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, 1999 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 August 26, 1999 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
$1,583,231.

               Class                          Outstanding at August 26, 1999
------------------------------------------   -----------------------------------
        Common Stock, $0.001 par value               10,349,664 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:

        1999 Annual  Meeting  Proxy  Statement for the fiscal year ended May 31,
        1999, into Items 10-13 of Part III of the filing.

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

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<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,  including without limitation the statements under
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations,  the disclosures about the Green Mountain Mining Venture development
schedule for the Wyoming  properties,  the projected operating status of Plateau
Resources Limited's Shootaring Canyon uranium mill in Utah, future market prices
for uranium oxide, possible utility contracts for uranium oxide, and the plan of
operations  for  Yellow  Stone  Fuels  Corp.  and  Sutter  Gold  Mining  Company
(subsidiaries of Crested),  are forward-looking  statements.  In addition,  when
words like  "expect,"  "anticipate"  or  "believe"  are used,  Crested is making
forward-looking statements.

        Although  Crested  believes  that  the  expectations  reflected  in such
forward-looking  statements are  reasonable,  it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from such expectations are disclosed in this
Annual Report. 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. ("Crested" or the "Registrant") and its parent U.S. Energy
Corp.("USE")  are in the business of  acquiring,  exploring,  developing  and/or
selling or leasing mineral properties, and the mining and marketing of minerals.
Crested is now engaged in two principal mineral sectors:  uranium and gold, both
of which are currently in the care and  maintenance  mode. The most  significant
uranium  properties are located on Green Mountain and Sheep Mountain in Wyoming,
and in southeast Utah.  USE's gold operations are conducted  through Sutter Gold
Mining Company  ("SGMC"),  a 63% USECC owned  subsidiary.  Interests are held in
other mineral properties (principally molybdenum),  but are either non-operating
interests or undeveloped claims. Crested and USE also carry on small oil and gas
operations  in  Montana  and  Wyoming.   Other  Crested  business  segments  are
commercial  operations (real estate and general aviation).  Crested has a May 31
fiscal year.

        Crested was  incorporated in Colorado in 1970. All of its operations are
in the United  States.  Principal  executive  offices are located in the Glen L.
Larsen building at 877 North 8th Street West, Riverton, Wyoming 82501, telephone
(307) 856-9271.

        Most of Crested's  operations are conducted through a joint venture with
USE, which owns a majority of Crested's  Common Stock, and various jointly owned
subsidiaries  of USE and Crested.  The joint  venture with USE is referred to in
this Report as "USECC". Construction operations are carried on primarily through
USE's subsidiary Four Nines Gold, Inc. ("FNG"). Oil and gas

                                        2

<PAGE>



operations  are  carried out  through  Energx,  Ltd.,  a  subsidiary  of USE and
Crested. USE and Crested originally were independent companies,  with two common
affiliates (John L. Larsen and Max T. Evans).  In 1980, USE and Crested formed a
joint  venture 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 later
payment of the debts by Crested  issuing  common stock to USE,  Crested became a
majority owned subsidiary of USE in fiscal 1993. See Part III of this Report.

        In fiscal 1998, USE and USECC signed an agreement with Kennecott Uranium
Company  ("Kennecott"),  for the purchase of  Kennecott's  interest in the Green
Mountain  Mining  Venture  ("GMMV") (the  "Acquisition  Agreement").  Please see
"Minerals-Uranium-The  Green Mountain Mining  Project-June  23, 1997 Acquisition
Agreement with Kennecott Uranium Company" below.

        In fiscal 1998,  USE and Crested  continued the  development of the GMMV
uranium  mines and the  upgrade of the GMMV's  Sweetwater  uranium  mill and the
Shootaring  Canyon  uranium mill in southeast  Utah (owned by Plateau  Resources
Ltd., a  wholly-owned  USE  subsidiary).  In addition,  USE intends to implement
plans for it and  Crested to  consolidate  their  uranium  assets  into a single
subsidiary and finance the startup of its mines and mill operations,  subject to
obtaining  the  necessary  debt or equity  funding.  There is no assurance  such
financing can be obtained.

        For fiscal 2000, USE and Crested intend to seek the financing  necessary
to  re-commence  development  work at the Jackpot Mine. In late July 1998,  USE,
Crested and Kennecott made a business  decision to temporarily cease development
work at the Jackpot  Mine  because of the  expected  negative  impact on uranium
prices  due to the  amount  of  uranium  inventory  which  USEC  Inc.  (a  newly
privatized  government  entity,  see USEC Inc. below)  announced was held in its
inventory  and  could be sold  into  the  market.  However,  other  factors  are
affecting the uranium  market  (reductions  in current and planned  production),
such that the  resumption  of  development  work and  putting  the Utah  uranium
properties  into  production in the  near-term  may be  warranted.  See "Uranium
Market  Information." USE and Crested are in discussions with various sources of
capital for this purpose, however, no funding agreements have been reached as of
the date of this  Report and there is no  assurance  any such  funding  would be
received.  Such  funding  would also  finance  USE's and  Crested's  purchase of
Kennecott's interest in the GMMV. See "June 23, 1997 Acquisition  Agreement with
Kennecott Uranium Company" below.

        USE also will be refining the mine and mill plan for the Lincoln Project
in California (held by Sutter Gold Mining Company,  a majority-owned  subsidiary
of USE and a minority  owned  subsidiary  of  Crested),  with the  objective  of
continuing mine  development,  building a gold mill and producing gold, when the
financing  becomes  available.  Permitting costs for the Lincoln Project will be
funded  internally by Sutter Gold Mining Company,  as supplemented by additional
funding from USE and/or third  parties.  However,  there are no outside  funding
agreements  as of the  date of this  Report  and  there is no  assurance  needed
funding will be received. See "Gold" below.


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(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.

        The Registrant operates in two business segments:  (i) minerals and (ii)
commercial operations.  The Registrant engages in other miscellaneous activities
such as oil and gas  exploration,  development  and  production.  The  principal
products of the operating units within each of the reportable  industry segments
are:

        INDUSTRY SEGMENTS                          PRINCIPAL PRODUCTS

        Minerals                        Sales  and  leases  of   mineral-bearing
                                        properties  and, from time to time,  the
                                        production  and/or marketing of uranium,
                                        gold and molybdenum.

        Commercial                      Operations  Operation  of  a  motel  and
                                        rental of real  estate,  operation of an
                                        aircraft fixed base operation  (aircraft
                                        fuel  sales,   flight   instruction  and
                                        aircraft maintenance),  and provision of
                                        various  contract  services,   including
                                        managerial   services   for   subsidiary
                                        companies.

Percentage  of Net Revenue  contributions  by the two segments in the last three
fiscal years were:

                              Percentage of Net Revenues During the Year Ended
                             ---------------------------------------------------
                              May 31,             May 31,               May 31,
                               1999                1998                  1997
                             --------            --------              --------

Minerals                        3%                   11%                   6%
Commercial Operations          14%                   19%                  29%

        Crested  received $43,800 in revenues from the sale of uranium in fiscal
1999. Mineral revenues were generated from sales of uranium under certain of the
utility supply  contracts held by Sheep Mountain  Partners  ("SMP"),  a Colorado
general partnership and the molybdenum  royalty.  During fiscal 1997, there were
no revenues from mineral sales (except for molybdenum  royalty interest) in part
due to the arbitration proceedings involving SMP (see Item 3, "Legal Proceedings
Sheep Mountain Partners Arbitration/Litigation"). Additional mineral revenue was
generated by Crested's molybdenum interest.


                                        4

<PAGE>



(C) NARRATIVE  DESCRIPTION OF BUSINESS BY INDUSTRY  SEGMENT  (INCLUDING ITEM 2 -
PROPERTIES DISCLOSURE).

                                           MINERALS
URANIUM

GENERAL

        Crested has interests in several  uranium-bearing  properties in Wyoming
and Utah and in uranium  processing  mills in  Sweetwater  County,  Wyoming (the
"Sweetwater  Mill") and 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.  Crested and USE plan to
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.  In
addition, other uranium-bearing properties in New Mexico and Wyoming are held by
Yellow Stone Fuels Corp. (a minority joint subsidiary of USE and Crested).

THE PROPERTY INTERESTS OF CRESTED IN WYOMING ARE:

GREEN MOUNTAIN

        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).  These assets are
held by the Green Mountain Mining Venture ("GMMV"),  owned 50 percent by USE and
USECC (the "USE Parties"), and 50 percent by Kennecott Uranium Company ("KUC" or
"Kennecott"), a subsidiary of Kennecott Energy and Coal Company of Gillette, WY.
Kennecott  Energy and Coal Company and Kennecott  Corporation of Salt Lake City,
UT are subsidiaries of Rio Tinto plc, formerly RTZ PLC of London.

        All of the GMMV mining claims are  accessible by county,  private and/or
United States Bureau of Land  Management  ("BLM") access roads.  Exploration and
delineation of the principal uranium resources in the proposed Jackpot Mine have
been substantially  completed. The BLM had signed a Record of Decision approving
the  Jackpot  Mine  Plan  of  Operations   following   preparation  of  a  final
Environmental  Impact  Statement  ("EIS") for the proposed mine, and on June 25,
1996,  the Wyoming  Department of  Environmental  Quality  ("WDEQ")  issued Mine
Permit No. 660 that is required for GMMV to develop the underground Jackpot Mine
and mine the uranium deposits.  The proposed mine has had no previous operators,
and will be a new mine when opened.  The Big Eagle Mine and related claim groups
(which are near the  proposed  Jackpot  Mine and are part of the Green  Mountain
Claims held by the GMMV),  are accessible by county and private  roads.  The Big
Eagle Mine was first operated by Pathfinder Mines  Corporation  ("PMC") starting
in the late 1970s.


                                        5

<PAGE>



SHEEP MOUNTAIN

        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 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 and CRIC.
See Item 3, "Legal Proceedings." The Sheep Mountain Mines 1 and 2 are accessible
by county and private roads and were first operated by Western Nuclear,  Inc., a
subsidiary of Phelps Dodge Corporation, in the late 1970s.

YELLOW STONE FUELS CORP.

        Yellow Stone Fuels Corp.("YSFC"),  was organized on February 17, 1997 in
Ontario,  Canada.  As of February 17, 1997,  YSFC  acquired all the  outstanding
shares of Common Stock of Yellow Stone Fuels, Inc. (a Wyoming  corporation which
was organized on June  3,1996),  in exchange for YSFC issuing the same number of
shares of YSFC Stock to the former  shareholders  of Yellow  Stone  Fuels,  Inc.
("YFI").  YSFC and its  wholly-owned  subsidiary  Yellow Stone  Fuels,  Inc. are
herein collectively referred to as YSFC.

        YSFC has  11,851,500  shares of common  stock  issued  and  outstanding,
including  2,700,250  shares (22.8%) issued to USE and 1,568,750  shares (13.2%)
issued to Crested.

        In order to  concentrate  the efforts of USECC on  conventional  uranium
mining using the Shootaring Canyon and Sweetwater Mills, USECC decided to take a
minority  position in YSFC and not be directly  involved in properties  believed
suitable for the production of uranium  through the in-situ leach ("ISL") mining
process.  USECC will have the right of first refusal with respect to any uranium
ore bodies YSFC discovers which are amenable to conventional  mining and milling
and YSFC  will  have the  right of first  refusal  with  respect  to ore  bodies
discovered by USECC amenable to the ISL process. In the ISL process, groundwater
fortified with oxidizing  agents is pumped to the ore body,  causing the uranium
contained  in the ore to  dissolve.  The  resulting  solution  is  pumped to the
surface  where it is  further  processed  to uranium  oxide  which is shipped to
conversion facilities for eventual sale. Generally, the ISL process is more cost
effective and environmentally benign compared to conventional mining techniques.
In addition,  less time may be required to bring an ISL mine into operation than
to permit and build a conventional mine and mill.

        Approximately 10,825 acres of properties are held by 437 unpatented lode
mining claims which have been staked by, plus four leases (including three state
leases) held by Yellow Stone Fuels Corp. (an Ontario, Canada corporation,  or by
its wholly-owned  subsidiary  Yellow Stone Fuels,  Inc., a Wyoming  corporation,
hereafter  collectively or individually  referred to as "YSFC").  The properties
are located in Wyoming and New Mexico,  and are  believed to be  prospective  of
uranium and suitable for in-situ leaching.


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<PAGE>



THE PROPERTY INTERESTS OF USE AND CRESTED IN UTAH THROUGH PLATEAU RESOURCES LTD.
("PLATEAU") ARE:

        Plateau  Resources  Ltd. is a wholly-owned  subsidiary of USE,  however,
Crested owns an interest in Plateau. See "Plateau Shootaring Canyon Mill" below.

        The Tony M Mine and the Frank M properties, underground uranium deposits
in San Juan County,  Utah are located  partially  on Utah State  mining  leases.
These properties are accessible by county roads.

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

        Plateau also  acquired  the Velvet Mine and the nearby Woods  Complex in
the Lisbon Valley area in southeastern Utah. The Velvet Mine was fully developed
and permitted by its prior owner and is located  approximately 178 miles by road
from the Shootaring  Mill.  The Woods Complex was formerly an operating  uranium
mine with a remaining undeveloped resource.  Access to this resource would be by
extending a drift  approximately  2,500 feet from the former Wood Mine. The Wood
Mine property is not permitted,  but USE and Crested do not expect difficulty in
obtaining a new permit 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 1998, USE and USECC signed the Acquisition  Agreement to
acquire  Kennecott  Uranium  Company's  interest in the GMMV. The following is a
description  of the formation of GMMV and certain of its terms,  which have been
modified as a result of the Acquisition Agreement and related  transactions,  as
set forth under the "June 23, 1997 Acquisition  Agreement with Kennecott Uranium
Company" below.

        In fiscal  1991,  USE and USECC  entered  into an  agreement  to sell 50
percent of their  interests in the Green Mountain  uranium  claims,  and certain
other  rights,  to Kennecott  for  $15,000,000  (USE's share of the proceeds was
$12,600,000,  and the balance was  Crested's)  and a commitment  by Kennecott to
fund the first $50,000,000 of GMMV expenditures pursuant to Management Committee
budgets.  At the same time, USE and USECC ("USE  Parties") and Kennecott  formed
the GMMV to develop,  mine and mill uranium ore from the Green Mountain  Claims,
and market U3O8.  For detailed  explanation  of the GMMV  agreement,  please see
Crested Corp.'s 1998 Annual Report on Form 10-K at pages 6 and 7.


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        The GMMV Management  Committee has three Kennecott  representatives  and
two USECC  representatives,  acts by majority  vote, and appoints and supervises
the project manager.  In fiscal 1993,  Kennecott became the GMMV project manager
and has continued as project manager  through May 31, 1998.  USECC has continued
work on a contract basis at Kennecott's request through May 31, 1999.

        Activities on the GMMV properties have included environmental and mining
equipment  studies,  mine  permitting and planning work,  property  maintenance,
setting  up a uranium  marketing  program,  acquisition  and  monitoring  of the
Sweetwater  Mill  and  preparation  of an  application  to  the  U.  S.  Nuclear
Regulatory  Commission  ("NRC") to convert  the  Sweetwater  Mill  license  from
standby to an operating license. USE and Crested have completed the construction
of  additional  mining  support  facilities  at the Jackpot Mine in fiscal 1999,
including;   the   installation   of  natural  gas  lines  and  phone  services;
construction  of a new shop  building  containing  offices,  a dry-change  room,
emergency generators,  air compressors and mechanical repair base; upgrading the
ore haul road; and  installation of a conveyor and stacker and other  incidental
mine activities,  while maintaining all permits and licenses at the Jackpot Mine
and Sweetwater Mill. For underground mine development  work, the GMMV had driven
twin  decline  tunnels  18 feet  wide and 12 feet  high on a -17  percent  grade
approximately  2,000 feet each into Green Mountain with 1,000 feet of cross cuts
between the declines.  All of these  development  costs in fiscal 1999 have been
funded through the $16,000,000 loan in connection with  Kennecott's  $50,000,000
work commitment (for its 50 percent interest).

JUNE 23, 1997 ACQUISITION AGREEMENT WITH KENNECOTT URANIUM COMPANY

        On June 23, 1997,  USE and USECC signed an  Acquisition  Agreement  with
Kennecott,  for the  right  to  acquire  Kennecott's  interest  in the  GMMV for
$15,000,000 and other consideration.  Kennecott paid USE and USECC $4,000,000 as
a signing  payment,  and  committed  to provide the GMMV up to  $16,000,000  for
payment of  reimbursable  costs  incurred by USECC in  developing  the  proposed
underground  Jackpot  Uranium Mine for  production and in changing the status of
the  Sweetwater  Mill from  standby  to  operational.  The work to  develop  the
proposed Jackpot Mine and ready the Sweetwater Mill for operations was performed
by USECC as  lessee of all the GMMV  mineral  properties  under a Mineral  Lease
Agreement  between  the  GMMV  and  USECC  (the  "Mineral  Lease"),  and  as  an
independent contractor under a Contract Services Agreement (the "Mill Contract")
between Kennecott (as manager of the GMMV) and USECC. Both the Mineral Lease and
the Mill  Contract,  as well as a Fourth  Amendment  to the GMMV Mining  Venture
Agreement  among  Kennecott,  USE and USECC (the  "Fourth  Amendment to the GMMV
Agreement"),  were executed  simultaneously with the Acquisition Agreement.  For
detailed  explanation,  please see Crested Corp. 1998 Annual Report on Form 10-K
and Note F in the consolidated financial statements.

        USEC INC. In 1992,  Congress  enacted  the  "Energy  Policy Act of 1992"
creating the U.S. Enrichment Corporation ("USEC") to operate the U.S. Department
of Energy's ("DOE") uranium enrichment program. Congress later enacted the "USEC
Privatization  Act of 1996" to  privatize  USEC and  allowed the DOE to transfer
various  forms of  uranium to USEC.  The DOE has  transferred  approximately  75
million  pounds of uranium and uranium  equivalents  to USEC.  On July 22, 1998,
USEC Inc. became a publicly traded company.  Because of the anticipated negative
impact  of USEC  Inc.'s  sales  of new  uranium  inventory  in the  market  (see
"Marketing - U.S.

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Enrichment  Corporation,"  below) on uranium  oxide  prices,  on July 31,  1998,
Kennecott and USE and Crested made a business  decision to temporarily place the
Jackpot  Mine on  standby,  which  resulted in the lay off of  approximately  45
employees.  Resumption  of  development  work with funding from GMMV provided by
Kennecott  will depend on resolution of the USEC Inc.  uranium  inventory  sales
issue (see Item 3, "Legal Proceedings") and improved uranium prices.

PROPERTIES AND MINE PLAN.

        The GMMV owns the Big Eagle Properties on Green Mountain,  which contain
substantial  uranium  mineralization,  and are adjacent to the other GMMV 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% U3O8.  The assets
include two buildings  (38,000  square feet and 8,000 square feet) formerly used
by Pathfinder Mines Corporation ("PMC") in mining operations.  Also included are
three ore- hauling vehicles, each having a 100-ton capacity. Permits transferred
to the GMMV for the properties include: a permit to mine, an air quality permit,
and water discharge and water quality permits.  The GMMV owns the mineral rights
to the underlying unpatented lode mining claims.

        The Round Park  (Jackpot)  mining claims  formerly  owned solely by USE,
contain  deposits of uranium  which have been  estimated  to contain  52,000,000
pounds of U3O8;  the grade  averages  4.6 pounds of U3O8 per ton of  mineralized
material.  The GMMV plans to mine this  mineralized  material  from two  decline
tunnels  (-17  percent  slope) in the  Jackpot  Mine,  which  are  being  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.

        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.   UNOCAL's  subsidiary,   Minerals  Exploration  Company,   reportedly
processed in excess of 4,200 tpd for sustained  periods.  The mill is one of the
newest uranium milling  facilities in the United States, and has been maintained
in good  condition.  UNOCAL has reported  that the mill  buildings and equipment
have historical costs of $10,500,000 and $26,900,000, respectively.

        As  consideration  for 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).  GMMV has agreed to be 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  NRC.  None of the  GMMV  future
reclamation  and  closure  costs are  reflected  in the  Consolidated  Financial
Statements  (see "Notes F and K to the  Consolidated  Financial  Statements  for
fiscal year ended May 31, 1999").


