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 years ended June 30, 1996 and
1997.
[ ] 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
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(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 No XX
----- -----
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 years are $383,951 (1997) and
$448,574 (1996).
At March 16, 1998, the aggregate market value of the shares held by
non-affiliates was approximately $1,569,975. The aggregate market value was
calculated by multiplying the mean of the closing bid and asked prices ($0.475)
of the common stock of Registrant on the OTC Bulletin Board listing for that
date, by the number of shares of stock held by non-affiliates of Registrant
(3,305,210).
At March 16, 1998, there were 4,352,722 shares of common stock (Registrant's
only class of voting stock) outstanding.
<PAGE>
PART I.
Item 1. Business
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(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. Both
entities are inactive.
In 1996 Registrant formed ISL Resources Corporation (ISLR) as a wholly-owned
subsidiary to pursue uranium opportunities. In 1997 Registrant conveyed 50%
interest in ISLR to an unaffiliated third party who was to arrange financing for
the uranium projects. At that time, ISLR had not been capitalized with the
uranium properties in which at Registrant owned an interest, although ISLR did
obtain rights to certain information that had been developed for the projects.
The financing was not accomplished, and Registrant reacquired the data from ISLR
in 1997 and resolved other outstanding issues by conveying to the third party
20,000 shares of Registrant's restricted common stock. Registrant continues to
own 50% of ISLR but it is completely inactive.
During the last few fiscal years, Registrant's major emphasis has been on its
participation in the oil and gas segment, acquiring interests in producing oil
or gas properties, and participating in drilling operations. While Registrant
sold its interests in producing properties in Montana, North Dakota, Oklahoma
and Texas, it has acquired a number of interests in oil and gas properties in
California, all as described in more detail below.
During fiscal 1996 and 1997, and in the last half of calendar 1997 and the first
quarter of calendar 1998, in addition to oil and gas activities, Registrant's
management focussed attention on uranium deposits in sandstone in Wyoming
because of the anticipated shortfall of uranium needed for nuclear power plants
world-wide. However, a market for uranium projects did not develop quickly and
Registrant did not have sufficient funds available to carry out the extensive
mining claim and lease acquisition and maintenance necessary to assemble a large
block of land needed for the uranium exploration programs. Nevertheless
Registrant was able, in February, 1998, to negotiate an agreement with a
newly-formed Canadian company which provided for Registrant and the newly-formed
Canadian company to cooperatively explore and develop two uranium projects in
Wyoming.
2
<PAGE>
Item 1. Business - (Continued)
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(B) Narrative Description of Business.
Registrant owns leasehold or royalty interests in producing oil and gas
properties in California.
Oil and Gas Exploration and Development:
As noted elsewhere herein, the future conduct of Registrant's business is
dependent upon a number of factors, and there can be no assurance that
Registrant will be able to conduct its operations as contemplated herein.
Certain statements contained in this report, such as the oil and gas reserves
and discussion of possible future activities of Registrant are "forward-looking
statements." The accuracy of these statements cannot be guaranteed as they are
subject to a variety of risks including, but not limited to: the possibility
that the estimates on which Registrant is relying are inaccurate, or that
unknown or unexpected future events may occur that will tend to reduce or
increase Registrant's ability to operate successfully, if at all.
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
area of interest is in the state of California.
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 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 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.
Registrant has identified and will continue to identify prospects suitable for
drilling and 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
3
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Item 1. Business - (Continued)
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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. Management of
Registrant carried out field exploration for uranium deposits in Wyoming and
found several geologically-favorable areas for the occurrence of roll front
uranium deposits in sandstone. Although Registrant had insufficient funds to
carry out land acquisition usually necessary in large uranium projects involving
sedimentary deposits, Registrant was able to interest a newly-formed Canadian
mining company in providing funding for two uranium projects in Wyoming which
Registrant had identified and had gathered geological information about.
(1) Principal products produced and services rendered: Registrant's
products during fiscal 1997 were crude oil and natural gas. Crude oil and
natural gas 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 and derives 100% of its revenues from crude oil
and natural gas sales.
4
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Item 1. Business - (Continued)
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(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.
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
5
<PAGE>
Item 1. Business - (Continued)
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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 and 3 companies in fiscal 1997
represented sales in excess of 10%. 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 mining 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 mining
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 assigned all its interest in the mining
claims to Registrant. Registrant is holding 8 mining claims on Valdez Creek, but
has made no decision concerning further work in the area.
(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.
6
<PAGE>
Item 1. Business - (Continued)
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(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, 1997 Registrant employed three full-time
persons. Registrant also uses independent contractors and other consultants, as
needed.
7
<PAGE>
Item 2. Properties
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(A) Oil and Gas Properties
(1) General Information
Registrant increased its net gas reserves by a multiple of 15 (1630 MMCF from
106 MMCF) during fiscal year 1997 (in addition to replacing 100% of the reserves
it produced during the last fiscal year). The undiscounted future net revenues
forecast to be recovered from oil and gas reserves increased by a multiple of 4
($3,648,000 from $907,000) during the last fiscal year.
Drilling Activity
- -----------------
During the fiscal year ended June 30, 1996 Registrant participated in the
drilling of 3 wells, of which 1 was completed as a commercial gas well and 2
were dry holes and plugged and abandoned. During the fiscal year ended June 30,
1997 Registrant participated in the drilling of 2 wells, of which 1 was
completed as a commercial gas well and 1 was a dry hole and plugged and
abandoned.
Denverton Creek Field, Solano County, California. Registrant owns a 23.55%
working interest in approximately 1,611 net acres located in this field.
Registrant drilled and completed the Emigh 34-1 well in the winter of 1996 to a
total depth of 10,200' and extended the previously defined productive limits of
the field in a northeasterly direction. One 6 foot interval was perforated in
November of 1996, commenced production at a flow rate of 3,300 MCFPD, 18 BCPD,
and 6 BWPD, and is currently producing approximately 1,000 MCFPD. Cumulative
production to date is approximately 856,000 MCF.
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 and several
other zones. These zones will be tested in the future. Registrant has 1,611 net
acres under lease in the immediate vicinity and drilled a successful follow-up
well, the Emigh 2-1, in the fall of 1997 (see Note 11, Subsequent Events). After
nearly four months of production, the Emigh 2-1 has produced approximately
532,000 MCF and is currently producing 4,700 MCFPD of high BTU gas (1070), 25
barrels of condensate per day, and 8 barrels of water per day at a flowing
tubing pressure of 2600#.
The Denverton Creek Field has produced approximately 27 BCF (billion cubic feet)
of high BTU (1045-1070) gas from the Bunker, McCormick, Martinez, Peterson, H&T,
and 1st Starkey Sands.
Rosedale Field, Kern County, California. Registrant acquired a 12% operated
working interest (9.51% net revenue interest) in one flowing oil well, one gas
8
<PAGE>
Item 2. Properties (Continued)
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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 oil for over seven years. Cumulative production
to date is approximately 211,000 barrels of oil and the current production is
approximately 35 BOPD and 19 BWPD. The Arco 46X-10, a shut-in gas well, has been
tested at 2.6 million cubic feet of gas per day, and is anticipated to commence
production in March, 1998.
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 123,000 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. The
Brandt 26X-27 was drilled on the acreage and is currently flowing over 90 BOPD
(See Note 11, Subsequent Events).
9
<PAGE>
Item 2. Properties (Continued)
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(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, 1997 and
1996, and the average sales prices, average production costs and direct lifting
costs per unit of production.
Years Ended June 30,
--------------------------
1997 1996
---- ----
Net Production
--------------
Oil (Bbls) 5,636 7,987
Gas (Mcf) 81,523 7,846
Average Sales Prices
--------------------
Oil (per Bbl) $19.99 $17.19
Gas (per Mcf) $ 2.50 $ 1.04
Average Production Cost(1,3)
----------------------------
Per equivalent
Bbl of oil $ 4.67 $17.87
Average Lifting Costs(2,3)
--------------------------
Per equivalent
Bbl of oil $ 1.93 $ 5.79
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1 Production costs include all operating 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.
3 Average production cost and average lifting costs have declined
significantly because the majority of high cost, non-California oil wells
were sold effective November 1, 1996 and a lower cost gas well came on
stream in December, 1966.
