SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

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

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

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

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

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

               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 September 9, 2001 computed by reference to the average of
the bid and asked prices for the Registrant's common stock as reported by
National Quotation Bureau on Pink Sheets for the week then ended, was
approximately $1,861,000.

                   Class                      Outstanding at September 9, 2002
---------------------------------------     ------------------------------------
      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:

         Annual Meeting Proxy Statement for the fiscal year ended May 31, 2002
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.

     In fiscal 2002, most of our business activity with our parent USE was
directed to the coalbed methane business, i.e., acquiring acreage, drilling
exploratory wells, testing the wells, and negotiating the purchase of a coalbed
methane ("CBM") producing field. The coalbed methane gas business is conducted
through Rocky Mountain Gas, Inc. ("RMG"), a Wyoming corporation owned 51.2% by
USE and 40.5% by Crested. At May 31, 2002, Crested is a 70% 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 280,486 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. In fiscal 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.

     USE and Crested originally were independent companies, with two common
affiliates (John L. Larsen and Max T. Evans; Mr. Evans died in calendar 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 Crested's obligations from time to time
(due to Crested's lack of cash on hand), and Crested subsequently paying these
debts by issuing common stock to USE, Crested became a majority-owned subsidiary
of USE in fiscal 1993. In fiscal 2001, Crested issued another 6,666,666 shares
of its common stock to reduce Crested's debt owed to USE by $3.0 million, which
increased USE's ownership of Crested to 70%. All of the operations of Crested
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 Crested's operations are conducted through the USECC Joint Venture
("USECC") with USE, and jointly-owned subsidiaries and affiliates of USE and
Crested. 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 Crested settled litigation with Kennecott involving the GMMV by selling
their interest in the GMMV and its properties back to Kennecott for $3,250,000
and receiving a royalty interest in the uranium properties. Kennecott also
assumed all reclamation obligations on the GMMV properties. Other uranium
properties and a uranium mill in southeast Utah are held by Plateau Resources
Ltd., a wholly-owned subsidiary of USE. The Utah uranium properties are in a
care and maintenance status.

     The gold assets held by Sutter Gold Mining Company ("SGMC"), a
majority-owned subsidiary of USE and the Company (owned 3.2% by Crested), are in
shut down status. Improved gold prices in calendar 2002 may permit raising the
necessary capital to put the assets into production or sell the assets in either
calendar 2002 or 2003.

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

MINERALS

     The competitive conditions in our business are as follows:

COALBED METHANE

     In the coalbed methane business and mining, USECC competes against many
companies, some of which are much larger and better financed than USECC. The
principal area of competition in the coalbed methane business (our currently
most active business area), is encountered in the financial ability to acquire
good acreage positions and drill wells to explore coalbed methane potential,
then, if warranted, drill production wells and install production equipment
(gathering systems, compressors, etc.). For example, Williams Company,
Marathon-Pennaco and Evergreen Resources (all public companies) are active in
the coalbed methane business in Wyoming and Montana. They acquire and sell
acreage, drill exploratory wells, and produce and sell coaled methane gas.
Additional competition is presented in acreage acquisition by a number of
private independent companies.


                                        3

<PAGE>



     In fiscal 2001, we reported revenues from contract methane well drilling
and support services. Crested and USE sold off most of the equipment used in
these operations in fiscal 2002, retaining three drilling rigs for RMG
operations as needed, and construction activities are limited to a few small
projects in Riverton, Wyoming. USE and Crested contract out RMG's coalbed
drilling and construction work to third parties. Therefore, contract
drilling/construction no longer is a segment of our business.

GOLD

     In the gold sector, we compete against Rio TInto plc, Barrick, AngloGold,
Newmont Mining, and other public companies with worldwide exploration and
production facilities. These companies have inventories of exploration,
development stage and producing properties, and inventories of refined gold.
Putting a gold property into production requires significant capital; these
companies, unlike USECC, have in place the financial capital, and the
engineering personnel, necessary to mine the minerals and build the related
infrastructure and production facilities. There are a number of small private
independent gold exploration companies in the United States, but they do not
compete with us.

MOLYBDENUM

     We own a royalty interest in a molybdenum property in Colorado; the
property is owned by Phelps Dodge Corporation, a worldwide integrated minerals
company with inventories of exploration, development stage, and producing
properties, involving numerous metals and other minerals. We are not actively
engaged in the molybdenum business at the present time.

URANIUM

     In the uranium sector, public companies like Cameco, Rio Tinto and Cogema
are the dominant uranium producers. They own inventories of exploration,
development stage and producing properties, and inventories of uranium oxide.
Although we have a fully-equipped mill in Utah, the mill is not operating and we
presently need additional capital to mine the minerals we own nearby and process
the material through the mill.

     In the commercial operations area (significant in terms of fiscal 2002
revenues but not our primary business focus), USECC owns and manages an office
building (where our headquarters are located), and small parcels of land, all in
Riverton, Wyoming, and a small amount of additional acreage elsewhere in
Wyoming. We also own a townsite, a motel and convenience store, and other
commercial facilities in Utah. There is no significant competition in this area,
although parcels are sold from time to time, we are not in the land development
business.

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

MINERALS

COALBED METHANE

     GENERAL. Rocky Mountain Gas, Inc. ("RMG") was incorporated in Wyoming on
November 1, 1999 for business in the coalbed methane industry in Wyoming and
Montana. RMG is a subsidiary of the Company (owned 51.2% by USE and 40.5% by
Crested).

     Methane is the primary commercial component of natural gas produced from
conventional gas wells. Methane also exists in its natural state in coal seams.
Natural gas produced from conventional wells generally contain other
hydrocarbons in varying amounts which require the natural gas to be processed.
Methane gas

                                        4

<PAGE>



produced from coalbeds generally contains only methane and is pipeline-quality
gas after simple water dehydration.

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

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

     Methane production is a direct result of reducing the hydrostatic (water)
pressure in the coal formation. CBM field evaluation requires two principal
stages: First, drill a number of wells (typically eight or more in a 'pod') down
to the same coal formation, in contiguous 80 acre spacing per well, and test the
water contained in the formation from coal samples taken from the formation. The
water testing determines if the geochemical environment of the coal seam was
conductive to the formation of CBM in the coal. Second, assuming initial drill
and test data confirms CBM is present in the formation, install gathering lines
to hook up the wells and put the wells on pump to 'dewater' the coal formation.
Usually, for coals in the Powder River Basin, 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 12 months. Production starts with the third
stage: Installing (or have a transmission company install) a compressor and
transport line to carry the 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 the
hydrostatic pressure is reduced approximately 90% from initial levels. During
the initial gas production phase then and only then can reserves be established.

     Due to the shallow coal seams in the Powder River Basin, of Montana and
Wyoming, the drilling, discovery, development and production of coalbed methane
has significant economic advantages compared with conventional natural gas
targets. Over the past several years, coalbed methane has become an important
source of pipeline quality gas in the United States.

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

     OVERVIEW OF RMG. As of the filing of this report, RMG holds leases and
options to develop approximately 280,486 gross mineral acres (including 43,711
acres we have options on) 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."

                                        5

<PAGE>



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 not be entitled to a
working interest in the remaining undrilled 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. See the summary below, and "SENGAI - Option and
Farmin Agreement."

     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 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). 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 1


<TABLE>
<CAPTION>
      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                80,254              74,512            18,628            37,256              18,628
      Jan. 2000
       Bobcat                1,940                930               465                 0                 465
      June 2002
    Oyster Ridge             65,247              65,247            25,729               0                25,729
      Dec. 1999
      Clearmont              6,305               3,745             1,873                0                1,873
      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               280,486             258,701            96,855            93,040              55,018
---------------------------------------------------------------------------------------------------------------
</TABLE>


                                        6

<PAGE>



     RMG owns a 25% working interest (20% net revenue interest) on 80,254 gross
and 74,512 net acres in the Kirby prospect (southeast Montana) and a 50% working
interest (from 30% to 50% net revenue interest) on 73,492 net acres in other
prospects (all in Wyoming). 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, Inc., a subsidiary of Carrizo Oil and Gas, Inc., can
purchase a 6.25% working interest in our acreage (6,973 net acres) of the Castle
Rock prospect if they meet certain payment obligations. In July 2001, we sold a
50% working interest in all our coalbed methane leases, except at Castle Rock,
to CCBM for $7,500,000, plus other considerations. The acreage data above
reflects this transaction.

     CCBM will 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. We have a carried working interest in all of the wells
drilled in these programs.

     As of August 15, 2002, RMG had set casing on 31 wells (80 acre spacing
units) at the Clearmont prospect and are now in the process of drilling
additional wells. No reserves have been established to date. Drilling permits
for 58 additional wells have been issued for the Clearmont prospect.