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<PAGE>



        The  reclamation  and  environmental  liabilities  assumed  by the  GMMV
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.  On June 18,
1996,  Kennecott  established  an  irrevocable  Letter of Credit  through Morgan
Guaranty Trust Company of New York City in the amount of $19,767,079 in favor of
the  Wyoming  Department  of  Environmental  Quality  ("WDEQ")  for  reclamation
requirements  of the GMMV.  The  Letter of Credit  was  increased  by $10,000 on
August  26,  1996 to cover  off-permit  wetland  enhancement.  On March 8, 1999,
Kennecott  exchanged  four surety bonds from St. Paul Fire and Marine  Insurance
Company in the total amount of $19,777,079 to replace the Morgan Guaranty letter
of  credit.  This  was  approved  by the  WDEQ.  The  WDEQ  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.

        Although  the  GMMV is  liable  for all  reclamation  and  environmental
compliance  costs  associated  with mill and site  maintenance,  as well as mill
decontamination  and cleanup and site  reclamation and cleanup after the mill is
decommissioned,  USECC  believes it is unlikely USECC would have to pay for such
costs  directly.  First,  based on current  estimates of cleanup and reclamation
costs (reviewed annually by the oversight  agencies),  such costs covered by the
surety bonds and other surety appear to be within the $24,330,000 of reclamation
bonds  posted by  Kennecott  for GMMV.  These costs are not expected to increase
materially if the mill is not put into operation. Second, UNOCAL has agreed that
if the GMMV  incurs  expenditures  for  environmental  liabilities  prior to the
earlier of commercial  production by GMMV or January 1, 2001, (which liabilities
are not due solely to the  operations  of GMMV),  then UNOCAL will loan the GMMV
the first $8,000,000 (escalated according to the Consumer Price Index to current
dollars,  from 1993) of such  expenditures.  Any  reimbursement for the loan may
only be  recovered  by UNOCAL from 20% of future cash flows from sale of uranium
concentrates   processed  through  the  Sweetwater  Mill.   Third,   payment  of
reclamation and environmental  liabilities  related to the Mill is guaranteed by
Kennecott. Last, the GMMV will set aside a portion of operating revenues to fund
reclamation and environmental liabilities when mining and milling operations are
finally shut down.

        Kennecott  will be  entitled  to  contribution  from the USE  Parties in
proportion  to their  participating  interests  in the  GMMV,  if  Kennecott  is
required to pay mill cleanup  costs  directly  pursuant to its  guarantee.  Such
contributions  would be required only if the liabilities  cannot be satisfied by
Kennecott  within the balance of any  development  commitment as provided by the
Acquisition Agreement, after the credits provided by the Fourth Amendment to the
GMMV (see the "June 23, 1997 Acquisition  Agreement with Kennecott"  above).  In
addition,  if and to the extent such  liabilities  resulted  from  UNOCAL's mill
operations,  and payment of the  liabilities was required before January 1, 2001
and before mill production  resumes,  then up to $8,000,000  (escalated) of that
amount would be advanced in a loan from UNOCAL  payable out of  production  from
the mill,  before Kennecott would be required to pay on its guarantee.  However,
notwithstanding  the preceding,  the extent of any ultimate USECC  liability for
contribution to mill cleanup costs cannot be predicted.

                                       10

<PAGE>



Kennecott  has made an  application  to the  Wyoming  DEQ for a third  five year
interim  stabilization  plan on the  Sweetwater  Pit where  uranium  mineralized
material was mined and  processed  through the mill.  The Wyoming  Environmental
Quality  Council is  currently  reviewing  the  application  and a  decision  is
expected in September 1999.

        PERMITTING AND ACTIVITIES. The WDEQ issued a mine permit for the Jackpot
Mine on June 26, 1996. This Permit allows the GMMV to proceed with  construction
of mine surface  facilities,  further  underground mine development and eventual
mining of the Round Park (Jackpot) Deposit.

        The  Jackpot  Mine  Plan  of  Operations   and  a  combination   of  the
alternatives  analyzed in the EIS will allow for the disposal of mine waste rock
in the Big Eagle  Mine pits some  three  miles from the  Jackpot  declines,  the
upgrading of existing roads,  and the  construction of new haul road segments to
transport  ore  to  the  Sweetwater   Mill.  These  roads  will  be  subject  to
modification  in  alignment  necessary to minimize or avoid  adverse  impacts to
riparian and cultural resources.

        Kennecott initiated  discussions and made filings with the NRC regarding
amendments  to the  Source  Material  License to resume  ore  processing  at the
Sweetwater Mill. On August 25, 1999, the Company was advised that the NRC issued
the Operating Permit for the mill.

        Crested  believes  all of the  uranium  operations  in  which it owns an
interest are in compliance with these rules.  There ultimately will be an effect
on the earnings of USE and Crested from environmental compliance expenditures by
the GMMV,  since the GMMV  operations will be accounted for by the equity method
if  the  acquisition  of  Kennecott's  interest  in  the  GMMV  pursuant  to the
Acquisition  Agreement  does not close.  GMMV's  expenses  for  compliance  with
environmental  laws (as well as other  matters) are not  expected to  materially
affect the cash flow of USE and Crested during the next two years.

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.  Subsequent  to  closing,  USE  and  Crested  agreed  that  after
Plateau's unencumbered cash had been depleted, USE and Crested each would assume
one-half of Plateau's obligations, and share equally in Plateau's operating cash
flows,  pursuant to the USECC Joint  Venture.  For detailed  explanation  of the
transaction,  please see Crested Corp.'s 1998 Annual Report on Form 10-K at page
13.

        SHOOTARING  MILL AND  FACILITIES.  The  Shootaring  Mill is  located  in
south-eastern  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  1982.  In 1984,  Plateau put the mill on standby  because of the
depressed U3O8 market.

        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,

                                       11

<PAGE>



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 to $6,700,000, the NRC issued the new license on
May 2, 1997.  Plateau has an  additional  $2,390,900  of  government  securities
available for further bonding needs.

        In fiscal 1998 and 1999, in anticipation of resuming milling operations,
Plateau significantly performed a reactivation and rehabilitation program at the
Mill.  Plateau  obtained  approval of a water  control  permit for the  tailings
facility from the State of Utah Water Control Division and is awaiting the NRC's
review of the  operating  license  conditions  so Plateau can continue  with the
construction of tailings facilities.

TICABOO TOWNSITE

        Plateau owns all of the  outstanding  stock of Canyon  Homesteads,  Inc.
("Canyon"),  a Utah corporation,  which developed the Ticaboo, Utah Townsite 3.5
miles  south  of the  Shootaring  Mill.  The  Ticaboo  site  includes  a  motel,
restaurant,  lounge,  convenience  store  and  single  family,  mobile  home and
recreational vehicle sites (all with utility access). The Townsite is 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 deeded  portions of the
Townsite to Canyon on a sliding scale basis.  USE and Crested are developing the
Townsite and selling homes and mobile home sites.

YELLOW STONE FUELS CORP.

        Yellow Stone Fuels Corp., was organized on February 17, 1997 in Ontario,
Canada.  As of February 17, 1997,  YSFC acquired all the  outstanding  shares of
Common  Stock of Yellow  Stone  Fuels,  Inc.  (a Wyoming  corporation  which was
organized  on June  3,1996),  in  exchange  for YSFC  issuing the same number of
shares of YSFC Stock to the former  shareholders  of Yellow  Stone  Fuels,  Inc.
("YFI").  YSFC and its  wholly-owned  subsidiary  Yellow Stone  Fuels,  Inc. are
herein collectively referred to as YSFC.

        In order to  concentrate  the efforts of USECC on  conventional  uranium
mining  using the  Shootaring  and  Sweetwater  Mills,  USECC  decided to take a
minority  position in Yellow Stone Fuels,  Inc. and not be directly  involved in
properties  believed  suitable for the production of uranium through the in-situ
leach ("ISL")  mining  process.  USECC will have the right of first refusal with
respect  to any  uranium  ore  bodies  YSFC  discovers  which  are  amenable  to
conventional  mining and milling  and YSFC will have the right of first  refusal
with respect to ore bodies discovered by USECC amenable to the ISL process.

        In Wyoming,  YSFC has staked and/or holds 243  unpatented  mining claims
and has entered into four State leases  covering a total of 8,700 acres  located
in the Powder River Basin and Red Desert uranium districts.  In New Mexico, YSFC
has staked and holds 39 unpatented  mining claims  (approximately  780 acres) in
the Grants uranium region of New Mexico.


                                       12

<PAGE>



        In fiscal 1997, USE, USECC and the GMMV entered into several  agreements
with  YSFC,  including  a  Milling  Agreement  through  Plateau  Resources.  The
Shootaring Canyon mill facilities will be available to YSFC to transport uranium
concentrate  slurry and  loaded  resin to the mill and  process it into  uranium
concentrate ("yellowcake"), for which Plateau will be paid its direct costs plus
10%. Other agreements include a Drill Rig Lease Agreement for YSFC to access USE
drilling rigs at the prevailing market rates; an Outsourcing and Lease Agreement
for  assistance  from USECC  accounting  and technical  personnel for $2,000 per
month and a sublease  for 1,000  square feet of office  space and use of various
office  equipment for $1,500 per month;  and a Ratification of  Understanding by
which USECC will offer to YSFC (with a reserved  royalty in amounts to be agreed
on later) any  uranium  properties  amenable to in-situ  production  which USECC
acquires or has the right to acquire. In return, YSFC will offer to USECC ( with
a reserve royalty in amounts to be agreed on later) uranium properties  amenable
to conventional  mining methods which YSFC acquires or has the right to acquire.
USECC also will make its library of geological information and related materials
available  to YSFC.  YSFC also has a Storage  Agreement  with GMMV by which YSFC
stores used low-level contaminated mining equipment at the Sweetwater Mill.

SHEEP MOUNTAIN PARTNERS ("SMP")

        PARTNERSHIP.  In February 1988, USE and Crested  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.  SMP mined and sold  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 SMP. In December 1988, USE and Crested sold 50 percent of their
interests in the Crooks Gap properties to Nukem's  subsidiary 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. of Stamford, CT ("Nukem") through its wholly-owned  subsidiary Cycle
Resource  Investment  Corporation  ("CRIC").  Each group  provided  one-half  of
$315,000 to purchase equipment from Western Nuclear,  Inc.; USE and Crested also
contributed  their 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,
certain  disputes arose between the partners of SMP. These disputes  resulted in
arbitration/litigation and subsequent consensual arbitration from which an Order
and Award was issued on April 18, 1996 (see "Legal  Proceedings - Sheep Mountain
Partners Arbitration/Litigation").

        PROPERTIES.  Until June 1, 1998,  SMP owned 80  unpatented  lode  mining
claims on the Crooks Gap properties, including two open-pit and five underground
uranium  mines and an  inventory of uranium  ore. In  connection  with a partial
settlement of litigation/arbitration between

                                       13

<PAGE>



USE/Crested and Nukem/CRIC,  SMP conveyed these mineral properties and equipment
to  USECC.   See  "Item  3."  Production  from  the  properties  is  subject  to
sliding-scale  royalties payable to Western Nuclear, with rates ranging from one
to four percent on recovered uranium  concentrates.  As of October 30, 1998, USE
and USECC owned 98 unpatented  lode mining claims and a 644 acre adjoining State
Mineral Lease in the Crooks Gap area.

        The ion  exchange  plant on the  properties  was used to remove  natural
soluble uranium from mine water.  USE, on behalf of USECC,  has submitted a plan
to the NRC to decommission this facility and obtained a three year extension for
timeliness  of  decommissioning.   Management  is  reviewing  the  economics  of
relicensing  this facility as part of a potential  in-situ leach uranium  mining
operation.

        PROPERTY MAINTENANCE.  Currently,  USECC has a maintenance staff on site
to care for and  maintain  the mines and pump mine water to prevent  flooding of
the mines,  which could destroy equipment and the concrete lined vertical shafts
accessing the various levels of uranium mineralization.

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

URANIUM MARKET INFORMATION.

        URANIUM SPOT MARKET.  Uranium spot prices  averaged  $10.41/lb.  U3O8 on
June 30,  1999,  a decrease of 4% from  $10.80 at the end of the first  calendar
quarter.  Although  spot demand from  utilities  and producers was stronger than
last year, sellers were concluding sales by offering lower prices as the quarter
came to a close. During the quarter,  total spot market volume was approximately
5 million  pounds U3O8 bringing the  year-to-date  total to more than 13 million
pounds,  a significant  improvement  over the 4 million pounds sold in the first
half of 1998. Currently,  the restricted spot price for U3O8 was reported in the
$10.10 to $10.60/lb. range.

        URANIUM  LONG-TERM   MARKET.   The  long-term  market  continued  to  be
relatively quiet in the second calendar quarter with the long-term uranium price
indicator declining marginally to $10.65/lb.  U3O8 from $11.75 at the end of the
previous  quarter.  Demand in the long-term  market is expected to increase over
the remainder of the year as utilities move to cover future needs and volume for
the year is expected  to exceed the 1998  estimated  level of 50 million  pounds
U3O8.

        For a detailed analysis of past uranium market developments,  please see
Crested Corp.'s 1998 Annual Report on Form 10-K pages 18 - 23.


                                       14

<PAGE>



GOLD

SUTTER GOLD MINE (CALIFORNIA)

        SUTTER GOLD MINING COMPANY.  In fiscal 1991, USE acquired an interest in
the Lincoln Project  (including the underground  Lincoln Mine and the 2,800 foot
Stringbean  Alley decline) in the Mother Lode Mining  District of Amador County,
California,  held by a mining  joint  venture  known as the Sutter Gold  Venture
("SGV"). The entire interest of SGV is now owned by USECC Gold L.L.C., a Wyoming
limited liability company,  which is a subsidiary of Sutter Gold Mining Company,
a Wyoming corporation ("SGMC").  The Lincoln Project has been renamed the Sutter
Gold Mine ("SGM").

        In fiscal 1997,  SGMC  completed  private  financings  totaling a net of
US$7,115,400  ($1,272,000  through a private  placement  conducted in the United
States by RAF Financial  Corporation  ("RAF"),  and $5,843,400 through a private
placement  conducted  in  Toronto,  Ontario,  Canada  by C.M.  Oliver &  Company
Limited).  The net proceeds of $6,511,200 from these financings (after deduction
of  commissions  and  offering  costs)  were  applied  to  pre-production   mine
development,  mill design, and property holding and acquisition cost. Additional
financing  of up to  $15,000,000  will be  sought  to fund the  development  and
construction of the mine/mill.

        SGMC  does not have any  class  of its  securities  registered  with the
Commission,  and none of its  securities  are  traded  in the  United  States or
Canada.

        Due to the depressed gold price and lack of available funding,  SGMC has
deferred the start of  construction of the 1,000  ton-per-day  gold mill complex
and development of the  underground  mine, but is exploring plans to develop the
mine into a  visitor's  center to  generate  positive  cash flow  while the gold
prices remain depressed.

        During fiscal 1998,  SGMC amended its 1993  Conditional  USE Permit (see
"Permits and Future  Plans"),  finalized  the process flow of the mill,  entered
into the final design engineering contract with the engineering firm of Lockwood
Greene of Dallas, Texas and built the entrance road to the mine. In fiscal 1999,
preparation  of the mill and office site  started and the  engineering  firm has
finished  construction  drawings  for the  mill.  Once a  decision  to  commence
production is made,  from that date, it is estimated it will take  approximately
18 months to complete  the mill complex  construction  and pour the first bar of
gold.

        After completion of the two private financings,  and taking into account
a restructuring of the ownership of USE and Crested in SGMC, USE and Crested own
a $10,000,000  Contingent Stock Purchase Warrant (the "USECC Warrant") which was
issued to USE and Crested in connection with the  restructuring  of SGMC for the
Canadian private placement. The USECC Warrant is owned 88.9% by USE and 11.1% by
Crested.  The USECC  Warrant  provides  that for each ounce of gold over 300,000
ounces  added to the proven and  probable  category of SGMC's  reserves (up to a
maximum of 400,000 additional  ounces),  using a cut-off grade of 0.10 ounces of
gold per ton (at a minimum vein  thickness  of 4 feet),  USE and Crested will be
entitled to cash or additional  shares of Common Stock from SGMC (without paying
additional  consideration)  at SGMC's election.  The number of additional shares
issuable  for each new ounce of gold  reserves  will be  determined  by dividing
US$25 by the greater of $5.00 or the weighted average closing price

                                       15

<PAGE>



of the  Common  Stock  for the 20  trading  days  before  exercise  of the USECC
Warrant. The USECC Warrant is exercisable semi-annually. If SGMC decides against
the exercise of the USECC Warrant,  it can pay USE and Crested US$25 in cash for
each new ounce of gold  (payable out of a maximum of 60% of net  cash-flow  from
SGMC's  mining  operations).  Additions  to reserves  will be  determined  by an
independent geologist agreed upon by the parties.

        APRIL 1998 TRANSACTION FOR CASH AND SGMC SPECIAL  WARRANTS.  As of April
7, 1998,  USE entered into four separate  Stock  Purchase  Agreements  with four
Canadian investment funds, for the issuance of 658,895 shares of Common Stock of
USE, in consideration of the funds' payment to USE of $1,190,000 in cash and the
delivery to USE of 888,900  Special  Warrants of SGMC. The funds had paid SGMC a
total of Cdn$4,888,950 in May 1997, pursuant to a private offering in Canada, to
purchase the Special  Warrants  from SGMC.  In fiscal 1999,  the Company  issued
89,059 shares of its common stock in exchange for 207,500 Special  Warrants from
SGMC shareholders increasing the Company's ownership of SGMC by 4%.

        USECC  MANAGEMENT  AGREEMENT  WITH SGMC.  Effective  June 1, 1996,  SGMC
entered  into a Management  Agreement  (dated as of May 22, 1996) with USE under
which  USECC  provides  administrative  staff  and  services  to SGMC.  USECC is
reimbursed for actual costs  incurred,  plus an extra 10% during the exploration
and development  phases;  2% during the construction  phase; and 2.5% during the
mining phase (such 2.5% charge to be replaced with a fixed sum which the parties
will  negotiate at the end of two years  starting when the mining phase begins).
The  Management  Agreement  replaces a prior  agreement by which USECC  provided
administrative services to SGMC.

        PROPERTIES. SGMC (through its subsidiary USECC Gold) holds approximately
14 acres of surface  and mineral  rights  (owned),  240 acres of surface  rights
(owned),  436 acres of surface  rights  (leased),  158 acres of  mineral  rights
(leased), and 380 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 miles outside of Sutter Creek.

        Surface and mineral rights  holding costs will  aggregate  approximately
$225,000 from June 1, 1999 through May 31, 2000.  Property taxes for fiscal 2000
are estimated to be $30,000.

        The leases are for varying  terms,  and  require  rental  fees,  advance
production royalties,  real property taxes and insurance.  The lease that was to
expire in February 1998 has been extended  through its force majeure  clause due
to the low price of gold. Leases expiring before 2010 will generally be extended
automatically,  so long as minerals are continuously  produced from the property
that is subject to the lease or minimum  payments are made . Other leases may be
extended for various periods on terms similar to those contained in the original
leases.  Production  royalties  are from 2.5% to 6% (most are 4%).  The  various
leases have  different  methods of  calculating  royalty  payments  (net smelter
return and gross proceeds).

        A  separate  holder of four of the  properties  that were  assembled  by
Meridian  into the Lincoln  Project  holds a 5 percent  net profits  interest on
production from such properties,  which was granted by Meridian when it acquired
the properties. The "net profits" generally will be equal to gross

                                       16

<PAGE>



mineral  revenues less an amount equal to 105 percent of numerous  categories of
costs and expenses. An additional 0.5 percent net smelter return royalty is held
by a consultant to a lessee prior to Meridian's  acquisition of the  properties,
which 0.5  percent  interest  covers  the same four  properties  in the  Lincoln
Project.

