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, 2003
--------------
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 (IRS 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 12, 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 13, 2003
Common stock, $.005 par value 5,863,828
Transitional small business disclosure format: Yes XX No
----- -----
Part One. FINANCIAL INFORMATION
Item 1. Financial Statements
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2003 2002
---- ----
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents, including $1,200,736 and
$822,060 of invested cash at March 31, 2003 and June 30, 2002
respectively ......................................................... $ 1,200,786 $ 916,001
Precious metals ...................................................... 18,823 18,823
Accounts receivable, trade ........................................... 294,703 365,705
Accounts receivable - related party .................................. 6,712 12,872
Prepaid expenses ..................................................... 14,892 19,820
----------- -----------
Total current assets ............................................ 1,535,916 1,333,221
----------- -----------
Investment in oil and gas properties, at cost (full cost
method of accounting) ................................................ 5,983,549 5,427,741
Less accumulated depletion and valuation allowance ................... (2,541,436) (2,262,649)
----------- -----------
3,442,113 3,165,092
----------- -----------
Property and equipment, at cost:
Furniture, fixtures and vehicles ..................................... 112,562 112,562
Less accumulated depreciation ........................................ (59,068) (45,810)
----------- -----------
53,494 66,752
----------- -----------
Cash surrender value, life insurance ................................. 239,095 239,095
----------- -----------
TOTAL ASSETS .................................................... $ 5,270,618 $ 4,804,160
=========== ===========
(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,
2003 2002
---- ----
(Unaudited) (Audited)
Current liabilities:
Accounts payable and accrued expenses ................................. $ 256,391 $ 236,587
Accounts payable - related party ...................................... 42,192 21,260
Advances from joint owners ............................................ 684,272 230,775
----------- -----------
Total current liabilities ............................................. 982,855 488,622
Deferred income tax payable - long term ............................... 89,250 89,250
----------- -----------
Total liabilities ..................................................... 1,072,105 577,872
----------- -----------
Stockholders' equity:
Common stock, $.005 par value:
Authorized: 50,000,000 shares
Issued: At March 31, 2003: 5,863,828
and June 30, 2002: 5,863,828 ...................................... 29,320 29,320
Capital in excess of par value ........................................ 6,025,797 6,025,797
Accumulated deficit ................................................... (1,845,827) (1,814,677)
Deferred compensation ................................................. (10,777) (14,152)
----------- -----------
Total stockholders' equity ............................................ 4,198,513 4,226,288
----------- -----------
Total liabilities and stockholders' equity ............................ $ 5,270,618 $ 4,804,160
=========== ===========
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,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Oil and gas .............................................. $ 314,222 $ 124,257 $ 754,353 $ 513,444
Management fees .......................................... 22,323 23,632 119,118 91,269
Interest and other, net .................................. 931 10,395 7,981 46,600
----------- ----------- ----------- -----------
Total Revenues ............................................. 337,476 158,284 881,452 651,313
----------- ----------- ----------- -----------
Costs and expenses:
Oil and gas production ................................... 64,700 34,415 141,225 102,688
Depreciation, depletion and amortization ................. 108,656 121,741 292,045 348,020
Aspen Power Systems expense .............................. -0- -0- -0- 25,500
Selling, general and administrative ...................... 135,372 164,246 478,853 471,725
Interest expense ......................................... -0- 479 479 479
----------- ----------- ----------- -----------
Total Costs and Expenses ................................... 308,728 320,881 912,602 948,412
----------- ----------- ----------- -----------
Net income (loss) before taxes ............................. $ 28,748 $ (162,597) $ (31,150) $ (297,099)
----------- ----------- ----------- -----------
Provision for (recovery of) income taxes ................... (--) (70,530) (--) (70,530)
----------- ----------- ----------- -----------
Net income (loss) .......................................... $ 28,748 $ (92,067) $ (31,150) $ (226,569)
=========== =========== =========== ===========
Basic earnings (loss) per common share ..................... $ -- $ (.02) $ -- $ (.04)
=========== =========== =========== ===========
Diluted earnings (loss) per common
share ...................................................... $ -- $ (.02) $ -- $ (.04)
=========== =========== =========== ===========
Basic weighted average number of common shares
outstanding ................................................ 5,863,828 5,831,800 5,863,828 5,831,800
=========== =========== =========== ===========
Diluted weighted average number of common shares
outstanding ................................................ 5,863,828 6,022,414 5,863,828 6,022,414
=========== =========== =========== ===========
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,
