FORM 10-Q-SB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-9494
ASPEN EXPLORATION CORPORATION
-----------------------------------------------
(Exact Name of Aspen as Specified in its Charter)
Delaware 84-0811316
------------------------------ -----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 208, 2050 S. Oneida St.,
Denver, Colorado 80224-2426
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (303) 639-9860
Indicate by check mark whether Aspen (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Aspen was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at February 7, 2001
----- -------------------------------
Common stock, $.005 par value 5,345,938
Part One. FINANCIAL INFORMATION
Item 1. Financial Statements
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2000 2000
---- ----
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents, including $2,684,507 and
$417,443 of invested cash at December 31, 2000 and
June 30, 2000 respectively............................ $ 3,278,166 $ 507,382
Precious metals ...................................... 18,823 18,823
Accounts receivable, trade ........................... 815,514 340,177
Prepaid expenses...................................... 8,950 9,259
----------- -----------
Total current assets ............................ 4,121,453 875,641
----------- -----------
Investment in oil and gproperties, at cost(full cost
method of accounting)................................. 3,288,444 2,942,712
Less accumulated depletion and valuation allowance ... (1,655,589) (1,520,589)
----------- -----------
1,632,855 1,422,123
----------- -----------
Property and equipment, at cost:
Furniture, fixtures and vehicles ..................... 197,941 201,654
Less accumulated depreciation ........................ (136,689) (128,689)
----------- -----------
61,252 72,965
----------- -----------
Cash surrender value, life insurance ................. 239,095 239,095
----------- -----------
TOTAL ASSETS .................................... $ 6,054,655 $ 2,609,824
=========== ===========
(Statement Continues)
See notes to Consolidated Financial Statements
2
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
2000 2000
---- ----
(Unaudited) (Audited)
Current liabilities:
Accounts payable and accrued expenses ............. $ 2,821,815 $ 363,955
Advances from joint owners ........................ 231,211 169,713
Income taxes payable .............................. 47,000 23,000
Notes payable - current ........................... 68,750 236,746
----------- -----------
Total current liabilities ......................... 3,168,776 793,414
----------- -----------
Stockholders' equity:
Common stock, $.005 par value:
Authorized: 50,000,000 shares
Issued: At December 31, 2000: 5,345,938
and June 30, 2000: 5,345,938 .................. 26,729 26,729
Capital in excess of par value .................... 6,017,610 6,017,610
Accumulated deficit ............................... (3,130,427) (4,191,096)
Deferred compensation.............................. (28,033) (36,833)
----------- -----------
Total stockholders' equity ........................ 2,885,879 1,816,410
----------- -----------
Total liabilities and stockholders' equity ........ $ 6,054,655 $ 2,609,824
=========== ===========
See Notes to Consolidated Financial Statements
3
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Revenues:
Oil and gas.......................... $1,016,456 $ 314,464 $1,578,150 $ 587,738
Management fees...................... 56,230 65,544 112,262 83,110
Interest and other, net.............. 19,025 7,368 29,146 9,453
---------- ---------- ---------- ----------
Total Revenues......................... 1,091,711 387,376 1,719,558 680,301
---------- ---------- ---------- ----------
Costs and expenses:
Oil and gas production............... 66,985 27,280 124,527 42,134
Depreciation, depletion and amortization 79,000 90,925 143,000 150,850
Aspen Power Systems expense.......... -0- 22,585 -0- 43,794
Selling, general and administrative.. 152,188 111,992 303,483 251,534
Interest expense..................... 939 3,744 7,879 7,242
---------- ---------- ---------- ----------
Total Costs and Expenses............... 299,112 256,526 578,889 495,554
---------- ---------- ---------- ----------
Net income before taxes................ $ 792,599 $ 130,850 $1,140,669 $ 184,747
---------- ---------- ---------- ----------
Provision for income taxes............. 60,600 -0- 80,000 -0-
---------- ---------- ---------- ----------
Net income............................. $ 731,999 $ 130,850 $1,060,669 $ 184,747
========== ========== ========== ==========
Basic earnings per common share........ $ .14 $ .03 $ .20 $ .04
========== ========== ========== ==========
Diluted earnings per common share...... $ .13 $ .03 $ .18 $ .04
========== ========== ========== ==========
Basic weighted average number of
common shares outstanding.............. 5,345,938 5,191,322 5,345,938 5,191,322
========== ========== ========== ==========
Diluted weighted average number of
common shares outstanding.............. 5,831,415 5,311,002 5,831,415 5,311,002
========== ========== ========== ==========
The accompanying notes are an integral
part of these statements.
