FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
MARK ONE
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 Registrant 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 the Registrant (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 the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at May 14, 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
March 31, June 30,
1999 1998
----------- -----------
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents, including
$259,500 and $331,894 of invested
cash at March 31, 1999 and June 30,
1998 respectively ......................... $ 341,041 $ 425,306
Precious metals ............................ 18,823 18,823
Accounts receivable, trade ................. 292,817 115,144
Prepaid expenses ........................... 2,302 8,762
----------- -----------
Total current assets .................... 654,983 568,035
----------- -----------
Investment in oil and gas properties,
at cost (full cost method of
accounting) ................................ 2,161,018 1,682,521
Less accumulated depletion and
valuation allowance ...................... (1,081,902) (1,006,902)
----------- -----------
1,079,116 675,619
----------- -----------
Property and equipment, at cost:
Furniture, fixtures and vehicles ........... 178,403 171,122
Less accumulated depreciation .............. (129,544) (120,544)
----------- -----------
48,859 50,578
----------- -----------
Undeveloped mining properties, at cost ....... 25,856 27,826
Cash surrender value, life insurance ......... 231,314 231,314
Other ........................................ -- 3,400
=========== ===========
TOTAL ASSETS ............................ $ 2,040,128 $ 1,556,772
=========== ===========
(Statement Continues)
See notes to Consolidated Financial Statements
2
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
1999 1998
---------- ----------
(Unaudited) (Audited)
Current liabilities:
Accounts payable and accrued
expenses ............................... $ 154,631 $ 409,815
Advances from joint owners ............... 86,948 87,999
Due to related parties ................... -- 68,750
Notes payable - current .................. 123,085 52,205
----------- -----------
Total current liabilities ................ 364,664 618,769
----------- -----------
Notes payable - long term ................ 308,444 280,360
----------- -----------
Stockholders' equity:
Common stock, $.005 par value:
Authorized: 50,000,000 shares
Issued: At March 31, 1999:
5,191,322 and June 30, 1998:
4,916,322 .............................. 25,956 24,581
Capital in excess of par value ........... 5,951,602 5,677,977
Accumulated deficit ...................... (4,582,538) (5,016,915)
Deferred compensation .................... (28,000) (28,000)
----------- -----------
Total stockholders' equity ............... 1,367,020 657,643
----------- -----------
Total liabilities and stockholders'
equity ................................... $ 2,040,128 $ 1,556,772
=========== ===========
See Notes to Consolidated Financial Statements
3
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
- ---------
Oil and gas .............. $ 292,612 $ 229,219 $ 920,415 $ 517,857
Management fees .......... 7,613 10,440 84,225 68,084
Interest and other, net .. 3,891 1,495 18,846 13,383
---------- ---------- ---------- ----------
Total Revenues ............. 304,116 241,154 1,023,486 599,324
---------- ---------- ---------- ----------
Costs and expenses:
- -------------------
Oil & gas production ..... 32,879 13,985 63,061 47,154
Depreciation, depletion
and amortization ........ 28,000 10,573 84,000 31,720
Selling, general and
administrative .......... 167,569 80,603 416,872 381,313
Interest expense ......... 7,409 3,572 25,176 7,128
---------- ---------- ---------- ----------
Total Costs & Expenses ..... 235,857 108,733 589,109 467,315
---------- ---------- ---------- ----------
NET INCOME ................. $ 68,259 $ 132,421 $ 434,377 $ 132,009
========== ========== ========== ==========
Basic earnings (loss) per
common share ............. $ .01 $ .03 $ .09 $ .03
========== ========== ========== ==========
Diluted earnings (loss) .... $ .01 $ .03 $ .08 $ .03
========== ========== ========== ==========
per common share
Weighted average number of
common shares outstanding . 4,916,322 4,806,468 4,916,322 4,806,468
========== ========== ========== ==========
The accompanying notes are an integral
part of these statements.