2003 2002
------------------------------------
Cash flows from operating activities:
-------------------------------------
Net (loss) .................................................. $ (31,150) $ (226,569)
Adjustments to reconcile net (loss)
to net cash provided (used) by
operating activities:
Depreciation, depletion & amortization .................... 292,045 348,020
Amortization of deferred compensation ..................... 3,375 13,200
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ................ 77,162 329,321
(Increase) decrease in prepaid expense .................... 4,928 (36,103)
Increase (decrease) in accounts payable and accrued
expense ................................................. 494,233 (1,250,950)
----------- -----------
Net cash provided (used) by operating activities .......... 840,593 (823,081)
----------- -----------
Cash flows from investing activities:
-------------------------------------
Additions to oil & gas properties ......................... (626,385) (628,244)
Purchase of office equipment & vehicle .................... -0- (5,285)
Sale of idle equipment at cost ............................ 1,155 -0-
Sale of oil and gas properties ............................ 69,422 26,040
----------- -----------
Net cash (used) by investing activities ................... (555,808) (607,489)
----------- -----------
Net increase (decrease) in cash and cash equivalents ...... 284,785 (1,430,570)
Cash and cash equivalents, beginning of year .............. 916,001 2,695,583
----------- -----------
Cash and cash equivalents, end of period .................. $ 1,200,786 $ 1,265,013
=========== ===========
Interest paid ............................................. $ 479 $ 479
=========== ===========
Income taxes (refund) ..................................... $ -0- $ (70,530)
=========== ===========
The accompanying notes are an integral
part of these statements.
5
ASPEN EXPLORATION CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2003
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, 2002.
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, 2002.
On July 1, 2002 we adopted Financial Accounting Standards Board No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No.
143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. We are currently assessing the impact of this statement
and, at this time, cannot reasonably estimate the effect of the adoption of
SFAS No. 143 on our financial position, results of operations or cash
flows.
Note 2 EARNINGS PER SHARE
We have adopted SFAS No. 128, addressing earnings per share. SFAS No. 128
established the methodology of calculating basic earnings per share and
diluted earnings per share. The calculations differ by adding any
instruments convertible to common stock (such as stock options, warrants,
and convertible preferred stock) to weighted average shares outstanding
when computing diluted earnings per share. We had a net loss of $31,150 and
$226,569 for the nine months ending March 31, 2003 and 2002, respectively.
Because of the net loss, the basis and diluted average outstanding shares
are considered the same, since including the shares would have an
antidilutive effect on the loss per share calculation.
Note 3 SEGMENT INFORMATION
We operate in two industrial segments within the United States, oil and gas
exploration and development and electrical generation construction.
6
Note 3 SEGMENT INFORMATION (CONTINUED)
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.
We have adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." 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.
The electrical generation construction segment will receive its revenues
from the sale, design, construction and/or operation of gas turbine or
other electrical generation projects. As of December 31, 2002, we ceased
operation of this segment and no further activities will be pursued.
During the nine months ended March 31, 2003 and 2002 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. 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 $626,385
for the development and acquisition of oil and gas properties, and sold
$70,577 in equipment and producing properties for a net increase of
$555,808.
7
Note 3 SEGMENT INFORMATION (CONTINUED)
Segment information consists of the following for the nine months ended
March 31:
Oil and Gas Power Plant Corporate Consolidated
----------- ----------- --------- ------------
Revenues:
2003 $ 873,471 $ -0- $ 7,981 $ 881,452
2002 604,713 -0- 46,600 651,313
Income (loss) from operations:
2003 $ 453,459 $ -0- $ (484,609) $ (31,150)
2002 167,025 (25,500) (368,094) (226,569)
Identifiable assets:
2003 $ 3,743,528 $ -0- $ 1,527,090 $ 5,270,618
2002 2,887,935 -0- 1,642,431 4,530,366
Depreciation, depletion and valuation charged to identifiable assets:
2003 $(2,541,436) $ -0- $ (59,068) $ (2,600,504)
2002 (2,256,413) -0- (41,154) (2,297,567)
Capital expenditures:
2003 $ 626,385 $ -0- $ -0- $ 626,385
2002 628,244 -0- 5,285 633,529
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
- - -- -
Year ended:
March 31, 2003 - 22% 55% -
March 31, 2002 36% - 32% 12%
8
Note 5 COMMITMENTS AND CONTINGENCIES
At March 31, 2003 the Company was committed to the following drilling and
development projects in California:
On April 23, 2003 we commenced drilling operations on the Pope Bypass 1-5,
a 7800 foot exploratory gas well in Yolo County, California. We have
committed to drilling the following wells:
Estimated Our Estimated
Well Spud Date Total Depth Dry Hole Cost
------------------------------------------------------------------------------
Pope Bypass 1-5 4-23-03 7800 feet $103,500
Quarre 30-2 5-2-03 5600 feet 64,000
Klingenberg 23-1 5-15-03 5900 feet 64,000
NL&F 26-1 5-25-03 5500 feet 64,000
--------
$295,500
========
Results of these proposed drilling operations will be disclosed in future
reports.
