FORM 10-Q-SB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
MARK ONE
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-9494
ASPEN EXPLORATION CORPORATION
-----------------------------
(Exact Name of Aspen as Specified in its Charter)
Delaware 84-0811316
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) I.D. Number)
Suite 208, 2050 S. Oneida St., Denver, Colorado, 80224
------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(303) 639-9860
--------------
Indicate by check mark whether Aspen (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Aspen was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [ ] No [ X ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at November 12, 1999
----- --------------------------------
Common stock,
$.005 par value 5,191,322
1
<PAGE>
Part One. FINANCIAL INFORMATION
Item 1. Financial Statements
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
1999 1999
----------- -----------
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents, including ....... $ 924,624 $ 335,603
$828,716 and $296,294 of invested
cash at September 30, 1999 and June
30, 1999 respectively
Precious metals ............................ 18,823 18,823
Accounts receivable, trade ................. 296,739 108,913
Prepaid expenses ........................... 5,932 9,770
----------- -----------
Total current assets .................... 1,246,118 473,109
----------- -----------
Investment in oil and gas properties,
at cost (full cost method of
accounting) ................................ 2,334,428 2,309,566
Less accumulated depletion and
valuation allowance ...................... (1,336,305) (1,280,305)
----------- -----------
998,123 1,029,261
----------- -----------
Property and equipment, at cost:
Furniture, fixtures and vehicles ........... 182,103 178,403
Less accumulated depreciation .............. (140,162) (136,237)
----------- -----------
41,941 42,166
----------- -----------
Cash surrender value, life insurance ......... 239,095 239,095
----------- -----------
TOTAL ASSETS ............................ $ 2,525,277 $ 1,783,631
=========== ===========
(Statement Continues)
See notes to Consolidated Financial Statements
2
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
1999 1999
----------- -----------
(Unaudited) (Audited)
Current liabilities:
Accounts payable and accrued
expenses ............................... $ 750,242 $ 280,920
Advances from joint owners ............... 264,500 32,245
Notes payable - current .................. 124,995 126,570
----------- -----------
Total current liabilities ................ 1,139,737 439,735
----------- -----------
Notes payable - long term ................ 68,750 81,003
----------- -----------
Stockholders' equity:
Common stock, $.005 par value:
Authorized: 50,000,000 shares
Issued: At September 30, 1999:
5,191,322 and June 30, 1999:
5,191,322 .............................. 25,956 25,956
Capital in excess of par value ........... 5,951,602 5,951,602
Accumulated deficit ...................... (4,632,768) (4,686,665)
Deferred compensation .................... (28,000) (28,000)
----------- -----------
Total stockholders' equity ............... 1,316,790 1,262,893
----------- -----------
Total liabilities and stockholders'
equity ................................... $ 2,525,277 $ 1,783,631
=========== ===========
See Notes to Consolidated Financial Statements
3
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
--------------------
(unaudited)
1999 1998
---- ----
Revenues:
- ---------
Oil and gas .................................. $ 273,274 $ 295,262
Management fees .............................. 17,566 19,614
Interest and other, net ...................... 2,085 6,889
---------- ----------
Total Revenues ................................. 292,925 321,765
---------- ----------
Costs and expenses:
Oil and gas production ....................... 14,854 11,262
Depreciation, depletion and
amortization ............................... 59,925 28,000
Aspen Power Systems expense .................. 21,209 -0-
Selling, general and administrative .......... 139,542 143,828
Interest expense ............................. 3,498 5,960
---------- ----------
Total Costs and Expenses ....................... 239,028 189,050
---------- ----------
NET INCOME ..................................... $ 53,897 $ 132,715
========== ==========
Basic earnings per common share ................ $ .01 $ .03
========== ==========
Diluted earnings per common share .............. $ .01 $ .03
========== ==========
Basic weighted average number of
common shares outstanding ..................... 5,191,322 4,916,322
========== ==========
Diluted weighted average number of
common shares outstanding ..................... 5,348,389 5,194,622
========== ==========
The accompanying notes are an integral
part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended September 30,
1999 1998
--------- ---------
Cash flows from operating activities:
- -------------------------------------
<S> <C> <C>
Net gain................................................ $ 53,897 $ 132,715
