain Gas Litigation").

     Leases on private (fee) land for coalbed methane and conventional gas
expire at various times from 2003 to 2011, unless production is established, in
which event the lease is held so long as there is production. The landowner is
paid a royalty from production of 12.5% to 20.0% , depending on the lease terms.

<TABLE>
<CAPTION>
TABLE 3
                                             ROCKY MOUNTAIN GAS, INC.


------------------------------------------------------------------------------------------------------------------------------
                            Gross Leased     Net Leased      Net Leased     Net Leased        Net Leased from     Net Leased
Prospect                    Acres            Acres           from BLM       from State of     State of            from Private
                                                                             Wyoming          Montana             Owners
------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>             <C>            <C>             <C>                 <C>                <C>
Castle Rock                   123,840         111,567         55,104            0                10,860             45,603
------------------------------------------------------------------------------------------------------------------------------
Kirby                         81,494          75,122          33,305            0                4,056              37,761
------------------------------------------------------------------------------------------------------------------------------
Oyster Ridge*                 21,536          21,536          17,107          1,229                0                 3,200
------------------------------------------------------------------------------------------------------------------------------
Clearmont                      6,465           3,905            0              640                 0                 3,265
------------------------------------------------------------------------------------------------------------------------------
Sussex                          640             640             0              640                 0                   0
------------------------------------------------------------------------------------------------------------------------------
Finley                          160             160             0              160                 0                   0
------------------------------------------------------------------------------------------------------------------------------
Baggs North                     120             120             0              120                 0                   0
------------------------------------------------------------------------------------------------------------------------------
Gillette North                  80              80              0               80                 0                   0
------------------------------------------------------------------------------------------------------------------------------
Arvada                         1,900           1,700          1,200             0                  0                  500
------------------------------------------------------------------------------------------------------------------------------
Bobcat - Undeveloped            180             180             0               0                  0                  180
------------------------------------------------------------------------------------------------------------------------------
Total Undeveloped Acres       236,415         215,010        106,716         2,869              14,916             90,509
------------------------------------------------------------------------------------------------------------------------------
Bobcat - Developed             1,760           1,760            0               0                  0                 1,760
------------------------------------------------------------------------------------------------------------------------------
Total Acres                   238,175         216,770        106,716         2,869              14,916             92,269
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     *Does not include 43,711 acres under option from Anadarko Petroleum. See
"Description of Properties - Oyster Ridge."


                                       11

<PAGE>



     BOBCAT FIELD. On April 12, 2002, RMG signed an agreement to purchase
working interests in approximately 1,940 gross acres of coalbed methane
properties in the Powder River Basin of Wyoming. The contract closed on June 4,
2002. RMG paid the seller $500,000 cash and another $150,000 by USE issuing
37,500 shares of its restricted common stock to the seller; CCBM paid $500,000
cash to the seller and Carrizo Oil & Gas, Inc. issued its restricted shares of
common stock valued at $150,000. The properties are located approximately 25
miles north of Gillette, Wyoming, in Campbell County.

     As of the filing of this Annual Report, 24 CBM wells have been drilled (22
completed in the Cook coal at 650 feet, 2 completed in the Canyon coal at 450
feet), and are producing. Produced and sold gas (net of gas used as fuel for the
compressors) averaged approximately 1,829 Mcf or 1,796 MMBtu per day in January
2003 (422 Mcf or 414 MMBtu per day net to RMG). All gas sales during January
2003 were sold at market prices, which averaged $3.03 per MMBtu.

     In February 2003, RMG received a guaranteed contract price of $3.07 per
MMBtu for its share of the first 1,000 MMBtu of gas sold each day, with the
balance at market prices (an average of $4.25/MMBtu). 500 MMBtu per day will be
sold at a guaranteed contract price of $3.52 per MMBtu from March 1, 2003 to
October 31, 2003. Reserves have been established for the Bobcat Field, see "Gas
Reserves" above.

     CASTLE ROCK: The Castle Rock project consists of 123,840 gross and 111,567
net acres located in the northeastern 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 by other operators south of the Castle Rock acreage near the
Montana/Wyoming border. Currently, there are no pipelines in this area.

     KIRBY: The Kirby project consists of 81,494 gross and 75,122 net 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.

     In the seven months ended December 31, 2002, a 3 well exploration program
was started; 2 wells have been drilled and were completed in January 2003 at the
southern end of the acreage, with encouraging initial gas shows and an
individual coal thickness of over 50 feet. Complete results from the exploration
program will dictate the extent of follow-up pilot programs tenatively scheduled
for later in 2003.

     OYSTER RIDGE: The Oyster Ridge project consists of 65,247 gross and net
acres located in southwestern Wyoming in the Ham's Fork Coal Field adjacent to
the Green River Basin. RMG and CCBM have a 100% working interest (50% each) in
21,536 acres within Oyster Ridge.

     Anadarko Petroleum, Inc. is successor to Union Pacific Land Resources
Corporation, which sold the acreage subject to UPLRC's back-in option to third
parties, from whom RMG acquired the acreage in December 1999.

     The agreement with Anadarko is a drill-to-earn-acreage agreement: we must
drill at least four wells each year, each on a new section (640 acres), to earn
a lease on each drilled section , and also to keep in force previously earned
leases in the 43,711 acres areas. Wells drilled by the seller, and by RMG (with
CCBM), have earned 3,200 acres, which are included in the 21,536 acres leased
presently. Under the terms of the

                                       12

<PAGE>



agreement, we must drill 4 additional wells by March 31, 2003 to keep the
agreement in force. As a result of a 60 day extension of time granted by
Anadarko, RMG expects to meet this drilling commitment.

     Within this prospect, 43,711 gross acres are subject to an option held by
Anadarko Petroleum, Inc. to participate as a 25% working interest owner on all
wells drilled each year. Anadarko has not yet elected to participate, and has no
working interest in the seven wells drilled to date on this prospect. If
Anadarko elects to participate in the future, working interest ownership in
affected wells would be 37.5% RMG, 37.5% CCBM, and 25% Anadarko.

     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, 2001. Through December 31, 2002, $618,100 has been spent on drilling and
completion at Oyster Ridge.

     CLEARMONT: The Clearmont project consists of approximately 6,465 gross and
3,905 net 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 Penneco/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. An exploration drilling
program began at Clearmont in August 2001 and could be in production in fourth
quarter 2003 depending on drilling results and gas prices. Through December 31,
2002, $1,945,100 has been spent on drilling and completion at Clearmont.

     Nineteen of the existing 32 wells at Clearmont have been on full-scale
dewatering since June 2002. These 19 wells are hooked up to a gas gathering
system but as of December 31, 2002, no gas production had occurred. During 2003,
RMG expects to begin selling gas produced from the Clearmont wells to CMS Field
Services, Inc. pursuant to a gas purchase contract. However, production could be
delayed if dewatering hasn't progressed sufficiently to allow production of
commercial amounts of gas. In the third calendar quarter 2002, RMG completed
construction of a field gathering system (for delivery and initial compression
of the gas) to Bighorn Gas Gathering, LLC. Bighorn has signed a gas gathering
agreement with RMG to deliver gas collected from RMG's system to CMS.

     SUSSEX: RMG and CCBM hold 640 gross and net acres in this project area
located in Johnson County, Wyoming. This State lease lies 3 miles south of
Sussex, Wyoming. RMG has a 50% working interest. To date, RMG has not conducted
any significant exploration on the property.

     FINLEY: RMG and CCBM hold 160 gross and net 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. To date, RMG
has not conducted any significant exploration on the property.

     BAGGS NORTH: This prospect contains 120 gross and net acres located in
Carbon County, Wyoming. This State lease is located 7 miles north of Baggs,
Wyoming. RMG holds a 50% working interest in this prospect. To date, RMG has not
conducted any significant exploration on the property.

     GILLETTE NORTH: RMG holds a 50% working interest in 80 gross and net acres
in this project area located in Campbell County, Wyoming. This State lease lies
at the north end of the City of Gillette. Existing coalbed methane wells lay in
the section immediately north. Permitting of two wells has begun on RMG's
property. RMG intends to conduct test drilling and production techniques in this
area which lies in the heart

                                       13

<PAGE>



of the current coalbed methane play in the Gillette area. To date, RMG has not
conducted any significant exploration on the property.

     ARVADA: This prospect contains 1,900 gross acres, 1,700 net acres, located
in Sheridan County, Wyoming adjacent to the Clearmont prospect. RMG holds a 50%
working interest, and a 31% to 40.75% net revenue interest. To date, RMG and
CCBM have spent $64,800 on the drilling of one 1,471' deep test well and are
analyzing the drilling results. Subject to good results from further exploratory
drilling, RMG anticipates constructing a field gathering system on the Arvada
property in mid-calendar 2003 and begin production sales in the third calendar
quarter 2003. Gas gathering and production sales are covered by agreements with
Bighorn Gas Gathering, LLC and CMS Field Services, Inc.

GENERAL INFORMATION ABOUT COALBED METHANE.

     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 contains 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 ("CBM")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 production is a direct result of reducing the hydrostatic (water)
pressure in the coal formation. Three principal stages are involved:

     o    Drill wells (typically eight or more in a 'pod') down to the same coal
          formation, in contiguous 80 acre spacing per well; test the water in
          the formation and test coal samples taken from the formation. Water
          testing determines if the geochemical environment of the coal seam is
          conducive to the formation of CBM.

     o    Install gathering lines to hook up and put wells on pump to 'dewater'
          the coal formation. Hydrostatic pressure must be reduced to about 50%
          of initial pressure before enough data is obtained (water flow rates,
          CBM gas flows) to determine how much CBM the wells may produce. This
          dewatering stage may take 6 to 18 months, and in some instances 24
          months (where there is no dewatering of the coal seam occurring from
          wells drilled by others on adjacent properties).

     o    Installing (or have a transmission company install) a compressor and
          transport line to carry produced gas to a gas transmission line for
          sale to end users. Gas production starts gradually then continues to
          grow in volume as hydrostatic pressure is reduced; optimal production
          won't occur until hydrostatic pressure is reduced approximately 90%
          from initial levels.


                                       14

<PAGE>



COALBED METHANE WELL PERMITTING

     Operators drilling for coal bed methane are subject to many rules and
regulations and must obtain drilling, water discharge and other permits from
various governmental agencies depending on the type of mineral ownership and
location of the property. Intermittent delays in the permitting process can
reasonably be expected throughout the development of all RMG projects. For
example, there is currently a temporary moratorium for drilling coalbed methane
wells on fee and state lands in Montana (although, RMG negotiated the right to
receive 116 drilling permits to drill in Montana during the moratorium). RMG may
shift its 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 the plan of operations.

     Drilling and production operations on RMG's Powder River Basin leases in
Wyoming and Montana are subject to environmental rules, requirements and permits
issued by various federal authorities for drilling and operating on all land,
regardless of ownership, and state and local regulatory agencies for land owned
by the state or in fee by private interests. The primary U.S. federal agency
with related responsibilities is the Bureau of Land Management of the U.S.
Department of the Interior ("BLM") which has imposed environmental limitations
and conditions on coalbed methane drilling, production and related construction
activities on federal leases in the PRB. These conditions and requirements are
imposed through Records of Decision ("ROD") issued pursuant to Environmental
Impact Statements ("EIS"). The BLM may also impose site-specific conditions on
development activities, such as drilling and the construction of rights-of-way,
before it approves required applications for permits to drill and plans of
development. The BLM is currently developing an updated Supplemental EIS
("SEIS") for 51,000 CBM wells in the Powder River Basin of Wyoming.
Additionally, the BLM is conducting a SEIS for 39,000 CBM wells in Montana. Both
of these PRB SEISs are expected to be completed, with RODs issued, by mid 2003.
While the BLM SEIS has been underway, there has been a moratorium on the issuing
of new drilling permits on federal leases in both Wyoming and Montana; however,
RMG currently holds previously issued BLM permits and Montana state permits to
drill 16 wells on the Castle Rock project and 8 wells on the Kirby project and
can therefore drill these wells prior to completion of the SEISs and issuance of
additional permits.

     The state-based environmental agencies primarily concern themselves with
the issuance of permits related to drilling, land, air quality and water
discharge. The primary state-based agencies for which coalbed methane operators
are subject to include:

      o  Wyoming Department of Environmental Quality ("WDEQ")
      o  Wyoming Oil and Gas Conservatin Commission ("WOGCC")
      o  Montana Department of Environmental Quality ("MDEQ")
      o  Montana Board of Oil and Gas Conservation ("MBOGC")

     While the BLM is primarily responsible for issuing broadly based EISs for
each state, its jurisdiction over related matters and the actual issuance of
drilling permits is primarily reserved for federal leases. Permits for drilling
on state or fee owned land are issued by the WOGCC and MBOGC following their
review of the BLM EIS and the formulation of their own local EIS's.

     The WOGCC has historically undertaken environmental studies and its history
in issuing drilling permits for the Powder River Basin is as follows:

     o  90 wells approved on three small pilot projects from 1992 to 1995.
     o  250 wells approved in areas north of Gillette in 1996.
     o  640 wells approved in areas south of Gillette in 1997.

                                       15

<PAGE>



     o  5,890 wells approved in 1999, (in conjunction with the 1998
        Wyoming EIS) in the Wyodak area. (The Wyodak area of the Powder
        River Basin runs south of Gillette and was the initial development
        area of the Basin).
     o  2,500 wells approved in early 2001 in the Wyodak area, primarily on
        federal lands.

     To date, a total of 28,000 CBM drilling permits have been issued statewide,
(including permits for other coalbed methane basins) on federal, state and fee
leases, although 6,700 were unused and are now expired.

     In conjunction with the BLM EIS, WOGCC has also been formulating its own
updated SEIS since June 2000 related to future permits for 51,000 CBM wells in
the PRB of Wyoming covering 8,000,000 acres in Campbell, Sheridan, Johnson and
Converse counties. The related minerals are on land which is 54% federal, 37%
fee and 9% state. Surface rights are on land which is 14% federal, 77% fee and
9% state. The related ROD is expected by mid 2003, and in conjunction with the
BLM SEIS ROD expected at the same time, this should lead to a large number of
new drilling permits being issued in 2003. The WOGCC has estimated that
approximately 5,000 new CBM wells will be drilled annually for at least the next
five years.

