FORM 10-Q-SB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-9494
ASPEN EXPLORATION CORPORATION
-----------------------------------------------
(Exact Name of Aspen as Specified in its Charter)
Delaware 84-0811316
------------------------------ ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 208, 2050 S. Oneida St.,
Denver, Colorado 80224-2426
-------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (303) 639-9860
Indicate by check mark whether Aspen (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 Aspen was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at May 11, 2001
Common stock, $.005 par value 5,637,074
Part One. FINANCIAL INFORMATION
Item 1. Financial Statements
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30
2001 2000
---- ----
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents, including $1,892,340 and
$417,443 of invested cash at March 31, 2001 and
June 30, 2000 respectively.............................. $ 2,223,005 $ 507,382
Precious metals ........................................ 18,823 18,823
Accounts receivable, trade ............................. 376,195 340,177
Prepaid expenses
5,643 9,259
----------- -----------
Total current assets .............................. 2,623,666 875,641
----------- -----------
Investment in oil and gas properties, at cost
(full cost method of accounting) ....................... 3,362,850 2,942,712
Less accumulated depletion and valuation allowance ..... (1,728,589) (1,520,589)
----------- -----------
1,634,261 1,422,123
----------- -----------
Property and equipment, at cost:
Furniture, fixtures and vehicles ....................... 216,787 201,654
Less accumulated depreciation .......................... (140,689) (128,689)
----------- -----------
76,098 72,965
----------- -----------
Cash surrender value, life insurance ................... 239,095 239,095
----------- -----------
TOTAL ASSETS ...................................... 4,573,120 $ 2,609,824
=========== ===========
(Statement Continues)
See notes to Consolidated Financial Statements
2
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
2001 2000
(Unaudited) (Audited)
Current liabilities:
Accounts payable and accrued expenses .......... $ 254,297 $ 363,955
Advances from joint owners ..................... 502,478 169,713
Income taxes payable ........................... 79,165 23,000
Notes payable - current ........................ -0- 236,746
----------- -----------
Total current liabilities ...................... 835,940 793,414
----------- -----------
Stockholders' equity:
Common stock, $.005 par value:
Authorized: 50,000,000 shares
Issued: At March 31, 2001: 5,637,074
and June 30, 2000: 5,345,938 ............... 26,729 26,729
Capital in excess of par value ................. 6,017,610 6,017,610
Accumulated deficit ............................ (2,283,529) (4,191,096)
Deferred compensation .......................... (23,630) (36,833)
----------- -----------
Total stockholders' equity ..................... 3,737,180 1,816,410
----------- -----------
Total liabilities and stockholders' equity ..... $ 4,573,120 $ 2,609,824
=========== ===========
See Notes to Consolidated Financial Statements
3
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Oil and gas ............................ $1,109,992 $ 252,605 $2,688,142 $ 840,343
Management fees ........................ 26,135 30,671 138,397 113,781
Interest and other, net ................ 43,387 1,077 72,533 10,530
---------- ---------- ---------- ----------
Total Revenues ........................... 1,179,514 284,353 2,899,072 964,654
---------- ---------- ---------- ----------
Costs and expenses:
Oil and gas production ................. 27,058 33,400 151,585 75,534
Depreciation, depletion and amortization 77,000 86,925 220,000 237,775
Aspen Power Systems expense ............ -0- 1,562 -0- 45,356
Selling, general and administrative .... 146,322 124,296 449,805 375,830
Interest expense ....................... 70 2,226 7,949 9,468
---------- ---------- ---------- ----------
Total Costs and Expenses ................. 250,450 248,409 829,339 743,963
---------- ---------- ---------- ----------
Net income before taxes .................. 929,064 35,944 2,069,733 220,691
---------- ---------- ---------- ----------
Provision for income taxes ............... 82,165 -0- 162,165 -0-
---------- ---------- ---------- ----------
Net income ............................... $ 846,899 $ 35,944 $1,907,568 $ 220,691
========== ========== ========== ==========
Basic earnings per common share .......... $ .16 $ .01 $ .35 $ .04
========== ========== ========== ==========
Diluted earnings per common share ........ $ .15 $ .01 $ .34 $ .04
========== ========== ========== ==========
Basic weighted average number of
common shares outstanding ................ 5,401,678 5,191,322 5,401,678 5,191,322
========== ========== ========== ==========
Diluted weighted average number of
common shares outstanding ................ 5,661,678 5,531,162 5,661,678 5,531,162
========== ========== ========== ==========
The accompanying notes are an integral
part of these statements.