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation, depletion & amortization ............... 59,925 28,000
Loss on write off of investments ..................... -- 3,400
Changes in assets and liabilities:
Increase in accounts receivable ...................... (187,826) (72,207)
Decrease in prepaid expense .......................... 3,838 4,430
Increase (decrease) in accounts payable and accrued
expense ............................................ 701,577 (89,892)
Decrease in due to related parties ................... -- (8,333)
--------- ---------
Net cash provided (used) by operating activities ..... 631,411 (1,887)
--------- ---------
Cash flows from investing activities:
- -------------------------------------
Conveyance of oil & gas properties for cash .......... -- 477,950
Development & acquisition of oil & gas properties .... (24,862) (103,642)
Purchase of office equipment ......................... (3,700) (3,428)
Sale of mining data .................................. -- 1,970
--------- ---------
Net cash (used in) provided by investing activities .. (28,562) 372,850
--------- ---------
Cash flows from financing activities:
- -------------------------------------
Note payable - proceeds .............................. -- 2,571
Repayment of notes payable ........................... (13,828) (14,356)
--------- ---------
(13,828) (11,785)
Net increase in cash and cash equivalents ............ 589,021 359,178
Cash and cash equivalents, beginning of year ......... 335,603 425,306
--------- ---------
Cash and cash equivalents, end of year ............... $ 924,624 $ 784,484
========= =========
Interest paid ........................................ $ 3,498 $ 5,960
========= =========
Schedule of non cash investing and financing activities:
- --------------------------------------------------------
Notes payable issued for properties .................. $ -- $ 206,250
Common stock issued for properties ................... -- 275,000
--------- ---------
$ -- $ 481,250
========= =========
The accompanying notes are an integral
part of these statements.
5
</TABLE>
<PAGE>
ASPEN EXPLORATION CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1999
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
------------------
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 uranium and other mineral
properties. The Company's oil and gas properties are located in California.
The Company has two wholly owned subsidiaries, Aspen Gold Mining Company
and Aspen Recursos de Mexico, as well as 85% owned Aspen Power Systems
Corporation ("APS") formed in February 1999. Aspen Gold Mining has staked 6
claims on Valdez Creek in central Alaska. Other than those claims, none of
the subsidiaries have any assets, liabilities or operations. The purpose of
APS will be to attempt to design, construct and possibly operate gas
turbine power plants to generate electrical energy.
Consolidated financial statements
---------------------------------
The consolidated financial statements include the Company and its
wholly-owned subsidiaries, Aspen Gold Mining Company and Aspen Recursos de
Mexico. Significant intercompany accounts and transactions, 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. Actual
results could differ from those estimates.
6
<PAGE>
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and estimated reserves. Price declines reduce the estimated quantity
of proved reserves and increase annual amortization expense (which is based
on proved reserves).
Impairment of Long-lived Assets
-------------------------------
The Company evaluates the carrying value of assets other than oil and gas
assets for potential impairment on an ongoing basis. The Company evaluates
the carrying value of long-lived assets and long-lived assets to be
disposed of for potential impairment periodically. The Company considers
projected future operating results, cash flows, trends and other
circumstances in making such estimates and evaluations.
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 and diluted
earnings per share. The calculations differ by eliminating any common stock
equivalents (such as stock options, warrants, and convertible preferred
stock) from basic earnings per share and changes certain calculations when
computing diluted earnings per share. The Company adopted SFAS No. 128 in
fiscal year 1998.
7
<PAGE>
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following is a reconciliation of the numerators and denominators used
in the calculations of basic and diluted earnings (loss) per share for the
three months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
Per Per
Net Share Net Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Net income
and share amounts 53,897 5,191,322 .01 132,715 4,916,322 .03
Dilutive securities
stock options 460,000 460,000
Repurchased shares (302,933) (181,700)
------------------------------------------------------------------
Diluted earnings per share:
Net income and assumed
share conversion 53,897 5,348,389 .01 132,715 5,194,622 .03
========== ========== ====== ========== ========== ======
</TABLE>
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 September 30, 1999.
