SECURITIES & EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   FORM 10-KSB

(MARK ONE)

[ X ]    Annual report under Section 13 or 15(d) of the Securities  Exchange
         Act of 1934 [Fee Required] for the fiscal year ended June 30, 1999.

[   ]    Transition  report  under  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 [No Fee Required] for the  transition  period from
         ________ to ________.


Commission File Number 0-9494

                          ASPEN EXPLORATION CORPORATION
                  --------------------------------------------
                 (Name of small business issuer in its charter)

           Delaware                                          84-0811316
---------------------------------                           ------------
   (State or other jurisdiction                            (IRS Employer
 of incorporation or organization)                          I.D. Number)


           2050 S. Oneida St., Suite 208, Denver, Colorado 80224-2426
           ----------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)


(Issuer's telephone number)              303-639-9860

Securities registered under Section 12(b) of the Act:      NONE

Securities registered under Section 12(g) of the Act:

                          $0.005 par value Common Stock
                          ------------------------------
                                (Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

                                 Yes   X     No
                                     -----       -----

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Aspen's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
thereto. XX

Issuer's revenues for its most recent fiscal year were $1,316,877.

At September 17, 1999, the aggregate market value of the shares held by
non-affiliates was approximately $1,596,389. The aggregate market value was
calculated by multiplying the mean of the closing bid and asked prices
($0.4375) of the common stock of Aspen on the OTC Bulletin Board listing for
that date, by the number of shares of stock held by non-affiliates of Aspen
(3,648,890).

At September 17, 1999, there were 5,191,322 shares of common stock (Aspen's only
class of voting stock) outstanding.

<PAGE>



                                     PART I.

Item 1.  Business
-------  --------

     (A) General Development of Business. Aspen Exploration Corporation
(hereinafter "Aspen") was incorporated under the laws of the State of Delaware
on February 28, 1980 for the primary purpose of acquiring, exploring and
developing oil and gas and other mineral properties.

The consolidated financial statements include Aspen and its wholly-owned
subsidiaries, Aspen Gold Mining Company, Aspen Recursos de Mexico, and 85% owned
Aspen Power Systems Corporation. All of the subsidiaries are inactive, except
Aspen Power Systems.

During the last few fiscal years, Aspen's major emphasis has been on its
participation in the oil and gas segment, acquiring interests in producing oil
or gas properties, and participating in drilling operations. While Aspen sold
its interests in producing properties in Montana, North Dakota, Oklahoma and
Texas, it has acquired a number of interests in oil and gas properties in
California, as described in more detail below.

During fiscal 1997 and 1998, in addition to oil and gas activities, Aspen's
management focused attention on uranium deposits in sandstone in Wyoming because
of the anticipated shortfall of uranium needed for nuclear power plants
world-wide. However, a market for uranium projects did not develop quickly and
Aspen made the decision not to carry out the extensive mining claim and lease
acquisition and maintenance necessary to assemble large blocks of land needed
for uranium exploration programs. Nevertheless, in March 1998, Aspen was able to
negotiate an agreement with a privately-held Canadian company which provided for
Aspen to receive certain cash payments from, and to be issued 2,000,000 shares
of stock in, a privately-held Canadian company. Aspen conveyed to the
privately-held company all of Aspen's interest in two uranium projects in
Wyoming. The privately-held Canadian company is in default to Aspen in the
amount of $125,000 which was to be paid prior to December 31, 1998. Discussions
are underway to attempt to resolve this issue.

In order to provide an opportunity for Aspen to participate in the growing
demand for electrical power generated by turbines, Aspen management has
established an 85% owned subsidiary named Aspen Power Systems Corporation
("APS"), a Colorado corporation. The objective of APS shall be to seek
opportunities or situations where: (i) electrical power is needed; (ii) adequate
supplies of natural gas are available; (iii) electrical transmission capacity is
available; (iv) suitable land is available at acceptable costs; (v) there is an
adequate water supply; (vi) needed permits are available for construction and
operations. APS is currently looking for situations which meet all of the above


                                        2

<PAGE>


Item 1.  Business - (Continued)
------------------------------

requirements for the permitting of a power plant. When, and if, such a site is
found, of which there is no assurance, it will be necessary for APS to find
third party sources of funding in order to carry the project forward. A location
in California is currently under investigation. Larry Baccari of Sheridan,
Wyoming, an electrical engineer with experience in constructing turbine power
plants, has assumed the presidency of APS. The board of directors of APS
consists of Mr. Baccari, R. V. Bailey, president of Aspen Exploration, and Ray
K. Davis, accounting consultant to Aspen Exploration.

     (B) Risk Factors. As noted elsewhere herein, the future conduct of Aspen's
business, non-oil and gas exploration activities, participation in APS stock
ownership, and discussions of possible future activities is dependent upon a
number of factors, and there can be no assurance that Aspen will be able to
conduct its operations as contemplated herein. Certain statements contained in
this report using the terms "may," "expects to," and other terms denoting future
possibilities, are forward-looking statements. The accuracy of these statements
cannot be guaranteed as they are subject to a variety of risks which are beyond
Aspen's ability to predict or control and which may cause actual results to
differ materially from the projections or estimates contained herein. These
risks include, but are not limited to:

          (1) The possibility that the described operations, reserves, or
exploration or production activities will not be completed or continued on
economic terms, if at all.

          (2) The exploration and development of oil and gas, and mineral
properties are enterprises attendant with high risk, including the risk of
fluctuating prices for oil, natural gas and other minerals being sought.

          (3) Imports of petroleum products from other countries.

          (4) The risks of not encountering adequate resources despite expending
large sums of money.

          (5) The risk that test results and reserve estimates may not be
accurate, notwithstanding appropriate precautions.

          (6) The possibility that the estimates on which Aspen is relying are
inaccurate and that unknown or unexpected future events may occur that will tend
to reduce or increase Aspen's ability to operate successfully, if at all.

          (7) Aspen's ability to participate in these projects may be dependent
on the availability to Aspen of adequate financing from third parties which may
not be available on commercially- reasonable terms, if at all. Many of these
risks are described herein, and it is important that each person reviewing this
report understand the significant risks attendant to the operations of Aspen.
Aspen disclaims any obligation to update any forward- looking statement made
herein.

                                       3

<PAGE>


Item 1.  Business - (Continued)
------------------------------

          (8) Although Aspen currently has no active operations in the mining
segment, mining exploration and mining have inherent risks including the
environment, low prices for commodities, competition from better financed
companies and the risk of failure in either exploration or mining. There is no
assurance Aspen will be able to compete successfully in the exploration and
mining business should that course of action be undertaken.

          (9) Aspen currently has no active operations in the power generation
business. Risks involved in power generation include permitting, availability of
fuel and power lines on an economical basis, a market for the product,
availability of equipment, and competition from other better financed companies.
There is no assurance Aspen will be able to compete successfully in the power
generation business should an opportunity be found.

     (B) Narrative Description of Business.
         ----------------------------------

Oil and Gas Exploration and Development:

Aspen engages in a broad range of activities associated with the oil and gas
business in an effort to develop oil and gas reserves. Aspen's primary area of
interest currently is in the state of California.

Aspen may purchase production from other entities through the use of its working
capital or may acquire interests in producing properties with loans from
commercial financial institutions, which expect repayment from the production
revenues, or Aspen may also purchase production from other entities through the
issuance of its common stock, or arrange participations with other investors,
sometimes retaining a promoted interest itself. Aspen does not have the
financial resources to finance any significant acquisitions itself.
Consequently, management believes that the diversification available through
stock acquisitions and acquisitions financed by third parties is in the best
interests of Aspen. However, since Aspen's stock is no longer quoted on NASDAQ's
Small Cap Market, its stock value has been significantly reduced; and it has
become more difficult and expensive for Aspen to issue stock for acquisitions.
Third party financing for oil and gas acquisitions is difficult to obtain absent
additional collateral being available to the lender.


                                        4

<PAGE>


Item 1.  Business - (Continued)
-------  ----------------------

Aspen has identified and will continue to identify prospects suitable for
drilling and acquisition through its management, through independent contractors
retained from time to time by Aspen, and, to a lesser extent, through
unsolicited submissions.

