SECURITIES & EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(MARK ONE)
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the
fiscal year ended June 30, 1996.
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
________ to ________.
Commission File Number 0-9494
ASPEN EXPLORATION CORPORATION
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 84-0811316
--------------------------------- ------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) I.D. Number)
2050 S. Oneida St., Suite 208, Denver, Colorado 80224
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(Issuer's telephone number) 303-639-9860
------------
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act:
$0.005 par value Common Stock
-----------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 XX No
------ ------
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment thereto.
XX
------
Issuer's revenues for its most recent fiscal year are $448,574.
At December 4, 1996, the aggregate market value of the shares held by
non-affiliates was approximately $460,491. The aggregate market value was
calculated by multiplying the mean of the closing bid and asked prices ($0.14)
of the common stock of Registrant on the NASD OTC Bulletin Board listing for
that date, by the number of shares of stock held by non-affiliates of Registrant
(3,289,220).
At December 4, 1996, there were 4,321,322 shares of common stock (Registrant's
only class of voting stock) outstanding.
<PAGE>
PART I.
Item 1. Business
- -----------------
(A) General Development of Business. Aspen Exploration Corporation
(hereinafter "Registrant") was incorporated under the laws of the State of
Delaware on February 28, 1980 for the primary purpose of acquiring, exploring
and developing oil and gas and other mineral properties.
The consolidated financial statements include Registrant and its wholly-owned
subsidiaries, Aspen Gold Mining Company, and Aspen Recursos de Mexico. Aspen
Gold Mining Company is currently inactive and Aspen Recursos de Mexico
operations to date have consisted of its organization and geological
investigation of certain areas in Mexico.
During fiscal 1996, Registrant continued its operation of various producing oil
and gas properties. During fiscal 1995, Registrant formed a subsidiary (Aspen
Recursos de Mexico, S.A. de C.V.), which is qualified to do business in Mexico,
so that Registrant may pursue the investigation of mineral prospects in Mexico
and Central America. Aspen Recursos was inactive during 1996.
(B) Narrative Description of Business.
Registrant owns leasehold or royalty interests in producing oil and gas
properties in California, Colorado, Michigan, Montana, North Dakota, Oklahoma,
Texas and Wyoming, and leasehold and royalty
interests in mining properties in Alaska.
Oil and Gas Exploration and Development:
Registrant engages in a broad range of activities associated with the oil
and gas business in an effort to develop oil and gas reserves. Registrant's
primary areas of interest are in the states of California and Wyoming.
During the last few fiscal years, Registrant's major emphasis has been on
production from its oil and gas properties. Registrant participated in the
drilling of three wells during the fiscal year ended June 30, 1996 and
acquired operated working interests in two producing oil wells, one gas
well, and two shut-in oil wells located in Kern County, California within
the fiscal year. During fiscal 1995 and 1996, and the second quarter of
1997, Registrant sold all of its producing properties Montana, North
Dakota, Texas and Oklahoma.
Registrant may purchase production from other entities through the use of
its working capital (though working capital is currently very limited) or
may acquire interests in producing properties with loans from commercial
financial institutions, which expect repayment from the production
2
<PAGE>
Item 1. Business - (Continued)
- ------------------------------
revenues, or Registrant may also purchase production from other entities
through the issuance of its common stock. Registrant does not have the
financial resources to finance any significant cash acquisitions itself.
Consequently, management believes that the diversification available
through stock acquisitions and acquisitions financed by third parties is in
the best interests of Registrant. However, since Registrant's stock is no
longer quoted on NASDAQ's Small Cap Market, its value has been
significantly reduced and it would be difficult for Registrant to issue
stock for acquisitions. Third party financing for oil and gas acquisitions
is difficult to obtain absent additional collateral being available to the
lender.
The North Strand #1 well located in Kern County, California was spudded
(drilling commenced) on August 15, 1995. The total depth of 10,000' was
reached on August 24, 1995. While drilling was under way, the mud log
recorded oil and gas shows from two intervals located at depths below the
surface of approximately 9175' and 9700'. These shows were confirmed by
electric logs and sidewall cores.
Completion operations commenced on the North Strand #1 well on September
24, 1995. The lower Stevens interval was perforated from 9706' to 9715'.
Registrant elected to pump test this well to further evaluate its potential
as an economic producing oil well. The well was pump tested from the lower
Stevens interval only (9706' to 9715') since this zone had a more favorable
oil cut than the upper zone. During 31 days of production which commenced
on December 23, 1995 and ended on January 26, 1996 (with 4 days of down
time due to a pump change), the well produced 303 barrels of oil and 5,945
barrels of water. This is an average of 10 BOPD and 192 BWPD (5% oil cut)
which is an uneconomic rate. On April 22, 1996 the well was plugged and
abandoned.
Registrant has a 10% working interest in the well and an estimated capital
investment at June 30, 1996 of approximately $45,000.
The Grey Wolf #1 well located in Kern County, California was spudded
(drilling commenced) on October 10, 1995. The total depth of 4200' was
reached on October 20, 1995. The mud log recorded gas shows while drilling
from 3698' to 3708', 3715' to 3717', 3970' to 3973', and 4096' to 4098'. A
full suite of electric logs was run from 450' to 4200'. After careful
analysis of the mud logs and electric logs, production casing was cemented
in the hole and the well was perforated from 3698' to 3708' and 3714' to
3717'.
3
<PAGE>
Item 1. Business - (Continued)
- ------------------------------
The well was flow tested on a 1/4" positive choke for a 10 day period in an
effort to determine if the stabilized production rate was sufficient to
justify the expense of surface and pipeline facilities. At the end of the
flow period, the well was producing approximately 300 MCFPD of high quality
(1054 BTU) gas. The well was then shut in for a pressure build up to
determine if the post production shut-in pressure would return to the
initial shut-in pressure of 1400 lbs. The current pressure in the well is
1160 lbs. and still slowly increasing.
Registrant has an 18% working interest in the well and an actual capital
investment at June 30, 1996 of approximately $67,000.
The Grey Wolf #1 commenced gas production in October, 1996 at a rate of
approximately 120 MCFPD on a flowing tubing pressure of 1000 lbs. The gas
is being sold to local farmers for irrigation purposes.
Registrant entered into a purchase and sale agreement with Capitol Oil
Corporation, an unaffiliated third party, to purchase all of Capitol's
interest in certain producing properties for cash. This agreement was
signed on November 9, 1995, effective November 1, 1995. Closing of the
purchase and sale agreement was on January 10, 1996. The acquired
production consists of two producing oil wells, one producing gas well, and
two shut-in wells that will be plugged and abandoned or converted to salt
water disposal wells. The acquisition is located in Kern County,
California. Registrant has been designated operator of the properties.
The total purchase price of the acquired properties was $925,000, of which
Registrant has 20% of the working interest acquired, for $185,000.
Based on an independent engineering estimate prepared by Resource Services
International, Inc., an independent consulting firm, as of July 1, 1996,
net oil reserves acquired by Registrant were calculated to be approximately
10,856 barrels of proved producing reserves and 33,280 BOE (barrels oil
equivalent) of proved behind pipe reserves. All behind pipe zones are
scheduled to commence production after depletion of the current producing
zone in each well. In addition to the proved producing and proved behind
pipe zones, there also exists approximately 680 acres which contain several
high quality drilling locations. A 3-D seismic survey is currently being
permitted to enable Registrant to delineate future drilling locations.
4
<PAGE>
Item 1. Business - (Continued)
- ------------------------------
The Hopper #2 well located in Colusa County, California was spudded on May
16, 1996, drilled to a total depth of 2,790', and plugged and abandoned on
May 20, 1996. Registrant had a 5% working interest in the well.
Registrant has identified and will continue to identify prospects suitable
for acquisition through its management, through independent contractors
retained from time to time by Registrant, and, to a lesser extent, through
unsolicited submissions.
Where Registrant acquires an interest in acreage on which exploration or
development drilling must be accomplished, Registrant itself will seldom
assume the entire risk of drilling. Registrant will assess the relative
potential and risks of each prospect and determine the degree to which it
will participate in the exploration or development drilling. Generally,
Registrant will invite industry participants to share in the risk and the
reward of the prospect by financing some or all of the costs of drilling
contemplated wells. In such cases, Registrant may retain a carried working
interest in the prospect, a reversionary interest, or may be required to
finance all or a portion of its proportional interest in the prospect.
While this reduces Registrant's risk and financial commitment to a
prospect, it also reduces Registrant's potential return should the drilling
operations prove successful.
Conversely, Registrant may from time to time participate in drilling
prospects offered by other persons if it determines that the potential
benefit from the drilling operations outweighs the risk and the cost of the
proposed operations. This allows Registrant to diversify into a larger
number of prospects at a lower cost per prospect, but these operations
(commonly known as "farm-ins") are generally more expensive to Registrant
than operations where it is offering the participation to others (known as
"farm-outs").
Mineral Exploration and Development.
In the minerals portion of Registrant's business, Registrant has curtailed,
for the time being, active exploration for precious metals in Alaska and is
concentrating instead on uranium exploration in Wyoming. In particular,
Registrant is seeking favorable geological situations wherein "roll front"
uranium deposits may exist which are amenable to in-situ leaching. Although
Registrant carried out geological reconnaissance in northern Mexico, no
properties were acquired.
5
<PAGE>
Item 1. Business - (Continued)
- ------------------------------
(1) Principal products produced and services rendered: Registrant's
products during fiscal 1996 were crude oil, natural gas and other petroleum
products. Crude oil, natural gas and other petroleum products are generally sold
to various producers, including pipeline companies, which usually service the
area in which the producing wells are located. In the fiscal year ended June 30,
1996 crude oil and natural gas sales and related revenues accounted for $209,936
or 47% of Registrant's revenues; while $189,130 or 42% was in-kind gold royalty
income. Registrant is no longer receiving any mineral revenues.
(2) Distribution methods of the products and services: Not Applicable.
(3) Status of any publicly-announced new products or services: There has
been no public announcement of, and no information otherwise has been made
public about, a new product or service which would require the investment of a
material amount of Registrant's assets, or which otherwise is material.
(4) Competitive conditions: The exploration for and development and
production of oil, gas and other minerals are subject to intense competition.
The principal methods of competition in the industry for the acquisition of oil,
gas and mineral leases and producing properties are the payment of cash bonus
payments at the time of acquisition of leases, delay rentals, location damage
supplement payments, and stipulations requiring exploration and production
commitments by the lessee. Companies with greater financial resources, existing
staff and labor forces, equipment for exploration, and vast experience are in a
better position than Registrant to compete for such leases. In addition, the
ability of Registrant to market any oil and gas which it might produce could be
severely limited by its inability to compete with larger companies operating in
the same area, which may be willing or able to offer any oil and gas produced by
them at a price lower than that of Registrant. Exploration and production costs
of minerals, particularly precious metals, may impede the ability of Registrant
to offer such production at competitive prices.
In addition, the availability of a ready market for oil and gas will depend upon
numerous factors beyond Registrant's control, including the extent of domestic
production and imports of oil and gas, proximity and capacity of pipelines, and
the effect of federal and state regulation of oil and gas sales, as well as
environmental restrictions on exploration and usage of oil and gas. Further, it
must be expected that competition for leasing of oil and gas prospects will
become even more intense in the future. Registrant has a minimal competitive
position in the oil and gas industry.
6
<PAGE>
Item 1. Business - (Continued)
- ------------------------------
The acquisition of mining claims prospective for precious metals or other
minerals is subject to intense competition from a large number of companies and
individuals. The ability of Registrant to acquire additional leases or
additional mining claims could be curtailed severely as a result of this
competition.
The principal methods of competition in the industry for the acquisition of
mineral leases is the payment of bonus payments at the time of acquisition of
leases, delay rentals, advance royalties, the use of differential royalty rates,
the amount of annual rental payments and stipulations requiring exploration and
production commitments by the lessee. Companies with far greater financial
resources, existing staff and labor forces, equipment for exploration and
mining, and vast experience will be in a better position than Registrant to
compete for such leases.
(5) Sources and availability of raw materials. Raw materials requisite to
the transaction of Registrant's business include such items as drilling rigs and
other equipment, casing pipe, drilling mud and other supplies, core drilling
equipment, gold dredges and sluice boxes. Such items are commonly available from
a number of sources and Registrant foresees no short supply or difficulty in
acquiring any raw materials relevant to the conduct of its business.
(6) Dependence upon one or a few major customers: In the oil and gas
segment of Registrant's business, two companies in fiscal 1996 and two companies
in fiscal 1995 represented sales in excess of 10% of Registrant's total oil and
gas revenues for the last two fiscal years. The availability of oil and gas
purchasers is such, however, that any buyer discontinuing purchases from
Registrant could almost assuredly be replaced by another buyer. In the mineral
segment of Registrant's business, in-kind royalties paid by Cambior USA
(operator of the Valdez Creek mining property), represented 100% of Registrant's
total mineral revenues for the fiscal year ended June 30, 1996. The termination
by Valdez Creek Mining Company ("VCMC") of its mining operations has had a
materially adverse effect on Registrant's business. Cambior, the operator of the
Valdez Creek mining property, ceased mining operations effective June 30, 1995.
Gold processing, however, continued through September, 1995. The surface area of
the mine has been restored, and Cambior will reassign all its interest in the
mining claims to Registrant. Registrant is currently evaluating the possibility
of continued mining operations on the property, but has made no decision to do
so.