4
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended March 31,
2001 2000
---------------------------
Cash flows from operating activities:
Net income ....................................... $ 1,907,567 $ 220,691
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation, depletion & amortization ......... 220,000 237,775
Amortization of deferred compensation .......... 13,203 5,667
Changes in assets and liabilities:
Increase in accounts receivable ................ (36,018) (31,629)
Decrease in prepaid expense .................... 3,616 3,663
Increase in accounts payable and accrued expense 279,272 74,346
----------- -----------
Net cash provided by operating activities ...... 2,387,640 510,513
----------- -----------
Cash flows from investing activities:
Additions to oil & gas properties .............. (420,138) (396,542)
Purchase of office equipment & vehicle ......... (21,133) (13,995)
Sale of idle equipment at cost ................. 6,000 -0-
----------- -----------
Net cash used in investing activities .......... (435,271) (410,537)
----------- -----------
Cash flows from financing activities:
Repayment of notes payable ..................... (236,746) (112,327)
----------- -----------
Net cash used in financing activities .......... (236,746) (112,327)
----------- -----------
Net increase in cash and cash equivalents ...... 1,715,623 (12,351)
Cash and cash equivalents, beginning of year ... 507,382 335,603
----------- -----------
Cash and cash equivalents, end of period ....... $ 2,223,005 $ 323,252
=========== ===========
Interest paid .................................. $ 7,949 $ 7,583
=========== ===========
Income taxes paid .............................. $ 83,000 $ -0-
=========== ===========
The accompanying notes are an integral
part of these statements.
5
ASPEN EXPLORATION CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2001
Note 1 BASIS OF PRESENTATION
The accompanying financial statements are unaudited. However, in our
opinion, the accompanying financial statements reflect all
adjustments, consisting of only normal recurring adjustments,
necessary for fair presentation. Interim results of operations are not
necessarily indicative of results for the full year. These financial
statements should be read in conjunction with our Annual Report on
Form 10-KSB for the year ended June 30, 2000.
Except for the historical information contained in this Form 10-QSB,
this Form contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
discussed in this Report. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in
this Report and any documents incorporated herein by reference, as
well as the Annual Report on Form 10-KSB for the year ended June 30,
2000.
Note 2 EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 128 ("SFAS No. 128"), addressing
earnings per share. SFAS No. 128 changed the methodology of
calculating earnings per share and renamed the two calculations basic
earnings per share and diluted earnings per share. The calculations
differ by eliminating any common stock equivalents (such as stock
options, warrants, and convertible preferred stock) from basic
earnings per share and changes certain calculations when computing
diluted earnings per share. We adopted SFAS No. 128 in fiscal year
1998.
6
Note 2 EARNINGS PER SHARE (CONTINUED)
The following is a reconciliation of the numerators and denominators
used in the calculations of basic and diluted earnings per share for
the nine months ended March 31, 2001 and 2000:
March 31, March 31,
2001 2000
---- ----
Per Per
Net Share Net Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic earnings per share:
Net income and
share amounts $1,907,568 5,401,678 $.35 $220,691 5,191,322 $.04
Dilutive securities
stock options 380,000 560,000
Repurchased shares (120,000) (220,160)
---------------------------------------------------------------------
Diluted earnings per share:
Net income and assumed
share conversion $1,907,568 5,661,678 $.34 $220,691 5,531,162 $.04
========== ========= ==== ======== ========= ====
Note 3 SEGMENT INFORMATION
We operate in one industry segment within the United States, oil and
gas exploration and development.
Identified assets by industry are those assets that are used in our
operations in that industry. Corporate assets are principally cash,
cash surrender value of life insurance, furniture, fixtures and
vehicles.
During the fourth quarter of 1998, we adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). The adoption of
SFAS No. 131 requires the presentation of descriptive information
about reportable segments which is consistent with that made available
to the management of the Company to assess performance.
Our oil and gas segment derives its revenues from the sale of oil and
gas and prospect generation and administrative overhead fees charged
to participants in our oil and gas ventures. Corporate income is
primarily derived from interest income on funds held in money market
accounts.
7
Note 3 SEGMENT INFORMATION (CONTINUED)
During the nine months ended March 31, 2001 there were no intersegment
revenues. The accounting policies applied by each segment are the same
as those used by us in general.
There have been no differences from the last annual report in the
basis of measuring segment profit or loss, with the exception of the
elimination of the mineral and power plant segments which we are no
longer active in and are not material. There have been no material
changes in the amount of assets for any operating segment since the
last annual report except for the oil and gas segment which
capitalized approximately $420,000 for the development and acquisition
of oil and gas properties.