Where Aspen acquires an interest in acreage on which exploration or development
drilling must be accomplished, Aspen itself will seldom assume the entire risk
of drilling. Aspen will assess the relative potential and risks of each prospect
and determine the degree to which it will participate in the exploration or
development drilling. Generally, Aspen will invite industry participants to
share in the risk and the reward of the prospect by financing some or all of the
costs of drilling contemplated wells. In such cases, Aspen may retain a carried
working interest in the prospect, a reversionary interest, or may be required to
finance all or a portion of its proportional interest in the prospect. While
this reduces Aspen's risk and financial commitment to a prospect, it also
reduces Aspen's potential return should the drilling operations prove
successful.

Conversely, Aspen may from time to time participate in drilling prospects
offered by other persons if it determines that the potential benefit from the
drilling operations outweighs the risk and the cost of the proposed operations.
This allows Aspen to diversify into a larger number of prospects at a lower cost
per prospect, but these operations (commonly known as "farm-ins") are generally
more expensive to Aspen than operations where it is offering the participation
to others (known as "farm-outs").

Mineral Exploration and Development:

Aspen has curtailed, for the time being, active exploration for precious metals
in Alaska as well as uranium exploration in Wyoming. Aspen's activities in the
mineral segment are not material to Aspen at the present time.

Power Plant Construction and Electric Power Generation:

Although APS is actively seeking opportunities to construct electric power
generation plants, to find good sites for power plants, and to locate parties
interested in investing in such power plants, none of this has been accomplished
and there is no assurance APS will be successful in any of these endeavors.

          (1) Principal products produced and services rendered: Aspen's
products during fiscal 1999 were crude oil and natural gas. Crude oil and
natural gas are generally sold to various entities, including pipeline
companies, which usually service the area in which the producing wells are
located. In the fiscal year ended June 30, 1999, crude oil and natural gas sales


                                        5

<PAGE>


Item 1.  Business - (Continued)
-------------------------------

and related revenues accounted for $1,290,692 or 98% of Aspen's total revenues;
while $26,185, or 2% was interest and other income. Aspen is no longer receiving
any mineral revenues and derives 100% of its revenues from crude oil and natural
gas sales.

          (2) Distribution methods of the products and services: Not Applicable.

          (3) Status of any publicly-announced new products or services: There
has been no public announcement of, and no information otherwise has been made
public about, a new product or service which would require the investment of a
material amount of Aspen's assets, or which otherwise is material. Although
Aspen is attempting to enter the electric power generation business through APS,
thus far no progress has been made in that attempt. If a situation is found
where all the factors needed to generate electrical power are present, of which
there is no assurance, APS would have to find a source of funding prior to
initiating any significant activities.

          (4) Competitive conditions: The exploration for and development and
production of oil, gas and other minerals are subject to intense competition.
The principal methods of competition in the industry for the acquisition of oil,
gas and mineral leases and producing properties are the payment of cash bonus
payments at the time of acquisition of leases, delay rentals, location damage
supplement payments, and stipulations requiring exploration and production
commitments by the lessee. Companies with greater financial resources, existing
staff and labor forces, equipment for exploration, and vast experience are in a
better position than Aspen to compete for such leases.

In addition, the availability of a ready market for oil and gas will depend upon
numerous factors beyond Aspen's control, including the extent of domestic
production and imports of oil and gas, proximity and capacity of pipelines, and
the effect of federal and state regulation of oil and gas sales, as well as
environmental restrictions on exploration and usage of oil and gas. Further, it
must be expected that competition for leasing of oil and gas prospects will
become even more intense in the future. Aspen has a minimal competitive position
in the oil and gas industry.

The acquisition of mining claims prospective for precious metals or other
minerals is subject to intense competition from a large number of companies and
individuals. The ability of Aspen to acquire additional leases or additional
mining claims could be curtailed severely as a result of this competition.

The principal methods of competition in the industry for the acquisition of
mineral leases is the payment of bonus payments at the time of acquisition of


                                        6

<PAGE>


Item 1.  Business - (Continued)
-------------------------------

leases, delay rentals, advance royalties, the use of differential royalty rates,
the amount of annual rental payments and stipulations requiring exploration and
production commitments by the lessee. Companies with far greater financial
resources, existing staff and labor forces, equipment for exploration and
mining, and vast experience will be in a better position than Aspen to compete
for such leases.

If APS is successful in finding a target and thereby entering the fields of
electric power plant construction or electric power generation, construction or
operation of electric power generation facilities is subject to intense
competition from companies already established in the industry. The ability of
APS to gain a sufficient market share in this industry could be hampered or
nullified by this competition.

          (5) Sources and availability of raw materials. Raw materials requisite
to the transaction of Aspen's business include such items as drilling rigs and
other equipment, casing pipe, drilling mud and other supplies, core drilling
equipment, gold dredges and sluice boxes. Such items are commonly available from
a number of sources and Aspen foresees no short supply or difficulty in
acquiring any raw materials relevant to the conduct of its business.

          (6) Dependence upon one or a few major customers: In the oil and gas
segment of Aspen's business, one company in fiscal 1999 and three companies in
1998 represented sales in excess of 10% of Aspen's total oil and gas revenues
for the last two fiscal years. The availability of oil and gas purchasers is
such, however, that any buyer discontinuing purchases from Aspen could almost
assuredly be replaced by another buyer.

          (7) Patents, trademarks, licenses, franchises, concessions, royalty
agreements or labor contracts, including duration: Aspen does not own any
patents, licenses, franchises, or concessions except oil, gas and other mineral
interests granted by governmental authorities and private landowners. Aspen has
received a trademark registration (serial no. 74-396,919 registered on March 1,
1994) for its corporate logo. The registration is for a term of ten years,
although to maintain the registration for its entire term Aspen must file an
affidavit of commercial use before March 1, 2000.

          (8) Need for government approval of principal products or services:
Not applicable.

          (9) Effect of existing or probable governmental regulation: Oil and
gas exploration and production, electric power generation, as well as mining
activities, are open to significant governmental regulation including worker


                                        7

<PAGE>


Item 1.  Business - (Continued)
------------------------------

health and safety laws, employment regulations and environmental regulations.
Operations which occur on public lands may be subject to further regulation by
the Bureau of Land Management, the U.S. Army Corps of Engineers, or the U.S.
Forest Service.

          (10) Estimate of amounts spent on research and development activities:
Aspen has not engaged in any material research and development activities since
its inception.

          (11) Costs and effects of compliance with environmental laws (federal,
state and local): Because Aspen is engaged in exploiting natural resources, it
is subject to various federal, state and local provisions regarding
environmental and ecological matters. Therefore, compliance with environmental
laws may necessitate significant capital outlays, may materially affect Aspen's
earnings potential, and could cause material changes in Aspen's proposed
business. At the present time, however, the existence of environmental laws does
not materially hinder nor adversely affect Aspen's business. Capital
expenditures relating to environmental control facilities have not been material
to the operations of Aspen since its inception.

          (12) Employees. At June 30, 1999, Aspen employed three full-time
persons. Aspen also uses independent contractors and other consultants, as
needed.

Item 2. Properties
------------------

     (A) Oil and Gas Properties
         ----------------------

          (1) General Information
              -------------------

Aspen increased its net gas reserves by 6% (1,851 MMCF from 1,742 MMCF) during
fiscal year 1999 (in addition to replacing 100% of the reserves it produced
during the last fiscal year). The undiscounted future net income forecast to be
recovered from oil and gas reserves increased 2.6% (to $4,214,000 from
$4,107,000) during the last fiscal year, in addition to replacing the $1,172,000
of oil and gas reserves produced during the last fiscal year. Of the $4,214,000
of undiscounted future net income, $1,390,000 is expected from producing
reserves and $2,824,000 is expected from non-producing reserves.

Drilling Activity
-----------------

     During the fiscal year ended June 30, 1999 Aspen participated in the
drilling of 4 wells, of which 2 were completed as commercial gas wells and 2
were dry holes and plugged and abandoned, a success ratio of 50%.


                                        8

<PAGE>


Item 2.  Properties (Continued)
-------------------------------

Denverton Creek Field, Solano County, California. Aspen owns a 23.55% to 27.55%
working interest in approximately 2,041 gross (1,798 net) acres located in this
field. Aspen, with other participants, drilled and completed the Emigh 35-2 well
in the winter of 1998 to a total depth of 11,100' and extended the previously
defined productive limits of the field in a northeasterly direction. This well
encountered over 225 feet of net pay in eight different formations. This was
Aspen's fourth consecutive completion out of four attempts in this field.
Cumulative production from the 4 wells (Emigh 34-1, 2-1, 35-1 and 35-2) as of
June 30, 1999 was in excess of 4,500,000 MCF. First production commenced from
the Emigh 34-1 in November 1996.