7
<PAGE>
Item 1. Business - (Continued)
- ------------------------------
(7) Patents, trademarks, licenses, franchises, concessions, royalty
agreements or labor contracts, including duration: Registrant does not own any
patents, licenses, franchises, or concessions except oil, gas and other mineral
interests granted by governmental authorities and private landowners. Registrant
has received a trademark registration (serial no. 74-396,919 registered on March
1, 1994) for its corporate logo. The registration is for a term of ten years,
although to maintain the registration for its entire term the Registrant must
file an affidavit of commercial use before March 1, 2000.
(8) Need for government approval of principal products or services: Not
applicable.
(9) Effect of existing or probable governmental regulation: Oil and gas
exploration and production, as well as mining activities, are open to
significant governmental regulation including worker health and safety laws,
employment regulations and environmental regulations. Operations which occur on
public lands may be subject to further regulation by the Bureau of Land
Management, the U.S. Army Corps of Engineers, or the U.S. Forest Service.
(10) Estimate of amounts spent on research and development activities:
Registrant has not engaged in any material research and development activities
since its inception.
(11) Costs and effects of compliance with environmental laws (federal,
state and local): Because Registrant is engaged in exploiting natural resources,
it is subject to various federal, state and local provisions regarding
environmental and ecological matters. Therefore, compliance with environmental
laws may necessitate significant capital outlays, may materially affect
Registrant's earnings potential, and could cause material changes in
Registrant's proposed business. At the present time, however, the existence of
environmental laws does not materially hinder nor adversely affect Registrant's
business. Capital expenditures relating to environmental control facilities have
not been material to the operations of Registrant since its inception.
(12) Employees. At June 30, 1996 Registrant employed three full-time
persons. Registrant also uses independent contractors and other consultants, as
needed.
Registrant entered into an employment agreement with Robert A. Cohan on April
16, 1995. This employment agreement was renewed for a period effective April 16,
1996 and ending April 15, 1997. (See Item 10 (g) below.) Registrant and Mr.
Cohan agreed to utilize a portion of Mr. Cohan's home in Bakersfield, California
in which to conduct Registrant's business. Mr. Cohan will not charge Registrant
8
<PAGE>
Item 1. Business - (Continued)
- ------------------------------
any rent for the use of his home as a business office. Registrant did agree to
pay for all office supplies, communication and copy equipment used by Mr. Cohan
in his office, as well as the monthly telephone expense incurred by Mr. Cohan on
behalf of Registrant and lease payments on a motor vehicle.
9
<PAGE>
Item 2. Properties
- -------------------
(A) Oil and Gas Properties
---------------------------
(1) General Information
------------------------
Registrant increased its net oil reserves by 210% during fiscal year 1996 (in
addition to replacing 100% of the reserves it produced during the last fiscal
year) primarily due to the acquisition of certain producing properties located
in Kern County, California. The undiscounted future net revenues forecast to be
recovered from these reserves increased 243% during the last fiscal year.
During the fiscal year ended June 30, 1996, Registrant sold oil and gas
properties which had proven marginal or were operated at a loss. Effective
November 1, 1996 Registrant sold the remaining producing properties located
outside of California to Registrant's consulting accountant, officer and
shareholder.
Rosedale Field, Kern County, California. Registrant acquired a 12% operated
working interest (9.51% net revenue interest) in one flowing oil well, one gas
well, and two shut-in oil wells effective November 1, 1995, located in the
Rosedale Field, Kern County, California. These wells produce high gravity oil
(32(degree)) from the Stevens formation at depths ranging from 6,400' to 6,600'.
The Arco 36X-10 has been flowing approximately 70 to 80 barrels of oil per day
for over five and one-half years. The Arco 46X-10, a shut- in gas well, has been
tested at 2.6 million cubic feet of gas per day.
West Bellevue Extension Field, Kern County, California. Registrant acquired an
18% operated working interest (13.34% net revenue interest) in one pumping oil
well located in the West Bellevue Extension Field, Kern County, California
effective November 1, 1995. This well has produced approximately 105,000 barrels
of high gravity oil (32(degree)) from the Stevens formation from a depth of
approximately 8,400' to 8,500'. Two behind-pipe zones exist in this well which
will be tested at a later date. Registrant has 680 gross acres contiguous to
this well which appear to have several good offset drilling locations.
Other Oil and Gas Interests
- ---------------------------
Registrant also owns working interests and overriding royalty interests in
various properties located in the states of California, Colorado, Michigan,
Montana, North Dakota, Oklahoma, Texas and Wyoming. Effective November 1, 1996,
Registrant sold all of its interest in areas outside of California oil and gas
assets to Ray K. Davis, its consulting accountant, officer and shareholder for
$100,000 in cash.
10
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
(2) Production Information
---------------------------
(i) Net Production, Average Sales Price and Average Production Costs
(Lifting). The table below sets forth the net quantities of oil and gas
production (net of all royalties, overriding royalties and production due to
others) attributable to Registrant for the fiscal years ended June 30, 1996 and
1995, and the average sales prices, average production costs and direct lifting
costs per unit of production.
Years Ended June 30,
--------------------
1996 1995
---- ----
Net Production
--------------
Oil (Bbls) 7,987 15,162
Gas (Mcf) 7,846 11,581
Average Sales Prices
--------------------
Oil (per Bbl) $17.19 $13.71
Gas (per Mcf) $ 1.04 $ 1.22
Average Production Cost (1)
---------------------------
Per equivalent
Bbl of oil $17.87 $13.64
Average Lifting Costs (2)
-------------------------
Per equivalent
Bbl of oil $ 5.79 $10.45
(1) Production costs include all expenses, depreciation, depletion and
amortization, lease operating expenses and all associated taxes.
(2) Direct lifting costs do not include impairment expense, ceiling writedown,
or depreciation, depletion and amortization.
11
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
(ii) Gross and Net Productive Oil and Gas Wells, Developed Acres, and
Overriding Royalty Interests.
(a) Leasehold Interests - Productive Wells and Developed Acres:
The table below sets forth Registrant's leasehold interests in productive and
shut-in oil and gas wells, and in developed acres, at June 30, 1996:
Producing and Shut-In Wells
---------------------------
Gross Net (1)
------------ -------------
Oil Gas Oil Gas
--- --- --- ---
Prospect
--------
California:
Arco 34X 1 -- 0.12 --
Arco 35X 1 -- 0.12 --
Arco 46X (2) -- 1 -- 0.12
Brandt 16X 1 -- 0.18 --
Grey Wolf #1 (3) -- 1 -- 0.18
Sanborn 3-3 -- 1 -- 0.008
Colorado:
Zenith Field (4) 3 -- 0.30 --
Montana:
Valley County (4) 1 -- 0.125 --
North Dakota:
Billings County (4) 5 -- 0.21 --
Williams County (4) 2 -- 0.24 --
Oklahoma:
Harper County (4) -- 2 -- 0.02
Texas:
Lucille Field (4) 7 -- 0.44 --
Ira Corbin #1 & 1A (4) 2 -- 0.03 --
Williams #1 (4) 1 -- 0.01 --
-- -- ---- -----
TOTAL 24 5 1.78 0.33
== == ==== =====
(1) A net well is deemed to exist when the sum of fractional ownership working
interests in gross wells equals one. The number of net wells is the sum of
the fractional working interests owned in gross wells expressed as whole
numbers and fractions thereof.
(2) Currently shut in.
(3) Awaiting pipeline connection.
(4) Sold effective November 1, 1996, for a total of $100,000.
12
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
Developed Acreage Table
-----------------------
Developed Acres (1)
-------------------
Gross (2) Net (3)
--------- ---------
Prospect
--------
California:
Grey Wolf #1 120.00 21.60
W Bellevue Ext Fld 80.00 14.40
Rosedale Field 80.00 9.60
Sanborn 3-3 615.00 5.23
Colorado:
Zenith Field 640.00 64.00
Montana:
Fallon Co. (4) 160.00 6.51
Valley Co. (4) 120.00 40.00
North Dakota:
Billings Co. (4) 640.00 33.00
Renville Co. (4) 160.00 48.00
Williams Co. (4) 320.00 39.01
Oklahoma:
Harper Co. (4) 640.00 4.80
Texas:
Lucille Fld. (4) 220.00 13.97
Corbin 1 & 1A (4) 160.00 2.40
Williams #1 (4) 171.00 1.28
------ ------
TOTAL 4,126.00 303.80
======== ======
(1) Consists of acres spaced or assignable to productive wells.
(2) A gross acre is an acre in which a working interest is owned. The number of
gross acres is the total number of acres in which a working interest is
owned.
(3) A net acre is deemed to exist when the sum of fractional ownership working
interests in gross acres equals one. The number of net acres is the sum of
the fractional working interests owned in gross acres expressed as whole
numbers and fractions thereof.
(4) Sold effective November 1, 1996, for a total of $100,000.
13
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
(ii) (b) Royalty Interests in Productive Wells and Developed Acreage:
The following tables set forth at June 30, 1996 Registrant's royalty interests
in productive oil and gas wells and in developed acres:
Overriding Royalty Interests
----------------------------
Productive Wells
---------------- Gross
Prospect Interest(%) Oil Gas Acreage (1)
- -------- ----------- --- --- -----------
Michigan:
Pentwater (2) 5.08 28 -- 1,478
Montana:
Richland Co. (2) 0.20 1 -- 320
Roosevelt Co. (2) 0.05 2 -- 160
Valley Co. (2) 5.00 1 -- 80
North Dakota:
Billings Co. (2) 0.46 8 -- 1,440
Divide Co. (2) 2.07 2 -- 320
McKenzie Co. (2) 0.55 12 -- 2,560
Williams Co. (2) 1.87 3 -- 480
Texas:
Jordans (2 0.13 -- 2 84
Wyoming:
Big Sand Draw (2) 0.03 21 7 3,740
---- -- -- -------
78 9 10,662
== == =======
(1) Consists of acres spaced or assignable to productive wells.
(2) Sold effective November 1, 1996, for a total of $100,000.
(iii) Delivery Commitments. Registrant is not obligated to provide a
fixed and determinable quantity of oil and gas in the future under existing
contracts and agreements.
(3) Reserve Information
-----------------------
Oil and Gas Reserves. Oil and gas reserves for Registrant's properties have been
evaluated at June 30, 1995 and 1996 by Resource Services International, Inc.
RESERVE CALCULATIONS BY INDEPENDENT PETROLEUM ENGINEERS INVOLVE THE
ESTIMATION OF FUTURE NET RECOVERABLE RESERVES OF OIL AND GAS AND THE TIMING
AND AMOUNT OF FUTURE NET REVENUES TO BE RECEIVED THEREFROM. THOSE ESTIMATES
ARE BASED ON NUMEROUS FACTORS, MANY OF WHICH ARE VARIABLE AND UNCERTAIN.
14
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
RESERVE ESTIMATORS ARE REQUIRED TO MAKE NUMEROUS JUDGMENTS BASED UPON
PROFESSIONAL TRAINING, EXPERIENCE AND EDUCATIONAL BACKGROUND. THE EXTENT
AND SIGNIFICANCE OF THE JUDGMENTS IN THEMSELVES ARE SUFFICIENT TO RENDER
RESERVE ESTIMATES INHERENTLY IMPRECISE. SINCE RESERVE DETERMINATIONS
INVOLVE ESTIMATES OF FUTURE EVENTS, ACTUAL PRODUCTION, REVENUES AND
OPERATING EXPENSES MAY NOT OCCUR AS ESTIMATED. ACCORDINGLY, IT IS COMMON
FOR THE ACTUAL PRODUCTION AND REVENUES LATER RECEIVED TO VARY FROM EARLIER
ESTIMATES. ESTIMATES MADE IN THE FIRST FEW YEARS OF PRODUCTION FROM A
PROPERTY ARE GENERALLY NOT AS RELIABLE AS LATER ESTIMATES BASED ON A LONGER
PRODUCTION HISTORY. RESERVE ESTIMATES BASED UPON VOLUMMETRIC ANALYSIS ARE
INHERENTLY LESS RELIABLE THAN THOSE BASED ON LENGTHY PRODUCTION HISTORY.
ALSO, POTENTIALLY PRODUCTIVE GAS WELLS MAY NOT GENERATE REVENUE IMMEDIATELY
DUE TO LACK OF PIPELINE CONNECTIONS AND POTENTIAL DEVELOPMENT WELLS MAY
HAVE TO BE ABANDONED DUE TO UNSUCCESSFUL COMPLETION TECHNIQUES. HENCE,
RESERVE ESTIMATES MAY VARY FROM YEAR TO YEAR.
Estimated Proved Reserves
-------------------------
The following tables set forth the estimated proved developed oil and gas
reserves and proved undeveloped oil and gas reserves of Registrant for the years
ended June 30, 1994 and 1995. See Note 9 to the Consolidated Financial
Statements and the above discussion.
Proved Reserves (1) Oil (Bbls) Gas (Mcf)
------------------- ---------- ---------
Estimated quantity, June 30, 1994 136,000 101,000
Revisions of previous estimates (7,000) (23,000)
Sale of Properties (79,000) (14,000)
Production (15,000) (11,000)
--------- ---------
Estimated quantity, June 30, 1995 35,000 53,000
Revision of previous estimates 2,000 1,000
Acquisition of Properties 42,000 58,000
Production (6,000) (6,000)
---------- ---------
Estimated quantity, June 30, 1996 73,000 106,000
========== ========
Developed and Undeveloped Reserves (2)
--------------------------------------
Developed Undeveloped Total
--------- ----------- -----
Oil (Bbls)
June 30, 1995............. 35,000 -0- 35,000
June 30, 1996............. 44,000 29,000 73,000
Gas (Mcf)
June 30, 1995............. 53,000 -0- 53,000
June 30, 1996............. 49,000 57,000 106,000
(1) All non-California proved reserves have been sold.