        PERMITS AND FUTURE  PLANS.  In August 1993,  the Amador  County Board of
Supervisors  issued a  Conditional  Use Permit  ("CUP")  allowing  mining of the
Lincoln Mine 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 will
remove  two  tailings  dams,  eliminate  the need to use  cyanide  on-site,  and
eliminate  mine  related  traffic on two county  roads.  The  certification  and
decision has been challenged in a lawsuit filed by a local citizens'  group, see
"Legal Proceedings." Since SGMC already has a valid CUP, SGMC believes it may be
able  to  move   forward   on   certain   parts  of  the   development   of  the
mine/mill/visitor  center. In any event, SGMC does not expect the appeal process
to materially impact the current development plan or schedule.

        VISITOR'S  CENTER.  SGMC is evaluating the possibility of developing the
tourist  potential of Sutter Gold Mine,  while it waits for the price of gold to
rebound.  Demographics indicate, that within 150 mile radius of SGM's operation,
there is a total  market  population  of 19.4  million  people  with 9.0 million
tourists  visiting the area each year.  The Sutter Gold  Mine/Museum  attraction
would be located  along scenic  Highway 49 (known as the Gold Road)  between the
historic  gold mining  towns of Sutter  Creek and Amador  City,  Amador  County,
California.  The Amador County  Chamber of Commerce  estimates  that 2.5 million
people drive by SGM's entrance each year.  SGMC's initial studies indicates that
the number of tourists could approximate 2,000 per day. Facilities would include
a Visitor's  Center with a gift shop and museum,  a  self-guided  tour of modern
mining activities,  visitor  gallery/museum  attached to the mill building (when
built),  hiking trails,  picnic areas and a special gold panning area.  Revenues
would  come  from  admission  tickets,   gold  value-added  products  and  other
appropriate  merchandise.  The early 19th century  architecture,  combined  with
expansion of underground tourist displays,  rides and exhibits should allow SGMC
to  continually  upgrade and  generate  new and renewed  interest in the visitor
attractions.

MOLYBDENUM

        As holders 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  (one-half to each).  AMAX Inc. (which was acquired by Cyprus
Minerals  Company and was renamed Cyprus Amax Minerals Company in November 1993)
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.


                                       17

<PAGE>



        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. See "Note F to the USE Consolidated  Financial  Statements."
The advance  royalty  payments  reduce the operating  royalties  (six percent of
gross  production  proceeds)  which would otherwise be due from Cyprus Amax from
production.  There  is no  obligation  to repay  the  advance  royalties  if the
property is not placed in production.

        The  Agreement  with  AMAX also  provides  that USE and  Crested  are to
receive $2,000,000 (one-half to each), at such time as the Mt. Emmons properties
are put into  production  and,  in the  event  AMAX  sells its  interest  in the
properties,  USE and Crested would  receive 15 percent of the first  $25,000,000
(one-half  to each)  received by AMAX.  USE and Crested have  asserted  that the
acquisition of AMAX by Cyprus Minerals  Company was a sale of AMAX's interest in
the properties which would entitle USE and Crested to such payment.  Cyprus Amax
has rejected such assertion and USE and Crested are considering their remedies.

MOLYBDENUM MARKET INFORMATION

        Molybdenum is a metallic  element with  applications  in both metallurgy
and  chemistry.  Principal  consumers  include  the steel  industry,  which uses
molybdenum alloying agents to enhance strength and other  characteristics of its
products,  and the  chemical,  super-alloy  and  electronics  industries,  which
purchase molybdenum in upgraded product forms.

        The molybdenum  market is cyclical with prices  influenced by production
costs and the rate of production of foreign and domestic  primary and by-product
producers,  world-wide economic  conditions  particularly in the steel industry,
the U.S. dollar exchange rate, and other factors such as the rate of consumption
of molybdenum in end-use  products.  When molybdenum prices rose dramatically in
the late 1970s,  for example,  steel alloys were modified to reduce  reliance on
molybdenum.  AMAX  and  Cyprus  Minerals  Company  were  the two  major  primary
producers of molybdenum in the United States until November 1993,  when AMAX was
acquired by Cyprus.  In a recent  announcement,  Asarco is  proposing to acquire
Cyprus Amax  through a merger  forming  Asarco  Cyprus  Inc.  which would be the
largest  publicly  traded copper  company.  More  recently,  Phelps Dodge made a
buyout offer of Cyprus Amax and Asarco.  This would  further  concentrate  these
companies'  copper  production  capabilities and add molybdenum  reserves to the
surviving  companies.  It is too early to evaluate  the affect of the merger and
acquisition may have on USECC's molybdenum interest at Mt. Emmons, Co.

PARADOR MINING (NEVADA)

        USE and Crested are  sublessees  and assignees  from Parador Mining Co.,
Inc. ("Parador"),  of certain rights under two patented mining claims located in
the Bullfrog Mining District of Nye County,  Nevada.  The claims are immediately
adjacent  to and  part of a gold  mine  operated  by Bond  Gold  Bullfrog,  Inc.
("BGBI"),  a non-affiliated  third party (now known as Barrick Bullfrog,  Inc.).
USE and Crested have also been assigned certain  extralateral  rights associated
with the claims and certain  royalty  rights  relating to a prior lease on those
properties.  The lease to USE and  Crested is for a ten year  primary  term,  is
subject to a prior lease to BGBI on the  properties,  and allows USE and Crested
to explore for,  develop and mine minerals  from the claims.  If USE and Crested
conduct  activities  on the claims,  they are  entitled to recover  costs out of
revenues from extracted minerals.

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<PAGE>



After  recovering any such costs,  USE and Crested will pay Parador a production
royalty of 50 percent of the net value of production sold from the claims.

        USE,  Crested and Parador  presently are in litigation  concerning  this
property. See Item 3, "Legal Proceedings - BGBI Litigation."

OIL AND GAS.

        FORT PECK LUSTRE FIELD (MONTANA).  USECC conducts a small oil production
operation  at the  Lustre  Oil  Field  on the Ft.  Peck  Indian  Reservation  in
north-eastern Montana. Until December 1998, four wells were producing,  but were
shut in pending an increase in oil prices.  Recently,  2 of the wells were again
placed in  production.  USECC  receives a fee based on oil produced.  USE is the
operator of record.  No further drilling is expected in this field. This fee and
certain  real  property of USE and  Crested,  have been  pledged or mortgaged as
security for a $1,000,000 line of credit from a bank.

REAL ESTATE AND OTHER COMMERCIAL OPERATIONS

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

        WYOMING  PROPERTIES.  USECC owns 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 and is adequate  for
their executive  offices.  The property is mortgaged to the WDEQ as security for
future reclamation work on the SMP Crooks Gap uranium properties.

        USECC  (through  WEA) also owns a fixed base  aircraft  operation at the
Riverton Municipal  Airport,  including a 10,000 square foot aircraft hangar and
7,000  square feet of  associated  offices and  facilities.  This  operation  is
located on land leased from the City of Riverton for a term ending  December 16,
2005, with an option to renew on mutually  agreeable  terms for five years.  The
annual rent is presently  $1,180  (adjusted  annually to reflect  changes in the
Consumer  Price Index),  plus a $0.02 fee per gallon of fuel sold.  WEA owns and
operates an aircraft fixed base operation  with fuel sales,  flight  instruction
services and aircraft maintenance in Riverton, Wyoming.

        USE and  Crested  also own 18  semi-developed  lots on 26.8 acres and 63
acres of  undeveloped  land  near the  Riverton  Municipal  Airport,  and  three
mountain sites covering 16 acres in Fremont County, Wyoming.

        USECC owns  various  buildings,  290 city lots  and/or  tracts and other
properties at the Jeffrey City townsite in south-central  Wyoming.  Nearly 4,000
people  resided in Jeffrey City in the early 1980s,  when the nearby  Crooks Gap
and Big Eagle uranium mining projects were active.  The townsite may be utilized
for worker housing as the Jackpot Mine and Sweetwater Mill are put into

                                       19

<PAGE>



operation.  In the interim, USE and Crested are selling lots at Jeffrey City and
made sales aggregating $5,600,  $38,400 and $21,150 during fiscal 1999, 1998 and
1997, respectively.

        COLORADO PROPERTIES. In connection with the AMAX transaction for the Mt.
Emmons  molybdenum  properties near Crested Butte,  Colorado,  USECC acquired an
option  from AMAX  (now  Cyprus  Amax) to  purchase  approximately  57 acres for
$200,000 in Mountain Meadows Business Park, Gunnison,  Colorado. See "Minerals -
Molybdenum"  above.  The property is 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 the initial  payments on the option  agreements  were received,
thereafter  the  developer  defaulted in making a payment to Crested of $164,439
(principal  plus  interest).  Also,  the first note  ($454,894)  was not paid in
January 1998. In July 1998, USE and Crested filed a lawsuit  against Contour and
associated parties to seek recovery of the balance owing on the 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. Revenues from sale of homesites and operation
of the motel were nominal in 1998.

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



                                       20

<PAGE>



                            RESEARCH AND DEVELOPMENT

        Crested has incurred no research and development expenditures, either on
its own account or sponsored by customers, during the past three fiscal years.

                                  ENVIRONMENTAL

        GENERAL.  Crested's 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 the Company.
Similar laws and  regulations in California  affect SGMC operations and in Utah,
will effect Plateau's operations.

        The Company's  management  believes it is currently in compliance in all
material respects with existing  environmental  regulations.  To the extent that
production by SMP, GMMV or SGMC is delayed,  interrupted or discontinued  due to
need to  satisfy  existing  or new  provisions  which  relate  to  environmental
protection, future Crested earnings could be adversely affected.

        CROOKS GAP. An inoperative ion exchange facility at Crooks Gap currently
holds a NRC license for  possession of uranium  operations  byproducts.  USE has
applied to the NRC for permission to decommission and  decontaminate  the plant,
dispose low level waste into the Sweetwater  Mill tailings cell, and keep intact
such of the facility as does not require dismantling.

        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.  Crested
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
Crested's competitive position.

                                    EMPLOYEES

        Crested  has no  full-time  employees.  Crested  uses  approximately  50
percent of the time of USE employees,  and reimburses USE  accordingly.  USE had
approximately  82 full-time  employees  as of the date of this  Report.  Payroll
expense has been shared by USE and Crested since 1981.

                              MINING CLAIM HOLDINGS

        TITLE TO PROPERTIES.  Nearly all the uranium mining  properties  held by
GMMV, USE 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

                                       21

<PAGE>



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 annually pay certain rental fees 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.  Disputes can also arise with adjoining  property
owners for  encroachment or under the doctrine of extralateral  rights (see Item
3, "Legal Proceedings - BGBI Litigation").

        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 the Company's operations cannot be determined conclusively
until such  revision is enacted;  however,  such  legislation  could  materially
increase the carrying costs of the Green Mountain  mineral  properties,  the SMP
properties and some of Plateau's 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 Company's ability to hold or develop such
properties,  as well as other  mineral  prospects on federal  unpatented  mining
claims.

ITEM 3. LEGAL PROCEEDINGS

SHEEP MOUNTAIN PARTNERS ARBITRATION/LITIGATION

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


                                       22

<PAGE>



        Following 73 hearing days and various  submissions  by the parties,  the
arbitration  panel (the  "Panel")  entered an Order and Award (the  "Order")  in
April 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. For more details
of the litigation,  please see Item 3 of Crested's 1998 Form 10-K at pages 33-34
and Footnote K to the Financial Statements in the Annual Report.

        A three judge panel of the 10th CCA issued an Order and  Judgment in the
Nukem/CRIC  arbitration/litigation matter on October 22, 1998, which unanimously
affirmed  the  Federal   District   Court  Second   Amended   Judgment   without
modification.  The  ruling  of the 10th CCA  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  motions for entry of final  satisfaction  of
Judgment.  The U.S. District Court denied both motions, the last one on July 16,
1999 and on August  16,  1999,  Nukem  filed a Notice of Appeal to the 10th CCA.
USECC intends to vigorously oppose the appeal and seek Judicial  intervention to
enforce the Constructive Trust.

BGBI LITIGATION

        USE and Crested  are  defendants  and  counter-  or  cross-claimants  in
certain  litigation in the District Court of the Fifth Judicial  District of Nye
County,  Nevada,  brought by Bond Gold Bullfrog Inc.  ("BGBI") on July 30, 1991.
BGBI (now known as Barrick  Bullfrog,  Inc.) is an affiliate of Barrick Corp., a
large  international  gold  producer  headquartered  in  Toronto,   Canada.  The
litigation primarily concerns  extra-lateral rights associated with two patented
mining claims owned by Parador  Mining  Company Inc.  ("Parador")  and initially
leased to a  predecessor  of BGBI,  which  claims are in and  adjacent to BGBI's
Bullfrog open pit and underground mine. USE and Crested assert certain interests
in the claims under an April 1991  assignment  and lease with Parador,  which is
subject to the lease to BGBI's predecessor.

        A partial or bifurcated trial to the Court of the  extra-lateral  rights
issues was held on December 11 and 12, 1995,  to determine  whether the Bullfrog
orebody is a vein apexing on Parador's Claims.  The Court found that Parador had
failed to meet its burden of proof and therefore  Parador,  USE and Crested have
no right,  title and interest in the minerals  lying beneath the claims of Layne
pursuant to extralateral rights. The partial trial did not address the issues of
breach of contract by the defendants and BGBI for specific  performance and they
were tried before the Court commencing on January 26, 1998. After the trial, the
Court found against the parties on their  respective  claims.  BGBI and Parador,
and  USE/Crested  all appealed the decision to the Nevada  Supreme  Court.  BGBI
filed its brief on appeal and  Parador  and USECC have until  August 31, 1999 to
file their answer and opening brief.


                                       23

<PAGE>



DEPARTMENT OF ENERGY LITIGATION

        On July 20, 1998,  eight uranium mining companies with operations in the
United  States  (including  USE,  Crested,  YSFC) and the Uranium  Producers  of
America (a trade  organization)  filed a  complaint  against  the United  States
Department  of Energy  (the  "DOE")  in a  lawsuit  (file no. 98 CV 1775) in the
United States District Court, Cheyenne, Wyoming. The complaint seeks declaratory
judgment and injunctive  relief. The plaintiffs allege that the DOE violated the
USEC  Privatization  Act of 1996, when the DOE transferred 45 metric tons of low
enriched  uranium  and 3,800  metric  tons of natural  uranium to United  States
Enrichment Corp. ("USEC").

        The  plaintiffs  have  asked  the  Court to  declare  that  (in) the DOE
violated its statutory  authority by  transferring  uranium to USEC in excess of
statutory  limits on volume;  (ii) the excess amounts were not "sold" by the DOE
to USEC for fair value, as required by the Act, and mandated findings by the DOE
concerning  possible  adverse  impacts were not supported in fact; and (iii) the
DOE be enjoined  from future  transfers in violation of the Act. The DOE filed a
motion to dismiss the  complaint  claiming that the U.S.  Congress  withdrew its
consent to be sued in connection with the USEC Inc.  privatization and that USEC
Inc.  must be joined as an  indispensable  party.  The State of Wyoming moved to
join in the  litigation on behalf of the  plaintiffs.  A hearing was held on the
motions on January 8, 1999 before the U.S. District Court in Cheyenne,  Wyoming.
The Court took the motions under  advisement  and as of August 18, 1999, had not
entered a decision.

CONTOUR DEVELOPMENT LITIGATION

        On July 28,  1998,  USE filed a lawsuit  in the United  States  District
Court, Denver, Colorado against Contour Development Company, L.L.C. and entities
and persons  associated  with Contour  Development  Company,  L.L.C.  (together,
"Contour") and the original developer Pangolin Corporation, 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.

        Specifically,  USE  (which  is the  assignee  of  Crested's  rights  and
interests in certain of the promissory notes,  contracts and agreements) alleges
that Contour has breached contracts for the sale of USE's and Crested's Gunnison
properties,  and is in default on the promissory  notes delivered to pay for the
Gunnison  properties.  USE has further alleged that Contour fraudulently induced
USE and  Crested  to  enter  into  restructuring  agreements  for  the  original
transactions between the parties in such properties;  and further,  that Contour
has breached the duties of good faith, honesty, full disclosure and fair dealing
which were owed to USE and Crested by Contour in the course of the transactions.
USE has made  additional  claims  against  Contour  for  unjust  enrichment  and
conversion of the real estate assets and added additional parties as defendants.
See  "Business  -  Commercial  Operations  - Real  Estate  and Other  Commercial
Operations - Colorado Properties" above.

        As of the date of this Annual Report,  the parties are negotiating for a
settlement, however, no final settlement has been reached.


                                       24

<PAGE>



SGMC LITIGATION

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

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

        On  September  28,  1998 a lawsuit was filed in Amador  County  Superior
Court,  California (Case No. 98 CV 3298) by Concerned  Citizens of Amador County
as  plaintiffs,  against  the County of Amador and the  Amador  County  Board of
Supervisors,  and  against  SGMC  as a  real  party  in  interest.  The  lawsuit
challenges  the  actions  of  Amador  County  and its  Board of  Supervisors  in
certifying  the FSEIR and  approving the amended CUP. A hearing was held on June
7, 1999 and the Court took the matter under  advisement.  Under  California Law,
the Court has 90 days from the hearing date to enter its decision.

        DENNIS SELLEY ET AL VS U.S.  ENERGY  CORP.,  CRESTED CORP. ET AL. On May
14, 1999, Dennis Selley personally and as personal  representative of the Estate
of Hannah Selley and his wife Mary B. Selley,  filed a Civil Action No. 30869 in
the Ninth Judicial District Court of Fremont County, Wyoming against U.S. Energy
Corp. and Crested Corp.,  Plateau Resources Limited and USECC the joint venture,
alleging  that  the  defendants  were  negligent  as a  landlord  in  renting  a
doublewide  trailer  converted to a bunkhouse near Ticaboo,  Utah to plaintiffs'
daughter Hannah Selley and seek various unspecified  damages.  Hannah Selley was
employed by U.S. Energy Corp. ("USE") at the Ticaboo Lodge in June 1998. Because
no housing was available for employees,  she and five other USE employees rented
rooms in the bunk house provided by USE, located about 1/2 mile from the Ticaboo
Lodge.  In the late  evening  of June 5, 1998 and early  the next  morning,  the
occupants built a bonfire near the bunkhouse and had guests over for a party. At
about 4:00 a.m. the morning of June 6, 1998,  a fire  started in the  bunkhouse.
All occupants were awakened and left the living  quarters during the fire except
Ms.  Selley  who  perished  in the  fire.  Plaintiffs  allege  inter  alia  that
defendants  were  negligent  in  providing   faulty  living  quarters  and  that
defendants  submitted a false  filing with the Utah Workers  Compensation  Fund.
Defendants  deny  negligence in providing the living facility and assert various
defenses including  plaintiffs'  complaint is barred by the Workers Compensation
statutory immunity as well as the defense of an intervening clause. Discovery is
underway.


                                       25

<PAGE>



        DECLARATORY  JUDGMENT ACTION. The Workers  Compensation Fund of Utah has
filed a complaint for declaratory  relief on or about July 26, 1999 against U.S.
Energy Corp., Crested Corp.,  Plateau Resources Limited,  Dennis and Mary Selley
and others in Civil Action No. 99090 7500 before the Utah Third  Judicial  Court
of Salt Lake County, Utah. The suit is to determine its obligation to defend and
indemnify U.S.  Energy Corp. and its affiliates in the above Hannah Selley case.
U.S.  Energy Corp.,  Crested Corp. and affiliates  have not yet responded to the
complaint in the case.

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

        Not Applicable.

INFORMATION CONCERNING EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS.

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

        ROBERT SCOTT LORIMER,  age 48, 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 these companies since May 25, 1991, their
Treasurer since December 14, 1990, and Vice President  Finance since April 1998.
He serves at the will of each board of  directors.  There are no  understandings
between Mr.  Lorimer and any other person,  pursuant to which he was named as an
officer,  and he has no  family  relationship  with any of the  other  executive
officers or directors of USE or Crested.  During the past five years, he has not
been involved in any Reg. S-K Item 401(f) listed proceeding.




                                       26

<PAGE>



                                     PART II

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

(a)     Market information.

