CASPEN OIL INC, 10KSB, 1996-11-12

CASPEN OIL INC
10KSB, 1996-11-12
CRUDE PETROLEUM & NATURAL GAS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended July 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from __________ to __________

Commission file number: 1-7965

CASPEN OIL, INC.
(Name of small business issuer as specified in its charter)

Nevada 75-1325831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Irongate 3, Suite 201
777 S. Wadsworth Blvd.
Lakewood, Colorado 80226
(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code: (303) 987-0925

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Name of Each Exchange on
Title of Each Class Which Registered

None N/A

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Title of Each Class

Common Shares, par value
$0.01 per share
Series A $1.80 Cumulative Convertible
Preferred Shares,
par value $1.00 per share

Indicate by check mark whether the issuer (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 issuer was required to file
such reports), and (2) has been
subject to such filing requirements for the past
90 days: Yes x No

The Registrant's revenues for the fiscal year ended July 31,
1996, were $1,083,851.

The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the average prices of
such stock as of October 1, 1996, is not determinable since the
Company's securities are not actively traded.

As of October 1, 1996, 18,092,222 Common Shares of the Registrant
were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant's Proxy Statement for its 1996 Annual Meeting of
Shareholders: Part III

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein,
and will not 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 to
this Form 10-KSB. x

Transitional Small Business Disclosure Format: Yes ; No x

PART I

ITEM 1. DESCRIPTION OF BUSINESS.

General Development of Business

Caspen Oil, Inc. (the "Company" or "Caspen"), a Nevada
corporation, was organized in 1970 as a successor to a
corporation organized in 1949. The Company and its subsidiaries
are presently engaged in oil and gas exploration, development and
production and the acquisition of producing oil and gas
properties. The Company was previously named "Summit Energy,
Inc." In August 1988, the name of the Company was changed to
"Caspen Oil, Inc." As used herein, all references to the
"Company" are to Caspen Oil, Inc. and its subsidiaries, unless
the context requires otherwise.

In fiscal year 1996, the Company had one industry segment:
oil and gas operations. Information regarding revenue, operating
profit or loss and assets are included in and incorporated by
reference to the Consolidated Financial Statements included in
Item 7 of this Report.

The Company's Common and Series A $1.80 Cumulative
Convertible Preferred Stock were removed from the American Stock
Exchange on July 29, 1994, because the Company no longer
satisfied certain of the financial requirements for continued
listing. The Company's Common Shares trade on the NASD
electronic OTC bulletin board, under the symbol "CSPN".

The remainder of the discussion of the business in this Item
1 focuses primarily on the Company's oil and gas business.

Products, Markets, Methods of Distribution and Revenues.
Oil and gas are the principal products produced by the Company.
The Company does not refine or otherwise process crude oil and
condensate production. The oil and condensate it produces are
sold to refineries and oil transmission companies at posted field
prices in the area where production occurred. The Company does
not have long-term contracts with purchasers of its oil and
condensate production.

The market for oil and gas is at all times subject to a large
number of important variables beyond the control of any single
producer which cannot be accurately predicted.

The availability of a ready market for any oil or gas
discovered and produced by the Company and the price obtained
therefor is affected by competition from other energy sources,
the supply of domestic and imported oil and gas, the proximity
and capacity of pipelines, market demand, the effect of state and
federal regulation of production and transportation of oil and
gas and the effect of changes in tax law affecting the oil and
gas industry. Accordingly, in view of the many uncertainties
affecting the supply and demand for crude oil, natural gas and
refined petroleum products, it is not possible to predict
accurately the prices or marketability of oil and gas from any
producing well in which the Company has an interest.

From time to time there may exist a surplus of natural gas
and/or oil supplies, the effect of which may be to reduce the
amount of hydrocarbons that the Company may produce and sell
while such surplus exists. The natural gas market continues to
be volatile due to a number of factors, including the worldwide
supply of oil and gas, the price of foreign imports, the levels
of consumer demand, the price and availability of alternative
fuels and the availability of pipeline capacity. In addition,
the production and sale of natural gas are subject to extensive
federal, state, and local regulations, which greatly affect the
marketing of natural gas.

In certain areas in which the Company engages in gas
exploration and production activities, the supply of natural gas
available for delivery from time to time exceeds the demand.
During such times companies purchasing gas in such areas reduce
the amount of gas that they will purchase or "take." If buyers
cannot be readily located for newly discovered gas reserves,
newly completed gas wells may be shut-in for various periods of
time. There are no assurances that the over-supply of natural gas
in certain areas will not in the future cause the Company to
experience "take" problems or adversely affect the Company's
ability to obtain contracts to market gas discovered in wells in
which the Company owns an interest.

The average price of all oil sold by the Company in fiscal
1996 was $17.15 per barrel, while the same average for fiscal
1995 was $14.54 per barrel. The average price of all gas sold by
the Company in fiscal 1996 was $1.54 per mcf, while the same
average for fiscal 1995 was $1.36 per mcf.

Customers. For fiscal year ended July 31, 1996, the major
customers purchasing more than 10% of the Company's oil and gas
production were Koch Oil Company (12%); Cambridge Production
(10%); and Meridian Oil Company (10%).

Competition. The Company encounters strong competition from
other independent operators and from major oil companies in
acquiring properties suitable for exploration, in contracting for
drilling equipment and in securing trained personnel. Many of
these competitors have financial resources and staffs
substantially larger than those available to the Company.

The Company's ability to discover reserves in the future
depends on its ability to select, generate and acquire suitable
prospects for future exploration. The Company does not currently
generate its own prospects and depends exclusively upon external
sources, such as various oil and gas publications and contacts
with brokers selling oil and gas companies and prospects.

Risks. The Company's operations are subject to all of the
risks normally incident to the exploration for and production of
oil and gas, including blowouts (wells blowing into the
atmosphere out of control), cratering (the subsidence of the
surface of the earth as a result of some blowouts), pollution and
fires, each of which could result in damages to or destruction of
oil and gas wells or formations or production facilities or
damage to persons and property. The Company occasionally has
experienced such blowouts, cratering, pollution or fires in the
ordinary course of business; however, none of these past events
has resulted in a material adverse effect to the Company. As is
common in the oil and gas industry, the Company is not fully
insured against these risks either because insurance is not
available or because the Company has elected not to insure due to
prohibitive premium costs. Although the Company does not directly
engage in drilling activities, in case of any such events, the
Company may be held responsible for any such events occurring on
its properties. If such events should occur as a result of
negligence on the part of a contractor, then the Company would
have recourse against the contractor; however, the occurrence of
such an event not fully insured against could have a material
adverse effect on the Company's financial position.

Exploration, Development and Acquisitions. At the present
time the Company does not have an exploration department. The
Company utilizes outside consulting geologists and engineers to
evaluate new prospects and acquisitions identified by the
Company's staff and by others. The Company generally seeks out
and explores for hydrocarbons in known oil and gas producing
sedimentary basins. The Company currently uses outside
consultants to generate prospects to be operated in the Company's
name.

The Company finances its exploration, development and oil and
gas acquisition investments primarily from cash flows generated
from existing operations. The Company made exploration,
development, and acquisition expenditures totaling $262,290
during the fiscal year ended July 31, 1996 as compared to
$159,200 for the fiscal year ending July 31, 1995.

Environmental Regulation. Various federal, state and local
laws and regulations covering the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, may affect the Company's operations and costs as a
result of their effect on oil and gas exploration, development
and production operations. The Company spent approximately
$4,300 in fiscal 1996 as compared to approximately $24,000 in
fiscal 1995. It is not anticipated that the Company will be
required in the near future to expend amounts that are material
in relation to its total capital expenditure program by reason of
environmental laws and regulations, but because such laws and
regulations are constantly being changed, the Company is unable
to predict the ultimate cost to it of complying with present and
future environmental laws and regulations.

Governmental Regulation. Domestic exploration for and
production and sale of oil and gas is subject to federal and
state governmental regulation in a variety of ways. Legislation
affecting the oil and gas industry is under constant review for
amendment or expansion, frequently increasing the regulatory
burden. Also, numerous departments and agencies, both federal
and state, are authorized by statute to issue, and have issued,
rules and regulations applicable to the oil and gas industry that
are often difficult and costly to comply with and that may carry
substantial penalties for failure to comply. Inasmuch as new
legislation affecting the oil and gas industry is commonplace and
existing laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost
or impact of complying with such laws and regulations.

Employees. As of September 30, 1996, the Company (including
its subsidiaries) employed 2 persons, both of whom were full-time
employees. In addition, through a Service and Operations
Agreement with Churchill U.S.A., Inc. ("CUSA"), the Company is
provided with the following specific services: all computerized
oil and gas accounting; all oil and gas revenue disbursements;
all oil and gas production reporting; all oil and gas field
supervision, general corporate legal service, and all office
space and administrative activities at actual cost plus five (5)
percent.

Financial Information About Foreign and Domestic Operations
and Export Sales. During the two fiscal years ended July 31,
1996, and 1995, the Company's oil and gas revenue has been
received from operations conducted and properties located within
the United States. In addition, the Company owns a working
interest in one property which is unproven in the United
Kingdom's North Sea; however, there have been no activities
conducted on that particular property. Accordingly, except for
certain investment transactions and the ownership of the working
interest in the United Kingdom, all of the Company's consolidated
revenue, operating profit and identifiable assets are
attributable to the United States for such periods. The Company
did not engage in export sales during the two fiscal years ended
July 31, 1996, and 1995. Accordingly, there were minimal
identifiable assets located outside the United States, and no
significant revenues or pretax earnings or losses were realized
during the two fiscal years ended July 31, 1996, and 1995 from
operations outside the United States.