4
<PAGE>
ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended March 31,
1999 1998
-------- ----------
Cash flows from operating activities:
- -------------------------------------
Net gain (loss) ..................................... $ 434,377 $ 132,009
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation, depletion & amortization ............ 84,000 31,721
Loss on write off of investments .................. 3,400 --
Services rendered for stock ....................... -- 69,900
Changes in assets and liabilities:
- ----------------------------------
Increase in accounts receivable ................... (177,673) (109,714)
Decrease in prepaid expense ....................... 6,460 1,764
Increase (decrease) in accounts
payable and accrued expense ..................... (324,985) 206,718
Increase (decrease) in due to related parties ..... -- (8,273)
--------- ---------
Net cash provided (used) by
operating activities ............................ 25,579 324,125
--------- ---------
Cash flows from investing activities:
- -------------------------------------
Conveyance of oil & gas properties for cash ....... 477,950 --
Development & acquisition of oil
& gas properties ................................ (488,097) (315,421)
Purchase of office equipment ...................... (7,281) --
Sale of mining data ............................... 1,970 125,000
Additions, undeveloped mining properties .......... -- (2,596)
Prospect fees ..................................... 12,900 86,500
Additions to cash surrender value ................. -- (9,487)
--------- ---------
Net cash used in investing activities ............. (2,558) (116,004)
--------- ---------
Cash flows from financing activities:
- -------------------------------------
Note payable - proceeds ........................... 2,571 151,000
Repayment of notes payable ........................ (109,857) (24,763)
--------- ---------
(107,286) 126,237
--------- ---------
Net increase in cash and cash equivalents ......... (84,265) 334,358
Cash and cash equivalents, beginning of period .... 425,306 238,465
--------- ---------
Cash and cash equivalents, end of period .......... $ 341,041 $ 572,823
========= =========
Interest paid ..................................... $ 25,176 $ 7,128
========= =========
Schedule of non cash investing
and financing activities:
- ------------------------------
Stock issued for services & mining data ........... $ -- $ 19,500
Notes payable issued for properties ............... 206,250 --
Common stock issued for properties ................ 275,000 --
--------- ---------
$ 481,250 $ 19,500
========= =========
The accompanying notes are an integral
part of these statements.
5
<PAGE>
ASPEN EXPLORATION CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1999
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 uranium and other mineral
properties.
The Company has oil and gas operations in California. The Company's primary
mineral projects and targets of exploration (uranium) are in central
Wyoming.
During February, 1999 the Company formed a wholly owned subsidiary named
Aspen Power Systems Corporation (APS). The purpose of Aspen Power Systems
will be to design, construct and possibly operate gas turbine power plants
to generate electrical energy.
The Company has three wholly owned subsidiaries: Aspen Gold Mining Company,
Aspen Recursos de Mexico and Aspen Power Systems Corporation. 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.
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, Aspen Recursos de
Mexico and Aspen Power Systems 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
6
<PAGE>
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities at the date of the financial statements and reported amounts of
revenues and expenses. Actual results could differ from those estimates.
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
periodically evaluates the carrying value of long-lived assets and
long-lived assets to be disposed of for potential impairment. 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
nine months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
March 31, March 31,
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 (loss)
and share amounts 434,377 4,916,322 .09 132,009 4,806,468 .03
Dilutive securities
stock options 760,000 760,000
Repurchased shares (277,600) (459,535)
--------------------------------------------------------------------
Diluted earnings per share:
Net income and assumed
share conversion 434,377 5,398,722 .08 132,009 5,106,933 .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 March 31, 1998.
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 March 31, 1999 and March 31, 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 March 31, 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 nine months ended March 31, 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
$802,000 of revenues or 87% for the nine months ended March 31, 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 $478,500
for the development and acquisition of oil and gas property.