(2) All non-California developed and undeveloped reserves have been sold.
15
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
For information concerning the standardized measure of discounted future
net cash flows, estimated future net cash flows and present values of such cash
flows attributable to Registrant's proved oil and gas reserves as well as other
reserve information, see Note 9 to the Consolidated Financial Statements.
(i) Oil and Gas Reserve Estimates Filed. No estimates of total proved
net oil or gas reserves were filed by Registrant with, or included in reports
to, any federal authority or agency since the beginning of Registrant's last
fiscal year.
(B) Mineral Properties
------------------
From 1986 through November 1992, Registrant concentrated its efforts in its
mineral segment, on the acquisition and exploration of undeveloped mining
properties near Nome, Alaska. While Registrant retains two small leases in the
area, it lost the major portion of its interest in the Nome properties when
Newmont Exploration Ltd. abandoned the Anvil Joint Venture and Registrant's lode
mining lease. As a result of Newmont's actions, the Registrant's interest in
Nome Gold Joint Venture has become significantly less valuable than at June 30,
1992. The following sets forth a brief discussion of Registrant's mineral
properties:
Valdez Creek
- ------------
Registrant had leased certain mining claims which it owns on Valdez Creek,
Alaska, to Valdez Creek Mining Company ("VCMC"), retaining an in-kind royalty
interest of from 4% to 5%. Cambior USA (a VCMC partner) is the Operator of the
mining operations at Valdez Creek.
Cambior, the operator of the Valdez Creek mining property, has ceased mining
operations effective June 30, 1995. The surface area of the mine was restored in
the fall of 1996, and Cambior will reassign all its interest in the mining
claims to Registrant. Registrant is currently evaluating the possibility of
continued mining operations on the property, but has made no decision to do so.
During the June 30, 1995 fiscal year, Registrant received approximately 2,818
ounces of raw placer gold and 748 ounces of raw placer gold during the June 30,
1996 fiscal year.
16
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
Anvil Gold Project
- ------------------
In April 1986 Registrant leased the lode exploration rights to certain patented
lode mining claims near Nome, Alaska from Alaska Gold Company (the "Lode Mining
Lease"). At the same time, Registrant formed a joint venture (the 'Nome Gold
Joint Venture,' "NGJV") whereby financing was provided for initial work on the
project with TMS, Inc., a privately-held corporation, which assigned its rights
to Northern Gold Company. As Northern failed to make subsequent contributions to
NGJV, its interest has been diluted to less than 1%. Registrant entered into
several joint ventures for the exploration and development of this property.
Registrant believes that Newmont acted wrongfully in terminating the last joint
venture relating to this property and the lease. Consequently, Registrant has
filed suit against Newmont, which is detailed in "Item 3 - Legal Proceedings",
below.
As a result of the termination of the AJV and the Lode Mining Lease, and an
assignment of its interests by GGI to Registrant, Registrant owns 100% interest
in two leases (approximately 80 acres) in the Rock Creek and Snow Gulch areas.
Based on Registrant's currently available information, it does not appear that
these two leases are capable of economic development except in connection with
development of other neighboring properties owned by others.
Substantially all of Registrant's costs in these properties have been expensed
or recovered as a result of payments received from Newmont and prior joint
venture partners.
Cook Inlet
- ----------
In 1980, the Company filed applications for State of Alaska offshore prospecting
permits for a total of approximately 1.2 million gross acres in south and
southeastern Alaska. Permits for approximately 146,000 acres were issued in May,
1987 but were allowed to expire during fiscal 1989 due to management's concern
with environmental sensitivity in the area. Applications for approximately
894,000 acres were denied by the State, and applications for approximately
60,000 acres in central Cook Inlet are still pending, as are applications for
approximately 100,000 acres in southern and southeast Alaska. It is not likely
that these applications will be granted.
Echo Canyon
- -----------
Registrant has staked and is currently holding 14 claims in Nye County, Nevada
which are prospective for gold mineralization.
17
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
Kaycee Uranium Project
- ----------------------
Registrant has staked 219 mining claims in Johnson County, Wyoming, on the basis
of geological and engineering information gathered in the period from 1969
through 1984. These claims have been recorded in Johnson County and with the
Bureau of Land Management. This project is known as the Kaycee Uranium Project.
Registrant is looking into the possibility of staking additional claims on this
project but doing so depends on the financial capability of Registrant.
Management of Registrant believes this project is well suited to the recovery of
uranium, and possibly vanadium, by in- situ leaching methods. Registrant does
not have proven reserves on these claims and additional drilling will be
required to determine the presence and extent of any uranium deposits which may
exist. Registrant has available the drilling logs from more than 4,000 drill
holes in the general area where this project exists, as well as maps showing
drill hole locations.
The Kaycee Project data was the proprietary information of Mr. R. V. Bailey,
president of Registrant. Registrant has entered into an agreement with Mr.
Bailey whereby Registrant will provide funding for the project in order to earn
75% interest in the project. Mr. Bailey will retain 25% and will be paid a
portion of cash, if any, paid to Registrant by a third party when and if the
project is joint ventured or otherwise farmed out or sold. Before any payment is
made to Mr. Bailey, Registrant will recover its expenses.
Shamrock Uranium Project
- ------------------------
Registrant is investigating staking mining claims on another Wyoming uranium
project, but the decision to do so will depend on the ability of Registrant to
find a source of funding for the project. Management of Registrant believes that
this project is also suitable for in-situ leaching of uranium should any minable
deposits be discovered. Registrant has no drilling information for this project
and the presence of uranium at depth can only be hypothesized from surface
indications.
18
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
(C) Title
-----
(1) Oil and Gas. As is customary in the oil and gas industry, Registrant
performs only a perfunctory title examination at the time of acquisition of
undeveloped properties. Prior to the commencement of drilling, in most cases,
and in any event where Registrant is the Operator, a thorough title examination
is conducted and significant defects remedied before proceeding with operations.
Registrant believes that the title to its properties is generally acceptable to
a reasonably prudent operator in the oil and gas industry. The properties owned
by Registrant are subject to royalty, overriding royalty and other interests
customary in the industry, liens incidental to operating agreements, current
taxes and other burdens, minor encumbrances, easements and restrictions.
Registrant does not believe that any of these burdens materially detract from
the value of the properties or will materially interfere with their use in the
operation of Registrant's business.
Registrant has purchased producing properties on which no updated title opinion
was prepared. In such cases, Registrant has retained third party certified
petroleum landmen to review title.
(2) Mining. Registrant does not have title opinions on its mining claims
or leases and, therefore, has not identified potential adverse claimants nor has
it quantified the risk that any adverse claimant may successfully contest all or
a portion of its title to the claims. Furthermore, the validity of all
unpatented mining claims is dependent upon inherent uncertainties such as the
sufficiency of the discovery of minerals, proper posting and marking of
boundaries, and possible conflicts with other claims not determinable from
descriptions of record. In the absence of a discovery of valuable minerals, a
mining claim is open to location by others unless the claimant is in actual
possession of and diligently working the claim (pedis possessio). No assurance
can be given with respect to unpatented mining claims in the exploratory stage
that a discovery of a valuable mineral deposit will be made.
To maintain ownership of the possessory title created by an unpatented mining
claim against subsequent locators, the locator or his successor in interest must
pay an annual fee of $100 per claim. Title examinations for a particular claim
will be made when and if a significant discovery is made on that claim.
(D) Office Facilities. Registrant relocated its offices in December, 1995
to a two-story office building. Registrant's new office space consists of
approximately 1,108 square feet with an additional 750 square feet of basement
storage. Registrant signed a two year lease agreement and is subject to a lease
rate of $816 per month, a monthly decrease of $304. Registrant has also paid
19
<PAGE>
Item 2. Properties (Continued)
- -------------------------------
$816 as a security deposit for the term of the lease, which is in effect through
November 30, 1997.
Item 3. Legal Proceedings
- --------------------------
Registrant is currently involved in one legal action in the State of Alaska.
(See Item 2 (B) "Mineral Properties - Anvil Gold Project" for background
information). On February 14, 1994, Registrant, representing Nome Gold Joint
Venture ("NGJV"), filed a complaint against Newmont Exploration Limited with the
Superior Court For the State of Alaska, Second Judicial District, Nome, Alaska
alleging several violations including breach of contract, breach of covenant of
good faith and fair dealing, negligent misrepresentation, and failure to expend
amounts committed to by Newmont. The suit requests unspecified damages. Newmont
has filed a Motion for Summary Judgment, to which Registrant has filed a Motion
in Opposition. The Motion for Summary Judgment and the response by Registrant
are now in the hands of the Court. The date for a trial in this matter has been
postponed from February, 1997 to an undetermined date, most likely in summer,
1997.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
No matters were presented to security holders for a vote during the
quarter ended June 30, 1996.
20
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock & Related Security Holder Matters.
- --------------------------------------------------------------------------------
(A) Market Information
------------------
Registrant's common stock is now quoted on the NASD's OTC Bulletin Board
under the symbol "ASPN". The quotations reflect inter-dealer prices without
retail mark-up, mark-down or commission and may not reflect actual transactions.
Range of Bid/Ask Prices
Common Stock
------------------------
Low Bid High Bid
------- --------
Fiscal Year Ended June 30, 1996:
--------------------------------
First Quarter 15(cent) 19(cent)
Second Quarter 15(cent) 19(cent)
Third Quarter 15(cent) 19(cent)
Fourth Quarter 15(cent) 19(cent)
Fiscal Year Ended June 30, 1995:
--------------------------------
First Quarter 15(cent) 19(cent)
Second Quarter 15(cent) 19(cent)
Third Quarter 15(cent) 19(cent)
Fourth Quarter 15(cent) 19(cent)
(B) Holders
-------
The approximate number of stockholders of record of Registrant's common
stock at June 30, 1996 was 1,428. This number does not reflect an indeterminate
number of beneficial holders who own their shares in street name through
broker/dealers and other depositories.
(C) Dividends
---------
Holders of common stock are entitled to receive such dividends as may be
declared by Registrant's Board of Directors. There were no dividends declared by
the Board of Directors during the fiscal year ended June 30, 1996 and Registrant
has paid no cash dividends on its common stock since inception. There are no
contractual restrictions on Registrant's ability to pay dividends to its
shareholders.
21
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
NOTE: Company's financial statements are not audited.
- ------------------------------------------------------
Liquidity and Capital Resources
-------------------------------
June 30, 1996 as compared to June 30, 1995
- ------------------------------------------
Because of a shortage of operating funds, Registrant has postponed the
preparation of audited financial statements. The financial statements contained
herein for the fiscal year ended June 30, 1996 are unaudited. Field work for the
audit has been completed and Registrant expects to complete the audit prior to
April 1, 1997. The Registrant has sustained substantial operating losses in
recent years. In addition, Registrant has used substantial amounts of working
capital in its operations. Current assets exceed current liabilities by $45,000,
a reduction of 93.5% from a year earlier. It is estimated that at the time of
filing this document that current liabilities exceed current assets and
Registrant will have a working capital deficit.
In view of this deficit, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of Registrant,
which in turn is dependent upon Registrant's ability to meet its financing
requirements, and the success of future operations. Management believes that
actions presently being taken to revise Registrant's operations and financial
requirements provide the opportunity for Registrant to continue as a going
concern.
From June 30, 1995 to June 30, 1996, Registrant's working capital (current
assets less current liabilities) decreased by $645,152 or by 93.5%. The decrease
in working capital is primarily attributable to a decrease of over $496,500 in
the amount of precious metals (primarily gold) held in inventory by Registrant.
The decrease in precious metals inventory is due to a decrease of in-kind
production received by Registrant. Registrant received approximately 748 ounces
of raw gold for the twelve-month period ended June 30, 1996 as compared to 2,818
ounces of raw gold for the twelve-month period ended June 30, 1995, a 74%
decrease. Cambior, the operator of the Valdez Creek mining property, has ceased
mining operations effective June 30, 1995. Gold processing, however, continued
through September, 1995. The surface area of the mine is being restored by
Cambior, and they will reassign all their interest in the mining claims to
Registrant. Registrant may explore for mineable lode gold deposits on the Valdez
Creek property if funding can be obtained from outside parties.
The financial information in this Form 10-KSB is unaudited because Registrant is
postponing the audit until additional funds are available to pay for such audit,
which is partially complete.
22
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
- --------------------------------------------------------------------------------
Due to the cessation of royalties from the Valdez Creek gold mine in Alaska,
Registrant does not have sufficient cash flow to fully carry on all activities
as was done previously. Management made a decision to enter into uranium
exploration and promotion by acquiring certain uranium properties in calendar
1995 and 1996. However, Registrant has been unsuccessful thus far in finding a
joint venture partner for the uranium ventures and this has caused a shortage of
operating funds. In order to provide interim financing, Registrant has, in
November, 1996, withdrawn $125,000 against a split dollar insurance plan (total
value of the plan assets was approximately $200,000). Registrant has also sold
its non-California oil and gas production for $100,000 cash to its consulting
accountant, officer and shareholder. Certain management of Registrant has also
elected to go on a deferred compensation plan, whereby portions of salaries are
not paid and are postponed to a future time when Registrant may be able to pay
such deferred salaries.