ITEM 2. DESCRIPTION OF PROPERTY

Location and General Character

The Company's principal producing areas are in Texas,
Oklahoma, New Mexico, and Louisiana. The Company's interests in
oil and gas properties are held by virtue of leaseholds on the
property which generally continue in force by reason of, and so
long as, production from the lands under lease is maintained.
The Company believes that it generally has satisfactory title to
its oil and gas properties. Such properties are generally
subject to customary royalty interests contracted in connection
with the acquisition of the property, liens incident to operating
agreements, liens for current taxes and other burdens and minor
encumbrances, easements and restrictions. The Company believes
that none of such burdens materially detracts from the value of
such properties or materially interferes with their use in the
operation of the Company's business. As part of its Service and
Operations Agreement with CUSA the Company is provided with
approximately 4,500 square feet of office space located at 777 S.
Wadsworth Blvd., Irongate 3, Suite 201, Lakewood, Colorado. The
Company is not a party to the lease. The primary term of the
lease covering this space will expire on December 31, 1996. The
Company has been advised that CUSA intends to renew its lease for
one year and will continue to provide office space to the
Company.

Oil and Gas Operations

Unless otherwise indicated, the following information under
this subsection "Oil and Gas Operations," applies only to one
geographic area, the United States.

Net Proved Oil and Gas Reserves. The following table sets
forth estimates of net quantities of proved reserves of crude oil
(including condensate and natural gas liquids) and natural gas of
the Company as of July 31, 1996, and 1995.

Proved Proved Total
Developed Undeveloped Proved
Reserves Reserves Reserves

July 31, 1996
Oil (bbls) 249,448 990 250,438
Gas (mcf) 4,831,187 319,570 5,150,757

July 31, 1995
Oil (bbls) 406,045 24,319 430,364
Gas (mcf) 6,125,925 804,505 6,930,430

The decline in oil and gas reserves from fiscal 1995 to
fiscal 1996 is primarily due to substantial revisions to
quantities in the Company's New Mexico and Louisiana properties.
The Company's proved oil and gas reserves were estimated as of
July 31, 1996, and 1995, by SavagEngineers, 7291 South Highland,
Littleton, Colorado, 80120, an independent petroleum and natural
gas consultant.

Estimates of oil and gas reserves are, of necessity,
projections based on engineering data. There are uncertainties
inherent in the interpretation of such data, and there can be no
assurance that the reserves set forth herein will ultimately be
realized.

All of the Company's proved reserves are located within
the United States.

Present Value Analysis. The following table sets forth the
present value, using a discount factor of ten percent (10%) and
computed in accordance with regulations and guidelines of the
Securities and Exchange Commission ("SEC"), of the estimated
future net revenues to be received by the Company from the net
quantities of proved reserves of crude oil (including condensate
and natural gas liquids) and natural gas referred to in the
subsection entitled "Properties--Oil and Gas Operations--Net
Proved Oil and Gas Reserves", above, as of July 31, 1996, and
1995. The present value data has been presented to comply with
the regulations of the SEC and should not be construed as
representative of the fair market value of the Company's proved
oil and gas properties.

July 31,
1996 1995

Proved Developed
Reserves of Oil and
Gas ............... $4,243,903 $4,370,914

Proved Undeveloped
Reserves of Oil and
Gas ............... 182,492 210,741

Total Proved
Reserves of Oil and
Gas ............... $4,426,395 $4,581,655

Oil and Gas Production, Sales Price, Production Cost.
The following table sets forth the Company's net oil (including
condensate and natural gas liquids) and gas production, in number
of barrels and thousands of cubic feet, respectively, for the
years ended July 31, 1996, and 1995:

Year Ended Year Ended
July 31, 1996 July 31, 1995

Oil (bbls) 26,483 33,963
Gas (mcf) 337,842 540,645

None of the oil or gas produced and received during each
of these periods was applicable to long-term supply or similar
agreements with foreign governments or authorities in which the
Company acted as a producer.

The following table sets forth for the years ended July
31, 1996, and 1995, the Company's average sales price per bbl of
oil and mcf of gas produced and average production costs per
equivalent unit of production.

Year Ended Year Ended
July 31, 1996 July 31, 1995

Average sales price per
bbl of oil <F1>: $17.15 $14.54

Average sales price per
mcf of gas: $ 1.54 $ 1.36

Average production cost
per equivalent unit
(bbl), including
severance taxes <F2>: $ 5.47 $ 4.24

Other<F3> .18 1.00
----- -----
TOTAL: $ 5.65 $ 5.24

_________________________
<F1>
(1) Excludes natural gas liquids.
</F1>
<F2>
(2) Gas production is converted to barrel equivalents at the
rate of 6 mcf per barrel, representing the
estimated relative energy content of natural gas to oil.
</F2>
<F3>
(3) Workover costs.
</F3>

Producing Wells. The following table summarizes the
producing oil and gas wells in which the Company had an interest
at July 31, 1996:

TOTAL WELLS

Geographic Oil Wells<F1> Gas Wells<F1>

Area Gross Net Gross Net

Louisiana -- -- 4 2.55
New Mexico 138 1.88 2 .34
Oklahoma 6 1.06 1 .13
Texas 323 1.69 30 1.97

TOTAL 467 4.63 37 4.99
- - -------------------
<F1>
(1) Gross wells are the total number of wells in which the
Company has a working interest. Net wells are the sum
of the Company's fractional working interests in the
gross wells. Multiple completions are treated as one
well each. No wells with multiple completions are
included in the table.
</F1>

Acreage. The following table shows the developed and
undeveloped leasehold acreage held by the Company as of July 31,
1996:

WORKING INTEREST ROYALTY AND OVERRIDING ROYALTY
DEVELOPED UNDEVELOPED DEVELOPED UNDEVELOPED

Acreage<F1><F3> Acreage<F2><F3> Acreage Acreage
Gross Net Gross Net Gross Gross

California -- -- -- -- 160 --
Kansas -- -- -- -- 880 --
Louisiana 5,479 2,564 -- -- 5,970 --
New Mexico 7,560 649 1,440 1,160 22,237 1,040
Oklahoma 1,432 235 -- -- 678 --
Texas 33,658 1,524 -- -- 37,488 --
Wyoming -- -- -- -- 800 --
United
Kingdom -- -- 25,155 629 -- --

TOTAL 48,129 4,972 26,595 1,789 68,213 1,040
- - --------------------

<F1>
(1) Developed acres are those spaced or assignable to
productive wells.
</F1>

<F2>
(2) Undeveloped acres are assignable to those wells which
have not been drilled or completed to a point that would permit
the production of commercial quantities of oil and gas
regardless of whether or not such acreage contains proved
reserves.
</F2>
<F3>
(3) Gross acres are the total number of acres in which the
Company has a working interest. Net acres are the sum of the
Company's fractional interests in the gross acres.
</F3>

Drilling Activity. The following table sets forth the
results of drilling activity by the Company for the years ended
July 31, 1996, and 1995. The Company drilled no exploratory
wells for the years ended July 31, 1996, and 1995.

Development Wells<F1>

Gross Net

Productive Dry Total Productive Dry Total

Year Ended
July 31, 1996 1 0 1 0.09 0.00 0.09

Year Ended
July 31, 1995 14 0 14 0.12 0.00 0.12

<F1>
(1) The term "development well" refers to a well drilled
within the proven area of an oil and gas reservoir to the depth
of a stratigraphic horizon known to be productive.
</F1>
Present Activities. The Company installed
a water disposal system during fiscal year ended 1994 at its
Boston Bayou Field, Vermilion Parish, Louisiana. The
installation was necessary to comply with Environmental
Protection Agency and Department of Water Quality mandate to
cease the discharge of produced water into the adjacent
marshland. Since the installation, the well was successfully
reworked to accommodate a greater flow at lower pressure, and the
disposal system presently handles 100% of the produced water from
the project. The Company also undertook to reevaluate this
prospect area during the fiscal year and determined that
additional gas reserves are exploitable in the presently-existing
wellbores. The reserves are shown in the estimates as proved
behind-pipe and total in excess of 1 billion cubic feet of gas
recoverable from the leasehold. The Company plans to exploit
these reserves when the economic limit of the existing production
is reached. The Company currently owns a 75% working interest in
this lease; however, is repaying a third party operator out of a
59.200550% NRI of the net proceeds. See "Results of Operations".

Effective January 1, 1993, ARCO's South Justis Secondary
Recovery Unit, located in Lea County, New Mexico, of which the
Company owns a gross .825% working interest, was approved by the
New Mexico Oil and Gas Conservation Commission for unitization.
From January 1, 1993 through October 31, 1995, the Company
participated in the drilling of ninety nine (99) new wells in the
unit area. Phase I and Phase II of the unit development are
complete; total costs are $56.5 Million. The Company's cost in
this project was approximately $400,000. The Company also
approved recompletion of fifty three (53) wells in the unit by
adding additional pay zones. The recompletion project was
completed during fiscal year 1996.

The Company holds various working, overriding royalty
and royalty interests in the Beargrass Prospect Area in Leon,
Freestone and Limestone counties, Texas. The reservoir produces
gas from the Cotton Valley, Travis Peak, Bossier and Pettit
formations. During the fiscal year, the Company participated in
the drilling and completion of one well in the Teague Gas Unit.
It is likely that additional development drilling will be
conducted during the coming fiscal year.