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

        Fiscal year ended May 31, 1999            High       Low
        ------------------------------            ----       ---
           Fourth quarter ended 5/31/99         $0.52       $0.31
           Third quarter ended 2/28/99           0.39        0.218
           Second quarter ended 11/30/98         0.42        0.15
           First quarter ended 8/31/98           0.35        0.16

        Fiscal year ended May 31, 1998
        ------------------------------
           Fourth quarter ended 5/31/98         $0.45       $0.22
           Third quarter ended 2/28/98           0.46875     0.25
           Second quarter ended 11/30/97         0.71875     0.4375
           First quarter ended 8/31/97           0.8125      0.34375

(b)     Holders.

        (b)(1) At August 20, 1999 there were approximately 1,801 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,  1999,  Crested  issued  46,970  shares of its
Common Stock to its Outside Directors for services rendered.



                                       27

<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                                     May 31,
                                 ----------------------------------------------------------------------------
                                     1999            1998             1997            1996            1995
                                     ----            ----             ----            ----            ----

<S>                              <C>             <C>             <C>             <C>             <C>
Current assets                   $  5,605,700    $  4,809,300    $  1,049,500    $    596,200    $    512,600
Current liabilities                 9,451,000       9,282,300       6,592,400       6,848,300       5,518,500
Working capital                    (3,845,300)     (4,473,000)     (5,542,900)     (6,252,100)     (5,005,900)
Total assets                        8,415,000      10,211,400       6,285,700       8,132,500       8,097,800
Long-term obligations(1)              742,600         768,000         741,700         725,900         853,700
Shareholders' equity/(deficit)     (1,822,500)        117,200      (1,092,300)        521,900       1,690,800


<FN>
        (1)  Includes  $725,900,  $725,900,  $725,900,  $725,900 and $847,800 of
        accrued  reclamation costs on uranium  properties for fiscal 1999, 1998,
        1997, 1996 and 1995, respectively.
</FN>
</TABLE>

<TABLE>
<CAPTION>
                                                     For Years Ended May 31,
                             ----------------------------------------------------------------------
                                 1999         1998           1997          1996          1995
                                 ----         ----           ----          ----          ----

<S>                          <C>           <C>           <C>            <C>           <C>
Revenues                     $4,416,600    $4,659,900    $ 1,703,500    $ 2,509,200   $  1,160,200
(Loss) income before
   equity in loss of
   affiliates and
   income taxes                (291,900)    1,581,700       (862,400)     (811,000)    (1,031,100)
Equity in loss of
   affiliates                  (1,659,800)   (372,200)      (807,900)     (357,900)      (415,900)
                               ----------    --------      ---------      --------      ---------

Net (loss) income            $(1,951,700)  $ 1,209,500   $(1,670,300)  $(1,168,900)   $(1,447,000)
                              ==========    ==========    ==========    ==========     ==========

Net (loss) income
   per share                 $     (.19)   $       .12   $      (.16)   $     (.12)   $      (.14)
                              =========     ==========   ===========     =========     ==========

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


                                       28

<PAGE>



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

        The  following  is   Management's   Discussion  and  Analysis  of  those
significant  factors  which  have  affected  the  Company's  liquidity,  capital
resources and results of operations  during the periods covered in the Company's
Consolidated Financial Statements filed with this Report.

        Some of the  statements  in this  Management's  Discussion  and Analysis
constitute  "forward-  looking  statements"  within the  meaning of the  Private
Securities  Litigation  Reform  Act of  1995.  Such  forward-looking  statements
involve known and unknown risks,  uncertainties and other factors that may cause
the actual results,  performance or achievements of the Company to be materially
different  from any future  results,  performance or  achievements  expressed or
implied by the forward- looking statements.

LIQUIDITY AND CAPITAL RESOURCES AT MAY 31, 1999

        During fiscal 1999, cash and cash equivalents increased by $2,496,300 to
a balance of  $3,509,000 at May 31, 1999.  Cash  increases  came  primarily as a
result of the  receipt of cash from the  settlement  of various  Sheep  Mountain
Partners ("SMP")  arbitration/litigation  issues, the collection of accounts and
notes  receivable  and the  sale of  certain  assets.  Cash  was  provided  from
operations and financing  activities of $2,039,900  and $470,400,  respectively.
Cash of $14,000 was used in investing activities.

        The  Company  received  two  payments as partial  settlement  of various
disputes  existing between the partners of SMP. The first payment of $2,513,000,
which was recorded as an account receivable at May 31, 1998, represented matters
which the partners of SMP agreed to settle based on the April 18, 1996 Order and
Award which was  rendered by the  Arbitration  Panel and  confirmed  by the U.S.
District  Court of  Colorado.  The  Company  received an  additional  payment of
$3,038,600  after a decision was reached by the 10th  Circuit  Court of Appeals,
which  affirmed  the  Second  Amended  Judgment  of the U.S.  District  Court of
Colorado without modification.

        During the twelve months ended May 31, 1999,  accounts  receivable  from
related parties increased by $935,400.  This increase came primarily as a result
of increased accounts  receivable from Plateau Resources Limited  ("Plateau") by
$1,177,900.  This increase was offset by a reduction of the receivable  from the
Green Mountain Mining Venture ("GMMV") of $273,000.

        Cash was  used to  reduce  accounts  payable  and  accrued  expenses  by
$327,100;  reduce debt by $137,000;  purchase and renovate assets, $135,600; and
to fund continuing operations.  During fiscal 1999, proceeds from long term debt
were $100,500.




                                       29

<PAGE>



CAPITAL RESOURCES

        GENERAL:  The primary  source of the  Company's  capital  resources  for
fiscal 2000 will be cash on hand at May 31, 1999,  possible equity financing and
the expected settlement resolution of the SMP arbitration. The Company will also
continue to offer for sale various other assets such as real estate  holdings in
Wyoming,  Colorado and Utah and various mineral  interests.  Advance  royalties,
interest, rentals of real estate holdings and equipment, aircraft chartering and
aviation fuel sales will also provide cash.

        LINE OF CREDIT:  The Company and its majority  shareholder  U.S.  Energy
Corp.  ("USE") have a $1,000,000 line of credit with a commercial bank. The line
of credit is secured by various real estate holdings and equipment  belonging to
the Company and USE.  This  facility is  currently  available to the Company and
USE. It is anticipated  that this line of credit may be used to finance  working
capital needs.

        FINANCING:  Equity  financings  are  dependent  on the  market  price of
uranium, among other things. Currently the price for uranium is depressed and it
is not known when it will recover. Management believes, based on its analysis of
independent  projections,  that the market price for uranium will improve in the
future.  No  assurance  can be given that the price will improve  during  fiscal
2000. If the price does not improve,  the ability of the Company to raise equity
financing will be impaired.

        The  Company  believes  that cash on hand,  its line of credit  and cash
projected to be received  from  operations,  along with  potential  cut backs in
capital development,  general and administrative and operating expenses, will be
adequate to fund working capital requirements through fiscal 2000. These capital
resources  are  not   sufficient  to  provide  the  funding  for  major  capital
expenditures  for  the  Company's  mineral  properties  and,  accordingly,   the
Company's development plans may be either temporarily or permanently impacted.

        During  fiscal 1999,  debt to USE  increased by $506,900 to  $7,054,000.
This  debt is a result  of USE  funding  various  operations  on  behalf  of the
Company.  USE has not made demand for payment of the debt and has not  indicated
that it will do so during  fiscal  2000.  The Company is obligated to repay this
debt and will  continue to  negotiate  the terms of the debt with USE until such
time as adequate  resources  are available to retire the debt. In the event that
the  Company is not able to pay the debt to USE with cash it may be  required to
negotiate payment by issuance of its common stock to USE.

        The Company's  working capital deficit  decreased  during fiscal 1999 by
$627,700 to $3,845,300  at May 31, 1999.  This decrease was primarily due to the
partial settlements of the SMP arbitration/litigation  issues. It is anticipated
that this working capital,  along with the line of credit and cash received from
operations,  along  with  reductions  in  capital,  general  and  administrative
expenses and  operational  costs,  will be adequate to fund the working  capital
needs of the  Company  during  fiscal  2000.  Until  either  the  remaining  SMP
arbitration  issue is resolved or equity financing is raised,  the Company plans
to curtail major  development  projects on its mineral  properties,  general and
administrative expenses and commercial operations.


                                       30

<PAGE>



CAPITAL REQUIREMENTS

        GENERAL:  The primary  requirements  for the Company's  working  capital
during  fiscal 2000 are expected to be  associated  with  corporate  general and
administrative  and care and  maintenance  costs of the  Plateau and SMP mineral
properties. The Company will also be responsible for the purchase of uranium for
its portion of a delivery pursuant to the one utility contract that was assigned
to the  Company as a result of the partial  settlement  agreement  reached  with
Nukem, Inc.
in the SMP arbitration.

        SUTTER  GOLD  MINING  COMPANY  ("SGMC"):  The  Company  owns  4% of  the
outstanding  stock of SGMC.  As such,  it is not  directly  responsible  for the
administrative and capital obligations of bringing the SGMC gold properties into
production.  Through its affiliations with USE, however, the Company will assist
in the efforts to secure  financing  necessary to place the SGMC gold properties
into production.

        SMP: The Company and USE are responsible for care and maintenance  costs
of the SMP  properties.  During fiscal 1999,  these costs  averaged  $56,900 per
month.  One  half of these  costs  are the  obligation  of the  Company  and the
remaining 50% is the  obligation of USE.  There are no current plans to mine the
SMP Crooks Gap uranium properties during fiscal 2000. However,  the Company will
continue to preserve the mineral properties and evaluate concepts to reduce care
and maintenance costs.

        All matters in the SMP arbitration  have been settled with the exception
of  the  resolution  of  the  Constructive  Trust  which  was  impressed  by the
arbitration panel on several supply contracts with three republics of the former
Soviet  Union.  The  existence  of a  Constructive  Trust on the  contracts  was
confirmed  by the U. S.  District  Court of  Colorado  and  affirmed by the 10th
Circuit  Court  of  Appeals.  Management  believes  that the  resolution  of the
Constructive Trust issue will occur during fiscal 2000. However, no assurance of
the resolution or its ultimate impact on the financial  condition or earnings of
the Company can be predicted.

        GMMV:  Pursuant to an Acquisition  Agreement that was signed on June 23,
1997,  Kennecott  paid the Company $2 million upon  execution of the  Agreement,
which became  non-refundable  upon the  satisfaction  of certain  terms.  Due to
continued  depressed market prices for uranium  concentrates The Company and USE
were  unsuccessful  in obtaining  financing which would have allowed the Company
and USE to purchase Kennecott's interest in the GMMV. The $2 million advanced at
closing is classified as a deferred  purchase  option and will be offset against
any future cash commitments the Company may incur on the GMMV properties.

        During July 1998, the GMMV Management  Committee  unanimously  agreed to
place the  Jackpot  Mine and  Sweetwater  Mill on active  standby  status.  This
decision was made as a result of uncertainties in the short term uranium market.
During  fiscal  1999,  the  Company  and USE  elected  under the  original  GMMV
agreement to become non-participating  partners in the budgets of the GMMV. This
decision  by the Company  will have a dilutive  effect on its  ownership  in the
GMMV. The Company can buy back any dilution it may suffer in its ownership under
certain  conditions  of the GMMV  contract.  The  Company  believes  that due to
significantly  reduced annual care and  maintenance  costs,  the dilution of its
interest will be minor in the short term.

                                       31

<PAGE>



        As a result of  continued  depressed  uranium  prices,  the  decision to
curtain  development  activities  on the  GMMV  mineral  properties  and lack of
funding,  GMMV took an impairment  against its mineral  assets.  This impairment
does not affect the Company's  carrying  value of its  investment in GMMV or its
results of operations.

        PLATEAU:  Although  the  Company  does  not  directly  own  any  of  the
outstanding stock of Plateau, it has a revenue and cost sharing agreement on the
operations  of Plateau.  Under the terms of this  agreement  the Company  shares
equally  in all cash flows with USE,  which  owns all the  outstanding  stock of
Plateau.  In addition to maintaining the mill and mine properties,  Plateau owns
and operates the Ticaboo  townsite,  motel,  convenience  store and  restaurant.
Operations  in fiscal 1999 resulted in a loss of $708,500,  a $100,000  decrease
from fiscal 1998. In addition to commercial  operations,  Plateau is involved in
real estate sales including the sale of developed home and trailer sites as well
as constructed homes.

        The  Company  and USE are  currently  working  to obtain  the  necessary
permits  from  the NRC and  State  of Utah to place  Plateau's  Shootaring  mill
located in southern Utah into production.  The Company is seeking debt or equity
financing of between  $6,000,000  to $9,000,000 to put the mill and Tony M. Mine
into  production.  Until such time as the market price for uranium  concentrates
reaches  economic  levels,  financing is obtained and  profitable  contracts are
secured,  the Company will not put the properties  into  production.  Plateau is
also  evaluating  alternate uses for its mill site including a disposal site for
low level radioactive material.

        TERM DEBT AND OTHER OBLIGATIONS:  Debt is primarily due to USE, with the
remaining  balance   representing   obligations  for  the  purchase  of  various
equipment.  The debt  bears  various  interest  rates and is due  under  various
payment terms. It is anticipated  that all debt payments will be able to be made
in the normal course of the Company's business.

        RECLAMATION  OBLIGATIONS:  It is  not  anticipated  that  the  Company's
working  capital will be used in fiscal 2000 for the  reclamation  of any of its
mineral  properties.  The reclamation  costs are long term and are either bonded
through  the use of cash bonds or the pledge of  assets.  It is not  anticipated
that any of the Company's  mining  properties will enter the  reclamation  phase
prior to May 31,  2000.  At May 31, 1999,  all  reclamation  obligations  of the
Company were fully covered by cash,  bonds, the pledge of real estate assets, or
in the case of GMMV, surety bonds posted by Kennecott. The Company evaluates all
reclamation  liabilities  annually with the responsible  regulatory agency. When
increases are required, provisions are made in the cash deposits or bonding.

        OTHER: The Company is not using hazardous substances or known pollutants
to any  great  degree in these  activities.  Consequently,  recurring  costs for
managing hazardous substances, and capital expenditures for monitoring hazardous
substances or pollutants have not been significant.  Likewise,  the Company does
not have properties which require current remediation.  The Company are also not
aware of any claims for  personal  injury or  property  damages  that need to be
accrued or funded.

        The tax years  through May 31,  1994 are closed  after audit by the IRS.
The  Company  currently  has filed a request  for an  appeal  hearing  on an IRS
agent's findings for the years ended

                                       32

<PAGE>



May 31, 1995 and 1996.  No  assurance of the outcome of the appeal can be given.
However,  management of the Company believes that the results of the appeal will
not have a material affect on the financial position of the Company.

RESULTS OF OPERATIONS

FISCAL 1999 COMPARED TO FISCAL 1998

        Although the Company experienced positive cash flows during fiscal 1999,
operations  resulted in a net loss after taxes of  $1,951,700 or $0.19 per share
as compared to a income of $1,209,500 or $0.12 per share in fiscal 1998.

        REVENUES:  Mineral sales  decreased by $415,700 during fiscal 1999. This
decrease  resulted from no revenues being  recognized  during fiscal 1999 from a
SMP base  escalated  uranium  delivery  contract  which  generated  revenues  of
$429,300  during fiscal 1998 from the final delivery  under the contract.  There
were reduced revenues from the advance royalty from Cyprus Amax of $30,200,  due
to reduced  market  prices for  molybdenum.  These  decreases  in mineral  sales
revenue  were  slightly  offset  by net  profits  received  from  one of the SMP
purchase  contracts of $43,800  during  fiscal 1999 while no such  revenues were
recorded in fiscal 1998.

        Commercial  operations  revenues  decreased by $273,500.  This  decrease
occurred  primarily as a result of reduced  equipment  rentals to the GMMV.  The
GMMV  properties  were on a standby  basis  during  most of  fiscal  1999 due to
reduced uranium prices. This decrease of equipment rental of $375,600 was offset
by increased fuel sales.

        Oil sales  decreased by $43,400 as a result of temporarily  closing down
oil  production  due to continued  depressed  market  prices for crude oil and a
continuing  decline in the  production  of the oil wells.  Subsequent to May 31,
1999 the Company began producing two of the oil wells. The Company will continue
to evaluate  production  of the wells as estimated  production  rates change and
market prices for crude oil change.

        Management  fees and other  revenues  decreased  by  $268,100  primarily
because of reduced contract work performed at the GMMV properties and management
services at the SMP properties. The fee is based on a percentage of all costs at
the GMMV properties for services provided.  During fiscal 1999,  operations were
significantly   reduced  at  the  GMMV  properties  which  reduced  the  related
management  fees.  Upon  receiving  the  SMP  mining  properties  in  a  partial
settlement of the SMP arbitration  issues, the Company was no longer entitled to
a management fee on the SMP properties.

        COSTS AND EXPENSES:  Mineral  operations  increased from $832,400 during
fiscal  1998 to  $1,121,500  during  fiscal  1999.  This  increase  of  $289,100
primarily  relates to the care and  maintenance  costs  associated  with the SMP
properties.  The  Company  became  responsible  for 100% of  these  costs at the
beginning   of   fiscal   1999  due  to  a   partial   settlement   of  the  SMP
arbitration/litigation  issues  which  conveyed  ownership  of  the  SMP  mining
properties to the Company.


                                       33

<PAGE>



        General and  Administrative  expenses  increased from $1,370,300  during
fiscal 1998 by $403,400 to $1,773,700 during fiscal 1999. This increase was as a
result  of labor  expenses  no longer  being  billed  directly  to GMMV and SMP.
Significant  portions  of labor  costs were  billable  either  directly  or on a
allocation  basis to GMMV and SMP during fiscal 1998. As a result of the Company
and  USE   receiving   the  SMP   properties   in  partial   settlement  of  the
arbitration/litigation  issues and the curtailment of activities at GMMV,  these
same labor costs are charged to General and Administrative expense.

        The  largest  increases  in costs and  expenses  were the write off of a
contingent  stock  warrant and provision  for doubtful  accounts.  During fiscal
1999,  the Company wrote off a contingent  stock warrant from SGMC in the amount
of $651,000.  The write off of the contingent  stock warrant does not affect the
ownership of the SGMC properties.

        The Company also recognized non-cash expenses in the form of a provision
for doubtful  accounts of $182,500.  The  provision  for doubtful  accounts is a
result  of the  continual  inability  of a third  party to pay  amounts  due the
Company on real estate sold in prior years.  The Company will pursue  collection
of this amount.

RESULTS OF OPERATIONS

FISCAL 1998 COMPARED TO FISCAL 1997

        Revenues for the twelve months ended May 31, 1998 totaled  $4,659,900 as
compared to revenues of $1,703,500 for the fiscal year ended May 31, 1997.  This
increase in revenues of  $2,956,400  is primarily  the result of the  litigation
settlement,  increased mineral revenues, commercial operations,  management fees
and interest revenues.  The litigation  revenues of $2,295,000 are the result of
the    signing   of   an    partial    settlement    agreement    in   the   SMP
litigation/arbitration.  The  increase  in mineral  revenues  of $431,200 is the
result of the receipt by the Company of its portion of the net  proceeds  from a
delivery of U3O8 under a SMP contract,  which was the final  delivery under this
contract.

         Commercial operations revenues increased $392,600 as compared to fiscal
year 1997. These revenues increased as a result of increased equipment rental to
the GMMV. Management fees and other revenues increased $261,800 over fiscal year
1997  primarily  as a result of increased  activity at GMMV and  Plateau.  These
increases  were  partially  offset by a decrease  in  revenues  from the sale of
assets of $28,100.

        During the fiscal year ended May 31, 1998,  operating costs and expenses
increased  $512,300  compared to fiscal year ended May 31,  1997.  Increases  in
mineral operations and general and administrative expenses were partially offset
by decreases in commercial  operations and interest  expenses.  The increases in
mineral  operations of $410,900 and general and  administrative of $821,000 were
primarily  the result of  increased  operating  expenses at the GMMV and Plateau
uranium  properties.  The increases in general and administrative  expenses were
primarily due to increased compensation.