During the quarter ended March 31, 2003, we acquired two contiguous gas
properties located in Colusa County, California. Aspen and our partners
acquired a 100% working interest in approximately 2000 acres which included
ten shut in gas wells. In late March these wells were tested for their
productive capabilities. Nine wells were put on production and are
currently producing 1100 MCFPD and one well was plugged and abandoned.
A 3-D seismic program will be acquired late in 2003 on these properties and
drilling targets for the 2004 drilling season will be identified. We
estimate our share of the 3-D seismic program will cost approximately
$170,000.
Note 6 INCOME TAXES
The Company has made no provision for income taxes for the nine month
period ended March 31, 2003 since it utilizes net operating loss
carryforwards. The Company had $1,713,865 of such carryforwards at June 30,
2002.
On March 26, 2002 we received a refund of overpaid income taxes of $70,530
from the State of California for our fiscal year ended June 30, 2001.
9
Note 7 SUBSEQUENT EVENTS
On January 1, 2003 we entered into a new employment agreement with the
president of our West Coast Division, Robert A. Cohan. Some of the
pertinent provisions include an employment period ending December 31, 2005,
salary increases from $125,000 per year to $135,000 per year effective
April 15, 2003, and a further salary increase to $145,000 per year from
April 15, 2004 through the end of the contract. Other benefits and duties
will remain the same as the previous employment contract.
Effective May 1, 2003 we entered into a new employment agreement with
Chairman of the Board, R. V. Bailey. Some of the pertinent provisions
include an employment period ending May 1, 2009, the title of Vice
President subject to the general direction of the President, Robert A.
Cohan, and the Board of Directors of Aspen. Mr. Bailey's salary will be
$45,000 per year from May 1, 2003 to December 31, 2006 and $60,000 per year
from January 1, 2007, ending May 1, 2009. Mr. Bailey will also participate
in Aspen's stock options and royalty interest programs. During the term of
the agreement, we have agreed to pay Mr. Bailey a monthly $1,700 allowance
to cover such items as prescriptions, medical and dental coverage for
himself and his dependents and other expenses not covered in the agreement.
Mr. Bailey's keyman life insurance policy will terminate this year which
will result in an annual savings of approximately $6,500. Mr. Bailey will
continue to use the Company vehicle and may trade the current vehicle for a
similar vehicle of his choice prior to June 30, 2006. During 2007 or
thereafter, Mr. Bailey may purchase the vehicle for $500.
We may terminate this agreement upon Mr. Bailey's death by paying his
estate all compensation that had or will accrue to the end of the year of
his death plus $75,000. Should Mr. Bailey become totally and permanently
disabled, we will pay Mr. Bailey one half of the salary and benefits set
forth in our agreement with him for the remainder of the term of the
agreement.
Effective May 1, 2003 our Board of Directors appointed Mr. Robert A. Cohan
President of Aspen Exploration Corporation, replacing Mr. Bailey.
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, 2002, 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, 2003 as compared to June 30, 2002
-------------------------------------------
At March 31, 2003 current assets were $1,535,916 and current liabilities were
$982,855 and we had positive working capital of $553,061 compared to current
assets of $1,333,221 at June 30, 2002 and current liabilities of $488,622 at the
same date, resulting in working capital at June 30, 2002 of $844,599. Our
current assets increased by 15%, while current liabilities increased by 101%
from June 30, 2002 to March 31, 2003 for several reasons.
Our current assets increased primarily because cash and cash
equivalents increased from approximately $916,000 to approximately $1.2
million. Accounts receivable - trade decreased by about 20% because of
the reduced drilling activity during the quarter ended March 31, 2003.
Our current liabilities increased to approximately $983,000 at March
31, 2003, from approximately $489,000 at June 30, 2002. This increase
was due primarily to an increase of $480,000 in advance payments
received from joint owners prior to project start-ups at March 31,
2003.
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. During the nine months ended March 31, 2003, our
operations provided approximately $841,000 of positive cash flow as compared to
a negative cash flow of approximately $823,000 for the same period of the
previous year. As discussed below, our ability to maintain a positive cash flow
from operations 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
We achieved the positive cash flow from operations during the nine month period
ending March 31, 2003 described in the preceding paragraph because we
experienced an increase in production and prices received for the natural gas we
produced during that period. At June 30, 2002, we received an average of $2.51
per MMBTU. At March 31, 2003 our price per MMBTU had been increased to
approximately $6.30 per MMBTU, a 151% increase.