10
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Item 2. Properties (Continued)
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(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, 1997:
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
Emigh 34-1 -- 1 -- 0.2355
-- -- ---- ------
TOTAL 3 4 0.42 0.5435
== == ==== ======
- ----------
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.
11
<PAGE>
Item 2. Properties (Continued)
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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
Emigh 34-1 160.00 37.68
-------- -----
TOTAL 1,055.00 88.51
======== =====
- ----------
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.
(ii) (b) Royalty Interests in Productive Wells and Developed Acreage:
The following tables set forth at June 30, 1997 Registrant's royalty interest in
a productive gas well and developed acres:
Overriding Royalty Interests
----------------------------
Productive Wells Gross
Prospect Interest(%) Oil Gas Acreage(1)
-------- ----------- --- --- ----------
California:
Emigh 34-1 2.1049 -- 1 160.00
-- -- ------
TOTAL -- 1 160.00
== == ======
- ----------
1 Consists of acres spaced or assignable to productive wells.
(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.
12
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Item 2. Properties (Continued)
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(3) Reserve Information
Oil and Gas Reserves. Oil and gas reserves for Registrant's properties have been
evaluated at June 30, 1996 by Resource Services International, Inc. and at June
30, 1997 by Cecil Engineering, 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.
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 VOLUMETRIC 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.
13
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Item 2. Properties (Continued)
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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, 1997 and 1996. See Note 9 to the Consolidated Financial
Statements and the above discussion.
Proved Reserves(1) Oil (Bbls) Gas (Mcf)
------------------ ---------- ---------
Estimated quantity, June 30, 1995 35,000 53,000
Revisions of previous estimates 2,000 1,000
Acquisition of Properties 44,000 60,000
Production (8,000) (8,000)
---------- ----------
Estimated quantity, June 30, 1996 73,000 106,000
Revisions of previous estimates (20,000) 4,000
Sale of Properties (32,000) (40,000)
Discoveries 12,000 1,643,000
Production (5,000) (82,000)
---------- ----------
Estimated quantity, June 30, 1997 28,000 1,631,000
========== ==========
Developed and Undeveloped Reserves(2)
-------------------------------------
Developed Undeveloped Total
--------- ----------- -----
Oil (Bbls)
June 30, 1996 73,000 0 73,000
June 30, 1997 17,000 11,000 28,000
Gas (Mcf)
June 30, 1996 106,000 0 106,000
June 30, 1997 591,000 1,040,000 1,631,000
- ----------
1 All non-California proved reserves have been sold.
2 All non-California developed and undeveloped reserves have been sold.
14
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Item 2. Properties (Continued)
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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) Mining Properties
From 1986 through November 1992, Registrant concentrated the efforts in its
mining segment on the acquisition and exploration of undeveloped mining
properties near Nome, Alaska. Registrant 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,
Registrant's interest in Nome Gold Joint Venture is of little or no value, and
all remaining costs, which were nominal, were written off in fiscal 1997. The
following sets forth a brief discussion of Registrant's mining properties:
Valdez Creek
- ------------
Registrant holds 8 unpatented mining claims on Valdez Creek in central Alaska
about halfway between Anchorage and Fairbanks. A placer gold mining operation on
Registrant's claims on Valdez Creek was for a time the largest gold producer in
Alaska, but that mining operation has been closed and the land reclaimed.
Management of Registrant believes the source of much of the placer gold mined
previously may exist on the claims currently being held by Registrant. Further
studies will be required before a course of action may be decided upon for these
properties. The holding costs are $100/claim/year.
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 of offshore state lands in southern and southeast
Alaska. It is not likely that these applications will be granted because of
opposition from various organizations and individuals. These applications are
not considered material to Registrant.
15
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Item 2. Properties (Continued)
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Kaycee and Shamrock Uranium Prospects, Wyoming
- ----------------------------------------------
Registrant is interested in two uranium prospects in Wyoming, although
Registrant has substantially no land position in either prospect area. The
concept that the prospect areas may have potential for uranium deposits was
derived from geological ideas formulated over a long period of time relating to
specific geographic regions. There is substantial risk involved in acquiring
leases or mining claims within the two areas and there is no assurance
Registrant will be able to acquire desirable properties within the two areas.
Further, if certain properties were to be acquired, Registrant must then carry
out additional exploratory work to investigate the possible occurrence of
significant uranium deposits in order to prove the geologic theories.
For the Kaycee prospect, the president of Registrant had made uranium
discoveries beginning in the 1960s and had accumulated data from drilling and
mapping over a period of more than 10 years. This data included maps showing
probable locations for uranium geochemical interfaces (commonly called roll
fronts) within a defined project area. Reports by consultants were also
available. Mineral and surface ownership in the area is a mix of state, federal
and private ownership.
For the Shamrock prospect, "altered" sandstone suspected to be related to down
dip uranium deposits was recognized in 1996 at the surface and surface
geological reconnaissance revealed a number of characteristics which are
favorable indicators of uranium roll front deposits down dip. Mineral and
surface ownership is a mix of mostly state and private ownership, although a
railroad owns the minerals under every other section.
Registrant was financially unable to acquire the substantial land positions
needed to control a major part of the mineral rights on either prospect, but
Registrant has succeeded in reaching an agreement with a newly-formed Toronto,
Ontario-based company whereby Registrant has received a $50,000 cash payment and
a commitment to receive an additional $200,000 as financing can be arranged in
Canada. Management of the newly-formed company will likely be based in Toronto.
Under the terms of the agreement reached in March, 1998, Registrant will also
own approximately 25% (2,000,000 shares) of the common stock of the newly-formed
company. Registrant knows of no market for the stock of this company and does
not know if any market will ever develop; thus the stock may prove to be of no
value. The president of Registrant is expected to provide geological and
logistical consulting services to the newly-formed company and Registrant will
bill the newly-formed company for those services as well as out-of-pocket
expenses related to the effort.
16
<PAGE>
Item 2. Properties (Continued)
- ------------------------------
Management of Registrant believes that both uranium prospect are prospective for
the production of uranium by in situ methods, although there is no assurance
such deposits will be found or may be exploited.
(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.
17
<PAGE>
Item 2. Properties (Continued)
- ------------------------------
Title examinations for a particular claim will be made when and if a significant
discovery is made on that claim.
(D) Office Facilities. Registrant's 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. Registrant has also paid $816 as a security deposit for the term
of the lease, which was in effect through November 30, 1997. Registrant has
extended its existing lease agreement for an additional two year period at the
rate of $961 per month.
Item 3. Legal Proceedings
- -------------------------
In the past fiscal year, Registrant was involved in one legal action in the
State of Alaska: a) proceeding was pending in the Superior Court for the State
of Alaska, Second Judicial District at Nome; b) the complaint was filed February
14, 1994; c) Registrant, representing Nome Gold Joint Venture ("NGJV"), of which
Registrant was the majority interest owner and operator, alleged that Newmont
Exploration Limited, a Delaware corporation, failed to live up to and abide by
the terms of VENTURE AGREEMENT dated March 1, 1992. Plaintiffs alleged that,
among other deficiencies, Newmont breached the covenant of good faith and fair
dealing - or was otherwise in breach of the venture agreement; d) relief sought
was judgment by the court against the defendant, compensatory damages, interest
on monetary awards, attorney's fees, such additional relief as the court deemed
appropriate. In early October, 1997, and after preliminary decisions adverse to
Registrant, plaintiff and defendant agreed to a stipulation whereby the
litigation, including all claims, was terminated with each party paying its own
legal costs.
By letter dated February 11, 1998, the Securities and Exchange Commission
threatened to commence an enforcement proceeding against Registrant because of
Registrant's failure to file reports as required under the Securities Exchange
Act of 1934, as amended. According to the Commission's allegations, reports
commencing with the annual report on Form 10-KSB for the year ended June 30,
1996, were not timely filed in accordance with the Commission's rules and
regulations. To Registrant's knowledge, the filing of this annual report and the
quarterly reports being filed herewith will alleviate the Commission's concerns,
but there can be no assurance that the Commission may not proceed to take
enforcement action against Registrant. To Registrant's knowledge, no such action
has been commenced. If commenced, the action could involve civil sanctions
against Registrant or its officers or directors, including possible monetary
penalties.
18
<PAGE>
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, 1997, or any subsequent period.
19
<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 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.
The OTC Bulletin Board has recently proposed new rules which would result
in companies not current in their reporting requirements under the Securities
Exchange Act of 1934 being removed from the quotation service. Such action,
should it occur, would have a material adverse impact on the market for
Registrant's common stock.