Aspen drilled and plugged and abandoned the Emigh 4-1 well in June 1999. The
well had some gas shows, but electric log analysis indicated very minor amounts
of potential net gas sand.

Aspen plans to spud its sixth well in the Denverton Creek Field, the Emigh 3-1,
in October 1999. The well will be drilled to a depth of 10,800' and will target
the Martinez, McCormick, H&T, Bunker, Starkey and Peterson formations.

Rosedale Field, Kern County, California. Aspen acquired a 12% operated working
interest (9.51% net revenue interest) in two flowing oil wells and two shut-in
oil wells effective November 1, 1995, located in the Rosedale Field, Kern
County, California. These wells produce high gravity oil (32(degree)) from the
Stevens formation at depths ranging from 6,400' to 6,600'. The Arco 36X-10 has
been flowing oil for over eight years. Cumulative production as of June 30, 1999
is approximately 228,000 barrels of oil and the current production is
approximately 38 BOPD and 40 BWPD. The Arco 46X-10 commenced production in
April, 1998 and is currently pumping 37 BOPD and 92 BWPD.

West Bellevue Extension Field, Kern County, California. Aspen acquired an 18%
operated working interest (13.34% net revenue interest) in one pumping oil well
located in the West Bellevue Extension Field, Kern County, California effective
November 1, 1995. This well has produced approximately 124,000 barrels of high
gravity oil (32(degree)) from the Stevens formation from a depth of
approximately 8,400' to 8,500'. The well was recompleted in April, 1998 in a
higher Stevens interval at a depth of 7,655' to 7,664'. This zone is currently
pumping 25 BOPD with no water since inception. One behind-pipe zone exists in
this well which will be tested at a later date. Aspen has 680 gross acres
contiguous to this well which appear to have several good offset drilling
locations.

In October 1997, Aspen completed the Brandt 26X-27 well, an extension test to
its Brandt 16X-27 well. The new well commenced production from the Stevens

                                        9

<PAGE>


Item 2.  Properties (Continued)
------------------------------

formation in October 1997, and is currently flowing approximately 80 BOPD and 0
BWPD with a flowing tubing pressure of 240#. Cumulative production to date is
approximately 54,000 BO in only 21 months of production.

Aspen plans to spud the Brandt 46X-27 well in the fourth quarter of 1999. This
well will be an updip extension test to the Brandt 26X- 27.

Northwest Compton Landing, Colusa County, California. Aspen drilled and
completed the Compton Landing 97-1 well, located in Colusa County, California in
late fall of 1997 (October-November). The well was drilled to a depth of 2,730'
and dually completed from two Kione intervals. The well declined rapidly,
produced only 45,000 MCF of 919 BTU gas, and was plugged and abandoned in
September 1998. Aspen acquired additional seismic data over its leasehold to
evaluate any future potential. The Yerxa 2-1 well was drilled in September 1999
based on the promising results of this data. However, this well has since been
plugged and abandoned.

Malton Black Butte, Tehama and Glenn Counties, California. On July 16, 1998,
Aspen acquired a net 21% working interest (16.17% net revenue interest) in two
natural gas units, the Johnson and Gay Units, in addition to a 5.00% royalty
interest in the Gay Unit, located in Tehama and Glenn Counties, California.
Aspen acquired a 100% working interest in the two properties from D. E. Craggs,
Inc., an unaffiliated third party for $275,000 in cash and 275,000 shares of
Aspen's restricted common stock valued at $1.00 per share. Simultaneously with
the acquisition, Aspen sold a 79% working interest in the two prospects to
certain unaffiliated and three affiliated purchasers for a total price of
$477,950 ($6,050 per one percent working interest, as compared to Aspen's
purchase price of $5,500 per one percent working interest). The affiliated
purchasers are Aspen's president, R.V. Bailey, vice president, Robert Cohan, and
consulting accountant, Ray Davis, who acquired working interests of 3%, 2%, and
5%, respectively.

Pursuant to the agreement with Craggs, Aspen paid Craggs 25% of the purchase
price at the closing ($68,750 cash and 68,750 common shares); and an additional
$68,750 cash was paid, and 68,750 common shares of stock were issued during
January of 1999. Aspen is obligated to pay an additional 25% (plus interest on
the cash from the date of closing at the daily rate of 0.015%) in January of
2000 and 2001. The affiliated and unaffiliated parties who purchased the working
interests from Aspen paid their entire purchase price prior to the closing.

Aspen acquired 3 square miles of seismic data to evaluate the undeveloped
acreage on its Johnson lease. Aspen participated in the drilling of 3 successful
wells out of 3 attempts (1 in fiscal 1999 and 2 in fiscal 2000; see subsequent
events) based on the analysis of the data.

                                       10

<PAGE>


Item 2. Properties (Continued)
------------------------------

The Elektra 1 was drilled and completed in June 1999. The well was drilled to a
total depth of 4,060', and encountered various pay zones in the Kione and Forbes
formations. One of the Forbes zones was tested at 3,000 MCFPD, and the Kione
formation was tested at 500 MCFPD. The well will be produced as a dual
completion. Aspen owns a 7.56% working interest in this well.

Winters Gas Field (Dickson Creek), Solano County, California. The Cilker 4-1
well was drilled and abandoned as a dry hole in November 1998.



                                       11

<PAGE>


Item 2. Properties (Continued)
------------------------------

     (2) Production Information

          (i) Net Production, Average Sales Price and Average Production Costs
(Lifting). The table below sets forth the net quantities of oil and gas
production (net of all royalties, overriding royalties and production due to
others) attributable to Aspen for the fiscal years ended June 30, 1999, 1998 and
1997, and the average sales prices, average production costs and direct lifting
costs per unit of production.

                                               Years Ended June 30,
                                               --------------------
                                       1999              1998             1997
                                       ----              ----             ----
     Net Production
     --------------
     Oil (Bbls)                        10,317             6,942           5,636
     Gas (Mcf)                        457,695           259,394          81,523

     Average Sales Prices
     --------------------
     Oil (per Bbl)                    $10.94            $12.57           $19.99
     Gas (per Mcf)                    $ 2.31            $ 2.51           $ 2.50

     Average Production Cost (1)
     ---------------------------
     Per equivalent
       Bbl of oil                     $ 4.14            $ 3.65           $ 4.67

     Average Lifting Costs (2)
     -------------------------
     Per equivalent
       Bbl of oil                     $  .91            $ 1.51           $ 1.93

(1)  Production costs include all operating expenses, depreciation, depletion
     and amortization, lease operating expenses and all associated taxes.

(2)  Direct lifting costs do not include impairment expense, ceiling writedown,
     or depreciation, depletion and amortization.




                                       12

<PAGE>


Item 2. Properties (Continued)
------------------------------

          (ii) Gross and Net Productive Oil and Gas Wells, Developed Acres, and
Overriding Royalty Interests.

               (a) Leasehold Interests - Productive Wells and Developed Acres:
The table below sets forth Aspen's leasehold interests in productive and shut-in
oil and gas wells, and in developed acres, at June 30, 1999:

                                                         Aspen's
                                             Producing and Shut-In Wells
                                             ---------------------------
                                             Gross              Net(1)
                                             -----              ------
                                         Oil       Gas       Oil      Gas
                                         ---       ---       ---      ---
        Prospect
        --------

        California:
          Arco 36X                          1       --       0.12      --
          Arco 46X                          1       --       0.12      --
          Brandt 16X                        1       --       0.18      --
          Brandt 26X                        1       --       0.1343    --
          Grey Wolf 1                      --        1       --       0.1800
          Sanborn 3-3                      --        1       --       0.0080
          Emigh 34-1                       --        1       --       0.2355
          Emigh 2-1                        --        1       --       0.2355
          Emigh 35-1                       --        1       --       0.2380
          Emigh 35-2                       --        1       --       0.2755
          Johnson Unit                     --        3       --       0.6300
          Gay Unit                         --        3       --       0.6300
          Elektra 1                        --        1       --       0.0756
                                           --       --       ------   ------

        TOTAL                               5       14       0.5543   2.5781
                                           ==       ==       ======   ======



(1)  A net well is deemed to exist when the sum of fractional ownership working
     interests in gross wells equals one. The number of net wells is the sum of
     the fractional working interests owned in gross wells expressed as whole
     numbers and fractions thereof.