     A total of 58 wells have been drilled on RMG acreage to through May 31,
2002: five in fiscal 2001 and 53 in fiscal 2002. Nineteen of the wells were
drilled by SENGAI in Castle Rock under the terms of the Suncor Option and Farmin
Agreement (see below). Eleven of those 19 wells were stratigraphic wells and
will be reclaimed by Suncor; 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 wells, RMG and CCBM both have a 50% working interest in all of these
wells (see Table 2 below).

     As of May 31, 2002, CCBM and RMG have spent approximately, $2,245,000 of
the $5,000,000 drilling fund. RMG is relying on the $2,755,000 balance to pay
for 100% of the drilling and completion costs on up to 33 more wells currently
permitted, for which work is scheduled from August 2002 through September 2002:
16 wells on the Clearmont prospect (estimated costs $1,255,000); 9 wells on the
Bobcat prospect (estimated costs $800,000); and 6 wells on the Arvada prospect
(estimated costs $550,000); and 2 wells on the Oyster Ridge prospect (estimated
cost $150,000) 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, USE and RMG do
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 USE or
RMG.

     Future annual financial obligations for the coalbed methane properties are
approximately $286,300 for fiscal 2003 in acreage rental fees to lessors, which
will be paid 50% by RMG and 50% by CCBM on all acreage except Castle Rock, and
21,536 acres within Oyster Ridge which are not covered by the option with
Anadarko. Those costs and fees for Castle Rock will be paid 43.75% by RMG, 6.25%
by CCBM, and 50% by Quaneco, except for the eight wells owned by RMG and CCBM,
which will be paid 93.75% by RMG and 6.25% by CCBM.

     Table 2 shows the wells drilled on RMG's prospects from June 1, 2000
through May 31, 2002. Under the agreement with Carrizo, RMG has a carried
working interest in all these wells (with the exception of a $156,634 payment
that was made by RMG to cover 50% of a non-consent cost for 12 wells; CCBM also
paid $156,634 to cover 50% of their cost in acquiring a non-consent working
interest in those 12 wells), as CCBM has paid for all drilling and completion
costs on the wells other than the 19 Castle Rock wells. RMG has a carried
working interest in the 8 Castle Rock wells which were completed (out of the 19
drilled in that

                                        7

<PAGE>



prospect), as SENGAI paid for all drilling and completion costs on the 8 Castle
Rock wells under a 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 (CCBM paid for its interest in these wells, see "SENGAI - Option and
Farmin Agreement"). With the exceptions noted above, all the wells on the Oyster
Ridge, Clearmont and Arvada prospects have been drilled at CCBM's sole expense
since its participation began on June 30, 2001. Table 2 lists the number of
wells drilled, the total costs and the remaining number of wells currently
permitted for drilling as of May 31, 2002.

TABLE 2
                            ROCKY MOUNTAIN GAS, INC.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
     PROSPECT                FY 2001                    FY 2002                        TOTAL            Remaining
                        (6/1/00 - 5/31/01)         (6/1/01 - 5/31/02)                                    Permits
                        Wells        $             Wells         $               Wells         $
-----------------------------------------------------------------------------------------------------------------
<S>                      <C>   <C>                  <C>     <C>                   <C>     <C>              <C>
Castle Rock              3     $ 283,894            19*     $ 2,500,000           22      $ 2,783,894      15
Kirby                    0     $    --               0      $    --                0      $    --           6
Oyster Ridge             2     $ 150,503             5      $   464,170**          7      $   614,680       0
Clearmont                0     $    --              28      $ 1,470,351           28      $ 1,470,351      59
Arvada                   0     $    --               1      $    64,790            1      $    64,790       3
-----------------------------------------------------------------------------------------------------------------
TOTAL                    5     $ 434,397            53      $ 4,499,318           58      $ 4,933,715      83
-----------------------------------------------------------------------------------------------------------------
</TABLE>

     *    Drilled by SENGAI
     ** These costs include an additional $169,314 spent on the two wells
drilled during fiscal 2001.

     BOBCAT PROPERTY. On April 12, 2002, USE and 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. USE paid the seller $500,000 cash and another $150,000 by 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 restricted shares of its common
stock valued at $150,000. The properties are located approximately 25 miles
north of Gillette, Wyoming, in Campbell County. To date, 18 coalbed methane
wells have been drilled; 13 wells are currently hooked up and producing at a
combined rate of approximately one million cubic feet of gas per day (1,000 mcf)
from the two primary coals on the property: the Cook coal (11 wells) at 650
feet, and the Canyon coal (2 wells) at 450 feet. Production began in late
December 2001. Currently, RMG is planning to add equipment to increase the
production rate.

     Permits have been issued to the seller for drilling 30 more wells on 80
acre spacing.

     CCBM has exercised its right to participate in purchase of the Bobcat
property, for 50% of the interests in the property subject to the agreement. For
information on agreements with CCBM, please see "Carrizo - Purchase and Sale
Agreement" below. RMG will be the operator of the properties.

     The seller keeps as an overriding royalty interest all net revenue interest
in the properties in excess of 80%. RMG and CCBM each hold an average of 31%
working interest and an average of 25% net revenue interest, in the drilled
wells.


                                        8

<PAGE>



     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 development of
the acreage prospective for coalbed methane currently owned by RMG in Montana
and Wyoming, and to acquire and develop more acreage in Wyoming 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 information on the AMI below.

     To start development, and as part of the consideration for the acquisition,
CCBM agreed to pay $5,000,000 to drill and complete from 30 to 60 wells on the
coalbed properties. RMG will be "carried" for its 50% interest in these wells,
and will not be required to pay any of such costs. After the initial $5,000,000
has been spent, RMG and CCBM each will pay for their 50% share of costs in
subsequent wells, and also will pay for their 50% share of operating costs for
the wells drilled and completed in this drilling program. Without CCBM's
consent, none of the drilling funds can be used for operations associated with
water disposal wells, gas compression beyond 100 PSIG, or for facilities
downstream of compression beyond 100 PSIG. CCBM will earn a 50% working interest
in each well location (80 acres) and gas production therefrom, regardless of the
status of payments on the promissory note.

     Drilling under the CCBM agreement started in August 2001. As of May 31,
2002, CCBM has spent approximately $2,245,000 of the $5,000,000 work commitment
on the drilling of 22 wells at Clearmont, 4 wells at Oyster Ridge, 1 well at
Arvada, and has funded $225,000 of the drilling conducted by SENGAI in Montana
as part of the Quaneco agreement. Amounts remaining out of the $5,000,000 will
be used for drilling during the remainder of fiscal 2002 and on into fiscal year
2003, or applied to property acquisitions, as agreed upon by the parties. If
less than the entire $5,000,000 is spent within two years (subject to extensions
due to force majeure), CCBM shall pay RMG one-half the unspent portion of the
$5,000,000. However, this payment obligation back to RMG is subject to RMG
complying with all of the terms and provisions of the Purchase and Sale
Agreement, the joint operating agreement, and the procedures therein set forth
regarding authorizations for expenditures to drill $5,000,000 worth of
"reasonable wells." This means wells which meet these economic criteria: (1)
individual well cost (including hook-up to sales) must meet a projected internal
rate of return in excess of 15% at prevailing market prices; (2) the wells must
be on acreage blocks that are touching and contain minimum sizes (Kirby
prospect, at least 2,560 acres; Clearmont, at least 640 acres; and Arvada, at
least 480 acres); and (3) no more than 10 wells per calendar year at Oyster
Ridge will qualify as reasonable. The intent is for CCBM to spend $2,500,000 on
behalf of RMG on drilling and completing "reasonable wells." If CCBM fails to do
this despite a total of $5,000,000 of reasonable well proposals by RMG, then
CCBM shall be obligated to pay any remaining unspent portion of the $2,500,000
directly to RMG.


                                        9

<PAGE>



     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 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 (see
below).

     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.

     With respect to the Castle Rock prospect in Montana, which was subject to
the agreement with SENGAI, RMG was entitled to have CCBM pay for $225,000 of
RMG's drilling obligations; for this funding (part of the $5,000,000 drilling
program with CCBM), CCBM received an undivided 6.25% working interest on each
well so drilled and the 80 acre spacing allocated to each such well, i.e.
one-half of RMG's 12.5% working interest, during the SENGAI drilling program.
CCBM made the $225,000 payment to RMG on March 26, 2002, and RMG has
subsequently paid SENGAI that amount to fulfill its obligations to SENGAI and
Quaneco. See "Quaneco - Agreement" and "SENGAI - Option and Farmin Agreement."

     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 interests
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 unless RMG agreed to an extension of this time
frame. RMG has extended the time frame for CCBM raising the funds, to June 30,
2003.

     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 88,410 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.

     A separate provision in the Quaneco agreement required RMG to spend
$2,500,000 to drill and complete 25 wells. Under the subsequent Option and
Farmin Agreement with SENGAI, SENGAI paid $2,000,000 in their first drilling
program on this prospect, and RMG paid $250,000. Of this amount, $225,000 was
paid to RMG by CCBM and subsequently paid over to SENGAI, leaving RMG with a net
obligation of $25,000, which was paid. RMG had previously performed work and
paid costs for a credit of approximately $250,000 on the Castle Rock and Kirby
prospects. All of RMG's drilling obligations to Quaneco therefore have been
fulfilled.

