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
For the fiscal year ended July 31, 1997
OR
[ ] 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 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: (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
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
Check if disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. x
The Registrant's revenues for the fiscal year ended July 31,
1997, were $1,092,139.
The aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant, computed
by reference to the price at which the common equity was sold, or
the average bid and asked price of such common equity as of
October 1, 1997, is not determinable since the Company's
securities are not actively traded.
As of October 1, 1997, 21,092,222 Common Shares of the Registrant
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement for its 1998 Annual Meeting of
Shareholders: Part III
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 1997, 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 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
1997 was $21.81 per barrel, while the same average for fiscal
1996 was $17.15 per barrel. The average price of all gas sold by
the Company in fiscal 1997 was $2.12 per mcf, while the same
average for fiscal 1996 was $1.54 per mcf.
Customers. For fiscal year ended July 31, 1997, the major
customers purchasing more than 10% of the Company's oil and gas
production were Sonat Exploration (16%); Cambridge Production
(14%); and Delhi Gas Pipeline (11%).
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.
<PAGE>
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 $11,748
during the fiscal year ended July 31, 1997 as compared to
$262,290 for the fiscal year ending July 31, 1996.
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
$3,600 in fiscal 1997 as compared to approximately $4,300 in
fiscal 1996. It is not anticipated that the Company will be
required in the near future to expend amounts that are material
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, 1997, 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, 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,
1997, and 1996, 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, 1997, and 1996. 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, 1997, and 1996 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 term of the lease
covering this space is on a month-to-month basis which can be
terminated within 30 days by lessor or lessee.
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, 1997, and 1996.
Proved Proved Total
Developed Undeveloped Proved
Reserves Reserves Reserves
July 31, 1997
Oil (bbls) 181,105 1,017 182,122
Gas (mcf) 4,238,355 335,323 4,573,678
July 31, 1996
Oil (bbls) 249,448 990 250,438
Gas (mcf) 4,831,187 319,570 5,150,757
The decline in proved reserves from fiscal year 1996 to
fiscal year 1997 is primarily due to changes in oil and gas
prices and production costs overall. The Company's proved oil and
gas reserves were estimated as of July 31, 1997, and 1996, 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, 1997, and
1996. 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,
1997 1996
Proved Developed
Reserves of Oil and
Gas ............... $3,175,510 $4,243,903
Proved Undeveloped
Reserves of Oil and
Gas ............... 121,899 182,492
Total Proved
Reserves of Oil and
Gas ............... $3,297,409 $4,426,395
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, 1997, and 1996:
Year Ended Year Ended
July 31, 1997 July 31, 1996
Oil (bbls) 18,672 26,483
Gas (mcf) 262,809 337,842
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.<PAGE>
The following table sets forth for the years ended July
31, 1997, and 1996, 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, 1997 July 31, 1996
Average sales price per
bbl of oil <F1>: $21.81 $17.15
Average sales price per
mcf of gas: $ 2.12 $ 1.54
Average production cost
per equivalent unit
(bbl), including
severance taxes <F2>: $ 5.10 $ 5.47
Other<F3> .06 .18
----- -----
TOTAL: $ 5.16 $ 5.65
_________________________
<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>
<PAGE>
Producing Wells. The following table summarizes the
producing oil and gas wells in which the Company had an interest
at July 31, 1997:
TOTAL WELLS
Geographic Oil Wells<F1> Gas Wells<F1>
Area Gross Net Gross Net
Louisiana -- -- 2 2.00
New Mexico 138 1.88 2 .34
Oklahoma 3 .73 1 .13
Texas 343 1.77 24 1.57
TOTAL 484 4.38 29 4.04
- -------------------
<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. 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,
1997:
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 607 455 -- -- 5,880 --
New Mexico 7,560 649 1,440 1,160 22,262 1,040
Oklahoma 952 160 -- -- 438 --
Texas 31,609 1,293 -- -- 38,857 --
Wyoming -- -- -- -- 800 --
United
Kingdom -- -- 25,155 629 -- --
TOTAL 40,728 2,557 26,595 1,789 69,277 1,040
- --------------------
<F1>
(1) Developed acres are those spaced or assignable to
productive wells.
/F1
<PAGE>
<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, 1997, and 1996. The Company drilled no exploratory
wells for the years ended July 31, 1997, and 1996.
Development Wells<F1>
Gross Net
Productive Dry Total Productive Dry Total
Year Ended
July 31, 1997 0 0 0 0.00 0.00 0.00
Year Ended
July 31, 1996 1 0 1 0.09 0.00 0.09
<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>
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.