     In contrast to Wyoming, Montana authorities have been very slow in
undertaking CBM environmental studies and granting permits to drill wells. In
fact, to date, only the Redstone (Fidelity) project just south of RMG's Kirby
project is producing CBM gas in Montana. With the exception of a relatively
small number of drilling permits available from earlier issuance (including
those held by RMG which have allowed some recent drilling on the Kirby and
Castle Rock projects), a drilling moratorium has been in effect during the last
two years. In recent months, however, the MBOGC has drafted a SEIS, as an
amendment to the Powder River and Billings Resources Management Plans, for
coalbed methane gas development in Montana. This new SEIS, in conjunction with
the similar EIS carried out by the BLM, is expected to address a comprehensive
statewide CBM development program to allow permitting for 39,000 wells. A draft
of the SEIS has been completed and a ROD is expected by early 2003.
Additionally, despite the current moratorium on CBM drilling permits in Montana,
RMG received one of only two Environmental Assessments and a Finding of No
Significant Impact ("FONSI")which will allow it to drill 56 wells on federal
leases held in Montana. These wells would evaluate potential CBM production as
well as conventional gas. The ROD in Montana is expected by mid 2003 and
drilling permits should then be issued on federal, state and fee leases.

     The DEQs are primarily responsible for issuing air quality and water
discharge permits, among other things. Water disposal has been and is expected
to continue to be a significant issue, particularly with respect to coalbed
methane gas production, which typically entails substantial water production at
least during the dewatering phase of completion of a new well. The primary issue
of concern is the salinity content in the produced water, which is measured by
the sodium absorption ratio ("SAR"), which, depending upon a location, can range
from slightly less than that in surface water to a substantially greater amount.
Due to the discrepancies of the SAR content found in water from coalbed methane
wells, the disposal of this water is tightly regulated. If the SAR content is
low, the water can be used for irrigation, livestock drinking water or even as a
water supply for cities. If the SAR content is higher, the water quality does
not merit use for drinking water or irrigation and, under these measures, the
DEQ has outlined various other methods of water disposal. Man-made ponds may
also be built right beside the wells, enabling the wells to drain their water
into the ponds (called surface discharge). Additionally, there might be
drainages which the produced water can flow into. Finally, the water might be
reinjected through wells into the ground below levels from which the water was
produced. Thus far, the vast majority of associated water produced has been
discharged on the surface, primarily captured in reservoirs and ponds and
allowed to evaporate.

     Overall, RMG has not experienced any difficulty in obtaining air quality
and water discharge permits from the WDEQ and has yet to apply for such permits
in Montana. It has two WDEQ National Point Discharge Elimination System
("NPDES") Program permits to dispose of all anticipated water production into

                                       16

<PAGE>



reservoirs at the Bobcat and Clearmont projects. The State of Wyoming recently
streamlined the process and time required to obtain these permits and RMG
anticipates that it will be able to obtain the necessary permits for its other
properties in Wyoming and Montana.

     The following summarizes permits now in place.

Table 4

--------------------------------------------------------------------------------
                                         Expiration
Prospect           Remaining Permits     or Renewal Date
--------------------------------------------------------------------------------
Castle Rock                16            05/13/03 and 07/03/03
--------------------------------------------------------------------------------
Kirby                       8            07/03/03 and 07/15/03
--------------------------------------------------------------------------------
                                         07/15/03; 08/01/03; 08/02/03; 08/09/03;
Clearmont                  61            09/11/03; 10/28/03; 11/20/03;
                                         12/19/03; 12/20/03 and 02/17/04
--------------------------------------------------------------------------------
Arvada                      6            10/28/03 and 12/05/03
--------------------------------------------------------------------------------
Bobcat                     14            09/11/03; 09/18/03 and 12/19/03
--------------------------------------------------------------------------------
   Total                  105
--------------------------------------------------------------------------------

     Drilling permits issued by the State of Wyoming allow one year for drilling
completion; permits issued by the State of Montana allow six months. Expired
permits for undrilled locations are usually renewed by the agencies without
difficulty.

     Once drilled, all wells in Wyoming are subject to a National Pollution
Discharge Elimination System ("NPDES") permit relating to water testing and
discharge. All wells in the Castle Rock and Kirby prospects remain subject to
the Montana Board of Oil and Gas Commission approval. Upon completion of
drilling, wells are subject to monthly reporting regarding status and production
to the respective state agencies in which they are located.

GATHERING AND TRANSMISSION OF CBM GAS

     Due to the low pressure characteristics of the coalbeds, the production of
coalbed methane is dependent on the installation of multi-stage compression
facilities. Gas gathering will be similar among RMG's fields. Components include
the wellhead and two pipelines. One pipeline transports gas to a low level
compression station, then on to a high level compression station and finally to
the transmission pipeline. The water is commonly collected through another
pipeline from each of the wells and pumped into a surface reservoir.

     Companies involved in coalbed methane production generally outsource gas
gathering, compression and transmission. RMG and industry partners have and will
likely continue to outsource their compression and gathering to third parties at
fixed charges per Mcf transported.

GAS MARKETS

     Current production from the PRB, having grown from virtually nothing in the
early 1990s, is now approximately 900 Mmcfd. Since this area is sparsely
populated, most of this gas must be exported from the Montana and Wyoming to
distant markets. The existing Wyoming pipeline infrastructure is already
substantial and continues to expand with gathering systems and intrastate lines,
yet is ultimately dependent on large interstate pipelines. With the exception of
a portion of the gathering systems, this pipeline system is typically owned and
operated by independent mid-stream energy companies, rather than oil and gas

                                       17

<PAGE>



operators. The pipelines generally will not be financed and constructed until
appropriate amounts of gas have been proven and committed for transport on the
new lines. While the total current take away capacity from the PRB is
approximately 1.25 Bcfd, excess capacity over current production rates does not
exist in all locations and not all producers have a ready market for the sale of
their gas at all times. Some major producers in the region reserve portions of
pipeline capacity beyond their current requirements, resulting in less than
stated maximum capacity being available for other producers. In addition, total
stated capacity is unavailable at times, as was the case during this past summer
when two major pipelines were curtailed or shut down for maintenance or
construction activities.

     Based on the existing pipeline systems and the gas sales markets in its
area of operations in Wyoming, RMG expects that, at least for the next few
years, the markets in which it sells its gas, and the spot prices to which it
will be subject, will be dependent upon three major sales points:

     o  The Colorado Interstate Gas ("CIG") station near Cheyenne in.
        southeastern Wyoming, which primarily feeds regional markets or markets
        in the Midwest.

     o  The Ventura market ("Ventura") located in Ventura, Iowa, which prices
        gas on the Northern Border pipeline where it interconnects with Northern
        Natural Gas and feeds markets in the Northern Plains and Midwest.

     o  The Opal market ("Opal") in southwestern Wyoming, which delivers to the
        Kern River pipeline for delivery to Salt Lake City, Nevada, Arizona and
        California.

PIPELINES THAT SERVE THE CIG MARKET

     Following early PRB development, two large diameter intrastate pipelines,
the Fort Union and the Thunder Creek, were constructed in the Basin in 1999, and
gathering system infrastructure has continued to grow significantly since that
time. These two major intrastate pipelines currently provide almost 1.1 Bcfd
capacity, flowing south out of the Basin to the CIG Hub in Southeast Wyoming.
Descriptions are as follows:

     o  Fort Union. The Fort Union Gas Gathering pipeline consists of a 106
        mile, 24 inch, 434 Mmcfd capacity line completed in August 1999 and a
        20" pipeline with a capacity of 200 Mmcfd completed in September 2001.
        It is believed that capacity could be increased by another 200 Mmcfd by
        adding additional compression to this line.

     o  Thunder Creek. Thunder Creek Gas Services pipeline is a 126-mile, 24
        inch pipeline which commenced operations on September 1, 1999 with a
        capacity of 450 Mmcfd.

     The RMG Bobcat project currently delivers its gas to the Thunder Creek
pipeline where it is carried south and delivered to the CIG market. As an
   alternative, the Bobcat gas could be sold in the Ventura market through an
interconnection of the Thunder Creek pipeline to other lines flowing north out
of the Basin.

         The Clearmont and Arvada projects will utilize the Big Horn pipeline, a
110 mile gathering line originating on the Montana/Wyoming border north of
Sheridan, flowing generally east and bisecting the Clearmont and Arvada projects
before connecting with the Fort Union pipeline. The Big Horn was completed in
December 2000 with an initial capacity of 250 Mmcfd and is readily up-gradable
through additional compression to 500 Mmcfd. While the Big Horn can currently
deliver gas only to the south into the CIG market, anticipated future pipeline
construction will enable this gas to be delivered to the Ventura market at a
later date.


                                       18

<PAGE>



     When the Kirby project is prepared to commence gas sales in the future, it
is expected that this property will be hooked up with an approximate 10 mile
extension of the Big Horn pipeline. However, Kirby is still largely unexplored,
so any production from this acreage is several years into the future.

PIPELINES THAT SERVE THE VENTURA MARKET

     There is currently only a single significant pipeline capable of
transporting gas out of the Basin to the north, the Bitter Creek pipeline, which
connects with the Northern Border interstate pipeline. However, two additional
lines that are well along in their planning stages, would also deliver gas to
the Northern Border pipeline. Descriptions are as follows:

     o  Bitter Creek. The Bitter Creek pipeline is owned by Williston Basin
        Interstate Pipeline Company ("WBI"), a subsidiary of MDU Resources
        Group, Inc. It was completed in 2001 with initial capacity of 150 Mmcfd.

     o  Grasslands. In response to the need for expandable access to the Ventura
        market, the Grasslands pipeline, also owned by WBI, is expected to be
        completed and in service by November 2003. It is anticipated to be a 245
        mile, 16 inch line with an initial capacity of 80 Mmcfd and expandable
        to 200 Mmcfd. It will also provide an additional benefit to producers
        because it crosses a large gas storage facility in Montana with 160 Bcf
        of capacity.

     o  Bison. Northern Border Partners, L.P. is currently holding an open
        season to solicit interest in firm transportation on the proposed Bison
        20 inch interstate pipeline project which would connect PRB gas supplies
        to a proposed interconnection to its own Northern Border pipeline.
        Currently the project is anticipated to be in service in November 2004
        with a capacity of 240 Mmcfd. The pipeline is proposed to start near
        Gillette, Wyoming and extend north into Montana. Interconnections for
        receipt of gas are proposed with Big Horn, Fort Union, Thunder Creek and
        other lines through the eastern corridor of the Castle Rock project.

     The RMG Castle Rock project is currently anticipated to be able to deliver
its gas into the existing Bitter Creek or the proposed Bison or Grasslands
pipelines. The proposed route for Bison would pass through the eastern portion
of the Castle Rock project. However, like Kirby, Castle Rock is largely
unexplored, and any production from this acreage is several years into the
future.

THE OPAL MARKET

     The Opal market, in southwestern Wyoming, is a major pipeline connection
point, with several intrastate and interstate lines connecting to the major
interstate line, Kern River, which transports gas to the southwest and is
described as follows:

     o  Kern River. The Opal market is served by the Kern River pipeline which
        has a capacity of 824 Mmcfd, and delivers to markets in Utah, Nevada,
        Arizona and California. Kern River Gas Transmission has started
        construction of a $1.2 billion expansion project to more than double the
        capacity of its 926 mile interstate pipeline. When completed in May
        2003, this line will have capacity of 1.73 Bcfd. This major project
        should help promote ongoing development of gas reserves in the entire
        central Rocky Mountain region.


                                       19

<PAGE>



     The Oyster Ridge project is bisected by the Kern River pipeline, only a few
miles southwest of the Opal market, and therefore can be expected to deliver its
gas directly into the Kern River pipeline. Oyster Ridge is in the early
exploration stage.

GAS PRICES

     Historically, spot gas prices received by producers at the Ventura, CIG and
Opal markets have generally been at discounts to the NYMEX front month contract
and Henry Hub spot cash prices, although with lesser discounts during the winter
months. As an example, examining the spot prices on the first of each month
since the beginning of 1997 shows that Ventura prices have averaged a $0.15 per
Mcf discount during the second and third quarters of the year, while averaging a
premium of a few cents during the first and fourth quarters. Prices at CIG
almost always trade at a further discount to the Ventura prices, and again with
an even higher discount during the second and third quarters, because CIG is
partially based on local demand which drops approximately 50% outside the
heating season, whereas Ventura serves larger national markets and is highly
correlated to Chicago market prices. An examination of similar spot price points
shows that CIG gas traded at an average discount to Ventura of $0.33 from 1997
through 2000.

     The negative spread of CIG prices to Ventura increased to $0.79 in 2001 and
steadily increased during 2002 to average $1.65 during the third quarter of 2002
(and at times reaching $2.00 during the summer of 2002). Opal has generally
traded in price ranges close to those at CIG. This larger than normal negative
spread has resulted from a combination of (i) rapidly growing CBM and
conventional gas production volumes in this region, (ii) the curtailment of both
of the primary lines taking gas south out of the PRB due to maintenance and/or
construction (Fort Union and Thunder Creek), (iii) weak western U.S. demand
during most of 2002, (iv) large amounts of current pipeline capacity controlled
by the larger producers, and (v) restraint in new pipeline construction from
both regulatory delays and hesitancy to construct new lines by the pipeline
companies. RMG management believes that this situation is temporary and that new
pipelines currently under construction should bring the price differentials back
to normal historic levels in 2003 and 2004. Furthermore, commencing with cooler
weather in late October 2002, realized prices in the CIG market have returned to
differentials more in line with the historical norm. However, there is no
guarantee that the increased capacity will eliminate the negative price
differential or even significantly reduce it.