     The Kirby prospect, owned originally by RMG and Quaneco, and now CCBM as
well, is operated through Powder River Gas, LLC, a Wyoming limited liability
company. Initial CBM well sites have been

                                       10

<PAGE>



selected by the management committee in which Quaneco and RMG currently have
equal representation. USECC has the right to provide drilling services on the
first 25 wells drilled by Powder River Gas, LLC based on competitive drilling
rates in the area surrounding the wells to be drilled. Thereafter, USECC will
have the right to submit bids on a competitive basis to Powder River Gas LLC for
drilling contracts on additional acreage. CCBM has recently acquired 50% of
RMG's interest in the Kirby prospects leaving ownership interest at 25% RMG, 25%
CCBM, and 50% Quaneco.

     SENGAI - OPTION AND FARMIN AGREEMENT. On February 8, 2001, RMG closed an
Option and Farmin Agreement with Suncor Energy Natural Gas America, Inc.
("SENGAI"). SENGAI had an option on two blocks of acreage covering 111,566 net
acres in southeast Montana; the option on the second block of acreage was
contingent upon SENGAI exercising its option on the first block of acreage. The
option on the first block of acreage expired on February 8, 2002 without
exercise.

     Under the Option and Farmin Agreement, SENGAI committed to pay for all
costs up to $2,000,000 in a $2,250,000 drilling program on the first block of
acreage, starting in the fall of 2001. RMG had to pay the remaining $250,000 for
the drilling program (on its behalf and for Quaneco LLC, which completes RMG's
drilling commitment to Quaneco; see below). SENGAI had to complete the drilling
program regardless of whether it exercised the options. SENGAI completed this
program in the fall of 2001.

     As the first option was not exercised, all of the work paid for under the
drilling program will benefit RMG (and now CCBM and Quaneco in their respective
working interests), and SENGAI has no rights in the Castle Rock prospect or in
any wells drilled on it.

     The SENGAI drilling program neither established CBM reserves or condemned
the drilled acreage as unproductive. RMG believes that SENGAI declined to
exercise the option based on SENGAI's evaluation of incomplete data generated by
SENGAI's drilling program, which SENGAI designed and executed. When SENGAI
drilled the 19 exploratory wells under its option on the Castle Rock prospect,
SENGAI did not utilize the best available procedures to detect possible CBM
content. In addition, 6 of the wells were drilled in a pod configuration but 5
of the 6 were drilled into separate coal seams, even though efficient dewatering
requires multiple close-spaced wells into the same coal. Eleven other of the
SENGAI-drilled wells confirmed the presence of coal at the depths originally
estimated by RMG, but otherwise insufficient data was generated by the drilling
and testing of these 11 wells to determine if the coal might e productive of
CBM.

     RMG, Quaneco and SENGAI have signed a Project Completion Agreement, whereby
Powder River Gas L.L.C. (an operating company owned equally by RMG and Quaneco)
will become the operator of record for the Castle Rock properties and SENGAI's
working interest will revert to 0% in the project. In addition, RMG has elected
to accept a 93.75% working interest in (and RMG will operate) 8 completed wells
in the Castle Rock area. CCBM has a 6.25% working interest in these 8 wells.

     Although the data on the 8 wells to be retained by RMG is incomplete (which
wells were drilled by SENGAI), RMG will further evaluate the data. If the
results are favorable, RMG will start dewatering these wells and establish a pod
grid to drill and complete more wells around each existing well to maximize
dewatering efficiency. As with any CBM project, a substantial amount of
dewatering of pods of wells into the same coal is necessary before the economics
of the wells can be assessed. RMG has not prepared a budget or timetable for
this future work, but expect to do so by March 31, 2003.

         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

                                       11

<PAGE>



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.

     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.

     For description of leases, see Table 3 below.

TABLE 3
                            ROCKY MOUNTAIN GAS, INC.


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                        Gross Leased     Net Leased     Net Leased      Net Leased       Net Leased         Net Leased
Prospect                Acres            Acres          from BLM        from State of    from 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                     80,254            74,512        33,305             0              4,056             37,151
Oyster Ridge*             21,536            21,536        17,107           1,229              0               3,200
Clearmont                  6,305            3,745            0              640               0               3,105
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                     1,940           1,940            0               0                0                1,940
------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

     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. The
federal leases generally have 10-year terms and fee and state leases generally
have two to five year terms.

     KIRBY: The Kirby project consists of 80,254 gross and 74,512 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

                                       12

<PAGE>



acreage. CMS's Bighorn Gas Gathering recently extended a new 20" pipeline to
within 10 miles of the Kirby project. Three exploration wells are currently
scheduled to be drilled at Kirby during the summer of 2002.

     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: RMG 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 seller, and by RMG (with
CCBM), have earned 3,200 acres, which are included in the 21,536 acres leased
presently. As of March 31, 2002, RMG has met its drilling obligations for the
year ended March 31, 2002. Under the terms of the agreement, RMG must drill 4
additional wells by March 31, 2003 to keep its agreement in force. 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 of 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. To date, $621,128 has been spent on 7 exploratory wells.

     CLEARMONT: The Clearmont project consists of approximately 6,305 gross and
3,745 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. A 28 well exploration and
development drilling program began at Clearmont in August 2001 and could be in
production in 2002 or early 2003 depending on drilling results and gas prices.
To date, $2,247,000 has been spent on drilling and infrastructure at Clearmont.

     Nineteen of the existing 31 wells at Clearmont have been on full-scale
dewatering since June 2002. These 19 wells are hooked up to a gas gathering
system but no gas will be sold until the compressor is set up (see below). The
remaining 12 wells will start dewatering and be hooked up to a gas gathering
system in 2003. In addition, another 16 wells will be drilled and completed and
put on dewater pumps; it is expected that this added 16 well project will be
started in September 2002. We expect to have sufficient data to evaluate the
economics of Clearmont in the second or third calendar quarter 2003.

     During 2003, RMG expects to begin selling gas produced from the Clearmont
wells to CMS field Services, Inc. pursuant to a gas purchase contract. In the
third calendar quarter 2002, RMG will complete

                                       13

<PAGE>



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, and
Bighorn expects to have its system built from Clearmont to a gas transmission
pipeline in the fourth calendar quarter 2002.

     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 100% working interest. To date, RMG has not conducted
any significant development 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 development 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 and CCBM hold a 100% working interest in this prospect. To date,
RMG has not conducted any significant development on the property.

     GILLETTE NORTH: RMG and CCBM holds a 100% 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 of the current coalbed methane play in the
Gillette area. To date, RMG has not conducted any significant development on the
property.

     ARVADA: This prospect contains 1,900 gross acres and 1,700 net acres
located in Sheridan County, Wyoming. RMG and CCBM hold a 100% working interest,
and a 62% to 81.5% net revenue interest. To date, RMG and CCBM have spent
$64,428 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.

     COALBED METHANE WELL PERMITTING. Drilling coalbed methane wells requires
obtaining permits from various governmental agencies. The ease of obtaining the
necessary permits depends on the type of mineral ownership and the state in
which the property is located. Intermittent delays in the permitting process can
reasonably be expected throughout the development of any play. For example,
there is currently a temporary moratorium for drilling coalbed methane wells on
fee and state lands in Montana. 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 our plan of operations.

     On March 16, 2000, the Northern Plains Resource Council, Inc. ("NPRC")
filed suit against the Montana Board of Oil and Gas Conservation (Board)
requesting an order of the court compelling the defendant to prepare a Draft
Environmental Impact Statement ("EIS") and amendment of the Powder River and
Billings Resource Management Plans for coalbed methane development, which could
further delay development. RMG and others have filed a motion to intervene to
participate in this litigation and to ensure that some drilling can be performed
during any environmental analysis. The Board has agreed to limit issuance of CBM
well permits to 200 (of which RMG received 79) pending completion of the EIS,
which is currently scheduled to be completed in the summer of 2002.


                                       14

<PAGE>



     The Wyoming Department of Environmental Quality Supplemental Environmental
Impact Statement (SEIS) for the Powder River Basin in Wyoming, issued in the
fall of 1999, allowed the permitting of 5,000 CBM wells to be drilled on Federal
lands in Wyoming. More CBM well applications have been submitted causing the BLM
to begin a second EIS for the Powder River Basin Area in Wyoming. The new draft
EIS is scheduled to be completed in the fall of 2002. Development on Federal
lands in Wyoming has been stopped with the balance of the Wyoming Department of
Environmental Quality EIS permitted wells (4,000) occurring on fee and state
lands. The BLM completed an environmental assessment ("EA") in March 2001,
reviewing drainage issues, which could allow an additional 1,500 new CBM well
permits in the Gillette region of the Powder River Basin. The EA and EIS may
impact RMG's operations, as the Arvada prospect is within the affected area, and
RMG expects to begin applying for permits in these prospects in late 2002.