The Company has farmed out, sold, or otherwise assigned
tracts of acreage in several of its leasehold areas, for purposes
of causing wells to be drilled. The effect of these transactions
to the acreage pool and to total revenues is relatively
insignificant; however, it reflects the Company's continuing
utilization of assets.

Title to Oil and Gas Properties. As is common industry
practice, little or no investigation of title is made at the time
of acquisition of undeveloped properties, other than a
preliminary review of local mineral records. Title
investigations are made, in most cases including obtaining a
title opinion of local counsel, before commencement of drilling
operations. The Company believes that its methods of
investigating title to its properties are consistent with
practices customary in the oil and gas industry in connection
with the acquisition of such properties and that such practices
are adequately designed to enable it to acquire good title to
such properties.

Contractual Commitments. The Company is not obligated
to provide a fixed and determinable quantity of oil or gas in the
future under existing contracts or agreements.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in routine litigation from time to
time. The litigation in which the Company is currently involved
is not material to the Company's consolidated financial position.
On July 9, 1993, the Company received a demand notice from the
Daiwa Bank Ltd., ("Daiwa") for payment of $1,997,500 in payment
of the outstanding balance on the Company's $15,000,000 Credit
Revolver established by Daiwa in 1988, although no litigation has
been commenced as of the date hereof. The Company is in contact
with Daiwa to resolve the matter. See "Management's Discussion
and Analysis or Plan of Operation - Liquidity and Capital
Resources."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the shareholders of the
Company during the fourth quarter of the year ended July 31,
1996.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS

On July 29, 1994, the Company's securities ceased trading on
the American Stock Exchange because the Company no longer
satisfied certain of the financial requirements for continued
listing. Since July 29, 1994, the shares have not been actively
traded in any market. The Company's Common stock is traded on
the NASD electronic OTC bulletin board under the symbol "CSPN".
The Company has no reliable information as to the price at which
the shares have traded since July 29, 1994.

As of September 30, 1996, there were approximately 4,300
holders of record of the Company's Common Shares.

No cash dividend on the Common Shares has been declared
since 1982, and no dividend has been paid on the Series C or E
Preferred Shares. Declaration and payment of any cash dividends
by the Company is currently prohibited by the Loan Agreement,
dated August 1, 1988, amended and restated on December 14, 1990,
between the Company and Daiwa. Moreover, the terms of the Series
A Shares provide that no dividends may be paid on the Common
Shares or Series C or E Preferred Shares while dividends on the
Series A Shares are in arrears. The Company has not paid any
dividends on the Series A Shares since June 30, 1988. As of
July 31, 1996, dividends on the Company's Series A Shares are in
arrears $17.089 per share for a total of $10,245,077.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION

LIQUIDITY AND CAPITAL RESOURCES

In December 1990, at the request of Daiwa, the Company sold
property, which was mortgaged to Daiwa, for approximately
$5,200,000. From the proceeds of the sale, Daiwa received the
total $5,200,000. Daiwa applied $4,700,000 to the reduction of
principal. Simultaneously, the Company executed a 30-month
extension note in the amount of $2,000,000, with the guarantee by
Daiwa that, upon payment of $500,000 in June 1993, the note would
be renewed or restructured. Daiwa recognized that the Company
would be unable to make the $500,000 principal payment in June
1993 and therefore returned $500,000 from the December 1990 sale
of property to the Company.

In June 1993, after the Company paid interest for thirty (30)
months of approximately $425,000, Daiwa refused to accept the
$500,000 principal reduction payment offered by the Company and
refused to renew or restructure the note claiming no legal
obligation to do so and citing its decision to divest itself of
oil and gas loans.

On July 9, 1993, the Company received a demand notice from
Daiwa for $1,997,500 in payment of the loan balance remaining on
the $15,000,000 Credit Revolver established by Daiwa in late
1988. On February 17, 1994, the Company sold certain oil and gas
properties for $300,000 the proceeds of which were used to reduce
the bank debt principal to $1,697,500.

As of July 31, 1996, the Company has reduced the disputed
outstanding principal balance to $1,547,500.

The Company has attempted to resolve the loan dispute. The
Company expects one of two developments between the Company and
Daiwa in fiscal year 1997: (a) the Company and Daiwa reach an
agreement to reduce to $50,000 the outstanding loan balance
inclusive of interest, which, based on Generally Accepted
Accounting Principles, would result in the Company recording the
forgiveness of the debt.(However, there can be no assurance that
Daiwa will agree to do so, nor can there be any assurance that
Daiwa will not proceed to foreclose on the oil and gas properties
which secure the debt.); or (b) litigation results in which the
Company will seek damages in excess of $10,000,000, and Daiwa
asserts claims for default interest and attorneys' fees. Under
the second alternative, the Company estimates legal fees in the
range of $150,000 in fiscal years 1997-1998.

Cash flow used in operations during fiscal year 1996 of
$(82,975) decreased from cash used in operations during
fiscal year 1995 of $(13,033). This decrease primarily related
to an increase in accrued liabilities as a result of the
Company's president voluntarily deferring $60,000 of his salary
during fiscal year 1996.

The Company anticipates that with its current cash position,
and a satisfactory resolution with Daiwa, it will have sufficient
working capital to meet its obligations during the ensuing fiscal
year.

As of July 31, 1996, dividends on the Company's cumulative
convertible Series A Preferred Shares are in arrears $17.089 per
share for a total of $10,245,077.

The Company intends to continue to provide visionary
leadership and vigorously pursue merger and acquisition
candidates both domestically and abroad. The Company will
respond aggressively to any merger or acquisition opportunity
that is in the best interest of all the shareholders.

RESULTS OF OPERATIONS

During fiscal year 1996, the Company's management resources
were primarily directed to three areas:

(1) The settlement and/or avoidance of legal actions.

During fiscal year 1995, the Company was sued by the
operator of one of the Company's former offshore lease
facilities. The potential exposure to the Company under this
suit was approximately $600,000. In addition, the Company was
faced with plugging liabilities of approximately $650,000. The
Company's President negotiated a settlement of $230,000 to be
paid over a twelve-month period thereby resulting in an 81%
discount of the potential exposure without reference to the
avoidance of associated legal fees. A $30,000 down payment was
made in December 1995 and payments of $16,666 began
January 1996 and continued through June 1996. Due to the
deterioration of the Company's cash position, the Company and the
operator recognized the fact that continued payments at this
level could not be maintained. Therefore, the Company
renegotiated the terms of settlement to allow for a $50,000
payment to be made to the operator up front, the source of funds
which the Company borrowed from a third party and guaranteed by
the President. The terms allow for repayment of the borrowed
$50,000 to the third party only from net proceeds of 59.200550
percent of the revenue stream (net of lease operating expenses)
from the Company's working interest in the Vermilion Bay lease.
Upon full repayment of the $50,000, including interest at 8%,
the operator will begin receiving the like payments only based on
net revenues from the Vermilion Bay lease working interest
percentage of 59.200550 NRI; 75.000% working interest until paid
in full. The net effect of this arrangement was that the monthly
cash burden on the Company was reduced by approximately $10,000
per month. At July 31, 1996, the total outstanding debt owed to
the operator is $59,400.

(2) The identification of a suitable merger or acquisition
candidate for the Company. To date, no suitable candidate has
been identified.

(3) The identification of the most viable market which would
enhance the trading of the Company's stock.

Consolidation of Working Interest in Nukern Lease

Pursuant to an agreement dated September 20, 1994, between
Summit Overseas Exploration, Inc. (wholly-owned subsidiary of the
Company) ("Summit"), the Villiers Group plc, a public limited
company organized under the laws of Northern Ireland, and
CUSA, a Colorado corporation, each party agreed
to capitalize a newly formed company, CSV Holdings, Inc., a
Colorado corporation ("CSV") for the purpose of administering the
Nukern lease holdings of each to maximize the value of the lease.
To this end, each party transferred its respective working
interest in the Nukern lease to CSV as its share of the
capitalization, along with a pari-passu working capital loan to
cover the estimated projected maintenance costs of the Nukern
lease through fiscal 1995. Of this, Summit transferred its
42.22% working interest for which it received 48.8% of the equity
in CSV and a production loan of $1,926,345. In addition, the
Company paid $42,223 as its share of the working capital loan.
The working capital loan is tied to a promissory note dated
December 1, 1994, with principal and interest, at six percent,
due in full December 1, 1998.

Revisions on quantity estimates from July 31, 1996 were
$(3,911,897) as compared to July 31, 1995 revisions of
$2,748,235. The significant change from the prior fiscal year
was due to substantial reductions in the Company's reserves in
Louisiana and New Mexico. Two operated Louisiana properties
appeared to have reached near their economic lives; and, in New
Mexico, a non-operated waterflood project has not performed as
the operator originally had estimated. Offsetting the downturn
in quantity estimate revisions for fiscal year 1996 was the fact
that prices for oil and gas were greater than in fiscal year
ended 1995. Future reductions in prices may have a
correspondingly negative effect on the reserves.

Year Ended July 31, 1996 Compared with the Year Ended July 31,
1995

Oil and gas revenue was $921,614 as compared to $1,208,381
for the prior fiscal year. This decrease in revenue is primarily
due to significantly lower production received during fiscal 1996
as compared to fiscal 1995. The lower production included two
significant producing wells that have possibly reached their
economic limits.

