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 September 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-9494
ASPEN EXPLORATION CORPORATION
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(Exact Name of Aspen as Specified in its Charter)
Delaware 84-0811316
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 208, 2050 S. Oneida St.,
Denver, Colorado 80224-2426
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(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 November 9, 2001
Common stock, $.005 par value 5,812,205
Part One. FINANCIAL INFORMATION
Item 1. Financial Statements
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2001 2001
---- ----
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents, including $2,636,342 and
$2,046,201 of invested cash at September 30, 2001
and June 30, 2001 respectively ................................ $ 2,273,055 $ 2,695,583
Precious metals ............................................... 18,823 18,823
Accounts receivable, trade .................................... 572,030 554,159
Accounts receivable, related party (Note 7) ................... -0- 20,000
Prepaid expenses .............................................. 51,124 14,898
----------- -----------
Total current assets ..................................... 2,915,032 3,303,463
----------- -----------
Investment in oil and gas properties, at cost (full cost
method of accounting) ......................................... 4,648,879 4,297,306
Less accumulated depletion and valuation allowance ............ (2,023,713) (1,921,413)
----------- -----------
2,625,166 2,375,893
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Property and equipment, at cost:
Furniture, fixtures and vehicles .............................. 104,368 104,368
Less accumulated depreciation ................................. (31,100) (28,133)
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73,268 76,235
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Cash surrender value, life insurance .......................... 239,095 239,095
----------- -----------
TOTAL ASSETS ............................................. $ 5,852,561 $ 5,994,686
=========== ===========
(Statement Continues)
See notes to Consolidated Financial Statements
2
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
2001 2001
---- ----
(Unaudited) (Audited)
Current liabilities:
Accounts payable and accrued expenses .......... $ 817,308 $ 1,036,715
Advances from joint owners ..................... 518,203 444,232
----------- -----------
Total current liabilities ...................... 1,335,511 1,480,947
Deferred income taxes payable (Note 6) ......... 179,200 179,200
----------- -----------
Total liabilities .............................. 1,514,711 1,660,147
----------- -----------
Stockholders' equity:
Common stock, $.005 par value:
Authorized: 50,000,000 shares
Issued: At September 30, 2001: 5,812,205
and June 30, 2001: 5,812,205 ............... 29,061 29,060
Capital in excess of par value ................. 6,015,279 6,015,279
Accumulated deficit ............................ (1,693,682) (1,692,592)
Deferred compensation .......................... (12,808) (17,208)
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Total stockholders' equity ..................... 4,337,850 4,334,539
----------- -----------
Total liabilities and stockholders' equity ..... $ 5,852,561 $ 5,994,686
=========== ===========
See Notes to Consolidated Financial Statements
3
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
-------------
(unaudited)
2001 2000
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Revenues:
Oil and gas .................................... $ 256,160 $ 561,694
Management fees ................................ 42,688 56,032
Interest and other, net ........................ 21,312 10,121
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Total Revenues ................................... 320,160 627,847
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Costs and expenses:
Oil and gas production ......................... 25,872 57,542
Depreciation, depletion and amortization ....... 105,266 64,000
Aspen Power Systems expense .................... 20,000 -0-
Selling, general and administrative ............ 170,112 151,295
Interest expense ............................... -0- 6,940
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Total Costs and Expenses ......................... 321,250 279,777
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Net income before taxes .......................... $ (1,090) $ 348,070
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Provision for income taxes ....................... -0- 19,400
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Net income ....................................... $ (1,090) $ 328,670
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Basic earnings per common share .................. $ -0- $ .06
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Diluted earnings per common share ................ $ -0- $ .06
=========== ===========
Basic weighted average number of common shares
outstanding ...................................... 5,812,205 5,345,938
=========== ===========
Diluted weighted average number of common shares
outstanding ...................................... 5,891,844 5,693,138
=========== ===========
The accompanying notes are an integral
part of these statements.