10
<PAGE>
Note 2 SEGMENT INFORMATION (CONTINUED)
Segment information consists of the following:
Nine months Twelve months
ended ended
March 31, 1999 June 30, 1998
-------------- -------------
Revenue:
Oil and gas .............................. $ 1,004,640 $ 863,588
Mining ................................... -0- -0-
Power plant construction ................. -0- -0-
General corporate ........................ 18,846 47,236
----------- -----------
Total revenue ..................... $ 1,023,486 $ 910,824
=========== ===========
Results of operations
(excluding overhead
and interest costs):
Oil and gas .............................. $ 866,579 $ 680,605
Mining ................................... -0- -0-
Power plant construction ................. (38,976) -0-
General corporate
operations ............................. (393,226) (570,067)
----------- -----------
Net income ........................ $ 434,377 $ 110,538
=========== ===========
Depreciation, depletion
amortization and valuation
charged to identifiable assets:
Oil & gas depletion ...................... $ 75,000 $ 107,208
Mining ................................... -0- -0-
Power plant construction ................. 9,000 -0-
General corporate ........................ -0- 12,445
----------- -----------
Total ............................. $ 84,000 $ 119,653
=========== ===========
Capitalized expenditures:
Oil and gas .............................. $ 488,097 $ 545,034
=========== ===========
Mining ................................... $ -0- $ 4,472
=========== ===========
Power plant construction ................. $ -0- $ -0-
=========== ===========
Corporate ................................ $ 7,281 $ 40,291
=========== ===========
Identifiable assets, net
of accumulated depreciation,
depletion and amortization:
Oil and gas .............................. $ 1,371,933 $ 789,522
Mining ................................... 44,679 47,890
Power plant construction ................. -0- -0-
General corporate ........................ 623,516 719,360
----------- -----------
Total ............................. $ 2,040,128 $ 1,556,772
=========== ===========
Note 3 MINING PROPERTIES
KAYCEE AND SHAMROCK URANIUM PROSPECTS
-------------------------------------
In the past three years the Company has carried out exploration for in situ
uranium deposits in Wyoming. During the years ended June 30, 1998 and 1997,
the Company expended $4,472 and $63,352, respectively, on the Kaycee and
Shamrock prospects. In addition during 1998, the Company issued to the
11
<PAGE>
Note 3 MINING PROPERTIES (CONTINUED)
president 100,000 shares of the Company's common stock, valued at $14,000,
in exchange for the president's 25% interest in geological and engineering
data pertaining to the Kaycee uranium prospect.
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. This payment was not received on a
timely basis and the Company is engaged in discussions with the purchaser
in order to arrange terms for the payment of the amount due. 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 the Company, at the time of
this filing, the stock had no market value.
Note 4 NOTES PAYABLE
The Company owes the following debt:
March 31, June 30,
1999 1998
------------------------
Borrowings from life insurance company on
cash surrender value of officer life
insurance, interest at 6% per annum, no
specific due date, however, the Company
intends to repay this obligation in equal
installments during fiscal years 6/30/2000
and 6/30/2001, collateralized by cash
surrender value of policy $ 210,437 $ 210,437
Note payable to related party, monthly
principal and interest payments of $4,269,
due September, 2000, collateralized by
working interests in the Emigh lease 70,422 101,456
Note payable to auto dealership, monthly
principal and interest payments of $879, due
July, 2000, collateralized by new vehicle 12,920 20,672
12
<PAGE>
Note 4 NOTES PAYABLE (CONTINUED)
Note payable to an unaffiliated third party
for the acquisition of producing gas
properties in Tehama and Glenn Counties,
California, interest at 5.475% 137,750 --
---------- ----------
431,529 332,565
Less current portion 123,085 52,205
---------- ----------
$ 308,444 $ 280,360
========== ==========
Note 5 COMMITMENTS AND CONTINGENCIES
At June 30, 1998 the Company was committed to the following drilling and
development projects in California:
1. Drill, complete and equip the Emigh 35-2.
2. Drill, complete and equip the Cilker 4-1 well.
3. Drill, complete and equip the Brandt 46X-27 well.
The Emigh 35-2 well was successfully deepened to a depth of approximately
11,100' and completed as a producing gas well, producing approximately
2,100 MMBTU and 20 BO per day.
The Cilker 4-1 well was drilled and abandoned as a dry hole in November,
1998.
The drilling of the Brandt 46X-27 well was deferred until a future date
because of low oil prices.
At March 31, 1999 the Company was committed to the following drilling and
development projects in California:
1. Drill, complete and equip the Emigh 4-1 well.
2. Conduct a 3-D seismic study on the Compton Landing lease.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
March 31, 1999 as compared to March 31, 1998
- --------------------------------------------
Registrant has sustained operating losses in prior years. In addition,
Registrant has used substantial amounts of working capital in its operations.