Range of Bid/Ask Prices
---------------------------
Common Stock
---------------------------
Low Bid High Bid
---------------------------
Fiscal Year Ended June 30, 1997:
--------------------------------
First Quarter 13(cent) 25(cent)
Second Quarter 3(cent) 19(cent)
Third Quarter 3(cent) 14(cent)
Fourth Quarter 3(cent) 11(cent)
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, 1997 was 1,427. This number does not reflect an indeterminate
number of beneficial holders who own their shares in street name through
broker/dealers and other depositories.
20
<PAGE>
Item 5. Market for Registrant's Common Stock & Related Security Holder Matters
- --------------------------------------------------------------------------------
(Continued).
------------
(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 or 1997, or
subsequently, 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
-------------
Liquidity and Capital Resources
-------------------------------
June 30, 1997 as compared to June 30, 1996
- ------------------------------------------
Registrant has sustained operating losses in recent years. In addition,
Registrant has used substantial amounts of working capital in its operations. At
June 30, 1996 current assets exceeded current liabilities by $45,000, a
reduction of 93.5% from the year earlier. At June 30, 1997 current liabilities
exceeded current assets by $113,345 and Registrant has a working capital deficit
to that extent. Consequently, Registrant has been required to defer payment of
certain accounts payable which were otherwise due.
In order to provide interim financing, Registrant has withdrawn $185,000 during
fiscal 1997 and an additional $15,000 in September, 1997 against a split dollar
insurance plan. Registrant has also sold its non-California oil and gas
production for $100,000 cash to an affiliate as described better in Item 12.
Further, during August and October of 1997, Registrant has borrowed an
additional $130,000 to finance its share of drilling an offset well on the Emigh
property from the same person. In addition, officers of the Registrant have
elected to defer a portion of their salary and expense reimbursements. At June
30, 1997, the amount due to officers was approximately $72,000 and $5,000 at
June 30, 1996. At the time of this filing, Registrant owed its officers
approximately $122,000.
In view of its working capital 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. In light of successful drilling operations by the Registrant in
recent months, increased revenues should reduce or eliminate the working capital
deficit and contribute considerably to the Registrant's cash flow in the coming
year.
From June 30, 1996 to June 30, 1997, Registrant's working capital decreased by
$158,373 to a negative $113,345. The decrease was due to the expenditure of
funds by Registrant for its necessary continuing operations, an increase in
current liabilities as officers agreed to defer salaries and expense
22
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations (Continued)
-------------------------
reimbursements, and a decrease in Registrant's precious metals inventory.
Registrant received no additional revenues from the sale of gold following
October 1995 to compensate for the expenditures and increased current
liabilities. Therefore, commencing in fiscal 1996 Registrant reviewed all
aspects of its operations in an effort to reduce expenditures as much as
possible while making efforts to preserve Registrant's assets and build up cash
flow. These decisions included: the sale of Registrant's oil and gas assets in
Montana, North Dakota, Oklahoma and Texas; the decision to defer the payment of
portions of salaries and expense reimbursements; the decision to defer
compliance with Registrant's reporting obligations under the Securities Exchange
Act of 1934, as amended, and the decision to concentrate on the development of
cash flow from oil and gas operations in California, in which a former (now
current) officer of Registrant has significant experience. Based on Registrant's
view of the uranium industry, Registrant also believed that the market would be
receptive to an attractive uranium prospect, although since that decision was
made the market for uranium has not improved as management had anticipated.
These decisions resulted in Registrant sharing certain oil and gas drilling
opportunities with third party investors (including some affiliated investors as
described in Item 12, below) and taking a reduced interest until after payout to
the third party investors. Payout in several of the wells has occurred, and
consequently Registrant is now receiving increased revenues from its oil and gas
operations. This commenced in the first quarter of calendar year 1998. In
addition, Registrant has received a non-refundable $50,000 payment from an
unaffiliated investor interested in pursuing Registrant's uranium prospects. In
addition, this investor has made non-binding commitments to advance additional
funds if it chooses to pursue this project further.
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. Registrant was financially unable to acquire the substantial land
positions needed to control a major part of the mineral rights on the Kaycee and
Shamrock prospects, but Registrant has reached an agreement with a newly-formed
Toronto, Ontario-based company whereby Registrant has received a $50,000 cash
payment and a commitment to receive an additional $200,000 as financing can be
arranged in Canada. Management of the newly-formed company will likely be based
in Toronto. Under the terms of the agreement reached in March, 1998, Registrant
will also own approximately 25% (2,000,000 shares) of the common stock of the
newly-formed company.
23
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations (Continued)
-------------------------
Registrant knows of no market for the stock of this company and does not know if
any market will ever develop; thus the stock may prove to be of no value. The
president of Registrant is expected to provide geological and logistical
consulting services to the newly-formed company and Registrant will bill the
newly-formed company for those services as well as out-of-pocket expenses
related to the effort.
Management of Registrant believes that both uranium prospects are prospective
for the production of uranium by in situ methods, although there is no assurance
such deposits will be found or may be exploited.
Results of Operations
---------------------
1997 Compared to 1996
- ---------------------
For the twelve months ended June 30, 1997 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
uranium production.
Effective November 1, 1996 Registrant sold its interest in all of its
non-California properties for $100,000. Proceeds from the sale were used to
reduce the basis of its full cost pool and no gain or loss was recognized on the
transaction.
During 1997, Registrant wrote off its remaining investment in the Nome Gold
Joint Venture and Echo Canyon of approximately $13,000. Registrant also wrote
off $30,500 in organizational costs relating to Aspen Recursos de Mexico and ISL
Resources Corporation.
Oil and gas revenues, which includes income from management fees, for the twelve
months ended June 30, 1997 increased $155,791, from $209,936 to $365,727, a 74%
improvement. This increase reflects increased emphasis on operations conducted
in California and the initial production from the Emigh lease which came on
stream in November, 1996.
Oil and gas production expenses decreased $16,766 from $53,782 to $37,016, a 31%
decrease. The sale of all non-California properties which had relatively high
operating costs and higher production tax rates contributed to the decrease.
Also, Registrant had a higher percentage of gas wells than oil wells at June 30,
1997, which typically have much lower operating costs.
24
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations (Continued)
-------------------------
Depletion, depreciation and amortization decreased significantly, from $125,220
to $39,691, an $85,529 reduction or 68%. This reduction was due primarily
because of the sale of marginal short lived properties in November of 1996 and
the addition of longer lived gas reserves during the year.
Selling, general and administrative expenses remained fairly constant during
fiscal 1997, increasing approximately 3%.
As a result of Registrant's operations for the fiscal year ended June 30, 1997,
Registrant ended the year with a net loss of ($352,315) compared to a net loss
of ($322,325) a year earlier. This increase of approximately $30,000 reflected a
decrease in total revenues of $64,623 due primarily to the elimination of gold
sales and the one time mineral tax settlement of $45,000 in 1996. The revenue
reduction was partially offset by increased revenues from oil and gas operations
(including fees) of approximately $156,000.
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. Accordingly,
as of June 30, 1997, the Company has converted all of its computer software to
accommodate the "Year 2000" issue. The amount expensed in 1997 was immaterial.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Aspen Exploration Corporation and Subsidiaries
Denver, Colorado
We have audited the consolidated balance sheets of Aspen Exploration
Corporation and Subsidiaries as of June 30, 1997 and 1996 and the
related statements of operations, stockholders' equity, and cash flows
for the years ended June 30, 1997 and 1996. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Aspen
Exploration Corporation and Subsidiaries as of June 30, 1997 and 1996,
and the results of their consolidated operations and cash flows for the
years ended June 30, 1997 and 1996 in conformity with generally
accepted accounting principles.