Although Registrant is looking forward to increased revenues from California oil
and gas production in the future, current income from California oil and gas
production is inadequate to fund the monthly general and administrative costs of
Registrant and there is no other current source of income.
It is imperative that Registrant take steps in order to derive revenues from the
uranium properties at the earliest time. Registrant will also take such steps as
feasible in order to keep costs for uranium-related activities to a minimum.
However, certain costs cannot be avoided. Approximately $29,000 ($135 per claim)
was paid to the U. S. Bureau of Land Management on November 25, 1996, to record
claims within the Kaycee Project. Holding costs for mining claims are $100 per
claim annually.
Registrant has formed a wholly-owned subsidiary in 1996, ISL Resources
Corporation, a Wyoming corporation, in order to carry on uranium activities in
Wyoming and perhaps elsewhere. Management of Registrant believes that the
in-situ leaching of uranium, commonly referred to as ISL, is the best possible
way to license and commence production of uranium under the present
environmental climate. Discussions for providing financing for ISL Resources
have been held with certain parties, but there is no assurance that funding will
be provided. Registrant intends to vigorously pursue funding for ISL Resources
prior to the end of calendar year 1996. Such funding may include a private
placement of stock and the possible sale of stock on a Canadian market. There is
no assurance such placement or sale will take place. If no outside funding is
found, Registrant runs the risk of losing the mining claims and the investment
in them.
23
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
- --------------------------------------------------------------------------------
Without additional funding from outside sources, Registrant will be unable to
continue to operate at the current level, even though Registrant has only three
full time employees.
Results of Operations
---------------------
1996 Compared to 1995
- ---------------------
For the twelve months ended June 30, 1996 Registrant's operations continued to
be focused on the production of oil and gas, and the investigation for possible
acquisition of producing oil and gas properties and properties prospective for
precious metals production. In addition, Registrant received in-kind gold
royalties from its Valdez Creek until September, 1995.
Registrant's precious metals revenues for the twelve-month period ended June 30,
1996 decreased by $745,221 compared to the twelve-month period ended June 30,
1995. This 80% decrease in precious metals revenue was due to a decrease in the
amount of in-kind gold royalties received from the Valdez Creek mine, which
decrease was due to decreased total production from the mine. All advance
royalty amounts have now been recouped by the operator. The operator of the
Valdez Creek mine, Cambior Alaska, has advised Registrant that operations at the
mine ceased effective June 30, 1995 and that Registrant will receive no further
royalties.
Effective April 1, 1995 the Registrant sold its interest in the Divide Field oil
and gas properties, which included a substantial portion of its reserves for
$80,000. As a result, the Registrant wrote off its capitalized costs of
$1,153,060 and related accumulated depletion and impairment of $868,326,
realizing a loss of $204,734, which is included in loss on disposition of
assets.
In January, 1995 the Registrant abandoned its interest in the Sand Spring
Prospect, Lincoln County, Nevada as uneconomic. Capitalized exploration costs of
$27,486 were written off and are included in the loss on disposition of assets.
Oil and gas revenues, which includes income from management fees, for the twelve
months ended June 30, 1996 decreased by 22% ($59,344) when compared to the same
period in the prior year. Such decrease was due to the sale of Registrant's
remaining proved producing oil and gas reserves in Montana and North Dakota
which were marginally economic. These sales occurred between January 31, 1995
and April 1, 1995.
Oil and gas production expenses decreased by about 70% ($124,905) when compared
to the prior year. Between January 31, 1995 and April 1, 1995 the Registrant
24
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
- --------------------------------------------------------------------------------
sold some of its less profitable oil and gas interests. The reduction in overall
production expenses for the current fiscal year, as compared to the prior year,
is attributable to Registrant's disposal of these interests.
Depletion, depreciation and amortization increased $48,041 (62%) from $77,179 at
June 30, 1995 to $125,220 at June 30, 1996. This increase in depletion,
depreciation and amortization was also largely due to the sale and disposition
of Registrant's producing oil and gas properties during the fiscal year ended
June 30, 1995, and the acquisition of new, shorter lived producing properties in
California in November, 1995.
During January, 1995, the Registrant received notice from the State of Alaska
Department of Revenue for unpaid License Tax on Royalties from Mines and Mining
for the years 1991 through 1993. Registrant contested these License Taxes and
believed it to be exempt from these taxes. Pending the outcome of the
Registrant's petition seeking relief from these taxes, Registrant recorded a
liability of $45,000 at June 30, 1995 for the estimated amount of taxes due. On
October 30, 1995 the Alaska Department of Revenue notified Registrant that it
had accepted its petition for relief and no taxes were due through September 30,
1995. Accordingly, Registrant reversed its recorded liability to the State of
Alaska and recorded income in the amount of $45,000 for the Alaska Mining
License Tax exemption.
Selling, general and administrative expenses increased by $26,942 (5%) from
$564,955 at June 30, 1995 to $591,897 for the twelve months ended June 30, 1996,
reflecting the appointment of Robert A. Cohan, as Vice President of West Coast
operations in Bakersfield, California on April 1, 1995.
As a result of Registrant's operations for the fiscal year ended June 30, 1996,
Registrant ended the year with a net loss of ($322,325) compared to net income
of $108,238 for the previous year. This decrease reflected both decreased
revenues and increased expenses for the current fiscal year as compared to the
prior year. The largest decline $745,000, or 80%, was in mineral income due to
the cessation of operations at the Valdez Creek Mine on September 30, 1995.
25
<PAGE>
Item 7. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
June 30,
---------------------------------------
1996 1995
------------- ------------
Unaudited Audited
--------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents, including
$99,780 and $51,880 of invested
cash in 1996 & 1995, respectively $ 102,223 $ 116,891
Precious metals (Note 1)........... 221,866 718,388
Accounts receivable, trade......... 61,245 30,997
Prepaid expenses................... 4,923 4,651
----------- -----------
Total current assets............... 390,257 870,927
----------- -----------
Investment in oil & gas properties, at
cost (full cost method of
accounting) (Note 9)............... 1,349,047 1,031,693
Less accumulated depletion and
valuation allowance............ ( 873,221) ( 760,874)
----------- -----------
475,826 270,819
----------- -----------
Property and equipment, at cost:
Furniture, fixtures & vehicles..... 146,087 135,147
Less accumulated depreciation.... ( 95,094) (104,348)
----------- -----------
50,993 30,799
----------- -----------
Undeveloped mining properties, at
cost (Note 2), less reserve for
impairment of $193,495............. 76,434 11,633
----------- -----------
Cash surrender value, life insurance
(Note 3)........................... 179,470 129,627
----------- -----------
Organization Cost,
Aspen Recursos de Mexico (Note 1).. 23,869 29,187
----------- -----------
Total assets $1,196,849 $1,342,992
=========== ===========
</TABLE>
(Statement Continues)
See Notes to Consolidated Financial Statements
26
<PAGE>
Item 7. Financial Statements and Supplementary Data
- ----------------------------------------------------
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30,
-------------------------------------
1996 1995
------------ -----------
Unaudited Audited
--------- -------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued
expenses (Note 10)............... $ 80,713 $ 88,121
Advances from joint interest owners
(Note 10)........................ 245,481 -0-
Severance taxes payable (Note 10).. 13,819 83,419
Due to related parties (Note 7).... 5,216 9,207
------------ -----------
Total current liabilities..........
345,229 180,747
------------ -----------
Commitments and contingencies
(Note 10)
Stockholders' equity:
(Notes 1 and 7):
Common stock, $.005 par value:
Authorized: 50,000,000 shares
Issued: 4,424,922 in 1996 and
4,297,922 in 1995............
Outstanding: 4,321,322 in 1996 22,124 21,489
and 4,194,322 in 1995.........
Capital in excess of par value..... 5,651,388 5,640,323
Accumulated deficit................ (4,775,138) (4,452,813)
------------ ------------
898,374 1,208,999
Less common stock in treasury, at
cost; 103,600 shares............. (46,754) (46,754)
------------ ------------
Total stockholders' equity......... 851,620 1,162,245
------------ -----------
Total liabilities and stockholders'
equity............................. $ 1,196,849 $ 1,342,992
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
27
<PAGE>
Item 7. Financial Statements and Supplementary Data
- ----------------------------------------------------
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------
1996 1995
------------ ----------
Unaudited Audited
--------- -------
<S> <C> <C>
Revenues:
Oil and gas (Note 9)............. $ 145,448 $ 221,875
Mineral (Notes 1 and 2).......... 189,130 934,351
Mineral severance tax settlement
(Note 10)...................... 45,000 -0-
Fees and equipment rentals (Note 1) 64,488 47,405
Interest......................... 4,508 2,648
----------- ----------
448,574 1,206,279
----------- ----------
Costs and expenses:
Oil and gas production........... 53,782 178,687
Loss on disposition of assets.... -0- 232,220
Depreciation, depletion and
amortization................... 125,220 77,179
Mineral severance tax (Note 10).. -0- 45,000
Selling, general and administrative 591,897 564,955
----------- ----------
770,899 1,098,041
----------- ----------
Net income........................ $ (322,325) $ 108,238
=========== ==========
Net income per common share....... $ (.08) $ .03
=========== =========
Weighted average number of common
shares outstanding.............. 4,274,489 4,194,322
=========== ==========
See Notes to Consolidated Financial Statements
28
</TABLE>
<PAGE>
Item 7. Financial Statements and Supplementary Data
- ----------------------------------------------------
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Unaudited
<TABLE>
<CAPTION>
Common Stock Treasury Stock
----------------------------------------------- ---------------------------
Capital in Number
Number Par Excess Of Accumulated of
Of Shares Value Par Value Deficit Shares Cost
--------- ------------ ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 4,297,922 $ 21,489 $ 5,640,323 $(4,561,051) 103,600 $ (46,754)
Net income for year --- --- --- 108,238 --- ---
----------- ------------ ----------- ----------- ---------- -----------
Balance, June 30, 1995 4,297,922 $ 21,489 $ 5,640,323 $(4,452,813) 103,600 $ (46,754)
Stock issued to Employees 127,000 635 11,065 --- --- ---
Net loss for year (322,325)
----------- ------------ ----------- ------------ ----------- ------------
Balance, June 30, 1996 4,424,922 $ 22,124 $ 5,651,388 $(4,775,138) 103,600 $ (46,754)
=========== ============ =========== ============ ========== ============
</TABLE>
See notes to consolidated financial statements
29
<PAGE>
Item 7. Financial Statements and Supplementary Data
- ----------------------------------------------------
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995
------------ -----------
Unaudited Audited
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ (322,325) $ 108,238
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Services rendered for stock........................ 11,700 -
Depreciation, depletion, amortization and
valuation allowance.............................. 125,220 77,179
(Gain) loss on disposal of precious metals,
equipment and oil & gas properties............... - 284,716
Precious metals received........................... (246,589) (934,500)
Proceeds from the sale of precious metals.......... 743,111 546,546
Changes in assets and liabilities:
Decrease in accounts receivable, and
prepaid expenses.............................. (30,520) 17,126
Increase (decrease) in accounts payable, accrued
expenses and due to related parties........... 234,082 33,052
Decrease in production taxes payable............. (69,600) -
---------- ----------
Net cash provided by operating activities............ 445,079 132,357
Cash flows from investing activities:
Sale of vehicle.................................... - 4,800
Sale and recovery of costs of oil and
gas properties................................... 104,723 90,902
Purchases of oil and gas properties................ (422,076) (55,035)
Equipment purchased................................ (13,955) (2,298)
Additions to undeveloped mining properties......... (64,802) (16,652)
Additions to cash surrender value.................. (49,843) (54,038)
Organization Cost - Recursos de Mexico............. (649) (29,187)
Vehicle - Purchase................................. (13,145) -
---------- ----------
Net cash (used in) investing activities.............. (459,747) (61,508)
Net increase (decrease) in cash and equivalents...... (14,668) 70,849
Cash and cash equivalents, beginning of year......... 116,891 46,042
------------ -----------
Cash and cash equivalents, end of year.............. $ 102,223 $ 116,891
============ ===========
See notes to consolidated financial statements
30
</TABLE>
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Aspen Exploration Corporation ("the Company") was incorporated on February
28, 1980 and is engaged in the business of acquiring and developing
interests in domestic oil and gas properties and gold and other mineral
properties.
Unaudited Financial Statements
------------------------------
The Company has been unable to have its audit of its financial statements
for the year ended June 30, 1996 completed due to its shortage of cash and
efforts to reduce its operating expenses. As a result, the Company has
presented the accompanying annual financial statements for fiscal year 1996
without audit along with the financial statements for fiscal 1995, which
were audited. When and if the Company has sufficient financial resources,
it will have its independent auditors complete their audit of fiscal 1996
and issue their audit opinion on those financial statements.
A summary of the Company's significant accounting policies follows:
Going Concern
-------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation
of the Company as a going concern. However, the Company has sustained
substantial operating losses in recent years. In addition, the Company has
used substantial amounts of working capital in its operations. Current
assets exceed current liabilities by $45,000, a reduction of 93.5% from a
year earlier. It is estimated that at the time of filing these financial
statements that current liabilities will exceed current assets and the
Company will have a working capital deficit.
In addition, the Company's loss for the 1996 fiscal year is ($322,325). As
of November 1996, the Company has used a substantial portion of its cash
and gold reserves and has withdrawn $125,000 against the cash value of a
life insurance policy on its president and has sold all its non-California
oil and gas properties for $100,000 to pay creditors. These matters raise
substantial doubt about the Company's ability to continue as a going
concern. Pending the financial outcome of these matters, the accompanying
financial statements do not include any adjustments that might result from
these uncertainties.