However, at March 31, 1999 current assets exceeded current liabilities by
$290,319, and cash provided by operations was approximately $25,579. At June 30,
1998 current liabilities exceeded current assets by $50,734 and Registrant had a
working capital deficit to that extent. The improvement of $341,053 in working
capital from a negative $50,734 to a positive $290,319 is due primarily to a
significant increase in net income and cash flow from its California properties
during the nine months ended March 31, 1999 and the acquisition of a net 21%
working interest (16.17% net revenue interest) in two natural gas units, the
Johnson and Gay Units, in addition to a 5.00% royalty interest in the Gay Unit,
located in Tehama and Glenn Counties, California. Registrant acquired a 100%
working interest in the two properties from D. E. Craggs, Inc., an unaffiliated
third party for $68,500 in cash a note for $206,500 and 275,000 shares of
Registrant's restricted common stock valued at $1.00 per share. Simultaneously
with the acquisition, Registrant sold a 79% working interest in the two
prospects to certain unaffiliated and three affiliated purchasers for a total
price of $477,950. The date of the acquisition and disposition was July 16,
1998. Pursuant to the agreement with Craggs, Registrant paid Craggs 25% of the
cash and stock at the closing ($68,750 and 68,750 shares) and an additional
$68,750 and 68,750 shares on January 3, 1999, and is obligated to pay an
additional 25% (plus interest on the cash from the date of closing at the daily
rate of 0.015%) in January 2000 and 2001.
In light of recent successful drilling operations and the acquisition of
producing properties, increased revenues will continue to have a positive effect
on Registrant's working capital and contribute significantly to its cash flow in
the coming months.
Registrant is now focusing most of its efforts on drilling for or acquiring oil
and gas production in the state of California.
Registrant shares certain oil and gas drilling opportunities with third party
investors (including some affiliated investors) and takes a reduced interest
until after payout to the third party investors. Payout in Registrant's major
oil and gas projects 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 1997 when Emigh 34-1 paid out, and will continue for
the foreseeable future.
14
<PAGE>
Registrant has dedicated certain cash resources to investigate the economic
possibilities of the sale, design, construction and/or operation of gas turbines
to produce electricity. Through March 31, 1999, Registrant has expended
approximately $39,000 on this project.
Results of Operations
---------------------
March 31, 1999 Compared to March 31, 1998
- -----------------------------------------
For the nine months ended March 31, 1999 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.
Oil and gas revenues for the nine months ended March 31, 1999 increased
$402,558, from $517,857 to $920,415, a 78% increase. This increase reflects
Registrant's continued successful efforts in drilling exploratory and extension
wells in California as well as bringing recent acquisitions into the revenue
stream.
Oil and gas production expenses increased $15,907 or 34% from $47,154 to $63,061
for the period ended March 31, 1999. This increase was due to a compensatory
royalty payment made on the Emigh Lease of $15,700 in March of 1999 and a
corresponding payment made in April of 1998, thereby distorting the quarter to
quarter and year to date comparisons. Production costs as a percentage of oil
and gas revenues were 6.9% for the nine months ended March 31, 1999 compared to
9.1% for the nine months ended March 31, 1998.
Depletion, depreciation and amortization increased significantly, from $31,720
to $84,000, a $52,280 or 165% increase. This increase reflects added volumes
produced from the new wells which caused Registrant to deplete the full cost
pool at a higher rate.
Selling, general and administrative expenses increased by $35,559 or 9.3% from
$381,313 to $416,872. The bulk of this increase resulted from an increase in
consulting fees of approximately $39,000 because Registrant began actively
reviewing potential electrical generation projects.
Oil and gas revenues for the three months ended March 31, 1999 increased $63,393
from $229,219 to $292,612, a 28% increase. The increase in revenues from oil and
gas sales slowed in the third quarter because of reduced product pricing but is
expected to recover in the fourth quarter of fiscal 1999.