<PAGE>
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 named as a defendant in a lawsuit styled Parallel
Petroleum Corporation v. Summit Overseas Exploration Inc. and
Lomak Production I, L.P., Cause No. 41,728. 385th District Court,
Midland County, Texas. The lawsuit was filed by Parallel
Petroleum Corporation on July 10, 1997. Parallel contends in the
lawsuit that it had an agreement with the Company to purchase the
Hill #1 well located in Roberts County, Texas, and the associated
lease for $250,000. The Company sold the associated lease to
Lomack Production I, L.P. Parallel claims breach of contract and
seeks specific performance. The Company believes it will prevail
in this litigation. Accordingly, the reserve information
contained in these financial statements still includes the
estimates for the Hill #1 well. 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,
1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Since July 29, 1994, the Company's securities 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".
As of September 30, 1997, 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 its lender. 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, 1997, dividends on the Company's Series A Shares are in
arrears $18.889 per share for a total of $11,324,177.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
LIQUIDITY AND CAPITAL RESOURCES
In April of 1997, the Company was advised by its lender that
its Promissory Note dated August 1, 1988 in the principal sum of
$15,000,000, made and subscribed by the Company and payable to
the order of the lender; and a certain Term Note dated December
14, 1990 in the principal sum of $2,000,000 made and subscribed
by the Company and payable to the order of the lender; together
with a certain Collateral Mortgage Note dated August 17, 1988 in
the principal sum of $30,000,000 (collectively the "Loan"), had
been sold and transferred to OTPF Holdings, Inc. In the
transition, the Company and the lender acknowledged that: (1) the
total outstanding balance due at March 31, 1997 was $2,298,694 of
which $1,447,500 is outstanding principal and $851,194 is
outstanding interest; (2) principal balance will be reduced by
$16,083 per month; (3) accrued interest, as defined by the Loan,
will be payable in three (3) thirty (30) month tranches with the
first payment being due and payable on September 30, 1999; the
second payment due and payable on March 31, 2002; and the third
payment due and payable on September 30, 2004; (4) accrued
interest that has accumulated through March 31, 1997 on the Loan
totals $851,194, which will be payable on or before September 30,
2004; (5) the Company's investment in Kern River plc would be
excluded from the collateral base; and (6) the Loan is
collateralized by 100% of the stock ownership of the Company's
wholly-owned subsidiary, Summit Overseas Exploration, Inc., a
Nevada corporation, and 100% of the Company's oil and gas
property interests. Beginning with the July 1997 payment, the
Company has not met the required principal payments. In the event
of any default the lender may at its discretion foreclose upon
its collateral.
Cash flow provided by operations during fiscal year 1997 of
$75,348 increased from cash used for operations during fiscal
year 1996 of $(82,975). This increase primarily related to an
increase in average sales price per unit of oil and gas and
corresponding decrease in average production cost per unit of oil
and gas.
The Company anticipates that with its current cash position,
and with a timely and satisfactory resolution of its litigation
(see "Item 3. Legal Proceedings"), it will have sufficient
working capital to cure its lender default and to meet its
obligations during the ensuing fiscal year.
As of July 31, 1997, dividends on the Company's cumulative
convertible Series A Preferred Shares are in arrears $18.889 per
share for a total of $11,324,177.
<PAGE>
The Company intends to continue to 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 1997, the Company's management resources
were primarily directed to three areas:
(1) Conversion of Investment to Equity.
In November 1996, the Company converted its investment
in CSV Holdings, Inc. to 4,250,700 common shares of Kern River
plc, a company incorporated and registered in England and Wales
under the Companies Act 1985 which trades on the London Stock
Exchange Alternative Investment Market. The Company subsequently
sold 531,338 of these shares for $100,000. At July 31, 1997 the
Company held 3,719,362 shares of Kern River plc, which traded at
47.5p (English pence)(approximately $.78).
The Company vigorously negotiated with its lender to
limit its collateralization of the loan to only its oil and gas
properties resulting in the preservation of the Company's
investment in Kern River plc for the benefit of its shareholders.
(2) The enhancement of working capital.
A. The Company offered its Vermilion Bay lease located in
the Boston Bayou Field, Vermilion Parish, Louisiana, at auction
in July 1997. The Company met the minimum bid standards of
$250,000 as set down by the auction company. However, one week
prior to the scheduled auction, production ceased on the B
lease. The decrease in production was reported to the auction
company prior to the auction date. The reduction in production
from the lease resulted in the Company receiving no bids on its
Vermilion Bay property.
Because the lease is located on the marshlands in
Louisiana, access for the necessary equipment and crew is
extremely limited and costly. As a result thereof, estimated
costs to bring the B lease back into production could easily
exceed $250,000 without any guarantee that the rework procedures
would, in fact, restore the lease to production. The Company did
not have the working capital to perform the rework or plug and
abandon the lease; therefore, the Company elected to sell its
Vermilion Bay facility as is and accepted a $22,500 offer which
closed on November 3, 1997.
B. In order to gain adequate cash flow to help service the
Company's debt, the Company attempted to sell its interest in the
Hill #1-T well located in the Roberts County, Texas.