GORDON, HUGHES & BANKS, LLP
Englewood, Colorado
March 2, 1998
26
<PAGE>
Item 7. Financial Statements and Supplementary Data
- ---------------------------------------------------
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
----------------------------
1997 1996
----------- -----------
Current Assets:
Cash and cash equivalents, including
$238,415 and $99,780 of invested
cash in 1997 & 1996, respectively ........ $ 238,465 $ 102,223
Precious metals (Note 1) ................... 18,823 221,866
Accounts receivable, trade, net of
allowance for doubtful accounts
of $12,495 in 1997 and $37,000 in
1996 ..................................... 46,870 61,245
Prepaid expenses ........................... 3,732 4,923
----------- -----------
Total current assets ....................... 307,890 390,257
----------- -----------
Investment in oil & gas properties, at
cost (full cost method of
accounting) (Note 11) ...................... 1,315,458 1,349,047
Less accumulated depletion and
valuation allowance .................... (899,694) (873,221)
----------- -----------
415,764 475,826
----------- -----------
Property and equipment, at cost:
Furniture, fixtures & vehicles ............. 143,559 146,087
Less accumulated depreciation ............ (108,098) (95,094)
----------- -----------
35,461 50,993
----------- -----------
Undeveloped mining properties, at
cost (Note 2), less reserve for
impairment of $193,495 in 1996 ............. 134,354 76,434
----------- -----------
Cash surrender value, life insurance
(Note 3) ................................... 217,471 179,470
----------- -----------
Organization Cost,
Aspen Recursos de Mexico (Note 1) .......... -0- 23,869
----------- -----------
Total assets ................................. $ 1,110,940 $ 1,196,849
=========== ===========
(Statement Continues)
See Notes to Consolidated Financial Statements
27
<PAGE>
Item 7. Financial Statements and Supplementary Data
- ---------------------------------------------------
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
----------------------------
1997 1996
----------- -----------
Current liabilities:
Accounts payable and accrued
expenses (Note 10) ....................... $ 118,220 $ 80,713
Advances from joint interest owners
(Note 10) ................................ 230,624 245,481
Severance taxes payable .................... -0- 13,819
Due to related parties (Note 9) ............ 72,391 5,216
----------- -----------
Total current liabilities .................. 421,235 345,229
----------- -----------
Commitments and contingencies
(Note 12)
Note payable (Note 5) ........................ 185,000 -0-
----------- -----------
Stockholders' equity:
(Notes 1 and 6):
Common stock, $.005 par value:
Authorized: 50,000,000 shares
Issued: 4,559,922 in 1997 and
4,424,922 in 1996
Outstanding: 4,456,322 in 1997 ........ 22,799 22,124
and 4,321,322 in 1996
Capital in excess of par value ............. 5,609,359 5,604,634
Accumulated deficit ........................ (5,127,453) (4,775,138)
----------- -----------
Total stockholders' equity ................. 504,705 851,620
----------- -----------
Total liabilities and stockholders'
equity ..................................... $ 1,110,940 $ 1,196,849
=========== ===========
See Notes to Consolidated Financial Statements
28
<PAGE>
Item 7. Financial Statements and Supplementary Data
- ---------------------------------------------------
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
----------------------------
1997 1996
----------- -----------
Revenues:
Oil and gas (Note 9) ....................... $ 316,162 $ 145,448
Mineral (Notes 1 and 2) .................... -0- 189,130
Mineral severance tax settlement
(Note 2) ................................. -0- 45,000
Fees and equipment rentals (Note 1) ........ 49,565 64,488
Interest ................................... 4,281 4,508
Other income ............................... 13,943 -0-
----------- -----------
383,951 448,574
----------- -----------
Costs and expenses:
Oil and gas production ..................... 37,016 53,782
Loss on mineral sales ...................... 7,027 -0-
Depreciation, depletion and
amortization ............................. 39,691 125,220
Write off of mineral properties ............ 13,082 -0-
Write off organizational costs ............. 30,529 -0-
Selling, general and administrative ........ 608,921 591,897
----------- -----------
736,266 770,899
----------- -----------
Net (loss) ................................... $ (352,315) $ (322,325)
=========== ===========
Net (loss) per common share .................. $ (.08) $ (.08)
=========== ===========
Weighted average number of common
shares outstanding ......................... 4,490,019 4,274,489
=========== ===========
See Notes to Consolidated Financial Statements
29
<PAGE>
<TABLE>
<CAPTION>
Item 7. Financial Statements and Supplementary Data
- ---------------------------------------------------
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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, 1995 4,297,922 $ 21,489 $ 5,640,323 $(4,452,813) 103,600 $ (46,754)
Stock issued to Officers
for services at $.08
per share 50,000 250 3,750 -- -- --
Stock issued to Directors,
Employees, and Consultants
for services at $.10 per
share 77,000 385 7,315 -- -- --
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)
Stock issued to Officers,
Directors, Employees
and Consultants for
services at $.04 per share 135,000 $ 675 $ 4,725 -- -- --
Net loss for year (352,315)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997 4,559,922 $ 22,799 $ 5,656,113 $(5,127,453) 103,600 $ (46,754)
=========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements
30
</TABLE>
<PAGE>
Item 7. Financial Statements and Supplementary Data
- ---------------------------------------------------
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
1997 1996
--------- ---------
Cash flows from operating activities:
- -------------------------------------
Net (loss) ......................................... $(352,315) $(322,325)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Services rendered for overriding royalty interest .. 10,000 --
Services rendered for stock ........................ 5,400 11,700
Depreciation, depletion, amortization and
valuation allowance .............................. 39,691 125,220
(Gain) loss on disposal of precious metals,
equipment and mineral properties ................. 50,638 --
Precious metals received ........................... -- (246,589)
Proceeds from the sale of precious metals .......... 196,016 743,111
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, and
prepaid expenses .............................. 15,566 (30,520)
Increase (decrease) in accounts payable, accrued
expenses and due to related parties ........... 89,825 234,082
Decrease in production taxes payable ............. (13,819) (69,600)
--------- ---------
Net cash provided by operating activities ............ 41,002 445,079
Cash flows from investing activities:
- -------------------------------------
Prospect fees ...................................... 81,237 --
Return of computer equipment ....................... 4,790 --
Sale of oil and gas properties ..................... 100,000 104,723
Development of oil and gas properties .............. (157,648) (422,076)
Office equipment purchased ......................... (2,262) (27,100)
Additions to undeveloped mining properties ......... (71,002) (64,802)
Additions to cash surrender value .................. (38,001) (49,843)
Organization Cost - Recursos de Mexico and ISLR .... (6,874) (649)
--------- ---------
Net cash (used in) investing activities .............. (89,760) (459,747)
Cash flows from financing activities:
- -------------------------------------
Note from life insurance policy .................... 185,000 --
--------- ---------
Net cash provided by financing activities ............ 185,000 --
--------- ---------
Net increase (decrease) in cash and equivalents ...... 136,242 (14,668)
Cash and cash equivalents, beginning of year ......... 102,223 116,891
--------- ---------
Cash and cash equivalents, end of year ............... $ 238,465 $ 102,223
========= =========
See notes to consolidated financial statements
31
<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.
Through November 1996, the Company had oil and gas operations in Wyoming,
Montana, North Dakota, Colorado and California, after November 1996,
principally in California. The Company's primary mineral projects and
targets of exploration are in central Wyoming.
The Company has two wholly owned subsidiaries and owns a 50% interest in
another company. None of the subsidiaries have any assets, liabilities or
operations.
During fiscal year 1997 and the first two quarters of fiscal year 1998, the
Company experienced cash flow and liquidity problems; however, subsequently
cash flow has substantially increased, due to the production from two gas
wells, which has allowed the Company to pay creditors and resume more
normal operations.
A summary of the Company's significant accounting policies follows:
Consolidated financial statements
---------------------------------
The consolidated financial statements include the Company and its
wholly-owned subsidiaries, Aspen Gold Mining Company and Aspen Recursos de
Mexico, and its 50% owned ISL Resources Corporation. Significant
intercompany accounts and transactions, if any, have been eliminated.
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.
Management's Use of Estimates
-----------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
32
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The mining and oil and gas industries are subject, by their nature, to
environmental hazards and cleanup costs for which the Company carries
catastrophe insurance. At this time, management knows of no substantial
costs from environmental accidents or events for which it may be currently
liable. In addition, the Company's oil and gas business makes it vulnerable
to changes in wellhead prices of crude oil and natural gas. Such prices
have been volatile in the past and can be expected to be volatile in the
future. By definition, proved reserves are based on current oil and gas
prices. Price declines reduce the estimated quantity of proved reserves and
increase annual amortization expense (which is based on proved reserves).
Financial Instruments
---------------------
The carrying value of current assets and liabilities reasonably
approximates their fair value due to their short maturity periods. The
carrying value of the Company's debt obligations reasonably approximates
their fair value as the stated interest rate approximates current market
interest rates of debt with similar terms.