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 the
units-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
8
<PAGE>
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $281,719 at September 30, 1999 and September 30, 1998.
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.
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.
Gains or losses on the sale or abandonment of mining properties are charged
to current operations.
Deferred compensation Costs
---------------------------
The Company records stock bonuses to employees as an expense and an
increase to paid-in capital in the year of grant unless the bonus vests
over future years. Bonuses that vest are deferred and expensed ratably over
the vesting period.
9
<PAGE>
Note 2 SEGMENT INFORMATION
The Company operates in three industry segments within the United States:
(1) oil and gas exploration and development, (2) mineral exploration and
development and (3) electrical generation construction.
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, furniture, fixtures and
vehicles.
During the fourth quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). The adoption of SFAS 131
requires the presentation of descriptive information about reportable
segments which is consistent with that made available to the management of
the Company to assess performance.
The oil and gas segment derives its revenues from the sale of oil and gas
and prospect generation and administrative overhead fees charged to
participants in its oil and gas ventures. The mining segment receives its
revenues primarily from the sale of minerals and precious metals and from
time to time from the sale of a mineral venture that it has originated.
Electrical generation construction will receive its revenues from the sale,
design, construction and/or operation of gas turbine or other electrical
generation projects. As of September 30, 1999 the Company was in the
planning stage of this segment and no revenues have been received.
Corporate income is primarily derived from interest income on funds held in
money market accounts.
During the three months ended September 30, 1999 there were no intersegment
revenues. The accounting policies applied by each segment are the same as
those used by the Company in general.
Net sales to one customer of the oil and gas segment totalled approximately
$205,000 of revenues or 75% for the three months ended September 30, 1999.
There have been no differences from the last annual report in the basis of
measuring segment profit or loss. There have been no material changes in
the amount of assets for any operating segment since the last annual report
except for the oil and gas segment which capitalized approximately $25,000
for the development and acquisition of oil and gas property.
10
<PAGE>
Note 2 SEGMENT INFORMATION (CONTINUED)
Segment information consists of the following for the three months ended
September 30:
<TABLE>
<CAPTION>
Oil and Gas Mining Power Plant Corporate Consolidated
----------- ------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
1999 $ 290,840 $ -0- $ -0- $ 2,085 $ 292,925
1998 314,876 -0- -0- 6,889 321,765
Income (loss) from
operations:
1999 $ 219,986 $ -0- $ (21,209) $ (144,880) $ 53,897
1998 275,614 -0- -0- (142,899) 132,715
Identifiable assets:
1999 $ 1,294,862 $ 18,823 $ -0- $ 1,211,592 $ 2,525,277
1998 944,912 44,679 -0- 1,099,136 2,088,727
Depreciation, depletion
and valuation charged
to identifiable assets:
1999 $(1,336,305) $ -0- $ -0- $ (140,162) $(1,476,467)
1998 (1,031,902) -0- -0- (123,544) (1,155,446)
Capital expenditures:
1999 $ 24,862 $ -0- $ -0- $ 3,700 $ 28,562
1998 103,642 -0- -0- 3,428 107,070
</TABLE>
Note 3 MINING PROPERTIES
KAYCEE AND SHAMROCK URANIUM PROSPECTS
-------------------------------------
In fiscal 1997, the Company began exploration for in situ uranium deposits
in Wyoming. During the three months ended September 30, 1999 and 1998, the
Company expended $-0- and $4,472, respectively, on the Kaycee and Shamrock
prospects. In addition, during 1998 the Company issued to the President
100,000 shares of the Company's common stock, valued at $14,000, in
exchange for the President's 25% interest in geological data and potential
uranium prospects.
During fiscal 1998, the Company sold the geological data of the Kaycee and
Shamrock prospects to a privately-held Canadian company and, in exchange,
received a $125,000 cash payment and a commitment to receive an additional
$125,000 prior to December 31, 1998. As of November 12, 1999, the Company
has not received the second payment of $125,000 and the privately-held
Canadian company is in default. Discussions are underway to attempt to
resolve this issue. Under the terms of the sales agreement reached in
March, 1998, the Company also received 2 million shares or approximately
25% of the common stock of the privately-held company. To the knowledge of
11
<PAGE>
Note 3 MINING PROPERTIES (CONTINUED)
the Company, at the time of this filing, the stock had no market value. All
capitalized mining costs have been written off as of June 30, 1999.