                                       34

<PAGE>



        Expenses in  commercial  operations  and interest  expense  decreased by
$59,400 and $3,500,  respectively  . These  expenses were reduced as a result of
reduced  activity on the  properties  and as a result of the Company and USE not
using their  commercial  bank line of credit  during the twelve months ended May
31, 1998.

        Operations  resulted  in net income of  $1,209,500  or $.12 per share in
fiscal 1998 as compared to a net loss of  $1,670,300 or $.16 per share in fiscal
1997.

FUTURE OPERATIONS

         The Company has 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. The Company is in the process of holding its
investments in gold and uranium properties that are currently not generating any
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 dependant on the
price that a company can receive for the minerals  produced.  The Company cannot
predict  what the long term  price for gold and  uranium  will be and  therefore
cannot  predict  when,  or  if,  the  Company  will  generate  net  income  from
operations. The Company has sufficient capital resources to maintain its mineral
properties on a stand by basis through  fiscal 2000.  Development  activities of
the mineral  properties and expansion of commercial  operations are dependant on
the Company obtaining equity financing or commercial loans.

        In  addition,   legal  expenses   associated  with  the  litigation  and
arbitration  surrounding the SMP Partnership and the inability of the Company to
utilize all the funds that have been  awarded to the Company by the  Arbitration
Panel  and  confirmed  by the  Federal  Courts  have  compounded  the  Company's
operating and cash flow position in the past. The Company  believes that the SMP
arbitration/litigation will be resolved during fiscal 2000.

YEAR 2000 ISSUE

        Computer  programs  written  in the past  utilize a two digit  format to
identify the applicable  year. Any date sensitive  software  beyond December 31,
1999  could  fail,   if  not   modified.   The  result  could  be,  among  other
possibilities,  disruptions to operations and the inability to process financial
transactions. The Company has evaluated the operating systems on all headquarter
and field office  computers  and operating  systems and has  consulted  with its
vendors of the  computer  software  which is being used by the  Company  and its
affiliates.  The vendors have confirmed to the Company that all of the Company's
software and information systems are Year 2000 compliant.  The Company therefore
does not believe  that  significant  expenditures  will be required for the Year
2000 event. In the event that the Company experiences technical problems because
of the Year 2000 problem it will change  software  vendors.  Such a change would
not have a material  affect on the Company's  results of operations or financial
position.


                                       35

<PAGE>



EFFECTS OF CHANGES IN PRICES

        Mining  operations and the acquisition,  development and sale of mineral
properties 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.

        URANIUM.  Changes  in the prices of  uranium  affect the  Company to the
greatest extent.  Currently uranium is at historical low prices.  The Company is
continually  evaluating  market trends and data. The Company does not plan to go
forward with any  additional  development  of its mineral  properties  until the
market price for gold and uranium  obtain and remain at higher levels which will
make the operations profitable.

        MOLYBDENUM  AND OIL.  Changes in prices of molybdenum  and petroleum are
not  expected  to  materially  affect  the  Company  with  respect to either its
molybdenum  advance  royalties or its fees  associated  with oil  production.  A
significant  and sustained  increase in demand for molybdenum  would be required
for the  development  of the Mt.  Emmons  properties by Cyprus Amax since Cyprus
Amax has other producing mines.

ITEM 8.  FINANCIAL STATEMENTS.

        Financial statements for the Company follow immediately.


                                       36

<PAGE>






                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Crested Corp.:

We have audited the accompanying consolidated balance sheets of CRESTED CORP. (a
Colorado corporation) AND AFFILIATE as of May 31, 1999 and 1998, and the related
consolidated  statements of operations,  shareholders' (deficit) equity and cash
flows for each of the  three  years in the  period  ended  May 31,  1999.  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  generally   accepted  auditing
standards.  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.

As  discussed in Note G, the note  payable to U.S.  Energy is  currently  due on
October 1, 1999. However,  U.S. Energy may unilaterally  accelerate the due date
of this note given its majority control over the Company, even though management
of U.S. Energy represented that it has no current intentions to do so. Crested's
current  projections  indicate that there may not be  sufficient  cash flow from
operations to fund that obligation when due and it continues to rely on advances
from U.S.  Energy to fund its  current  operating  requirements.  If  Crested is
unable to generate  sufficient funds from operations or other sources, it may be
required to sell  certain  assets in order to satisfy such  obligations  to U.S.
Energy.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Crested Corp. and affiliate as
of May 31,  1999 and 1998,  and the results of their  operations  and their cash
flows  for  each of the  three  years  in the  period  ended  May 31,  1999,  in
conformity with generally accepted accounting principles.




                                                   ARTHUR ANDERSEN LLP


Denver, Colorado,
August 26, 1999.


                                       37

<PAGE>

                          CRESTED CORP. AND AFFILIATE

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS


<TABLE>
<CAPTION>
                                                                   May 31,
                                                       ----------------------------
                                                            1999           1998
                                                            ----           ----
CURRENT ASSETS:
<S>                                                    <C>             <C>
   Cash and cash equivalents                           $  3,509,000    $  1,012,700
   Accounts receivable
      Trade, net of allowance for doubtful
         accounts of $1,600 and $1,400, respectively         72,200          89,500
      Affiliates                                          1,875,300         939,900
      SMP settlement receivable, net                           --         2,513,000
   Current portion of long-term notes receivable
      Related parties                                       115,000         227,800
   Inventory and other                                       34,200          26,400
                                                       ------------    ------------
         Total current assets                             5,605,700       4,809,300

LONG-TERM NOTES RECEIVABLE
   Related parties                                           10,200         116,500
   Real estate sales                                           --           182,500

INVESTMENTS IN AFFILIATES                                   126,000       1,643,300

INVESTMENT IN CONTINGENT
   STOCK PURCHASE WARRANT                                      --           651,000

PROPERTIES AND EQUIPMENT:
   Land                                                     397,400         397,400
   Buildings and improvements                             2,224,800       2,185,000
   Aircraft and other equipment                           2,428,600       2,393,300
   Developed oil properties, full cost method               886,800         886,800
   Mineral properties                                        14,200          14,200
                                                       ------------    ------------
                                                          5,951,800       5,876,700
   Less accumulated depreciation,
      depletion and amortization                         (3,437,400)     (3,221,700)
                                                       ------------    ------------
                                                          2,514,400       2,655,000

OTHER ASSETS                                                158,700         153,800
                                                       ------------    ------------

                                                       $  8,415,000    $ 10,211,400
                                                       ============    ============

<FN>

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
</FN>
</TABLE>


                                       38

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                           CONSOLIDATED BALANCE SHEETS

                 LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY


<TABLE>
<CAPTION>
                                                                  May 31,
                                                      -----------------------------
                                                           1999            1998
                                                           ----            ----

CURRENT LIABILITIES:
<S>                                                   <C>             <C>
     Accounts payable and accrued expenses            $    371,700    $    698,800
     Deferred GMMV purchase option                       2,000,000       2,000,000
     Current portion of long-term debt
        Affiliate                                        7,054,000       6,547,100
        Others                                              25,300          36,400
                                                      ------------    ------------
           Total current liabilities                     9,451,000       9,282,300


LONG-TERM DEBT                                              16,700          42,100

RECLAMATION LIABILITY                                      725,900         725,900

COMMITMENTS AND CONTINGENCIES (Note K)

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

SHAREHOLDERS' EQUITY
     Preferred stock, $.001 par value;
        100,000 shares authorized;
        none issued or outstanding                            --              --
     Common stock, $.001 par value;
        20,000,000 shares authorized;
        10,284,664 and  10,237,694 shares
        issued and outstanding                              10,300          10,200
     Additional paid-in capital                          6,387,300       6,375,400
     Accumulated deficit                                (8,220,100)     (6,268,400)
                                                      ------------    ------------
           Total shareholders' (deficit) equity         (1,822,500)        117,200
                                                      ------------    ------------
                                                      $  8,415,000    $ 10,211,400
                                                      ============    ============


<FN>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
</FN>
</TABLE>


                                       39

<PAGE>


                          CRESTED CORP. AND AFFILIATE

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                        Year Ended May 31,
                                          ---------------------------------------------
                                              1999             1998            1997
                                              ----             ----            ----
REVENUES:
<S>                                       <C>             <C>             <C>
  Mineral revenues                        $    119,100    $    534,800    $    103,600
  Commercial operations                        607,400         880,900         488,300
  Interest                                     160,700         141,500          38,500
  SMP litigation settlements, net            3,038,600       2,295,000         501,900
  Oil sales                                     41,700          85,100          82,300
  Management fees and other                    453,700         721,800         460,000
  (Loss)gain on sale of assets                  (4,600)            800          28,900
                                          ------------    ------------    ------------
                                             4,416,600       4,659,900       1,703,500

COSTS AND EXPENSES:
  Mineral operations                         1,121,500         832,400         421,500
  Abandoned mineral claims                        --              --            71,500
  Provision for doubtful accounts              182,500            --           570,800
  Commercial operations                        929,200         814,100         873,500
  General and administrative                 1,773,700       1,370,300         549,300
  Write-off of investment in contingent
    stock warrant                              651,000            --              --
  Oil Production                                32,300          34,000          48,400
  Interest                                      18,300          27,400          30,900
                                          ------------    ------------    ------------
                                             4,708,500       3,078,200       2,565,900
                                          ------------    ------------    ------------

(LOSS) INCOME BEFORE
  EQUITY IN LOSS OF AFFILIATES
  AND INCOME TAXES                            (291,900)      1,581,700        (862,400)

EQUITY IN LOSS OF AFFILIATES                (1,659,800)       (372,200)       (807,900)
                                          ------------    ------------    ------------

(LOSS) INCOME BEFORE
  INCOME TAXES                              (1,951,700)      1,209,500      (1,670,300)

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

NET (LOSS) INCOME                         $ (1,951,700)   $  1,209,500    $ (1,670,300)

NET (LOSS) INCOME
PER SHARE, BASIC AND DILUTED              $      (0.19)   $       0.12    $      (0.16)
                                          ============    ============    ============

BASIC WEIGHTED AVERAGE
  SHARES OUTSTANDING                        10,315,091      10,237,694      10,165,931
                                          ============    ============    ============

DILUTED WEIGHTED AVERAGE
  SHARES OUTSTANDING                        10,315,091      10,302,694      10,165,931
                                          ============    ============    ============


<FN>

The accompanying notes to consolidated financial statements are an integral part
of these statements.
</FN>
</TABLE>


                                       40

<PAGE>



                           CRESTED CORP. AND AFFILIATE

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                       Additional                       Total
                                Common Stock             Paid-In     Accumulated    Shareholders'
                           Shares           Amount       Capital       Deficit     Equity (Deficit)
                           ------           ------       -------       -------     ----------------

<S>                       <C>          <C>            <C>            <C>            <C>
Balance, May 31, 1996     10,156,094   $    10,100    $ 6,319,400    $(5,807,600)   $   521,900

Issuance of stock to
   outside directors          81,600           100         56,000           --           56,100

Net loss                        --            --             --       (1,670,300)    (1,670,300)
                         -----------   -----------    -----------    -----------    -----------

Balance, May 31, 1997     10,237,694        10,200      6,375,400     (7,477,900)    (1,092,300)

Net income                      --            --             --        1,209,500      1,209,500
                         -----------   -----------    -----------    -----------    -----------

Balance, May 31, 1998     10,237,694        10,200      6,375,400     (6,268,400)       117,200

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

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

Balance, May 31, 1999     10,284,664   $    10,300    $ 6,387,400    $(8,220,100)   $(1,822,500)
                         ===========   ===========    ===========    ===========    ===========

<FN>

Shareholders'  Equity at May 31, 1999 does not include  65,000 shares  currently
issued but  forfeitable  if certain  conditions  are not met by the  recipients.
However,  the Basic and  Diluted  Weighted  Average  Shares  Outstanding  on the
Consolidated Statements of Operations include the forfeitable shares.





The accompanying notes to consolidated financial statements are an integral part
of these statements.
</FN>
</TABLE>



                                       41

<PAGE>




                           CRESTED CORP. AND AFFILIATE

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                     Year Ended May 31,
                                                         ------------------------------------------
                                                             1999           1998            1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                      <C>            <C>            <C>
   Net income (loss)                                     $(1,951,700)   $ 1,209,500    $(1,670,300)
   Adjustments to reconcile net income (loss) to net
      cash provided by (used in) operating activities:
        Depreciation, depletion, and amortization            221,600        214,600        183,600
        Equity in loss of affiliates                       1,659,800        372,200        807,900
        Write-off of investment in
           contingent stock warrant                          651,000           --             --
        Provision for doubtful accounts                      182,500           --          574,600
        Non-cash compensation                                 12,000           --           76,300
        Gain on sale of assets                                 4,600           (800)       (28,900)
        SMP settlement receivable, net                     2,513,000     (2,513,000)      (501,900)
        Abandoned mineral claims                                --             --           71,500
        Net changes in:
           Accounts and notes receivable                    (918,100)      (369,300)      (457,900)
           Inventory and other                                (7,700)        21,900        (14,700)
           Accounts payable and accrued expenses            (327,100)       142,200        256,600
                                                         -----------    -----------    -----------
NET CASH PROVIDED BY (USED IN)
    OPERATING ACTIVITIES                                   2,039,900       (922,700)      (703,200)
                                                         -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Deferred GMMV purchase option                                --        2,000,000           --
   Decrease (Increase) in long-term receivables               81,600        251,800       (668,400)
   (Investments in) proceeds from affiliates                  (5,000)      (218,700)     1,891,400
   Purchases of property and equipment                      (135,600)      (707,200)       (64,500)
   Proceeds from sale of property and equipment               50,000          2,000         30,000
   Increase in other assets                                   (5,000)        (3,600)        (4,100)
                                                         -----------    -----------    -----------
NET CASH (USED IN) PROVIDED BY
    INVESTING ACTIVITIES                                     (14,000)     1,324,300      1,184,400
                                                         -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from third party debt                            100,500        153,900         28,200
   Activity from line of credit, net                            --             --          (88,000)
   Payment on long-term debt                                (137,000)      (103,600)          --
   Net activity on long-term debt to affiliates              506,900        523,700       (436,900)
                                                         -----------    -----------    -----------
NET CASH PROVIDED BY (USED IN)
   FINANCING ACTIVITIES                                      470,400        574,000       (496,700)
                                                         -----------    -----------    -----------


(continued)

<FN>

The accompanying  notes to consolidated  financial  statements are an integral
part of these statements.
</FN>
</TABLE>


                                       42

<PAGE>



                           CRESTED CORP. AND AFFILIATE

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONTINUED)
<TABLE>
<CAPTION>

                                                                  Year Ended May 31,
                                                      ---------------------------------------
                                                          1999           1998         1997
                                                          ----           ----         ----
<S>                                                    <C>               <C>          <C>
NET INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                              2,496,300         975,600      (15,500)

CASH AND CASH EQUIVALENTS, Beginning of year           1,012,700          37,100       52,600
                                                      ----------   -------------   ----------

CASH AND CASH EQUIVALENTS, End of year                $3,509,000   $   1,012,700   $   37,100
                                                      ==========   =============   ==========

SUPPLEMENTAL DISCLOSURES:

     Payment of note receivable - affiliates
        with stock from affiliate                     $  137,500   $        --     $     --
                                                      ==========   =============   ==========

     Interest paid                                    $   18,300   $      27,400   $   30,900
                                                      ==========   =============   ==========

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

     Noncash investing and financing activities:

        Exchange of affiliate shares for contingent
           stock purchase warrant                     $     --     $        --     $  651,000
                                                      ==========   =============   ==========


<FN>

The accompanying  notes to consolidated  financial  statements are an integral
part of these statements.
</FN>
</TABLE>


                                       43

<PAGE>



                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999


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 properties, mining and marketing of minerals.
Principal mineral interests are in uranium,  gold and molybdenum.  However, none
are  producing at the present  time.  Currently,  the Company holds various real
properties  used  in  commercial  operations  and  engages  in the  exploration,
development and production of petroleum.  Most of these activities are conducted
through the joint venture discussed below and in Note B.

        The  Company  and  U.S.  Energy  Corp.   ("USE"),   an  approximate  52%
shareholder  of the  Company,  are engaged in two  ventures  to develop  certain
uranium  properties,   one  a  joint  venture  with  Kennecott  Uranium  Company
("Kennecott")  known as the Green  Mountain  Mining  Venture  ("GMMV"),  and the
second a  partnership  with  Nukem,  Inc.  ("Nukem")  through  its wholly  owned
subsidiary  Cycle  Resource  Investment  Corporation  ("CRIC")  known  as  Sheep
Mountain  Partners  ("SMP").  SMP is  currently  involved in  significant  legal
proceedings  between its partners (see Note K). In fiscal 1998,  the Company and
USE entered into an Agreement with Kennecott whereby they had the opportunity to
purchase  Kennecott's  interest in the GMMV if certain  conditions were met (see
Note  F).  During  fiscal  1995,  the  Company  and  USE  formed  a new  Wyoming
corporation,   Sutter  Gold  Mining  Company,   ("SGMC").  SGMC  was  formed  to
consolidate  and operate the interests of the Company and USE in the Sutter Gold
Mining Properties.

LIQUIDITY AND OPERATING LOSSES

        The Company has a  significant  working  capital  deficit which has been
impacted by the  litigation/arbitration  with Nukem and CRIC, which is discussed
in Note K. After a confirmation of the  arbitration  Order and Award the Company
received $3,038,600 in February 1999 from Nukem as partial settlement of the SMP
claims.  Additionally,  the Company received $2,513,000 during the first quarter
of  1999  as a  partial  settlement  from  Nukem.  Final  resolution  of the SMP
Arbitration  Order  and  Award  is  pending  before  the U.S.  Federal  Court in
Colorado.  For  accounting  purposes,  the Company  first  applied the  proceeds
against  their  recorded  investment  in  SMP  with  the  remaining  balance  of
$3,038,600 and $2,295,000 in 1999 and 1998,  respectively,  after cost recovery,
being  recognized  as  income  and  included  in the  accompanying  Consolidated
Statements of Operations as SMP litigation settlements,  net. Improvement in the
Company's  liquidity  position  is  dependent  on the  ultimate  outcome of this
litigation/arbitration.  This matter has also impacted the Company's  ability to
pay its  obligations to its  affiliates,  primarily USE. As of May 31, 1999, the
Company owed USE $7,054,000.


                                       44

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

B.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

        The  consolidated  financial  statements of Crested and affiliate (USECC
Joint Venture ("USECC")) include the accounts of the Company and one-half of the
account  balances of USECC,  a joint  venture  through which the Company and its
controlling  shareholder,  USE, conduct the bulk of their operations.  USECC has
interests in uranium  mining  ventures (see Notes E and F), and owns real estate
and other equipment (see Note D). USECC is owned equally by the Company and USE.

INVESTMENTS

        With the exception of SMP for 1998 (see Notes F and K),  investments  in
other joint  ventures and 20% to 50% owned  companies  are  accounted for by the
equity  method.  The Company  accounts  for its 8%  investment  in USE using the
equity method  because the Company is controlled  by USE.  Investments  in other
companies of less than 20% are accounted for by the cost method, except for SGMC
which is accounted for under 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.

INVENTORY

        Inventories  consist  primarily of aviation  fuel,  associated  aircraft
parts and mining supplies.  Retail inventories are stated using the average cost
method. Other inventory is stated at the lower of cost or market.

CASH EQUIVALENTS

        The  Company  considers  all highly  liquid  investments  with  original
maturities of three months or less to be cash  equivalents.  The carrying amount
of cash  equivalents  approximates  fair value because of the short  maturity of
those instruments.

PROPERTIES AND EQUIPMENT

        Land, buildings, improvements and other equipment are carried at cost.

        Depreciation of buildings, improvements, aircraft and other equipment is
provided  principally by the  straight-line  method over estimated  useful lives
ranging from three to forty-five years.


                                       45

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

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

        The Company 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.  The
market  value of these  assets  and most of the  reclamation  and  environmental
liabilities   associated  with  them  are  not  reflected  in  the  accompanying
consolidated balance sheets (see Note K).

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. A low commodity price market, 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,  1999,  management
believes,  other than the impairment taken during fiscal 1999 on the Sutter Gold
contingent  stock  purchase  warrant  (see Note F),  that there has not been any
impairment of the Company's long-lived assets or other identifiable intangibles.