New Accounting Pronouncements
-----------------------------
Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128 ("SFAS No. 128"), addressing earnings per
share. SFAS No. 128 changed the methodology of calculating earnings per
share and renamed the two calculations basic earnings per share (currently
primary) and diluted earnings per share (currently fully diluted). The
calculations differ by eliminating any common stock equivalents (such as
stock options, warrants, and convertible preferred stock) from basic
earnings per share and changes certain calculations when computing diluted
earnings per share. SFAS No. 128 is effective for reporting periods ending
after December 15, 1997. The Company will adopt SFAS No. 128 in fiscal year
1998.
33
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital Structure
-----------------
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information about Capital Structure" ("SFAS No. 129"),
which requires all companies to disclose all relevant information regarding
their capital structure. SFAS No. 129 presentation is required for
reporting periods ending after December 15, 1997. Based on the capital
structure disclosures presented in the accompanying consolidated financial
statements and notes thereto, the Company does not believe that any
additional disclosures will be required as a result of adopting this
pronouncement.
Comprehensive Income
--------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes
standards for reporting of comprehensive income. This pronouncement
requires that all items recognized under accounting standards as components
of comprehensive income, as defined in the pronouncement, be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The financial statement presentation required
under SFAS No. 130 is effective for all fiscal years beginning after
December 15, 1997. The Company will adopt SFAS No. 130 in 1998. For fiscal
years 1997 and 1996, the impact of adopting this pronouncement has not been
determined.
Segment Reporting
-----------------
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), which amends the requirements for a public enterprise to report
financial and descriptive information about its reportable operating
segments. Operating segments, as defined in the pronouncement, are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the Company in deciding how to
allocate resources and in assessing performance. The financial information
is required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The disclosures required by SFAS No. 131 are effective for all
fiscal years beginning after December 15, 1997. The Company will adopt SFAS
No. 131 in fiscal 1998. As of June 30, 1997, the impact of this
pronouncement has not been determined.
34
<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, 1997 or 1996.
Sales of gold from inventory for the years ended June 30, 1997 and 1996
were $196,016 and $743,111, 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 receipt of prospect fees or 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, 1997 and June 30, 1996.
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.
35
<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.
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 (loss) per common share
---------------------------
Net (loss) per common share is based on the weighted average number of
shares of common stock outstanding during the period.
Organization Costs
------------------
The Company records organization costs associated with its subsidiaries and
amortizes them over 60 months. During the first quarter ended September 30,
1994, the Company formed a subsidiary, Aspen Recursos de Mexico, S.A. de
C.V. ("Aspen Recursos"). Aspen Recursos is qualified to do business in
Mexico and that will allow the Company to investigate and acquire interests
36
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in mineral prospects in Mexico. In September of 1996 the Company formed a
mining subsidiary called ISL Resources Corporation to prospect for and
acquire mining leases. Both ISL Resources and Aspen Recursos are inactive
and the Company expensed costs associated with these subsidiaries of
approximately $30,500 at June 30, 1997.
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 has restored 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 in-kind net royalty income of $-0- and $189,130 in the years
ended June 30, 1997 and 1996, respectively. From inception in 1985 through
June 30, 1997, the Company has received $2,707,695 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. A settlement has been reached by the parties
whereby each party pays its own legal costs and other expenses involved in
the litigation. No damages were paid by either party.
37
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company owned 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
dropped these leases during 1997 by non payment of delay rentals due.
All costs incurred by the Company on NGJV have been expensed as of June 30,
1997.
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.
KAYCEE AND SHAMROCK URANIUM PROSPECTS
-------------------------------------
The Company has recently begun exploration for in situ uranium deposits in
Wyoming. At June 30, 1997 and 1996, the Company had expended $63,352 and
$134,430, respectively, on the two prospects.
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.
On October 30, 1995 the Alaska Department of Revenue notified the Company
that the Department of Natural Resources had issued Certificates of Initial
Production to the Department of Revenue. The Department of Revenue further
38
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in fiscal 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 (not to exceed $9,500) to the
plan. Under the plan, the Company may make discretionary contributions to
the plan. The Company made no plan contribution for fiscal 1996 nor fiscal
1997.
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
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, 1996, the Company paid $60,000 in premiums, of
which the President's portion was approximately $21,273. Additional
compensation of $8,127 had been recognized as reimbursement to the
President for income taxes. For the year ended June 30, 1997, the Company
paid $60,000 in premiums, of which the President's portion was $22,051.
39
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additional compensation of $8,422 has been recognized as reimbursement to
the President for income taxes. As of June 30, 1997 and June 30, 1996, the
Company's accumulated cash surrender value was $217,471 and $179,470,
respectively, which has been included as an asset on the Company's balance
sheet. During 1997, the Company withdrew $185,000 of cash surrender value
to pay expenses. The death benefit payable to the named beneficiary as of
June 30, 1997 and 1996, is approximately $760,000 and $798,000,
respectively. At June 30, 1997 there was an excess cash surrender value
available to the executive of approximately $43,600. At June 30, 1996 there
was little or no excess cash surrender value available to the executive.
Medical Benefit Plan
--------------------
For the fiscal years ended June 30, 1996 and 1997, the Company had a policy
of reimbursing employees for medical expenses incurred but not covered by
the Company's paid medical insurance plan. Expenses reimbursed for fiscal
1996 and fiscal 1997 were $12,000 and $10,000, 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 C D
Year ended: --- --- --- ---
June 30, 1996 57% 16% - -
June 30, 1997 - 36% 16% 13%
Note 5 NOTE PAYABLE
As of June 30, 1997, the Company has borrowed $185,000 from the cash
surrender value of the split dollar life insurance policy disclosed in Note
3. The Company pays interest on the debt at 6% (also the average interest
rate) per year which is collateralized by the cash surrender value owned by
the Company. There is no maturity date for the debt other than the
termination of the policy.
40
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 COMMON STOCK
On the balance sheet, the Company has presented the treasury stock as
netted against the outstanding shares and netted against the additional
paid-in capital. Treasury shares have been shown separately in the
Statement of Stockholders' equity.
On September 11, 1995, the Company granted 50,000 shares to two directors,
25,000 shares to the Company's consultant and officer and 2,000 shares to
one of the Company's employees, all at $.10 per share. On February 16,
1996, the Company granted 50,000 shares of common stock to the Company's
vice president at $.08 per share. The weighted average fair value of stock
awards for fiscal 1996 was $.09 per share.
On January 6, 1997, the Company granted 75,000 shares to the Company's vice
president, 40,000 shares to directors, 10,000 shares to the Company's
consultant and officer and 10,000 shares to one of the Company's employees
at a value (and weighted average fair value for fiscal 1997) of $.04 per
share.
In 1996 the Company formed ISL Resources Corporation (ISLR) as a
wholly-owned subsidiary to pursue uranium opportunities. In 1997 the
Company conveyed 50% interest in ISLR to an unaffiliated third party who
was to arrange financing for the uranium projects. At that time, ISLR had
not been capitalized with the uranium properties in which the Company owned
an interest, although ISLR did obtain rights to certain information that
had been developed for the projects. The financing was not accomplished,
and the Company reacquired the data from ISLR in 1997 and resolved other
outstanding issues by conveying to the third party 20,000 shares of the
Company's restricted common stock. The Company continues to own 50% of ISLR
but it is completely inactive.
41
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 INCOME TAXES
At June 30, 1997 the Company had a Net Operating Loss ("NOL") carry-forward
for tax purposes of approximately $3,987,393 (expiring in the years 1998 to
2008). In addition, the Company had tax credit carry-forwards of
approximately $30,400 (expiring in the years 1998 to 2001).
Deferred tax assets (liabilities) at June 30, 1997 and 1996 are as follows:
1997 1996
---------- ----------
Gross deferred tax assets:
Net operating loss carry-forward $1,355,714 $1,443,626
Valuation allowance for deferred
tax assets.................... (1,264,484) (1,335,408)
---------- -----------
Net deferred tax asset 91,230 108,218
---------- ----------
Gross deferred tax liabilities:
Depreciation and other property,
plant and equipment basis
differences................... (91,230) (108,218)
---------- ----------
Net deferred tax asset
(Liabilities) $ -0- $ -0-
========== ==========
During fiscal 1997, the valuation allowance for deferred tax assets
declined by $70,924.