INACTIVE MINING PROPERTIES - URANIUM

     GENERAL. The Company and USE have interests in several uranium-bearing
properties in Wyoming and Utah and in a uranium processing mill in southeastern
Utah (the "Shootaring Mill" in Garfield County). 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 sell or develop and operate these
properties (directly or through a subsidiary company or a joint venture) with
companies having the necessary capital to mine and mill the uranium bearing
material to produce uranium concentrates ("U3O8") for sale to public utilities
that operate nuclear powered electricity generating plants. Currently there is
no uranium mill available in Wyoming and it would take a substantial increase in
the market price of uranium concentrate over a period of time before a company
with the financial wherewithal would build a mill and place the deposits in
production. Therefore, until uranium oxide prices improve significantly, the
uranium properties will remain shut down.

     At the dates of the consolidated balance sheets in this report, there are
no values carried on the balance sheets for uranium properties.


                                       20

<PAGE>



     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. From December 21, 1988 to June 1, 1998, these properties were
held by Sheep Mountain Partners ("SMP"). On June 1, 1998, the Company and USE
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
remains unresolved. 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.

     We have recorded reclamation liabilities for the SMP properties (see note J
to the financial statements in this report). All historical costs in the SMP
properties were offset against a monetary award which was received from Nukem
during fiscal 1999.

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

     Plateau Resources Limited is a wholly-owned subsidiary of USE. See "Plateau
Shootaring Canyon Mill" below. The Company is contractually obligated to fund
50% of the cash requirements of Plateau and shall also share in 50% of any cash
receipts of Plateau.

     The Tony M property contains underground uranium deposits in San Juan
County, Utah.

     Plateau is the lessee of the Tony M property and has posted a bond securing
Plateau's obligations to reclaim these properties. The Tony M property 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 property 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 mineralization was stockpiled at the Tony M
property and at the Shootaring Mill.

     Plateau also acquired the Velvet property and the nearby Woods Complex in
the Lisbon Valley area in southeastern Utah. The Velvet Mine was developed and
permitted by its prior owner and is located approximately 178 miles by road from
the Shootaring Mill. The prior owner drove several miles of access tunnels
(adits) and drifts (access tunnels) and mined material from the workings.
However, we cannot ascertain the amount or grade of material previously mined,
nor have we ascertained by our own drilling the location and grade of remaining
mineralized material in the mine. The Woods Complex was formerly an operating
uranium mine with a remaining undeveloped resource. Access to this resource
would be by extending a drift 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.

     PLATEAU'S SHOOTARING CANYON MILL AND PROPERTIES

     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

                                       21

<PAGE>



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.

     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.

     For information on the Shootaring mill facility and related real estate
property at Ticaboo, please see "Plateau's Shootaring Canyon Mill and
Properties" in the annual report (Form 10-K) for the former fiscal year ended
May 31, 2002.

     THE GREEN MOUNTAIN MINING VENTURE ("GMMV") PROJECT

     For information on the GMMV agreement, see "Green Mountain Mining Venture"
in the annual report (Form 10-K) for the former fiscal year ended May 31, 2002.

     SHEEP MOUNTAIN PARTNERS ("SMP")

     SMP PARTNERSHIP. In February 1988, the Company and USE 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. 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.

     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. The Company, USE 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 located on the properties (to remove natural soluble
uranium from mine water) was reclaimed and the plant disposed of at the
Sweetwater Mill impoundment facility in fiscal 2002.

     Permits to operate existing mines (now shut down) 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.



                                       22

<PAGE>



INACTIVE MINING PROPERTIES - GOLD

     SUTTER GOLD MINING COMPANY. In fiscal 1991, the Company and USE acquired an
interest in Sutter properties located in the Mother Lode Mining District of
Amador County, California. The entire Lincoln Project (which is the name we use
for the properties) is owned by Sutter Gold Mining Company, a Wyoming
corporation ("SGMC"), and a majority-owned subsidiary of USE.

     This property has never been in production. Persistent low prices for gold
have made financing difficult, and in fiscal 1999 resulted in a substantial
write down of the SGMC properties.

     Due to the depressed gold prices in the past, litigation that has been
resolved and lack of available funding, SGMC has deferred the start of
construction of a gold mill complex and extension of existing underground
workings. A tourist visitors center has been set up (see below) and 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. The exploration permits are
being kept current as necessary to allow for possible mining activities on the
properties in the future. With the increase in the gold spot market price, SGMC
is currently marketing its properties.

     In 1998 and 1999, the Company took impairments (write-downs) in the amounts
of $1,500,000 and $10,718,800, respectively, of the carrying value of the gold
properties. These two impairments wrote off almost 85% of our investment in
these properties. As a result of low market prices for gold, the Company and USE
determined that SGMC could not produce gold from properties at a profit. The
impairments taken in 1998 and 1999 resulted in no value for mine exploration,
and the remaining assets relating to this property include raw land which is no
longer needed for mining activity, and buildings and equipment. A significant
portion of the raw land has been sold.

     We have not obtained a final feasibility study to support a determination
that the Sutter property contains proven or probable reserves of gold.

     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 $113,000
from January 1, 2003 through December 31, 2003. Property taxes for fiscal 2003
are estimated to be $20,000.

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

     PERMITS. The Amador County Board of Supervisors has 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.

     VISITORS 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. The visitors center is an exhibit of the pictures and
memorabilia from mining operations on other properties in the Sutter district in
the nineteenth century, and a guided tour of the

                                       23

<PAGE>



underground workings at the Lincoln Project. Revenues from this tourist
operation were $49,200 for the seven months ended December 31, 2002 and $41,200
and $105,400 in former fiscal years 2002 and 2001,respectively, and are included
in "motel, real estate and airport operations" in the consolidated statements of
operations included in this report. These revenues offset a majority of costs
for holding the Sutter properties.

MOLYBDENUM

     As a holder of royalty, reversionary and certain other interests in
properties located at Mt. Emmons near Crested Butte, Colorado, the Company and
USE 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 the Company and USE.

     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 the Company and USE. 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. The Company recognized $60,300 and $66,000
of revenues in fiscal 2001 and 2000 related to this royalty interest. Phelps
Dodge ceased making the quarterly installments in July 2001.

     The Agreement with AMAX also provides that the Company and USE receive
$2,000,000 if the Mt. Emmons properties are put into production and, in the
event AMAX sells its subsidiary, Mt. Emmons Mining Company, or its interest in
the molybdenum properties, the Company and USE are to receive 15% of the first
$25,000,000 received by AMAX.

     AMAX Inc. and its successor companies have sought to put the Mt. Emmons
molybdenum property into production for 20 years. Due to local opposition to
mining (the property is close to the Crested Butte, Colorado recreational resort
area) and AMAX's successors' failure to diligently pursue obtaining the permits
needed to start mining, we know of no plans at this time to put the property
into production.

     The Company and USE are in litigation with Phelps Dodge concerning the
Agreement and the properties, see "Item 3 - Legal Proceedings."

OIL AND GAS

     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.

MOTEL, REAL ESTATE AND AIRPORT OPERATIONS

     WYOMING. We own varying interests, with USE, in affiliated companies
engaged in real estate, and other commercial businesses. Activities of these and
other subsidiaries include ownership and management of a commercial office
building, townsite, motel, convenience store and other commercial facilities in
Ticaboo, Utah.

     The Company and USE 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 nonaffiliates and government

                                       24

<PAGE>



agencies; the second floor is occupied by the Company and USE. The property is
mortgaged to the WDEQ as security for future reclamation work on the Sheep
Mountain Crooks Gap uranium properties.

     The Company and USE also own a fixed base aircraft facility at the Riverton
Regional Airport, including a 10,000 square foot aircraft hangar and 7,000
square feet of associated offices and facilities. This facility is 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. The operation for
services to the public was shut down late in fiscal 2002.

     The Company and USE own three mountain sites covering 16 acres in Fremont
County, Wyoming. In Riverton, Wyoming, the Company owns four city lots and
improvements including two smaller office buildings.

     COLORADO. USECC owns 182 acres of undeveloped land in and near Gunnison,
Colorado.

     UTAH. 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.

     The motel and real estate 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 Utah laws and regulations
effect Plateau's operations.

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

     As of December 31, 2002, we have recorded estimated reclamation obligations
of $748,400. We anticipate that the reclamation efforts may not be required to
be started for many years, and that when started, paying for those reclamation
efforts will occur over several years. For further information on the
approximate reclamation costs (decommissioning, decontamination and other
reclamation efforts for which we are primarily responsible or potentially
responsible), see note J to the consolidated financial statements included with
this report.


                                       25

<PAGE>



     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. The Company does 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

     As of March 24, 2003, USE had 33 full-time employees. The Company uses
approximately 50 percent of the time of USE employees, and reimburses USE on a
cost reimbursement basis.

                              MINING CLAIM HOLDINGS

     TITLE. Nearly all the uranium mining properties held by the Company, USE,
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 $323,200 during fiscal 2003. RMG is
obligated for $109,600 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 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.


                                       26

<PAGE>



ITEM 3.  LEGAL PROCEEDINGS

     Material pending proceedings are summarized below. Other proceedings which
were pending in fiscal 2002 have been settled or otherwise finally resolved.

SHEEP MOUNTAIN PARTNERS ARBITRATION/LITIGATION

     In 1991, disputes arose between the Company, USE 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 the Company and USE on certain of their claims (including the claims for
reimbursement for standby maintenance expenses and profits denied SMP in Nukem's
trading of uranium), and in favor of Nukem/CRIC and against the Company and USE
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, the Company and USE 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
the Company's and USE'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 has ordered an accounting to identify all deliveries
of CIS uranium made directly or indirectly to Nukem and any Nukem affiliates; to
identify the ultimate disposition of all uranium purchased under the CIS
contracts; to identify the location, number of pounds, and associated cost of
uranium purchased under the CIS contracts at December 31, 2001, and to calculate
the profits realized from the sale of CIS uranium. At a status hearing held
before the U.S. District Court on August 23, 2002, the Court ordered the Special
Master to file his report on or before December 6, 2002 and a further hearing to
schedule arguments will be held on December 13, 2002. Because Nukem and its
affiliates failed to furnish certain documentation and information, the Special
Master filed a motion for extension of time to file his report. The Court
granted the motion and ordered the Special Master

                                       27

<PAGE>



to file the report by March 3, 2003. On February 9, 2003, the U.S. District
Court granted a second motion of the Special Master for an extension of time and
ordered the report to be filed by April 4, 2003 with a hearing on the report to
be held on April 11, 2003.

CONTOUR DEVELOPMENT LITIGATION

     On July 28, 1998, the Company and 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 the Company and USE in Gunnison, Colorado. The Contour
defendants asserted a counterclaim asking for payment of attorneys fee and
costs. The parties agreed to settle the litigation, with the Company and USE
receiving $25,000 cash and unencumbered title to two commercial real estate lots
covering seven acres in Gunnison, Colorado, and unencumbered title to five
development lots covering 175 acres north of Gunnison, Colorado. There is a
dispute as to the settlement terms and the parties are negotiating further on
those issues.

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

PHELPS DODGE LITIGATION

     The Company and USE were served with a lawsuit on June 19, 2002, filed in
the U.S. District Court of Colorado (Case No. 02-B-0796(PAC)) by Phelps Dodge
Corporation and its subsidiary, Mt. Emmons Mining Company (MEMCO), over
contractual obligations from USECC's agreement with Phelps Dodge's predecessor
companies, concerning a mining property in Colorado.

     The litigation stems from agreements that date back to 1974 when the
Company and USE leased mining claims on Mt. Emmons near Crested Butte, Colorado
to AMAX Inc., Phelps Dodge's predecessor company. The claims cover one of the
world's largest and richest deposits of molybdenum. AMAX reportedly spent over
$200 million on the acquisition, exploration and mine planning activities on the
Mt. Emmons properties. In counter and cross-claims filed in the U.S. District
Court of Colorado, USECC contends that Phelps Dodge and its subsidiaries
committed several breaches of contracts related to the agreements, including
breach of fiduciary obligations and covenants of good faith and fair dealing.
USECC also contends Phelps Dodge is guilty of violating federal and state
antitrust laws when it purchased Cyprus Amax Minerals Company (Cyprus Amax).

     The complaint filed by Phelps Dodge and MEMCO seeks a determination that
Phelps Dodge's acquisition of Cyprus Amax was not a sale. Under a 1986 agreement
between USECC and AMAX, if AMAX sold MEMCO or its interest in the mining
properties, the Company and USE would receive 15% (7.5% each) of the first $25
million of the purchase price ($3.75 million). In November 1993, Cyprus Minerals
Company acquired AMAX to form Cyprus Amax Minerals Co. ("Cyprus Amax"). USECC's
counter and cross-claims allege that in 1999, Phelps Dodge formed a wholly-owned
subsidiary CAV Corporation, for the purpose of purchasing the controlling
interest of Cyprus Amax and its subsidiaries (including MEMCO) at an estimated
value in cash and Phelps Dodge stock exceeding $1 billion and making Cyprus Amax
a subsidiary of Phelps Dodge. Therefore, USECC asserts the acquisition of Cyprus
Amax by Phelps Dodge was a sale of MEMCO and the properties that triggers the
obligation of Cyprus Amax to pay USECC the $3.75 million plus interest.

     A second counterclaim by USECC rejects the claim by Phelps Dodge that it
and its predecessors, Cyprus Amax and AMAX Inc., had mistakenly paid royalties
to USECC since January 1991. In 1984, AMAX began paying the cash equivalent
(half each to the Company and USE) of 700,000 pounds of molybdenum per year as
an advance royalty prior to the mine beginning production. In 1986, USECC agreed


                                       28

<PAGE>



to assist financially troubled AMAX and substantially reduced the annual advance
royalty to 50,000 pounds of molybdenum, so that AMAX could continue to hold the
properties and eventually bring them into production. AMAX, Cyprus Amax and
Phelps Dodge continued paying the annual advance royalties to the Company and
USE until the payment due in July 2001, when Phelps Dodge unilaterally ceased
making the payments. Phelps Dodge and MEMCO seek a declaratory judgment that the
advance royalty payment obligation has terminated, and further, that USECC
should repay $948,109 of royalties paid to USECC from 1993 through 2000, because
those payments were made by mistake.