4
ASPEN EXPLORATION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended December 31,
2000 1999
--------------------------
Cash flows from operating activities:
-------------------------------------
Net income.......................................... $ 1,060,669 $ 184,747
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation, depletion & amortization............ 143,000 150,850
Amortization of deferred compensation............. 8,800 --
Changes in assets and liabilities:
Increase in accounts receivable................... (475,337) (121,390)
Decrease in prepaid expense....................... 309 5,199
Increase in accounts payable and accrued expense.. 2,543,358 921,730
----------- -----------
Net cash provided by operating activities......... 3,280,799 1,141,136
----------- -----------
Cash flows from investing activities:
-------------------------------------
Additions to oil & gas properties................. (345,732) (321,855)
Purchase of office equipment...................... (2,287) (3,700)
Sale of idle equipment at cost.................... 6,000 --
----------- -----------
Net cash used in investing activities............. (342,019) (325,555)
----------- -----------
Cash flows from financing activities:
-------------------------------------
Repayment of notes payable........................ (167,996) (28,836)
----------- -----------
Net cash used in financing activities............. (167,996) (28,836)
----------- -----------
Net increase in cash and cash equivalents......... 2,770,784 786,745
Cash and cash equivalents, beginning of year...... 507,382 335,603
----------- -----------
Cash and cash equivalents, end of period ......... $ 3,278,166 $ 1,122,348
----------- -----------
Interest paid..................................... $ 7,879 $ 7,242
=========== ===========
Income taxes paid................................. $ 33,000 $ -0-
=========== ===========
The accompanying notes are an integral
part of these statements.
5
ASPEN EXPLORATION CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
December 31, 2000
Note 1 BASIS OF PRESENTATION
The accompanying financial statements are unaudited. However, in our
opinion, the accompanying financial statements reflect all adjustments,
consisting of only normal recurring adjustments, necessary for fair
presentation. Interim results of operations are not necessarily indicative
of results for the full year. These financial statements should be read in
conjunction with our Annual Report on Form 10-KSB for the year ended June
30, 2000.
Except for the historical information contained in this Form 10-QSB, this
Form contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
discussed in this Report. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this Report
and any documents incorporated herein by reference, as well as the Annual
Report on Form 10-KSB for the year ended June 30, 2000.
Note 2 EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128 ("SFAS No. 128"), addressing earnings per
share. SFAS No. 128 changed the methodology of calculating earnings per
share and renamed the two calculations basic earnings per share and diluted
earnings per share. The calculations differ by eliminating any common stock
equivalents (such as stock options, warrants, and convertible preferred
stock) from basic earnings per share and changes certain calculations when
computing diluted earnings per share. We adopted SFAS No. 128 in fiscal
year 1998.
6
Note 2 EARNINGS PER SHARE (CONTINUED)
The following is a reconciliation of the numerators and denominators used
in the calculations of basic and diluted earnings per share for the six
months ended December 31, 2000 and 1999:
December 31, December 31,
2000 1999
Per Per
Net Share Net Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic earnings per share:
Net income and
share amounts $1,060,669 5,345,938 $.20 $184,747 5,191,322 $.04
Dilutive securities
stock options 780,000 460,000
Repurchased shares (294,523) (340,320)
--------------------------------------------------------------------
Diluted earnings per share:
Net income and assumed
share conversion $1,060,669 5,831,415 $.18 $184,747 5,311,002 $.04
========== ========= ==== ======== ========= ====
Note 3 SEGMENT INFORMATION
We operate in one industry segment within the United States, oil and gas
exploration and development.
Identified assets by industry are those assets that are used in our
operations in that industry. Corporate assets are principally cash, cash
surrender value of life insurance, furniture, fixtures and vehicles.
During the fourth quarter of 1998, we adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS No. 131). The adoption of SFAS No. 131
requires the presentation of descriptive information about reportable
segments which is consistent with that made available to the management of
the Company to assess performance.
Our oil and gas segment derives its revenues from the sale of oil and gas
and prospect generation and administrative overhead fees charged to
participants in our oil and gas ventures. Corporate income is primarily
derived from interest income on funds held in money market accounts.
7
Note 3 SEGMENT INFORMATION (CONTINUED)
During the six months ended December 31, 2000 there were no intersegment
revenues. The accounting policies applied by each segment are the same as
those used by us in general.
There have been no differences from the last annual report in the basis of
measuring segment profit or loss, with the exception of the elimination of
the mineral and power plant segments which we are no longer active in and
are not material. There have been no material changes in the amount of
assets for any operating segment since the last annual report except for
the oil and gas segment which capitalized approximately $345,732 for the
development and acquisition of oil and gas properties.