                                       13

<PAGE>


Item 2. Properties (Continued)
------------------------------

                                                     Developed Acreage Table
                                                   --------------------------
                                                    Aspen's Developed Acres(1)
                                                     Gross(2)           Net(3)
                                                    --------           ------
         Prospect

         California:
                  Grey Wolf (1)                      120.00             21.60
                  W Bellevue Ext Fld                 160.00             24.14
                  Rosedale Field                      80.00              9.60
                  Sanborn 3-3                        615.00              5.23
                  Denverton Creek                    640.00            157.92
                  Johnson Unit                       535.00            112.35
                  Gay Unit                           615.18            129.19
                  Elektra (1)                        125.00              9.45
                                                   --------            ------

                           TOTAL                   2,890.18            469.48
                                                   ========            ======

(1)  Consists of acres spaced or assignable to productive wells.

(2)  A gross acre is an acre in which a working interest is owned. The number of
     gross acres is the total number of acres in which a working interest is
     owned.

(3)  A net acre is deemed to exist when the sum of fractional ownership working
     interests in gross acres equals one. The number of net acres is the sum of
     the fractional working interests owned in gross acres expressed as whole
     numbers and fractions thereof.

               (ii) (b) Royalty Interests in Productive Wells and Developed
Acreage: The following tables set forth at June 30, 1999 Aspen's royalty
interest in productive gas wells and developed acres:

                          Overriding Royalty Interests
                          ----------------------------

                                           Productive Wells          Gross
                                           ----------------          -----
  Prospect                   Interest(%)     Oil      Gas           Acreage(1)
  --------                   -----------     ---      ---           ----------

  California:
   Emigh 35-1                1.68000         --        1              160.00
   Emigh 35-2                1.68000         --        1              160.00
   Gay Unit                  5.00000         --        1              615.18
   Sanborn 3-3               0.10159         --        1              615.00
                                             --       --            --------

                    TOTAL                    --        4            1,550.18
                                             ==       ==            ========

(1) Consists of acres spaced or assignable to productive wells.

                                       14

<PAGE>


Item 2. Properties (Continued)
------------------------------


               (ii) (c) Drilling Activity: The following table sets forth the
results of Aspen's drilling activities during the fiscal years ended June 30,
1999 and 1998:
<TABLE>
<CAPTION>

                                             Drilling Activity
                                             -----------------
                              Gross Wells                             Net Wells
                              -----------                             ---------
Year                       Total    Producing       Dry      Total    Producing       Dry
----                       -----    ---------       ---      -----    ---------      ---

<S>                          <C>         <C>         <C>      <C>        <C>          <C>
1998  Exploratory            2           1           1        .17        .07          .10
      Development            3           3                    .61        .61

1999  Exploratory            4           2           2        .76        .35          .41
</TABLE>



               (ii) (d) Leasehold Interests - Undeveloped Acreage: The following
table sets forth Aspen's leasehold interest in undeveloped acreage at June 30,
1999:

                                              Aspen's Undeveloped Acreage
                                              ---------------------------
                                                Gross               Net
                                                -----               ---

         California:
           Denverton Creek                     1,401.00            329.93
           W. Bellevue Extension
             Field                               520.00             30.16
           NW Compton Landing                  1,038.55            187.98
           Winters                               773.30            386.65
           Rice Creek                            137.55            137.55
                                               --------          --------

                           TOTAL               3,870.40          1,072.27
                                               ========          ========


               (iii) Delivery Commitments. Aspen is not obligated to provide a
fixed and determinable quantity of oil and gas in the future under existing
contracts and agreements.

     (3) Reserve Information

Oil and Gas Reserves. Oil and gas reserves for Aspen's properties have been
evaluated at June 30, 1999 by Cecil Engineering, Inc.

          RESERVE CALCULATIONS BY INDEPENDENT PETROLEUM ENGINEERS INVOLVE THE
          ESTIMATION OF FUTURE NET RECOVERABLE RESERVES OF OIL AND GAS AND THE
          TIMING AND AMOUNT OF FUTURE NET REVENUES TO BE RECEIVED THEREFROM.
          THOSE ESTIMATES ARE BASED ON NUMEROUS FACTORS, MANY OF WHICH ARE
          VARIABLE AND UNCERTAIN. RESERVE ESTIMATORS ARE REQUIRED TO MAKE
          NUMEROUS JUDGMENTS BASED UPON PROFESSIONAL TRAINING, EXPERIENCE AND
          EDUCATIONAL BACKGROUND. THE EXTENT AND SIGNIFICANCE OF THE JUDGMENTS
          IN THEMSELVES ARE SUFFICIENT TO RENDER RESERVE ESTIMATES INHERENTLY


                                       15

<PAGE>


Item 2. Properties (Continued)
------------------------------

          IMPRECISE. SINCE RESERVE DETERMINATIONS INVOLVE ESTIMATES OF FUTURE
          EVENTS, ACTUAL PRODUCTION, REVENUES AND OPERATING EXPENSES MAY NOT
          OCCUR AS ESTIMATED. ACCORDINGLY, IT IS COMMON FOR THE ACTUAL
          PRODUCTION AND REVENUES LATER RECEIVED TO VARY FROM EARLIER ESTIMATES.
          ESTIMATES MADE IN THE FIRST FEW YEARS OF PRODUCTION FROM A PROPERTY
          ARE GENERALLY NOT AS RELIABLE AS LATER ESTIMATES BASED ON A LONGER
          PRODUCTION HISTORY. RESERVE ESTIMATES BASED UPON VOLUMETRIC ANALYSIS
          ARE INHERENTLY LESS RELIABLE THAN THOSE BASED ON LENGTHY PRODUCTION
          HISTORY. ALSO, POTENTIALLY PRODUCTIVE GAS WELLS MAY NOT GENERATE
          REVENUE IMMEDIATELY DUE TO LACK OF PIPELINE CONNECTIONS AND POTENTIAL
          DEVELOPMENT WELLS MAY HAVE TO BE ABANDONED DUE TO UNSUCCESSFUL
          COMPLETION TECHNIQUES. HENCE, RESERVE ESTIMATES MAY VARY FROM YEAR TO
          YEAR.


                            Estimated Proved Reserves
                            -------------------------

     The following tables set forth the estimated proved developed and proved
undeveloped oil and gas reserves of Aspen for the years ended June 30, 1999 and
1998. See Note 11 to the Consolidated Financial Statements and the above
discussion.

       Proved Reserves                               Oil (Bbls)       Gas (Mcf)
       ---------------                               ----------       ---------

Estimated quantity, June 30, 1997                      28,000         1,631,000

  Revisions of previous estimates                       5,000          (116,000)
  Discoveries                                           3,000           487,000
  Production                                           (7,000)         (260,000)
                                                   ----------        ----------

Estimated quantity, June 30, 1998                      29,000         1,742,000

  Revisions of previous estimates                      (3,000)          (26,000)
  Discoveries                                           1,000           400,000
  Purchases                                              --             192,000
  Production                                          (10,000)         (457,000)
                                                   ----------        ----------

Estimated quantity, June 30, 1999                      17,000         1,851,000
                                                   ==========        ==========


                       Developed and Undeveloped Reserves
                       ----------------------------------

                                        Developed      Undeveloped       Total
                                        ---------      -----------       -----
Oil (Bbls)
      June 30, 1998                       26,000           3,000          29,000
      June 30, 1999                       14,000           3,000          17,000

Gas (Mcf)
      June 30, 1998                      907,000         835,000       1,742,000
      June 30, 1999                      606,000       1,245,000       1,851,000



                                       16

<PAGE>


Item 2. Properties (Continued)
------------------------------

     For information concerning the standardized measure of discounted future
net cash flows, estimated future net cash flows and present values of such cash
flows attributable to Aspen's proved oil and gas reserves as well as other
reserve information, see Note 11 to the Consolidated Financial Statements.

               (i) Oil and Gas Reserve Estimates Filed. No estimates of total
proved net oil or gas reserves were filed by Aspen with, or included in reports
to, any federal authority or agency since the beginning of Aspen's last fiscal
year.

          (B) Mining Properties

Valdez Creek, Alaska
--------------------

Aspen holds 6 state mining claims on Valdez Creek in central Alaska about
halfway between Anchorage and Fairbanks. A placer gold mining operation on
Aspen's claims on Valdez Creek was for a time the largest gold producer in
Alaska, but that mining operation has been closed and the land reclaimed.
Management of Aspen believes the source of much of the placer gold mined
previously may exist on the claims currently being held by Aspen. Further
studies will be required before a course of action may be decided upon for these
properties. There are no holding costs for these claims.