Note 4 NOTES PAYABLE
The Company owes the following debt:
------------------------------------
September 30, June 30,
1999 1999
-------------------------
Note payable to related party,
monthly principal and interest
payments of $4,269, due September,
2000, collateralized by working
interests in the Emigh lease $ 48,243 $ 59,487
Note payable to auto dealership,
monthly principal and interest
payments of $879, due July, 2000,
collateralized by new vehicle 7,752 10,336
Note payable to an unaffiliated
third party for the acquisition of
producing gas properties in Tehama
and Glenn Counties, California,
interest at 5.475% and
collateralized by working interests
in the Johnson and Gay Gas Units 137,750 137,750
---------- ----------
193,745 332,565
Less current portion 124,995 52,205
---------- ----------
$ 68,750 $ 280,360
========== ==========
12
<PAGE>
Note 5 COMMITMENTS AND CONTINGENCIES
At September 30, 1999 the Company was committed to the following drilling
and development projects in California:
1. Drill, complete and equip the Emigh 3-1.
2. Drill, complete and equip the Daughters of the Dragons 1 well.
3. Drill, complete and equip the Brandt 46X-27 well.
4. Drill, complete and equip the Hart 19-1 well.
5. Drill, complete and equip the Cigar 20-1 well.
In July 1999, the Houghton 25-1 well was drilled to a depth of 4,600' and
dually completed from two Forbes intervals for an initial estimated
combined rate of 3,200 MCFPD. Gas sales commenced in September 1999. The
Company owns a 7.77% working interest in the well.
In July 1999, the Eastby 36-2 well was drilled to a depth of 4,700' and
dually completed from the Eocene and Forbes formations. Gas sales commenced
in September 1999 from the Eocene formation at a rate of approximately 500
MCFPD. The Company owns a 7.77% working interest in the Eocene formation
and a 7.00% working interest in the Forbes formation.
In August 1999, the Elektra 1 well located in the Malton Black Butte Field
commenced production at a rate of approximately 2,500 MCFPD. This rate was
increased to 3,000 MCFPD in September 1999 when the well was tied into
P.G.& E.'s 16" pipeline.
The Company drilled and plugged and abandoned the Brandt 46X-27 well
located in Kern County, California in October 1999. The Company's net share
(5.73% working interest) of the dry hole costs was approximately $6,000
($18,000 - $12,000 in income from geologic and overhead fees).
The Company drilled and plugged and abandoned the Yerxa 2-1 well located in
Colusa County, California in September 1999. The Company's net share (18%
working interest) of the dry hole costs was approximately $19,000 ($26,000
- $7,000 in income for overhead fees).
The Company participated in the drilling and plugging and abandonment of
the Hart #19-1 well located in Glenn County, California in October 1999.
The Company's net share (8.40% working interest) of the dry hole costs was
approximately $19,000.
13
<PAGE>
Note 5 COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company drilled and ran production casing on the Cigar 20-1 located in
the Winters gas field, Solano County, California. A completion attempt will
occur in the second week of November. The Company's net share of the
drilling and completion costs is approximately $48,200 ($87,000 - $38,800
in income for overhead and prospect development fees). The Company owns a
15.05% working interest in the well.
The Company is currently drilling its Emigh 3-1 well located in the
Denverton Creek gas field. The Company's net share (23.80% working
interest) of the dry hole costs is approximately $110,000 ($149,000 -
$39,000 in income for geologic and overhead fees).
The Company will be participating for a 5.565% working interest in one
additional well, the Daughters of the Dragons 1, located in the Malton
Black Butte Field, Tehama County, California, in late November 1999. The
Company's net share of the dry hole costs is approximately $12,000.