31
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In view of these matters, realization of a major portion of the assets in
the accompanying balance sheet is dependent upon continued operations of
the Company, which in turn is dependent upon the Company's ability to meet
its financing requirements, and the success of future operations.
Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity for
the Company to continue its operations.
In its oil and gas operations, the Company intends to focus attention on
opportunities in California, particularly those situations where the
Company may be able to require investors to pay prospect generation fees.
Such fees may be sufficient to pay for the Company's working interest in an
initial well. The Company also typically will "back in" after payout for a
more substantial interest in successful wells. The Company will also seek
out production purchase situations and, upon finding same, will attempt to
retain a carried interest in such purchases. Funding likely would come from
outside sources.
In its uranium activities, through ISL Resources Corporation, a subsidiary,
the Company will attempt to form joint ventures with well-financed
companies and will attempt to recover at least 100% above the amount the
Company has invested in any particular project.
Consolidated financial statements
---------------------------------
The consolidated financial statements include the Company and its
wholly-owned subsidiaries, Aspen Gold Mining Company and Aspen Recursos de
Mexico. Significant intercompany accounts and transactions have been
eliminated. After the end of the 1996 fiscal year, the Company formed a new
subsidiary, ISL Resources Corporation, for its uranium activities.
Statement of cash flows
-----------------------
For statement of cash flow purposes, the Company considers short-term
investments with original maturities of three months or less to be cash
equivalents. Cash restricted from use in operations beyond three months is
not considered a cash equivalent.
32
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Precious metals and revenues
----------------------------
Precious metals inventories are valued at the lower of cost (specific
identification method) or market. There was no allowance for unrealized
losses against inventories due to market decline at June 30, 1996 or 1995.
In-kind gold revenues for the years ended June 30, 1996 and 1995 were
$246,589 and $969,065, respectively. In the accompanying statements of
operations in-kind revenues have been reduced by losses on the sale of gold
of $57,589 and $34,714 for fiscal 1996 and 1995, respectively.
Oil and gas properties
----------------------
The Company follows the "full-cost" method of accounting for oil and gas
properties. Under this method, all costs associated with property
acquisition, exploration and development activities, including internal
costs that can be directly identified with those activities, are
capitalized within one cost center. No gains or losses are recognized on
the sale or abandonment of oil and gas properties, unless the disposition
of significant reserves is involved.
Depletion and amortization of the full-cost pool is computed using a
unit-of-production method based on proved reserves as determined annually
by the Company and independent engineers. An additional depletion provision
in the form of a valuation allowance is made if the costs incurred on oil
and gas properties, or revisions in reserve estimates, cause the total
capitalized costs of oil and gas properties in the cost center to exceed
the capitalization ceiling. The capitalization ceiling is the sum of (1)
the present value of future net revenues from estimated production of
proved oil and gas reserves applicable to the cost center plus (2) the
lower of cost or estimated fair value of the cost center's unproved
properties less (3) applicable income tax effects. The valuation allowance
was $281,720 at June 30, 1996 and June 30, 1995.
Property and equipment
----------------------
Depreciation and amortization of property and equipment are expensed in
amounts sufficient to relate the expiring costs of depreciable assets to
operations over estimated service lives, principally using the
straight-line method. Estimated service lives range from three to eight
years. When assets are sold or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in operations in the period realized.
33
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment in mining joint ventures
-----------------------------------
The Company accounts for its investments in joint ventures using the equity
method. Under the equity method, the investment is accounted for at cost,
adjusted for the Company's proportionate share of earnings and losses. The
Company's investment in the Nome Gold Joint Venture ("NGJV"), 99+% owned by
Aspen, is accounted for using the equity method and its proportionate share
of assets, liabilities, revenues and expenses are consolidated with those
of Aspen in the balance sheet (See Note 2).
Undeveloped mining properties
-----------------------------
The Company capitalizes all costs associated with acquiring, exploring and
developing mineral properties, including certain internal costs which
specifically relate to each mining property area ("cost center").
Capitalized costs are deferred until the area of interest to which they
relate is put into operation, sold, abandoned or impaired. The Company's
pro rata share of advance mineral royalties, bonuses and other cash
payments received by the Company from joint venture or other exploration
participants reduce the amount of a cost center as a recovery of
capitalized costs. The excess of the Company's pro rata share of advance
mineral royalties, bonuses and other cash payments received by the Company
from joint venture or other exploration participants over capitalized costs
in a specific cost center are recognized as revenue in the period received.
The Company's pro rata share of costs incurred by the Nome Gold Joint
Venture that are associated with finding joint venture partners to explore
and develop mining properties are expensed as incurred, and are included in
selling, general and administrative expenses. Gains or losses on sale or
abandonment of mining properties are charged to current operations.
Net income per common share and stock split
-------------------------------------------
Net income per common share is based on the weighted average number of
shares of common stock outstanding during the period.
Organization Costs
------------------
During the first quarter ended September 30, 1994, the Company formed a
subsidiary, Aspen Recursos de Mexico, S.A. de C.V. ("Aspen Recursos").
34
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aspen Recursos is qualified to do business in Mexico and that will allow
the Company to investigate and acquire interests in mineral prospects in
Mexico. The Company will amortize the organization costs over a 60 month
period. For the 12 months ended June 30, 1996 the Company amortized $5,967
of Aspen Recursos organization costs. As of June 30, 1996, the subsidiary
had no operations.
Note 2 MINING PROPERTIES
VALDEZ CREEK
------------
Mining on the gold claims held by the Company on Valdez Creek in Alaska
ceased in 1995. Cambior, a Canadian-based company, was the Operator, and
Cambior is in the process of restoring the property. The Company received
no gold royalties from these properties in calendar 1996, and no further
royalties are expected. The Company is looking into the possibility of
investigating the lode gold potential of the properties, but no decision
has been made in that regard. Such investigation would probably require the
participation of a second party in order for exploration funds to be made
available.
The Company has recovered its investment in the Valdez Creek area and has
recognized royalty revenue of $189,130 and $934,351 in the years ended June
30, 1996 and 1995, respectively. Through June 30, 1996, the Company has
received $2,511,679 in in-kind gold production payments.
NOME PROPERTIES
---------------
In March 1992, the Company, through Nome Gold Joint Venture, formed the
Anvil Joint Venture ("AJV") to carry forward renewed lode gold exploration
in the area of interest, and contributed the Lode Mining Lease to that
joint venture. The Anvil Joint Venture included NGJV, Newmont Exploration
Ltd. ("Newmont") and Golden Glacier, Inc. ("GGI"), an Alaskan native
corporation. Newmont, as operator of AJV, assumed the responsibility of
making the annual royalty payments to Alaska Gold Company ("AGC", the
landowner) plus any other required bonus payments. In November, 1992
Newmont advised NGJV that it was withdrawing from the Anvil Joint Venture.
Such withdrawal terminated the lode mining lease between NGJV and AGC as
well.
In February, 1994 the Company filed a complaint against Newmont Exploration
Ltd. with the Superior Court for the State of Alaska, Second Judicial
District, Nome, Alaska alleging several violations (including breach of
35
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contract, breach of covenant of good faith and fair dealing, negligent
misrepresentation, and failure to expend amounts committed to by Newmont).
The lawsuit requests unspecified damages. Newmont has filed a "Motion for
Summary Judgment", to which the Company has filed an Objection along with
supporting documentation. The Motion and the Objection are now in the hands
of the Court. The date for a trial in this matter has been postponed from
February, 1997 to an undetermined date, most likely in summer, 1997.
The Company owns 100% interest in two leases (approximately 80 acres) in
the Rock Creek and Snow Gulch Areas near Nome, Alaska. Based on the
Company's currently available information, it does not appear that these
two leases are capable of economic development except in connection with
development of other neighboring properties owned by others. The Company
continues to keep these leases in force by making annual delay rental
payments to the owners.
Substantially all costs incurred by the Company on NGJV have been recovered
or expensed as of June 30, 1996.
COOK INLET
----------
In 1980, the Company filed applications for State of Alaska offshore
prospecting permits for a total of approximately 1.2 million gross acres in
south and southeastern Alaska. Permits for approximately 146,000 acres were
issued in May, 1987 but were allowed to expire during fiscal 1989 due to
management's concern with environmental sensitivity in the area.
Applications for approximately 894,000 acres were denied by the State, and
applications for approximately 60,000 acres in central Cook Inlet are still
pending, as are applications for approximately 100,000 acres in southern
and southeast Alaska. Net capitalized costs have been written off.
ECHO CANYON
-----------
The Company has staked and is currently holding 14 claims in Nye County,
Nevada which are prospective for gold mineralization. The Company is
currently exploring these claims and, as of June 30, 1996, has capitalized
an insignificant amount of costs in the project.
SAND SPRING
-----------
The Sand Spring prospect was acquired in 1994. The Company continued
exploration into 1995, when it was abandoned. As a result, $27,486 in costs
were written off in fiscal year 1995 and included in loss on disposition of
assets.
36
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALASKA MINING TAX
-----------------
During January, 1995, the Company received notice from the State of Alaska
Department of Revenue for unpaid License Tax on Royalties from Mines and
Mining ("License Taxes") for the years 1991 through 1993. Pending the
outcome of the Company's petition seeking relief from these taxes, the
Company recorded, as of June 30, 1995, a liability of $45,000, which
approximates the amount of taxes due under the second phase of the Valdez
Creek operations.
On October 30, 1995 the Alaska Department of Revenue notified and the
Company that the Department of Natural Resources had issued Certificates of
Initial Production to the Department of Revenue. The Department of Revenue
further stated that no taxes were due for the period 1991 through September
30, 1995. Accordingly, the $45,000 liability has been reversed and shown as
income from mining tax exemptions for the nine months ended March 31, 1996.
Note 3- EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
-------------------------
Effective July 1, 1990, the Company implemented a 401(k) defined
contribution plan covering all employees. Under the amended terms of the
plan, an employee is now eligible to participate in the plan immediately
upon being hired to work at least 1,000 hours per year. The original terms
of the plan required an employee to work at least 1,000 hours per year,
have completed one year of service and be at least 21 years of age to be
eligible to participate in the plan. Participants may contribute up to a
maximum of 15% of their pre-tax earnings to the plan. Under the plan, the
Company may make discretionary contributions to the plan. At June 30, 1995,
the Company had accrued $7,000 to the plan for the Plan Year 1995. This
accrual was paid during fiscal 1996. The Company made no plan contribution
for fiscal 1996.
Split Dollar Life Insurance Plan
--------------------------------
As part of the President's employment agreement dated November 8, 1991 (See
Note 10), the Company purchased a split dollar life insurance policy for
37
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the President's benefit. The Company pays an annual premium of $60,000 per
year on behalf of the President, of which a portion ("split") constitutes
compensation for the President. In addition, the Company at each
anniversary pays the President an amount as a bonus to reimburse the
President for personal income tax on his split.
In the event of termination of the plan, the Company would receive the
lesser of the policy cash surrender value, or the accumulated Corporate
Premium Payments (split). The President would receive the excess of the
total policy cash surrender value over the corporate cash surrender value,
if any. In the event of premature death of the President, the Company would
receive an amount equal to the accumulated corporate premium payments and
the President's named beneficiary would receive the proceeds of the death
benefit.
For the year ended June 30, 1995, the Company paid $60,000 in premiums, of
which the President's portion was approximately $20,520. Additional
compensation of $7,833 had been recognized as reimbursement to the
President for income taxes. For the year ended June 30, 1996, the Company
paid $60,000 in premiums, of which the President's portion was $21,273.
Additional compensation of $8,127 has been recognized as reimbursement to
the President for income taxes. As of June 30, 1996 and June 30, 1995, the
Company's accumulated cash surrender value was $179,470 and $129,627,
respectively, which has been included as an asset on the Company's balance
sheet. In November 1996, the Company withdrew $125,000 of cash surrender
value to pay expenses. The death benefit payable to the named beneficiary
as of June 30, 1996 and 1995, is approximately $877,060 and $837,581,
respectively. At June 30, 1996 there was an excess cash surrender value
available to the executive of approximately $9,000. At June 30, 1995 there
was no excess cash surrender value available to the executive.
Medical Benefit Plan
--------------------
For the fiscal years ended June 30, 1995 and 1996 the Company had a policy
of reimbursing employees for medical expenses incurred but not covered by
the Company paid medical insurance plan. Expenses reimbursed for fiscal
1995 and fiscal 1996 were $1,500 and $8,800, respectively
Note 4 MAJOR CUSTOMERS
The Company derived in excess of 10% of its revenue from various sources
(oil and gas sales and mineral royalties) as follows:
The Company
-----------
A B
--- ---
Year ended:
June 30, 1995 78% 10%
June 30, 1996 57% 16%
38
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", as of July 1, 1993. There was no material
cumulative effect of this change in accounting for income taxes as of July
1, 1993. At June 30, 1996 the Company had Net Operating Loss ("NOL")
carry-forwards for tax purposes of approximately $4,246,000 (expiring in
the years 1997 to 2008). In addition, the Company had tax credit
carry-forwards of approximately $30,400 (expiring in the years 1997 to
2001).