The Company experienced higher oil and gas prices than those
received in the same period last year. Average prices received
in fiscal 1996 were $17.15/barrel oil and $1.54/mcf gas, as
compared to $14.54/barrel oil and $1.36/mcf gas received in the
prior fiscal year.

Lower net revenue from oil and gas operations was offset by a
decrease in production costs. Production costs remained fairly
consistent with the prior fiscal year at $5.65 per BOE for fiscal
1996 as compared to $5.24 per BOE for fiscal 1995.

In fiscal year 1996, other revenue of $127,637 was lower than
the $245,767 in fiscal year 1995, largely due to a write-off
during fiscal year 1995 of an account payable deemed not due to a
third party operator.

General and administrative expenses for fiscal 1996 decreased
by $235,008 over the prior year. This decrease related primarily
to the reduction of service and operations fees provided and
legal expenses, as well as outside contract services.

Interest expense for the current fiscal year was $143,647 as
compared to $166,127 reported for the prior fiscal year.
In compliance with Generally Accepted Accounting Principles, the
Company booked the interest on the Daiwa debt, (See "Item 6.
Management's Discussion and Analysis on Plan of Operation").

Depletion, depreciation and amortization of oil and gas
property costs are calculated on the unit-of-production method
based on total estimated reserves. The current fiscal year's
rate per MCF equivalent unit was $.62 as compared to $.27 for the
prior fiscal year.

There was no writedown of the Company's oil and gas
properties for either the current fiscal year or the fiscal year
ended July 31, 1995.

As a result of the aforementioned activities, the Company had
a net loss of ($495,193) in fiscal 1996 as compared to a net loss
of ($430,158) in fiscal 1995.

Recent Accounting Pronouncements - The Financial Standards Board
has recently issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets" and SFAS No. 123, "Accounting for Stock Based
Compensation." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles be reported at the lower of the
carrying amounts or their estimated recoverable amounts and the
adoption of this statement by the Company is not expected to have
an impact on the financial statement. SFAS No. 123 encourages the
accounting for stock- based employee compensation programs to be
reported within the financial statements on a fair value based
method. If the fair value based method is not adopted, then the
statement requires pro forma disclosure of net income and
earnings per share as if the fair value based method has been
adopted. The Company has not yet determined how SFAS No. 123 will
be adopted nor its impact on the financial statements. Both
statements are effective for fiscal years beginning after
December 15, 1995.

Going Concern - The Company has incurred significant losses and
has a working capital deficit of $2,744,866 as of July 31, 1996
that raises substantial doubt about its ability to continue as a
going concern. Management believes that with its current cash
position, and a satisfactory resolution with Daiwa, it will have
sufficient working capital to meet its obligations during the
ensuing fiscal year. See Note 1 to the consolidated financial
statements for further discussion. There are no assurances that
revenue and the resolution of the Daiwa matter will be realized
in time or in amounts adequate to enable the Company to continue
its operations as a going concern.

Income Taxes and Net Operating Losses - As discussed in Note 8 in
the accompanying consolidated financial statements, the Company
has net operating loss carryforwards for income tax purposes of
$10,600,000, certain of which are limited due to certain
transactions. At July 31, 1996, the Company established a 100%
valuation allowance on the net deferred tax asset arising from
the loss carryforwards in excess of the deferred tax liability
resulting from depreciation and depletion differences. The
valuation allowance was recorded by management, as it was more
likely than not that any part of the deferred tax assets would be
realized.

INFLATION AND CHANGES IN PRICES

While the costs of operations have been, and will continue to
be, affected by inflation, oil and gas prices have fluctuated in
recent years and generally have not followed the same pattern as
inflation. The following table shows the average oil and gas
prices received by the Company over the last two fiscal years.

Average Average
Oil Price Gas Price
($/Bbl) ($/MCF)
By Year

July 31, 1996 $17.15 $1.54
July 31, 1995 $14.54 $1.36

Higher gas prices have had an impact on revenues,
revenues per unit of production, and costs of replacing these
values.

ITEM 7. FINANCIAL STATEMENTS

The Financial Statements are set forth herein commencing
on page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

On January 1, 1996, Mitchell, Finley and Company, P.C.
combined their practice into BDO Seidman, LLP, and on February
20, 1996 were replaced as the principal accountants of the
Company. Mitchell, Finley and Company, P.C. reported on the
financial statement of the Company as of and for the year ended
July 31, 1995.

The audit report for the year ended July 31, 1995,
reported by Mitchell, Finley and Company, P.C. was modified due
to the uncertainty as to the Company's ability to continue as a
going concern.

There were no disagreements with Mitchell, Finley and
Company, P.C. with regard to matters of accounting principle or
disclosure.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The information required in response to this Item is
incorporated herein by reference to the Registrant's definitive
proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days
after the end of the Registrant's fiscal year covered by this
report.

ITEM 10. EXECUTIVE COMPENSATION

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this
report:

(1) Financial Statements:

See "CASPEN OIL, INC. AND SUBSIDIARIES - Index to
Consolidated Financial Statements" on page F-1 of
this report.

(2) Exhibits:

3.1 Certificate of Amendment and Restatement of
Restated Articles of Incorporation of the
Registrant dated December 1, 1994, filed as
Exhibit 3.1 to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended July
31, 1995, and incorporated herein by
reference.

3.2 Bylaws of the Registrant, as amended, filed as
Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended
July 31,1988, and incorporated herein by
reference.

4.1 Specimen Common Share Certificate of the
Registrant, filed as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1992, and
incorporated herein by reference.

4.2 Specimen Series A $1.80 Cumulative Convertible
Preferred Share Certificate of the Registrant,
filed as Exhibit 4.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended July 31, 1992, and incorporated herein
by reference.

4.3 Resolutions authorizing the $1.80 Cumulative
Convertible Preferred Shares, par value $1.00
per share, of the Registrant, as amended,
filed as Exhibit 4.3 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended July 31, 1988, and incorporated herein
by reference.

4.4 Specimen Series C Preferred Share Certificate
of the Registrant, filed as Exhibit 4.4 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1992, and
incorporated herein by reference.

4.5 Resolution authorizing the Series C Preferred
Shares, par value $1.00 per share of the
Registrant, filed as Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1992, and
incorporated herein by reference.

4.6 Specimen Series E Preferred Share Certificate
of the Registrant, filed as Exhibit 4.6 to the
Registrant's Annual Report on Form 10-KSB for
the fiscal year ended July 31, 1994, and
incorporated herein by reference.

4.7 Resolution authorizing the Series E Preferred
Shares, par value $1.00 per share of the
Registrant, filed as Exhibit 4.7 to the
Registrant's Annual Report on Form 10-KSB for
the fiscal year ended July 31, 1994, and
incorporated herein by reference.

4.8 Specimen Series F Preferred Share Certificate
of the Registrant, filed as Exhibit 4.8 to the
Registrant's Annual Report on Form 10-KSB for
the fiscal year ended July 31, 1994, and
incorporated herein by reference.

4.9 Resolution authorizing the Series F Preferred
Shares, par value $1.00 per share of the
Registrant, filed as Exhibit 4.9 to the
Registrant's Annual Report on Form 10-KSB for
the fiscal year ended July 31, 1994, and
incorporated herein by reference.

4.10 1993 Omnibus Employee Stock Option Plan of
Caspen Oil, Inc., filed as Exhibit 4.8 to the
Registrant's Form S-8 (No. 33-68868) dated
September 15, 1993, and incorporated herein by
reference.

10.1 Form of Indemnification Agreement with
Directors, filed as Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for
the Year ended July 31, 1987, and incorporated
herein by reference.

10.2 Summit Energy, Inc. Stock Bonus Plan, filed as
Exhibit 10.3 to the Registrant's Annual Report
on Form 10-K for the Year ended July 31, 1987,
and incorporated herein by reference.

10.3 Service and Operations Agreement, dated March
31, 1994, between the Registrant's subsidiary,
Summit Overseas Exploration, Inc. and
Churchill U.S.A., Inc., filed as Exhibit 10.5
to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended July 31,
1994, and incorporated herein by reference.

10.4 Amendment to Service and Operations Agreement,
dated June 15, 1995, between Churchill U.S.A.,
Inc. and the Registrant's subsidiary, Summit
Overseas Exploration, Inc, filed as Exhibit
10.4 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended July 31,
1995, and incorporated herein by reference.

10.5 Amended and Restated Loan Agreement,
dated as of December 14, 1990, by and
between the Registrant and The Daiwa Bank
Limited (formerly Lloyds Bank Plc)
concerning the $15,000,000 Revolving
Credit Loan to the Registrant, filed as
Exhibit 10.4 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended July
31, 1991, and incorporated herein by
reference.

10.6 Employment Agreement, dated January 1, 1994,
by and between the Registrant's subsidiary,
Summit Overseas Exploration, Inc. and Anthony
J. Carroll, filed as Exhibit 10.7 to the
Registrant's Annual Report on Form 10-KSB for
the fiscal year ended July 31, 1994, and
incorporated herein by reference.

10.7 Employment Agreement, dated January 1, 1994,
by and between the Registrant's subsidiary,
Summit Overseas Exploration, Inc. and Gary N.
Davis, filed as Exhibit 10.8 to the
Registrant's Annual Report on Form 10-KSB for
the fiscal year ended July 31, 1994, and
incorporated herein by reference.