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

     RMG has received an Environmental Assessment ("EA") and Finding of No
Significant Impact ("FONSI") to drill up to 56 shallow gas sand wells. These
wells are located on Federal land held with Quaneco and would be converted to
production status upon receiving approval from the Montana Board of Oil and Gas.
These wells would evaluate potential CBM production as well as conventional gas.
Regarding other acreage held with Quaneco in Montana, the State of Montana may
lift its moratorium for CBM wells on private and state ground in Montana, and
start issuing new permits on these lands in summer 2002 (a voluntary moratorium
is currently in place for wells on private and state ground in Montana). RMG has
not determined to what extent it will participate in this procedure, and is
evaluating how best to protect its position to have reasonable exploration for
CBM wells proceed on state and fee ground. RMG has permits in place in order to
conduct exploration in expectation that commercial production will be approved
on completion of the EIS.

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


                                       15

<PAGE>



     The following summarizes permits now in place.

TABLE 4

--------------------------------------------------------------------------------
                                            Expiration
Prospect             Remaining Permits      or Renewal Date
--------------------------------------------------------------------------------
Castle Rock                 15              04/17/2003 and 10/17/2002
--------------------------------------------------------------------------------
Kirby                        6              01/01/03
                                            07/31/2002; 08/30/2002; 09/26/2002;
--------------------------------------------------------------------------------
Clearmont                   59              10/24/2002; 11/01/002; 11/02/2002;
                                            02/04/2003,
                                            03/15/2003, 07/31/03 and 08/30/03
--------------------------------------------------------------------------------
Arvada                       3              11/12/2002
--------------------------------------------------------------------------------
Bobcat                      30              12/02/02
--------------------------------------------------------------------------------
   Total                   113
--------------------------------------------------------------------------------

     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 the Clearmont and Arvada prospects remain (and
future wells in Wyoming will be) 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

     Companies involved in CBM production generally outsource their gas
gathering, compression and transmission. RMG intends to outsource compression
and gathering needs as well, possibly on a competitive basis with transmission
companies in the immediate area. Negotiations with various transmission
companies have been initiated in order to better manage future capital
investment. To date, RMG has a gas gathering agreement and a separate gas
purchase contract for the Clearmont and Arvada properties (see above).

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

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

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

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

                                       16

<PAGE>



Montana border and within close proximity to the development planned by RMG,
CCBM, and Quantum on their Kirby Prospect area.

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

     Wyoming operators have been realizing lower than expected prices for gas
produced in the Powder River Basin, due in part to seasonal/supply factors, but
more significantly due to a bottleneck in take away capacity. There is now ample
capacity to move gas from CBM fields within the PRB but limited interstate
movement capacity from the PRB to the major markets on the coasts and in the
midwest, which results in a negative price differential. The newly announced
Grasslands Pipeline (to be constructed to move gas to midwest and northern
markets) and the additional looping (now under construction) of the Kern River
Pipeline, will add 1,000 MMcf daily PRB take away capacity when completed by the
end of 2003, and should reduce the negative price differential.

URANIUM

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

     The uranium properties have been shut down. Substantial work would be
required to put them into production, including cleaning out drifts and other
underground passages, pumping water out of the mines, and sampling to ascertain
whether a commercially viable ore body exists on any of the properties. This
work will require significant capital expenditures.

     SHEEP MOUNTAIN - WYOMING

     Unpatented lode mining claims, underground and open pit uranium mines and
mining equipment in the Crooks Gap area are located on Sheep Mountain in Fremont
County, Wyoming and are adjacent to and west of the GMMV mining claims. From
December 21, 1988 to June 1, 1998, these assets were held by Sheep Mountain
Partners ("SMP"). On June 1, 1998, USECC received back from SMP all of the Sheep
Mountain mineral properties and equipment, in partial settlement of disputes
with Nukem, Inc. ("Nukem") and its subsidiary Cycle Resource Investment Corp.
("CRIC"). The judgment against Nukem impressing the CIS uranium supply contracts
in constructive trust with SMP 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.


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<PAGE>



     PLATEAU RESOURCES LIMITED ("PLATEAU")

     Plateau Resources Limited is a wholly-owned subsidiary of USE. See "Plateau
Shootaring Canyon Mill" below. Crested 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 Mine properties contains underground uranium deposits in
Garfield County, Utah, and are located partially on Utah State leases.

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

     Plateau also acquired the Velvet Mine and the nearby Woods Complex in the
Lisbon Valley area in southeastern Utah. The Velvet Mine was 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, Plateau 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. A Notice of Intent has been filed with the State of Utah to apply
for a small mining operations permit. The Woods Mine property is not permitted,
but USECC does not expect difficulty in obtaining a new permit, should we seek
one, because the surface facilities would occupy the site that has been
disturbed from previous operations.

     THE GREEN MOUNTAIN MINING VENTURE ("GMMV") PROJECT

     GMMV. In fiscal 1991, USECC entered into an agreement to sell 50 percent of
our interests in the Green Mountain uranium claims, and certain other rights, to
Kennecott Uranium Company ("KUC" or "Kennecott"), a subsidiary of Kennecott
Energy and Coal Company of Gillette, WY. Kennecott Energy and Coal Company is a
subsidiary of Rio Tinto plc, formerly RTZ plc of London. In consideration of the
sale to Kennecott, USECC received $15,000,000 cash and a commitment by Kennecott
to fund the first $50,000,000 of GMMV expenditures pursuant to Management
Committee budgets. At the same time USECC and Kennecott formed the GMMV and
entered into a joint venture agreement (the "GMMV Agreement") to develop, mine
and mill uranium ore from the Green Mountain Claims, and market uranium oxide.
For detailed explanation of the GMMV agreement, please see Crested Corp's. 1999
Form 10-K at pages 8-11, and footnote F to the financial statements.

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

     In September 2000, Kennecott filed a lawsuit to dissolve the GMMV and we
counterclaimed for damages. This lawsuit was settled on September 11, 2000.
Kennecott paid USECC $3,250,000 to acquire all of USECC's interest in the GMMV,
its properties and the Sweetwater Uranium Mill (with certain

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<PAGE>



exceptions), and all parties' claims in the lawsuit have been dismissed.
Kennecott also assumed all reclamation and other liabilities associated with the
GMMV, its properties, the Sweetwater Mill and all liabilities associated with
the GMMV since its inception, including the historical liabilities associated
with the Sweetwater Mill prior to its acquisition by the GMMV. USECC has
retained a 4% net profits royalty in any future uranium oxide produced from the
GMMV mining claims through the Sweetwater Mill (currently in a standby mode and
not operational).

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

     PROPERTIES. The Green Mountain Claims include the Big Eagle Properties on
Green Mountain, which contain substantial uranium mineralization, and are
adjacent to other mining claims. The Big Eagle Properties contain two open-pit
mines, as well as related roads, utilities, buildings, structures, equipment and
a stockpile of 500,000 tons of uranium material with a grade of approximately
..05% uranium concentrates ("U3O8"). Uranium concentrates means natural uranium
concentrates in the form of triuranium octoxide (U3O8) containing 0.711
(nominal) weight percent uranium in the isotope U-235. The assets include two
buildings (38,000 square feet and 8,000 square feet) formerly used by Pathfinder
Mines Corporation ("PMC") in mining operations.

     The Round Park (Jackpot) mining claims contain deposits of uranium which
have been estimated to contain 11,410,000 tons grading .26% ("U3O8") mineralized
material . These estimates are based on extensive drilling from the surface.
Other than the two declines, no underground workings have been built, and USECC
has not determined the location of any underground stopes containing mineralized
material. The GMMV had planned to mine this mineralized material from two
decline tunnels (-17 percent slope) in the Jackpot Mine driven underground from
the south side of Green Mountain. The first of several mineralized horizons in
the Round Park deposits, is about 2,300 feet vertically down from the surface of
Green Mountain. This work was halted in July 1998.

     SWEETWATER MILL. In fiscal 1993, the GMMV acquired the Sweetwater uranium
processing mill and associated properties located in Sweetwater County, Wyoming,
approximately 23 miles south of the proposed Jackpot Mine, from a subsidiary of
Union Oil Company of California ("UNOCAL"), primarily in consideration of
Kennecott and the GMMV assuming environmental liabilities, and decommissioning
and reclamation obligations. The Sweetwater Mill was designed as a 3,000 ton per
day ("tpd") facility.

     As consideration for acquiring the Sweetwater Mill, GMMV agreed to
indemnify UNOCAL against certain reclamation and environmental liabilities,
which indemnification obligations are guaranteed by Kennecott Corporation
(parent of Kennecott Uranium Company). The GMMV is responsible for compliance
with mill decommissioning and land reclamation laws, for which the environmental
and reclamation bonding requirements are approximately $24,330,000, which
includes a $4,560,000 bond required by the Nuclear Regulatory Commission
("NRC"). None of the GMMV future reclamation and closure costs are reflected in
the consolidated financial statements.