4
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended September 30,
2001 2000
------------------
Cash flows from operating activities:
-------------------------------------
Net income (loss) .............................................$ (1,090) $ 328,670
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation, depletion & amortization ...................... 105,266 64,000
Amortization of deferred compensation ....................... 4,400 4,400
Changes in assets and liabilities:
(Increase) decrease in accounts receivable .................. 2,130 (186,655)
(Increase) in prepaid expense ............................... (36,226) (8,171)
Increase (decrease) in accounts payable and accrued
expense .................................................. (145,435) 1,734,714
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Net cash provided (used) by operating activities ............ (70,955) 1,936,958
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Cash flows from investing activities:
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Additions to oil & gas properties ........................... (351,573) (129,107)
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Net cash used in investing activities ....................... (351,573) (129,107)
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Cash flows from financing activities:
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Repayment of notes payable .................................. -0- (12,566)
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Net cash used in financing activities ....................... -0- (12,566)
Net increase (decrease) in cash and cash equivalents ........ (422,528) 1,795,285
Cash and cash equivalents, beginning of year ................ 2,695,583 507,382
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Cash and cash equivalents, end of year ......................$ 2,273,055 $ 2,302,667
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Interest paid ...............................................$ -0- $ 6,940
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Income taxes paid ...........................................$ -0- $ 8,000
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The accompanying notes are an integral
part of these statements.
5
ASPEN EXPLORATION CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 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, 2001.
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,
2001.
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 three months ended September 30, 2001 and 2000:
September 30, September 30,
2001 2000
Net Per Per
Income Share Net Share
(Loss) Shares Amount Income Shares Amount
--------- --------- --------- --------- --------- ---------
Basic earnings per share:
Net income (loss) and
share amounts (1,090) 5,812,205 -- 328,670 5,345,938 .06
Dilutive securities
stock options 180,000 680,000
Repurchased shares (100,361) (332,800)
----------------------------------------------------------------------------------
Diluted earnings per share:
Net income and assumed
share conversion (1,090) 5,891,844 -- 328,670 5,693,138 .06
========= ========= ========= ========= ========= =========
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 131). The adoption of SFAS
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 three months ended September 30, 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. 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 $351,573 for the development and acquisition
of oil and gas properties.
Segment information consists of the following for the three months
ended September 30:
Oil and Gas Power Plant Corporate Consolidated
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Revenues:
2001 $ 298,848 $ -0- $ 21,312 $ 320,160
2000 617,726 -0- 10,121 627,847
Income (loss) from operations:
2001 $ 170,676 $(20,000) $ (151,766) $ (1,090)
2000 480,784 -0- (152,114) 328,670
Identifiable assets:
2001 $ 3,197,196 $ -0- $ 2,655,365 $ 5,852,561
2000 2,018,062 -0- 2,646,980 4,665,042
Depreciation, depletion and valuation
charged to identifiable assets:
2001 $(2,023,713) $ -0- $ (31,100) $(2,054,813)
2000 (1,580,589) -0- (132,689) (1,713,278)
Capital expenditures:
2001 $ 351,573 $ -0- $ -0- $ 351,573
2000 129,107 -0- -0- 129,107
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
- - -
Year ended:
September 30, 2001 9% 52% 26%
September 30, 2000 17% 11% 65%
Note 5 COMMITMENTS AND CONTINGENCIES
At September 30, 2001 we were committed to the following projects in
California:
1. Sour Grass Prospect 3-D seismic work and lease acquisition
costs.
Total costs of completing the seismic study and lease acquisition
costs are estimated to be $200,000, our share should be approximately
$67,000.
Note 6 INCOME TAXES
Our effective income tax rate was 24% for the first quarter ended September 30,
2001 and 24% for the first quarter ended September 30, 2000.
Note 7 SUBSEQUENT EVENTS
During September and October of 2001 we drilled the Brandt 36X-27 well to a
total depth of 9,216'. No commercial oil sands were encountered and this well
was plugged and abandoned on October 12, 2001.
On October 4, 2001 the California Power Authority notified our affiliate, Aspen
Power Systems ("APS") that no further action would be taken on APS' proposal to
build and operate a 323 MW natural gas fired electrical generating plant for the
State of California. Consequently, we have written off a $20,000 advance we
provided APS. Future power plant construction opportunities in California appear
remote, given current economic conditions, and APS has scaled back its efforts
and is seeking other approaches to contracts and financing for power generation
facilities in Solano County, California. There is no assurance these efforts
will be successful.
9
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, 2001, 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
-------------------------------
September 30, 2001 as compared to September 30, 2000
----------------------------------------------------
At September 30, 2001 current assets were $2,915,032 and current liabilities
were $1,335,511 and we had positive working capital of $1,579,521 compared to
current assets of $2,865,752 at September 30, 2000 and current liabilities of
$2,515,562 at the same date, resulting in working capital at September 30, 2000
of $350,190. Our working capital increased approximately $1,229,000 from
September 30, 2000 to September 30, 2001 for several reasons.