Segment information consists of the following for the nine months
ended March 31:
Oil and Gas Corporate Consolidated
----------- --------- ------------
Revenues:
2001 $ 2,826,539 $ 72,533 $ 2,899,072
2000 954,124 10,530 964,654
Income (loss) from operations:
2001 $ 2,304,789 $ (397,221) $ 1,907,568
2000 652,590 (431,899) 220,691
Identifiable assets:
2001 $ 2,010,456 $ 2,562,664 $ 4,573,120
2000 1,371,933 668,195 2,040,128
Depreciation, depletion and valuation
charged to identifiable assets:
2001 $(1,728,589) $ (140,689) $(1,869,278)
2000 (1,081,902) (129,544) (1,211,446)
Capital expenditures:
2001 $ 420,138 $ 21,133 $ 441,271
2000 396,542 13,995 410,537
8
Note 4 MAJOR CUSTOMERS
We derived in excess of 10% of our revenue from various sources (oil
and gas sales) as follows:
The Company
-----------
A B C D E
- - - - -
Year ended:
March 31, 2001 - - 35% 12% 49%
March 31, 2000 73% 12% - - -
Note 5 NOTES PAYABLE
We owe the following debt:
March 31, June 30,
2001 2000
--------------------------
Borrowings from life insurance company
on cash surrender value of officer life
insurance, interest at 6% per annum,
collateralized by cash surrender value
of policy. $ -0- $ 155,430
Note payable to related party,
Interest at 11.21% per annum,
monthly principal and interest
payments of $4,269, due September,
2000, collateralized by working
interests in the Emigh lease. $ -0- 12,566
Note payable to third party for
the acquisition purchase of
producing oil and gas properties.
Interest at 5.475% per annum.
Principal payments of $68,875 are
due in January 2001. There is no
collateral for this note. -0- 68,750
--------- ---------
Total notes payable -0- 236,746
Less current portion -0- 236,746
--------- ---------
Long term portion $ -0- $ -0-
========= =========
9
Note 6 COMMITMENTS AND CONTINGENCIES
At March 31, 2001 the Company was committed to the following drilling
and development projects in California:
Project Aspen Cost
------- ----------
Emigh 35-5 $172,000
Emigh 34-3 85,000
Emigh 34-2 172,000
Armstrong 17-4 338,000
Zimmerman 1-24 Recompletion 16,000
--------
Total Estimated Costs $783,000
========
Note 7 SUBSEQUENT EVENTS
During May 2001 the Emigh 35-5 well, in which we have approximately
23.80% working interest, tested 2000 MCFPD and will go on production
by June 1, 2001. The Emigh 34-3 is currently drilling but has not
reached total depth. The remaining wells in our drilling program have
not been spudded as of the date of this filing.
Prices for our natural gas are estimated to average $9.18 and $12.05
per MMBTU for the months of April and May 2001. June prices have not
yet been posted.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This should be read in conjunction with the management's discussion and
analysis of financial condition and results of operations contained in our
Annual Report on Form 10-KSB for the year ended June 30, 2000, which has been
filed with the Securities and Exchange Commission. This management's discussion
and analysis and other portions of this report contain forward-looking
statements (as such term is defined in Section 21E of the Securities Exchange
Act of 1934, as amended). These statements reflect our current expectations
regarding our possible future results of operations, performance, and
achievements. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Wherever possible, we have tried to identify these forward-looking
statements by using words such as "anticipate," "believe," "estimate," "expect,"
"plan," "intend," and similar expressions. These statements reflect our current
beliefs and are based on information currently available to us. Accordingly,
these statements are subject to certain risks, uncertainties, and contingencies,
which could cause our actual results, performance, or achievements to differ
materially from those expressed in, or implied by, such statements. These risks,
uncertainties and contingencies include, without limitation, the factors set
forth in our Form 10-KSB under "Item 6. Management's Discussion and Analysis of
Financial Conditions or Plan of Operation - Factors that may affect future
operating results." We have no obligation to update or revise any such
forward-looking statements that may be made to reflect events or circumstances
after the date of this Form 10-QSB.
Liquidity and Capital Resources
-------------------------------
March 31, 2001 as compared to March 31, 2000
--------------------------------------------
At March 31, 2001 current assets were $2,623,666 and current liabilities were
$835,940 and we had positive working capital of $1,787,726 compared to current
assets of $875,641 at June 30, 2000 and current liabilities of $793,414 at the
same date, resulting in working capital at June 30, 2000 of $82,227. Our working
capital increased more than twenty times from June 30, 2000 to March 31, 2001
for several reasons.
Our current assets increased primarily because cash and cash equivalents
increased from approximately $508,000 to approximately $2.2 million because
of the higher prices being received for oil and gas production, which
exceeded our current cash requirements at March 31, 2001.