     The reclamation and environmental liabilities assumed by the GMMV (and now
Kennecott's sole responsibility) consist of two categories: (1) cleanup of the
inactive open pit mine site near the Mill (the source of ore feedstock for the
mill when operating under UNOCAL), including water (heavy metals and other
contaminants) and tailings (heavy metals dust and other contaminants requiring
abatement and erosion control) associated with the pit; and (2) decontamination
and cleanup and disposal of the Mill building, equipment and tailings cells
after Mill decommissioning. The Wyoming Department of Environmental Quality
("DEQ")

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<PAGE>



exercises delegated jurisdiction from the United States Environmental Protection
Agency ("EPA") to administer the Clean Water Act and the Clean Air Act, and
directly administers Wyoming statutes on mined land reclamation. The Sweetwater
Mill is also regulated by the NRC for tailings cells and mill decontamination
and cleanup. The EPA has continuing jurisdiction under the Resource Conservation
and Recovery Act, pertaining to any hazardous materials which may be on site
when cleanup work is started.

     PLATEAU'S SHOOTARING CANYON MILL

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

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

     Plateau also owns approximately 90,000 tons of uranium mineralized material
stockpiled at the mill site and approximately 172,000 tons of mineralized
material stockpiled at the Tony M Mine. Included with mill assets are tailings
cells, laboratory facilities, equipment shop and inventory. The NRC issued a
license to Plateau authorizing production of uranium concentrates, however,
since the mill was shut down, only maintenance and required safety and
environmental inspection activities were performed and the source materials
license with the NRC was for standby operations only. Plateau applied to the NRC
to convert the source materials license from standby to operational and upon
increasing the reclamation bond, the NRC issued the new license on May 2, 1997.
Plateau has a cash bond in favor of the NRC in the amount of $8,818,600 plus and
additional $1,082,300 in government securities for bonding future reclamation.

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

     The Shootaring Mill has remained shut down because of continued low uranium
prices. Substantial expense would be incurred to upgrade the mill to operating
status and fully activate the NRC permit, and substantial work would be needed
to put the Velvet and Woods Complex Mines into production for material to run
through this mill. This work would include cleaning out adits and drifts,
dewatering, and sampling to ascertain the location and grade of mineralized
material.


                                       20

<PAGE>



         TICABOO TOWNSITE

     Plateau owns Canyon Homesteads, Inc., a Utah corporation, which developed
the Ticaboo, Utah townsite 3.5 miles south of the Shootaring Mill. The Townsite
includes a motel, restaurant, lounge, convenience store and single family,
mobile home and recreational vehicle sites (all with utility access), located on
a State of Utah lease near Lake Powell, and is being operated as a commercial
enterprise. An amendment was entered into on April 1, 1997 on the Utah State
lease covering the Ticaboo Townsite whereby the State will convey portions of
the Townsite lease to Canyon on a sliding scale basis as they are sold. USE and
Crested are developing the Townsite in limited fashion and are selling home and
mobile home sites.

     SHEEP MOUNTAIN PARTNERS ("SMP")

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

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

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

     An ion exchange plant 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. Permits to operate existing mines (now in care and maintenance
status) on the Crooks Gap properties have been issued by the State of Wyoming.
Amendments are needed to open new mines within the permit area. As a condition
to issuance of the permits, a NPDES water discharge permit under the Clean Water
Act has been obtained. Monitoring and treatment of water removed from the mines
and discharged in

                                       21

<PAGE>



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.

URANIUM MARKET INFORMATION.

     URANIUM SPOT MARKET. Uranium Exchange Value spot price as reported by
TradeTech was $9.85/lb. U3O8 on July 31, 2002, an increase from an Unrestricted
value of $7.95/lb and a Restricted value of $8.25/lb at July 31, 200. During the
first half of 2002, total spot market volume was approximately 8.4 million lbs
U3O8 which was greater than the 3.81 million lbs for the first half of 2001 or
an increase of 4.59 million lbs U3O8.

     URANIUM LONG-TERM MARKET. The long-term market has been active in 2002 with
the long-term contracts reported by market analysts to have exceeded 10.9
million lbs of U3O8 during the first half of 2002. The uranium price indicator
published by TradeTech was at $10.75/lb U3O8 at July 31, 2002, up from the
$10.00/lb at July 31, 2001.

GOLD

     SUTTER GOLD MINE (CALIFORNIA)

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

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

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

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

     Surface and mineral rights holding costs will be approximately $90,000 from
June 1, 2002 through May 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.

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<PAGE>



     PERMITS AND FUTURE PLANS. In August 1993, the Amador County Board of
Supervisors issued a Conditional Use Permit ("CUP") allowing mining of the SGM
and milling of production, subject to conditions relating to land use,
environmental and public safety issues, road construction and improvement, and
site reclamation. The permit will allow construction of the mine and mill
facilities in stages as the project gets underway, thereby reducing initial
capital outlays. Additional permits (for road work, dust control and
construction of mill and other surface improvements) need to be applied for in
due course. In August and September 1998, the Amador County Board of Supervisors
certified the Final Subsequent Environmental Impact Report ("FSEIR") and
approved all of the amendments requested by SGMC. Amendments to the CUP remove
two tailings dams, eliminate the need to use cyanide on-site, and eliminate mine
related traffic on two county roads.

MOLYBDENUM

     As a holder of royalty, reversionary and certain other interests in
properties located at Mt. Emmons near Crested Butte, Colorado, USE and Crested
are entitled to receive annual advance royalties of 50,000 pounds of molybdenum,
or cash equivalent. AMAX Inc. (which was acquired by Cyprus Minerals Company and
was renamed Cyprus Amax Minerals Company in November 1993 and was acquired later
by Phelps Dodge Corporation in October 1999) delineated a deposit of molybdenum
containing approximately 146,000,000 tons of mineralization averaging 0.43%
molybdenum disulfide on the properties of USE and Crested.

     Advance royalties are paid in equal quarterly installments until: (i)
commencement of production; (ii) failure to obtain certain licenses, permits,
etc., that are required for production; or (iii) AMAX's return of the properties
to USE and Crested. The advance royalty payments reduce the operating royalties
(6% of gross production proceeds) which would otherwise be due out of
production. There is no obligation to repay the advance royalties if the
property is not placed in production. USECC recognized $108,500, $132,600 and
$150,600 of revenues in fiscal 2001, 2000 and 1999 related to this royalty
interest. Phelps Dodge ceased making the quarterly installments in July 2001.

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

     USE and Crested 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). USECC operates a small oil production
facility (three wells) at the Lustre Oil Field on the Ft. Peck Indian
Reservation in northeastern Montana. USECC receives a fee based on oil produced.
This fee and other assets of USECC collateralize a $750,000 line of credit from
a bank.

COMMERCIAL OPERATIONS

     MOTEL, REAL ESTATE AND AIRPORT OPERATIONS. Crested owns varying interests
with USE in subsidiaries engaged in real estate, and other commercial
businesses. The affiliated organizations include Western Executive Air, Inc.
("WEA") and Canyon Homesteads, Inc. (through Plateau). Activities of these and
other subsidiaries in the business sectors include ownership and management of a
commercial office

                                       23

<PAGE>



building, the townsite of Jeffrey City, Wyoming (which has been sold) and the
townsite, motel, convenience store and other commercial facilities in Ticaboo,
Utah.

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

     Crested and USE (through WEA) also own 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. USE and Crested,
through WEA operated a fixed base operation at the Riverton Regional Airport
until it was shut down late in fiscal 2002.

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

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

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

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

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

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

                            RESEARCH AND DEVELOPMENT

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


                                       24

<PAGE>



                                  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 and USE comply in all material respects
with existing environmental regulations.

     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. USECC 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 USECC.

                                    EMPLOYEES

     As of August 17, 2002, USE had approximately 33 full-time employees, down
from 55 in July 2001. Crested 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 GMMV, 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 $286,300 during fiscal 2003. RMG is
obligated for $96,400 of this amount to keep the leases in effect.

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<PAGE>



     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.

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 USE/Crested, and Nukem, Inc. and its
subsidiary Cycle Resource Investment Corp. ("CRIC"), concerning the formation
and operation of the Sheep Mountain Partners partnership for uranium mining and
marketing, and activities of the parties outside SMP. Arbitration proceedings
were initiated by CRIC in June 1991 and in July 1991, USECC filed a lawsuit
against Nukem, CRIC and others in the U.S. District Court (District of Colorado)
in Civil No. 91B1153. Later, USECC filed another suit for the standby costs at
the SMP mines against SMP in the Colorado State Court. The Federal Court stayed
both the arbitration proceedings and the State Court case. In February 1994, all
of the parties agreed to exclusive and binding arbitration of the disputes
before the American Arbitration Association ("AAA"), for which the legal claims
made by both sides included fraud and misrepresentation, breach of contract,
breach of duties owed to the SMP partnership, and other claims.