14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
September 30, 1999 as compared to September 30, 1998
- ----------------------------------------------------
Commencing in fiscal 1996 and continuing through 1998, Aspen reviewed all
aspects of its operations in an effort to reduce expenditures as much as
possible while making efforts to preserve Aspen's assets and build up cash flow.
These decisions included: the sale of Aspen's oil and gas assets in Montana,
North Dakota, Oklahoma and Texas; the decision to defer the payment of portions
of officers' salaries; the decision to defer compliance with Aspen's reporting
obligations under the Securities Exchange Act of 1934, as amended, as of June
30, 1998, Aspen is current with all SEC filing requirements; the voluntary
reduction of certain officers' salaries; and the decision to concentrate on the
development of cash flow from oil and gas operations in California, in which an
officer of Aspen has significant experience.
From June 30, 1999 to September 30, 1999 Aspen's working capital increased from
$33,109 to $106,381, a 221% increase. This increase in working capital is
expected to be reduced somewhat in the second quarter when Aspen's share of
current drilling activity, which began in October of 1999, will be paid for.
During fiscal 1999, Aspen Exploration Corporation created Aspen Power Systems
Corporation ("APS"), an 85% owned subsidiary. Aspen has dedicated certain cash
resources to investigate the economic possibilities of the sale, design,
construction and/or operation of gas turbines to produce electricity. Aspen has
dedicated a total of approximately $130,000 of financing in order to provide
funding for APS to attempt to commence funding its own operations. Such
dedicated funding will come from Aspen's operating funds derived from oil and
gas production. There is no assurance APS will be able to fund its own
operations after the dedicated funding by Aspen is fulfilled. Through September
30, 1999, APS has expended $105,159 on this project, $21,209 of which was
expended in the current quarter.
In March 1998, Aspen reached an agreement with a privately-held Canadian company
which provided for Aspen to receive certain cash payments from, and to be issued
2,000,000 shares of stock in, a privately-held Canadian company. Aspen conveyed
to the privately-held company all of Aspen's interest in two uranium projects in
Wyoming. The privately-held Canadian company is in default to Aspen in the
amount of $125,000 which was to be paid prior to December 31, 1998. Discussions
are underway to attempt to resolve this issue.
Aspen believes that it has sufficient funds on hand or that will be generated
from current operations to fund its activities for the next twelve months.
15
<PAGE>
Results of Operations
- ---------------------
September 30, 1999 Compared to September 30, 1998
- -------------------------------------------------
For the three months ended September 30, 1999 Aspen'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 in California.
Oil and gas revenues for the three months ended September 30, 1999 decreased
$24,036, from $314,876 to $290,840, a 7.6% decrease. This decrease reflects the
normal decline in production of mature oil and gas properties and will be offset
somewhat by new production that will come on line in the second quarter.
Oil and gas production expenses increased $3,592 from $11,262 to $14,854 for the
period ended September 30, 1999. This increase was due to increased water
production in existing oil wells and the cost of putting a previously flowing
oil well on a pumping unit.
Depletion, depreciation and amortization increased significantly, from $28,000
to $59,925, a 114% increase. This increase reflects the under estimate of actual
depletion expense for the first quarter of 1998 by approximately $40,000.
Selling, general and administrative expenses decreased by $4,286 or 3% from
$143,828 to $139,542. Selling, general and administrative expenses remained
fairly constant when comparing the two quarters with no significant change in
any category.
As a result of Aspen's operations for the three months ended September 30, 1999,
Aspen ended the quarter with net income of $53,897 compared to net income of
$132,715 a year earlier. This decrease of approximately $79,000 reflected a
decrease in total revenues of $28,840 due primarily to a decline in oil and gas
revenues received from mature producing properties. Aspen also incurred $21,209
in operating expenses associated with Aspen Power Systems Corporation. These
costs were primarily for prospect review, financial studies and travel costs.
Depletion expense increased by approximately $32,000 from September 30, 1998.
However, the first quarter 1998 depletion was understated by approximately
$40,000.
Year 2000
- ---------
The following Year 2000 statements constitutes a Year 2000 Readiness Disclosure
with the meaning of the Year 2000 Information and Readiness Disclosure Act of
1998.