Deferred tax assets (liabilities) at June 30, 1996 and 1995 are as follows:
1996 1995
----------- ----------
Gross deferred tax assets:
Net operating loss carry-forward $1,443,626 $1,607,779
Valuation allowance for deferred
tax assets.................... (1,443,626) (1,601,456)
----------- -----------
Net deferred tax asset -0- 6,323
----------- -----------
Gross deferred tax liabilities:
Depreciation and other property,
plant and equipment basis
differences................... ( -0- ) (6,323)
----------- -----------
Net deferred tax asset
(Liabilities) $ -0- $ -0-
=========== ============
Deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year end. Deferred income tax
assets are recorded to reflect the tax consequences on future years of
income tax carry-forward benefits, reduced by benefit amounts not expected
to be realized by the Company. As of June 30, 1996 $628,040 of net
operating loss carryforwards and $6,054 of investment tax credits have
expired.
39
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of income tax expenses for the years ended June 30, 1996 and
1995 are as follows:
1996 1995
-------- ---------
Current $ -0- $ 59,060
Benefits of income
tax carry-forward ( -0- ) (59,060)
Deferred -0- -0-
-------- -------
Income tax expense $ -0- $ -0-
======== =======
The effective income tax rate applicable to the current provision before
applying the tax carry-forward benefit was -0-% and 31% for the years ended
June 30, 1996 and 1995, respectively.
40
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 SEGMENT INFORMATION
The Company operates in two industry segments within the United States: (1)
oil and gas exploration and development and (2) mineral exploration and
development (primarily gold).
Identified assets by industry are those assets that are used in the
Company's operations in each industry. Corporate assets are principally
cash, cash surrender value, and furniture, fixtures and vehicles.
Segment information consists of the following:
Year ended June 30,
---------------------------------
1996 1995
---------- -----------
Revenue:
Oil and gas............ $ 312,252 $ 269,280
Mineral................ 234,130 934,351
General corporate...... 4,508 2,648
----------- ----------
Total revenue $ 550,890 $1,206,279
=========== ==========
Results of operations
(excluding overhead
and interest costs):
Oil and gas............ $ 43,807 $ (177,141)
Mineral exploration.... 234,130 861,865
General corporate
operations........... (600,262) (576,486)
----------- ----------
Net income (loss) $ (322,325) $ 108,238
=========== ==========
Depreciation, depletion
amortization and valuation
charged to identifiable
assets:
Oil & gas depletion... $ 112,347 $ 63,000
General corporate..... 12,873 14,179
----------- ----------
Total $ 125,220 $ 77,179
=========== ==========
Capitalized expenditures:
Oil and gas........... $ 376,348 $ 55,035
=========== ==========
Mineral............... $ 56,908 $ 16,652
=========== ==========
Corporate............. $ 10,939 $ 85,523
=========== ==========
Identifiable assets, net of
accumulated depreciation,
depletion and
amortization:
Oil and gas........... $ 537,071 $ 301,816
Mineral exploration... 298,300 730,021
General corporate..... 361,477 311,155
----------- ----------
Total $1,196,849 $1,342,992
=========== ==========
41
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 RELATED PARTY TRANSACTIONS
At June 30, 1996 and 1995, the Company owed its officers, shareholders and
directors $5,216 and $9,207 respectively.
During the years ended June 30, 1996 and 1995 the Company provided one
vehicle each to the Company's president and to an employee/officer. The
Company has also paid travel, lodging and meal expenses for spouses who,
from time to time, accompanied directors or officers when they were
traveling or entertaining on the Company's business. The cost of these
items to the Company totalled less than $15,000 and $10,000, respectively,
in the years ended June 30, 1996 and 1995. In the years ended June 30, 1996
and 1995 management believes that the expenditures benefitted the Company.
In January 1983, the Company entered into a Stock Purchase Agreement with
the Company's president, R. V. Bailey, whereby Mr. Bailey granted the
Company an option to purchase up to 75% of the Company's common stock owned
by him at his death. The agreement was replaced by a Stock Purchase
Agreement dated June 4, 1993 which requires the Company to apply 75% of any
key man insurance proceeds it receives upon Mr. Bailey's death towards the
purchase of up to 75% of the common shares owned by him at the time of his
death. Mr. Bailey's estate is obligated to sell such shares to the Company.
The purchase price of the shares acquired under the Agreement shall be the
fair market value of the shares on the date of death. Both the Company and
Mr. Bailey agree that the fair market value of the shares on the date of
death may not necessarily be the market price of the stock on the date of
death as quoted in NASDAQ or the Electronic Bulletin Board, or as reported
by any exchange. The 1993 Agreement further requires the Company to
maintain one or more life insurance policies on Mr. Bailey's life in the
amount of $1,000,000 for the purposes of this Agreement. Therefore, the
Company may be required to expend up to $750,000 of the insurance proceeds
to acquire up to 75% of the shares owned by Mr. Bailey at the time of his
death. Premiums for this policy were $6,970 for each of the two fiscal
years.
42
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Royalties in fiscal year ended June 30, 1996 were assigned on the North
Strand #1 (a dry hole effective April 22, 1996) and Grey Wolf #1 (a
marginally economic well) on October 1, 1995. Registrant assigned an
overriding royalty interest in these California properties to its employees
and consultants in the following amounts:
North (1) Grey
Strand #1 Wolf #1
--------- -------
Percent Percent
------- -------
R. V. Bailey 1.25 1.00
Robert A. Cohan 1.25 1.00
Ray K. Davis 0.50 0.25
Judith L. Shelton 0.333333 0.1333330
(1) This well was plugged and abandoned April 22, 1996.
Note 8 CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. The Company places its cash and cash
equivalents with high quality financial institutions in order to limit
credit risk. Concentrations of credit risk with respect to accounts
receivable are limited since relatively small amounts are due from each
account, and the accounts are distributed across unrelated businesses and
individuals. The Company believes its exposure to credit risk is minimal.
43
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 OIL AND GAS ACTIVITIES
Capitalized costs
-----------------
Capitalized costs associated with oil and gas producing activities are as
follows:
June 30,
-------------------------------
1996 1995
---------- ----------
Proved properties $1,349,047 $1,031,693
---------- ----------
Accumulated depreciation,
depletion and
amortization (591,501) (479,154)
Valuation allowance (281,720) (281,720)
----------- -----------
(873,221) (760,874)
----------- -----------
Net capitalized costs $ 475,826 $ 270,819
=========== ==========
Costs incurred
--------------
Information relating to the Company's costs incurred in its oil and gas
operations is summarized as follows:
Year ended June 30,
------------------------------
1996 1995
-------- --------
Property acquisition $186,000 $ 52,937
Development 133,642 2,098
-------- --------
$319,642 $ 55,035
======== ========
Fees charged by the Company to operate the properties totalled
approximately $5,374 per month in 1996 and $2,395 per month in 1995.
Additionally, the Company sold minor interests in wells located in Montana
and South Dakota for $9,153 during fiscal 1995 and minor interests in wells
located in Montana and South Dakota for $2,400 during fiscal 1996. These
wells had reserves that were insignificant at the time of their
disposition. In November 1996, the Company sold all of its interests
outside of California to the Company's consulting accountant, officer and
shareholder for $100,000.
44
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included above is the Divide Field oil and gas operations which the Company
sold for $80,000 in April, 1995. The Divide Field included a substantial
portion of the Company's reserves. As a result, the Company wrote off
capitalized costs of $1,153,060 and related accumulated depletion and
impairment of $868,326, realizing a loss of $204,734, which is included in
loss on disposal of assets.
Results of operations
---------------------
Results of operations for oil and gas producing activities are as follows:
Year ended June 30,
--------------------------
1996 1995
--------- ---------
Revenues* $ 209,936 $ 269,280
Production costs (53,782) (178,687)
Depreciation and depletion (112,347) (63,000)
Loss on sale of Divide Field - (204,734)
--------- ---------
Results of operations
(excluding corporate overhead) $ 43,807 $(177,141)
========== ==========
*Includes oil and gas related fees and equipment rentals.
Unaudited oil and gas reserve quantities
----------------------------------------
The following unaudited reserve estimates presented as of June 30, 1996 and
1995 were prepared by independent petroleum consultants. There are many
uncertainties inherent in estimating proved reserve quantities and in
projecting future production rates and the timing of development
expenditures. In addition, reserve estimates of new discoveries that have
little production history are more imprecise than those of properties with
more production history. Accordingly, these estimates are expected to
change as future information becomes available.
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions.
Proved developed oil and gas reserves are those reserves expected to be
recovered through existing wells with existing equipment and operating
methods.
45
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited net quantities of proved and proved developed reserves of crude
oil (including condensate) and natural gas (all located within the United
States) are as follows:
Changes in proved reserves (Bbls) (MCF)
-------------------------- ------ -----
(in thousands)
Estimated quantity, June 30, 1994 136 101
Revisions of previous estimates (7) (23)
Improved Recovery (79) (14)
Production (15) (11)
---- ----
Estimated quantity, June 30, 1995 35 53
Revisions of previous estimates 2 1
Acquisitions 42 58
Production (6) (6)
---- ----
Estimated quantity, June 30, 1996 73 106
==== ===
Proved reserves Developed Undeveloped Total
at year end --------- ------------- -------
--------------- (In Thousands)
Oil (Bbls)
June 30, 1995 35 0 35
June 30, 1996 44 29 73
Gas (MCF)
June 30, 1995 53 0 53
June 30, 1996 49 57 106
46
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited standardized measure
------------------------------
The following table presents a standardized measure of the discounted
future net cash flows attributable to the Company's proved oil and gas
reserves. Future cash inflows were computed by applying year-end prices of
oil and gas to the estimated future production of proved oil and gas
reserves. The future production and development costs represent the
estimated future expenditures (based on current costs) to be incurred in
developing and producing the proved reserves, assuming continuation of
existing economic conditions. Future income tax expenses were computed by
applying statutory income tax rates to the difference between pre-tax net
cash flows relating to the Company's proved oil and gas reserves and the
tax basis of proved oil and gas properties and available net operating loss
carryforwards. Discounting the future net cash inflows at 10% is a method
to measure the impact of the time value of money.
June 30,
----------------------------------
1996 1995
--------- --------
(in thousands)
Future cash inflows $ 1511 $ 677
Future production and
development costs ( 604) ( 304)
Future income tax
expense -- --
-------- -------
Future net
cash flows 907 373
10% annual discount
for estimated timing
of cash flows (373) (155)
-------- --------
Standardized measure
of discounted future
net cash flows $ 534 $ 218
======== =======
47
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following presents the principal sources of the changes in the
standardized measure of discounted future net cash flows:
Years ended June 30,
-------------------------
1996 1995
-------- --------
(in thousands)
Standardized measure of
discounted future net
cash flows, beginning
of year $ 218 $ 700
-------- --------
Sales and transfers of
oil and gas produced,
net of production
costs (92) (43)
Net changes in prices
and production costs
and other 92 41
Acquisition of reserves 265 --
Sale and farm-out of
proved reserves
in place -- (331)
Revisions of previous
quantity estimates 10 (43)
Other 19 (176)
Net change in income
taxes -- --
Accretion of discount 22 70
-------- ---------
316 (482)
-------- ---------
Standardized measure
of discounted future
cash flows, end of
year $ 534 $ 218
======== ========
In 1996, the upward revision in quantity estimates of $10,000 was due to
improved pricing for oil and gas. The $92,000 increase due to prices and
production costs reflects the overall improvement of prices as well as a
reduction in operating costs incurred when Registrant shifted operations to
48
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
California. In 1995, the downward revision of $43,000 was due to
substantial declines in the price of gas received by the Company, the early
abandonment of producing properties, and the shut in of certain wells in
which the Company owns overriding royalty interests. The "other" change of
$56,000 in 1994 and $176,000 in 1995 is primarily attributed to reduced
sales revenue due to the decline of oil prices and higher-than-expected
production costs during fiscal 1994 and 1995 as compared to revenues and
production costs projected for the same period as of July 1, 1993 and 1994.
Note 10 COMMITMENTS AND CONTINGENCIES
At June 30, 1996 the Company was committed to the following drilling and
development projects in California:
1. Drill, complete and equip the Emigh #34-1 well.
2. Install a pipeline and put the Grey Wolf #1 well on production.
3. Complete seismic work on the Brandt 16X-27 well.
As of June 30, 1996, the Company has received approximately $245,000 in
prepayments from third party investors for their share of the projects
outlined above.
As of the date of December 4, 1996, the Emigh #34-1 and the Grey Wolf #1
wells have been completed as producing gas wells. The Company continues to
conduct seismic studies on the Brandt 16X- 27 well. Unexpended funds due
investors or to be spent on projects were approximately $99,500 at the time
of filing.
The Company has an employment agreement with its President which provides
for compensation of $125,000 per year to be paid, reimbursement of
expenses, health insurance, and other benefits, including a split dollar
life insurance plan (See Note 3). The agreement provides for a two year
term which is automatically renewable for two additional two year terms
(through November 8, 1997) at the president's option. The Company is only
entitled to terminate this agreement upon the president's death,
disability, or for "cause" (as defined in the agreement).
The president may terminate the agreement if his duties for the Company
change substantially from those he is currently performing, or in the event
there is a "change of control" in the Company as defined in the agreement.
If the president terminates the agreement for either of the foregoing
reasons, the Company will be obligated to pay the president severance pay
49
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in an amount equal to the remaining amount due under the agreement, but not
less than two years' salary. This payment must be made in a lump sum to the
president within thirty days of his termination of the agreement.