10.8 Agreement dated September 20, 1994, between
the Registrant's subsidiary, Summit Overseas
Exploration, Inc., Churchill U.S.A., Inc., and
Villiers Group plc, filed as Exhibit 10.8 to
the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended July 31, 1995, and
incorporated herein by reference.

21.1 Subsidiaries of the Registrant, filed as
Exhibit 22.1 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended July
31, 1992, and incorporated herein by
reference.

(b) Reports on Form 8-K

The Company filed no current reports on Form 8-K
during the last quarter of the period covered by
this report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.

DATE: November 12, 1996

CASPEN OIL, INC.

/s/ Anthony J. Carroll

Anthony J. Carroll
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated.

Signature Title Date

/s/ Anthony J. Carroll Chairman of the November 12, 1996
Anthony J. Carroll Board,President
and
Chief Executive Officer
(Principal Executive
Officer)

/s/ Gary N. Davis Chief Financial November 12, 1996
Gary N. Davis Officer and
Director
(Principal Financial
and Accounting Officer)

/s/ Kimberley J. Love Secretary and November 12, 1996
Kimberley J. Love Director

/s/ John J. Crawford Director November 12, 1996
John J. Crawford

SIGNATURES

DATE:

CASPEN OIL, INC.

Anthony J. Carroll
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated.

Signature Title Date

Anthony J. Carroll Chairman of the
Board, President
and Chief Executive Officer
(Principal Executive
Officer)

Gary N. Davis Chief Financial
Officer and
Director
(Principal Financial
and Accounting Officer)

Kimberley J. Love Secretary and
Director

John J. Crawford Director

CASPEN OIL, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements

Reports of Independent Certified Public Accountants. F-2 to F-3

Consolidated Balance Sheet as of July 31, 1996 . . . F-4 to F-5

Consolidated Statements of Operations
for the Years Ended July 31, 1996 and 1995 . . . . . . . . . F-6

Consolidated Statements of Shareholders' Equity
for the Years Ended July 31, 1996 and 1995 . . . . . . . . . F-7

Consolidated Statements of Cash Flows
for the Years Ended July 31, 1996 and 1995 . . . . . F-8 to F-9

Summary of Accounting Policies . . . . . . . . . . F-10 to F-12

Notes to Consolidated Financial Statements . . . . .F-13 to F-26

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders
Caspen Oil, Inc.
Lakewood, Colorado

We have audited the accompanying consolidated balance sheet of
Caspen Oil, Inc. and subsidiaries as of July 31, 1996 and the
related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit 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
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Caspen Oil, Inc. and subsidiaries as of July 31,
1996, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted
accounting principles.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations and the
Company's current liabilities exceed its current assets by
approximately $2,744,866 at July 31, 1996. The working capital
deficit results primarily from bank debt of $1,547,500, for which
payment was demanded by the bank on July 9, 1993. The working
capital deficit raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in
regard to this matter are also discussed in Note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.

BDO Seidman, LLP
Certified Public Accountants

Denver, Colorado
September 19,1996

F-2

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders
Caspen Oil, Inc.
Lakewood, Colorado

We have audited the accompanying consolidated statements of
operations, shareholders' equity and cash flows for the year
ended July 31,1995 of Caspen Oil, Inc. and subsidiaries. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Caspen Oil, Inc. and subsidiaries as of July 31,
1995, and the results of their operations and their cash flows
for the year then ended July 31, 1995 in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the
Company's current liabilities exceed its current assets by
approximately $2,287,000 at July 31, 1995. The working capital
deficit results primarily from bank debt of $1,597,500, for which
payment was demanded by the bank on July 9, 1993. The working
capital deficit raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in
regard to this matter are also discussed in Note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.

Mitchell Finley and Company, P.C.
Certified Public Accountants

October 24, 1995
Denver, Colorado

F-3

CASPEN OIL, INC. AND SUBSIDIARIES

Consolidated Balance Sheet
July 31, 1996

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 94,131
Accounts receivable 130,985
Other 1,603
------------

Total current assets 226,719
------------
PROPERTY AND EQUIPMENT, AT COST:
Oil and gas properties, full cost method
used for oil and gas properties 19,873,617
Other 302,061
------------
20,175,678
Less accumulated depletion, depreciation
and amortization 17,006,425
-------------
Net property and equipment 3,169,253
-------------

OTHER:
Investments 833,520
Note receivable - related party 66,622
Other 8,832
------------
Total other assets 908,974
------------
TOTAL ASSETS $ 4,304,946
------------

See accompanying reports of independent certified public
accountants, summary of accounting policies and notes to
consolidated financial statements.

F-4

CASPEN OIL, INC. AND SUBSIDIARIES

Consolidated Balance Sheet (Continued)
July 31, 1996

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Note payable, bank $1,547,500
Accounts payable 747,918
Accrued expenses 616,167
Note payable - related party 50,000
Note payable - other 10,000
------------
Total current liabilities 2,971,585

LONG-TERM LIABILITIES:
Note payable 10,000
Other 59,400
------------
Total Liabilities 3,040,985
------------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
$1.80 cumulative convertible preferred stock,
Series A, $1 par value. Authorized 10,000,000
shares; issued 600,000 shares (liquidation
preference of $22,245,977 excluding shares in
treasury) 600,000
Convertible preferred stock, Series C, $1 par value.
Authorized 300,000 shares; issued and outstanding
300,000 shares (liquidation preference of $300,000) 300,000
Preferred stock, Series E, $1 par value.
Authorized 1,250,000 shares; issued and outstanding
125,000 shares (liquidation preference of $500,000) 125,000
Common stock, $.01 par value. Authorized
50,000,000 shares; issued 18,092,222 shares 180,922
Additional paid-in capital 21,091,871
Accumulated deficit (21,024,122)
-------------
1,273,671
Less cost of 18,836 common shares and
500 Series A preferred shares in treasury 9,710
------------
Total Shareholders' Equity 1,263,961
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,304,946
------------
See accompanying reports of independent certified public
accountants, summary of accounting policies and notes to
consolidated financial statements.

F-5
CASPEN OIL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
For the Years Ended July 31, 1996 and 1995

1996 1995

REVENUES:
Crude oil and gas sales $ 921,614 $1,208,381
Interest income 34,600 29,121
Other 127,637 245,767
---------- ----------
Total revenues 1,083,851 1,483,269
---------- ----------
COSTS AND EXPENSES:
Production and operating 467,371 673,350
Depletion, depreciation and amortization 346,660 217,576
General and administrative 621,366 856,374
Interest 143,647 166,127
---------- ----------
Total costs and expenses 1,579,044 1,913,427
---------- ----------

NET LOSS (495,193) (430,158)

DIVIDEND REQUIREMENTS ON
PREFERRED STOCK 1,080,000 3,875,729
---------- ----------
LOSS APPLICABLE TO COMMON STOCK $ (1,575,193) $ (4,305,887)
---------- ----------
LOSS PER SHARE OF COMMON STOCK $ (.09) $ (.24)
---------- ----------

WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 18,092,222 18,030,050
----------- -----------

See accompanying reports of independent certified public
accountants, summary of accounting policies and notes to
consolidated financial statements.

F-6

<TABLE>
<CAPTION>
CASPEN OIL, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity

For the Years Ended July 31, 1996 and 1995

Series A Series C Series E Series F
preferred preferred preferred preferred Common Stock
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1994 600,000 $600,000 300,000 $300,000 125,000 $125,000 241,000 $241,000 17,992,249 $8,996,125

Change in par value of
common stock from
$.05 to $.01 per share - - - - - - - - - (8,816,203)
Issuance of shares of common
stock for services rendered- - - - - - - - 100,000 1,000
Cancellation of Series F
preferred stock - - - - - - (241,000)(241,000) - -
Cancellation of common stock- - - - - - - - (27) -
Issuance of shares of
treasury stock for cash - - - - - - - - - -
Purchase of shares of
treasury stock for cash - - - - - - - - - -
Net loss - - - - - - - - - -
------- ------- ------- -------- ------- ------- ------- ------- ---------- ----------
Balances, July 31, 1995 600,000 600,000 300,000 300,000 125,000 125,000 - - 18,092,222 180,922

Net loss - - - - - - - - - -
------- ------- ------- -------- ------- ------- ------- ------- ---------- ----------
Balances, July 31, 1996 600,000 $600,000 300,000 $300,000 125,000 $125,000 - $ - 18,092,222 $180,922

See accompanying reports of independent certified public
accountants, summary of accounting policies and notes to
consolidated financial statements.

Additional Total
paid-in Accumulated Treasury shareholders'
capital deficit stock equity
---------- ------------ --------- ---------
Balance, August 1, 1994 $12,865,705 $(20,098,771) $(1,047,917) $1,981,142

Change in par value of
common stock from
$.05 to $.01 per share 8,816,203 - - -
Issuance of shares of common
stock for services rendered - - - 1,000
Cancellation of Series F
preferred stock 241,000 - - -
Cancellation of common stock - - - -
Issuance of shares of
treasury stock for cash (831,037) - 1,038,731 207,694
Purchase of shares of
treasury stock for cash - - (524) (524)
Net loss - (430,158) - (430,158)
---------- ---------- --------- ---------
Balances, July 31, 1995 21,091,871 (20,528,929) (9,710) 1,759,154
Net loss - (495,193) - (495,193)
---------- ---------- --------- ---------
Balances, July 31, 1996 $21,091,871 $(21,024,122) $(9,710) $1,263,961

See accompanying reports of independent certified public
accountants, summary of accounting policies and notes to
consolidated financial statements.