In conjunction with the increase in prices we have also experienced an increase
in production volumes for the period. For the nine months ended March 31, 2003
we produced approximately 187,000 MMBTU of gas compared to approximately 176,000
MMBTU for the nine months ended March 31, 2002, a 6% increase. This increase in
production is primarily due to the addition of five new gas wells between May
and November 2002.
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, 2003 we have spudded one well and are committed to
drill 3 additional wells at an estimated cost to us of approximately $296,000,
with the balance (approximately $1,258,000) to be paid by joint owners in the
properties, including certain affiliated investors. For the nine months ended
March 31, 2003 we invested approximately $626,000 in our oil and gas properties
compared to approximately $628,000 for the nine month period in the preceding
fiscal year. We anticipate additional drilling will occur in fiscal 2003.
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, 2003 Compared to March 31, 2002
-----------------------------------------
For the nine months ended March 31, 2003 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, 2003 increased approximately $268,500 from $605,000 to
$873,500, a 44% increase. This increase reflects an improvement in prices and
increased production volumes in California. Our share of sales of oil and gas
for the nine month period ended March 31, 2003 was 650 barrels of oil and
approximately 187,000 MMBTU of gas with the price received for oil at $25.89 per
barrel and $3.93 per MMBTU for gas. This is a decrease in total oil production
compared to the 2,410 barrels of oil produced in the first nine months of fiscal
2002 due to the sale of our producing oil properties in late 2002, and an
increase in natural gas production of 11,000 MMBTU when compared to the
approximately 176,000 MMBTU of gas production achieved during the first nine
months of 2002. As discussed in Liquidity and Capital Revenues, a significant
factor resulting in the increase in revenues during the last nine months of
fiscal 2003 was an increase in the prices received for our production when
compared to prices of $19.33 and $2.68 received for oil and gas respectively
during the first nine months of 2002.
Oil and gas production costs increased $38,537 when compared to the comparable
nine month period of the previous year, from $102,688 to $141,225. Production
costs decreased due to the elimination of non-recurring workover costs for
recompleting wells in upper producing zones and the sale of our Arco and Brandt
oil wells in January 2002 and September 2002, respectively. These decreases were
offset by increased compression costs on our mature gas wells.
Depletion, depreciation and amortization decreased $55,975 or 16% for the nine
month period, which is our best estimate of what the full year cost will be.
Selling, general and administrative expense increased approximately $7,128 or 2%
from $471,725 to $478,853 for the nine months ended March 31, 2003. This
increase is primarily due to salary and office rental and consulting increases.
As a result of our operations for the nine months ended March 31, 2003, we ended
the period with a net loss of $31,150 compared to net loss of $226,569 for the
nine months ended March 31,2002. This reduction in the loss from operations was
due to an improvement in prices we received for our production and increased
volumes produced, but was offset by an increase of approximately $38,600 in
production costs and $7,100 in G&A costs. Effective September 1, 2002 we sold
the remaining interest in producing oil wells located in Kern County, California
for approximately $70,000 net to our interest. As of September 1, 2002, we were
producing and selling only natural gas.
Interest and other income decreased approximately $38,600 to $8,000 and were due
to a decline in interest rates.
13
CONTRACTUAL OBLIGATIONS
We had five contractual obligations as of March 31, 2003. The following
table lists our significant liabilities at March 31, 2003:
Payments Due by Period
Less than
Contractual Obligations 1 year 2-3 years 4-5 years After 5 years Total
----------------------- --------- --------- --------- ------------- -------
Employment Obligations $189,325 $409,130 $179,550 $142,100 $920,105
Lease Obligations 20,109 18,000 8,470 -0- 46,579
-------- -------- -------- -------- --------
Total contractual
cash obligations $209,434 $427,130 $188,020 $142,100 $966,684
======== ======== ======== ======== ========
We lease our corporate offices in Denver, Colorado under the terms of an
operating lease, which expires on December 31, 2003. Yearly payments under the
lease are approximately $15,312. Our Bakersfield, California office lease was
renewed for a three year period and expires February 28, 2006. The yearly
payments are approximately $8,760 per year. We also lease storage space in
Bakersfield, California. The lease expires December 31, 2003 and we pay
approximately $390 per year for the space. See Note 7 for a description of our
employment obligations to Mr. R. V. Bailey and Mr. Robert A. Cohan.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
We believe the following critical accounting policies affect our most
significant judgments and estimates used in the preparation of our Consolidated
Financial Statements.