FAIR VALUE OF FINANCIAL INSTRUMENTS

        The recorded  amounts for  short-term and long-term  debt,  receivables,
other current assets, and accounts payable and accrued expenses approximate fair
value.

REVENUE RECOGNITION

        Advance royalties which are payable only from future production or which
are  non-refundable  are  recognized  as  revenue  when  received  (see Note F).
Non-refundable  option  deposits  are  recognized  as  revenue  when the  option
expires.

                                       46

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)



        Revenues from uranium sales are recognized  upon delivery.  Revenues are
recognized  from the rental of certain  assets  ratably  over the related  lease
terms.  Revenues from commercial  operations,  which  represents  primarily real
estate  activity,  and an airport fixed base operation,  are recognized as goods
and services are  delivered.  Oil and gas revenue is  recognized  at the time of
production.

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 carryforwards and
tax  credit  carryforwards.  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

        In February 1997,  Statement of Financial  Accounting  Standards No. 128
"Earnings per Share,"  ("SFAS 128") was issued and  specifies  the  computation,
presentation  and disclosure  requirements for earnings per share. The statement
replaces  "primary  earnings  per share"  with  "basic  earnings  per share" and
replaces "fully diluted earnings per share" with "diluted earnings per share."

RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1997, SFAS No. 130 "Reporting Comprehensive Income" ("SFAS 130")
was issued and establishes standards for reporting and displaying  comprehensive
income and its  components  in the  financial  statements.  In  addition  to net
income,  comprehensive  income  includes all changes in equity  during a period,
except those  resulting from  investments by and  distributions  to owners.  The
adoption of SFAS 130, in the first quarter of fiscal 1999,  had no impact to the
Company.

        In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related  Information" ("SFAS 131") was issued and establishes  standards for
reporting  information about operating  segments in annual and interim financial
statements.  SFAS 131 also establishes  standards for related  disclosures about
products  and  services,  geographic  areas  and major  customers.  SFAS 131 was
adopted by the Company in fiscal 1999 (see Note I).


                                       47

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)


USE OF ESTIMATES

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

RECLASSIFICATIONS

        Certain  reclassifications have been made in the 1998 and 1997 financial
statements to conform with the 1999 presentation.

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  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 1999, 1998
and 1997, the Board of Directors of USE  contributed  89,600,  49,470 and 24,069
shares of USE stock to the ESOP at prices of $4.00,  $6.57 and $8.87 per  share,
respectively.  The  Company is  responsible  for  one-half of the value of these
contributions or $179,200,  $162,300 and $106,800 in fiscal 1999, 1998 and 1997,
respectively.

        As of May 31, 1999,  the Company had notes  receivable  due from certain
officers, employees and related parties of the Company and USE totaling $125,200
which bear interest at 10% per annum and are due in November  1999.  The Company
also has advances to affiliates of $637,117.

        The Company and USE provide management and  administrative  services for
affiliates under the terms of various management agreements. Revenues from these
services provided by the Company were $399,024,  $552,775 and $329,900 in fiscal
1999, 1998 and 1997, respectively.

        On May  15,  1997,  the  Company  and  USE  entered  into a  convertible
promissory note with Yellow Stone Fuels Corp. ("YSFC"). The Company and USE each
own 13.2% and 22.7% of YSFC respectively.  The convertible note bore interest at
10% and was due on December 31,  1998.  The Company and USE extended the note to
March 31, 1999.  YSFC exercised its option to either fully satisfy the debt with
cash or the issuance of its common stock by paying  $200,000 and issuing 137,500
shares of its common stock.

                                       48

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

D.      USECC JOINT VENTURE:

        USECC  operates the Glen L. Larsen office  complex;  an aircraft  hangar
with a fixed base operation, office space, and certain aircraft; holds interests
in various mineral operations  including SMP and the GMMV;  conducts oil and gas
operations;  and  transacts  all  operating  and  payroll  expenses,  except for
specific expenses which are allocated directly to each venturer.

        The joint venture  agreement also provides for the allocation of certain
operating  expenses to other  affiliates.  Condensed  financial  information  of
USECC, which is 50% proportionately consolidated by the Company, follows:

                               CONDENSED BALANCE SHEETS - USECC

                                       May 31,
                           ----------------------------
                               1999             1998
                               ----             ----
Current assets             $ 10,887,900    $  9,098,700
Properties and equipment      9,399,000       9,248,800
Mineral properties               28,500          28,500
Accumulated depreciation     (4,463,000)     (4,031,600)
Other long-term assets        1,311,000       2,095,000
                           ------------    ------------
                           $ 17,163,400    $ 16,439,400
                           ============    ============

Current liabilities        $    798,100    $  1,474,900
Reclamation liability         1,451,800       1,451,900
Other liabilities                33,300          84,300
Deferred income               4,000,000       4,000,000
Venturers' capital           10,880,200       9,428,300
                           ------------    ------------
                           $ 17,448,700    $ 16,439,400
                           ============    ============

                   CONDENSED STATEMENTS OF OPERATIONS - USECC

                                  Year Ended May 31,
                     ------------------------------------------
                        1999             1998          1997
                        ----             ----          ----
Revenues             $ 8,659,700    $ 8,778,200    $ 3,043,600
Costs and expenses    (7,597,600)    (6,164,300)    (3,963,500)
                     -----------    -----------    -----------
Net income (loss)    $ 1,062,100    $ 2,613,900    $  (919,900)
                     ===========    ===========    ===========


                                       49

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

E.      INVESTMENTS IN AFFILIATES:

        The Company's investments in affiliates are as follows:

                                             Carrying Value at May 31,
                                             -------------------------
                                 Ownership        1999        1998
                                 ---------        ----        ----
Equity Method Investments:
 GMMV                                 25%   $   116,300    $   116,300
 SGMC                                  4%       (85,500)       403,600
 ENERGX Ltd.                          45%        63,000         62,900
 YSFC                               13.2%      (130,100)      (192,200)
 USE (Note B)                          8%       147,700      1,243,600
 Others                          various         14,600          9,100
                                            -----------    -----------
                                            $   126,000    $ 1,643,300
                                            ===========    ===========

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

                          Year Ended May 31,
               ------------------------------------------
                  1999          1998            1997
                  ----          ----            ----

GMMV           $      --      $      --      $      --
SGMC              (489,100)       (13,000)      (121,800)
ENERGX, LTD           --             --          (27,400)
YSFC               (75,400)       (69,300)      (122,400)
USE             (1,095,300)       (73,100)      (271,400)
               -----------    -----------    -----------
               $(1,659,800)   $  (155,400)   $  (543,000)
               ===========    ===========    ===========

        There are currently  litigation  and  arbitration  proceedings  with the
Company's partner in the SMP partnership, as discussed further in Note K.



                                       50

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

                       CONDENSED COMBINED BALANCE SHEETS:
                                EQUITY INVESTEES

                                         1999             1998
                                         ----             ----
Current assets                      $  15,187,900    $  18,434,400
Non-current assets                     23,455,200      118,550,300
                                    -------------    -------------
                                    $  38,643,100    $ 136,984,700
                                    =============    =============

Current liabilities                 $   3,523,300    $   9,351,900
Reclamation and other liabilities      52,017,700       61,281,400
Excess in assets                      (16,897,900)      66,351,400
                                    -------------    -------------
                                    $  38,643,100    $ 136,984,700
                                    =============    =============

                  CONDENSED COMBINED STATEMENTS OF OPERATIONS:
                                EQUITY INVESTEES

                         1999              1998           1997
                         ----              ----           ----
Revenues             $ 11,058,800    $ 11,695,900    $  5,766,000
Costs and expenses    (97,836,400)    (13,273,900)    (12,213,500)
                     ------------    ------------    ------------
Net loss             $(86,777,600    $ (1,578,000)   $ (6,447,500)
                     ============    ============    ============

        SMP entered into various market related and base price escalated uranium
sales  contracts  with certain  utilities.  Deliveries  under the base escalated
contracts  have been  completed  as of May 31,  1999.  The  Company  and USE are
responsible  for one  remaining  market  related  contract  which  will  require
approximately  696,000 pounds of uranium  concentrates to be delivered from 2000
through 2004 depending on utility  requirements.  These contracts also allow for
the quantities to be substantially  increased by the utilities.  As discussed in
Note K, SMP has been the  subject  of  significant  litigation  and  arbitration
proceedings between the SMP partners since 1991, portions of which are currently
still in progress.  Pending the final  resolution of the remaining  proceedings,
the  partners  in SMP  agreed to  fulfill  certain  of the SMP's  uranium  sales
contracts   outside  of  the   partnership   by  each   partner   delivering   a
mutually-agreed  portion of the delivery  commitments on an individual basis. In
1999 and 1998,  deliveries  under this  arrangement  resulted in revenues to the
Company of $43,800 and $429,300,  respectively (no such revenues were recognized
in  1997).   Revenues  from  these   transactions  have  been  included  in  the
accompanying  Consolidated  Statements of Operations as Mineral revenues,  which
would  normally  have been sales of SMP. As a result of a partial  settlement in
June  of  1998,  the  Company  and USE  were  assigned  one of the  SMP  utility
contracts.  This  contract  calls for  deliveries of 198,000,  81,000,  125,000,
84,000 and 208,000 pounds of uranium  concentrate in calendar 2000,  2001, 2002,
2003 and 2004.  These deliveries are to be made at an average of the three month
market price preceding the delivery. The utility has the option of increasing or
decreasing the quantity by plus or minus thirty percent.

                                       51

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

        Due to the litigation and arbitration proceedings,  financial statements
for SMP are not available. Accordingly, the Company has recorded only its direct
investment in, and results of operations from the  partnership.  The Company had
no carrying value of its  investment in SMP for 1999. The Company's  direct loss
generated  from its  investment  in SMP was  $216,800 and $264,900 for the years
ended May 31, 1998 and 1997,  respectively.  No amounts  attributable to SMP are
included  in  the  Condensed  Combined  Balance  Sheets  or  Condensed  Combined
Statements of Operations of the Company's equity investees presented above.

F.      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.  The  purchase  price  was
$15,000,000  and a commitment to fund the first $50 million of  development  and
operating costs.  Kennecott also committed to pay additional  amounts if certain
future operating margins were achieved.  USE and USECC participate in cash flows
of the GMMV in accordance with their ownership of the mining claims prior to the
formation of the GMMV.

        On June 23, 1997,  USE and USECC signed an  Acquisition  Agreement  with
Kennecott  for the  right  to  acquire  Kennecott's  interest  in the  GMMV  for
$15,000,000 and other consideration.  Kennecott paid USE and USECC $4,000,000 on
signing,  and  committed  to loan  the GMMV up to  $16,000,000  for  payment  of
reimbursable  costs  incurred by USECC in  developing  the proposed  underground
Jackpot Uranium Mine for production and in changing the status of the Sweetwater
Mill from standby to operational.

        Pursuant to the Acquisition  Agreement,  the Mineral Lease, and the Mill
Contract,  USECC  continued  the  development  of the proposed  Jackpot Mine and
nearby Big Eagle Mine,  and worked with  Kennecott in preparing  the  Sweetwater
Mill for renewed operations. Such work was funded from the $16,000,000 loaned to
the GMMV by Kennecott.  Kennecott received a credit against Kennecott's original
$50,000,000  commitment to fund the GMMV, in the amount of two dollars of credit
for each one dollar of such funds out of the $16,000,000  loaned by Kennecott to
the  GMMV,  plus  the  $4,000,000  paid  to USE  and  USECC  on  signing  of the
Acquisition Agreement.

        In 1996,  the U.S.  Government  adopted the "USEC  Privatization  Act of
1996" to privatize the U.S.  Enrichment Corp. In July 1998, in a filing with the
U.S.  Securities  and Exchange  Commission,  USEC Inc.  ("USEC")  disclosed  its
planned  sale of  significant  quantities  of uranium  in the U.S.  marketplace.
Accordingly,  forecasted demand for uranium and forecasted  uranium sales prices
have  decreased  in the  short-term.  As a result,  the GMMV halted  development
activities at

                                       52

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

the  Jackpot.  Mine on July 31,  1998 and has  placed  the  facility  on  active
standby. This action required the layoff of mine workers. Due to the uncertainty
of the  uranium  market it is not known  when the  development  of the mine will
start again or if USECC will be able to conclude the financing  necessary to buy
Kennecott's interest.

        USECC was able to satisfy the terms of the Acquisition  Agreement to the
point that the $4,000,000 signing bonus paid by Kennecott is nonrefundable. As a
result of the continuing  depressed uranium market, the Company and USE were not
able to close the  acquisition  agreement.  The signing  payment will be applied
against any further reimbursable costs and contributions the Company and USE may
become obligated to make to the GMMV.

        USE, USECC and Kennecott  continue to own their respective 50% interests
in the GMMV,  and  Kennecott's  obligation  to repay the  $16,000,000  loaned by
Kennecott  shall remain its  obligation,  without any adverse  effect on the 50%
interest  in GMMV held by USE and USECC.  Kennecott  funded  $14,458,200  of the
$16,000,000 loan obligation.  The balance of the loan, $1,541,800,  is available
when  development  work is resumed.  As a result of the funds advanced under the
loan and the signing  bonus,  which gave  Kennecott a 2 for 1 credit against its
$50 million work commitment, the $50 million work commitment under the 1990 GMMV
Agreement  is fully  satisfied.  The Company and USE have  elected to have their
interests  diluted by becoming non  participating on the work plans and budgets.
Kennecott is obligated  to fund the annual plans and budgets.  If the  Company's
and  USE's  participating  interests  drop  below 10%  their  interests  will be
automatically  converted  to a 1% to  3%  gross  proceeds  royalty.  It  is  not
anticipated that such dilution will occur in the near term.

        Primarily  as a result  of  sustained  depressed  uranium  prices,  GMMV
evaluated  the  carrying  value  of its  mineral  assets  for  impairment.  GMMV
determined  the  carrying  value of its assets  exceeded  the future cash flows.
Accordingly,  in Fiscal  1999,  GMMV  recorded  an  impairment  in the amount of
$59,545,150  related to its mineral assets.  This impairment does not affect the
Company's carrying value of its investment in GMMV or its results of operations.

SMP

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

                                       53

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

CYPRUS AMAX

        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 and its successor Cyprus Amax Minerals, Inc. ("Cyprus Amax")
have not placed the properties into production as of May 31, 1999.

        Cyprus Amax now pays the Company  and USE an annual  advance  royalty of
50,000 pounds of molybdenum (or its cash equivalent). Cyprus Amax 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  $75,300,  $105,500 and $103,600 of revenue
from the advance royalty payments in fiscal 1999, 1998, and 1997, respectively.

        Cyprus Amax may elect to return the  properties  to the Company and USE,
which  would  cancel the advance  royalty  obligation.  If Cyprus Amax  formally
decides to place the properties into  production,  it will pay $2,000,000 to the
Company and USE. If Cyprus Amax sells the  properties,  the Company and USE will
receive 15% of the first $25 million received by Cyprus Amax.

        The Company and USE also held an option to purchase  certain real estate
located in Gunnison,  Colorado owned by Cyprus Amax. During fiscal 1995, USE and
Crested  reached an  agreement  with Cyprus Amax  whereby USE and Crested  would
forego six  quarters of advance  royalties  as payment of this  option  exercise
price. Thereafter, USE (together with Crested) signed two option agreements with
Pangolin Corporation ("Pangolin"),  a Park City, Utah developer, for sale of the
land owned in Gunnison County, Colorado. Pangolin made a cash payment and signed
promissory  notes for the purchase of the  properties.  As of May 31, 1999,  the
promissory notes were in default and are fully reserved. USECC is endeavoring to
resolve the default and filed a legal action to protect its  interest  (see Note
K).

SGMC

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

        SGMC is in the development stage and additional  development is required
prior to the commencement of commercial  production.  SGMC has not generated any
significant revenue and has no assurance of future revenue.  All acquisition and
mine  development  costs  since  inception  have been  capitalized.  Since  test
production in 1992,  SGMC has focused its efforts on obtaining a reserve  study,
developing a mine plan and pursuing a partner to assist in the  financing of its
mineral  development  and ultimate  production.  As of May 31, 1999,  due to the
decline in the spot price for

                                       54

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

gold and the lack of adequate  financing,  SGMC has put the  development  of the
mine on hold.  Until the time when development  begins,  SGMC does not expect to
require capital contributions from USE, Crested or other sources of financing to
maintain its current  activities.  SGMC will  continue to be  considered  in the
development  stage  until the time it  generates  significant  revenue  from its
principal operations.

        During the first and second quarters of fiscal 1997, SGMC sold shares of
its common  stock in a private  placement.  These shares were sold for $3.00 per
share. SGMC received  approximately  $1,100,000 in net proceeds from this equity
placement.  During the fourth quarter of fiscal 1997, an additional  offering of
shares of SGMC's  special  warrant units was completed and raised  approximately
$5,400,000 in net cash proceeds.  Each special warrant unit is convertible  into
one share of SGMC  common  stock for no  additional  compensation  and one stock
purchase warrant.  The warrant allows the holder to purchase an additional share
of SGMC common stock for CDN$6.00.  The warrant expired in November 1998. At the
underwriter's  request, the initial investors (including USE and Crested) agreed
to have the amount of their  common  shares  owned  reduced by 50  percent.  The
investors  in the $3.00 per share  private  placement  discussed  above were not
affected  as those  shares  were  sold in  contemplation  of the 1 for 2 reverse
split.

        In connection with the second  offering,  the Company and USE accepted a
Contingent  Stock  Purchase  Warrant  dated  March 21, 1997 which  provides  the
Company and USE the right to acquire,  for no additional  consideration,  common
shares of SGMC's  $.001 par value  common  stock  having an  aggregate  value of
$10,000,000  (US). The Contingent Stock Purchase Warrant has a term of ten years
extending  to  March  21,  2007,  and  is  exercisable  partially  or in  total,
semi-annually beginning on June 30, 1997. However, the Contingent Stock Purchase
Warrant is only  exercisable to the extent proven and probable ore reserves,  as
defined in the Contingent  Stock Purchase  Warrant,  in excess of 300,000 ounces
are added to SGMC's  reserves.  In  addition,  SGMC has the right to satisfy the
exercise of all or any portion of the Contingent Stock Purchase Warrant with the
net cash  flows,  as  defined,  at $25.00  (US) for each new ounce of proven and
probable ore in excess of 300,000 ounces up to a maximum of 700,000 ounces. As a
result of continued  depressed  market prices for gold and the inability of SGMC
to raise sufficient capital to place the properties into production, SGMC took a
$10,718,300 impairment allowance against its mineral properties.  As a result of
this  impairment,  the Company wrote off its  investment in the SGMC  contingent
stock warrant in the amount of $651,000  during fiscal 1999. SGMC still owns the
mineral properties and management is optimistic that the property will be placed
into  production  in the  future.  At such time as the  property  should go into
production  the Company would receive all its benefits  pursuant to the terms of
the contingent stock purchase warrants.

        Management is considering  alternate uses of the Sutter properties until
such  time  as the  price  for  gold  increases.  Options  that  management  has
considered include the development of a visitor's center.

                                       55

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

        On March 31, 1998,  USE  purchased  889,900  Special  Warrant units from
certain Canadian  investors.  The units were purchased with 488,895 of the USE's
common stock.  In addition,  the Company sold 170,000  shares of common stock to
the Canadian  investors at the then market price of $7.00 per share. As a result
of this  purchase,  the Company and USE's  combined  ownership  interest in SGMC
reached  59%.  Therefore,  as of April 1, 1998 the Company  began  consolidating
SGMC's results of operations.

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,  1999,  Plateau  had a cash  security in the amount of  $7,584,000  to cover
reclamation  of the  properties  (see  Note  K).  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.

        USECC is 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 the  current  depressed  uranium  market.  Alternative  uses  of the
properties are also being  evaluated.  Commercial  revenues are being  generated
from the townsite assets which include a motel, C-store, lounge/restaurant, boat
storage facility and housing.

ENERGX, LTD.

        Energx is engaged  in the  exploration,  development  and  operation  of
natural gas properties. Energx currently has leased properties in Wyoming and on
the Fort Peck Indian Reservation, Montana. Energx is owned by USE (45%), Crested
(45%) and the Assiniboine and Sioux Tribes (10%).