Unfortunately, such efforts were blocked by, what the Company
considers, an unfounded and unwarranted lawsuit. In addition, the
operator of the property arbitrarily withheld and continues to
withhold the Company's cash flow from this property. Efforts are
underway through the Company's legal counsel to secure from the
operator the release of these funds. (See "Item 3. Legal
Proceedings".)
(3) The settlement and/or avoidance of legal actions.
Arbitration Award
In June 1996, the Company filed a Demand for Arbitration
against Quantum Soil Remediation, Inc., et al for defaulting on
two promissory notes due to the Company. The Company prevailed
and, on March 31, 1997, the arbitrator awarded the Company the
principal amounts of the promissory notes, including interest
thereon, totaling $240,000. The Company has recorded
approximately $211,000 of the award amount and has impaired the
remaining $29,000 pending collection. On November 3, 1997, the
Company filed in United States District Court in Colorado, a
motion to Confirm the Arbitrators Award. Ruling on the motion
filed is pending. The Company believes that with a favorable
ruling, its ability to collect its award will be enhanced.
Year Ended July 31, 1997 Compared with the Year Ended July 31,
1996
Oil and gas revenue was $1,012,502, as compared to $921,614
for the prior fiscal year. This increase in revenue is primarily
due to significantly higher oil and gas prices received during
fiscal 1997 as compared to fiscal 1996.
The Company experienced higher oil and gas prices than those
received in the same period last year. Average prices received
in fiscal 1997 were $21.81/barrel oil and $2.12/mcf gas, as
compared to $17.15/barrel oil and $1.54/mcf gas received in the
prior fiscal year.
Higher net revenue from oil and gas operations in fiscal 1997
was further enhanced by a decrease in production costs.
Production costs remained fairly consistent with the prior fiscal
year at $5.16 per BOE for fiscal 1997 as compared to $5.65 per
BOE for fiscal 1996.
In fiscal year 1997, other revenue of $75,081 was lower than
the $127,637 in fiscal year 1996, largely due to a write-off
during fiscal year 1996 of an account payable deemed not due to a
third party operator.<PAGE>
General and administrative expenses for fiscal 1997 remained
relatively consistent with the prior fiscal year.
Interest expense for the current fiscal year was $442,260 as
compared to $143,647 reported for the prior fiscal year.
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 $.60 as compared to $.62 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, 1996.
As a result of the aforementioned activities, the Company had
a net loss of ($542,057) in fiscal 1997 as compared to a net loss
of ($495,193) in fiscal 1996.
INFLATION AND CHANGES IN PRICES
While the costs of operations have been, and will continue to
be, affected by inflation, oil and gas prices have fluctuated in
recent years and generally have not followed the same pattern as
inflation. The following table shows the average oil and gas
prices received by the Company over the last two fiscal years.
Average Average
Oil Price Gas Price
($/Bbl) ($/MCF)
By Year
July 31, 1997 $21.81 $2.12
July 31, 1996 $17.15 $1.54
Higher oil and gas prices have had an impact on
revenues, revenues per unit of production, and costs of replacing
these values.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are set forth herein commencing
on page F-1.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On June 26, 1997, and by Unanimous Consent of the
Company's Board of Directors, John M. Hanson & Company, P.C.
replaced BDO Seidman, LLP as the Company's independent certifying
accountant. The Company has not consulted with John M. Hanson &
Company, P.C. on any accounting or auditing matters during the
past two years. There were no disagreements on any matter of
accounting principles or practice, financial statement
disclosure, or auditing scope or procedure with BDO Seidman, LLP.
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
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 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 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.<PAGE>
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.
<PAGE>
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.
* Comprises management compensation.
(b) Reports on Form 8-K
During the fourth fiscal quarter, the Company filed
a Current Report on Form 8-K with respect to
changes in the Company's certifying accountants.
<PAGE>
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 13, 1997
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 13, 1997
Anthony J. Carroll Board,President
and Chief Executive Officer
(Principal Executive
Officer)
/s/ Gary N. Davis Chief Financial November 13, 1997
Gary N. Davis Officer and
Director
(Principal Financial
and Accounting Officer)
/s/ Kimberley J. Love Secretary and November 13, 1997
Kimberley J. Love Director
/s/ John J. Crawford Director November 13, 1997
John J. Crawford
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditors' Reports F2 to F3
Consolidated Financial Statements
Balance Sheet F4 to F5
Statements of Operations F6
Statements of Shareholders' Equity F7
Statements of Cash Flows F8 to F9
Notes to Consolidated Financial Statements F10 to F24
F1
<PAGE>
<PAGE>
Board of Directors
Caspen Oil, Inc. and Subsidiaries
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of
Caspen Oil, Inc. and Subsidiaries as of July 31, 1997, 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. The financial statements of Caspen
Oil, Inc. and Subsidiaries as of July 31, 1996, were audited by
other auditors whose report dated September 19, 1996 expressed an
unqualified opinion on those statements.