Segment information consists of the following for the six months ended
December 31:
Oil and Gas Corporate Consolidated
----------- ----------- ------------
Revenues:
2000 $ 1,690,412 $ 29,146 $ 1,719,558
1999 670,848 9,453 680,301
Income (loss) from
operations:
2000 $ 1,350,885 $ (290,216) $ 1,060,669
1999 485,744 (300,997) 184,747
Identifiable assets:
2000 $ 2,448,369 $3,606,286 $ 6,054,655
1999 1,438,419 1,422,853 2,861,272
Depreciation, depletion
and valuation charged
to identifiable assets:
2000 $ (135,000) $ (8,000) $ (143,000)
1999 (143,000) (7,850) (150,850)
Capital expenditures:
2000 $ 345,732 $ 2,287 $ 348,019
1999 321,855 3,700 325,555
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Note 4 MAJOR CUSTOMERS
We derived in excess of 10% of our revenue from various sources (oil and
gas sales) as follows:
The Company
-----------
A B C D
- - - -
Year ended:
December 31, 2000 - 12% 25% 58%
December 31, 1999 73% - - -
Note 5 NOTES PAYABLE
We owe the following debt:
December 31, June 30,
2000 2000
------------------------------
Borrowings from life insurance company
on cash surrender value of officer life
insurance, interest at 6% per annum,
collateralized by cash surrender value
of policy. $ -0- $ 155,430
Note payable to related party,
Interest at 11.21% per annum,
monthly principal and interest
payments of $4,269, due September,
2000, collateralized by working
interests in the Emigh lease. $ -0- 12,566
Note payable to third party for
the acquisition purchase of
producing oil and gas properties.
Interest at 5.475% per annum.
Principal payments of $68,875 are
due in January 2001. There is no
collateral for this note. 68,750 68,750
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Total notes payable 68,750 236,746
Less current portion 68,750 236,746
---------- ---------
Long term portion $ -0- $ -0-
========== =========
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Note 6 COMMITMENTS AND CONTINGENCIES
At December 31, 2000 the Company was committed to the following drilling
and development projects in California:
1. Further test the Emigh 35-4 well.
2. Drill, complete and equip the Brick House 1-9.
The Emigh 35-4 well was spudded on October 29, 2000 and is currently being
tested. Continental Operating Company was the operator of this well and our
share of rework costs of this well is estimated to be $5,000. Effective
February 1, 2001 we assumed responsibility for the operation of this well.
Total costs of the Brick House 1-9 well are estimated to be $525,000 with
our share of the net costs approximately $44,000. As of this filing we have
not begun drilling this well.
Note 7 SUBSEQUENT EVENTS
On January 2, 2001 we paid in full our outstanding loan balance of $68,750
plus $3,764 in accrued interest to D. E. Craggs, Inc.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This should be read in conjunction with the management's discussion and
analysis of financial condition and results of operations contained in our
Annual Report on Form 10-KSB for the year ended June 30, 2000, which has been
filed with the Securities and Exchange Commission. This management's discussion
and analysis and other portions of this report contain forward-looking
statements (as such term is defined in Section 21E of the Securities Exchange
Act of 1934, as amended). These statements reflect our current expectations
regarding our possible future results of operations, performance, and
achievements. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Wherever possible, we have tried to identify these forward-looking
statements by using words such as "anticipate," "believe," "estimate," "expect,"
"plan," "intend," and similar expressions. These statements reflect our current
beliefs and are based on information currently available to us. Accordingly,
these statements are subject to certain risks, uncertainties, and contingencies,
which could cause our actual results, performance, or achievements to differ
materially from those expressed in, or implied by, such statements. These risks,
uncertainties and contingencies include, without limitation, the factors set
forth in our Form 10-KSB under "Item 6. Management's Discussion and Analysis of
Financial Conditions or Plan of Operation - Factors that may affect future
operating results." We have no obligation to update or revise any such
forward-looking statements that may be made to reflect events or circumstances
after the date of this Form 10-QSB.
Liquidity and Capital Resources
-------------------------------
December 31, 2000 as compared to December 31, 1999
--------------------------------------------------
At December 31, 2000 current assets were $4,121,453 and current liabilities were
$3,168,776 and we had positive working capital of $952,677 compared to current
assets of $875,641 at June 30, 2000 and current liabilities of $793,414 at the
same date, resulting in working capital at June 30, 2000 of $82,227. Our current
assets and liabilities increased more than four-fold from June 30, 2000 to
December 31, 2000 for several reasons.
Our current assets increased primarily because cash and cash equivalents
increased from approximately $508,000 to approximately $3.3 million.
Accounts receivable - trade increased by about 140% because of the higher
prices being received for oil and gas production, and funds received from
oil and gas sales not disbursed to joint owners at December 31, 2000.
Our current liabilities increased to $3.2 million at December 31, 2000,
approximately four times the $793,000 amount at June 30, 2000. This
increase was due to a number of factors, including a decrease in accounts
payable of $232,000 due to a decrease in drilling activity caused by
adverse weather conditions, an increase of $61,000 in advance payments
received from joint owners but not expended for drilling activities at
December 31, 2000 and $2,633,000 in oil and gas revenue due to joint owners
not distributed until January 2001.