Reserve Estimates:
------------------
Our estimates of oil and natural gas reserves, by necessity, are projections
based on geologic and engineering data, and there are uncertainties inherent in
the interpretation of such data as well as the projection of future rates of
production and the timing of development expenditures. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that are difficult to measure. The accuracy of any reserve estimate is a
function of the quality of available data, engineering and geological
interpretation and judgment. Estimates of economically recoverable oil and
natural gas reserves and future net cash flows necessarily depend upon a number
of variable factors and assumptions, such as historical production from the area
compared with production from other producing areas, the assumed effects of
regulations by governmental agencies and assumptions governing future oil and
natural gas prices, future operating costs, severance and excise taxes,
development costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. For these reasons, estimates of the
economically recoverable quantities of oil and natural gas attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery, and estimates of the future net cash flows expected therefrom may
vary substantially. Any significant variance in the assumptions could materially
affect the estimated quantity and value of the reserves, which could affect the
carrying value of our oil and gas properties and/or the rate of depletion of the
oil and gas properties. Actual production, revenues and expenditures with
respect to our reserves will likely vary from estimates, and such variances may
be material.
14
Many factors will affect actual future net cash flows, including:
- The amount and timing of actual production;
- Supply and demand for natural gas;
- Curtailments or increases in consumption by natural gas purchasers; and
- Changes in governmental regulations or taxation.
Property, Equipment and Depreciation:
-------------------------------------
We follow the full-cost method of accounting for oil and gas properties. Under
this method, all productive and nonproductive costs incurred in connection with
the exploration for and development of oil and gas reserves are capitalized.
Such capitalized costs include lease acquisition, geological and geophysical
work, delay rentals, drilling, completing and equipping oil and gas wells,
including salaries, benefits and other internal salary related costs directly
attributable to these activities. Costs associated with production and general
corporate activities are expensed in the period incurred. Interest costs related
to unproved properties and properties under development are also capitalized to
oil and gas properties. If the net investment in oil and gas properties exceeds
an amount equal to the sum of (1) the standardized measure of discounted future
net cash flows from proved reserves, and (2) the lower of cost or fair market
value of properties in process of development and unexplored acreage, the excess
is charged to expense as additional depletion. Normal dispositions of oil and
gas properties are accounted for as adjustments of capitalized costs, with no
gain or loss recognized.
We apply SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." Under SFAS No. 121, long-lived assets
and certain intangibles are reported at the lower of the carrying amount or
their estimated recoverable amounts. Long-lived assets subject to the
requirements of SFAS No. 121 are evaluated for possible impairment through
review of undiscounted expected future cash flows. If the sum of undiscounted
expected future cash flows is less than the carrying amount of the asset or if
changes in facts and circumstances indicate, an impairment loss is recognized.
Item 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
within the 90 days prior to the filing date of this report, the company carried
out an evaluation of the effectiveness of the design and operation of the
company's disclosure controls and procedures. This evaluation was carried out
under the supervision and with the participation of Aspen Exploration
Corporation's management, the person serving as its Chairman/Chief Executive
Officer/Principal Financial and Accounting Officer, who concluded that Aspen
Exploration Corporation's disclosure controls and procedures are effective.
There have been no significant changes in Aspen Exploration Corporation's
internal controls or in other factors, which could significantly affect internal
controls subsequent to the date Aspen Exploration Corporation carried out its
evaluation.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in Aspen
Exploration Corporation's reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
15
ensure that information required to be disclosed in Aspen Exploration
Corporation's reports filed under the Exchange Act is accumulated and
communicated to management, including its Chief Executive Officer/Principal
Financial Officer as appropriate, to allow timely decisions regarding required
disclosure.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
There are no material pending legal or regulatory proceedings against Aspen
Exploration Corporation, and it is not aware of any that are known to be
contemplated.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
None.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matter was submitted during the first quarter of the fiscal year covered
by this report to a vote of security holders, through the solicitation of
proxies or otherwise.
Item 5. Other Information.
------------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
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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
/s/ Robert A. Cohan
---------------------------------------
By: Robert A. Cohan,
May 13, 2003 President, Principal Executive Officer,
Principal Financial Officer
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CERTIFICATIONS - principal executive and financial officers
-----------------------------------------------------------
I, Robert A. Cohan, Chief Executive Officer and Chief Financial Officer of Aspen
Exploration Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Aspen Exploration
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 /s/ Robert A. Cohan
------------------------------------------------
Robert A. Cohan, Chief Executive Officer and
Chief Financial Officer (principal
executive and financial officer)
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