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 presentations. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the July 31, 1997 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, 1997, 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 M to the financial statements, the
Company's current liabilities exceed its current assets by
approximately $2,900,000 at July 31, 1997. The working capital
deficit and recurring losses from operations raise 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 M. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
John M. Hanson & Company, P.C.
Denver, Colorado
October 20, 1997
F2
<PAGE>
<PAGE>
"Reserved for BDO Seidman Report"
F3
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Page 1 of 2)
July 31, 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note B) $ 112,514
Accounts receivable - trade (Note C) 179,785
Other 1,633
-----------
Total current assets 293,932
PROPERTY AND EQUIPMENT - AT COST (NOTES B AND H)
Oil and gas properties, full cost method
used for oil and gas properties 19,763,820
Office furniture and equipment 302,061
-----------
Total property and equipment 20,065,881
Less accumulated depletion, depreciation
and amortization (Notes B and H) (17,252,217)
-----------
Net property and equipment 2,813,664
OTHER ASSETS
Investments (Note D) 810,127
-----------
Total assets $3,917,723
===========
The accompanying notes are an integral part of these statements
F4
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Page 2 of 2)
July 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note E) $1,350,738
Accounts payable - trade 670,069
Accrued interest (Note E) 893,777
Accrued expenses 281,235
-----------
Total current liabilities 3,195,819
NON-CURRENT LIABILITIES -
-----------
Total liabilities 3,195,819
COMMITMENTS (NOTE G) -
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 $23,314,177
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 21,092,222 shares 210,922
Additional paid-in capital 21,094,871
Note receivable, officer (Note G) (33,000)
Accumulated deficit (21,566,179)
-----------
Total shareholders' equity 731,614
Less cost of 18,836 common shares and
500 Series A preferred shares in treasury (9,710)
-----------
Net shareholders' equity 721,904
-----------
Total liabilities and shareholders' equity $3,917,723
The accompanying notes are an integral part of these statements
F5
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended July 31, 1997 1996
---- ----
Revenues
Crude oil and gas sales $ 1,012,502 $ 921,614
Interest income 4,556 34,600
Other 75,081 127,637
----------- -----------
Total revenues 1,092,139 1,083,851
Costs and expenses
Production and operating 304,369 467,371
Depletion, depreciation and
amortization 245,792 346,660
General and administrative (Note G) 641,775 621,366
Interest (Note K) 442,260 143,647
----------- -----------
Total costs and expenses 1,634,196 1,579,044
----------- -----------
Net loss (542,057) (495,193)
Dividend requirements on
preferred stock (1,079,100) (1,080,000)
----------- -----------
Loss applicable to common stock $(1,621,157) $(1,575,193)
=========== ===========
Loss per share of common stock $ (.08) $ (.09)
=========== ============
Weighted average common shares
outstanding 20,323,386 18,092,222
=========== ============
The accompanying notes are an integral part of these statements
F6
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the Years Ended July 1997 and 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Series A-E Accumu- Total
Preferred Common Stock Paid-In lated Treasury Shareholders'
Shares Amount Shares Amount Capital Deficit Stock Equity
Balances,
July 31, 1995 1,025,000 $1,025,000 18,092,222 $180,922 $21,091,871 $(20,528,929) $(9,710) $1,759,154
Net loss - - - - - (495,193) - (495,193)
--------- ---------- ---------- -------- ----------- ------------ ------- ----------
Balances,
July 31, 1996 1,025,000 1,025,000 18,092,222 180,922 1,091,871 (21,024,122) (9,710) 1,263,961
Issuance of
3,000,000 shares,
$.01 par value - - 3,000,000 30,000 3,000 - - 33,000
Note receivable,
officer (Note G) - - - - - - - (33,000)
Net loss - - - - - (542,057) - (542,057)
--------- --------- ---------- --------- ---------- ------------ ------- ----------
Balances,
July 31, 1997 1,025,000 $1,025,000 21,092,222 $210,922 $21,094,871 $(21,566,179) $(9,710) $ 721,904
========= ========== ========== ======== =========== ============ ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements
F7
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Page 1 of 2)
Year Ended July 31, 1997 1996
Operating activities:
Net loss $(542,057) $(495,193)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities:
Depletion, depreciation and
amortization 245,792 346,660
Provision for loss (gain) on assets - (7,224)
Changes in operating assets and liabilities:
Receivables and other (49,983) 196,053
Accounts payable (137,248) (208,198)
Accrued expenses 558,844 84,927
-------- --------
Net cash provided by (used for)
operating activities $ 75,348 $(82,975)
======== ========
The accompanying notes are an integral part of these statements
F8
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Page 2 of 2)
Year Ended July 31, 1997 1996
Investing activities:
Capital expenditures for property
and equipment $(11,748) $(273,522)
Proceeds from disposition of property
and equipment 221,545 22,245
Advances to related party and affiliate - (24,399)
Collections on note receivable - 4,788
Increase in other assets - (6,882)
------- ---------
Net cash provided by (used for)
investing activities 209,797 (277,770)
-------- --------
Financing activities:
Payments of debt (266,762) (60,000)
Proceeds from issuance of debt - 50,000
-------- --------
Net cash used for financing
activities (266,762) (10,000)
-------- --------
Net increase (decrease) in cash and
cash equivalents 18,383 (370,745)
Cash and cash equivalents,
beginning of year 94,131 464,876
-------- --------
Cash and cash equivalents, end of year $112,514 $ 94,131
======== ========
Interest received $ 3,373 $ -
Interest paid $ 2,586 $ 20
The accompanying notes are an integral part of these statements
F9
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 31, 1997
Note A - Organization and Operations
The Company was incorporated in the State of Nevada in April of
1970. The Company is engaged primarily in the acquisition,
development, production, exploration for, and the sale of, oil,
gas and natural gas liquids in the United States. The Company
sells its oil and gas products primarily to domestic pipelines
and refineries. The Company's principal producing areas are in
Texas, Oklahoma, New Mexico and Louisiana.