F-7

</TABLE>
CASPEN OIL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For the Years Ended July 31, 1996 and 1995
1996 1995
--------- ---------

Increase (Decrease) in cash and cash equivalents

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(495,193) $(430,158)
Adjustments to reconcile net loss to
net cash used in operating activities
Depletion, depreciation
and amortization 346,660 217,576
Provision for loss(gain) on assets (7,224) 61,231
Issuance of stock for services rendered - 1,000
Changes in operating assets and
liabilities:
Accounts receivable 196,053 103,572
Accounts payable (208,198) (317,066)
Accrued expenses 84,927 350,812
--------- ---------

NET CASH USED IN
OPERATING ACTIVITIES ( 82,975 ) (13,033)
---------- ---------

See accompanying reports of independent certified public
accountants, summary of accounting policies and notes to
consolidated financial statements.

F-8

CASPEN OIL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)
For the Years Ended July 31, 1996 and 1995

1996 1995

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment (273,522) (159,200)
Proceeds from disposition of property
and equipment 22,245 9,598
Advances to related party and affiliate (24,399) (101,900)
Collections on note receivable 4,788 3,286
Increase in other assets (6,882) -
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (277,770) (248,216)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt (60,000) (110,000)
Proceeds from issuance of debt 50,000 -
Cost to repurchase common and preferred
stock - (524)
Proceeds from issuance of shares held in
treasury - 207,694
--------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (10,000) 97,170
--------- ----------

NET DECREASE IN CASH AND
CASH EQUIVALENTS (370,745) (164,079)

CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 464,876 628,955
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 94,131 $ 464,876
--------- ---------

See accompanying reports of independent certified public
accountants, summary of accounting policies and notes to
consolidated financial statements.

F-9

CASPEN OIL, INC. AND SUBSIDIARIES

Summary of Accounting Policies

Principles of Consolidation - The consolidated financial
statements include the accounts of Caspen Oil, Inc. and its
subsidiaries (the Company). The Company is engaged in the
operation, acquisition and development of oil and gas properties.
All significant intercompany balances
and transactions have been eliminated in consolidation.

Property and Equipment - The Company follows the full cost method
of accounting for its domestic oil and gas operations and,
accordingly, capitalizes all costs incurred in the acquisition,
exploration, and development of oil and gas properties.
Capitalized costs relating to proved reserves are amortized on
the units-of-production method based on total estimated proved
recoverable reserves as determined by independent petroleum
reservoir engineers. Investments in unproved properties and major
development projects are not depleted until the determination of
the existence of proved reserves and the commencement of sales
from the properties.

No gain or loss is recognized on the sale of oil and gas
properties except in the case of properties involving significant
remaining reserves. Proceeds from sales of insignificant reserves
and undeveloped properties are applied to reduce the costs in the
cost centers.

Capitalized costs less related accumulated depletion and deferred
income taxes may not exceed the sum of (1) the present value of
future net revenue from estimated production of proved oil and
gas reserves; (2) the cost of properties not being amortized, if
any; (3) the lower of cost or estimated fair value of unproved
properties included in the costs being amortized, if any; and (4)
income tax effects related to temporary differences between the
book and tax basis of oil and gas properties.

Other equipment is depreciated using straight-line and
accelerated methods based on estimated useful lives ranging from
three to ten years.

Investments - The Company initially records investments at cost.
Investments in which the Company has an ownership interest of
less than 20% are accounted for using the cost method of
accounting. Investments in which the Company has an ownership
interest of between 20% and 50% are accounted for using the
equity method of accounting.

The Company periodically assesses each of its investments and
provides an allowance in the event it determines that its
investment is considered permanently impaired.
F-10
CASPEN OIL, INC. AND SUBSIDIARIES

Summary of Accounting Policies (Continued)

Concentrations of Credit Risks - The Company's financial
instruments that are exposed to concentrations of credit risk
consist primarily of cash and cash equivalents. The Company's
cash and cash equivalents are placed with major financial
institutions.

Gas Balancing - The Company uses the entitlements method of
accounting for gas imbalances. Under this method, proceeds are
recognized as revenue only to the extent that the Company is
entitled to its proportionate share of the gas sold. Amounts
received applicable to other revenue interest owners of
approximately $255,700 at July 31, 1996, are recorded as a
liability and included in accounts payable.

Income Taxes - The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" which requires the use of the
"liability method". Accordingly, deferred tax liabilities and
assets are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to reverse.

Loss Per Common Share - Loss per common share is based on the
weighted-average number of shares outstanding during each period.
Shares issuable upon conversion of convertible preferred stock
and exercise of stock options have not been included in the loss
per share calculation since the result would be antidilutive.

Cash Flow Reporting - For purposes of the statement of cash
flows, the Company considers all highly liquid investments
purchased with an original maturity of three months or less to be
cash equivalents.

Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.

Summary of Accounting Policies (Continued)

carrying amounts or their estimated recoverable amounts and the
adoption of this statement by the Company is not expected to have
an impact on the financial statement. SFAS No. 123 encourages the
accounting for stock- based employee compensation programs to be
reported within the financial statements on a fair value based
method. If the fair value based method is not adopted, then the
statement requires pro forma disclosure of net income and
earnings per share as if the fair value based method has been
adopted. The Company has not yet determined how SFAS No. 123 will
be adopted nor its impact on the financial statements. Both
statements are effective for fiscal years beginning after
December 15, 1995.

F-12
CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 - BASIS OF PRESENTATION

These consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal
course of business. The Company's current liabilities exceed its
current assets by $2,744,866 and $2,287,329 at July 31, 1996 and
1995. The working capital deficit results primarily from bank
debt of $1,547,000 for which payment was demanded by the bank on
July 9, 1993. The working capital deficit raises substantial
doubt about the Company's ability to continue as a going concern.

The Company's bank loan, $1,547,000 at July 31, 1996, was due
June 30, 1993. On July 9, 1993, the Company received a demand
notice from the bank for full payment of the loan. The Company is
in negotiations with the bank to resolve the matter. The Company
believes that the bank will agree to reduce its debt to $50,000,
which, based on Generally Accepted Accounting Principles, would
result in the Company recording the forgiveness of the debt.
However, there can be no assurance that the bank will agree to do
so, nor can there be any assurance that the bank will not proceed
to foreclose on the oil and gas properties which secure the debt.

The Company anticipates that given its current cash position and
assuming a satisfactory resolution of the bank matter, it will
have sufficient working capital to meet its obligations during
the ensuing fiscal year.

F-13

CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 - OIL AND GAS PROPERTIES (UNAUDITED)

Costs Incurred - A summary of costs incurred in oil and gas
property acquisition, exploration, and development activities for
the years ended July 31, 1996 and 1995 follows:

1996 1995
Property acquisition costs:
Proved $ - $ -

Unproved - -
$ - $ -
Exploration costs $ - $ -
Development costs $262,290 $159,200
------- -------
The Company's share of equity method
investee's costs of property acquisition,
exploration and development $ - $ -

Depletion, depreciation and amortization
of oil and gas properties $306,500 $177,000
------- -------
Depletion, depreciation and amortization
of oil and gas properties per equivalent
mcf of production $ .62 $ .27
-------- -------

Aggregate Capitalized Costs - The following presents the
Company's aggregate capitalized costs relating to oil and gas
activities as of July 31, 1996:

Costs related to proved properties $ 19,873,617
Costs related to unproved properties -
-------------
19,873,617

Less accumulated depletion 16,784,656
-------------
Net capitalized costs $ 3,088,961
-------------
The Company's share of equity method
investee's net capitalized costs $ 1,263,315
-------------

F-14
CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 - OIL AND GAS PROPERTIES (UNAUDITED) (Continued)

Oil and Gas Reserve Data - The following table presents the
Company's estimate of its proved oil and gas reserves, all of
which are located in the United States. The Company emphasizes
that reserve estimates are inherently imprecise and that
estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, these estimates
are expected to change as future information becomes available.
The reserve information presented below is based upon reports
prepared by independent petroleum reservoir engineers.

Estimated net proved developed and undeveloped oil and gas
reserves (in barrels and thousands of cubic feet of gas), all of
which are located in the United States, are as follows:

Year ended Year ended
July 31, 1996 July 31, 1995
Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf)
Proved developed and
undeveloped reserves:
Beginning of period 430,000 6,930,000 1,236,000 6,900,000
Revision of previous
estimates (173,000)(1,422,000) (32,000) 571,000
Sales of reserves-
in-place - ( 77,000) (740,000) -

Purchases of
reserves-in-place 19,000 58,000 - -
Production (26,000) (338,000) (34,000) (541,000)
-------- -------- -------- ----------
End of period 250,000 5,151,000 430,000 6,930,000
------- --------- --------- ----------

F-15
CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 - OIL AND GAS PROPERTIES (UNAUDITED) (Continued)

Year ended Year ended
July 31, 1996 July 31, 1995
Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf)

Proved developed reserves:
Beginning of period 406,000 6,126,000 1,185,000 6,583,000
------- --------- --------- ---------
End of period 249,000 4,831,000 406,000 6,126,000
------- --------- --------- ---------
The Company's proportional
interest in reserves of in-
vestee accounted for by the
equity method,
end of period 789,000 - 789,000 -
------- --------- ------- ---------
Standardized Measure of Discounted Future Net Cash Flows and
Changes Therein Relating to Proved Oil and Gas Reserves - The
table below, which presents a standardized measure of discounted
future net cash flows and changes therein relating to proved oil
and gas reserves, is presented pursuant to Statement of Financial
Accounting Standards No. 69, "Disclosures About Oil and Gas
Producing Activities"; however, the data should not necessarily
be construed as representative of the fair market value of the
Company's proved oil and gas reserves.