The Company entered into an employment agreement with Robert Cohan on April
16, 1995, which provides for the payment of $75,000 for the first year of
employment, plus reimbursement of expenses, including health insurance and
the payments on a truck. The Company will also assign 1/4th of 1% of 8/8ths
overriding royalty interest to Mr. Cohan for each project brought to the
Company by Mr. Cohan and acquired by the Company. The Company wishes to
employ Mr. Cohan for an additional 12 months and Mr. Cohan wishes to
continue his employment with the Company. The renewal employment agreement
is effective April 16, 1996 to April 15, 1997 at the rate of $80,000 per
year.
Note 11 SUBSEQUENT EVENTS
The Company has recently drilled and completed the Emigh #34-1 well located
in the Denverton Creek Field, Solano County, California. The Emigh #34-1
was drilled to a total depth of 10,200' and extended the previously defined
productive limits of the field in a northwesterly direction. The Company
perforated a six foot interval in the Bunker Formation which tested at a
stabilized flow rate of 2,100 MCFPD of high BTU natural gas with a light
mist of condensate and formation water. Gas prices in November, 1996, were
$2.59 per MMBTU.
Based on log analysis and mud log shows, it appears that approximately 70
feet to 100 feet of additional pay may exist behind-pipe in the Bunker,
McCormick, H&T, and 1st Starkey Sands. These zones will be tested in the
future. The Company has 960 acres under lease in the immediate vicinity and
may drill a follow-up well in the spring of 1997.
The Denverton Creek Field has produced approximately 26 BCF of high BTU
(1045-1070) gas from the Bunker, McCormick, Martinez, Peterson, H&T, and
1st Starkey Sands.
The Company has formed a subsidiary, ISL Resources Corporation, a Wyoming
corporation, in order to carry on uranium activities in Wyoming and perhaps
elsewhere. Management of the Company believes that the in-situ leaching of
uranium, commonly referred to as ISL, is the best possible way to license
and commence production of uranium under the present environmental climate.
Discussions for providing financing for ISL Resources have been held with
certain parties, but there is no assurance that funding will be provided.
The Company intends to vigorously pursue funding for ISL Resources prior to
50
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the end of calendar year 1996 and in subsequent months. There is no
assurance such funding will take place. If no outside funding is found, the
Company runs the risk of losing the mining claims and the investment in
them.
51
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
This item is not applicable since there has not been a change of
accountants during the past twenty-four months.
PART III
Item 9. Directors and Executive Officers of the Company.
- ---------------------------------------------------------
(a) Identification of Directors and Executive Officers
As described below, the Board of Directors is divided into three classes
which, under Delaware law, must be as nearly equal in number as possible. The
members of each such class are elected for three-year terms at each successive
meeting of stockholders. Registrant held no annual meetings since February 25,
1994. Therefore the terms of each class of director expires at the next annual
meeting of stockholders.
The executive officers and directors of the Registrant are as follows:
Director
Name Age Position Class Since
---- --- -------- ----- -----
R. V. Bailey 64 President, I 1980
Treasurer
and Director
Lawton L. Clark 72 Director, III 1993
Secretary
Robert F. Sheldon 74 Director II 1981
Robert A. Cohan 40 Vice President N/A N/A
All directors will be up for reelection at the next Meeting of
Shareholders.
Executive officers are appointed annually by the Board of Directors and
hold office until their successors are duly elected and qualified. No
arrangement exists between any of the above officers and directors pursuant to
which any of those persons was elected to such office or position.
52
<PAGE>
Item 9. Directors and Executive Officers of the Company (Continued)
- --------------------------------------------------------------------
(b) Business Experience.
------------------------
R. V. Bailey. R. V. Bailey obtained a Bachelor of Science degree in Geology
from the University of Wyoming in 1956. He has approximately 35 years experience
in exploration and development of mineral deposits, primarily gold, uranium,
coal, and oil and gas. His experience includes basic conception and execution of
mineral exploration projects. Mr. Bailey is a member of several professional
societies, including the Society for Mining and Exploration, the Association of
Exploration Geochemists, the Society of Economic Geologists and the American
Association of Petroleum Geologists, and has written a number of papers
concerning mineral deposits in the United States. He is the co-author of a
542-page text, published in 1977, concerning applied exploration for mineral
deposits. Mr. Bailey is the founder of the Registrant and has been an officer
and director since its inception.
Lawton L. Clark. Mr. Clark currently is an oil and gas consultant with
offices in downtown Denver. Since 1984, Mr. Clark has been active as an
independent agent in assembling acquisitions and exploration deals for various
companies, including deals in which Aspen Exploration participated. Mr. Clark
graduated from the University of Wyoming in 1948 with a degree in business
administration and has been in the oil business in various capacities for many
years, including being one of the founders of Mesa Petroleum (Mesa Inc.). Mr.
Clark is a member of the American Association of Petroleum Landmen and the
Independent Petroleum Association of Mountain States (IPAMS). He served as
Membership Chairman of IPAMS for several terms. Mr. Clark joined the Registrant
as a member of the Board of Directors in June 1993.
Robert F. Sheldon. Mr. Sheldon obtained a Bachelor of Science degree in
Geological Engineering from the University of British Columbia in 1948. He
served a total of approximately 40 years at various mining companies, with his
experience covering a wide range of mineral commodities including gold, silver,
copper, uranium, lead, zinc, nickel, mercury, molybdenum and tungsten. He is a
member of the Professional Engineers of British Columbia, the Society of Mining
Engineers, the Canadian Institute of Mining and Metallurgy, and the Yukon
Chamber of Mines (where he served as an officer for four years). Mr. Sheldon
joined the Registrant's Board of Directors in April 1981.
Robert A. Cohan. Mr. Cohan obtained a Bachelor of Science degree in Geology
from the State University College at Oneonta, NY in 1979. He has approximately
16 years experience in oil and gas exploration and development, including
employment in Denver, CO with Western Geophysical, H. K. van Poollen & Assoc.,
Inc., as a Reservoir Engineer and Geologist, Universal Oil & Gas, and as a
53
<PAGE>
Item 9. Directors and Executive Officers of the Company (Continued)
- -------------------------------------------------------------------
principal of Rio Oil Co., Denver, CO. Mr. Cohan served as Manager, Oil & Gas
Operations, Aspen Exploration Corporation, Denver, CO from 1989 to 1992. He was
employed as Vice President, Oil & Gas Operations, for Tri-Valley Oil & Gas Co.,
Bakersfield, CA. from 1992 to April, 1995, at which time Mr. Cohan rejoined
Aspen Exploration Corporation as Vice President, West Coast U.S. Petroleum
Exploration & Production, opening an office in Bakersfield, CA.
(c) Family Relationships.
-------------------------
There are no family relationships among any of the Registrant's officers
and directors.
(d) Involvement in Certain Legal Proceedings.
---------------------------------------------
(d)(1) During the past five years there have been no filings of
petitions under the federal bankruptcy laws, or any state
insolvency laws, by or against any partnership in which any
director or executive officer of Registrant was a general
partner or executive officer at the time or within two years
before the time of such a filing.
(d)(2) No director or executive officer of Registrant has, during
the past five years, been convicted in a criminal proceeding
or is the named subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses);
(d)(3) During the past five years no director or executive officer
of Registrant has been the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated by
any court of competent jurisdiction permanently or
temporarily enjoining him from or otherwise limiting his
involvement in any type of business, securities or banking
activities.
(d)(4) During the past five years no director or executive officer
of Registrant has been found by a court of competent
jurisdiction in a civil action, nor by the Securities and
Exchange Commission nor the Commodity Futures Trading
Commission to have violated any federal or state securities
or commodities law, which judgment or finding has not been
subsequently reversed, suspended or vacated.
54
<PAGE>
Item 9. Directors and Executive Officers of the Company (Continued)
- --------------------------------------------------------------------
(e) Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") requires the Registrant's
directors and officers and any persons who own more than ten percent of the
Registrant's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Directors,
officers and greater than ten-percent shareholders are required by SEC
regulation to furnish the Registrant with copies of all Section 16(a) reports
files.
Based solely on its review of the copies of the reports it received from
persons required to file, the Registrant believes that during the period from
July 1, 1995 through December 4, 1996 all filing requirements applicable to its
officers, directors and greater-than-ten-percent shareholders were complied
with.
55
<PAGE>
Item 10. Executive Compensation.
- ---------------------------------
(a) and (b) Summary Compensation Table.
The following tables set forth information regarding compensation paid to
the Chief Executive Officer and Vice President of Petroleum Exploration &
Production of the Registrant during the fiscal year ended June 30, 1996 and
previous years:
<TABLE>
<CAPTION>
Annual Compensation ($$) Long Term Compensation
------------------------ -------------------------
Awards Payouts
-------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted
Name and Stock Options LTIP Other
Position Year Salary Bonus Other Awards & SARs Payouts Compensation*
- -------- ---- ------ ----- ----- ------ ------ ------- -------------
($$) ($$) ($$) ($$) (##) ($$) ($$)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. V. Bailey,
as President 1996 125,000 750 29,400 0 0 0 15,000
and Chief 1995 125,000 750 28,354 0 0 0 10,228
Executive 1994 125,000 750 39,942 0 0 0 19,840
Officer 1993 125,000 0 44,214 0 0 0 15,501
Annual Compensation ($$) Long Term Compensation
------------------------ ------------------------
Awards Payouts
------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted
Name and Stock Options LTIP Other
Position Year Salary Bonus Other Awards & SARs Payouts Compensation*
- -------- ---- ------ ----- ----- ------ ------ ------- ------------
($$) ($$) ($$) ($$) (##) ($$) ($$)
R. A. Cohan,
as Vice
President of 1996 75,000 750 0 4,000 0 0 6,000
Oil & Gas 1995 15,625 0 0 0 0 0 0
Exploration 1994 0 0 0 0 0 0 0
</TABLE>
* Registrant has a "Royalty and Working Interest Plan" by which Registrant is
able to assign overriding royalty interests of up to 2% of 100% in oil and
gas properties (up to 3% in other mineral properties), at Registrant's
discretion. This plan is intended to provide additional compensation to
Registrant's personnel involved in the acquisition, exploration and
development of Registrant's mineral prospects. Registrant had assigned 1/2
of 1% royalty interest on the Valdez Creek claims to R. V. Bailey in 1986.
Royalty payments are made directly from Valdez Creek Mining Company to Mr.
Bailey and since Registrant does not control these payments, Registrant
does not know the amount of any royalty payment Mr. Bailey may have
received pursuant to this assignment.
56
<PAGE>
Item 10. Executive Compensation -Continued
- -------------------------------------------
Royalties in fiscal year ended June 30, 1996 were assigned on the North
Strand #1 (a dry hole effective April 22, 1996) and Grey Wolf #1 (a
marginally economic well) on October 1, 1995. Registrant assigned an
overriding royalty interest in these California properties to its employees
and consultants in the following amounts:
North (1) Grey
Strand #1 Wolf #1
--------- -------
Percent Percent
------- -------
R. V. Bailey 1.25 1.00
Robert A. Cohan 1.25 1.00
Ray K. Davis 0.50 0.25
Judith L. Shelton 0.333333 0.1333330
(1) This well was plugged and abandoned April 22, 1996.
Registrant adopted a medical insurance plan for its employees and those of
its subsidiaries, and a life insurance plan for its president and chief
executive officer, R. V. Bailey. This life insurance plan includes the
split-dollar insurance plan for the benefit of Mr. Bailey, which is described in
Note 3 to the financial statements. $21,273 of the premium paid for this policy
in fiscal 1996 is considered compensation to Mr. Bailey and $8,127 was also paid
to reimburse the tax effect of the executive's split, both of which amounts are
included in column (e) of the table, above.
Registrant adopted a Profit-Sharing 401(k) Plan which took effect July 1,
1990. All employees are immediately eligible to participate in this Plan.
Registrant's contribution (if any) to this plan is determined by the Board of
Directors each year. At June 30, 1995 Registrant had accrued but not yet paid
$7,000 to the plan for the Plan Year 1995. At June 30, 1996 Registrant had
accrued but not yet paid an amount yet to be calculated to the plan for the Plan
Year 1996. The amounts contributed to Mr. Bailey's and Mr. Cohan's accounts
(which amounts are fully vested) are also included in column (e) of the tables,
above.
Registrant has furnished vehicles to Mr. Bailey, and the compensation
allocable to these vehicles, plus amounts paid for various moving/storage costs,
and travel and entertainment paid on behalf of Mr. Bailey's wife when she
accompanied him for business purposes, are also included in column (i) of the
table. Registrant
57
<PAGE>
Item 10. Executive Compensation -Continued
- -------------------------------------------
also is paying a lease on a vehicle for Mr. Cohan. This vehicle is used
substantially for business purposes, therefore no vehicle costs were charged to
Mr. Cohan.
Registrant has agreed to reimburse its officers and directors for
out-of-pocket costs and expenses incurred on behalf of the Registrant.
Finally, Registrant has entered into an employment agreements with Mr.
Bailey and Mr. Cohan, as described in Item 10(g), below.
(c) and (d) Option/SAR Granted During the Last Fiscal Year.
Registrant does not have a stock option or stock appreciation rights plan.
Therefore this section is not applicable.
(e) Long Term Incentive Plans/Awards in Last Fiscal Year
Registrant has no long-term incentive plans and consequently has made no
such awards.
58
<PAGE>
Item 10. Executive Compensation -Continued
- -------------------------------------------
(f) Compensation of Directors
(1) Standard Arrangements.