Note B - Summary of Significant Accounting Policies
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 financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of
Caspen Oil, Inc., and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil
and gas properties. Accordingly, all costs associated with
acquisition, exploration, and development of oil and gas
reserves, including directly related overhead costs, are
capitalized.
All capitalized costs of oil and gas properties, including the
estimated future costs to develop proved reserves, are amortized
on the unit-of-production method using estimates of proved
reserves. Investments in unproved properties and major
development projects are not amortized until proved reserves
associated with the projects can be determined or until
impairment occurs. If the results of an assessment indicate that
the properties are impaired, the amount of the impairment is
added to the capitalized costs to be amortized.
F10
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note B - Summary of Significant Accounting Policies (continued)
In addition, the capitalized costs are subject to a "ceiling
test," which basically limits such costs to the aggregate of the
"estimated present value," discounted at a 10% interest rate of
future net revenues from proved reserves, based on current
economic and operating conditions, plus the lower of cost or fair
market value of unproved properties.
Sales of proved and unproved properties are accounted for as
adjustments of capitalized costs with no gain or loss recognized,
unless such adjustments would significantly alter the
relationship between capitalized costs and proved reserves of oil
and gas, in which case the gain or loss is recognized in income.
Abandonments of properties are accounted for as adjustments of
capitalized costs with no loss recognized.
Materials and Supplies
Inventories, consisting primarily of tubular goods and oil field
materials and supplies, are stated at the lower of cost or
market, cost being determined by the average cost method.
Capitalized Interest
The Company capitalizes interest (none in 1997) on expenditures
made in connection with exploration and development projects that
are not subject to current amortization. Interest is capitalized
only for the period that activities are in progress to bring
these projects to their intended use.
Depreciation and Amortization
Depreciation and amortization have been provided in amounts
sufficient to relate the costs of depreciable assets to
operations over their estimated useful lives principally on the
straight-line method.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. They
are placed with banks and mutual fund money market accounts.
F11
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income Taxes
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on temporary
differences between the amount of taxable income and pretax
financial income and between the tax bases of assets and
liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed
in FASB Statement No. 109, Accounting for Income Taxes. As
changes in tax laws or rate are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
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.
Note C - Accounts Receivable
Due to the nature of the business and the size of the Company,
significant receivables are owed by a small number of customers.
Generally, the Company does not require collateral or other
security to support customer receivables. Receivables are
primarily an estimate of oil and gas sales for which there is
typically a one-to-three month timing difference between the sale
and the cash receipt. Therefore, no allowance for doubtful
accounts is estimated.
Note D - Investments
Investments are accounted for at cost and have no readily
determinable market value. Investments are reviewed for
impairment whenever events or changes in circumstances indicate
that the related carrying amount may not be recoverable. When
required, impairment losses on investments are recognized based
on the fair value and are reported at the lower of carrying
amount or fair value less costs to sell.
F12
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note E - Notes Payable
Note payable to Lender with interest at prime
plus 1%, due in September, 2004; collateralized
by 100% of the outstanding stock of a
wholly-owned subsidiary, Summit Overseas
Exploration, Inc. $1,315,333
Non-interest bearing, payable due in July, 1988;
collateralized by equipment and video tapes
costing $200,000 10,000
Note payable with interest at 8%; to be paid from
net revenue interest cash flow from an oil and
gas property; unsecured 25,405
----------
$1,350,738
==========
The Lender note of $1,315,333 is in default at July 31, 1997, and
may be demanded in total, thus is classified as a current
liability. The default interest rate is an additional 4%.