     The AAA panel (the "Panel") entered an Order and Award (the "Order") in
April 1996 and clarified the Order on July 3, 1996, finding generally in favor
of USE and Crested on certain of their claims (including the claims for
reimbursement for standby maintenance expenses and profits denied SMP in Nukem's
trading of uranium), 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.


                                       26

<PAGE>



     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.

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
matter has been settled, 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.

     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. Phelps Dodge and MEMCO have
20 days from July 9, 2002 or date of service to answer USECC's claims.

     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. 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.

                                       27

<PAGE>



     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,
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.

     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. An order has been entered by the Court setting
the Scheduling/Planning Conference in the case for September 12, 2002.

     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.


                                       28

<PAGE>



     SUTTER GOLD LITIGATION

     On or about March 13, 2002, the Company's subsidiary, Sutter Gold Mining
Company, was served with a complaint filed in the Superior Court of Amador
County, California, case number 02CU2051. The plaintiff is Edward A. Swift
individually and as a trustee and the other defendant is Meridian Minerals
Company (Meridian). The litigation involves a mining lease entered into in 1989
between Plaintiffs and Defendant Meridian on the rental of Plaintiffs' land.
Plaintiffs contend Defendants owe them $136,186 for past due rent and some
$12,000 in unpaid taxes and for fence repair. Defendant Sutter Gold, has filed
an answer generally denying the complaint and the case is pending. We have
negotiated the terms of a settlement but due to the death of one of the
essential parties in the matter, finalization of the settlement has been
delayed. We hope to finalize a settlement in calendar 2002.

     ROCKY MOUNTAIN GAS LITIGATION

     On or about April 1, 2002, 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.) 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 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 an of RMG's Montana BLM leases.

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

     Not applicable. 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.


                                       29

<PAGE>



                                                   High              Low
                                                   ----              ---
     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 August 19, 2002 there were 1,756 stockholders of record for
Crested common stock.

     (b)(2) Not applicable.

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

(d) During the year ended May 31, 2002, Crested issued 25,946 shares of its
Common Stock to its outside directors for services rendered.

ITEM 6.  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                                       May 31,
                               ------------------------------------------------------------------------------------
                                    2002             2001              2000               1999            1998
                                    ----             ----              ----               ----            ----

<S>                             <C>               <C>              <C>               <C>              <C>
Current assets                  $      3,300      $      3,200     $       3,000     $     46,600     $      32,000
Current liabilities                7,560,700         5,740,200        10,230,200        7,015,200         6,545,100
Working capital                   (7,557,400)       (5,737,000)      (10,227,200)      (6,968,600)       (6,513,100)
Total assets                       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          725,900           725,900
Shareholders' equity/(deficit)    (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 for
fiscal 2002, 2001 and 2000, respectively; and $725,900 for fiscal 1999 and 1998,
respectively.


                                       30

<PAGE>



<TABLE>
<CAPTION>
                                                              For Years Ended May 31,
                               -------------------------------------------------------------------------------
                                    2002             2001              2000             1999             1998
                                    ----             ----              ----             ----             ----

<S>                            <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                    (175,000)       3,702,400         (194,600)        (786,100)         58,500
Equity in (loss) gain of
   affiliates                    (1,823,900)      (2,496,700)      (5,085,200)      (1,165,600)      1,151,000
                               ------------      -----------     ------------     ------------     -----------

Net income (loss)              $ (1,998,900)     $ 1,205,700     $ (5,279,800)    $ (1,951,700)    $ 1,209,500
                               ============      ===========     ============     ============     ===========

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

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


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

     The following is Management's Discussion and Analysis of significant
factors which have affected the Company's liquidity, capital resources and
results of operations during the periods included in the accompanying financial
statements. The discussion contains forward-looking statements that involve
risks and uncertainties. Due to uncertainties in the minerals business, the
Company's actual results may differ materially from the results discussed in any
such forward-looking statements.

LIQUIDITY AND CAPITAL RESOURCES

     As of May 31, 2002, we had a working capital deficit of $7,557,400 as
compared to a working capital deficit of $5,737,000 as of May 31, 2001. This
increase in the working capital deficit of $1,820,400 was as a result of the
Company's parent company, U.S. Energy Corp ("USE") funding the Company's
obligations throughout fiscal year 2002.

     Investing activities consumed $1,656,800 during fiscal 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 was generated by a $1,820,500 increase in
debt to USE as USE continued to advance our portion of the operating and
investing funds necessary to fund USECB and other subsidiaries.

     During fiscal 2002, 25,946 shares of restricted common stock, at market,
were issued to our outside directors as non-cash compensation.

CAPITAL RESOURCES

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


                                       31

<PAGE>



     We, jointly with USE, have a $750,000 line of credit with a commercial
bank. The line of credit is secured by certain of our joint real estate holdings
and equipment. At May 31, 2002, the line of credit had been drawn down by
$200,000. The line of credit is being used for short term working capital needs
associated with operations.

     The capital resources at May 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 primary requirements for our working capital during fiscal 2003 are
expected to be development of coalbed methane properties; the cost of
maintaining our uranium properties; the SGMC gold properties holding costs, and
general and administrative costs. Should USE elect not to fund our portion of
the operations, our participation in the joint 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 by issuing more stock to USE, or by a reduction of our ownership
interests in the subject subsidiaries.

                    DEVELOPMENT OF COALBED METHANE PROPERTIES

     The majority of the fiscal 2003 development costs associated with the
coalbed methane properties of RMG has been funded through third party contracts
that RMG entered into. Under one of these agreements, as to properties drilled
that are owned only 50% by RMG, we may be required to fund the drilling costs
for the interest ownership of the remaining parties, if they 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 production revenues until our costs and
additional amounts are recovered before the non-participating parties begin to
receive production funds.

                         MAINTAINING URANIUM PROPERTIES

     SMP URANIUM PROPERTIES

     The care and maintenance costs associated with the Sheep Mountain uranium
mineral properties, of which we are responsible for 50%, were approximately
$33,300 per month during fiscal 2002. We continue to implement cost cutting
measures to reduce the holding cost while at the same time preserve the asset.
We were obligated to reclaim the GMIX plant which was used to extract uranium
from mine waters. We completed the reclamation during fiscal 2002. Regulatory
agencies continue to monitor the site. To date, these agencies have accepted the
reclamation work as completed. Additional work may be required in the futures,
but the Company is not aware of any additional work that may be required.

     PLATEAU RESOURCES URANIUM PROPERTIES

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


                                       32

<PAGE>



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

     SUTTER GOLD MINING COMPANY GOLD PROPERTIES

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

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

     As a result of USE funding our obligations, we are indebted to USE in the
amount of $7,560,700 as of May 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
                                -----------------

     It is not anticipated that any of our working capital will be used in
fiscal 2003 for the reclamation of any of our mineral property interests. The
reclamation obligations are long term and are either bonded through the use of
cash bonds or the pledge of assets.

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

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

     The reclamation of SGMC gold properties is approximately $27,800. This
reclamation obligation is bonded with a cash bond.

RESULTS OF OPERATIONS

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.

                                       33

<PAGE>



     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.

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

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

                                       34

<PAGE>



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.

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

     MOLYBDENUM AND OIL. Changes in prices of molybdenum and petroleum are not
expected to materially affect our operations during fiscal 2003. A significant
and sustained increase in demand for molybdenum would be required for the
development of the Mt. Emmons properties by Phelps Dodge since it has other
producing mines.

ITEM 8.  FINANCIAL STATEMENTS

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


                                       35

<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 May 31, 2002 and 2001 and the related statements of
operations, shareholders' deficit and cash flows for each of the two years in
the period ending May 31, 2002. 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 2002 and 2001 financial statements referred to above present
fairly, in all material respects, the financial position of Crested Corp. as of
May 31, 2002 and 2001 and the results of their operations and their cash flows
for each of the two years in the period ending May 31, 2002, 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 $7,557,400
as of May 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,
July 18, 2002


                                       36

<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


                                       37

<PAGE>



                                  CRESTED CORP.
                                  BALANCE SHEET
                                     ASSETS
<TABLE>
<CAPTION>
                                                                                 May 31,
                                                                     ------------------------------
                                                                         2002              2001
                                                                     ------------      ------------
CURRENT ASSETS:
<S>                                                                  <C>               <C>
   Cash and cash equivalents                                         $      3,300      $      3,200

INVESTMENTS IN AFFILIATES                                               6,038,700         6,205,800

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

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

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

COMMITMENT TO FUND EQUITY INVESTEES                                       215,600           215,600

RECLAMATION LIABILITY                                                     748,400           748,400

COMMITMENTS AND CONTINGENCIES (Note K)