Cook Inlet and other Alaska
---------------------------

In 1980, Aspen filed applications for State of Alaska offshore prospecting
permits for a total of approximately 1.2 million gross acres in south and
southeastern Alaska with the objective of locating and producing placer gold
from the sea floor. Applications for most of this acreage were dropped by Aspen
or denied by the State of Alaska. At present, applications for approximately
60,000 acres in central Cook Inlet are still pending, as are applications for
approximately 100,000 acres of offshore state lands in southern and southeast
Alaska. It is not likely that these applications will be granted because of
opposition from various organizations and individuals. These applications are
not considered material to Aspen.

Uranium Prospects, Wyoming
--------------------------

In March of 1998 Aspen succeeded in reaching an agreement with a privately-held
Toronto, Ontario based company whereby Aspen sold its interest in two uranium
projects in Wyoming and received a $125,000 cash payment and a commitment to
receive an additional $125,000 prior to December 31, 1998. The final payment of
$125,000 has not been received by Aspen and discussions are underway with the
Toronto-based company to define a payment schedule. Under the terms of the
agreement reached in March 1998, Aspen also received 25% (2,000,000 shares) of


                                       17

<PAGE>


Item 2. Properties (Continued)
------------------------------

the common stock of the privately-held company. Because there is not, and may
never be, a market for these shares, the stock may prove to be of no value. In
the event that Aspen receives the $125,000 in arrears, it will be recorded as
income in the period received.

Management of Aspen believes that these uranium prospects are prospective for
the production of uranium by in situ methods, although there is no assurance
such deposits will be found or may be exploited.

     (C) Title

          (1) Oil and Gas. As is customary in the oil and gas industry, Aspen
performs only a perfunctory title examination at the time of acquisition of
undeveloped properties. Prior to the commencement of drilling, in most cases,
and in any event where Aspen is the Operator, a thorough title examination is
conducted and significant defects remedied before proceeding with operations.
Aspen believes that the title to its properties is generally acceptable to a
reasonably prudent operator in the oil and gas industry. The properties owned by
Aspen are subject to royalty, overriding royalty and other interests customary
in the industry, liens incidental to operating agreements, current taxes and
other burdens, minor encumbrances, easements and restrictions. Aspen does not
believe that any of these burdens materially detract from the value of the
properties or will materially interfere with their use in the operation of
Aspen's business.

Aspen has purchased  producing  properties on which no updated title opinion was
prepared.  In such cases,  Aspen has retained  third party  certified  petroleum
landmen to review title.

          (2) Mining. Aspen does not have title opinions on its mining claims
and, therefore, has not identified potential adverse claimants nor has it
quantified the risk that any adverse claimant may successfully contest all or a
portion of its title to the claims. Furthermore, the validity of all unpatented
mining claims is dependent upon inherent uncertainties such as the sufficiency
of the discovery of minerals, proper posting and marking of boundaries, and
possible conflicts with other claims not determinable from descriptions of
record. In the absence of a discovery of valuable minerals, a mining claim is
open to location by others unless the claimant is in actual possession of and
diligently working the claim (pedis possessio). No assurance can be given with
respect to unpatented mining claims in the exploratory stage that a discovery of
a valuable mineral deposit will be made.


                                       18

<PAGE>


Item 2. Properties (Continued)
------------------------------

To maintain ownership of the possessory title created by an unpatented mining
claim against subsequent locators, the locator or his successor in interest must
pay an annual fee of $100 per claim. Title examinations for a particular claim
will be made when and if a significant discovery is made on that claim.

     (D) Office Facilities. Aspen's office space consists of approximately 1,108
square feet with an additional 750 square feet of basement storage. Aspen signed
a two year lease agreement and is subject to a lease rate of $999 per month.
Aspen also paid $816 as a security deposit for the term of the lease, which is
in effect through December 31, 1999.

Item 3. Legal Proceedings
-------------------------

     Aspen is not currently involved in any legal actions.


Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

     No matters were presented to security holders for a vote during the year
ended June 30, 1999, or any subsequent period.

                                       19

<PAGE>
                                     PART II

Item 5. Market for Aspen's Common Stock & Related Security Holder Matters.
--------------------------------------------------------------------------

     (A) Market Information

     Aspen's common stock is now quoted on the OTC Bulletin Board under the
symbol "ASPN". The quotations reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not reflect actual transactions.

     The OTC Bulletin Board adopted new rules which result in companies not
current in their reporting requirements under the Securities Exchange Act of
1934 being removed from the quotation service. At June 30, 1999 and 1998, Aspen
believes it is in full compliance with these rules.

                                             Range of Bid Prices
                                                 Common Stock
                                            ----------------------
                                            Low Bid       High Bid
                                            -------       --------

Fiscal Year Ended June 30, 1999:
--------------------------------
         First Quarter                        $.44           $1.13
         Second Quarter                        .44             .69
         Third Quarter                         .44             .59
         Fourth Quarter                        .50             .56


Fiscal Year Ended June 30, 1998:
--------------------------------
         First Quarter                        $.07           $ .20
         Second Quarter                        .20            1.00
         Third Quarter                         .20             .45
         Fourth Quarter                        .28            1.25


     (B) Holders
     -----------

     The approximate number of stockholders of record of Aspen's common stock at
June 30, 1999 and 1998 was 1,375 and 1,408, respectively. This number does not
reflect an indeterminate number of beneficial holders who own their shares in
street name through broker/dealers and other depositories.


                                       20

<PAGE>



Item 5. Market for Aspen's Common Stock & Related Security Holder
        Matters (Continued).
------------------------------------------------------------------

     (C) Dividends
     -------------

     Holders of common stock are entitled to receive such dividends as may be
declared by Aspen's Board of Directors. There were no dividends declared by the
Board of Directors during the fiscal year ended June 30, 1999, or subsequently,
and Aspen has paid no cash dividends on its common stock since inception. There
are no contractual restrictions on Aspen's ability to pay dividends to its
shareholders.


                                       21

<PAGE>



Item 6. Management's Discussion and Analysis of Financial
        Condition and Results of Operations
---------------------------------------------------------

                         Liquidity and Capital Resources
                         -------------------------------

June 30, 1999 as compared to June 30, 1998
------------------------------------------

Commencing in fiscal 1996 and continuing through 1998, Aspen reviewed all
aspects of its operations in an effort to reduce expenditures as much as
possible while making efforts to preserve Aspen's assets and build up cash flow.
These decisions included: the sale of Aspen's oil and gas assets in Montana,
North Dakota, Oklahoma and Texas; the decision to defer the payment of portions
of officers' salaries; the decision to defer compliance with Aspen's reporting
obligations under the Securities Exchange Act of 1934, as amended, as of June
30, 1998, Aspen is current with all SEC filing requirements; the voluntary
reduction of certain officers' salaries; and the decision to concentrate on the
development of cash flow from oil and gas operations in California, in which an
officer of Aspen has significant experience.

Prior to fiscal 1998, Aspen had sustained operating losses. In addition, Aspen
used substantial amounts of working capital in its operations. At June 30, 1998,
current liabilities exceeded current assets by $50,734. At June 30, 1999,
current assets exceeded current liabilities by $33,374 and Aspen has positive
working capital to that extent. In light of recent successful drilling
operations and the acquisition of producing properties, increased revenues
should continue to have a positive effect on Aspen's working capital and
contribute significantly to its cash flow in the coming months.

In order to provide interim financing, Aspen withdrew $185,000 during fiscal
1997 and an additional $15,000 in September 1997 against a split dollar life
insurance plan. Aspen also sold its non-California oil and gas production for
$100,000 cash to an affiliate as further described in Item 12. Also, during
August and October of 1997, Aspen borrowed an additional $130,000 to finance its
share of drilling an offset well on the Emigh property from the same affiliate.
In addition, an officer of Aspen elected to defer a portion of his salary. At
June 30, 1999 and 1998, the amount due to officers was approximately $-0- and
$69,000, respectively. At June 30, 1999, the $200,000 insurance loan was paid in
full and the balance due to affiliates was reduced to $59,487 as a result of
cash made available by operations.

From June 30, 1998 to June 30, 1999, Aspen's working capital increased from a
deficit of $50,734 to a positive $33,374. The increase was due primarily to a
decrease in accounts payable and accrued expenses of $128,900, the elimination


                                       22

<PAGE>



Item 6. Management's Discussion and Analysis of Financial Condition and
        Results of Operations (Continued)
-----------------------------------------------------------------------

of $68,750 of amounts due related parties and the reduction of $56,000 in
advances due joint owners. This decrease in current liabilities is offset
somewhat by the reduction in cash of $90,000 and accounts receivable of $6,000
and the increase in current portion of notes payable of $74,000.