     The third issue in the litigation is whether USECC must, under terms of a
1987 royalty deed, accept Phelps Dodge's and MEMCO's forth-coming conveyance of
the Mt. Emmons properties back to USECC, which properties now include a plant to
treat mine water, costing in excess of $1 million a year to operate in
compliance with State of Colorado regulations. Phelps Dodge's and MEMCO's
threatened reconveyance would require USECC to assume the operating costs of the
water treatment plant. USECC refuses to have the water treatment plant included
in the return of the properties because, the USECC counterclaim argues, the
properties must be in the same condition as when they were acquired by AMAX
before the water treatment plant was constructed by AMAX.

     The properties are comprised of 10 unpatented lode mining claims (for which
patents are expected to be issued by the BLM in the near future), and 770
unpatented lode mining claims, for a total of 15,600 acres.

     As added counterclaims, USECC seeks (i) damages for defendants' breach of
covenants of good faith and fair dealing; (ii) damages for defendants' failure
to develop the Mt. Emmons properties and not protecting USECC's rights as
revisionary owner of the mining rights to the properties, (iii) damages for
unjust enrichment of defendants; (iv) damages for breach of the defendants'
fiduciary duties owed to USECC as revisionary owner of the property, and for
neglecting to maintain the mining rights and interests in the properties; and
(v) damages relating to defendants' actions in violation of federal and Colorado
anti-trust and constraint of trade laws.

     USECC also seeks a declaratory judgment of its rights and liabilities under
the agreements affecting the Mt. Emmons properties; an injunction against
defendants prohibiting the conveyance of the properties to USECC with the water
treatment plan; an injunction against further waste of the properties by the
defendants; an injunction requiring defendants to divest their molybdenum
holdings (including the Mt. Emmons properties); and an injunction requiring
defendants to assist USECC in mining molybdenum from the Mt. Emmons properties.

     On August 2, 2002, Phelps Dodge and MEMCO filed a reply to the
counterclaims of USECC and Cyprus Amax filed an answer to the counterclaims and
third party complaint of USECC, generally denying the allegations of USECC. CAV
Corporation filed a motion for summary judgment seeking dismissal of USECC's
cross complaint and is pending. A Scheduling/Planning Conference in the case was
held on September 12, 2002 and since then, Phelps Dodge dismissed its claim that
USECC repay the advance royalty of $948,109 to Phelps Dodge. Discovery is
underway and certain motions are pending.

     Except for the parties' claims regarding payment of the $3.75 million due
on the sale of MEMCO, payments of royalties, and responsibility going forward
for payment of the operating costs of the water treatment plan, the financial
impact to the Company and USE of favorable or unfavorable outcomes in the
litigation presently is not determinable.



                                       29

<PAGE>



     SUTTER PROPERTY LITIGATION

     On or about March 13, 2002, the Company's affiliate, Sutter Gold Mining
Company ("SGMC"), was served with a complaint filed in the Superior Court of
Amador County, California, Case Number 02CU2051. The litigation involved a
mining lease entered into in 1989. The claim was settled by issuing the
plaintiffs 20,000 shares of restricted common stock in USE.

     ROCKY MOUNTAIN GAS LITIGATION

     On or about April 1, 2002, the Company's affiliate, Rocky Mountain Gas,
Inc. ("RMG") was served with a Second Amended Complaint wherein the Northern
Plains Resource Council had filed suit in the U.S. District Court of Montana,
Billings Division in Case No. CV-01-96-BLG-RWA, against the United States Bureau
of Land Management ("BLM"), RMG and certain of its affiliates (including the
Company and USE), and joined some 20 other defendants. The plaintiff is seeking
to cancel oil and gas leases issued to RMG et al by the BLM in the Powder River
Basin of Montana and for other relief.

     The basis for the complaint appears to be that the BLM's regulations
require the BLM to respond to objections filed by persons owning land or lease
rights adjacent to the coalbed properties which the BLM is offering to lease to
the public. The argument of plaintiff appears to be that if objections are not
responded to by the BLM prior to issuing CBM leases, the leases are invalid.
Based on this argument, the plaintiff appears to have been successful in forcing
cancellation of some CBM leases granted to others in the Powder River Basin of
Montana, because the BLM did not respond to some objecting adjacent landowners.
However, all of the BLM leases in Montana held by RMG (none are held by the
Company and USE in their own corporate names) are at least four years old, and
there is no record of any objections being made to the issue of those leases.

     Based on filings in the case to date, it appears that the BLM is taking the
initiative in responding to the plaintiff. We believe RMG's leases were validly
issued in compliance with BLM procedures, and do not believe the plaintiff's
lawsuit will adversely affect any of RMG's Montana BLM leases. However, RMG
holds BLM leases on 88,409 gross acres in Montana (in the Castle Rock and Kirby
prospects), which equals 31.5% of RMG's total coalbed methane leases. An adverse
court ruling to the effect that all or a substantial portion of the BLM leases
in Montana are invalid could materially and adversely impact RMG. No trial date
has been set.

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

     On December 16, 2002, the annual meeting of shareholders was held and the
only issue considered was the re-election of the three directors: John L.
Larsen, Daniel P. Svilar and Michael D. Zeickl. These directors were reelected
for a term expiring at the next succeeding annual meeting and until their
successors are duly elected or appointed and qualified. With respect to the
re-election of the three directors, the votes cast were as follows:

     Name of Director               For               Abstain
     ----------------               ---               -------

     John L. Larsen               15,547,587           48,970
     Daniel P. Svilar             15,547,587           48,970
     Michael D. Zwickl            15,546,287           50,270


                                       30

<PAGE>



                                     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
                                                        ----        ---
     Transition period ended December 31, 2002
     -----------------------------------------
          Month Ended 12/31/02                         $ 0.65     $ 0.45
          Second quarter ended 11/30/02                  0.72       0.45
          First quarter ended 8/31/02                    0.71       0.26

     Fiscal year ended May 31, 2002
     ------------------------------
          Fourth quarter ended 5/31/02                 $ 0.55     $ 0.37
          Third quarter ended 2/29/02                    0.60       0.33
          Second quarter ended 11/30/01                  0.50       0.20
          First quarter ended 8/31/01                    0.45       0.25

     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

(b) Holders.

     (b)(1) At December 31, 2002 there were 1,745 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 seven months ended December 31, 2002, Crested did not issue any
shares of its Common Stock to its outside directors for services rendered.


                                       31

<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA.

         The following tables show certain selected historical financial data
for Crested for the four years ended May 31, 2002 and the seven months ended
December 31, 2002. The selected financial data is derived from and should be
read with the financial statements for Crested included in this Report.

<TABLE>
<CAPTION>
                             December 31,                                                 May 31,
                       ----------------------------    -----------------------------------------------------------------------------
                            2002           2001            2002             2001           2000            1999             1998
                            ----           ----            ----             ----           ----            ----             ----
<S>                    <C>             <C>             <C>             <C>             <C>             <C>             <C>
Current assets         $      3,300    $      3,300    $      3,300    $      3,200    $      3,000    $     46,600    $     32,000
Current liabilities       8,553,900       6,397,400       7,560,700       5,740,200      10,230,200       7,015,200       6,545,100
Working capital          (8,550,600)     (6,394,100)     (7,557,400)     (5,737,000)    (10,227,200)     (6,968,600)     (6,513,100)
Total assets              5,889,900       5,763,200       6,054,100       6,221,100       6,495,800       4,742,200       9,431,900
Long-term
  obligations(1)            964,000         964,000         964,000         964,000         964,000         725,900         725,900
Shareholders'
  equity/(deficit)       (3,638,100)     (1,608,300)     (2,480,700)       (493,200)     (4,742,300)     (1,822,500)        117,200
</TABLE>

(1) Includes $748,400 of accrued reclamation costs on uranium properties at
December 31, 2002 and 2001; May 31, 2002, 2001 and 2000, respectively; and
$725,900 at May 31, 1999 and 1998, respectively.

<TABLE>
<CAPTION>
                                   December 31,                                   For Years Ended May 31,
                           ----------------------------   -------------------------------------------------------------------------
                               2002           2001           2002           2001            2000            1999           1998
                               ----           ----           ----           ----            ----            ----           ----
<S>                        <C>             <C>            <C>            <C>            <C>            <C>             <C>
Revenues                   $    --         $   --         $    --        $ 3,891,500    $    73,100    $     86,800    $    270,800
Income (loss) before
   equity in (loss)
   of affiliates
   and income taxes           (102,400)       (117,000)      (175,000)     3,702,400       (194,600)       (786,100)         58,500
Equity in (loss) gain
   of affiliates            (1,055,000)       (998,200)    (1,823,900)    (2,496,700)    (5,085,200)     (1,165,600)      1,151,000

Net income (loss)          $(1,157,400)    $(1,115,200)   $(1,998,900)   $ 1,205,700    $(5,279,800)   $ (1,951,700)   $  1,209,500

Net income (loss)
   per share               $     (0.07)    $     (0.07)   $     (0.12)   $       .12    $      (.51)   $       (.19)   $        .12

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


                                       32

<PAGE>



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.

CRITICAL ACCOUNTING POLICIES

     OIL AND GAS PRODUCING ACTIVITIES

     RMG 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, will be amortized on the
unit-of-production method using estimates of proved reserves. Investments in
unproved properties and major exploration and development projects are not
amortized until proved reserves associated with the projects can be determined.
Unproved properties are assessed periodically to ascertain whether impairment
has occurred. Such assessments could cause the Company to reduce the carrying
values of the properties.

     In addition, the capitalized costs are subject to a "ceiling test," which
basically limits such costs to the aggregate of the "estimated present
value,"discounted at a 10-percent interest rate of future net revenues from
proved reserves, based on current economic and operating conditions, plus the
lower of cost or fair market value of unproved properties.

     Our discounted present value of our proved natural gas reserves is a major
component of the ceiling calculation and requires many subjective judgments.
Estimates of reserves are forecasts based on engineering and geological
analyses. Different reserve engineers may reach different conclusions as to
estimated quantities of natural gas reserves based on the same information. Our
reserve estimates are prepared by independent consultants. The passage of time
provides more qualitative information regarding reserve estimates, and revisions
are made to prior estimates based on updated information. However, there can be
no assurance that more significant revisions will not be necessary in the
future. Significant downward revisions could result in a full cost write-down.
In addition to the impact on calculation of the ceiling test, estimates of
proved reserves are also a major component of the calculation of depletion.

     While the quantities of proved reserves require substantial judgment, the
associated price of natural gas reserves that are included in the discounted
present value of our reserves are objectively determined. The ceiling
calculation requires prices and costs in effect as of the last day of the
accounting period are generally held constant for the life of the properties. As
a result, the present value is not necessarily an indication of the fair value
of the reserves. Natural gas prices have historically been volatile and the
prevailing prices at any given time may not reflect our Partnership's or the
industry's forecast of future prices.

RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." The statement requires entities
to record the fair value of a liability for legal obligations associated with
the retirement of obligations of tangible long-lived assets in the period in
which it is incurred. When the liability is initially recorded, the entity
increases the carrying amount of the related

                                       33

<PAGE>



long-lived asset. Accretion of the liability is recognized each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier
application encouraged. The Company is evaluating the impact of SFAS No. 143 and
plans on implementing the pronouncement effective January 1, 2003.

     The Company has reviewed other current outstanding statements from the
Financial Accounting Standards Board and does not believe that any of those
statements will have a material adverse affect on the financial statements of
the Company when adopted.

LIQUIDITY AND CAPITAL RESOURCES

     During its regular meeting on December 16, 2002, the Board of Directors
unanimously voted to change the Company's year end from May 31 to December 31
effective beginning December 31, 2002. This decision was made primarily as a
result of the Company entering into the Coalbed Methane/Natural Gas industry.
Many business relationships in the natural gas industry are based upon
partnerships which by statute have December 31, year ends. Changing the
Company's year end to December 31 will therefore simplify the accounting and
reporting responsibilities of the Company. Additionally, many indexes and
valuations in the natural gas industry are calculated at December 31. As a
result of the decision to change the year end to December 31, the Company has
presented Balance Sheets as of December 31, 2002, May 31, 2002 and 2001,
Statements of Operations as of the seven months ended December 31, 2002 and the
fiscal years ended May 31, 2002, 2001 and 2000 and Statement of Cash Flows as of
the seven months ended December 31, 2002 and the fiscal years ended May 31,
2002, 2001 and 2000. We also have included comparative results of operations for
the periods for the seven months ended December 31, 2002 and 2001 in Footnote K,
Transition Period Comparative Data.

     As of December 31, 2002, we had a working capital deficit of $8,550,600 as
compared to a working capital deficit of $7,557,400 as of May 31, 2002. This
increase in the working capital deficit of $993,200 was as a result of the
Company's parent company, U.S. Energy Corp ("USE"), funding the Company's
obligations. As of the seven months ended December 31, 2002, the Company had
debt to USE of $8,553,900.

     Operating Activities and Investing Activities during the seven months ended
December 31, 2002 consumed $102,300 and $892,900 respectively while Financing
Activities provided $993,200. The consumption of cash in operating activities
was as a result of the payment of professional services relating to reporting to
government agencies and the Company's portion of the funding of the employee
retirement plan which is shared on a 50 - 50 basis with USE.

     Investing activities consumed $892,900 during the seven months ended
December 31, 2002 as we continue to invest in USECB Joint Venture ("USECB" also
referred to as "USECC" above) which is the operating company that the Company
and USE run all operations through.

     The capital to invest in USECB and fund operating activities was provided
by an increase in the amount due to USE of $993,200. At December 31, 2002, the
Company owed USE $8,553,900 as a result of USE funding the Company's obligations
for the past several years.

CAPITAL RESOURCES

     The source of the Company's capital resources is the continued reliance on
USE to fund it's portion of costs associated with operations of USECB and the
Company's general and administrative expenses. The Company also has a small
amount of cash on hand, $3,300, as well as a line of credit with a commercial
bank.


                                       34

<PAGE>



     The Company, jointly with USE, has a $750,000 line of credit with a
commercial bank. The line of credit is secured by certain real estate holdings
and equipment jointly owned with USE. At December 31, 2002, the full line of
credit was available to the Company and USE. The line of credit is used for
short term working capital needs associated with operations.