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, 1997 $786,030 of net
operating loss carryforwards and $1,890 of investment tax credits have
expired.
42
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 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.
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 of life insurance, and furniture, fixtures and
vehicles.
Segment information consists of the following:
Year ended June 30,
------------------------------
1997 1996
----------- -----------
Revenue:
Oil and gas ............................ $ 365,727 $ 209,936
Mining ................................. -0- 234,130
General corporate ...................... 18,224 4,508
----------- -----------
Total revenue .......................... $ 383,951 $ 448,574
=========== ===========
Results of operations
(excluding overhead
and interest costs):
Oil and gas ............................ $ 302,237 $ 43,807
Mining ................................. (20,109) 234,130
General corporate
operations ........................... (634,443) (600,262)
----------- -----------
Net income (loss) ............... $ (352,315) $ (322,325)
=========== ===========
Depreciation, depletion
amortization and valuation
charged to identifiable
assets:
Oil & gas depletion .................. $ 26,474 $ 112,347
Mining ............................... 20,109 -0-
General corporate .................... 43,746 12,873
----------- -----------
Total ........................... $ 90,329 $ 125,220
=========== ===========
Capitalized expenditures:
Oil and gas .......................... $ 157,648 $ 422,076
=========== ===========
Mining ............................... $ 71,002 $ 56,908
=========== ===========
Corporate ............................ $ 47,137 $ 27,100
=========== ===========
Identifiable assets, net of
accumulated depreciation,
depletion and amortization:
Oil and gas .......................... $ 472,634 $ 537,072
Mining ............................... 153,177 298,300
General corporate .................... 495,129 361,477
----------- -----------
Total ........................... $ 1,120,940 $ 1,196,849
=========== ===========
43
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 RELATED PARTY TRANSACTIONS
At June 30, 1997 and 1996, the Company owed its officers, shareholders and
directors $72,391 and $5,216, respectively. The amounts are primarily owed
for accrued but unpaid compensation and unreimbursed medical, travel and
entertainment expenses.
During the years ended June 30, 1997 and 1996 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 $5,000 and $15,000, respectively,
in the years ended June 30, 1997 and 1996. 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 on the OTC Bulletin Board, or as reported by another Nasdaq
quotation service or any exchange on which the Company's common stock is
quoted. 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.
The Vice President in California provides the Company an office in his home
at no cost to the Company.
44
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Royalties in the fiscal year ended June 30, 1997 were assigned on October
2, 1996 on the Emigh leases on which the Emigh 34-1 well was drilled and
later completed. A nominal value of $10,000 was assigned to these overrides
since the well was not determined to be proved until after the first
production runs in mid-November 1996. The overriding royalty interests in
these California properties granted to its employees resulted in the
following percentages:
Emigh 34-1
Before After
Payout Payout
------- -------
R. V. Bailey 1.3068% 1.1266%
Robert A. Cohan 1.3069% 1.1266%
Judith L. Shelton 0.2500% 0.2156%
R. V. Bailey, President and director of the Company, Robert A. Cohan, Vice
President of the Company, and Ray K. Davis, consultant and officer of the
Company, each have working and royalty interests in certain of the
California oil and gas properties operated by the Company. The affiliates
paid for their proportionate share of all costs to acquire, develop and
operate these properties. As of June 30, 1997, working interests of the
Company and its affiliates in certain California properties are set forth
below:
ASPEN R. V. R. A. R. K.
WELL STATUS EXPLORATION BAILEY COHAN DAVIS
---- ------ ----------- ------ ----- -----
HOPPER 2 DRY 5.50% -% -% -%
NORTH STRAND 1 DRY 14.05 2.70 - 2.70
GREY WOLF 1 PROD 18.00 2.00 2.50 2.00
BRANDT 16X-27 PROD 18.00 1.80 - 8.10
ARCO 36X-10 PROD 12.00 1.20 - 5.40
ARCO 46X-10 SHUT IN 12.00 1.20 - 5.40
ARCO 34X-10 SHUT IN 12.00 1.20 - 5.40
ARCO 35X-10 SHUT IN 12.00 1.20 - 5.40
ENRON 66X DRY 10.00 - - 1.00
EMIGH 34-1 PROD 23.55 - - 1.00
SANBORN 3-3 PROD .95 - - -
See Note 12 for additional related party disclosure.
Note 10 CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
45
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equivalents and accounts receivable. While the Company has approximately
$140,000 in excess of the FDIC $100,000 limit at one bank, 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.
Note 11 OIL AND GAS ACTIVITIES
Capitalized costs
-----------------
Capitalized costs associated with oil and gas producing activities are as
follows:
June 30,
--------------------------
1997 1996
----------- -----------
Proved properties $ 1,325,458 $ 1,349,047
----------- -----------
Accumulated depreciation,
depletion and
amortization (617,975) (591,501)
Valuation allowance (281,719) (281,720)
----------- -----------
(899,694) (873,221)
----------- -----------
Net capitalized costs $ 425,764 $ 475,826
=========== ===========
Costs incurred
--------------
Information relating to the Company's costs incurred in its oil and gas
operations is summarized as follows:
Year ended June 30,
------------------------
1997 1996
-------- --------
Property acquisition $ -0- $288,434
Development 157,648 133,642
-------- --------
$157,648 $422,076
======== ========
Fees charged by the Company to operate the properties totalled
approximately $4,130 per month in 1997 and $5,374 per month in 1996. The
Company sold 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 oil and gas interests outside of California to the
46
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's consulting accountant, officer and shareholder for $100,000. No
gain or loss was recognized on the transaction and the proceeds were used
to adjust the full cost pool. The sale price was for a discount of
approximately 30% of the future net cash flows related to those properties.
Prospect generation fees received from outside investors in wells drilled
during fiscal 1997 and 1996 amounted to $139,800 and $114,700,
respectively. These amounts were charged against the full cost pool.
Results of operations
---------------------
Results of operations for oil and gas producing activities are as follows:
Year ended June 30,
-------------------------
1997 1996
--------- ---------
Revenues* $ 365,727 $ 209,936
Production costs (37,016) (53,782)
Depreciation and depletion (26,474) (112,347)
--------- ---------
Results of operations
(excluding corporate overhead) $ 302,237 $ 43,807
========= =========
*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, 1997 and
1996 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.
47
<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, 1995 35 53
Revisions of previous estimates 2 1
Acquisitions 42 58
Production (6) (6)
--- ---
Estimated quantity, June 30, 1996 73 106
Revisions of previous estimates (20) 4
Sale of properties (32) (40)
Discoveries 12 1,643
Production (5) (82)
---- -----
Estimated quantity, June 30, 1997 28 1,631
==== =====
Proved reserves Developed Undeveloped Total
at year end --------- ----------- -----
--------------- (In Thousands)
Oil (Bbls)
June 30, 1996 73 0 73
June 30, 1997 17 11 28
Gas (MCF)
June 30, 1996 106 0 106
June 30, 1997 591 1,040 1,631
48
<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,
--------------------------
1997 1996
-------- --------
(in thousands)
Future cash inflows $ 4,185 $ 1,511
Future production and
development costs (537) (604)
Future income tax
expense (1) -- --
-------- -------
Future net
cash flows 3,648 907
10% annual discount
for estimated timing
of cash flows (1,098) (373)
-------- -------
Standardized measure
of discounted future
net cash flows $ 2,550 $ 534
======== =======
(1) Net operating loss carryforward exceeds future net cash flows.
49
<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,
-------------------
1997 1996
------- --------
(in thousands)
Standardized measure of
discounted future net
cash flows, beginning
of year $ 534 $ 218
------- -------
Sales and transfers of
oil and gas produced,
net of production
costs (226) (92)
Net changes in prices
and production costs
and other (180) 92
Net change due to
discoveries 2,506 --
Acquisition of reserves -- 265
Sale and farm-out of
proved reserves
in place (194) --
Revisions of previous
quantity estimates (149) 10
Other 206 19
Net change in income taxes -- --
Accretion of discount 53 22
------- -------
2,016 316
------- -------
Standardized measure
of discounted future
cash flows, end of
year $ 2,550 $ 534
======= =======
Net changes in prices of $180,000 were the result of a decline in the price
received for oil and gas at year end. This decline was offset somewhat by a
significant reduction in operating costs associated with more producing gas
50
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
wells and fewer oil wells. The revision of previous estimates of $149,000
was the result of assigning 21,000 fewer recoverable barrels of oil to the
Brandt and Arco wells. The increase of $2,506,000 in new discoveries was
the direct result of the Company's successful drilling of the Emigh 34-1,
which proved up the surrounding acreage. The Company sold all of its
non-California properties effective November 1, 1996 resulting in a
reduction of future net cash flows of $194,000.