These cost cutting decisions resulted in Aspen sharing certain oil and gas
drilling opportunities with third party investors (including some affiliated
investors as described in Item 12, below) and taking a reduced interest until
after payout to the third party investors. Payout in several of the wells has
occurred, and consequently, Aspen is now receiving increased revenues from its
oil and gas operations. This commenced in the first quarter of calendar year
1997 and should continue over the life of the producing wells.

During fiscal 1999, Aspen Exploration Corporation created Aspen Power Systems
Corporation ("APS"), an 85% owned subsidiary. Aspen has dedicated certain cash
resources to investigate the economic possibilities of the sale, design,
construction and/or operation of gas turbines to produce electricity. Aspen has
dedicated a total of approximately $130,000 of financing in order to provide
funding for APS to attempt to commence funding its own operations. Such
dedicated funding will come from Aspen's operating funds derived from oil and
gas production. There is no assurance APS will be able to fund its own
operations after the dedicated funding by Aspen is fulfilled. Through June 30,
1999, APS has expended $83,950 on this project.

In March 1998, Aspen reached an agreement with a privately-held Canadian company
which provided for Aspen to receive certain cash payments from, and to be issued
2,000,000 shares of stock in, a privately-held Canadian company. Aspen conveyed
to the privately-held company all of Aspen's interest in two uranium projects in
Wyoming. The privately-held Canadian company is in default to Aspen in the
amount of $125,000 which was to be paid prior to December 31, 1998. Discussions
are underway to attempt to resolve this issue.


                                       23

<PAGE>



Item 6. Management's Discussion and Analysis of Financial
        Condition and Results of Operations (Continued)
----------------------------------------------------------


                              Results of Operations
                              ---------------------

1999 Compared to 1998
---------------------

For the twelve months ended June 30, 1999, Aspen's operations continued to be
focused on the production of oil and gas and the investigation for possible
acquisition of producing oil and gas properties.

Oil and gas revenues, which includes income from management fees, for the twelve
months ended June 30, 1999, increased $427,104, from $863,588 to $1,290,692, a
49% improvement. This increase reflects increased emphasis on operations
conducted in California and the continued production from the Emigh lease which
came on stream in November 1996, and now includes four producing gas wells. The
increase in oil and gas revenues were further enhanced by the addition of the
Brandt 26X-27 and Arco 46X-10 which came on line during September 1997 and April
1998, respectively, and the acquisition of the Johnson and Gay Units, which were
acquired during July 1998.

Oil and gas production expenses increased $3,200 from $75,775 to $78,971, a 4%
increase. This increase was due primarily to the addition of three producing gas
properties during the year.

Depletion, depreciation and amortization increased significantly, from $119,653
to $289,096, a $169,443 increase or 142%. This increase was due to an increase
in the full cost pool of approximately $627,000, causing the depletable base to
be larger and a substantial increase in the production of oil and gas when
compared to fiscal 1998. On an MCF equivalent basis, reserves at June 30, 1999
increased approximately 2% from a year earlier.

Selling, general and administrative expenses decreased $102,600 or 17.8% during
fiscal 1999, reflecting Management's continued commitment to contain costs and
increase cash flow.

As a result of Aspen's operations for the fiscal year ended June 30, 1999, Aspen
ended the year with a net income of $330,250 compared to a net income of
$110,538 a year earlier. This increase of approximately $220,000 reflected an
increase of approximately $427,000 in oil and gas sales and related management
fees. These increases are the direct result of successful drilling and
production operations conducted in California. Other income decreased $26,717 or
96% from $27,713 in 1998 to $996 in 1999. The decrease in other income was


                                       24

<PAGE>



Item 6. Management's Discussion and Analysis of Financial
        Condition and Results of Operations (Continued)
----------------------------------------------------------

caused by the elimination of one time charges for billings to third parties for
services rendered by officers of $6,750, the recapture of allowance for doubtful
accounts now deemed collectible of $12,500, and the adjustment of officer
accrued vacation salary payable of $7,200 during fiscal year 1998.

During the twelve months ended June 30, 1999, the energy industry experienced
the lowest oil prices in a generation. The energy industry suffered the negative
aspects of these low prices with employee layoffs and exploration and
development curtailments. However, beginning in April 1999, the price of oil
improved by 92% from approximately $8.10 per barrel to $15.56 per barrel. Gas
prices increased approximately 32% when comparing March to June sales. Assuming
stable oil and gas prices at their current level, Aspen anticipates continued
improvement in its oil and gas sales with the addition of the Emigh 35-2 well
which came on line January 12, 1999, and the Elektra 1 well which first produced
during July 1999. With management's continued emphasis on controlling costs and
its improving gas sales, Aspen believes its net income and per share earnings
will continue to grow.

Year 2000
---------

The following Year 2000 statements constitutes a Year 2000 Readiness Disclosure
with the meaning of the Year 2000 Information and Readiness Disclosure Act of
1998.

Year 2000 issues result from the inability of certain electronic hardware and
software to accurately calculate, store or use a date subsequent to December 31,
1999. These dates can be erroneously interpreted in a number of ways, e.g., the
year 2000 could be interpreted as the year 1900. This inability could result in
a system failure or miscalculations that could in turn cause operational
disruptions. These issues could affect not only information technology ("IT")
systems, such as computer systems used for accounting, land, engineering and
seismic processing, but also systems that contain embedded chips.

Aspen has completed an assessment of its IT systems. Aspen has determined that
these systems are either compliant or will be compliant with relatively minor
modifications or upgrades (many of which would have been made in any event as
part of Aspen's continuing effort to enhance its IT systems). All necessary
modifications and upgrades and the testing thereof have been successfully
completed at June 30, 1999.

Aspen is assessing its non-information systems to ascertain whether these
systems contain embedded computer chips that will not properly function
subsequent to December 31, 1999. These systems include office equipment and the
automatic wellhead equipment used to operate wells. All of these systems have
been determined to be Year 2000 compliant.

                                       25

<PAGE>


Item 6. Management's Discussion and Analysis of Financial
        Condition and Results of Operations (Continued)
----------------------------------------------------------


To date Aspen has relied upon its internal staff to access its Year 2000
readiness. The costs associated with assessing Aspen's Year 2000 internal
compliance and related systems modification, upgrading and testing were
immaterial.

Aspen is in the process of communicating with certain of its significant
suppliers, service companies, gas gatherers and pipelines, electricity providers
and financial institutions to determine the vulnerability of Aspen to third
parties' failure to address their Year 2000 issues. While Aspen has not yet
received definitive responses indicating all such entities are Year 2000
compliant, it has not received information suggesting Aspen is vulnerable to
potential Year 2000 failures by these parties. These communications are expected
to continue into the third quarter of 1999. At this time Aspen has not developed
any contingency plans to address third party non-compliance with Year 2000
matters. However, should its communications with any third parties indicate any
vulnerability, appropriate contingency plans will be developed.

Aspen does not anticipate any significant disruptions of its operations due to
Year 2000 issues. Among the potential "worst case" problems Aspen could face
would be the loss of electricity used to power well pumps and compressors that
would result in wells being shut-in, or the inability of a third party gas
gathering company or pipeline to accept gas from Aspen's wells or gathering
lines which would also result in Aspen's wells being shut-in. A disruption in
production would result in the loss of income.

                                       26

<PAGE>


                          INDEPENDENT AUDITORS' REPORT





Board of Directors
Aspen Exploration Corporation and Subsidiaries
Denver, Colorado

We have audited the consolidated balance sheets of Aspen Exploration Corporation
and Subsidiaries as of June 30, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended June 30, 1999 and 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aspen Exploration
Corporation and Subsidiaries as of June 30, 1999 and 1998, and the results of
their consolidated operations and cash flows for the years ended June 30, 1999
and 1998 in conformity with generally accepted accounting principles.