Oil and gas production expenses increased $18,894, or 135%, from $13,985 to
$32,879. Again, the increase was primarily due to a compensatory royalty payment
made on the Emigh Lease of $15,700 in March of 1999 and a corresponding payment
made in April of 1998, thereby distorting the quarter to quarter and year to
date comparisons. Production costs for the third quarter ended March 31, 1999 as
15
<PAGE>
a percentage of oil and gas sales were 11.2% compared to 6.2% for the same
period last year. This percentage increase is due to a decline in product
pricing in the current period and an increase in taxes based on prior period
production.
Selling, general and administrative expenses increased by $86,966 or 108% from
$80,603 to $167,569. Approximately $39,000 of this increase can be attributed to
costs incurred to research and review electrical generation projects. The
balance of the increase of approximately $48,000 is the result of increased
salary, consulting, accounting fees and travel expense.
During the nine months ended March 31, 1999, the energy industry experienced the
worst oil price in a generation. The energy industry suffered the negative
aspects of these low prices with employee layoffs and exploration and
development curtailments. However, beginning in April of 1999 the price of oil
has improved by 90% from approximately $8.10 per barrel to $15.40 per barrel.
Gas prices have increased approximately 32% when comparing March to May sales.
Assuming stable oil and gas prices at their current level, Registrant
anticipates continued improvement in its oil and gas sales with the addition of
the Emigh 35-2 well which came on line January 12, 1999. With management's
continued emphasis on controlling costs and its improving gas sales, Registrant
believes its net income and per share earnings will continue to grow through the
end of its fiscal year which ends June 30, 1999.
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
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.
Registrant has completed an assessment of its IT systems to determine whether
these systems are Year 2000 compliant. Registrant 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 Registrant's
continuing effort to enhance its IT systems) will be compliant. All necessary
modifications and upgrades and the testing thereof are expected to be completed
by the end of the second quarter of 1999.
16
<PAGE>
Registrant is assessing 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 Registrant has relied upon its internal staff to access its Year 2000
readiness. The costs associated with assessing Registrant's Year 2000 internal
compliance and related systems modification, upgrading and testing are not
currently expected to be material.
Registrant 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 Registrant to third
parties' failure to address their Year 2000 issues. While Registrant has not yet
received definitive responses indicating all such entities are Year 2000
compliant, it has not received information suggesting Registrant is vulnerable
to potential year 2000 failures by these parties. These communications are
expected to continue into the second quarter of 1999. At this time Registrant
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.
Registrant does not anticipate any significant disruptions of its operations due
to Year 2000 issues. Among the potential "worst case" problems Registrant 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 Registrant's wells or gathering
lines which would also result in Registrant's wells being shut-in. A disruption
in production would result in the loss of income.
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused and authorized this report to be signed on its behalf by the
undersigned.
ASPEN EXPLORATION CORPORATION
(Registrant)
/s/ R. V. Bailey
-----------------------------------
By: R. V. Bailey,
May 14, 1999 Chief Executive Officer,
Principal Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-END> MAR-31-1999 JUN-30-1998
<CASH> 341,041 425,306
<SECURITIES> 0 0
<RECEIVABLES> 292,817 115,144
<ALLOWANCES> 2,302 8,762<F1>
<INVENTORY> 18,823 18,823
<CURRENT-ASSETS> 654,983 568,035
<PP&E> 178,403 171,122
<DEPRECIATION> (129,544) (120,544)
<TOTAL-ASSETS> 2,040,128 1,556,772
<CURRENT-LIABILITIES> 364,664 618,769
<BONDS> 0 0
5,951,602 5,677,977<F2>
(4,582,538) (5,016,915)<F3>
<COMMON> 25,956 24,581
<OTHER-SE> (28,000) (28,000)<F4>
<TOTAL-LIABILITY-AND-EQUITY> 2,040,128 1,556,772
<SALES> 920,415 517,857
<TOTAL-REVENUES> 1,023,486 599,324
<CGS> 63,061 47,154
<TOTAL-COSTS> 563,933 460,187
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 25,176 7,128
<INCOME-PRETAX> 434,377 132,009
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 434,377 132,009
<EPS-PRIMARY> .09 .03
<EPS-DILUTED> .08 .03
<FN>
<F1>PrePaid Expense
<F2>Capital/Excess of Par
<F3>Accumulated Deficit
<F4>Deferred Compensation
</FN>
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