Year 2000 issues result from the inability of certain electronic hardware and
software to accurately calculate, store or use a date subsequent to December 31,
1999. These dates can be erroneously interpreted in a number of ways, e.g., the
year 2000 could be interpreted as the year 1900. This inability could result in
16
<PAGE>
a system failure or miscalculations that could in turn cause operational
disruptions. These issues could affect not only information technology ("IT")
systems, such as computer systems used for accounting, land, engineering and
seismic processing, but also systems that contain embedded chips.
Aspen has completed an assessment of its IT systems to determine whether these
systems are Year 2000 compliant. Aspen has determined that these systems are
either compliant or with relatively minor modifications or upgrades (many of
which would have been made in any event as part of Aspen's continuing effort to
enhance its IT systems) will be compliant. All necessary modifications and
upgrades and the testing thereof were completed by September 30, 1999.
Aspen has assessed its non-information systems to ascertain whether these
systems contain embedded computer chips that will not properly function
subsequent to December 31, 1999. These systems include office equipment and the
automatic wellhead equipment used to operate wells. All of these systems have
been determined to be Year 2000 compliant.
To date Aspen has relied upon its internal staff to access its Year 2000
readiness. The costs associated with assessing Aspen's Year 2000 internal
compliance and related systems modification, upgrading and testing are not
currently expected to be material.
Aspen is in the process of communicating with certain of its significant
suppliers, service companies, gas gatherers and pipelines, electricity providers
and financial institutions to determine the vulnerability of Aspen to third
parties' failure to address their Year 2000 issues. While Aspen has not yet
received definitive responses indicating all such entities are Year 2000
compliant, it has not received information suggesting Aspen is vulnerable to
potential year 2000 failures by these parties. These communications are expected
to continue into the fourth quarter of 1999. At this time Aspen has not
developed any contingency plans to address third party non-compliance with Year
2000 matters. However, should its communications with any third parties indicate
any vulnerability, appropriate contingency plans will be developed.
Aspen does not anticipate any significant disruptions of its operations due to
Year 2000 issues. Among the potential "worst case" problems Aspen could face
would be the loss of electricity used to power well pumps and compressors that
would result in wells being shut-in, or the inability of a third party gas
gathering company or pipeline to accept gas from Aspen's wells or gathering
lines which would also result in Aspen's wells being shut-in. A disruption in
production would result in the loss of income.
17
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, Aspen has
duly caused and authorized this report to be signed on its behalf by the
undersigned.
ASPEN EXPLORATION CORPORATION
/s/ R. V. Bailey
-------------------------------
By: R. V. Bailey,
November 12, 1999 Chief Executive Officer,
Principal Financial Officer
18
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-1999
<PERIOD-START> JUL-01-1999 JUL-01-1998
<PERIOD-END> SEP-30-1999 JUN-30-1999
<CASH> 924,624 335,603
<SECURITIES> 0 0
<RECEIVABLES> 296,739 108,913
<ALLOWANCES> 5,932<F1> 9,770<F1>
<INVENTORY> 18,823 18,823
<CURRENT-ASSETS> 1,246,118 473,109
<PP&E> 2,334,428 2,309,566
<DEPRECIATION> (1,336,305) (1,280,305)
<TOTAL-ASSETS> 2,525,277 1,783,631
<CURRENT-LIABILITIES> 1,139,737 439,735
<BONDS> 68,750<F2> 81,003<F2>
0 0
(4,632,768)<F3> (4,686,665)<F3>
<COMMON> 5,977,558 5,977,558
<OTHER-SE> (28,000)<F4> (28,000)<F4>
<TOTAL-LIABILITY-AND-EQUITY> 2,525,277 1,783,631
<SALES> 290,840 314,876
<TOTAL-REVENUES> 292,925 321,765
<CGS> 14,854 11,262
<TOTAL-COSTS> 239,028 189,050
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,498 5,960
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
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<CHANGES> 0 0
<NET-INCOME> 53,897 132,715
<EPS-BASIC> .01 .03
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<FN>
<F1> Pre Paid Insurance
<F2> Notes Payable - Long Term
<F3> Accumulated Deficit
<F4> Deferred Compensation
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