        During  fiscal  1997,  Energx  abandoned  certain of its leases and as a
result wrote off $164,500 of related  capitalized costs. During fiscal 1999, the
oil production  from oil wells on the Fort Peck Indian  Reservation  was stopped
due to depressed oil prices and  declining  production.  Production  will resume
once the market  price for crude oil  increases to the level where the wells are
again profitable.


                                       56

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

G.  DEBT:

        The Company and USE have a  $1,000,000  line of credit with a commercial
bank.  The line of credit bears interest at a variable rate (8.75% as of May 31,
1999). The weighted average interest rate for 1999 and 1998 was 9.5%. No amounts
were  outstanding  under this  facility  at May 31,  1999 or 1998.  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.

        Debt of the Company consists primarily of a note to USE bearing interest
at 6% per annum and due on October 1, 1999.  The debt is due to U.S.  Energy for
funding all of the operations of USECC of which 50% is the responsibility of the
Company.  All debt due to USE is  classified  as current as of May 31,  1999 and
1998 as a result of USE's unilateral ability to modify the repayment terms under
the promissory note agreement.  The Company signed a two year promissory note as
of May 31, 1997 to USE for the full  amount of its  indebtedness  reserving  the
right to pay all or part of the note  through  the  issuance  of Crested  common
stock.

                                                    May 31,
                                           ------------------------
                                              1999         1998
                                              ----         ----
Notes payable - U.S. Energy, 6% interest
    balance payable  in full on
    demand (see Note A)                    $7,054,000   $6,547,100
Note payable to bank, 8.75% interest,
    balance due July 1, 1999                   42,000       78,500
                                           ----------   ----------
       Total                                7,096,000    6,625,600
Less - current portion                      7,079,300    6,583,500
                                           ----------   ----------
                                           $   16,700   $   42,100
                                           ==========   ==========


                                       57

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

H.      INCOME TAXES:

        The  components  of  deferred  taxes as of May 31,  1999 and 1998 are as
follows:

                                                       May 31,
                                            --------------------------
                                                1999           1998
                                                ----           ----
Deferred tax assets:
    Deferred compensation                   $    87,800    $    50,000
    Deferred gains                              106,100        106,100
    Litigation settlements                      135,700        135,700
    Net operating loss carryforwards          2,835,000      3,126,100
    Tax credits                                  15,000          9,000
Tax basis in excess of book                   1,138,300      1,013,000
                                            -----------    -----------
Total deferred tax assets                     4,317,900      4,439,900

Deferred tax liabilities:
    Development and exploration costs           (51,800)       (48,800)
                                            -----------    -----------
Total deferred tax liabilities                  (51,800)       (48,800)
                                            -----------    -----------

Net deferred tax assets - all non-current     4,266,100      4,391,100

Valuation Allowance                          (4,266,100)    (4,391,100)
                                            -----------    -----------

Net deferred tax asset                      $      --      $      --
                                            ===========    ===========

        At May 31,  1999,  the Company  had  available,  for federal  income tax
purposes,  net operating loss  carryforwards of  approximately  $8,338,000 which
expire in 2006 through 2012. 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 carryforwards.



                                       58

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

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:

                                                      Year Ended May 31,
                                            ------------------------------------
                                               1999         1998         1997
                                               ----         ----         ----

Expected federal income tax benefit         $(663,600)   $ 450,800    $ 453,700
Losses from subsidiaries not consolidated
    for tax purposes, and other               788,600     (555,200)     (52,600)
Valuation allowance                          (125,000)     104,400      506,300
                                            ---------    ---------    ---------
Income taxes                                $    --      $    --      $    --
                                            =========    =========    =========

        There were no taxes payable as of May 31, 1999, 1998 or 1997.

        The  Internal  Revenue  Service  ("IRS") has audited the  Company's  and
USECC's tax returns  through the year ended May 31, 1996. The audit is completed
as of the date of the  accompanying  financial  statements  and the  Company has
requested an appeals hearing. The Company does not expect that the resolution of
the audits will have a material  effect on the Company's  financial  position or
results of operations.



                                       59

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

I.      SEGMENTS AND MAJOR CUSTOMERS:

        The Company's  primary business activity is the sale of minerals and the
acquisition,  exploration,  holding,  development  and sale of  mineral  bearing
properties  although  the  Company  has no  producing  mines.  Other  reportable
industry  segments  include   commercial   operations,   primarily  real  estate
activities,  an airport fixed base operation, and construction  activities.  The
following is information related to these industry segments:

<TABLE>
<CAPTION>
                                                   Year Ended May 31, 1999
                                          ------------------------------------------
                                                          Commercial
                                           Minerals       Operations    Consolidated
                                           --------       ----------    ------------

<S>                                       <C>            <C>            <C>
Revenues                                  $   119,100    $   607,400    $   726,500
                                          ===========    ===========    ===========
Interest and other revenues                                               3,690,100
                                                                        -----------
     Total revenues                                                     $ 4,416,600
                                                                        ===========

Operating loss                            $(1,002,400)   $  (321,800)   $(1,324,200)
                                          ===========    ===========
Interest and other revenues                                               3,690,100
General corporate and other expenses                                     (2,657,800)
Equity loss in affiliates                                                (1,659,800)
                                                                        -----------
     Loss before income taxes                                           $(1,951,700)
                                                                        ===========

Identifiable net assets at May 31, 1999   $    14,200    $ 2,511,800    $ 2,526,000
                                          ===========    ===========
Investments in affiliates                                                   126,000
Corporate assets                                                          5,763,000
                                                                        -----------
     Total assets at May 31, 1999                                       $ 8,415,000
                                                                        ===========

Capital expenditures                      $    51,300    $   219,900
                                          ===========    ===========
Depreciation, depletion and
     amortization                         $   230,600    $   212,500
                                          ===========    ===========
</TABLE>



                                       60

<PAGE>


                                 CRESTED CORP. AND AFFILIATE

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                         MAY 31, 1999
                                         (CONTINUED)

<TABLE>
<CAPTION>
                                                    Year Ended May 31, 1998
                                          -------------------------------------------
                                                          Commercial
                                            Minerals      Operations     Consolidated
                                            --------      ----------     ------------

<S>                                       <C>            <C>             <C>
Revenues                                  $    534,800   $    880,900    $  1,415,700
                                          ============   ============
Interest and other revenues                                                 3,244,200
                                                                         ------------
     Total revenues                                                      $  4,659,900
                                                                         ============

Operating (loss) income                   $   (297,600)  $     66,800    $   (230,800)
                                          ============   ============
Interest and other revenues                                                 3,244,200
General corporate and other expenses                                       (1,431,700)
Equity loss in affiliates                                                    (255,800)
                                                                         ------------
     Loss before income taxes                                            $ (1,325,900)
                                                                         ============

Identifiable net assets at May 31, 1998   $     14,200   $  2,648,600    $  2,662,800
                                          ============   ============
Investments in affiliates                                                   1,799,300
Corporate assets                                                            5,905,300
                                                                         ------------
     Total assets at May 31, 1998                                        $ 10,367,400
                                                                         ============

Capital expenditures                      $    587,500   $    119,700
                                          ============   ============
Depreciation, depletion and
     amortization                         $    118,700   $     95,900
                                          ============   ============
</TABLE>



                                       61

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)
<TABLE>
<CAPTION>

                                                    Year Ended May 31, 1997
                                          ------------------------------------------
                                                         Commercial
                                           Minerals      Operations     Consolidated
                                           --------      ----------     ------------

<S>                                       <C>            <C>            <C>
Revenues                                  $   103,600    $   488,300    $   591,900
                                          ===========    ===========
Interest and other revenues                                               1,111,600
                                                                        -----------
    Total revenues                                                      $ 1,703,500
                                                                        ===========

Operating loss                            $  (317,900)   $  (385,200)   $  (703,100)
                                          ===========    ===========
Interest and other revenues                                               1,111,600
General corporate and other expenses                                     (1,270,900)
Equity loss in affiliates                                                  (807,900)
                                                                        -----------
    Loss before income taxes                                            $(1,670,300)

Identifiable net assets at May 31, 1997   $    24,600    $ 2,139,000      2,163,600
                                          ===========    ===========
Investments in affiliates                                                 1,796,800
Corporate assets                                                          2,325,300
                                                                        -----------
    Total assets at May 31, 1997                                        $ 6,285,700
                                                                        ===========

Capital expenditures                      $      --      $    64,500
                                          ===========    ===========
Depreciation, depletion and
    amortization                          $      --      $   184,900
                                          ===========    ===========
</TABLE>

    Commercial  revenues  in the  statements  of  operations  consist  of mining
equipment,  office and other real  property  rentals,  charter  flights and fuel
sales.

J.  SHAREHOLDERS' EQUITY:

    The Boards of  Directors  of both the  Company  and USE,  from time to time,
issued stock bonuses to certain  directors,  employees and third parties.  These
shares are  forfeitable  to the  Company  and USE until  earned.  The Company is
responsible for one-half of the compensation  expense related to these issuances
(see Note C). For the year ended May 31,  1999,  the Company  did not  recognize
compensation  expense resulting from these  influences.  For the years ended May
31, 1998 and 1997 the  Company  recognized  compensation  expense of $27,300 and
$76,300, respectively, resulting from these issuances. A schedule of forfeitable
shares for both Crested and USE is set forth in the following table:


                                       62

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

         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
                                      ======                          =======
        Balance at
          May 31, 1999 and 1998       65,000                          $43,900
                                      ======                          =======

        No shares  were  earned in fiscal  1999 or 1998.  Also  included  in the
forfeitable common stock are 15,000 shares to directors which are vesting at 20%
a year beginning in November 1992, of which 9,000 are earned but not released as
of May 31, 1999.

K.      COMMITMENTS, CONTINGENCIES AND OTHER:

LEGAL PROCEEDINGS

        ARBITRATION/LITIGATION PROCEEDINGS CONCERNING SMP. In June 1991, Nukem's
wholly-owned   subsidiary  Cycle  Resource   Investment   Corporation   ("CRIC")
instituted arbitration proceedings against U.S. Energy Corp. ("USE") and Crested
Corp.("Crested")  d/b/a USECC.  CRIC claimed that USECC violated the partnership
agreement  forming  Sheep  Mountain   Partners   ("SMP"),   a  Colorado  general
partnership in which USECC owned 50% and Nukem, Inc. through its subsidiary CRIC
owned the other 50%. On July 3, 1991,  USECC  filed a civil  action in the U. S.
District Court of Colorado  against  Nukem,  CRIC,  their  affiliates and others
alleging Nukem/CRIC fraudulently  misrepresented facts and concealed information
from  USECC to induce  its entry  into the  agreements  forming  SMP and  sought
rescission,  damages and other relief.  Certain of Nukem's affiliates (excluding
CRIC) and others were thereafter  dismissed from the lawsuit. The U. S. District
Court granted the motion of USECC to stay the arbitration initiated by CRIC.

        On September  16, 1991,  USECC filed  another civil action in the Denver
District Court against SMP seeking  reimbursement of $85,000 per month since the
spring of 1991 for the care and maintenance of the SMP underground uranium mines
and properties in Wyoming. On May 11, 1993, the Denver District Court stayed all
proceedings  until the case pending in the U.S.  District Court for Colorado was
resolved.  In February 1994,  USECC and Nukem/CRIC,  agreed that the majority of
the  issues  raised in the  litigation  subsequent  to the  formation  of SMP on
December 21,

                                       63

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

1988, would be handled through consensual binding  arbitration with the American
Arbitration Association ("AAA").

        The arbitration hearing commenced on June 27, 1994 before a three member
AAA arbitration  panel (the "Panel"),  and the parties rested their cases on May
31, 1995 after 73 hearing  days.  The Panel entered its Order and Award on April
18, 1996 but refused to dissolve the SMP  Partnership.  Nukem appealed the Award
by filing  motions with the U.S.  District Court for remand of various issues to
the Panel alleging inter alia there was a material  miscalculation  and a double
recovery.  The U.S.  District Court remanded the matter to the Panel to consider
Nukem's motions.  On July 3, 1996, the Panel entered its Order finding there was
no double  recovery and clarified  its April 18, 1996 Order and Award  regarding
the  impression  of a  Constructive  Trust in favor of SMP on the CIS  contracts
Nukem entered into with CIS republics using SMP uranium sales contracts.

        On November 4, 1996, the United States  District  Court granted  USECC's
motions  for  confirmation  and  issued a  Judgment  and  Order  confirming  the
Arbitration  Panel's Orders and Award.  Later in November  1996,  USECC received
$4,300,000  from the SMP escrow bank accounts as partial payment of the monetary
award of the Panel and  confirmed by the District  Court.  This  $4,300,000  was
accounted for under the cost recovery  method of accounting,  and it was applied
to  outstanding  amounts due USECC.  The balance of $1,003,800 was recognized as
income. After considering a series of motions, the Federal Court issued a Second
Amended  Judgment on June 27, 1997,  which  confirmed the monetary  award of the
Panel  and  clarified  the  equitable  award  impressing  the CIS  contracts  in
Constructive  Trust in favor of SMP.  Nukem/CRIC  filed notices of appeal to the
Tenth Circuit Court of Appeals ("10th CCA") and posted a $8,613,600  supersedeas
bond  covering the monetary  portion of the  Judgment.  Nukem/CRIC's  appeal was
based on claims that the District  Court erred in confirming  the Panel's Orders
and Award on double recovery and impressing  Nukem's uranium purchase  contracts
with the CIS republics in constructive trust with SMP.

        On June 1, 1998, USECC and Nukem/CRIC  entered into a partial Settlement
Agreement  of  the  various  issues.  USECC  received  $5,026,000  as a  partial
settlement  of the  Second  Amended  Judgment.  USECC  also  received  the Sheep
Mountain  uranium mines and certain other  properties  from SMP plus one uranium
supply  contract along with a 50% interest in another  uranium supply  contract.
This  settlement  did not in any way affect the  issues  then  pending on appeal
before the 10th CCA.

        A hearing on the appeal was held  before a three judge panel of the 10th
CCA on September  24, 1998.  On October 22, 1998,  the 10th CCA issued its Order
and  Judgment  affirming  the U.S.  District  Court's  Second  Amended  Judgment
(without modification) (the "Judgment"). The Judgment ordered that the contracts
Nukem entered into to purchase uranium from CIS republics

                                       64

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

including the purchase rights, the uranium acquired pursuant to those rights and
the profits therefrom were impressed with a constructive trust in favor of SMP.

        On  November  13,  1998,  Nukem/CRIC  filed  motions  for  entry of full
satisfaction of the Judgment if Nukem/CRIC  paid only the balance  remaining due
on the monetary portion of the Judgment. USECC responded denying the motions and
requesting  payment of the balance of the monetary  award.  On February 8, 1999,
the  District  Court  denied  the  motion  of  Nukem/CRIC  for  entry  of  final
satisfaction  of the Judgment and ordered  Nukem/CRIC to forthwith pay USECC the
balance of $5,971,596 plus interest of $105,604.  Nukem/CRIC made the payment to
USECC on February 9, 1999.

        On April 28, 1999, USECC filed a petition in the U.S.  District Court to
dissolve SMP and for an accounting. Nukem/CRIC responded that the District Court
did not  have  jurisdiction  and  again  filed a motion  seeking  entry of final
satisfaction  of the Judgment.  On July 16, 1999, the U.S.  District Court again
denied the motion of Nukem/CRIC for entry of final  satisfaction of judgment and
denied USECC's  petition for  dissolution  because  neither USECC nor Nukem/CRIC
petitioned the Court for  dissolution of SMP before the Court entered its Second
Amended Judgment.  On August 2, 1999, Nukem/CRIC filed a Notice of Appeal to the
10th  Circuit  Court of Appeals of the July 16,  1999 Order.  USECC  opposes the
appeal and will seek judicial  intervention to receive an accounting and profits
from the CIS contracts impressed in Constructive Trust with SMP.

        ILLINOIS POWER COMPANY LITIGATION.  Illinois Power Company ("IPC"),  one
of the  utilities  with  whom  SMP  had a  long-term  uranium  supply  contract,
unilaterally  sought to terminate the contract.  On October 28, 1993,  IPC filed
suit in the Federal District Court, Danville, Illinois, against SMP, USECC, CRIC
et al.  seeking a  declaratory  judgment that the contract with SMP was void and
for other relief.  After various  negotiating  sessions,  the parties reached an
agreement  in June 1995 to settle the case by amending to the  original  uranium
sales agreement to provide for 3 more deliveries of uranium  concentrates (U3O8)
totaling  486,443 lbs.  The final  delivery was made in May 1997 and on June 13,
1997,  USECC  received  $858,700  as a  distribution  of  profits  from the last
delivery to IPC of U3O8 under this SMP contract.

        SELLEY ET AL VS U.S. ENERGY CORP., CRESTED CORP. ET AL. On May 14, 1999,
Dennis Selley personally and as personal  representative of the Estate of Hannah
Selley and his wife Mary B. Selley,  filed a Civil Action No. 30869 in the Ninth
Judicial District Court of Fremont County, Wyoming against U.S. Energy Corp. and
Crested Corp.,  Plateau Resources Limited and USECC the joint venture,  alleging
that the defendants were negligent as a landlord in renting a doublewide trailer
converted to a bunkhouse  near  Ticaboo,  Utah to  plaintiffs'  daughter  Hannah
Selley and seek various unspecified damages.  Hannah Selley was employed by U.S.
Energy Corp.  ("USE") at the Ticaboo Lodge in June 1998.  Because no housing was
available for  employees,  she and five other USE employees  rented rooms in the
bunk house provided by USE, located about 1/2 mile from the

                                       65

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

Ticaboo  Lodge.  In the late evening of June 5, 1998 and early the next morning,
the  occupants  built a bonfire  near the  bunkhouse  and had guests  over for a
party.  At about 4:00 a.m.  the morning of June 6, 1998,  a fire  started in the
bunkhouse.  All occupants were awakened and left the living  quarters during the
fire except Ms.  Selley who perished in the fire.  Plaintiffs  allege inter alia
that  defendants  were  negligent in providing  faulty living  quarters and that
defendants  submitted a false  filing with the Utah Workers  Compensation  Fund.
Defendants  deny  negligence in providing the living facility and assert various
defenses including  plaintiffs'  complaint is barred by the Workers Compensation
statutory immunity as well as the defense of an intervening clause. Discovery is
underway.

        DECLARATORY  JUDGMENT ACTION. The Workers  Compensation Fund of Utah has
filed a complaint for declaratory  relief on or about July 26, 1999 against U.S.
Energy Corp., Crested Corp.,  Plateau Resources Limited,  Dennis and Mary Selley
and others in Civil Action No. 99090 7500 before the Utah Third  Judicial  Court
of Salt Lake County, Utah. The suit is to determine its obligation to defend and
indemnify U.S.  Energy Corp. and its affiliates in the above Hannah Selley case.
U.S.  Energy Corp.,  Crested Corp. and affiliates  have not yet responded to the
complaint in the case.

        PARADOR  MINING  CO.,  INC.  ("PARADOR").  On July 30,  1991,  Bond Gold
Bullfrog,  Inc.  ("BGBI")  filed Civil Action No. 11877 in the District Court of
the Fifth Judicial  District,  Nye County,  Nevada naming USE, Crested,  Parador
Mining Co., Inc.("Parador") and H.B. Layne Contractor,  Inc. as defendants.  The
complaint primarily concerns  extra-lateral  rights associated with two patented
lode  mining  claims  (the  "Claims")  owned  by  Parador  in  and  adjacent  to
plaintiff's Bullfrog gold mine near Beatty, NV. The Claims were initially leased
to a predecessor  of BGBI and  subsequently,  a portion of the residuals of that
lease were assigned and leased by Parador to USECC. A bifurcated bench trial was
held on December 11-12,  1995,  before the District Court for the Fifth Judicial
District  Nye  County,  Nevada  at which  time the  parties  presented  evidence
relative to the issue of extra-lateral  rights. Other claims between the parties
were bifurcated by the Court and were not an issue in the trial. On December 26,
1995,  the District Court issued a ruling denying that an apex of a vein existed
on Parador's Claims and thus no extra-lateral  royalties were due to Parador and
USECC. All other remaining claims and counterclaims were considered by the Court
in another bench trial on January 26-28,  1999.  Following the  presentation  of
evidence,  the  Court  entered  judgment  against  the  plaintiff  BGBI  and the
defendants Parador and USECC on certain of their respective claims.  BGBI, USECC
and Parador  appealed this  judgment to the Nevada  Supreme  Court.  On June 23,
1998, a mandatory  Settlement  Conference was held in Reno, NV but no settlement
was reached.  BGBI filed its opening  brief on appeal and USECC and Parador have
until the end of August 1999 to file their answer brief as respondents and brief
as cross-appellants in the appeal.