     The capital resources at December 31, 2002, 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 requirements for our capital resources during 2003 are expected to be;
1) the development of coalbed methane properties; 2) the cost of maintaining our
uranium properties; 3) the SGMC gold properties holding costs, and 4) general
and administrative costs. Should USE elect not to fund our portion of our joint
operations, our participation in the projects with USE 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 to USE 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 costs during the seven months ended December 31, 2002
for the development of RMG's coalbed methane properties was 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
do not participate. Should we be required to fund any 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 future production
revenues until our costs are recovered before the non-participating parties
begin to receive production monies.

                         MAINTAINING URANIUM PROPERTIES
                         ------------------------------

     SMP URANIUM PROPERTIES

     The care and maintenance costs associated with the Sheep Mountain uranium
mineral properties, of which the Company is responsible for 50%, were
approximately $28,000 per month during the seven months ended December 31, 2002,
which was down approximately $5,000 per month from monthly holding costs during
the fiscal year ended May 31, 2002. We continue to implement cost cutting
measures to reduce the holding cost while at the same time preserve the
property. We were obligated to reclaim the GMIX plant which was used to extract
uranium from mine waters. We completed the reclamation during fiscal 2002. A
final reclamation completion report has been filed with the government
regulatory agency but it has not yet been accepted as final. No additional
reclamation cost is anticipated to occur with relation to the GMIX plant. The
Company and USE continue to perform reclamation work on the SMP properties. It
is anticipated that a total of $50,000 in reclamation costs will be conducted
during 2003.

     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 the fiscal year
ended May 31, 2002, we operated all of these entities. A decision was made to
lease out all but the motel operations during the

                                       35

<PAGE>



fiscal year ended May 31, 2002. This decision relieved us of the obligation and
expense of employees and inventory.

     Additionally, Plateau owns and maintains the Tony M uranium mine and
Shootaring Canyon Uranium Mill ("Shootaring"). We have submitted a reclamation
plan to the Nuclear Regulatory Commission, ("NRC") to reclaim the Shootaring
mill. If accepted, the Company and USE plan to begin reclamation during 2003. As
of December 31, 2002 Plateau had a cash deposit of $9,834,700 which is dedicated
to the funding of this reclamation obligation. This amount is in excess of the
proposed reclamation plan which is between $5 and $6 million depending on the
amount of work that is required to be performed.

     SUTTER GOLD MINING COMPANY ("SGMC")PROPERTIES

     Due to the depressed market price of gold, the further exploration and
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 leased 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 equipment and properties.

     During December 2002, SGMC entered into a contract to sell a piece of real
estate that is no longer needed for the construction of a mill. The sale of this
property will help in the funding of the costs related to holding the SGMC
property. SGMC has modified its proposed mine and mill plan to construct the
mill on other property that SGMC owns.

     The market price for gold increased to $365 as of January 31, 2003. As a
result of a stronger market for gold, there has been interest in the SGMC
properties. The Company and USE have engaged a consulting firm to assist in
evaluating proposals from third party companies to either purchase the SGMC
properties or joint venture the further exploration and development of those
properties. Several companies have visited the properties and expressed an
interest in participating in some way on the development of the properties.
Should the Company enter into a joint operating agreement, it currently is
obligated to fund 11% of the costs and expenses.

                                  DEBT PAYMENTS
                                  -------------

     As a result of USE funding our obligations, we are indebted to USE in the
amount of $8,553,900 as of December 31, 2002. During fiscal 2001, we negotiated
with USE on the retirement of the debt. 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, 2000 are closed after audit by the IRS. There
were no adjustments to taxable income or income tax payable as a result of these
examinations.

                                RECLAMATION COSTS
                                -----------------

     During 2003, it is projected that the Company and USE will expend $50,000
on the reclamation of the SMP properties. The balance of the reclamation of
these properties will be completed over a period of years into the future. The
reclamation costs of the Sheep Mountain properties are $1,496,800. One half of
that amount 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.

                                       36

<PAGE>



     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 of SGMC properties as of December 31, 2002 was $27,800.
This amount was set by government regulatory agencies in conjunction with the
Company. The amount of reclamation on these properties is small due to the
minimum amount of surface disturbance that has occurred to date. The SGMC
reclamation obligation is bonded with a cash bond.

RESULTS OF OPERATIONS

SEVEN MONTHS ENDED DECEMBER 31, 2002 COMPARED TO
THE SEVEN MONTHS ENDED DECEMBER 31, 2001
------------------------------------------------

     As can be seen in Note K, the Company had no revenues during the seven
month period ended December 31, 2002 and 2001.

     Costs and expenses during the seven month period ended December 31, 2002
decreased by $14,600 to $102,400 from the amount of costs and expenses incurred
during the seven month period ended December 31, 2001. This decrease was
primarily as a result of reductions in overhead relative to government filings
and the funding of the USE Employee Stock Option Plan for the employees that the
Company uses to conduct its business. These reductions in costs and expenses was
off set by a small increase in contract services.

     During the seven months ended December 31, 2002 the Company recognized an
equity loss from affiliates of $1,055,000. This equity loss came from USECC and
RMG in the amounts of $897,300 and $157,700 respectively. The increase during
the seven months ended December 31, 2002 of $56,800 from the equity loss
recognized during the seven months ended December 31, 2001 is as a result of an
increase of the work completed in the natural gas business.

     The Company recognized a loss of $1,157,400 for the seven months ended
December 31, 2002 as compared to the loss of $1,115,200 for the seven months
ended December 31, 2001 for the reasons mentioned above.

FISCAL 2002 COMPARED TO FISCAL 2001
-----------------------------------

     The Company had no revenues during the fiscal year ended May 31, 2002.
Mineral Revenues decreased $60,300 from revenues for the previous year. This
decrease was a result of Phelps Dodge suspending the payment of advance
royalties on the Mt. Emmons molybdenum property. The Company and USE have
initiated legal action which management believes will cause Phelps Dodge to
reinstate the advance royalty payments.

     During fiscal 2001, the Company recognized $3,566,400 in litigation
settlement revenues. These revenues came as a result of a settlement of
litigation with Kennecott Energy on the Green Mountain Mining Venture. Of this
amount, $2,000,000 was a non-cash recognition of a deferred purchase option for
cash received in a prior period. No litigation settlement revenues were
recognized during fiscal 2002.

     Costs and expenses decreased by $14,100 during fiscal 2002 from fiscal
2001. This decrease was as a result of reductions in the Company and USE's
workforce. The reduced workforce reduced the Company's obligation to fund
retirement benefits. The Company recorded an equity loss from USECC and RMG in
the amounts of $1,823,900 and $2,496,700 for fiscal 2002 and 2001, respectively.

     Operations for fiscal 2002, resulted in a loss of $1,998,800 compared to
net earnings of $1,205,700 for fiscal 2001.

                                       37

<PAGE>



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
during fiscal 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 during fiscal 2001, 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.

FUTURE OPERATIONS
-----------------

     We generated losses during the seven months ended December 31, 2002 and the
fiscal years ended May 31, 2002 and 2001, as a result of holding costs and
permitting activities in the mineral properties, impairments of mineral
properties and costs associated with ongoing litigation. 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 properties. We will continue to
rely on USE for sufficient capital resources to maintain our mineral properties
on a standby basis through 2003. Development of our 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 properties.

     At December 31, 2002, we are committed to be in the coalbed methane
business well into the future. We are also evaluating our commitment to the gold
and uranium properties and at what time the price for gold and uranium may
recover. Decisions to liquidate part or all of the Company's gold and uranium
holdings are being considered.

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 higher natural
prices.

                                       38

<PAGE>



     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 exploration of our gold and uranium
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 2003.

ITEM 8.  FINANCIAL STATEMENTS

     Financial statements meeting the requirements of Regulation S-X for the
Company follow immediately. Please note that the financial information contained
in these financial statements for the year ended May 31, 2000 was audited by
Arthur Andersen LLP who has ceased operations. A copy of Arthur Andersen's
previously issued audit report, dated September 11, 2000 is included in this
filing. This report has not been revised. This report refers to financial
information for the two years ended May 31, 2000. However, only the information
for the year ended May 31, 2000 is included in the financial statements filed
with this report.


                                       39

<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To Crested Corp.:

We have audited the accompanying balance sheets of CRESTED CORP. (a Colorado
corporation) as of December 31, 2002, May 31, 2002 and May 31, 2001 and the
related statements of operations, shareholders' deficit and cash flows for the
seven months ended December 31, 2002 and the fiscal years ended May 31, 2002 and
2001. 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. The financial statements of Crested Corp. as of
May 31, 2000, were audited by other auditors who have ceased operations. Those
auditors expressed a qualified opinion on those financial statements as to the
ability of the Company to continue as a going concern in their report dated
September 11, 2000.

We conducted our audits 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 audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements as of December 31, 2002 and May 31,
2002 and May 31, 2001 present fairly, in all material respects, the financial
position of Crested Corp. as of December 31, 2002, May 31, 2002 and May 31, 2001
and the results of their operations and their cash flows for the seven months
ended December 31, 2002 and each of the two years in the periods ending May 31,
2002 and 2001, 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. In
addition, the Company has a working capital deficit of approximately $8,550,600
as of December 31, 2002, 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,
February 28, 2003


                                       40

<PAGE>



     The report that appears below is a copy of the report issued by the
Company's previous independent auditor, Arthur Andersen LLP. That firm has
discontinued performing auditing and accounting services.



                    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 the year 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 the year 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


                                       41

<PAGE>



                                  CRESTED CORP.
                                  BALANCE SHEET
                                     ASSETS

<TABLE>
<CAPTION>
                                                         December 31,                May 31,
                                                       --------------    ------------------------------
                                                            2002             2002               2001
                                                       --------------    ------------      ------------
CURRENT ASSETS:
<S>                                                    <C>               <C>               <C>
   Cash and cash equivalents                           $      3,300      $      3,300      $      3,200

INVESTMENTS IN AFFILIATES                                 5,876,600         6,038,700         6,205,800

PROPERTIES AND EQUIPMENT:
   Equipment                                                 10,000            10,000            10,000
   Developed oil properties, full cost method               886,800           886,800           886,800
                                                       ------------      ------------      ------------
                                                            896,800           896,800           896,800
   Less accumulated depreciation,
     depletion and amortization                            (886,800)         (886,800)         (886,800)
                                                       ------------      ------------      ------------
                                                             10,000            10,000            10,000
OTHER ASSETS:
     Other assets                                              --               2,100             2,100
                                                       ------------      ------------      ------------
                                                       $  5,889,900      $  6,054,100      $  6,221,100
                                                       ============      ============      ============

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
     Debt to affiliate                                 $  8,553,900      $  7,560,700      $  5,740,200

COMMITMENT TO FUND
    EQUITY INVESTEES                                        215,600           215,600           215,600

RECLAMATION LIABILITY                                       748,400           748,400           748,400

COMMITMENTS AND
   CONTINGENCIES (Note J)

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

SHAREHOLDERS' DEFICIT
   Preferred stock, $.001 par value;
     100,000 shares authorized;
     none issued or outstanding                                --                --                --
   Common stock, $.001 par value;
     20,000,000 shares authorized;
     17,099,276, 17,099,276 and
     17,073,330 respectively
      shares issued and outstanding                          17,200            17,200            17,200
   Additional paid-in capital                            11,795,200        11,795,200        11,783,800
   Accumulated deficit                                  (15,450,500)      (14,293,100)      (12,294,200)
                                                       ------------      ------------      ------------
       Total shareholders' deficit                       (3,638,100)       (2,480,700)         (493,200)
                                                       ------------      ------------      ------------
                                                       $  5,889,900      $  6,054,100      $  6,221,100
                                                       ============      ============      ============
</TABLE>


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


                                       42

<PAGE>



                                  CRESTED CORP.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                  Seven Months Ended
                                    December 31,                        Year Ended May 31,
                                    ------------        ------------------------------------------------
                                        2002                2002              2001              2000
                                    ------------        ------------      ------------      ------------
REVENUES:
<S>                                 <C>                 <C>               <C>               <C>
   Mineral revenues                 $       --          $       --        $     60,300      $     66,000
   Interest                                 --                  --                 200             2,100
   Litigation settlements, net              --                  --           3,566,400              --
   Management fees and other                --                  --             264,600             5,000
                                            --                  --           3,891,500            73,100

COSTS AND EXPENSES:
   General and administrative            102,400             175,000           189,100           267,700
                                    ------------        ------------      ------------      ------------
INCOME (LOSS) BEFORE
   EQUITY IN LOSS OF AFFILIATES
   AND INCOME TAXES                     (102,400)           (175,000)        3,702,400          (194,600)

EQUITY IN LOSS OF AFFILIATES          (1,055,000)         (1,823,900)       (2,496,700)       (5,085,200)
                                    ------------        ------------      ------------      ------------
INCOME (LOSS) BEFORE
   INCOME TAXES                       (1,157,400)         (1,998,900)        1,205,700        (5,279,800)

INCOME TAXES                                --                  --                --                --
                                    ------------        ------------      ------------      ------------
NET INCOME (LOSS)                   $ (1,157,400)       $ (1,998,900)     $  1,205,700      $ (5,279,800)
                                    ============        ============      ============      ============

NET INCOME (LOSS)
   PER SHARE, BASIC
   AND DILUTED                      $      (0.07)       $       (.12)     $        .12      $       (.51)
                                    ============        ============      ============      ============
BASIC WEIGHTED AVERAGE
   SHARES OUTSTANDING                 17,099,276          17,075,320        10,448,505        10,361,149
                                    ============        ============      ============      ============
DILUTED WEIGHTED AVERAGE
   SHARES OUTSTANDING                 17,099,276          17,075,320        10,506,499        10,361,149
                                    ============        ============      ============      ============
</TABLE>

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


                                       43

<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, 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)

Issuance of stock to directors           25,946            --              11,400             --              11,400

Net loss                                   --              --                --         (1,998,900)       (1,998,900)
                                     ----------      ----------      ------------     ------------      ------------
Balance May 31, 2002                 17,099,276          17,200        11,795,200      (14,293,100)       (2,480,700)

Net loss                                   --              --                --         (1,157,400)       (1,157,400)
                                     ----------      ----------      ------------     ------------      ------------
Balance December 31, 2002            17,099,276      $   17,200      $ 11,795,200     $(15,450,500)     $ (3,638,100)
                                     ==========      ==========      ============     ============      ============
</TABLE>


Shareholders' Deficit at December 31, 2002 and May 31 2002 does not include
15,000 shares currently issued but forfeitable if certain conditions are not met
by the recipients.