Note F - Profit Sharing Plan
The Company established a profit-sharing plan in August, 1993
covering all full-time employees. Company contributions are
voluntary and at the discretion of the Board of Directors. For
the years ended July 31, 1997 and 1996, the Company contribution
to the plan was $29,700 and $30,109, respectively. Contributions
to the plan are in excess of the maximum allowable amount
determined by the Internal Revenue Code. The effect on the
financial statements and the Plan have not been determined.
F13
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note G - Related Party Transactions and Commitments
In recognition of Anthony J. Carroll's (the Company's President
and Chairman) deferment of $5,000 per month in salary, the
Company's Board of Directors offered to and Mr. Carroll accepted
the issuance of 3,000,000 shares of common stock, valued at the
market value at the date of issue, for a note receivable of
$33,000, bearing interest at 7%, payable in full November 15,
1999, and secured by $33,000 of the total accrued salary owed by
the Company to Mr. Carroll. Included in accrued liabilities is
compensation to officers/directors of $179,000.
In November 1996, the Company exchanged its equity interest and
working capital notes in CSV Holdings for an equity interest of
4,250,700 common shares of Kern River plc, a company incorporated
and registered in England and Wales under the Companies Act 1985
which trades on the London Stock Exchange Alternative Investment
Market. No gain or loss was recognized in the exchange.
Included in investments is 3,719,362 shares of Kern River plc
common stock. The Company's cost basis of its investment in Kern
River plc is $780,000 (Note D). The Company owns approximately
32% of the outstanding shares. Anthony J. Carroll, an officer
and director of the Company, is also a director of Kern River plc
and owns 613,621 shares, approximately 5% of the outstanding
shares. It is the opinion of the Company's management that the
Company does not have significant influence over management
decisions or operations of Kern River plc. During the year, the
Company sold 531,338 shares of Kern River plc for $100,000. At
July 31, 1997, the stock price of Kern River plc was at $.78 per
share. Per the Company's management, the volume of stock traded
is nominal and market value is not readily determinable. Kern
River plc unaudited financial statements show a loss of $206,000
since inception in October of 1996.
Anthony J. Carroll first entered into an Employment Agreement
with the Company in May of 1990. The terms of the current
agreement, effective January 1, 1996, are as follows. Annual
compensation is $144,000 until May 1, 1999. The officer may, at
any time during the term of the agreement, elect to terminate the
F14
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note H - Oil and Gas Activities (Unaudited)
initial term and begin an extension term for 2 additional years
with compensation of $125,000 per year. The officer will
continue to receive full benefits which include executive
offices, executive assistant and a life insurance policy of at
least $1,000,000. If the Company terminates the officer for
cause, the Company must pay $375,000 plus full benefits
(mentioned above) over the following two years.
The Company uses a service company to provide accounting,
engineering and legal services, and office space under a contract
which expired July 31, 1997 and is now on a month to month basis.
Included in accrued liabilities is $102,000 of unpaid service
fees at July 31, 1997. Service fee expense is $238,000 and
$299,000 for the years ended July 31, 1997 and 1996.
Capitalized Costs Relating to Oil and Gas Producing Activities
July 31, 1997 July 31, 1996
Unproved oil and gas properties $ - $ -
Proved oil and gas properties 19,763,820 19,873,617
----------- -----------
19,763,820 19,873,617
Less accumulated depreciation, depletion,
amortization, and impairment (16,990,304) (16,784,656)
----------- -----------
Net capitalized costs $ 2,773,516 $ 3,088,961
Costs Incurred in Oil and Gas Producing for the Years Ended
Property acquisition costs
Proved $ - $ -
Unproved - -
Exploration costs - -
Development costs 11,748 262,290
Amortization rate per equivalent barrel
of production .60 .62
F15
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note H - Oil and Gas Activities (Unaudited) (continued)
Results of Operations for Oil and Gas Producing Activities for
the Years Ended
Oil and gas sales $ 1,012,502 $ 921,614
Gain on sale of oil and gas properties - -
Production costs (304,369) (467,371)
Exploration expenses - -
Depreciation, depletion, and amortization (205,648) (306,500)
---------- ----------
502,485 147,743
Income tax expense - -
---------- ----------
Results of operations for oil and
gas producing activities
(excluding corporate overhead and
financing costs) $ 502,485 $ 147,743
========== ==========
Reserve Information
The following estimates of proved and proved developed reserves
quantities and related standardized measure of discounted net
cash flow are estimates only, and do not purport to reflect
realizable values or fair market values of the Company's
reserves. 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. All of the Company's reserves are
located in the United States.
Proved reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) and natural gas that
geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through
existing wells, equipment, and operating methods.
F16
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note H - Oil and Gas Activities (Unaudited) (continued)
The standardized measure of discounted future net cash flows is
computed by applying year-end prices of oil and gas (with
consideration of price changes only to the extent provided by
contractual arrangements) to the estimated future production of
proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and
producing the proved reserves, less estimated future income tax
expenses (based on year-end statutory tax rates, with
consideration of future tax rates already legislated) to be
incurred on pretax net cash flows less tax basis of the
properties and available credits, and assuming continuation of
existing economic conditions. The estimated future net cash
flows are then discounted using a rate of 10% a year to reflect
the estimated timing of the future cash flows.