                                       66

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

        TICABOO TOWNSITE  LITIGATION.  In fiscal 1998, two individuals and their
corporation,  Dejavue,  Inc., who were contract  operators of the restaurant and
lounge  facility,  the lodge and  convenience  store in Ticaboo,  Utah (owned by
Canyon Homesteads,  Inc.), sued USE, Crested and others in Utah State Court. All
defendants except USE were dismissed from the suit. The plaintiffs'  corporation
Dejavue,  Inc. was awarded  $156,000 in damages by a jury and  attorney  fees of
$91,700  by the  Court  against  USE.  This was  recorded  in fiscal  1998.  The
plaintiffs  appealed  and filed an opening  brief with the Utah Court of Appeals
arguing  that the Trial Court erred in not  awarding  interest on the  judgment.
U.S.  Energy  appealed  and filed its opening and answer brief in July 1999 also
contending that the Trial Court erred in various other ways. The case is pending
on appeal.

        DEPARTMENT OF ENERGY LITIGATION.  On July 20, 1998, eight uranium mining
companies with operations in the United States (including USE,  Crested,  Yellow
Stone  Fuel  Corporation)  and  the  Uranium  Producers  of  America,   a  trade
organization,  filed a complaint  against the United States Department of Energy
(the "DOE") and its acting  secretary in a lawsuit  (file no. 98 CV 1775) in the
United  States  District  Court,  Cheyenne,   Wyoming.  The  complaint  seeks  a
declaratory  judgment and injunctive  relief. The plaintiffs allege that the DOE
violated  the  USEC  Privatization  Act  of  1996  (the  "Act"),  when  the  DOE
transferred  45 metric tons of low  enriched  uranium  and 3,800  metric tons of
natural uranium to the United States Enrichment Corp. ("USEC") in May 1998. USEC
became a publicly traded corporation in July 1998.

        The plaintiffs have asked the Court to declare that (i) the DOE violated
its statutory  authority by transferring  uranium to USEC in excess of statutory
limits on volume;  (ii) the excess  amounts were not sold by the DOE to USEC for
fair value, as required by the Act, and mandated  findings by the DOE concerning
possible  adverse  impacts  were not  supported  in fact;  and  (iii) the DOE be
enjoined  from future  transfers in violation of the Act. The DOE filed a motion
to dismiss and a hearing  was held on January 8, 1999  before the U.S.  District
Court. The Court took the motion under advisement and the case is pending.

        CONTOUR DEVELOPMENT  LITIGATION On July 28,1998,  USE filed a lawsuit in
the United States District Court,  Denver,  Colorado against Contour Development
Company,  L.L.C.  and entities and persons  associated with Contour  Development
Company, L.L.C. (collectively, "Contour") seeking compensatory and consequential
damages from the defendants for dealings in certain real estate.

        Specifically,  USE alleges that Contour has breached  contracts  for the
sale of  USE'  and  Crested's  Gunnison  properties,  and is in  default  on the
promissory notes delivered to pay for the Gunnison properties.  USE also alleges
a pattern of fraud,  interference with contractual relation, breach of fiduciary
duty,  conversion  of USE's  security  for payment of the  promissory  notes and
unjust enrichment in Contour's dealings with USE and Crested regarding such real
estate.  Contour  answered  denying all  allegations  of  wrongdoing,  asserting
certain counterclaims, which USE has

                                       67

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

denied,  and claiming that USE's and Crested's refusal to consent to a requested
transfer of one of the properties  excuses  Contour from paying the balances due
on the promissory  notes.  Three of the defendants also filed motions to dismiss
seeking  relief  from  USE's  notice of lis  pendens.  That  motion has not been
decided pending  settlement  discussions that were terminated by USE on July 15,
1999.  Litigation  is  expected  to resume  against  all  defendants  other than
Gunnison  Center  Properties,   L.L.C.  which  has  voluntarily  petitioned  for
protection under Chapter 11 of the Bankruptcy Code. The remaining defendants own
other property  which USE believes has sufficient  value to satisfy any judgment
that USE may obtain.


RECLAMATION AND ENVIRONMENTAL LIABILITIES

        Most  of the  Company's  mine  development,  exploration  and  operating
activities are subject to federal and state regulations that require the Company
to  protect  the  environment.  The  Company  attempts  to  conduct  its  mining
operations in accordance with these  regulations,  but the rules are continually
changing and generally  becoming more restrictive.  Consequently,  the Company's
current  estimates  of its  reclamation  obligations  and its  current  level of
expenditures  to perform ongoing  reclamation  may change in the future.  At the
present  time,  however,  the  Company  cannot  predict  the  outcome  of future
regulation  or its impact on costs.  Nonetheless,  the Company has  recorded its
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 reclamation, environmental and decommissioning liabilities,
and the Company  believes its recorded amounts are consistent with those reviews
and related bonding  requirements.  To the extent that planned production on its
properties is delayed,  interrupted or discontinued because of regulation or the
economics  of the  properties,  the  future  earnings  of the  Company  would be
adversely   affected.   The  Company  believes  it  has  accrued  all  necessary
reclamation  costs and there are no additional  contingent  losses or unasserted
claims  to be  disclosed  or  recorded.  The  Company  has not  disposed  of any
properties   for  which  it  has  a  commitment  or  is  liable  for  any  known
environmental liabilities.

        The majority of the Company's environmental obligations relate to former
mining properties acquired by the Company.  Since the Company currently does not
have  properties in  production,  the  Company'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 also does not believe that any significant
capital  expenditures  to  monitor  or  reduce  hazardous  substances  or  other
environmental impacts are currently required. As a result,

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<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

the near term  reclamation  obligations  are not expected to have a  significant
impact on the Company's liquidity.

        As of May  31,  1999  and  1998,  the  Company  has  recorded  estimated
reclamation obligations,  including standby costs, of $725,900 which is included
in Reclamation and Other Long-term Liabilities in the accompanying  Consolidated
Balance Sheets. In addition,  the GMMV, in which the Company is a 50% owner, has
recorded a $23,620,000  liability for future reclamation and closure costs. None
of these liabilities have been discounted,  and the Company has not recorded any
potential  offsetting  recoveries  from  other  responsible  parties or from any
insurance companies.

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

SMP

        The Company and USE are  responsible  for the  reclamation  obligations,
environmental  liabilities  and  liabilities for injuries to employees in mining
operations  with  respect  to  the  Crooks  Gap   properties.   The  reclamation
obligations,  which are established by regulatory authorities,  were reviewed by
the  Company,  USE and the  regulatory  authorities  during  fiscal 1999 and the
balance in the reclamation liability account at May 31, 1999 ($725,900 or 50% of
which is recorded in the  accompanying  balance sheet) is believed by management
to be adequate.  The  obligation  will be satisfied  over the life of the mining
project  which is  estimated  to be at least 20 years.  The Company and USE self
bonded this  obligation by  mortgaging  certain of its real estate assets and by
holding  certificates of deposits. A portion of the funds for the reclamation of
SMP's  properties  will be provided by a sinking fund of up to $.50 per pound of
uranium for reclamation work as the uranium is produced from the properties.

GMMV

        During  fiscal  1991,  the Company and USE  acquired  developed  mineral
properties on Green Mountain known as the Big Eagle Property. In connection with
that  acquisition,  the Company and USE agreed to assume  reclamation  and other
environmental liabilities associated with the property.  Reclamation obligations
imposed by regulatory  authorities were established at $7,300,000 at the time of
acquisition.  Immediately after the acquisition, the Company and USE transferred
a  one-half  interest  to  Kennecott,   with  Kennecott,  the  Company  and  USE
contributing the Big Eagle properties to GMMV, which assumed the reclamation and
other environmental liabilities. Kennecott holds

                                       69

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

a  commercial  bank  letter of credit as  security  for the  performance  of the
reclamation obligations for the benefit of GMMV.

        During  fiscal  1993,  GMMV  entered  into an  agreement  to acquire the
Sweetwater uranium mill and related properties from UNOCAL. GMMV's consideration
for the  acquisition of the  Sweetwater  Mill Property was the assumption of all
environmental liabilities and reclamation bonding obligations. The environmental
obligations  of GMMV are  guaranteed by Kennecott.  However,  UNOCAL also agreed
that if GMMV incurs  expenditures  for  environmental  liabilities  prior to the
earlier of commercial  production by GMMV or January 1, 2001 (which  liabilities
are not due solely to the  operations of GMMV),  UNOCAL will  reimburse GMMV for
the first $8,000,000 of such expenditures. Any reimbursement may be recovered by
UNOCAL  from 20% of future  cash  flows  from the sale of  uranium  concentrates
processed through the Mill.

        On June 18,  1996,  Kennecott  had a letter of  credit in the  amount of
approximately  $19,767,000  issued to the WDEQ for minesite  matters  (executing
EPA-delegated  jurisdiction  to administer the Clean Water Act and the Clean Air
Act, and directly administering Wyoming statutes on mined land reclamation), and
$5,400,000  issued to the NRC for  decontamination  and  cleanup of the Mill and
related tailings cells. An irrevocable letter of credit has been provided by the
Morgan  Guaranty Trust Company of New York in lieu of a surety bond to cover the
reclamation  costs for the minesite and a performance bond by St. Paul Insurance
Company was obtained for the Mill. On March 8, 1999,  Kennecott  Uranium Company
exchanged  four surety  bonds in the total amount of  $19,777,079  issued by St.
Paul Fire and  Marine  Insurance  Company,  for the  Morgan  Guaranty  letter of
credit.  These surety bonds will cover all  reclamation  costs related to mining
and  drilling  operations  in the  State  of  Wyoming.  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 commences.

        Although USE and the other GMMV  parties are liable for all  reclamation
and environmental compliance costs associated with Mill and site maintenance, as
well as Mill  decontamination and cleanup and site reclamation and cleanup after
the Mill is decommissioned,  USE believes it is unlikely it will have to pay for
such costs directly.  These costs are not expected to increase materially if the
mill is not put into full  operation.  To the extent  GMMV is  required to spend
money on reclamation and environmental  liabilities related to previous mill and
site  operations  during  UNOCAL's  ownership,  UNOCAL  has agreed to fund up to
$8,000,000 of costs  (provided  these costs are incurred  before January 1, 2001
and before Mill  production  resumes),  which would be  recoverable  only out of
future  mill  production  (see  above).  Additionally,  the  payment of the GMMV
reclamation and environmental  liabilities  related to the mill is guaranteed by
Kennecott  Corporation,  parent of Kennecott Uranium Company. GMMV will also set
aside a portion of  operating  revenues to fund  reclamation  and  environmental
liabilities should mining and milling commence. Kennecott

                                       70

<PAGE>


                           CRESTED CORP. AND AFFILIATE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 1999
                                   (CONTINUED)

will be entitled to  contribution  from the USE Parties in  proportion  to their
participation  interests  in GMMV if  Kennecott  is required to pay mill cleanup
costs directly pursuant to its guarantee.

SUTTER GOLD MINING COMPANY

        SGMC is currently owned 59% by the USE, 4% by Crested and 37% by private
investors.  SGMC owns gold mineral  properties in California.  Currently,  these
properties are in development and costs consist of drilling, permitting, holding
and administrative  costs. No substantial mining has been completed,  although a
2,800 foot decline through the identified ore zones for an underground  mine was
acquired in the purchase.  The Company's  policy is to provide  reclamation on a
unit-of-production  basis.  Currently,  reclamation obligations are covered by a
$27,000  reclamation bond which SGMC has recorded as a reclamation  liability as
of May 31, 1999.

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.  In fiscal 1999,  Plateau  increased the bond
amount to  $6,866,000  in order to reflect the  increase in the  consumer  price
index.

EXECUTIVE COMPENSATION

        The Company and USE are committed to pay the estates of certain of their
officers  in amounts  equal to one year's  salary for one year after their death
and reduced  amounts,  to be set by the Board of  Directors,  for a period up to
five years thereafter.



                                       71

<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, 1999 the Registrant 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 Registrant's
Proxy  Statement for the 1999 Annual Meeting of  Shareholders.  The  information
regarding the remaining executive officer is contained in Part I of this report.

ITEM 11.       EXECUTIVE COMPENSATION.

        The information  required by Item 11 is incorporated herein by reference
to the Registrant's Proxy Statement for the 1999 Annual Meeting of Shareholders.

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

        The information  required by Item 12 is incorporated herein by reference
to the Registrant's Proxy Statement for the 1999 Annual Meeting of Shareholders.

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        The information  required by Item 13 is incorporated herein by reference
to the Registrant's Proxy Statement for the 1999 Annual Meeting of Shareholders.



                                       72

<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..............................37

        Consolidated Balance Sheets - May 31, 1999 and 1998................38-39

        Consolidated Statements of Operations
        for the Years Ended May 31, 1999, 1998 and 1997 ......................40

        Consolidated Statements of Shareholders'
        Equity for the Years Ended May 31, 1999, 1998 and 1997................41

        Consolidated Statements of Cash Flows
        for the Years Ended May 31, 1999, 1998 and 1997....................42-43

        Notes to Consolidated Financial
        Statements.........................................................44-71

(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      [intentionally left blank]

   3.3      [intentionally left blank]

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

   4.1      USE 1998 Incentive Stock Option Plan
            and Form of Stock Option Agreement.............................[11]

                                              73

<PAGE>



   4.2      Form of Stock Option Agreement and
            Schedule, Options issued 1992 ..................................[9]

   4.3      Form of Stock Option Agreement and
            Schedule, Options issued 1/96...................................[9]

   4.4      USE Restricted Stock Bonus Plan
            as Amended through 2/94.........................................[9]

   4.5      Amendment to Warrant to Purchase 200,000 Common Shares of USE..[10]

   4.6      Amendment to USE 1989 Incentive Stock Option Plan (12/13/96)...[10]

   4.7      USE 1996 Stock Award Program (Plan)............................[10]

   4.8      USE Restated 1996 Stock Award Plan and Amendment to
            USE 1990 Restricted Stock Bonus Plan...........................[10]

   10.1     Promissory Note from Crested to USE (5/31/97)..................[10]

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

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

   10.4     U.S. Energy Corp. Employee Stock Ownership Plan.................[2]

   10.5     Assignment and Lease - Parador..................................[3]

   10.6     Employment Agreement - Daniel P. Svilar.........................[2]

   10.7     Executive Officer Death Benefit Plan............................[2]

   10.8     [intentionally left blank]

   10.9     Big Eagle Acquisition Agreement with PMC........................[4]

   10.10    Ft. Peck Agreement - Drilling and Production Services...........[3]

   10.11-10.16   [intentionally left blank]

   10.17    Sweetwater Mill Acquisition Agreement...........................[3]

   10.18    Self Bond Agreement - Crooks Gap Properties.....................[1]

   10.19    [intentionally left blank]

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<PAGE>



   10.20    [intentionally left blank]

   10.21    Master Agreement - Mt. Emmons/AMAX Inc..........................[5]

   10.22    [intentionally left blank]

   10.23    Crooks Gap Property Acquisition Agreement.......................[6]

   10.24    [intentionally left blank]

   10.25    [intentionally left blank]

   10.26    Memorandum of Partnership Agreement - GMMV......................[2]

   10.27    Mineral Properties Agreement - Congo Area - PMC.................[2]

   10.28    [intentionally left blank]

   10.29    Memorandum of Partnership Agreement - SMP.......................[1]

   10.30    Plateau Acquisition - Stock Purchase Agreement
            and Related Exhibis.............................................[7]

   10.31-10.40   [intentionally left blank]

   10.41    Option and Sales Agreements - Gunnison Property Parcel A........[8]

   10.42    Option and Sales Agreements - Gunnison Property Parcel B........[8]

   10.43    Contract for Sale of Wind River Estates
            to Arrowstar....................................................[9]

   10.44    Contract for sale of Jeffrey City Six-Plex
            to Tag Development, Inc.........................................[9]

   10.45    Development Agreement with First-N-Last.........................[9]

   10.46    Operating Agreement with First-N-Last...........................[9]

   10.47    [intentionally left blank]

   10.48    [intentionally left blank]

   10.49    Acquisition Agreement between Kennecott Uranium Company,
            USE and USECC regarding GMMV (6/23/97).........................[10]


                                       75

<PAGE>



   10.50    Exhibit A to Acquisition Agreement (see 10.49)
            Promissory Note from Kennecott Uranium Company to
            Kennecott Energy Company regarding GMMV .......................[10]

   10.51    Exhibit B to Acquisition Agreement (see 10.49)
            Mortgage, Security Agreement, Financing Statement and
            Assignment of Proceeds, Rents and Leases.......................[10]

   10.52    Exhibit G to Acquisition Agreement (see 10.49) - Contract
            Services Agreement for the Sweetwater Uranium Mill Facility....[10]

   10.53    Exhibit H to Acquisition Agreement (see 10.49) -
            Mineral Lease Agreement .......................................[10]

   10.54    Exhibit I to Acquisition Agreement (see 10.49) - Fourth
            Amendment of Mining Venture Agreement among
            Kennecott Uranium Company, USE and USECC.......................[10]

   10.55    Master Resolution Agreement regarding Gunnison Properties......[10]

   10.56    Membership Pledge Agreement regarding Gunnison Properties......[10]

   10.57    Management Agreement between SGMC and USECC....................[10]

   10.58    Outsourcing  and Lease Agreement between YSFC and USECC........[10]

   10.59    Convertible Promissory Note from YSFC to USECC.................[10]

   21       Subsidiaries of Registrant.....................................[10]


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  exhibit to the
            Registrant's Form 10-Q for the period ended February 28, 1991.


                                              76

<PAGE>



   [5]      Incorporated by reference from the like-numbered  exhibits of AMAX's
            Schedule 13D filed on or about August 3, 1987.

   [6]      Incorporated  by  reference  from  the  like-numbered   exhibits  of
            Registrant's Form 10-K for the year ended May 31, 1988.

   [7]      Incorporated  by reference from  exhibit A to  the U.S. Energy Corp.
            Form 8-K reporting an event of August 11, 1993.

   [8]      Incorporated  by reference from the like-  numbered  exhibits of the
            Registrant's Form 10- K for the year ended May 31, 1995.

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

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

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


(b)         Reports filed on Form 8-K.

            During the fourth  quarter of the fiscal year ended on May 31, 1999,
            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).


                                       77

<PAGE>


                                   SIGNATURES

        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             CRESTED CORP.
                                             (Registrant)


Date:          August 27, 1999               By:       /s/ John L. Larsen
                                                    ----------------------------
                                                    JOHN L. LARSEN,
                                                    Chief Executive Officer

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


Date:          August 27, 1999              By:       /s/ John L. Larsen
                                                   -----------------------------
                                                   JOHN L. LARSEN, Director


Date:          August 27, 1999              By:       /s/ Max T. Evans
                                                   -----------------------------
                                                   MAX T. EVANS, Director


Date:          August 27, 1999              By:       /s/ Daniel P. Svilar
                                                   -----------------------------
                                                   DANIEL P. SVILAR, Director


Date:          August 27, 1999              By:       /s/ Michael D. Zwickl
                                                   -----------------------------
                                                   MICHAEL D. ZWICKL, Director


Date:          August 27, 1999              By:       /s/ Kathleen R. Martin
                                                   -----------------------------
                                                   KATHLEEN R. MARTIN, Director


Date:          August 27, 1999              By:       /s/ Robert Scott Lorimer
                                                   -----------------------------
                                                   ROBERT SCOTT LORIMER,
                                                   Principal Financial Officer
                                                   and Chief Accounting Officer


                                       78

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