Note 12 COMMITMENTS AND CONTINGENCIES
At June 30, 1997 the Company was committed to the following drilling and
development projects in California:
1. Drill, complete and equip the Emigh 2-1 well.
2. Drill, complete and equip the Brandt 26X-27 well.
3. Drill, complete and equip the Compton Landing 97-1 well.
4. Install a pipeline and put the Arco 46X well on production.
Total costs for these projects was estimated to be $1,789,000, of which
$270,000 was to be paid by the Company. As of June 30, 1997, the Company
had received approximately $230,600 in prepayments from third party
investors for their share of the projects outlined above.
The Company has an employment agreement with its President which provides
for compensation of $125,000 per year (reduced voluntarily to $100,000
effective February 1, 1998) to be paid, plus reimbursement of travel,
entertainment, and medical 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, 1999) 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
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.
51
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company entered into an employment agreement with Robert Cohan on April
16, 1997, which provides for the payment of $85,000 for the first year of
employment, plus reimbursement of travel, entertainment, medical expenses
and certain office costs, including health insurance and the payments on a
truck. If 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, 1998 to April 15,
1999 at the rate of $90,000 per year.
Note 13 SUBSEQUENT EVENTS
In October 1997, the Company drilled and completed an extension development
well just west of Bakersfield in Kern County, California. The Company, the
operator of the well, has approximately 680 acres of surrounding acreage
under lease.
In addition, in November 1997 the Company drilled an extension well and
completed the Emigh 2-1 gas well in Solano County, California. A pipeline
has been completed and the well was placed on production on November 10,
1997. The Company has approximately 1,611 net acres under lease in the
vicinity of the well and several more drilling locations are expected to be
identified.
The Company drilled and completed a gas well, the Compton Landing 97-1,
located in Colusa County, California in the late fall of 1997
(October-November). The Company has approximately 370 acres under lease.
The Company borrowed $6,000 from R. V. Bailey on September 15, 1997 payable
January 15, 1998. This loan bears interest of 10% and was paid in full on
March 2, 1998.
The Company borrowed $130,000 from Ray K. Davis on October 15, 1997 for the
drilling and completion of the Emigh 2-1 payable over 36 months. This loan
bears interest of 10.5% and is collateralized by a portion of the Company's
interest in the Emigh 2-1.
The Company granted Stock Options expiring January 1, 2002, to purchase
shares of the Company's restricted common stock to the following
individuals for their service to the Company:
Robert A. Cohan, officer, options to acquire 200,000 shares granted on
November 1, 1997;
R. V. Bailey, officer, options to acquire 200,000 shares granted on
November 1, 1997;
52
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Judith L. Shelton, employee, options to acquire 100,000 shares granted on
February 1, 1998;
Ray K. Davis, consultant and officer, options to acquire 100,000 shares
granted on February 1, 1998;
Lawton L. Clark, director, options to acquire 80,000 shares granted on
November 1, 1997;
Robert F. Sheldon, director, options to acquire 80,000 shares granted on
November 1, 1997;
The options awarded to Robert Cohan are exercisable as follows: 25% of such
options on November 1, 1997 at 20(cent) per share; 25% of such options on
October 15, 1998 at 24(cent) per share; 25% of such options on October 15,
1999 at 28(cent) per share; and 25% of such options on October 15, 2000 at
32(cent) per share.
The options awarded to Ray K. Davis and Judith L. Shelton are exercisable
as follows: 25% of such options on February 1, 1998 at 20(cent) per share;
25% of such options on October 15, 1998 at 24(cent) per share; 25% of such
options on October 15, 1999 at 28(cent) per share; and 25% of such options
on October 15, 2000 at 32(cent) per share.
The options awarded to Messrs. Bailey, Clark and Sheldon are immediately
exercisable in full at November 1, 1997 as follows: 25% of such options at
20(cent) per share, 25% of such options at 24(cent) per share, 25% of such
options at 28(cent) per share, and 25% of such options at 32(cent) per
share.
The Company awarded common stock to the following individuals for their
service to the Company:
Lawton L. Clark, director, 20,000 shares granted on November 1, 1997;
Robert F. Sheldon, director, 20,000 shares granted on November 1, 1997;
Robert A. Cohan, officer, 300,000 shares granted on November 1, 1997.
Company management is negotiating with Mr. Cohan a possible buy-back
agreement whereby the Company can acquire, for nominal cost, portions of
the stock granted should Mr. Cohan leave the employment of the Company.
53
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 1, 1997, the Company agreed to acquire extensive geologic data
associated with the Kaycee and Shamrock uranium projects from the Company's
President in exchange for 100,000 shares of the Company's common stock.
On March 1, 1998, the Company entered into an agreement with a newly-formed
Canadian company to provide all of the Company's existing geological data
on the uranium projects, Kaycee and Shamrock, in exchange for $250,000 and
2,000,000 shares of the Canadian company's common stock. On February 27,
1998, the Company received the first installment of $50,000 of the total
$250,000.
54
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
--------------------
Holben, Boak, Cooper & Co., formerly independent accountants for the
Registrant, resigned as auditor on December 3, 1997 due to the pending
dissolution of the accounting firm.
Until the filing of this 10-KSB, no audits have been completed for the last
two fiscal years due to inadequate cash flow; however, no disagreements exist
with any former accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope of procedure.
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 65 President, I 1980
Treasurer
and Director
Lawton L. Clark 73 Director, III 1993
Secretary
Robert F. Sheldon 74 Director II 1981
Robert A. Cohan 41 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.
55
<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 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
19 years experience in oil and gas exploration and development, including
employment in Denver, CO with Western Geophysical, H. K. van Poollen & Assoc.,
56
<PAGE>
Item 9. Directors and Executive Officers of the Company (Continued)
- -------------------------------------------------------------------
Inc., as a Reservoir Engineer and Geologist, Universal Oil & Gas, and as a
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. He is a member
of the Society of Petroleum Engineers (SPE) and the American Association of
Petroleum Geologists (AAPG).
(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.
57
<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 March 16, 1998 all filing requirements applicable to its
officers, directors and greater-than-ten-percent shareholders were complied
with.
58
<PAGE>
<TABLE>
<CAPTION>
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, 1997 and
previous years:
Annual Compensation ($$) Long Term Compensation
------------------------ --------------------------
Awards Payouts
--------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted
Name and Stock Options LTIP Other
Position Year Salary Bonus Other Awards & SARs Payouts Compensation*
- -------- ---- ------ ----- ----- ------ ------ ------- -------------
($$) ($$) ($$) ($$) (##) ($$) ($$)
R. V. Bailey,
as President 1997 125,000 0 38,501 0 0 0 14,464
and Chief 1996 125,000 750 37,820 0 0 0 16,300
Executive 1995 125,000 750 28,354 0 0 0 10,228
Officer 1994 125,000 750 39,942 0 0 0 19,840
1993 125,000 0 44,214 0 0 0 15,501
Annual Compensation ($$) 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 1997 81,042 0 0 3,000 0 0 5,464
President of 1996 76,000 750 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
* Registrant has an "Amended Royalty and Working Interest Plan" by which
Registrant is able to assign overriding royalty interests or working
interests in oil and gas properties or in 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 oil or gas or mineral
prospects.
The above table includes all amounts paid or unpaid, other than stock
awards. Amounts unpaid, at the election of the named executive officers, were
$52,000 for R. V. Bailey and $6,666 for R. A. Cohan and were included in the
table.
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
59
</TABLE>
<PAGE>
Item 10. Executive Compensation - Continued
- -------------------------------------------
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, in fiscal 1997 $30,077 of
the premium paid for this policy is considered compensation to Mr. Bailey and
$8,424 was also paid to reimburse the tax effect of the executive split. At June
30, 1997 Registrant had accrued and not paid the $8,424 tax reimbursement. All
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, 1996 Registrant contributed $-0- to the plan
for the Plan Year 1996. At June 30, 1997 Registrant paid $-0- to the plan for
the Plan Year 1997. When amounts are contributed to Mr. Bailey's and Mr. Cohan's
accounts (which amounts are fully vested), these amounts are also included in
column (e) of the tables, above.