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


                                       44

<PAGE>



                                  CRESTED CORP.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                      Seven Months Ended
                                                          December 31,                  Year Ended May 31,
                                                          ------------     ---------------------------------------------
                                                              2002            2002             2001             2000
                                                          -----------      -----------      -----------      -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                       <C>              <C>              <C>              <C>
   Net income (loss)                                      $(1,157,400)     $(1,998,900)     $ 1,205,700      $(5,279,800)
   Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
       Equity in loss of affiliates                         1,055,000        1,823,900        2,496,700        5,085,200

       Deferred GMMV purchase option                             --               --         (2,000,000)            --
       Non-cash compensation                                     --             11,400            9,600           12,800
       Net changes in assets and liabilities                    2,100             --               --             69,500
                                                          -----------      -----------      -----------      -----------
NET CASH PROVIDED BY (USED IN)
    OPERATING ACTIVITIES                                     (100,300)        (163,600)       1,712,000         (112,300)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Investments in affiliates                                 (892,900)      (1,656,800)      (2,360,300)      (1,253,400)
   Proceeds from sale of property and equipment                  --               --            138,500             --
                                                          -----------      -----------      -----------      -----------
NET CASH (USED IN)
    INVESTING ACTIVITIES                                     (892,900)      (1,656,800)      (2,221,800)      (1,253,400)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in long-term debt to affiliates                   993,200        1,820,500          510,000        1,323,700
                                                          -----------      -----------      -----------      -----------
NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                                          --                100              200          (42,000)

CASH AND CASH EQUIVALENTS,
   Beginning of period                                          3,300            3,200            3,000           45,000
                                                          -----------      -----------      -----------      -----------
CASH AND CASH EQUIVALENTS,
   End of period                                          $     3,300      $     3,300      $     3,200      $     3,000
                                                          ===========      ===========      ===========      ===========

SUPPLEMENTAL DISCLOSURES:
   Interest paid                                          $      --        $      --        $      --        $      --
                                                          ===========      ===========      ===========      ===========
   Income taxes paid                                      $      --        $      --        $      --        $      --
                                                          ===========      ===========      ===========      ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:

   Issuance of common stock to directors
     for services rendered                                $      --        $    11,400      $     9,600      $    12,800
                                                          ===========      ===========      ===========      ===========
   Issuance of stock for affiliate debt                   $      --        $      --        $ 3,000,000      $      --
                                                          ===========      ===========      ===========      ===========
</TABLE>

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


                                       45

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002


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/or methane gas. Principal
mineral interests are in coalbed methane, uranium, gold and molybdenum. Only
coalbed methane is producing at the present time. Currently, the Company also
holds various real estate properties. These properties are managed through a non
consolidated 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 J). 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 40.4% of RMG as of December 31, 2002.

     The Company has generated significant net losses prior to and including the
seven months ended December 31, 2002 resulting in an accumulated deficit of
$15,450,500 at December 31, 2002. The Company also has a working capital deficit
of $8,550,600 at December 31, 2002 that includes $8,553,900 due to USE. At
year-end, the Company does not have sufficient cash or cash flows from
operations 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 has certain assets that are unencumbered
that could be sold to generate cash. However, there can be no assurances that
any funds generated from the sale of assets will be sufficient to meet the
Company's obligations. The Company continues to believe that it will ultimately
receive 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.

B.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INVESTMENTS

     Investments in joint ventures and 20% to 50% owned companies are accounted
for using the equity method. The Company accounts for its 4.2% investment in USE
also using the equity method because the Company is controlled by USE. The
Company's investment in SGMC, RMG and USECC are accounted for using the equity
method (see Note E).

CASH EQUIVALENTS

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


                                       46

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


PROPERTIES AND EQUIPMENT

     The Company capitalizes all costs related to the acquisition, exploration
and development of mineral properties. Capitalized costs are charged to
operations when the properties are determined to have declined in value or have
been abandoned. The Company currently has no capitalized costs associated with
mineral properties.

     Depreciation of vehicles, machinery and equipment was provided by the
straight-line method over the estimated useful lives of the related assets. All
such vehicles, machinery and equipment have been fully depreciated.

MARKETABLE EQUITY SECURITIES

     The Company accounts for marketable equity securities as available-for-sale
securities. Available-for- sale securities are measured at fair market value,
with net unrealized holding gains and losses excluded from earnings and reported
as a separate component of comprehensive income until realized.

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 December 31, 2002,
management believes no impairment of the Company's long-lived assets exists.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amount of cash equivalents and other current assets
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. It is not practicable to
determine fair value of debt to affiliate carried at $8,553,900 and $7,560,700
respectively at December 31 and May 31, 2002.

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.


                                       47

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


     Revenues from uranium sales are recognized upon delivery. Revenues are
recognized from the rental of certain assets ratably over the related lease
terms. 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.

RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." The statement requires entities
to record the fair value of a liability for legal obligations associated with
the retirement of obligations of tangible long-lived assets in the period in
which it is incurred. When the liability is initially recorded, the entity
increases the carrying amount of the related

                                       48

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


long-lived asset. Accretion of the liability is recognized each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier
application encouraged. The Company is evaluating the impact of SFAS No. 143 and
plans on implementing the pronouncement effective January 1, 2003.

     The Company has reviewed other current outstanding statements from the
Financial Accounting Standards Board and does not believe that any of those
statements will have a material adverse affect on the financial statements of
the Company when adopted.

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. As of December 31,
2002 and May 31, 2002 and 2001, the Board of Directors of USE contributed
43,867, 70,075 and 53,837 shares of USE stock to the ESOP at prices of $3.08,
$3.29 and $5.35 per share, respectively. The Company is responsible for one-half
of the value of these contributions or $67,600, $118,400 and $144,000 at
December 31, 2002, May 31, 2002 and 2001, respectively.

D.   INVESTMENTS IN AFFILIATES:

     The Company's investments in affiliates are as follows:

<TABLE>
<CAPTION>
                                                            December 31,                At May 31,
                                                            ------------      ------------------------------
                                               Ownership         2002             2002              2001
                                               ---------         ----             ----              ----

<S>                                             <C>         <C>               <C>                <C>
     Rocky Mountain Gas, Inc. ("RMG")             40.4%     $    447,500      $    605,200       $  790,100
     USECC                                        50.0%        5,422,400         5,426,800        5,409,000
     SGMC                                          3.2%          (85,500)          (85,500)         (85,500)
     YSFC                                         13.2%         (130,100)         (130,100)        (130,100)
     USE                                           4.2%           --              --                --
     Others                                     various            6,700             6,700           14,600
</TABLE>

     $5,876,600, $6,038,700 and $6,205,800 of these investments are presented as
investments in affiliates in the accompanying balance sheets as of December 31,
2002, May 31, 2002 and 2001, respectively. A liability of $215,600 has been
presented as a commitment to fund equity investees as of December 31, 2002 and
May 31, 2002 and 2001 for these investments in affiliates that the Company must
fund.


                                       49

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


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

<TABLE>
<CAPTION>
                   Seven Months Ended
                      December 31,                     Year Ended May 31,
                      ------------       ----------------------------------------------
                         2002                2002             2001              2000
                      ------------       ------------     -----------      ------------

<S>                  <C>                 <C>              <C>              <C>
     USECC           $  (897,300)        $(1,639,000)     $(2,210,600)     $(3,666,600)
     SGMC                   --                  --               --               --
     YSFC                   --                  --               --               --
     RMG                (157,700)           (184,900)        (286,100)      (1,270,900)
     USE                    --                  --               --           (147,700)
                     -----------         -----------      -----------      -----------
                     $(1,055,000)        $(1,823,900)     $(2,496,700)     $(5,085,200)
                     ===========         ===========      ===========      ===========
</TABLE>


                       CONDENSED COMBINED BALANCE SHEETS:
                                EQUITY INVESTEES

<TABLE>
<CAPTION>
                                       Seven Months Ended
                                          December 31,              Year Ended May 31,
                                          ------------        ---------------------------
                                               2002              2002             2001
                                          ------------        -----------     -----------

<S>                                        <C>                <C>              <C>
     Current assets                        $20,112,900        $18,601,900     $15,782,300
     Non-current assets                     16,619,900         22,256,700      18,850,100
                                           -----------        -----------     -----------
                                           $36,732,800        $40,858,600     $34,632,400
                                           ===========        ===========     ===========

     Current liabilities                   $ 5,872,700        $ 4,787,300     $ 6,050,100
     Reclamation and other liabilities      13,319,600         12,812,700      14,168,500
     Excess in assets                       17,540,500         23,258,600      14,413,800
                                           -----------        -----------     -----------
                                           $36,732,800        $40,858,600     $34,632,400
                                           ===========        ===========     ===========
</TABLE>


                  CONDENSED COMBINED STATEMENTS OF OPERATIONS:
                                EQUITY INVESTEES

<TABLE>
<CAPTION>
                                Seven Months Ended
                                   December 31,                     Year Ended May 31,
                                   ------------      ------------------------------------------------
                                      2002               2002              2001              2000
                                   ------------      ------------      ------------      ------------

<S>                                <C>               <C>               <C>               <C>
     Revenues                      $    563,500      $  1,250,500      $  8,249,900      $  5,187,000
     Costs and expenses              (3,939,200)       (8,565,500)      (10,794,400)      (16,310,200)
     Other income and expenses         (309,600)          682,500           242,600           213,500
                                   ------------      ------------      ------------      ------------
     Net loss                      $ (3,685,300)     $ (6,632,500)     $ (2,301,900)     $(10,909,700)
                                   ============      ============      ============      ============
</TABLE>

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

                                       50

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


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 shut down 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.)

SMP

     During fiscal 1989, USE and Crested, through USECC, entered into an
agreement to sell a 50% interest in their Sheep Mountain properties to a
subsidiary of Nukem Inc., 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 12 years, the Company has expensed all of its costs related to SMP and has
no carrying value of its investment in SMP at December 31, 2002 and May 31,
2002. No amounts attributable to SMP for fiscal 2002, 2001 and 2000 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 December 31, 2002.

     Amax and later 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 $-0-, $-0-, $60,300 and $66,000 of revenue from the advance royalty
payments during the seven months ended December 31, 2002 and the fiscal years
ended May 31, 2002, 2001 and 2000

                                       51

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


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.

     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 occurred when Phelps Dodge purchased Cyprus Amax. Phelps Dodge
filed suit against the Company and U.S. Energy Corp. on June 19, 2002 regarding
these matters. Please see Note J for a description of the lawsuit and
counterclaim.

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 has not generated any significant revenue and has no assurance of
future revenue. All acquisition and mine development costs since inception were
capitalized. Due to the decline in the spot price for gold and the lack of
adequate financing, SGMC has put the mine on a shut down status and has written
down the associated assets.

     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.

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
December 31, 2002, Plateau had a cash security in the amount of $9.8 million to
cover reclamation and annual licensing 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/natural 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.

                                       52

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


RMG is owned 40.4% by the Company and 51.1% by USE. RMG sold 333,333, 53,000 and
1,203,333 shares of its common stock in a private placement during fiscal 2001
and 2000. Net proceeds from the sale of this common stock totaled $4,669,000. Of
those shares sold in the original private placements, USE subsequently purchased
1,105,499 of these shares by issuing 910,320 shares of its common stock.

     On January 3, 2000, RMG entered into an agreement with Quantum Energy,
L.L.C. (Quantum formed a subsidiary "Quaneco" to conduct its business with RMG))
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.

     RMG and Quaneco then entered into an Option and Farmin Agreement with
Suncor (Natural Gas) America, Inc. ("SENGAI") on 112,000 acres in southeast
Montana. SENGAI paid $1,705,000 for the right to exercise the option, of which
$1,278,800 was due to RMG. These funds were applied to the final payment due
under the Quaneco agreement.

     SENGAI also committed to assume $2,000,000 of the remaining $2,250,000
drilling commitment that RMG had under its drilling commitment to Quaneco.
SENGAI made the decision not to exercises its option on the acreage.

     RMG also acquired a 100% working interest (82% revenue interest) in 65,247
net mineral acres in southwest Wyoming.

     In July, 2001, RMG closed a Purchase and Sale Agreement with CCBM, Inc.
("CCBM"), a wholly- owned subsidiary of Carrizo Oil & Gas, Inc. of Houston,
Texas. CCBM purchased an undivided 50% interest in all of RMG's existing coalbed
properties. CCBM signed a $7,500,000 Promissory Note payable in principal
amounts of $125,000 per month plus interest at 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 the total principal payments reach 66.6% of the
principal amount of the purchase price and the balance when the total principal
amount is paid.

     CCBM has also agreed to fund $5,000,000 for an initial drilling program. If
CCBM fails to expend $5,000,000 in the drilling program or $2,500,000 for RMG's
benefit, CCBM will be obligated to pay any remaining unspent portions of the
$2,500,000 directly to RMG. If CCBM defaults on its purchase obligation CCBM
will still earn a 50% working interest in each well location (80 acres) and
production therefrom. CCBM's ownership will be earned on these wells regardless
of the status of the payments on the promissory note.

     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 until CCBM equals
$1,250,000 from production proceeds.