Another component of our current liabilities, advances from joint owners,
increased $61,000 from June 30, 2000 ($170,000) to December 31, 2000
($231,000) primarily because of the funds we received for drilling of
wells, not yet completed.
11
We anticipate that our current assets will be sufficient to pay our current
liabilities as long as our oil and gas production continues to provide us with
sufficient cash flow. As discussed below, this is dependent, in part, on
maintaining or increasing our level of production and the national and world
market maintaining its current prices for our oil and gas production.
In light of recent successful drilling operations, the acquisition of producing
properties and the continued improvement in oil and gas prices received by us,
increased revenues should continue to have a positive effect on our working
capital and contribute significantly to its cash flow in the year ahead.
Our capital requirements can fluctuate over a twelve month period because our
drilling program is usually carried out in California's dry season, from late
April until November, after which wet weather either precludes further activity
or makes it cost prohibitive.
In order to provide interim financing, we borrowed $130,000 during 1997 from an
affiliate to finance our share of drilling an offset well on the Denverton Creek
property. In April 2000 we withdrew $125,000 against a split dollar life
insurance plan to facilitate the payment of our drilling obligations. The
affiliate loan was paid in full during August 2000, and the split dollar life
insurance loan was paid in full during October 2000.
Although our drilling and development plans have not been finalized for the
coming year, at December 31, 2000 we are committed to drill four additional
wells at an estimated cost to us of approximately $462,000, with the balance
(approximately $2,583,000) to be paid by joint owners in the properties,
including certain affiliated investors. For the six months ended December 31,
2000 we invested $346,000 in our oil and gas properties compared to
approximately $322,000 for the six month period in the preceding fiscal year. We
anticipate additional drilling will occur in fiscal 2001.
We believe that internally generated funds will be sufficient to finance our
drilling and operating expenses for the next twelve months.
While we have substantially reduced our outstanding debt at this writing, we may
be required again to seek outside funding to facilitate our 2001 drilling
program.
12
Results of Operations
---------------------
December 31, 2000 Compared to December 31, 1999
-----------------------------------------------
For the six months ended December 31, 2000 our operations continued to be
focused on the production of oil and gas, and the investigation for possible
acquisition of producing oil and gas properties in California.
Oil and gas revenues, which includes income from management fees, for the six
months ended December 31, 2000 increased approximately $1,019,000 from $671,000
to $1,690,000, a 152% increase. This increase reflects our continued emphasis on
operations conducted in California and increased production from both the
Denverton Creek and Malton Black Butte fields even though our production overall
decreased. Our share of sales of oil and gas for the six month period ended
December 31, 2000 were 2732 barrels of oil and approximately 206,205 MMBTU of
gas with the price received for oil at $28.39 per barrel and $7.27 per MMBTU for
gas. This is a decrease in total oil production compared to the 3557 barrels of
oil produced in the first half of fiscal 2000, and an increase in natural gas
production of 28,600 MMBTU when compared to the approximately 177,605 MMBTU of
gas production achieved during the first half of the 2000 fiscal year. A
significant factor resulting in the substantially increased revenues during the
six months of fiscal 2000 was an increase in the prices received for our
production when compared to prices of $19.95 and $2.83 received for oil and gas
respectively during the first half of fiscal 2000.
Oil and gas production costs increased $82,393 when compared to last six month
period, from $42,134 to $124,527. Approximately $62,000 of this increase was due
to non-recurring workover costs for recompleting wells in upper producing zones,
the balance, approximately $20,000 reflects the addition of new wells and
compression costs associated with older producing gas wells.
Depletion, depreciation and amortization decreased $7,850 or 5% for the year,
which is our best estimate of what the full year cost will be.
Selling, general and administrative expense increased approximately 21% from
$251,500 to $303,500 for the six months ended December 31, 2000. This increase
is primarily due to salary and office rental increases and the amortization of
deferred officer compensation costs of $8,800.
As a result of our operations for the six months ended December 31, 2000, we
ended the period with net income of $1,061,000 after taxes compared to $185,000
for the year earlier. This increase of approximately $876,000 is due to an
increase in production and the price received for our oil and gas as discussed
earlier as well as the fact that our costs of production did not rise as quickly
as the prices received for our production.
Interest and other income increased approximately $19,693 to $29,146 and is due
to our maintaining a greater balance of funds in our invested cash accounts.
With Management's continued emphasis on cost control, successful drilling and
production operations and its improving gas sales, we believe our net income and
earnings per share will continue to grow, assuming oil and gas prices maintain
their current level or increase.
13
In accordance with the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on our behalf by the undersigned,
thereunto duly authorized.
ASPEN EXPLORATION CORPORATION
By: /s/ R. V. Bailey
--------------------------------
R. V. Bailey,
February 7, 2001 Chief Executive Officer,
Principal Financial Officer
14