Registrant has furnished a vehicle to Mr. Bailey, and the compensation
allocable to this vehicle, plus amounts paid for various travel and
entertainment paid on behalf of Mr. Bailey and Mr. Bailey's wife when she
accompanied him for business purposes, are also included in column (i) of the
table. Registrant 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.
Royalties in fiscal year ended June 30, 1997 were assigned on October 2,
1996 on the Emigh leases on which the Emigh 34-1 well was drilled and later
completed. A nominal value of $10,000 has been assigned to these overrides since
the well was not determined to be proved until after the first production runs
in mid-November 1996. The overriding royalty interests in these California
properties granted to its employees resulted in the following percentages:
Emigh 34-1
Before After
Payout Payout
------ ------
R. V. Bailey 1.3068% 1.1266%
Robert A. Cohan 1.3069% 1.1266%
Judith L. Shelton 0.2500% 0.2156%
60
<PAGE>
Item 10. Executive Compensation - Continued
- -------------------------------------------
Finally, Registrant has entered into 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.
(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. There was one board
of directors meeting in fiscal 1997 attended in person by two directors and a
third by telephone, and 6 telephonic board of directors meetings.
On February 11, 1997 (effective December 13, 1996) Registrant issued 20,000
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 (reduced voluntarily to $100,000
effective February 1, 1998) 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
61
<PAGE>
Item 10. Executive Compensation - Continued
- -------------------------------------------
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 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 on the OTC 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 Robert A. Cohan on
April 16, 1997, which provides for the payment of $85,000 for the first year of
employment, plus reimbursement of expenses, including health insurance and the
lease payments on a truck. If 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, 1998 to
April 15, 1999 at the rate of $90,000 per year. (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 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
truck.
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, 1997 or subsequently.
62
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners & Management
- ---------------------------------------------------------------------
(a)-(b) The following table sets forth as of March 16, 1998 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 & 1,187,272(1) 20.61%
Beneficial
Robert A. Cohan Record 625,000(2) 10.85%
Robert F. Sheldon Record 163,160(3) 2.83%
Lawton L. Clark Record 145,000(4) 2.52%
All Officers and Both Record 2,120,432 36.81%
Directors as a & Beneficial
Group (4 persons)
(1) This number includes 870,952 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 obligation of Registrant to purchase up to 75% of the
common shares of Registrant owned by Bailey at the time of his death. This
obligation expires 120 days from the date of Bailey's death. In addition,
the number of shares owned includes 100,000 shares of common stock granted
in a property exchange and stock options granted for 200,000 shares of
common stock on November 1, 1997.
(2) This number includes 300,000 shares of common stock granted and stock
options granted for 200,000 shares of common stock on November 1, 1997,
some of which are not currently exercisable. An agreement for reacquisition
of shares granted is being negotiated between Registrant and Mr. Cohan.
(3) This number includes 20,000 shares of common stock granted December 13,
1996, 20,000 shares of common stock granted November 1, 1997 and stock
options granted for 80,000 shares of common stock on November 1, 1997.
(4) This number includes 20,000 shares of common stock granted December 13,
1996, 20,000 shares of common stock granted November 1, 1997 and stock
options granted for 80,000 shares of common stock on November 1, 1997.
63
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners & Management -
- --------------------------------------------------------------------------------
Continued
---------
(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.
64
<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.
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 prospect, located on the western
margin of the Powder River Basin in Wyoming. Registrant is the designated
Operator for the prospect and has spent approximately $130,000 on the prospect
to date. Over a period of more than 10 years prior to his association with
Registrant Bailey had acquired geological and engineering data relating to the
prospect area, including maps and drill hole logs for more than 2,000 drill
holes. An independent geological consultant has estimated more than 1.7 million
pounds of U3O8 in resources for this prospect, but substantial additional
drilling and other data gathering will be required in order to evaluate the
prospect potential. Registrant has agreed to acquire 100% of Bailey's interest
in the prospect, and all of the data, for 100,000 shares of Registrant's common
stock.
On March 1, 1998, Registrant entered into an agreement with a newly-formed
Canadian mining company whereby the newly-formed Canadian company will acquire
data from Registrant related to two uranium prospects in Wyoming. Geological and
engineering data suggest that uranium deposits amenable to in situ mining
methods may exist within the two defined prospect areas. Under the agreement,
Registrant will be paid US $250,000 in three cash payments in 1998 and
Registrant will be issued approximately 25% (2,000,000 shares) of common stock
of a new Canadian company based in Toronto. The Canadian company will provide
certain funding for land acquisition and exploration work on the two prospects.
Management of Registrant will likely perform geological consulting work on the
prospects and the Canadian company will be billed for such work. There is no
assurance that work on the two prospects will result in discovery or definition
of minable uranium deposits.
65
<PAGE>
Item 12. Certain Relationships and Related Transactions (Continued)
- -------------------------------------------------------------------
R. V. Bailey, President and director of Registrant, Robert A. Cohan, Vice
President of Registrant, and Ray K. Davis, consultant and officer of Registrant,
each have working and royalty interests in certain of the California oil and gas
properties operated by Registrant. The affiliates paid for their proportionate
share of all costs to acquire, develop and operate these properties. As of June
30, 1997, working interests of the Company and its affiliates in certain
California properties are set forth below:
ASPEN R. V. R. A. R. K.
WELL STATUS EXPLORATION BAILEY COHAN DAVIS
---- ------ ----------- ------ ----- -----
HOPPER 2 DRY 5.50% -% -% -%
NORTH STRAND 1 DRY 14.05 2.70 - 2.70
GREY WOLF 1 PROD 18.00 2.00 2.50 2.00
BRANDT 16X-27 PROD 18.00 1.80 - 8.10
ARCO 36X-10 PROD 12.00 1.20 - 5.40
ARCO 46X-10 SHUT IN 12.00 1.20 - 5.40
ARCO 34X-10 SHUT IN 12.00 1.20 - 5.40
ARCO 35X-10 SHUT IN 12.00 1.20 - 5.40
ENRON 66X DRY 10.00 - - 1.00
EMIGH 34-1 PROD 23.55 - - 1.00
SANBORN 3-3 PROD .95 - - -
During the 1997 fiscal year, Registrant issued 20,000 shares of its common
stock to each of its outside directors, Mr. Sheldon and Mr. Clark, and 75,000
shares of its common stock to Robert A. Cohan, vice president. Registrant also
issued 10,000 shares of its common stock to its consulting accountant, Ray K.
Davis, and 10,000 shares to employee Judith L. Shelton.
During the fiscal years ended June 30, 1996 and 1997, 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 calendar year
1997 Registrant borrowed $185,000 from the split-dollar life insurance policy in
order to pay certain ongoing corporate expenses. Registrant has agreed to repay
this loan plus interest.
Registrant borrowed $6,000 from R. V. Bailey on September 15, 1997 payable
January 15, 1998. This loan bears interest of 10% and was repaid on March 2,
1998.
During fiscal 1997 Registrant entered into negotiations with Ray K. Davis,
its consulting accountant for the purchase and sale of certain producing oil and
gas properties located outside of California. Effective November 1, 1996,
Registrant sold all of its non-California properties for $100,000 to Mr. Davis.
The sale price was for a discount of approximately 30% of the future net cash
flows related to those properties.
66
<PAGE>
Item 12. Certain Relationships and Related Transactions (Continued)
- -------------------------------------------------------------------
Registrant borrowed $130,000 from Ray K. Davis on October 15, 1997 for the
drilling and completion of the Emigh 2-1 payable over 36 months. This loan bears
interest of 10.5%.
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 $10,000 for the fiscal year ended June 30, 1997 and $15,000 for
the fiscal year ended June 30, 1996. 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.
(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.
67
<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)
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.
68
<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
---------------------------------------
March 16, 1998 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
- ------------------------------ March 16, 1998
R. V. Bailey, Director,
Chief Executive Officer,
Principal Financial Officer
/s/ Lawton L. Clark
- ------------------------------ March 16, 1998
Lawton L. Clark, Director
/s/ Robert F. Sheldon
- ------------------------------ March 16, 1998
Robert F. Sheldon, Director
69
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