FORFEITABLE COMMON STOCK, $.001 par value;
   15,000 shares issued, forfeitable until earned                          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 and 17,073,330 shares
     issued and outstanding                                                17,200            17,200
   Additional paid-in capital                                          11,795,200        11,783,800
   Accumulated deficit                                                (14,293,100)      (12,294,200)
                                                                     ------------      ------------
       Total shareholders' deficit                                     (2,480,700)         (493,200)
                                                                     ------------      ------------
                                                                     $  6,054,100      $  6,221,100
                                                                     ============      ============
</TABLE>


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


                                       38

<PAGE>



                                  CRESTED CORP.
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                    Year Ended May 31,
                                    ------------------------------------------------
                                        2002               2001             2000
                                    ------------      ------------      ------------
REVENUES:
<S>                                 <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            175,000           189,100           267,700

INCOME (LOSS) BEFORE
   EQUITY IN LOSS OF AFFILIATES
                                    ------------      ------------      ------------
   AND INCOME TAXES                     (175,000)        3,702,400          (194,600)

EQUITY IN LOSS OF AFFILIATES          (1,823,900)       (2,496,700)       (5,085,200)
                                    ------------      ------------      ------------

INCOME (LOSS) BEFORE
   INCOME TAXES                       (1,998,900)        1,205,700        (5,279,800)

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

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

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

BASIC WEIGHTED AVERAGE
   SHARES OUTSTANDING                 17,075,320        10,448,505        10,361,149
                                    ============      ============      ============

DILUTED WEIGHTED AVERAGE
   SHARES OUTSTANDING                 17,075,320        10,506,499        10,361,149
                                    ============      ============      ============
</TABLE>


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


                                       39

<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, 1999              10,284,664      $     10,300      $  6,387,300     $ (8,220,100)     $ (1,822,500)

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

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

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

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

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

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

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

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

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

Balance May 31, 2001               17,073,330            17,200        11,783,800      (12,294,200)         (493,200)

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)
                                   ==========      ============      ============     ============      ============
</TABLE>

Shareholders' Deficit at May 31, 2001 and 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.

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


                                       40

<PAGE>



                                  CRESTED CORP.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      Year Ended May 31,
                                                          ----------------------------------------------
                                                              2002             2001              2000
                                                          ------------     -----------      ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                       <C>              <C>              <C>
   Net income (loss)                                      $(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                         1,823,900        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                     --               --             69,500
                                                          -----------      -----------      -----------
NET CASH PROVIDED BY (USED IN)
    OPERATING ACTIVITIES                                     (163,600)       1,712,000         (112,300)
                                                          -----------      -----------      -----------

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

NET CASH (USED IN)
    INVESTING ACTIVITIES                                   (1,656,800)      (2,221,800)      (1,253,400)
                                                          -----------      -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in long-term debt to affiliates                 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 year                                            3,200            3,000           45,000
                                                          -----------      -----------      -----------

CASH AND CASH EQUIVALENTS,
   End of year                                            $     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.


                                       41

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  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 uranium, coalbed methane, gold and molybdenum. However,
none are producing at the present time. During fiscal 2000, the Company entered
into the methane gas business. Currently, the Company also holds various real
properties used in commercial operations. Most of these activities are conducted
through a non consolidated joint venture discussed below and in Note B.

     The Company and U.S. Energy Corp. ("USE"), an approximate 70% 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 40.5% of RMG as of May 31, 2002.

     The Company has generated significant net losses prior to and including
fiscal 2002 resulting in an accumulated deficit of $14,293,100 at May 31, 2002.
The Company also has a working capital deficit of $7,557,400 at May 31, 2002
that includes $7,560,700 due to USE and minimal cash balances at May 31, 2002.
At year-end, the Company does not have sufficient cash flows from operations or
cash on hand to meet its obligations. All of these factors raise substantial
doubt about the Company's ability to continue as a going concern during the
upcoming year. The Company has historically relied on, and continues to rely on,
advances from USE to fund its current operating requirements. It is uncertain
whether this funding will continue. The Company 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 more cash from the final settlement of the SMP litigation.
Nevertheless, there is no assurance that the Company will be successful in
meeting its obligations during the upcoming year.

B.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INVESTMENTS

     Investments in other 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 is accounted for using the equity
method due to its status as a subsidiary of USE (see Note E). All material
intercompany profits, transactions and balances have been eliminated.

CASH EQUIVALENTS

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

                                       42

<PAGE>


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


PROPERTIES AND EQUIPMENT

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

     The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition, exploration, and
development of oil and gas reserves, including directly related overhead costs,
are capitalized.

     All capitalized costs of oil and gas properties including the estimated
future costs to develop proved reserves, are amortized on the unit-of-production
method using estimates of proved reserves. Investments in unproved properties
and major development projects are not amortized until proved reserves
associated with the projects can be determined or until impairment occurs. If
the results of an assessment indicate that the properties are impaired, the
amount of the impairment is added to the capitalized costs to be amortized.

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

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

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

LONG-LIVED ASSETS

     The Company evaluates its long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amount may not be
recoverable. If the sum of estimated future cash flows on an undiscounted basis
is less than the carrying amount of the related asset, an asset impairment is
considered to exist. The related impairment loss is measured by comparing
estimated future cash flows on a discounted basis to the carrying amount of the
asset. Changes in significant assumptions underlying future cash flow estimates
may have a material effect on the Company's financial position and results of
operations. An uneconomic commodity market price, if sustained for an extended
period of time, or an inability to obtain financing necessary to develop the
mineral interests may result in asset impairment. As of May 31, 2002, management
believes no further 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

                                       43

<PAGE>


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


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
$7,560,700 and $5,750,700 respectively at May 31, 2002 and 2001.

REVENUE RECOGNITION

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

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

                                       44

<PAGE>


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


statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

     Management of the Company has reviewed all recently issued accounting
standards and determined that they will not have a material effect on its
financial position or results of operations.

C.       RELATED-PARTY TRANSACTIONS:

     The Company does not have employees, but utilizes USE's employees and pays
for one-half of these costs under the USECC Joint Venture Agreement. The Board
of Directors of USE adopted the U.S. Energy Corp. 1989 Employee Stock Ownership
Plan ("ESOP") in 1989, for the benefit of USE's employees. In fiscal 2002, 2001
and 2000, the Board of Directors of USE contributed 70,075, 53,837 and 123,802
shares of USE stock to the ESOP at prices of $3.38, $5.35 and $3.00 per share,
respectively. The Company is responsible for one-half of the value of these
contributions or $118,400, $144,000 and 185,700 in fiscal 2002, 2001 and 2000,
respectively.

D.   INVESTMENTS IN AFFILIATES:

     The Company's investments in affiliates are as follows:

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

<S>                                           <C>          <C>              <C>
     Rocky Mountain Gas, Inc. ("RMG")         40.5%        $   605,200      $   790,100
     USECC                                    50.0%          5,426,800        5,409,000
     SGMC                                      3.2%            (85,500)         (85,500)
     YSFC                                     13.2%           (130,100)        (130,100)
     USE                                       4.4%           --               --
     Others                                   various            6,700           14,600
</TABLE>

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


                                       45

<PAGE>


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


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

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

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


                                    CONDENSED COMBINED BALANCE SHEETS:
                                             EQUITY INVESTEES

<TABLE>
<CAPTION>
                                                                 2002             2001
                                                             ------------     ------------

<S>                                                          <C>                <C>
     Current assets                                          $ 18,601,900       15,782,300
     Non-current assets                                        22,256,700       18,950,100
                                                             ------------     ------------
                                                             $ 40,858,600     $ 34,632,400
                                                             ============     ============

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


                  CONDENSED COMBINED STATEMENTS OF OPERATIONS:
                                EQUITY INVESTEES

<TABLE>
<CAPTION>
                                                             Year Ended May 31,
                                            -----------------------------------------------
                                               2002             2001            2000
                                            ------------     -------------    -------------
<S>                                         <C>              <C>              <C>
         Revenues                           $ 1,250,500      $  8,249,900     $  5,187,000
         Costs and expenses                  (8,565,500)      (10,794,400)     (16,310,200)
         Other income and expenses              682,500           242,600          213,500
                                            ------------     -------------    ------------
         Net loss                           $(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.


                                       46

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  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 11 years, the Company has expensed all of its costs related to SMP and has
no carrying value of its investment in SMP for 2002 and 2001. 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 May 31, 2002.

     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-, $60,300 and $66,000 of
revenue from the advance royalty payments in fiscal 2002, 2001 and 2000
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.

                                       47

<PAGE>


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


     Per the contract with AMAX, the Company and USE are to receive 15% of the
first $25,000,000, or $3,750,000, if the properties are sold, which the Company
and USE believe has occurred 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.

     Additional development work is required prior to the commencement of
commercial production. SGMC has not generated any significant revenue and has no
assurance of future revenue. All acquisition and mine development costs since
inception 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. Management believes that the fair market
value of the remaining assets of SGMC exceed the carrying value at May 31, 2002.
The assets include raw land that is no longer needed in the mining operations
and buildings and equipment.