Future cash inflows were computed by applying year-end prices of
oil and gas relating to the Company's proved reserves to the
estimated year-end quantities of those reserves. Future price
changes were considered only to the extent provided by
contractual arrangements in existence at year-end. Future
development and production costs were computed by estimating the
expenditures to be incurred in developing and producing the
proved oil and gas reserves at the end of the year, based on
year-end costs. Future income tax expense was computed by
applying the year-end statutory tax rate to the future pretax net
cash flows relating to the Company's proved oil and gas reserves,
after adjusting for tax basis of oil and gas properties and
available credits, and assuming continuation of existing economic
conditions. The standardized measure of discounted future cash
flows represents the present value of estimated future net cash
flows using a discount rate of 10% per year and is presented in
the following schedule:

F-16
CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 - OIL AND GAS PROPERTIES (UNAUDITED) (Continued)

Years ended July 31,
1996 1995

Future cash inflows $15,143,600 $15,862,900
Future production and development costs 6,121,100 6,674,000
---------- ----------
Future net cash inflows $ 9,022,500 $9,188,900
---------- ---------
Standardized measure of discounted
future net cash flows $ 4,426,400 $4,581,700
---------- ---------
The Company's share of equity method
investee's standardized measure of
discounted future net cash flows $ 1,962,600 $1,962,600
---------- ---------
No future income tax expense is included due to the existence
of substantial net operating loss carryforwards (Note 8).

Changes in Standardized Measure - The following table summarizes
the changes in the standardized measure of discounted future net
cash flows:

Years ended July 31,
1996 1995

Beginning of year $4,581,700 $9,760,100
Sales and transfers of oil and gas
produced, net of production costs (454,244) (856,016)
Revisions in quantity estimates (3,911,897) 2,748,235
Accretion of discount 153,028 (402,694)
Net changes in prices and
production costs 3,954,154 (5,456,976)
Net change due to purchase and
sale of minerals-in-place 1,248 (1,595,138)
Changes in estimated future
development costs 102,411 384,189
--------- ---------
End of year $4,426,400 $4,581,700
--------- ---------

Note - The change in Revisions in quantity estimates was due
to substantial reductions in the Company's proved reserves in
Louisiana and New Mexico. A non-operated waterflood project in
New Mexico has not performed as originally estimated and two
operated Louisiana properties appeared to have reached near their
economic lives. The variance in capital net changes in prices
and production costs from fiscal year 1995 to 1996 are almost
F-17
CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 - OIL AND GAS PROPERTIES (UNAUDITED) (Continued)

solely due to oil and gas prices being considerably greater in
fiscal 1996 over 1995.

NOTE 3 - INVESTMENTS

Investments at July 31, 1996 includes:

Investment in CSV Holdings, Inc. $ 807,800
Other 25,720
---------
$ 833,520
---------

CSV Holdings, Inc. - During fiscal 1995, the Company entered into
an agreement with Churchill U.S.A., Inc. ("CUSA"), a related
party, and another working interest owner in certain oil and gas
properties located in California. Under the agreement, each party
transferred its working interest in the properties to a newly
formed company, CSV Holdings, Inc. ("CSV"), in exchange for an
equivalent interest in the common stock of CSV. The Company has a
48.8 percent interest in the common stock of CSV. As a result,
the Company transferred its cost basis in the properties,
$807,800, from oil and gas property to investment status. CSV has
had no operations subsequent to acquiring the properties,
accordingly, the Company has no equity adjustment to its
investment through July 31, 1996.

NOTE 4 - NOTES RECEIVABLE

In September 1992, the Company acquired a 20 percent equity
interest and a separate revenue interest in Quantum Soil
Remediation, Inc. ("Quantum") in exchange for 250,000 shares of
the Company's common stock. Quantum is in the business of
providing remediation of contaminated soil using existing,
patented, transportable equipment. In addition to the 20 percent
equity interest, the Company was to receive revenue interest
payments of $15 per ton of soil treated by Quantum, up to a total
of $350,000, with revenue interest payments recorded when
received. In addition, during fiscal 1993, the Company advanced
$50,000 to Quantum under a non-interest bearing promissory note
due in November 1992, extended during fiscal 1994, with payments
to begin January 1994. During fiscal 1994, the carrying value of
the Company's investments in Quantum were charged to expense.

F-18

CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 4 - NOTES RECEIVABLE (Continued)

In February 1995, the Company and Quantum entered into a new
agreement covering the following documents:

A promissory note in the principal amount of $59,677,
payable in monthly installments of $1,046 beginning February 15,
1995 through January 15, 2001, with interest at eight percent per
annum. Due to the contingent nature of this receivable, the note
is considered fully impaired and revenue will be recorded when
received; and

A promissory note in the principal amount of $145,251, with
interest at twelve percent per annum, payable in quarterly
installments equal to $1 for each ton of soil treated by Quantum,
with any remaining balance due January 31, 2005. Due to the
contingent nature of this receivable, the note is considered
fully impaired and revenue will be recorded when received; and

A revenue interest agreement equal to $1 for each ton of soil
treated by Quantum to first be applied in payment of the
promissory note described in the preceding paragraph and, after
payment in full thereof, until the Company has received an
additional $115,000. Due to the contingent nature of this
receivable, revenue will be recorded when received.

Notes receivable, related party - In connection with the
investment in CSV described at Note 3, the Company advanced
$42,223 to CSV under a promissory note dated December 1, 1994,
with principal and interest, at six percent, due December 1,
1998. The Company advanced an additional $24,399 to CSV under a
promissory note dated October 30, 1995, with principal and
interest, at six percent, due December 1, 1998.

NOTE 5 - DEBT

On December 14, 1990, the Company entered into an amended and
restated loan agreement with its principal lender, Daiwa Bank,
Ltd. ("Daiwa"), formerly Lloyd's Bank plc, and satisfied all
technical deficiencies as they existed prior to the
renegotiation. Amounts owed under this agreement are
collateralized by a significant portion of the Company's oil and
gas properties. At the request of Daiwa, the Company sold
property, which was mortgaged to Daiwa, for approximately
$5,200,000. From the proceeds of the sale, Daiwa received the
total $5,200,000. Daiwa applied $4,700,000 to the reduction of
principal. Simultaneously, the Company executed a 30-month

F-19

CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 5 - DEBT (Continued)

extension note in the amount of $2,000,000, with the guarantee by
Daiwa that, upon payment of $500,000 in June 1993, the note would
be renewed or restructured. Daiwa recognized that the Company
would be unable to make the $500,000 principal payment in June
1993 and therefore returned $500,000 from the December 1990
sale of property to the Company.

In June 1993, after the Company paid interest for thirty months
of approximately $425,000, Daiwa refused to accept the $500,000
principal reduction payment offered by the Company and refused to
renew or restructure the note claiming no legal obligation to do
so and citing its decision to divest itself of oil and gas loans.

On July 9, 1993, the Company received a demand notice from Daiwa
for $1,997,500 in payment of the loan balance remaining on the
$15,000,000 Credit Revolver established by Daiwa in late 1988.
The interest rate on the revolving line of credit was prime plus
one percent. On February 17, 1994, the Company sold certain oil
and gas properties for $300,000 the proceeds of which were used
to reduce the bank debt principal to $1,697,500.

For years ended July 31, 1996 and 1995, the Company made payments
of $50,000 and $100,000 to reduce the bank debt principal to
$1,547,500 at July 31, 1996.

The Company has attempted to resolve the loan dispute. The
Company expects one of two developments between the Company and
Daiwa in fiscal year 1996: (a) the Company and Daiwa reach an
agreement to reduce to $50,000 the outstanding loan balance
inclusive of interest, which, based on Generally Accepted
Accounting Principles, would result in the Company recording the
forgiveness of the debt. (However, there can be no assurance that
Daiwa will agree to do so, nor can there by any assurance that
Daiwa will not proceed to foreclose on the oil and gas properties
which collateralize the debt); or (b) litigation results in which
the Company will seek damages in excess of $10,000,000, and Daiwa
asserts claims for default interest and attorneys' fees. Under
the second alternative, the Company estimates legal fees in the
range of $150,000 in fiscal years 1996-1997.

Generally accepted accounting principles require the Company to
carry on its financial statements outstanding debt to Daiwa of
$1,547,500 as of July 31, 1996, plus interest accrued using prime
plus one percent (9.25% at July 31, 1996), of $454,103, which is
included in accrued expenses. However, the Company believes that
Daiwa will reduce the $2,001,603 balance to $50,000, requiring
the Company to record the forgiveness of the debt. This action on
F-20

CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 5 - DEBT (Continued)

Daiwa's part will partially compensate the Company for damages
created by Daiwa's breach of contract.

During June 1994, the Company entered into an agreement for
$50,000, $30,000 of which has been paid through June 1996. The
remaining balance is payable in $10,000 installments annually
through June 1998.