July 31, 1997 July 31, 1996
------------- -------------
Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf)
Proved developed and undeveloped reserves
Beginning of year 250,000 5,151,000 430,000 6,930,000
Revisions of previous
estimates (42,000) (253,000) (173,000)(1,422,000)
Purchases of minerals
in place - - 19,000 58,000
Production (19,000) (263,000) (26,000) (338,000)
Sales of minerals in
place (7,000) (61,000) - (77,000)
------- -------- ------- ---------
End of year 182,000 4,574,000 250,000 5,151,000
======= ========= ======= =========
Proved developed reserves
Beginning of year 249,000 4,831,000 406,000 6,126,000
End of year 181,000 4,238,000 249,000 4,831,000
F17
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note H - Oil and Gas Activities (Unaudited) (continued)
Standardized Measure of Discounted Future
Net Cash Flows
July 31, 1997 July 31, 1996
------------- -------------
Future cash inflows $12,049,400 $15,143,600
Future production and
development costs (5,596,500) (6,121,100)
Future income tax expenses - -
----------- ----------
6,452,900 9,022,500
Future net cash flows
10% annual discount for estimated
timing of cash flows (3,155,500) (4,596,100)
----------- -----------
Standardized measures of discounted
future net cash flows relating to
proved oil and gas reserves $ 3,297,400 $ 4,426,400
=========== ===========
The following reconciles the change in the standardized measure
of discounted future net cash flow.
Beginning of year $ 4,426,400 $ 4,581,700
Sales of oil and gas produced,
net of production costs (667,901) (454,244)
Net changes in prices and production
costs (776,773) 3,954,154
Net change in estimated future
development costs 16,706 102,411
Revisions of previous quantity
estimates 697,240 (3,911,897)
Net change from purchases and sales
of minerals in place (171,808) 1,248
Accretion of discount (226,464) 153,028
----------- -----------
End of year $ 3,297,400 $ 4,426,400
=========== ===========
F18
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note I - Income Taxes
At July 31, 1997, the Company has available net operating loss
carryovers of approximately $12,000,000, expiring in 2006 through
2011. The Company also has percentage depletion carryovers of
approximately $5,000,000. As of July 31, 1997 and 1996, the tax
effect on components of the net deferred tax assets are as
follows:
1997 1996
---------- ----------
Net operating loss carryovers $4,553,000 $3,940,000
Depletion carryovers 1,900,000 1,884,000
Provision for loss on investmen 604,000 604,000
Oil and gas properties 143,000 93,000
---------- ----------
7,200,000 6,521,000
Valuation allowance (7,200,000) (6,521,000)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
The Company recorded a valuation allowance at July 31, 1997 and
1996 because of the uncertainty of the utilization of these
future income tax benefits.
A reconciliation of the effective tax rates and the statutory
income tax rates is as follows:
1997 1996
-------- --------
Statutory federal rate (34)% (34)%
State income tax rate net of
federal tax benefit (3.3) (3.3)
Valuation allowance 37.3 37.3
------- ------
- % - %
======= ======
F19
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note J - 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, 1997, $11,324,177 of dividends on the cumulative convertible
preferred stock ($18.89 per share) are in arrears. The
liquidation preference on the Series A preferred shares,
$23,314,177 at July 31, 1997, is the sum of dividends in arrears
at July 31, 1997 and the liquidation preference of $20 per share
for each Series A share outstanding at July 31, 1997. 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.
Employee Stock Option 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).