     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 May
31, 2002, Plateau had a cash security in the amount of $9,900,900 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 business. RMG is engaged in the
acquisition of coalbed methane gas properties and the future exploration,
development and production of methane gas from those properties. RMG is owned

                                       48

<PAGE>


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


40.5% by the Company and 51.2% by USE. RMG sold 55,500 and 1,206,333 shares of
its common stock in a private placement during fiscal 2001 and 2000,
respectively. Net proceeds from the sale of this common stock totaled
$3,721,900. 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.

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

F.   OIL AND GAS INFORMATION:

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

<TABLE>
<CAPTION>
                                                                         2002             2001
                                                                      -----------     -----------
<S>                                                                   <C>             <C>
      Company's share of equity method investees' cost of
           property acquisition, exploration and development          $   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>
<S>                                                                   <C>             <C>
     Proved oil and gas properties                                    $   886,800     $   886,800
          Less accumulated depreciation,
          depletion and amortization                                      886,800         886,800
                                                                      -----------     -----------

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

Depreciation, depletion and amortization expense was $0 and $0 for the years
ended May 31, 2002 and 2001, respectively.

G.  DEBT:

     Obligations of the Company consist of advances payable to USE, which are
due upon demand. The obligation is due to U.S. Energy for funding a majority of
the operations of USECC, of which 50% is the responsibility of the Company. All
advances payable to USE are classified as current as of May 31, 2002 and 2001 as
a result of USE's unilateral ability to modify the repayment terms.

<TABLE>
<CAPTION>
                                                                                May 31,
                                                                      ---------------------------
                                                                         2002            2001
                                                                      -----------     -----------
<S>                                                                   <C>             <C>
     Advances payable - U.S. Energy
        balance payable  in full on
        demand (see Note A)                                           $ 7,560,700     $ 5,740,200
                                                                      ===========     ===========
</TABLE>

                                       49

<PAGE>


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


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

     As of May 31, 2002, the Company and USE had a $ 750,000 line of credit with
a commercial bank. The line of credit bore interest at a variable rate (5.75% as
of May 31, 2002). The weighted average interest rate for 2002 and 2001 was 6.5%.
As of May 31, 2002, $200,000 was outstanding on this line of credit, one half of
which is the Company's obligation. This line of credit is secured by a share of
the net proceeds of fees from production of oil wells and certain assets of
USECC.

H.   INCOME TAXES:

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

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

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

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

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

     At May 31, 2002, the Company had available, for federal income tax
purposes, net operating loss carry-forwards of approximately $10,695,000 which
expire from 2007 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:


                                       50

<PAGE>


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


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

<S>                                                    <C>              <C>              <C>
     Expected federal income tax expense (benefit)     $  (679,600)     $   410,000      $(1,795,100)
     Losses from subsidiaries not consolidated
          for tax purposes, utilization of net
          operating losses and other                       424,600        1,080,000          406,200
     Valuation allowance                                   255,000       (1,490,000)       1,388,900
                                                       -----------      -----------      -----------
     Income taxes                                      $      --        $      --        $      --
                                                       ===========      ===========      ===========
</TABLE>

     There were no taxes payable as of 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 years ended May 31,
2002 and 2001, 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
       May 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 in fiscal 2001 have been settled
or otherwise finally resolved.


                                       51

<PAGE>


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


SHEEP MOUNTAIN PARTNERS ARBITRATION/LITIGATION

     In 1991, disputes arose between the Company, USE, 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.


                                       52

<PAGE>


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


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
matter has been settled, 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.

     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. Phelps Dodge and MEMCO have
20 days from July 9, 2002 or date of service to answer USECC's claims.

     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. 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.


                                       53

<PAGE>


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


     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,
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.

     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. An order has been entered by the Court setting
the Scheduling/Planning Conference in the case for September 12, 2002.

     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

                                       54

<PAGE>


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


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 mine development, exploration and operating
activities are subject to federal and state regulations that require the Company
and USE to protect the environment. The Company and USE conduct their mining
operations in accordance with these regulations. The Company's and USE's current
estimates of their reclamation obligations and their current level of
expenditures to perform ongoing reclamation may change in the future. At the
present time, however, the Company and USE cannot predict the outcome of future
regulation or impact on costs. Nonetheless, the Company and USE have recorded
their best estimate of future reclamation and closure costs based on currently
available facts, technology and enacted laws and regulations. Certain regulatory
agencies, such as the Nuclear Regulatory Commission ("NRC"), the Bureau of Land
Management ("BLM") and the Wyoming Department of Environmental Quality ("WDEQ")
review the Company's and USE's reclamation, environmental and decommissioning
liabilities, and the Company and USE believe the recorded amounts are consistent
with those reviews and related bonding requirements. To the extent that planned
production on their properties is delayed, interrupted or discontinued because
of regulation or the economics of the properties, the future earnings of the
Company and USE would be adversely affected. The Company and USE believe they
have accrued all necessary reclamation costs and there are no additional
contingent losses or unasserted claims to be disclosed or recorded.


                                       55

<PAGE>


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


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

     As of May 31, 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 $7,614,700 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 mineral 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 fiscal 2002
and the balance in the reclamation liability account at May 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. The work is completed, but the
regulatory agencies have not terminated monitoring the site. Additional
reclamation work may be required although none is anticipated.


                                       56

<PAGE>


                                  CRESTED CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                  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
May 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 May 31, 2002, Plateau held a cash deposit for
reclamation in the amount of $8,818,600 which management believes will satisfy
the obligation of reclamation.

EXECUTIVE COMPENSATION

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

K.   SUBSEQUENT EVENT

     Subsequent to May 31, 2002, the Company's affiliate RMG purchased a 25% net
revenue interest and a 31% working interest in 18 coalbed methane wells drilled
on 930 net acres in the Powder River Basin. Thirteen of the 18 drilled wells are
currently connected and producing at a combined rate of one million cubic feet
of gas per day (1,000 mcf) from the two primary coals of the property: the Cook
Coal (11 wells) at 650 feet, and the Canyon Coal (2 wells) at 450 feet. One of
the 18 wells is used as a water injection well. RMG purchased this property
interest by paying $500,000 cash and issuing 37,500 shares of USE common stock
valued at $150,000. Carrizo, RMG's partner in coalbed properties, purchased an
equal interest at the same price. RMG will be the operator.


                                       57

<PAGE>


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


M.   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<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>


<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              $    452,700      $    (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>



                                       58

<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 the proxy statement
for the 2001 Annual Meeting of Shareholders. The information regarding the
remaining executive officer is contained in Part I of this report.

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 51 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 2002 Annual Meeting of Shareholders, 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 2002 Annual Meeting of Shareholders, 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 2002 Annual Meeting of Shareholders, under the
caption "Certain Relationships and Related Transactions."



                                       59

<PAGE>



                                     PART IV

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

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

                                                                        Page No.
(1)  Financial Statements

     Registrant and Affiliate

     Report of Independent Public Accountants
     Grant Thornton LLP.......................................................36

     Report of Independent Public Accountants
     Arthur Andersen LLP......................................................37

     Balance Sheets - May 31, 2002, 2001 and 2000.............................38

     Statements of Operations
     for the Years Ended May 31, 2002 and 2001................................39

     Statements of Shareholders'
     Deficit for the Years Ended May 31, 2002, 2001 and 2000..................40

     Statements of Cash Flows
     for the Years Ended May 31, 2002, 2001 and 2000..........................41

     Notes to Financial Statements.........................................42-58

(2)  N/A

(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]


                                       60

<PAGE>



     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....................................*

     10.1         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]

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

     10.62        Purchase and Sale Agreement
                  Bobcat Property (Rocky Moutain Gas, Inc.)....................*

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

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

     99.1         Certification Pursuant to Section 1350 of
                  Title 18 of the United States Code...........................*

     *  Filed herewith.



                                       61

<PAGE>



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.


(b)  Reports filed on Form 8-K.

     During the fourth quarter of the fiscal year ended on May 31, 2002, the
     Registrant filed no reports on Form 8-K.

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

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


                                       62

<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:  September 10, 2002                   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:  September 10, 2002                   By:    /s/ John L. Larsen
                                                 -------------------------------
                                                 JOHN L. LARSEN, Director


Date:  September 10, 2002                   By:    /s/  Daniel P. Svilar
                                                 -------------------------------
                                                 DANIEL P. SVILAR, Director


Date:  September 10, 2002                   By:    /s/  Michael D. Zwickl
                                                 -------------------------------
                                                 MICHAEL D. ZWICKL, Director


Date:  September 10, 2002                   By:    /s/  Kathleen R. Martin
                                                 -------------------------------
                                                 KATHLEEN R. MARTIN, Director


Date:  September 10, 2002                   By:    /s/  Robert Scott Lorimer
                                                 -------------------------------
                                                 ROBERT SCOTT LORIMER,
                                                 Principal Financial Officer and
                                                 Chief Accounting Officer



                                       63

<PAGE>