NOTE 6 - SHAREHOLDERS' EQUITY

The Series A cumulative convertible preferred stock is
convertible into the Company's common stock at the rate of 1.132
shares of common stock for each share of cumulative convertible
preferred stock and is redeemable at any time at the option of
the Company for $20 per share. The Series A preferred shares earn
dividends at the rate of $1.80 per share per annum. At July 31,
1996, $10,245,077 of dividends on the cumulative convertible
preferred stock ($17.08 per share) are in arrears. The
liquidation preference on the Series A preferred shares,
$22,245,977 at July 31, 1996, is the sum of dividends in arrears
at July 31, 1996 and the liquidation preference of $20 per share
for each Series A share outstanding at July 31, 1996. In
accordance with the Certificate of Designation and Terms
applicable to preferred shares, Series A preferred shareholders
are granted voting rights to elect two additional directors in
the event $2.70 per share of dividends are in arrears.

The Company's Series C convertible preferred stock dividends are
noncumulative; the Series C is junior to the Company's Series A
preferred stock and is convertible at the option of the holder to
300,000 common shares no earlier than August 1997.

The Company's Series E convertible preferred stock dividends are
noncumulative; the Series E is junior to the Company's Series A
and Series C preferred stocks and convertible to common stock, at
the option of the holder, subject to certain terms and
conditions. The terms and conditions were not met by the
prescribed date, nullifying the convertibility of the Series E
preferred shares.

During fiscal year 1995, the Company issued 100,000 shares of
common stock to a consultant as compensation for services
performed in connection with the acquisition of certain
investments. The value of $1,000 that was attributed to these
services was based on the quoted market price of the Company's
common stock at the stock issuance date.

F-21
CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 6 - SHAREHOLDERS' EQUITY (Continued)

Employee Stock Plans - The Company has a qualified incentive
stock option plan, as defined in Section 422A of the Internal
Revenue Code, that reserved a total of 500,000 shares of common
stock for issuance thereunder to certain officers and employees.
The plan provides for options to (a) be granted at an exercise
price equal to the fair market value of the Company's common
stock on the date of grant (110% of the fair market value for
greater than 10% shareholders), (b) become exercisable at least
six months after the date of grant, and (c) lapse no more than 10
years from the date of grant (5 years for greater than 10%
shareholders). The Company granted 100,000 options to two of its
officers during 1994. At July 31, 1996, the outstanding options
are exercisable as follows:

Number of stock Exercise Expiration
options exercisable price date

100,000 $ 0.50 July 27, 2002
160,000 0.48125 July 31, 1996
60,000 0.4125 February 28, 1997
50,000 0.375 February 28, 2002
50,000 0.4375 August 1, 2001
80,000 0.39 February 27, 2001
-------
500,000
-------

At July 31, 1996, the 160,000 of stock options at an exercise
price of $0.48125 per share expired.

F-22

CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 7 - CRUDE OIL AND GAS SALES

The Company's only significant business segment is the
exploration for and acquisition and development of oil and gas
reserves. Customers accounting for 10% or more of the Company's
total crude oil and gas sales were:

Percentage of total sales

1996 1995

Koch Oil Company 12 *
Cambridge Production 10 16
Meridian Oil Company 10 *
Delhi Gas Pipeline * 11
Border Resources * 10

*Sales accounted for less than 10% of total crude oil and
gas sales.

NOTE 8 - FEDERAL INCOME TAXES

At July 31, 1996, the Company had available net operating loss
carryforwards of approximately $10,600,000 and depletion
carryforwards of approximately $5,000,000. As a result of
certain transactions, the utilization of approximately $5,000,000
of the Company's net operating loss carryforwards is limited.
The net operating loss carryforwards, if unused, will expire in
various amounts through 2010. The depletion carryforwards may
be carried forward indefinitely. These carryforwards are subject
to various limitations imposed by the rules and regulations of
the Internal Revenue Service.

As of July 31, 1996 and 1995, the tax effect on components of
the net deferred tax asset are as follows:
1996 1995

Net operating loss carryforwards $3,940,000 $2,028,000
Percentage depletion carryforward 1,884,000 949,000
Provision for loss on investments 604,000 324,020
Oil and gas properties 3,969,000 2,052,615
Depletion of oil and gas properties (3,876,000) (2,068,362)
----------- -----------
6,521,000 3,285,273
Valuation allowance (6,521,000) (3,285,273)
----------- -----------
Net deferred tax asset $ - $ -
----------- -----------
F-23

CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 8 - FEDERAL INCOME TAXES (Continued)

The Company recorded a valuation allowance at July 31, 1996 and
1995 equal to the excess of deferred tax assets over deferred tax
liabilities as the Company is unable to determine that these tax
benefits are more likely than not to be realized.

A reconciliation of the effective tax rates and the statutory
U.S. Federal income tax rates is as follows:

1996 1995
Percent of pretax income tax benefit
at US statutory rates (34.0)% (34.0)%

State income taxes, net of federal
tax benefit (3.3) (3.3)

Increase in deferred tax asset
valuation allowance 37.3 % 37.3 %
-------- --------

Effective tax rate - % - %
-------- --------

NOTE 9 - RELATED PARTY TRANSACTIONS AND COMMITMENTS

Employment Agreement - Effective January 1, 1996, the Board of
Directors resolved to amend the employment agreement with its
President and extend the initial term until May 1, 1999 at an
annual salary of $144,000. The employment agreement also carries
provisions for an extension term of an additional 24 months at an
annual salary of $125,000.

In October, 1995, the Board of Directors voted to reduce the
CFO's salary by one half from $54,000 to $27,000 effective
November 1, 1995. This event triggered the buyout of the
employment contract. Also, the President agreed to reduce his
monthly cash salary by $5,000. The $5,000 per month was accrued
for in accrued liabilities and totaled $60,000 for year ended
July 31, 1996. This voluntary action by Mr. Carroll does not
relieve the Company of any of its obligations pursuant to the
terms and conditions of the employment agreement currently in
effect. Mr. Carroll, at his sole option, may elect at any time
to discontinue the deferred compensation of $5,000 per month and
begin to receive his full monthly compensation as usual.

F-24
CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 9 - RELATED PARTY TRANSACTIONS AND COMMITMENTS (Continued)

Services and Operations Agreement - Effective March 31, 1994,
Summit Overseas Exploration, Inc., a wholly-owned subsidiary of
the Company, entered into a Service and Operations Agreement (the
Service Agreement) with CUSA. The initial term of the Service
Agreement expired on July 31, 1995, at which time the Service
Agreement automatically renewed for up to two additional one-year
terms. Under the terms of the Service Agreement, CUSA is to
provide financial and operational management and general
corporate legal services to the Company. CUSA also provides the
personnel and office space necessary for the operations of the
Company. The Service Agreement with CUSA provides for the payment
to CUSA of actual costs plus ten percent, revised to five percent
effective June, 1995, (the Costs). In the event that the Costs
exceed the computed average of the preceding three months amount,
the Company will not be obligated to pay such excess. Any costs
in excess of the computed average of the preceding three months
amount will be borne by CUSA. During fiscal 1996 and 1995, the
Company made payments to CUSA pursuant to the Service Agreement
in the amount of $299,353 and $385,718, respectively.

NOTE 10 - SUPPLEMENTAL DATA TO CONSOLIDATED STATEMENTS OF CASH
FLOWS

During the years ended July 31, 1996 and 1995, the Company paid
interest of $20 and $2,627, respectively.

Noncash investing and financing activities were as follows:

During the year ended July 31, 1995, the Company
transferred its cost basis of $807,800 in certain oil and gas
properties to Investment in CSV (Note 3).

During the year ended July 31, 1995, the Company reacquired
and cancelled 27 shares of common stock at no cost to the
Company.

On November 29, 1994, the shareholders of the company
approved a proposal to reduce the par value of the Company's
common stock from $.50 per share to $.01 per share.

During the year ended July 31, 1995, the Company cancelled
241,000 shares of Series F preferred stock with an assigned value
of $241,000 (Note 6).

F-25
CASPEN OIL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 11 - EMPLOYEE BENEFIT PLAN

Effective August 1, 1993, the Company adopted a profit sharing
plan (the Plan), which is a defined contribution plan available
for all employees who work over 1,000 hours during any fiscal
year ending July 31.

Within the terms of the Plan, the Company may contribute such
amount not to exceed the lesser of 25% of a participant's
compensation or $30,000. An employee vests according to the
Plan's vesting schedule; however, an employee is fully vested
upon completing three years of service.

The Company's management determines the Plan contribution by
year end and funds the contribution by or after the fiscal year
end. Management contributed $30,109 and $16,100 for the years
ended July 31, 1996 and 1995, respectively.

F-26

[ARTICLE] 5
[CIK] 0000095254
[NAME] CASPEN OIL INC
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUL-31-1996
[PERIOD-END] JUL-31-1996
[CASH] 94,131
[SECURITIES] 0
[RECEIVABLES] 132,588
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 226,719
[PP&E] 20,175,678
[DEPRECIATION] 17,006,425
[TOTAL-ASSETS] 4,304,946
[CURRENT-LIABILITIES] 2,971,585
[BONDS] 0
[PREFERRED-MANDATORY] 600,000
[PREFERRED] 425,000
[COMMON] 180,922
[OTHER-SE] 58,039
[TOTAL-LIABILITY-AND-EQUITY] 4,304,946
[SALES] 921,614
[TOTAL-REVENUES] 1,083,851
[CGS] 467,371
[TOTAL-COSTS] 1,579,044
[OTHER-EXPENSES] 1,080,000
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 143,647
[INCOME-PRETAX] 0
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1,575,193)
[EPS-PRIMARY] (.09)
[EPS-DILUTED] 0
</TABLE>