F20
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note J - Shareholders' Equity (continued)
At February 28, 1997, 60,000 of stock options at an exercise
price of $0.4125 per share expired. The Company granted 160,000
fully vested options with an intrinsic value of $0 resulting in
no compensation being recognized to one of its officers on
November 15, 1996 at an exercise price of $0.015. At July 31,
1997, the outstanding options are exercisable as follows:
Number of stock Exercise Expiration
options exercisable Vested price date
100,000 100% $0.50 July 27, 2002
50,000 100% 0.375 February 28, 2002
50,000 100% 0.4375 August 1, 2001
80,000 100% 0.39 February 27, 2001
160,000 100% .015 November 15, 2006
The Company also has a qualified 1993 Omnibus Employee Stock
Plan, as defined in Section 422A of the Internal Revenue Code,
that reserves a total of 2,250,000 shares of common stock for
issuance thereunder to qualified employees, directors and
consultants of the Company. 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 in whole or in part and cumulatively, and shall
expire, according to the terms of the option, provided that (c)
in no event shall an option be exercisable after the tenth (10th)
anniversary of its date of grant (5 years for greater than 10%
shareholders). On November 19, 1996 the Company granted
1,900,000 options to officers and directors with an intrinsic
value of $0 resulting in no compensation being recognized. At
July 31, 1997, the outstanding options are exercisable as
follows:
F21
<PAGE>
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Number of Stock % Vested/
Options Exercise Expiration Total Shares Date
Exercisable Price Date Vested Vested
600,000 $.0165 11-15-01 25%/150,000 11-15-96
50%/300,000 11-15-97
75%/450,000 11-15-98
100%/600,000 11-15-99
600,000 $.015 11-15-06 25%/150,000 11-15-96
50%/300,000 11-15-97
75%/450,000 11-15-98
100%/600,000 11-15-99
350,000 $.015 11-15-06 25%/ 87,500 11-15-96
50%/175,000 11-15-97
75%/262,500 11-15-98
100%/350,000 11-15-99
350,000 $.015 11-15-06 25%/ 87,500 11-15-96
50%/175,000 11-15-97
75%/262,500 11-15-98
100%/350,000 11-15-99
The following is a summary of the status of the Incentive Stock
Option Plan and the Employee
Stock Plan during the year ended July 31, 1997:
Incentive Stock Employee
Option Plan Stock Plan
------------------ ------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------ -------- ------ --------
Outstanding at
August 1, 1996 340,000 $0.4311 - -
Granted 160,000 0.0150 1,900,000 0.0155
Exercised - - - -
Forfeited (60,000) 0.4125 - -
------- --------- ------
Outstanding at
July 31, 1997 440,000 0.2823 1,900,000 0.0155
======= =========
F22
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies APB Opinion 25 in accounting for its employee
stock plans. No compensation cost has been recognized for the
plans in the years ended July 31, 1997 and 1996.
Had compensation cost been determined on the basis of fair value
pursuant to FASB Statement No. 123, the fair value of each option
granted would be estimated on the grant date based on the stock
price and other pertinent factors on the first date at which the
number of shares to which an employee or board member is entitled
and the exercise price are determinable. It is not possible to
reasonably estimate the fair value of the options granted in the
year ended July 31, 1997 under an option-pricing model such as
the Black-Scholes or a binomial model. A fair value of $0
resulting in no compensation being recognized under FASB 123
which is based on the current intrinsic value of the award,
determined in accordance, with the terms that would apply if the
option had been currently exercised. This valuation results in
no change to net loss and net loss per share.
Note K -
The Company has booked approximately $308,000 in additional
interest expense for 1997 as a result of negotiations with their
lender (Note E).
Note L - Litigation
The Company is named as a defendant in a lawsuit styled Parallel
Petroleum Corporation v. Summit Overseas Exploration, Inc. and
Lomak Production L.L.P., Cause No. 41,728. 385th District Court,
Midland County, Texas. The lawsuit was filed by Parallel
Petroleum Corporation on July 10, 1997. Parallel contends in the
lawsuit that it had an agreement with the Company to purchase the
Hill #1 well located in Roberts County, Texas, and the associated
lease for $250,000. The Company sold the associated lease to
Lomak Production L.L.P. Parallel claims breach of contract and
seeks specific performance. The Company believes it will prevail
in this litigation. Accordingly, the reserve information
contained in these financial statements still includes the
estimates for the Hill #1 well.
F23
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note M - Going Concern Basis
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 $2,901,887 at July 31, 1997. The working
capital deficit results primarily from debt of $1,315,333 plus
accrued interest of $893,777 for which payment was in default at
July 31, 1997, and accrued expenses of $179,000 to related
parties (Note G). The working capital deficit and recurring
losses from operations raise substantial doubt about the
Company's ability to continue as a going concern.
The Company anticipates that given its current cash position and
assuming a satisfactory resolution to the default matter, it will
have sufficient working capital to meet its obligations during
the ensuing fiscal year.
Note N - 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 oil and gas sales are as follows:
1997 1996
Cambridge Production 14% 10%
Koch Oil Company * 12%
Meridian Oil Company * 10%
Sonat Exploration 16% *
Delhi Gas Pipeline 11% *
* Sales were less than 10% of total sales.
F24
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095254
<NAME> CASPEN OIL INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 112,514
<SECURITIES> 0
<RECEIVABLES> 181,418
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 293,932
<PP&E> 20,065,881
<DEPRECIATION> 17,252,217
<TOTAL-ASSETS> 3,917,723
<CURRENT-LIABILITIES> 3,195,819
<BONDS> 0
600,000
425,000
<COMMON> 210,922
<OTHER-SE> (504,308)
<TOTAL-LIABILITY-AND-EQUITY> 3,917,723
<SALES> 1,012,502
<TOTAL-REVENUES> 1,092,139
<CGS> 304,369
<TOTAL-COSTS> 1,634,196
<OTHER-EXPENSES> 1,079,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,621,157)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