--------------------------
Prior to the fiscal year ended June 30, 1994 each director has been paid
$150 per meeting attended, plus all expenses incurred in attending the meeting.
There was one board of directors meeting in fiscal 1996 attended by all
directors, and nine telephonic board of directors meetings.
On September 11, 1995 (effective September 1, 1995) Registrant issued
25,000 shares of common stock each to its outside directors, Lawton L. Clark and
Robert F. Sheldon.
(2) Other Arrangements.
-----------------------
There are no other arrangements for the compensation of directors of the
Registrant.
(g) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
Registrant has entered into an employment agreement with Mr. Bailey which
provides for the payment of $125,000 per year to him, reimbursement of expenses,
health insurance, and other benefits (including the split-dollar life insurance
plan). The agreement provides for a two-year term which is automatically
renewable for two additional two-year terms (through November 1997) at Mr.
Bailey's option. Registrant is not entitled to terminate this agreement except
upon Mr. Bailey's death, disability, or for cause (as defined in the agreement).
Mr. Bailey may terminate the agreement if Registrant changes his duties
substantially from those he is currently performing, or if there is a "change of
control" of the Registrant. If Mr. Bailey terminates the Agreement for either of
the foregoing reasons, Registrant will be obligated to pay Mr. Bailey severance
pay equal to the amount remaining due under the agreement, but not less than two
years' salary. That payment must be made in a lump sum within thirty days of Mr.
Bailey's termination of the agreement.
In January 1983, Registrant entered into a Stock Purchase Agreement with
Mr. Bailey whereby Mr. Bailey granted Registrant an option to purchase up to 75%
of Registrant's common stock owned by him at his death. This agreement was
replaced by a Stock Purchase Agreement dated June 4, 1993. The 1993 agreement
requires that Registrant apply 75% of any key man insurance proceeds it receives
upon Mr. Bailey's death towards the purchase of up to 75% of the common shares
owned by him at the time of his death, and Mr. Bailey's estate is obligated to
sell such shares to the Registrant. The purchase price of the shares acquired
under the 1993 Agreement
59
<PAGE>
Item 10. Executive Compensation -Continued
- -------------------------------------------
shall be the fair market value of the shares on the date of death. Both
Registrant and Mr. Bailey agree that the fair market value of the shares on the
date of death may not necessarily be the market price of the stock on the date
of death as quoted in NASDAQ or the Electronic Bulletin Board, or as reported by
any exchange. The 1993 Agreement further requires that Registrant maintain one
or more life insurance policies on Mr. Bailey's life in the amount of $1,000,000
for the purposes of this Agreement.
Registrant entered into an employment agreement with Mr. Cohan on April 16,
1995, which provides for the payment of $75,000 for the first year of
employment, reimbursement of expenses, including health insurance and the
payments on a lease of a truck. Registrant will also assign 1/4th of 1% of
8/8ths overriding royalty interest to Mr. Cohan for each project brought to
Registrant by Mr. Cohan and acquired by Registrant. Registrant wishes to employ
Mr. Cohan for an additional 12 months and Mr. Cohan wishes to continue his
employment with Registrant. The renewal employment agreement is effective April
16, 1996 to April 15, 1997 at the rate of $80,000 per year.
See also Item 12(a) Transactions with Management and Others.
(h) Report on Repricing of Options/SARs.
No options or stock appreciation rights are outstanding or were repriced
during the fiscal year ended June 30, 1996 or subsequently.
60
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners & Management.
- ----------------------------------------------------------------------
(a)-(b) The following table sets forth as of November 27, 1996 the number
and percentage of Registrant's shares of $.005 par value common stock owned of
record and beneficially owned by each person owning more than five percent of
such common stock, and by each Director, and by all Officers and Directors as a
group.
Individual Ownership # Shares Percent
---------- --------- -------- -------
R. V. Bailey Record & 886,942* 21.10%
Beneficial
Robert A. Cohan Record 50,000** 1.00%
Robert F. Sheldon Record 43,160** 1.03%
Lawton L. Clark Record 25,000** 0.10%
All Officers and Both Record 1,005,102 23.26%
Directors as a & Beneficial
Group (4 persons)
* Thisnumber includes 870,622 shares of stock held of record in the name of
R. V. Bailey and 16,320 shares of record in the name of Mieko Nakamura
Bailey, his wife. In addition, all shares held in the name of R. V. Bailey
are subject to an option granted by Bailey to Registrant to purchase up to
75% of the common shares of Registrant owned by Bailey at the time of his
death. This option expires 120 days from the date of Bailey's death.
** This number includes 25,000 shares of common stock issued on September 11,
1995, effective September 1, 1995, and 50,000 shares of common stock issued
on February 16, 1996, effective January 2, 1996.
(c) Changes in Control.
-----------------------
Except with respect to Registrant's option to purchase R. V. Bailey's
shares upon his death, and the employment agreement between Registrant and R. V.
Bailey, Registrant knows of no arrangements which may at a subsequent date
result in a change of control of Registrant. Registrant has no knowledge of any
change in control since the beginning of its last fiscal year.
61
<PAGE>
Item 12. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
(a) Transactions with Management and Others.
--------------------------------------------
Some of the Directors and Officers of Registrant are engaged in various
aspects of oil and gas and mineral exploration and development for their own
account. Registrant has no policy prohibiting, nor does its Certificate of
Incorporation prohibit, transactions between Registrant and its Officers and
Directors. Registrant plans to enter into cost-sharing arrangements with respect
to the drilling of its oil and gas properties. Directors and Officers may
participate, from time to time, in these arrangements and such transactions may
be on a non-promoted basis (actual costs), but must be approved by a majority of
the disinterested directors of Registrant's Board.
R. V. Bailey, President and a Director of Registrant, owns a minor working
interest in oil and gas acreage in which Registrant also has a minor working
interest. During 1995, both the Registrant and Mr. Bailey sold their interests
in jointly owned oil and gas properties. He also owns minor overriding royalty
interests granted to him by Registrant in the Valdez Creek and Nome Gold
Properties. The Management Committee granted Mr. Bailey a 4% net proceeds
royalty on the Registrant's share of profits from certain properties near Nome,
Alaska.
R. V. Bailey, President and a Director of Registrant, owns a minor working
interest in a property located in Kern County, California. Registrant is the
operator of this property. Two wells were drilled. Subsequently, one well was
plugged and abandoned, and the remaining well is marginally economic.
On April 1, 1996, Registrant entered into an agreement with R. V. Bailey,
the president and chairman of the board of directors of Registrant, for a
venture to explore and develop the Kaycee 96 Project (the "Project"), located on
the western margin of the Powder River Basin in Wyoming. Registrant is the
designated Operator for the Project and has spent approximately $130,000 on the
Project to date. Over a period of more than 20 years Bailey had acquired
geological and engineering data relating to the Project area, including maps and
drill hole logs for more than 4,000 drill holes. An independent geological
consultant has estimated more than 1.7 million pounds of U3O8 in resources for
this Project, but substantial additional drilling and other data gathering will
be required in order to evaluate the Project potential. In addition to the
substantial expenditures by others estimated to be approximately $10,000,000,
Bailey had personally incurred substantial expenditures in the approximate
amount of $100,000 on the project in the early 1980's before the price of
uranium decreased substantially. Under the agreement, Registrant's interest
shall be 75% and Bailey's interest 25%. Registrant shall expend funds as
available and as necessary to acquire properties
62
<PAGE>
Item 12. Certain Relationships and Related Transactions (Continued)
- --------------------------------------------------------------------
within the defined area of interest. A third party joint venturer shall be
sought to provide funding for the project and to reimburse Registrant for its
expenditures for the project. In the event a source of funding is found, and
after Registrant has recovered its expenditures, Bailey shall be reimbursed
$100,000. Any additional sums paid by a third party may be retained by
Registrant.
None of the other Officers or Directors of Registrant or any other persons
or entities affiliated with Registrant or its Officers or Directors owns any
other working interest or overriding royalty interest in or near acreage in
which Registrant owns a working interest.
During the 1996 fiscal year, Registrant issued 25,000 shares of its common
stock to each of its outside directors, Mr. Sheldon and Mr. Clark, and 50,000
shares of its common stock to Robert A. Cohan, vice president.
During the fiscal years ended June 30, 1995 and 1996, Registrant also paid
$60,000 annually in premiums on a split-dollar life insurance policy for the
benefit of Registrant's president, as required by the terms of his employment
agreement. (See Note 3 to Consolidated Financial Statements).
In addition, during the fiscal year Registrant paid for various hospitality
functions and for travel, lodging and hospitality expenses for spouses who
occasionally accompanied directors when they were traveling on Registrant's
business. Registrant's president has also supplied Registrant with certain
promotional items. The net effect of these items has been a cost to Registrant
of approximately $15,000 for the fiscal year ended June 30, 1996 and $10,000 for
the fiscal year ended June 30, 1995. Management believes that the expenditures
were to Registrant's benefit.
Registrant also has entered into an employment agreement and a Stock
Purchase Agreement with its president, as discussed in "Item 10 - Employee
Compensation".
(b) Certain Business Relationships.
None.
63
<PAGE>
Item 12. Certain Relationships and Related Transactions (Continued)
- --------------------------------------------------------------------
(c) (1)-(5) Indebtedness of Management.
No director, executive, officer, nominee for election as a director, any
member of the immediate family of any of the foregoing, or any corporation or
organization of which any of the foregoing persons is an executive officer,
partner or beneficial holder of ten percent or more of any class of equity
securities, or any trust or other estate in which any such person has a
substantial beneficial interest or as to which such person serves as a trustee
or in a similar capacity, was indebted to Registrant in an amount in excess of
$60,000 at any time since June 30, 1992.
(d) Transactions with Promoters.
Not applicable.
64
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) The following documents are filed as part of this report:
Exhibit No.
-----------
3.1 Certificate of Incorporation (1)
3.2 Bylaws (1)
3.3 Bylaws - Subsidiary (1)
10.1 Royalty and Working Interest Plan (1)
10.8 Stock Purchase Agreement between R. V. Bailey and
Aspen Exploration Corporation dated January, 1983 (7)
10.9 Anvil Joint Venture Agreement between Nome Gold
Joint Venture, Golden Glacier, Inc. and Newmont
Exploration Ltd., dated March 1, 1992 (8)
10.10 Purchase and Sales Agreement for the Divide Oil
Field Purchase, dated September 13, 1991 (8)
10.11 Employment Agreement between Aspen Exploration Corp.
and R. V. Bailey, dated November 8, 1991 (8)
10.13 Split-Dollar Life Insurance Plan for R. V. Bailey (8)
10.15 Stock Purchase Agreement between Aspen Exploration
Corp. and R. V. Bailey, dated June 1993 (9)
65
<PAGE>
Item 13. Exhibits and Reports on Form 8-K (Continued)
- ------------------------------------------------------
Exhibit No.
-----------
22.1 Subsidiaries of the Registrant
Aspen Gold Mining Company, Colorado
Aspen Recursos de Mexico, S.A. de C.V.,
Chihuahua, Mexico (10)
- -----------------
(1) Incorporated by reference from Commission File No. 2-69324.
(7) Incorporated by reference from Annual Report on Form 10-K dated June 30,
1991 (filed on September 27, 1991).
(8) Incorporated by reference from Annual Report on Form 10-K dated June 30,
1992 (filed on October 3, 1992).
(9) Incorporated by reference from Annual Report on Form 10-KSB dated June 30,
1993 (filed on September 27, 1993).
(10) Incorporated by reference from Annual Report on Form 10-KSB dated June 30,
1994 (filed on September 26, 1994).
(b) During the fiscal year ended June 30, 1994 there were no filings by
Registrant on Form 8-K.
66
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ASPEN EXPLORATION CORPORATION
/s/ R. V. Bailey
December 4, 1996 ----------------------------------------
R. V. Bailey, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Registrant and in
the capacities and on the dates indicated.
Signatures Date
---------- ----
/s/ R. V. Bailey
- ------------------------------------- December 4, 1996
R. V. Bailey, Director,
Chief Executive Officer,
Principal Financial Officer
/s/ Lawton L. Clark
- ------------------------------------ December 4, 1996
Lawton L. Clark, Director
/s/ Robert F. Sheldon
- ------------------------------------ December 4, 1996
Robert F. Sheldon, Director
67
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 102,223 116,891
<SECURITIES> 4,923<F2> 4,651
<RECEIVABLES> 98,245 67,997
<ALLOWANCES> (37,000) (37,000)
<INVENTORY> 221,866<F1> 718,388
<CURRENT-ASSETS> 390,257 870,927
<PP&E> 1,495,134 1,166,840
<DEPRECIATION> 968,315 865,222
<TOTAL-ASSETS> 1,196,849 1,342,992
<CURRENT-LIABILITIES> 345,229 180,747
<BONDS> 0 0
0 0
0 0
<COMMON> 5,673,512 5,661,812
<OTHER-SE> (46,754)<F3> (46,754)
<TOTAL-LIABILITY-AND-EQUITY> 1,196,849 1,342,992
<SALES> 334,578 1,156,226
<TOTAL-REVENUES> 448,574 1,206,279
<CGS> 53,782 178,687
<TOTAL-COSTS> 770,899 1,098,041
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (322,325) 108,238
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (322,325) 108,238
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (322,325) 108,238
<EPS-PRIMARY> (.08) .03
<EPS-DILUTED> (.08) .03
<FN>
<F2>PrePaid Expense
<F1>Precious Metals
<F3>Treasury Stock
</FN>
</TABLE>