                                       53

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


BOBCAT
------

     On April 12, 2002, RMG signed an agreement to purchase working interests in
approximately 1,940 gross acres of coalbed methane properties in the Powder
River Basin of Wyoming known as the Bobcat Field. The contract closed on June 4,
2002. The Company paid the seller $500,000 cash and another $150,000 by having
the Company issue 37,500 shares of its restricted common stock to the seller;
CCBM paid $500,000 cash to the seller and Carrizo Oil & Gas, Inc. issued its
restricted shares of common stock valued at $150,000. The properties are located
approximately 25 miles north of Gillette, in Campbell County, Wyoming. To date,
25 coalbed methane wells have been drilled; 24 wells are currently hooked up and
produced in December 2002 at a combined rate of approximately 1,400,000 cubic
feet of gas per day (1,400 Mcf) from the two primary coals on the property: the
Cook coal (22 wells) at 650 feet, and the Canyon coal (2 wells) at 450 feet.

     The seller kept, as an overriding royalty interest, all net revenue
interest in the properties in excess of 80%. RMG and CCBM each hold an average
of 27.6% working interest and an average of 22% net revenue interest, in the
drilled wells.

     Permits have been issued for drilling 14 more wells on 80 acre spacing.

F.   OIL AND GAS INFORMATION:

     Costs related to the oil and gas activities of the Company were incurred as
follows:

<TABLE>
<CAPTION>
                                                              December 31,              May 31,
                                                              ------------    ---------------------------
                                                                  2002            2002           2001
                                                              -----------     -----------     -----------
<S>                                                           <C>             <C>             <C>
     Company's share of equity method
          investees' cost of property acquisition,
          exploration and development                         $   288,400     $   228,100     $ 1,781,900
</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>             <C>
     Proved oil and gas properties                            $   886,800     $   886,800     $   886,800
          Less accumulated depreciation,
          depletion and amortization                              886,800         886,800         886,800
                                                              -----------     -----------     -----------

                                                              $   --          $    --         $    --
                                                              ===========     ===========     ===========
     Company's share of equity method investees'
          net capitalized costs                               $ 1,961,600     $ 2,585,800     $ 2,411,500
                                                              ===========     ===========     ===========
</TABLE>

No depreciation, depletion or amortization expense was recorded for the seven
months ended December 31, 2002 and the fiscal years ended May 31, 2002 and 2001,
respectively.


                                       54

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


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 December 31, 2002 and
May 31, 2002 as a result of USE's unilateral ability to modify the repayment
terms.

<TABLE>
<CAPTION>
                                             December 31,                  May 31,
                                             ------------   ----------------------------
                                                2002             2002            2001
                                             ------------    -----------     -----------
<S>                                          <C>             <C>             <C>
     Advances payable - U.S. Energy
          balance payable  in full on
          demand (see Note A)                $ 8,553,900     $ 7,560,700     $ 5,740,200
                                             ===========     ===========     ===========
</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 December 31, 2002, the Company and USE had a $ 750,000 line of credit
with a commercial bank. The line of credit bears interest at a variable rate
(5.25% as of December 31, 2002). The weighted average interest rate for the
seven months ended December 31, 2002 was 5.62% as of May 31, 2002 it was 6.5%
and as of May 31, 2001, it was 6.5%. As of December 31, 2002, there was no
outstanding balance due under the line of credit. 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.


                                       55

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


H.   INCOME TAXES:

     The components of deferred taxes as of December 31, 2002, May 31, 2002 and
2001 are as follows:

<TABLE>
<CAPTION>
                                                   December 31,                May 31,
                                                   ------------     ----------------------------
                                                       2002             2002              2001
     Deferred tax assets:
<S>                                                <C>              <C>              <C>
          Deferred compensation                    $   172,700      $   131,200      $   131,200
          Deferred gains                               106,100          106,100          106,100
          Non-deductible reserves                      288,500          288,500          288,500
          Net operating loss carry-forwards          4,306,400        3,636,200        2,560,500
          Tax credits                                   15,000           15,000           15,000
          Tax basis in excess of book basis               --             57,000          876,800
                                                   -----------      -----------      -----------
     Total deferred tax assets                       4,888,700        4,234,000        3,978,100

     Deferred tax liabilities:
          Book basis in excess of tax basis           (131,800)            --               --
          Development and exploration costs            (36,100)         (36,100)         (36,100)
                                                   -----------      -----------      -----------
     Total deferred tax liabilities                   (167,900)         (36,100)         (36,100)

     Net deferred tax assets - all non-current       4,720,800        4,197,900        3,942,000
                                                   -----------      -----------      -----------

     Valuation Allowance                            (4,720,800)      (4,197,900)      (3,942,000)
                                                   -----------      -----------      -----------
     Net deferred tax asset                        $      --        $      --        $      --
                                                   ===========      ===========      ===========
</TABLE>

     At December 31, 2002, the Company had available, for federal income tax
purposes, net operating loss carry-forwards of approximately $12,665,000 which
expire from 2006 through 2022. 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. In addition, the use of the
NOL carry-forwards may be limited by Internal Revenue Service provisions
governing significant change in company ownership.

     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:


                                       56

<PAGE>


                                                   CRESTED CORP.
                                           NOTES TO FINANCIAL STATEMENTS
                                        DECEMBER 31, 2002 AND MAY 31, 2002
                                                    (CONTINUED)


<TABLE>
<CAPTION>
                                           Seven Month Ended
                                              December 31,                    Year Ended May 31,
                                              ------------       ----------------------------------------------
                                                 2002                 2002            2001             2000
                                             -----------         -----------      -----------      -----------
<S>                                          <C>                 <C>              <C>              <C>
     Expected federal income tax
           expense (benefit)                 $  (394,000)        $  (679,600)     $   410,000      $(1,795,100)
     Losses from subsidiaries not
          consolidated for tax purposes,
          utilization of net operating
          losses and other                      (128,900)            423,700        1,080,000          406,200
     Valuation allowance                         522,900             255,900       (1,490,000)       1,388,900
                                             -----------         -----------      -----------      -----------
     Income taxes                            $      --           $      --        $      --        $      --
                                             ===========         ===========      ===========      ===========
</TABLE>

     There were no taxes payable as of December 31, 2002, May 31, 2002, 2001 or
2000.

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 seven months ended
December 31, 2002 and the years ended May 31, 2002, 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:

       Issue                       Number        Issue            Total
       Date                       of Shares      Price        Compensation

     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
     Release of Earned Shares     (50,000)                       (33,800)
     Balance at
       December 31, 2002           15,000                      $  10,100

J.   COMMITMENTS, CONTINGENCIES AND OTHER:

LEGAL PROCEEDINGS

     Material pending proceedings are summarized below. Certain of the Company's
affiliates are involved in ordinary routine litigation incidental to their
business. Other proceedings which were pending during the seven months ended
December 31, 2002 have been settled or otherwise finally resolved.


                                       57

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


SHEEP MOUNTAIN PARTNERS ARBITRATION/LITIGATION

     In 1991, disputes arose between the Company, USE and Nukem, Inc. and its
subsidiary Cycle Resource Investment Corp. ("CRIC"), concerning the formation
and operation of the Sheep Mountain Partners partnership. 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 consensual 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), and 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 has ordered an accounting to identify all deliveries
of CIS uranium made directly or indirectly to Nukem and any Nukem affiliates; to
identify the ultimate disposition of all uranium purchased under the CIS
contracts; to identify the location, number of pounds, and associated cost of
uranium purchased under the CIS contracts at December 31, 2001, and to calculate
the profits realized from the sale of CIS uranium. At a status hearing held
before the U.S. District Court on August 23, 2002, the Court ordered the Special
Master to file his report on or before December 6, 2002 and a further hearing to
schedule arguments will be held before the Court on December 13, 2002. Because
Nukem and its affiliates failed to furnish certain documentation and
information, the Special Master filed a motion for extension of time to file his
report. The Court granted the motion and ordered the Special Master to file the
report by March 3, 2003. On February 9, 2003, the U.S. District Court

                                       58

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


granted a second motion of the Special Master for an extension of time and
ordered the report to be filed by April 4, 2003 with a hearing on the report to
be held on April 11, 2003.

CONTOUR DEVELOPMENT LITIGATION

     On July 28, 1998, the Company and 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. The
parties entered into an agreement to settle the litigation with the Company and
USE receiving $25,000 cash and unencumbered title to two commercial real estate
lots covering seven acres in Gunnison, Colorado, and unencumbered title to five
development lots covering 175 acres north of Gunnison, Colorado. There is a
dispute as to the settlement terms and the parties are negotiating further on
those issues.

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

PHELPS DODGE LITIGATION

     U.S. Energy Corp. and Crested Corp., d/b/a USECC, were served with a
lawsuit on June 19, 2002, filed in the U.S. District Court of Colorado (Case No.
02-B-0796(PAC)) by Phelps Dodge Corporation and its subsidiary, Mt. Emmons
Mining Company (MEMCO), over contractual obligations from USECC's agreement with
Phelps Dodge's predecessor companies, concerning a mining property in Colorado.

     The litigation stems from agreements that date back to 1974 when U.S.
Energy and Crested Corp. leased mining claims on Mt. Emmons near Crested Butte,
Colorado to AMAX Inc., Phelps Dodge's predecessor company. The claims cover one
of the world's largest and richest deposits of molybdenum. AMAX reportedly spent
over $200 million on the acquisition, exploration and mine planning activities
on the Mt. Emmons properties. In counter and cross-claims filed in the U.S.
District Court of Colorado, USECC contends that Phelps Dodge and its
subsidiaries committed several breaches of contracts related to the agreements,
including breach of fiduciary obligations and covenants of good faith and fair
dealing. USECC also contends Phelps Dodge is guilty of violating federal and
state antitrust laws when it purchased Cyprus Amax Minerals Company (Cyprus
Amax).

     The complaint filed by Phelps Dodge and MEMCO seeks a determination that
Phelps Dodge's acquisition of Cyprus Amax was not a sale. Under a 1986 agreement
between USECC and AMAX, if AMAX sold MEMCO or its interest in the mining
properties, U.S. Energy and Crested would receive 15% (7.5% each) of the first
$25 million of the purchase price ($3.75 million). In 1991, Cyprus Minerals
Company acquired AMAX to form Cyprus Amax Minerals Co. USECC's counter and
cross-claims allege that in 1999, Phelps Dodge formed a wholly-owned subsidiary
CAV Corporation, for the purpose of purchasing the controlling interest of
Cyprus Amax and its subsidiaries (including MEMCO) at an estimated value in cash
and Phelps Dodge stock exceeding $1 billion and making Cyprus Amax a subsidiary
of Phelps Dodge.

                                       59

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


Therefore, USECC asserts the acquisition of Cyprus Amax by Phelps Dodge was a
sale of MEMCO and the properties that triggers the obligation of Cyprus Amax to
pay USECC the $3.75 million plus interest.

     A second counterclaim by USECC rejects the claim by Phelps Dodge that it
and its predecessors, Cyprus Amax and AMAX Inc., had mistakenly paid royalties
to USECC since January 1991. In 1984, AMAX began paying the cash equivalent
(half each to U.S. Energy and Crested Corp.) of 700,000 pounds of molybdenum per
year as an advance royalty prior to the mine beginning production. In 1986,
USECC agreed to assist financially troubled AMAX and substantially reduced the
annual advance royalty to 50,000 pounds of molybdenum, so that AMAX could
continue to hold the properties and eventually bring them into production. AMAX,
Cyprus Amax and Phelps Dodge continued paying the annual advance royalties to
U.S. Energy and Crested Corp. until the payment due in July 2001, when Phelps
Dodge unilaterally ceased making the payments. Phelps Dodge and MEMCO seek a
declaratory judgment that the advance royalty payment obligation has terminated.

     The third issue in the litigation is whether USECC must, under terms of a
1987 Royalty Deed, accept Phelps Dodge's and MEMCO's forth-coming conveyance of
the Mt. Emmons properties back to USECC, which properties now include a plant to
treat mine water, costing in excess of $1 million a year to operate in
compliance with State of Colorado regulations. Phelps Dodge's and MEMCO's
threatened reconveyance would require USECC to assume the operating costs of the
water treatment plant. USECC refuses to have the water treatment plant included
in the return of the properties because, the USECC counterclaim argues, the
properties must be in the same condition as when they were acquired by AMAX
before the water treatment plant was constructed by AMAX.

     The properties are comprised of 16 patented lode mineral claims covered in
part by 10 unpatented lode mining claims (for which patents are expected to be
issued by the BLM in the near future), and 778 unpatented lode mining claims and
mill site claims, for a total of about 15,600 acres.

     As added counterclaims, USECC seeks (I) damages for defendants' breach of
covenants of good faith and fair dealing; (ii) damages for defendants' failure
to develop the Mt. Emmons properties and not protecting USECC's rights as
revisionary owner of the mining rights to the properties, (iii) damages for
unjust enrichment of defendants; (iv) damages for breach of the defendants'
fiduciary duties owed to USECC as revisionary owner of the property, and for
neglecting to maintain the mining rights and interests in the properties; and
(v) damages relating to defendants' actions in violation of federal and Colorado
anti-trust and constraint of trade laws.

     USECC also seeks a declaratory judgment of its rights and liabilities under
the agreements affecting the Mt. Emmons properties; an injunction against
defendants prohibiting the conveyance of the properties to USECC with the water
treatment plan; an injunction against further waste of the properties by the
defendants; an injunction requiring defendants to divest their molybdenum
holdings (including the Mt. Emmons properties); and an injunction requiring
defendants to assist USECC in mining molybdenum from the Mt. Emmons properties.

     On August 2, 2002, Phelps Dodge and MEMCO filed a reply to the
counterclaims of USECC and Cyprus Amax filed an answer to the counterclaims and
third party complaint of USECC, generally denying the allegations of USECC. CAV
Corporation filed a motion for summary judgment seeking dismissal of

                                       60

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


USECC's cross complaint and is pending. A Scheduling/Planning Conference in the
case was held and discovery is underway.

     Except for the parties' claims regarding payment of the $3.75 million due
on the sale of MEMCO, payments of royalties, and responsibility going forward
for payment of the operating costs of the water treatment plan, the financial
impact to U.S. Energy Corp. and Crested Corp. of favorable or unfavorable
outcomes in the litigation presently is not determinable.