                                         GORDON, HUGHES & BANKS, LLP

Englewood, Colorado
September 3, 1999



                                       27



<PAGE>

Item 7. Financial Statements and Supplementary Data
---------------------------------------------------

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                                             June 30,
                                                    ---------------------------
                                                        1999            1998
                                                    -----------     -----------
Current Assets:
  Cash and cash equivalents, including
    $296,294 and $331,894 of invested cash
    in 1999 & 1998, respectively (Note 1) ......    $   335,603     $   425,306
  Precious metals (Note 1) .....................         18,823          18,823
  Accounts & trade receivables .................        108,913         115,144
  Prepaid expenses .............................          9,770           8,762
                                                    -----------     -----------
  Total current assets .........................        473,109         568,035
                                                    -----------     -----------
Investment in oil & gas properties, at
  cost (full cost method of
  accounting) (Note 11) ........................      2,309,566       1,682,521
    Less accumulated depletion and
      valuation allowance ......................     (1,280,305)     (1,006,902)
                                                    -----------     -----------
                                                      1,029,261         675,619
                                                    -----------     -----------
Property and equipment, at cost:
  Furniture, fixtures & vehicles ...............        178,403         171,122
    Less accumulated depreciation ..............       (136,237)       (120,544)
                                                    -----------     -----------
                                                         42,166          50,578
                                                    -----------     -----------
Undeveloped mining properties, at
  cost (Note 2) ................................            -0-          27,826
Cash surrender value, life insurance
  (Note 3) .....................................        239,095         231,314
Other ..........................................           --             3,400
                                                    -----------     -----------
Total assets ...................................    $ 1,783,631     $ 1,556,772
                                                    ===========     ===========

                              (Statement Continues)
                 See Notes to Consolidated Financial Statements

                                       28

<PAGE>


Item 7. Financial Statements and Supplementary Data
---------------------------------------------------

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (Continued)


                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                             June 30,
                                                   ----------------------------
                                                       1999            1998
                                                   -----------      -----------

Current liabilities:
  Accounts payable and accrued
    expenses .................................     $   280,920      $   409,815
  Advances from joint interest owners ........          32,245           87,999
  Due to related parties (Note 9) ............             -0-           68,750
  Notes payable - current (Note 5) ...........         126,570           52,205
                                                   -----------      -----------

  Total current liabilities ..................         439,735          618,769
                                                   -----------      -----------
Notes payable - long term (Note 5) ...........          81,003          280,360
                                                   -----------      -----------
Stockholders' equity:
    (Notes 1 and 6):
    Common stock, $.005 par value:
      Authorized:  50,000,000 shares
      Issued and outstanding:  At June
      30, 1999: 5,191,322 and June 30,
      1998: 4,916,322 ........................          25,956           24,581

  Capital in excess of par value .............       5,951,602        5,677,977
  Accumulated deficit ........................      (4,686,665)      (5,016,915)
  Deferred compensation ......................         (28,000)         (28,000)
                                                   -----------      -----------
  Total stockholders' equity .................       1,262,893          657,643
                                                   -----------      -----------

Total liabilities and stockholders'
  equity .....................................     $ 1,783,631      $ 1,556,772
                                                   ===========      ===========

                 See Notes to Consolidated Financial Statements

                                       29

<PAGE>


Item 7. Financial Statements and Supplementary Data
---------------------------------------------------

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                         Year ended June 30,
                                                      --------------------------
                                                         1999           1998
                                                      ----------      ----------

Revenues:
  Oil and gas (Note 11) ........................      $1,171,995      $  739,426
  Management fees (Note 11) ....................         118,697         124,162
  Interest .....................................          25,189          19,523
  Other income .................................             996          27,713
                                                      ----------      ----------
                                                       1,316,877         910,824
                                                      ----------      ----------
Costs and expenses:
  Oil and gas production .......................          78,971          75,775

  Write-off of undeveloped mining
    properties .................................          25,856             -0-
  Aspen Power Systems expense
    Note (16) ..................................          83,950             -0-
  Depreciation, depletion and
    amortization ...............................         289,096         119,653

  Interest expense .............................          35,399          28,903
  Selling, general and administrative ..........         473,355         575,955
                                                      ----------      ----------
                                                         986,627         800,286
                                                      ----------      ----------
Net income .....................................      $  330,250      $  110,538
                                                      ==========      ==========
Basic earnings per common share ................      $      .06      $      .02
                                                      ==========      ==========
Diluted earnings per common share ..............      $      .06      $      .02
                                                      ==========      ==========
Basic weighted average number of ...............       5,179,267       4,619,664
                                                      ==========      ==========
  common shares outstanding
Diluted weighted average number of
  common shares outstanding ....................       5,587,978       4,644,446
                                                      ==========      ==========

                 See Notes to Consolidated Financial Statements

                                       30

<PAGE>


Item 7.  Financial Statements and Supplementary Data
<TABLE>
<CAPTION>

                                  ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


                                                          Common Stock
                                              -------------------------------------
                                                                         Capital in                        Deferred
                                              Number          Par        Excess Of      Accumulated     Compensation
                                              Of Shares       Value       Par Value       Deficit        To Officers         Total
                                              ---------       -----      -----------      -------        -----------         -----

<S>                                           <C>          <C>            <C>            <C>             <C>             <C>
Balances, June 30, 1997 ................      4,456,322    $    22,281    $ 5,609,877    $(5,127,453)    $      --       $   504,705

Stock issued to Officers,
 Directors, Employees
 and Consultant for
 services at $.14 per share ............        460,000          2,300         62,100           --           (28,000)         36,400

Options granted to Officers,
  Directors, Employees
  and Consultant .......................           --             --            6,000           --              --             6,000

Net income for year ....................           --             --             --          110,538            --           110,538
                                            -----------    -----------    -----------    -----------     -----------     -----------

Balances, June 30, 1998 ................      4,916,322         24,581      5,677,977     (5,016,915)        (28,000)        657,643
                                            -----------    -----------    -----------    -----------     -----------     -----------

Stock issued for oil and
 gas properties ........................        275,000          1,375        273,625           --              --           275,000

Net income for year ....................           --             --             --          330,250            --           330,250
                                            -----------    -----------    -----------    -----------     -----------     -----------

Balances, June 30, 1999 ................      5,191,322    $    25,956    $ 5,951,602    $(4,686,665)    $   (28,000)    $ 1,262,893
                                            -----------    -----------    -----------    -----------     -----------     -----------


                                  See notes to consolidated financial statements

                                                          31


<PAGE>


Item 7. Financial Statements and Supplementary Data
---------------------------------------------------

                           ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                     Year Ended June 30,
                                                              ---------------------------------
                                                                1999                    1998
                                                              --------                ---------
Cash flows from operating activities:
-------------------------------------

  Net income .............................................   $ 330,250               $ 110,538

  Adjustments to reconcile net income to net
    cash provided (used) by operating activities:

  Services rendered for overriding royalty interest ......      18,150                   7,500
  Services rendered for stock ............................        --                    28,400
  Depreciation, depletion, amortization and
    valuation allowance ..................................     289,096                 119,653
  Changes in assets and liabilities:
    Decrease (increase) in accounts receivable,
       and prepaid expenses ..............................       5,223                 (73,304)
    Increase (decrease) in accounts payable, accrued
       expenses and due to related parties ...............    (273,616)                145,329
    Write-off investment in other assets .................       3,400                    --
    Increase in interest payable .........................       9,781                  10,437
    (Additions) to cash surrender value ..................      (7,781)                (13,843)
    Write-off of undeveloped mining properties ...........      25,856                    --
                                                               -------                 -------

Net cash provided by operating activities ................     400,359                 334,710

Cash flows from investing activities:
-------------------------------------

  Prospect fees ..........................................      12,900                 168,575
  Sale of mining data ....................................       1,970                 125,000
  Conveyance of oil & gas properties for cash ............     477,950                    --
  Proceeds from the sale of oil and gas properties .......       7,031                   1,897
  (Additions) to oil and gas properties ..................    (595,176)               (545,034)
  Office equipment purchased .............................      (7,281)                 (6,891)
  (Additions) to undeveloped mining properties ...........        --                    (4,472)
  (Additions) to other assets ............................        --                    (3,400)
  Refund of deposit ......................................       2,100                    --
                                                               -------                 -------

Net cash (used in) investing activities ..................    (100,506)               (264,325)







                                  See notes to consolidated financial statements

                                                        32

<PAGE>


Item 7. Financial Statements and Supplementary Data
---------------------------------------------------


                                  ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


                                                                                       Year Ended June 30,
                                                                                   ----------------------------
                                                                                      1999              1998
                                                                                   ---------          ---------
Cash flows from financing activities:
-------------------------------------

  Notes payable-proceeds .................................................             2,571            151,000
  Notes payable-repayments ...............................................          (392,127)           (34,544)
                                                                                   ---------          ---------


Net cash provided by (used in) financing activities ......................          (389,556)           116,456
                                                                                   ---------          ---------


Net increase (decrease) in cash and cash equivalents .....................           (89,703)           186,841

Cash and cash equivalents, beginning of year .............................           425,306            238,465
                                                                                   ---------          ---------

Cash and cash equivalents, end of year ...................................         $ 335,603          $ 425,306
                                                                                   =========          =========


Schedule of non cash investing activities:
------------------------------------------

Issuance of common stock for mining properties ...........................         $    --            $  14,000

Issuance of common stock for oil & gas properties ........................           275,000               --

Increase in notes payable for equipment ..................................              --               20,672

Increase in notes payable for oil & gas properties .......................           275,000               --
                                                                                   ---------          ---------

                                                                                   $ 550,000          $  34,672
                                                                                   =========          =========

Interest Paid ............................................................         $  25,481          $  10,153
                                                                                   =========          =========

Income taxes paid ........................................................         $   2,143          $     -0-
                                                                                   =========          =========



                                  See notes to consolidated financial statements

                                                        33

</TABLE>


<PAGE>
                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of Business
     ------------------

     Aspen Exploration Corporation ("the Company") was incorporated on February
     28, 1980 and is engaged in the business of acquiring and developing
     interests in domestic oil and gas properties and uranium and other mineral
     properties.