Our current liabilities remained fairly constant when comparing the nine
months ended March 31, 2001 with our fiscal year end of June 30, 2000.
Accounts and notes payable decreased by approximately $346,000, while
advance payments from joint owners for unexpended drilling costs increased
by approximately $333,000, reflecting increased drilling activity caused by
improved weather conditions in California. (See Note 6, Commitments and
Contingencies.)
We anticipate that our current assets will be sufficient to pay our current
liabilities as long as our oil and gas production continues to provide us with
sufficient cash flow. As discussed below, this is dependent, in part, on
maintaining or increasing our level of production and the national and world
market maintaining its current prices for our oil and gas production.
11
In light of recent successful drilling operations, the acquisition of producing
properties and the continued improvement in oil and gas prices received by us,
increased revenues should continue to have a positive effect on our working
capital and contribute significantly to its cash flow in the year ahead.
Our capital requirements can fluctuate over a twelve month period because our
drilling program is usually carried out in California's dry season, from late
April until November, after which wet weather either precludes further activity
or makes it cost prohibitive.
Although our drilling and development plans have not been finalized for the
coming year, at March 31, 2001 we are committed to drill four additional wells
at an estimated cost to us of approximately $783,000, with the balance
(approximately $2.9 million) to be paid by joint owners in the properties,
including certain affiliated investors. For the nine months ended March 31, 2001
we invested $420,000 in our oil and gas properties compared to approximately
$397,000 for the nine month period in the preceding fiscal year. We anticipate
additional drilling will occur in fiscal 2001.
We believe that internally generated funds will be sufficient to finance our
drilling and operating expenses for the next twelve months.
12
Results of Operations
---------------------
March 31, 2001 Compared to March 31, 2000
-----------------------------------------
For the nine months ended March 31, 2001 our operations continued to be focused
on the production of oil and gas, and the investigation for possible acquisition
of producing oil and gas properties in California.
Oil and gas revenues, which includes income from management fees, for the nine
months ended March 31, 2001 increased approximately $1,848,000 from $840,000 to
$2,688,000, a 220% increase. This increase reflects our continued emphasis on
operations conducted in California and increased production from both the
Denverton Creek and Malton Black Butte fields even though our production overall
decreased. Our share of sales of oil and gas for the nine month period ended
March 31, 2001 were 3959 barrels of oil and approximately 293,000 MMBTU of gas
with the price received for oil at $27.00 per barrel and $8.86 per MMBTU for
gas. This is a decrease in total oil production compared to the 4721 barrels of
oil produced in the first half of fiscal 2000, and an increase in natural gas
production of 17,400 MMBTU when compared to the approximately 275,600 MMBTU of
gas production achieved during the first nine months of the 2000 fiscal year. A
significant factor resulting in the substantially increased revenues during the
nine months of fiscal 2001 was an increase in the prices received for our
production when compared to prices of $21.70 and $3.05 received for oil and gas
respectively during the first nine months of fiscal 2000.
Oil and gas production costs increased $76,051 when compared to last nine month
period, from $75,534 to $151,585. Approximately $67,500 of this increase was due
to non-recurring workover costs for recompleting wells in upper producing zones,
the balance, approximately $8,500 reflects the addition of new wells and
compression costs associated with older producing gas wells.
Depletion, depreciation and amortization decreased $17,775 or 7.5% for the year,
which is our best estimate of what the full year cost will be.
Selling, general and administrative expense increased approximately 20% from
$375,830 to $449,805 for the nine months ended March 31, 2001. This increase is
primarily due to salary and office rental increases and the amortization of
deferred officer compensation costs of $13,200.
As a result of our operations for the nine months ended March 31, 2001, we ended
the period with net income of $1,907,568 after taxes compared to $220,691 for
the year earlier. This increase of approximately $1,687,000 is due to an
increase in production and the price received for our oil and gas as discussed
earlier as well as the fact that our costs of production did not rise as quickly
as the prices received for our production.
Interest and other income increased approximately $62,000 to $72,533 and is due
to our maintaining a greater balance of funds in our invested cash accounts, and
consulting income received from an affiliate of approximately $23,000 for
services rendered by our president, R. V. Bailey.
With Management's continued emphasis on cost control, successful drilling and
production operations and its improving gas sales, we believe our net income and
earnings per share will continue to grow, assuming oil and gas prices maintain
their current level or increase.
13
In accordance with the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on our behalf by the undersigned,
thereunto duly authorized.
ASPEN EXPLORATION CORPORATION
By: /s/ R. V. Bailey
-------------------------------
R. V. Bailey,
May 11, 2001 Chief Executive Officer,
Principal Financial Officer
14