Our current assets increased because cash and cash equivalents decreased
$29,600 from approximately $2.3 million to approximately $2.27 million.
Much of this decrease was due to a reduction in advances paid to us from
joint working interest owners for the drilling of wells. We are currently
committed to projects in which we have no working interest partners (See
Notes). Accounts receivable - trade increased by about 8% because of the
completion of various drilling projects which were in process at year end.
Prepaid expenses increased approximately $33,700 because of estimated
income tax payments made to the state of California during the first
quarter of fiscal 2002.
Our current liabilities decreased to $1.3 million at September 30, 2001,
from approximately $2.5 million at September 30, 2000. This decrease was
due to a number of factors, including a decrease in accounts payable of
$741,000 due to decreased drilling activity, a decrease of $195,000 in
advance payments received from joint owners but not expended for drilling
activities at September 30, 2001. The current portion of notes payable were
reduced to zero at September 30, 2001 from $224,000 at September 30, 2000.
10
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.
Recent drilling success and the reentry and completion of an acquired property
have added to our cash flow from operations. These successes have been offset by
the decline in production rates from older wells and a significant decline in
the price received from the sale of our products. The average price received for
oil and gas for the quarter ended September 30, 2001 was $22.35 per barrel and
$3.28 per MMBTU of gas compared to $28.73 per barrel and $4.99 per MMBTU of gas
at September 30, 2000, a decline of 22% and 34% respectively.
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.
We believe that internally generated funds will be sufficient to finance our
drilling and operating expenses for the next twelve months.
11
Results of Operations
---------------------
September 30, 2001 Compared to September 30, 2000
-------------------------------------------------
For the three months ended September 30, 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 three
months ended September 30, 2001 decreased approximately $319,000 from $617,726
to $298,848, a 52% decrease. This decrease reflects a decrease in the prices
received for our products and a decrease in production in the Denverton Creek
and Malton Black Butte fields as well as the Kern County oil properties. Our
share of sales of oil and gas for the three month period ended September 30,
2001 were 1,035 barrels of oil and approximately 69,200 MMBTU of gas with the
price received for oil at $22.35 per barrel and $3.28 per MMBTU for gas. This is
a decrease in total oil production compared to the 1,300 barrels of oil produced
in the first quarter of fiscal 2001, and a decrease in natural gas production
when compared to the approximately 105,000 MMBTU of gas when compared to the
production achieved during the first quarter of the 2001 fiscal year. A
significant factor resulting in decreased revenues during the first quarter of
fiscal 2002 was a decrease in the prices received for our production when
compared to prices of $28.73 and $4.99 received for oil and gas respectively
during the first quarter of fiscal 2001.
Oil and gas production costs decreased $31,670 when compared to last quarter
from $57,542 to $25,872. Approximately $30,000 of this decrease was due to
non-recurring workover costs for recompleting wells in upper producing zones in
the first quarter of fiscal 2001.
Depletion, depreciation and amortization increased approximately $41,300 or 65%
from the previous quarter, which is our best estimate of what the full year cost
will be.
Selling, general and administrative expense increased approximately 12% from
$151,295 to $170,112 for the quarter ended September 30, 2001. This increase is
primarily due to salary, consulting and office rental increases.
As a result of our operations for the three months ended September 30, 2001, we
ended the quarter with net loss of $1,090 compared to net income of $328,670 for
the year earlier. This decrease of approximately $330,000 is due to a decrease
in production volumes and the price received for our oil and gas as discussed
earlier.
Interest and other income increased approximately $11,000 to $21,312 and is due
to our maintaining a greater balance of funds in our invested cash accounts.
On October 4, 2001 the California Power Authority notified our affiliate, Aspen
Power Systems ("APS") that no further action would be taken on APS' proposal to
build and operate a 323 MW natural gas fired electrical generating plant for the
State of California. Consequently, we have written off a $20,000 advance we
provided APS. Future power plant construction opportunities in California appear
remote, given current economic conditions, and APS has scaled back its efforts
and is seeking other approaches to contracts and financing for power generation
facilities in Solano County, California. There is no assurance these efforts
will be successful.
12
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,
November 9, 2001 Chief Executive Officer,
Principal Financial
Officer
13