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Goals and Accomplishments:
An unfavorable ruling received January 19, 2000, from Pollution Control Hearings Board reversed previously issued rights and vacated the Quality Certification. This ruling has created a significant delay in completing the process.

The PCHB stated that studies predicting the impact on quantity and quality do not provide sufficient certainty to support joint venture’s proposed plans. The PCHB also held that the mitigation plan, which was approved by the Department of Ecology, was not adequate. A hearing date has been set for March 2002. However, pending the time availability of the court, a hearing date has been conditionally set for October 2001.

Convertible Debenture Repayment
Our company paid the next to last interest payment on its $15 million convertible debentures on March 22, 2001 (due on February 27), within the 30-day grace period to remain in compliance with the terms of the debenture. Our company does not currently have the financial resources to pay the $15 million principal and final interest payment due on August 27, 2001.

Sale of the Property
On January 18, 2001, our company exchanged 100% of the shares in its wholly owned subsidiary for 200,000 shares of common stock. Our company’s holdings consisted of a royalty and certain rights. Production ceased in the fourth quarter of 2000. Our company will record a gain on sale from the transaction of approximately $200,000 in the first quarter of 2001.

Financial Results
In the fourth quarter of 2000, our company changed its accounting method for its equity stake from a consolidated subsidiary treatment to the equity method of accounting treatment. We reported a net loss of $1,659,000, or $0.11 per share, for 2000 compared to a net loss of $2,666,000, or $0.18 per share before cumulative effect of accounting change. At December 31, 2000 our company had $971,000 in cash and a negative working capital of $14,211,000.

During the fourth quarter of 1999, our company changed its method of accounting from capitalizing costs to expensing such costs. The change was applied retroactively to January 1, 1999 and the cumulative effect of this accounting change of $8,451,000 is included in the 1999 results.