LITIGATION INVOLVING LEASES ON COALBED METHANE PROPERTIES IN MONTANA

     On or about April 1, 2001, the Company's subsidiary, Rocky Mountain Gas,
Inc. (RMG) was served with a Second Amended Complaint wherein the Northern
Plains Resource Council had filed suit in the U.S. District Court of Montana,
Billings Division in Case No. CV-01-96-BLG-RWA against the United States Bureau
of Land Management ("BLM"), RMG, certain of its affiliates (including U.S.
Energy Corp. And Crested Corp.) some 20 other defendants. The plaintiff is
seeking to cancel oil and gas leases issued to RMG et. al. by the BLM in the
Powder River Basin of Montana and for other relief.

     The basis for the complaint appears to be that the BLM's regulations
require the BLM to respond to objections filed by persons owning land or lease
rights adjacent to the coalbed properties which the BLM is offering to lease to
the public. The argument of plaintiff appears to be that if objections are not
responded to by the BLM prior to issuing CBM leases, the leases are invalid.
Based on this argument, the plaintiff appears to have been successful in forcing
cancellation of some CBM leases granted to others in the Powder River Basin of
Montana, because the BLM did not respond to some objecting adjacent landowners.
However, all of the BLM leases in Montana held by RMG (none are held by U.S.
Energy Corp. Or Crested Corp. In their own corporate names) are at least four
years old, and there is no record of any objections being made to the issue of
those leases.

     Based on filings in the case to date, it appears that the BLM is taking the
initiative in responding to the plaintiff. We believe RMG's leases were validly
issued in compliance with BLM procedures, and do not believe the plaintiff's
lawsuit will adversely affect any of RMG's Montana BLM leases.

RECLAMATION AND ENVIRONMENTAL LIABILITIES

     Most of the Company's and USE's exploration activities are subject to
federal and state regulations that require the Company and USE to protect the
environment. The Company and USE conduct their 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 ("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.
The Company and USE believe the recorded amounts are consistent with those
reviews and related bonding requirements. To the extent that production on their
properties is delayed, interrupted or discontinued because of regulation or the

                                       61

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


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 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 in the future. 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 December 31, 2002, estimated reclamation obligations 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 obligated for 50% of any
reclamation costs in excess of current estimated reclamation obligations. The
Company, however, does not expect that estimated reclamation costs will be
exceeded.

     The Company and USE currently have three properties or investments that
account for most of their environmental obligations, SMP, 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 the seven
months ended December 31, 2002 and the balance in the reclamation liability
account at December 31, 2002 of $1,496,800 (1/2 accrued by Crested) is believed
by management to be adequate. 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.

     GMMV
     ----

     During fiscal 1991, the Company and USE acquired 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 except the
Ion Exchange Plant. During fiscal 2002, the Company and USE completed the
required reclamation on the Ion Exchange Plant. A final reclamation report has
been submitted to the regulatory agencies. Although this report has not been
audited by the regulatory agency, no further reclamation cost is anticipated.

                                       62

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


     SUTTER GOLD MINING COMPANY
     --------------------------

     SGMC's mineral properties are currently on shut down 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 December 31,
2002.

     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 December 31, 2002, Plateau held a cash deposit
for reclamation in the amount of $8,939,300 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.



                                       63

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


K.   TRANSITION PERIOD COMPARATIVE DATA

     The following table presents certain financial information for the seven
months ended December 31, 2002 and 2001, respectively:

<TABLE>
<CAPTION>
                                                          Seven Months Ended
                                                             December 31,
                                                    ------------------------------
                                                        2002              2001
                                                    ------------      ------------
                                                                       (Unaudited)

<S>                                                 <C>               <C>
     Revenues                                       $       --        $       --

     Costs and expenses                                  102,400           117,000
                                                    ------------      ------------
     Loss before equity in affiliates                   (102,400)         (117,000)

     Equity in loss in affiliates                     (1,055,000)         (998,200)
                                                    ------------      ------------
     Loss before income taxes                         (1,157,400)       (1,115,200)

     Provision for income taxes                             --                --
     Net loss                                       $ (1,157,400)     $ (1,115,200)
                                                    ============      ============

     PER SHARE DATA:
          Revenues                                  $       --        $       --

          Costs and expenses                                0.01              0.01
                                                    ------------      ------------
          Loss before equity loss                          (0.01)            (0.01)

          Equity in loss of affiliates                     (0.06)            (0.06)
                                                    ------------      ------------
          Loss before income taxes                         (0.07)            (0.07)

          Provision for income taxes                        --                --
                                                    ------------      ------------
          Net loss basic and diluted                $      (0.07)     $      (0.07)
                                                    ============      ============

     Weighted average common shares outstanding

          Basic                                       17,099,276        17,073,330
                                                    ============      ============
          Diluted                                     17,099,276        17,073,330
                                                    ============      ============
</TABLE>

                                       64

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


M.       SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                   Month Ended      ------------------------------
                                  December 31,      November 30,       August 31,
                                      2002              2002             2002
                                  ------------      ------------      ------------
<S>                               <C>               <C>               <C>
Operating revenues                $       --        $       --        $       --

Operating loss                         (21,500)          (42,400)          (38,500)

Equity in loss from affiliate         (240,300)         (468,200)         (346,500)
                                  ------------      ------------      ------------

Net loss                          $   (261,800)     $   (510,600)     $   (385,000)
                                  ============      ============      ============

Loss per share, basic             $      (0.02)     $      (0.03)     $      (0.02)
                                  ============      ============      ============

Basic weighted average
     shares outstanding             17,099,276        17,099,276        17,099,276
                                  ============      ============      ============

Loss per share, diluted           $      (0.02)     $      (0.03)     $      (0.02)
                                  ============      ============      ============

Diluted weighted average
     shares outstanding             17,099,276        17,099,276        17,099,276
                                  ============      ============      ============
</TABLE>

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                  ------------------------------------------------------------------
                                     May 31,        February 28,      November 30,       August 31,
                                      2002               2002             2001              2001
                                  ------------      ------------      ------------      ------------

<S>                               <C>               <C>               <C>               <C>
Operating revenues                $       --        $       --        $       --        $       --

Operating loss                         (37,300)          (38,300)          (51,400)          (48,000)

Equity in loss from affiliate         (505,800)         (502,800)         (237,100)         (578,200)
                                  ------------      ------------      ------------      ------------

Net loss                          $   (543,100)     $   (541,100)     $   (288,500)     $   (626,200)
                                  ============      ============      ============      ============

Loss per share, basic             $      (0.03)     $      (0.03)     $      (0.02)     $      (0.04)
                                  ============      ============      ============      ============

Basic weighted average
     shares outstanding             17,073,330        17,073,330        17,073,330        17,073,330
                                  ============      ============      ============      ============

Loss per share, diluted           $      (0.03)     $      (0.03)     $      (0.02)     $      (0.04)
                                  ============      ============      ============      ============

Diluted weighted average
     shares outstanding             17,073,330        17,073,330        17,073,330        17,073,330
                                  ============      ============      ============      ============
</TABLE>



                                       65

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 2002 AND MAY 31, 2002
                                   (CONTINUED)


<TABLE>
<CAPTION>
                                                             Three Months Ended
                                     ------------------------------------------------------------------
                                        May 31,        February 28,      November 30,       August 31,
                                         2001               2001             2000              2000
                                     ------------      ------------      ------------      ------------

<S>                                  <C>               <C>               <C>               <C>
Operating revenues                   $ (3,614,700)     $     14,900      $  3,583,100      $     16,700

Operating (loss) income                   263,600           (28,700)        3,530,500           (63,000)

Equity in loss from affiliate          (1,209,000)         (540,700)         (406,100)         (340,900)
                                     ------------      ------------      ------------      ------------

Net (loss) earnings                  $   (945,400)     $   (569,400)     $  3,124,400      $   (403,900)
                                     ============      ============      ============      ============

(Loss) earnings per share, basic     $      (0.09)     $      (0.06)     $       0.30      $      (0.04)
                                     ============      ============      ============      ============

Basic weighted average
     shares outstanding                10,448,505        10,336,439        10,316,664        10,316,664
                                     ============      ============      ============      ============

(Loss) income per share, diluted     $      (0.09)     $      (0.06)     $       0.30      $      (0.04)
                                     ============      ============      ============      ============

Diluted weighted average
     shares outstanding                10,448,505        10,336,439        10,381,664        10,316,664
                                     ============      ============      ============      ============
</TABLE>




                                       66

<PAGE>



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

     Not applicable.


                                    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 our Proxy Statement
for the Meeting of Shareholders to be held in June 2003, under the captions
"Proposal 1: Election of Directors," Filing of Reports Under Section 16(a),"
and"Business Experience and Other Directorships of Directors and Nominees." The
information regarding the remaining executive officers follows:

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 Crested who is not
also a director.

     ROBERT SCOTT LORIMER, age 52, 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 15, 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.

ITEM 11.  EXECUTIVE COMPENSATION.

     The information required by Item 11 is incorporated herein by reference to
the Proxy Statement for the Meeting of Shareholders to be held in June 2003,
under the caption "Director's Fees and Other Compensation."

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 Meeting of Shareholders to be held in June 2003,
under the caption "Principal Holders of Voting Securities."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by Item 13 is incorporated herein by reference to
the Proxy Statement for the Meeting of Shareholders to be held in June 2003,
under the caption "Certain Relationships and Related Transactions."


                                       67

<PAGE>



ITEM 14.  CONTROLS AND PROCEDURES

     Within the 90 days prior to the date of this report, the Company carried
out an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13A-14 of the
Securities Exchange Act of 1934. Based upon the evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely identifying material information
potentially required to be included in the Company's SEC filings.

     Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
the Company in its reports filed or submitted under the Securities Exchange Act
of 1934 is accumulated and communicated to Company management, including the
chief executive and chief financial officers of the Company, as appropriate to
allow those persons to make timely decisions regarding required disclosure.

     There were no significant changes in the Company's internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation and there were no corrective actions required with
regard to significant deficiencies and material weaknesses.


                                     PART IV

ITEM 15.   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.......................................................40

     Report of Independent Public Accountants
     Arthur Andersen LLP......................................................41

     Balance Sheets - December 31, 2002,
           May 31, 2002 and 2001..............................................42

     Statements of Operations
     for the Seven Months Ended December 31, 2002
     and the Years Ended May 31, 2002, 2001 and 2000..........................43

     Statements of Shareholders'
     Deficit for the Seven Months Ended December 31, 2002
     and the Years Ended May 31, 2002, 2001 and 2000..........................44

     Statements of Cash Flows
     for the Seven Months Ended December 31, 2002
     and the Years Ended May 31, 2002, 2001 and 2000..........................45

     Notes to Financial Statements.........................................46-66

(2) N/A

                                       68

<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)...........................................[9]

  4.6          Form of Stock Option Agreement and
               Schedule, Options granted January 10, 2001....................[9]

  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]

  4.9          USE 2001 Stock Award Plan....................................[10]

  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)...........[9]

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


                                       69

<PAGE>



  10.61        Purchase and Sale Agreement
               CCBM, Inc. (subsidiary of Carrizo Oil & Gas, Inc.)
               and Rocky Mountain Gas, Inc..................................[10]

  10.62        Purchase and Sale Agreement
               Bobcat Property (Rocky Moutain Gas, Inc.)....................[10]

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

  21           Subsidiaries of Registrant....................................[9]

  99.1         Certification Pursuant to 18 U.S.C. Section 1350
               As Adopted Pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002..............................75

  99.2         Summary of Reserve Report of Ryder Scott Company,
               as of December 31, 2002.........................................*

*  Previously Filed
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.

     [9]       Incorporated by reference from the like-number exhibit of the
               Registrant's Form 10-K for the year ended May 31, 2001.

     [10}      Incorporated by reference from the like-number exhibit of the
               Registrant's Form 10-K for the year ended May 31, 2002.


                                       70

<PAGE>



(b)  Reports filed on Form 8-K.

     During the transition period ended December, the Registrant filed two
     reports on Form 8-K dated December 9, 2002 and December 18, 2002

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

(d)  Required financial statement schedules are listed and attached hereto in
Item 15(a)(2).

                                       71

<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:    April 2, 2003                      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:    April 2, 2003                      By:    /s/ John L. Larsen
                                                 -------------------------------
                                                 JOHN L. LARSEN, Director


Date:    April 2, 2003                      By:    /s/  Daniel P. Svilar
                                                 -------------------------------
                                                 DANIEL P. SVILAR, Director


Date:    April 2, 2003                      By:    /s/  Michael D. Zwickl
                                                 -------------------------------
                                                 MICHAEL D. ZWICKL, Director


Date:    April 2, 2003                      By:    /s/  Robert Scott Lorimer
                                                 -------------------------------
                                                 ROBERT SCOTT LORIMER,
                                                 Principal Financial Officer and
                                                 Chief Accounting Officer





                                       72

<PAGE>



                                  CERTIFICATION

     I, Robert Scott Lorimer, certify that:

1.   I have reviewed this amended transition report on Form 10-K/A of Crested
Corp.;

2.   Based on my knowledge, this amended transition report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
amended transition report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this amended transition report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this amended
transition report;

4.   The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a.   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this amended
          transition report is being prepared;

     b.   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this amended transition report (the "Evaluation Date"); and

     c.   presented in this amended transition report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

     a.   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b.   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
amended transition report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

DATED this 2nd day of April, 2003.


                                                   /s/  Robert Scott Lorimer
                                                 -------------------------------
                                                 Robert Scott Lorimer
                                                 Chief Financial Officer


                                       73

<PAGE>



                                  CERTIFICATION

     I,   John L. Larsen, certify that:

1.   I have reviewed this amended transition report on Form 10-K/A of Crested
Corp.;

2.   Based on my knowledge, this amended transition report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
transition report;

3.   Based on my knowledge, the financial statements, and other financial
information included in this amended transition report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this transition
report;

4.   The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a.   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this amended
          transition report is being prepared;

     b.   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this amended transition report (the "Evaluation Date"); and

     c.   presented in this amended transition report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

     a.   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b.   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
amended transition report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

DATED this 2nd day of April, 2003.


                                                   /s/  John L. Larsen
                                                 -------------------------------
                                                 John L. Larsen,
                                                 Chief Executive Officer


                                       74

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