     Through November 1996, the Company had oil and gas operations in Wyoming,
     Montana, North Dakota, Colorado and California, and after November 1996,
     principally in California. The Company's primary mineral projects and
     targets of exploration (uranium) were in central Wyoming until they were
     sold on March 1, 1998.

     The Company has two wholly owned subsidiaries, Aspen Gold Mining Company,
     Aspen Recursos de Mexico, as well as 85% owned Aspen Power Systems
     Corporation ("APS") formed in February 1999. Aspen Gold Mining has staked 6
     claims on Valdez Creek in central Alaska. Other than those claims, none of
     the subsidiaries have any assets, liabilities or operations. The purpose of
     APS will be to attempt to design, construct and possibly operate gas
     turbine power plants to generate electrical energy.

     During fiscal year 1997 and the first two quarters of fiscal year 1998, the
     Company experienced cash flow and liquidity problems; however, subsequent
     cash flow has substantially increased, due to the production from three gas
     properties and two oil properties, which has allowed the Company to pay
     creditors and resume normal operations.

     A summary of the Company's significant accounting policies follows:

     Consolidated Financial Statements
     ---------------------------------

     The consolidated financial statements include the Company and its
     wholly-owned subsidiaries, Aspen Gold Mining Company, Aspen Recursos de
     Mexico, as well as 85% owned APS. Significant intercompany accounts and
     transactions, if any, have been eliminated. All of the subsidiaries except
     APS are inactive.

     Statement of Cash Flows
     -----------------------

     For statement of cash flows purposes, the Company considers short-term
     investments with original maturities of three months or less to be cash
     equivalents. Cash restricted from use in operations beyond three months is
     not considered a cash equivalent.

                                       34

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Management's Use of Estimates
     -----------------------------

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make certain
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and the disclosure of contingent liabilities at the date of the
     financial statements and reported amounts of revenues and expenses. Actual
     results could differ from those estimates.

     The mining and oil and gas industries are subject, by their nature, to
     environmental hazards and cleanup costs for which the Company carries
     catastrophe insurance. At this time, management knows of no substantial
     costs from environmental accidents or events for which it may be currently
     liable. In addition, the Company's oil and gas business makes it vulnerable
     to changes in wellhead prices of crude oil and natural gas. Such prices
     have been volatile in the past and can be expected to be volatile in the
     future. By definition, proved reserves are based on current oil and gas
     prices and estimated reserves. Price declines reduce the estimated quantity
     of proved reserves and increase annual depletion expense (which is based on
     proved reserves).

     Impairment of Long-lived Assets
     -------------------------------

     The Company periodically evaluates the carrying value of assets other than
     oil and gas assets for potential impairment on an ongoing basis. The
     Company evaluates the carrying value of long-lived assets and long-lived
     assets to be disposed of for potential impairment. The Company considers
     projected future operating results, cash flows, trends and other
     circumstances in making such estimates and evaluations.

     Financial Instruments
     ---------------------

     The carrying value of current assets and liabilities reasonably
     approximates their fair value due to their short maturity periods. The
     carrying value of the Company's debt obligations reasonably approximates
     their fair value as the stated interest rate approximates current market
     interest rates of debt with similar terms.



                                       35

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Earnings Per Share
     ------------------

     In February 1997, the Financial Accounting Standards Board issued Financial
     Accounting Standard No. 128 ("SFAS No. 128"), addressing earnings per
     share. SFAS No. 128 changed the methodology of calculating earnings per
     share and renamed the two calculations basic earnings per share and diluted
     earnings per share. The calculations differ by eliminating any common stock
     equivalents (such as stock options, warrants, and convertible preferred
     stock) from basic earnings per share and changes certain calculations when
     computing diluted earnings per share. The Company adopted SFAS No. 128 in
     fiscal year 1998.

     The following is a reconciliation of the numerators and denominators used
     in the calculations of basic and diluted earnings per share for the years
     ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>


                                               1999                                            1998
                                                                  Per                                       Per
                               Net                               Share         Net                         Share
                              Income          Shares             Amount      Income          Shares        Amount
                              ------          ------             ------      ------          ------        ------
<S>                           <C>             <C>                <C>          <C>           <C>            <C>
Basic earnings per share:

  Net income and
  share amounts               330,250        5,179,267            .06        110,538        4,619,664        .02

  Dilutive securities
   stock options                                760,000                                       190,000

  Repurchased shares                           (351,289)                                     (165,218)
                             -----------------------------------------------------------------------------------

Diluted earnings per share:

  Net income and assumed
  share conversion            330,250          5,587,978          .06        110,538        4,644,446        .02
                              =======          =========         ====        =======        =========        ===
</TABLE>


     Capital Structure
     -----------------

     In February 1997, the Financial Accounting Standards Board issued SFAS No.
     129, "Disclosure of Information about Capital Structure" ("SFAS No. 129"),
     which requires all companies to disclose all relevant information regarding
     their capital structure. SFAS No. 129 presentation is required for
     reporting periods ending after December 15, 1997. The Company adopted SFAS
     No. 129 in 1998.


                                        36

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Comprehensive Income
     --------------------

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
     "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes
     standards for reporting of comprehensive income. This pronouncement
     requires that all items recognized under accounting standards as components
     of comprehensive income, as defined in the pronouncement, be reported in a
     financial statement that is displayed with the same prominence as other
     financial statements. Comprehensive income includes all changes in equity
     during a period except those resulting from investments by owners and
     distributions to owners. The financial statement presentation required
     under SFAS No. 130 is effective for all fiscal years beginning after
     December 15, 1997. The Company adopted SFAS No. 130 in 1998.

     Segment Reporting
     -----------------

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
     "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
     No. 131"), which amends the requirements for a public enterprise to report
     financial and descriptive information about its reportable operating
     segments. Operating segments, as defined in the pronouncement, are
     components of an enterprise about which separate financial information is
     available that is evaluated regularly by the Company in deciding how to
     allocate resources and in assessing performance. The financial information
     is required to be reported on the basis that is used internally for
     evaluating segment performance and deciding how to allocate resources to
     segments. The disclosures required by SFAS No. 131 are effective for all
     fiscal years beginning after December 15, 1997. The Company has adopted
     SFAS No. 131 in fiscal 1999.

     New Accounting Pronouncements
     -----------------------------

     Pension and Other Post Retirement Benefits
     ------------------------------------------

     Statement of Financial Accounting Standards No. 132, "Employers'
     Disclosures about Pension and Other Post Retirement Benefits" ("SFAS No.
     132") is effective for financial statements with fiscal years beginning
     after December 31, 1997. Earlier application is permitted. The standard
     revises employers' disclosures about pension and other post retirement
     benefit plans but does not change the measurement or recognition of those
     plans. SFAS No. 132 standardizes the disclosure requirements for pensions


                                       37

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     and other post retirement benefits to the extent practicable, requires
     additional information on changes in the benefit obligations and fair
     values of the plan assets that will facilitate financial analysis, and
     eliminates certain disclosures previously required when no longer useful.
     The Company adopted SFAS No. 132 in 1999, with no material impact on its
     consolidated financial statements.

     Derivative Instruments and Hedging Activities
     ---------------------------------------------

     The FASB has recently issued Statement of Financial Accounting Standards
     No. 133, "Accounting for Derivative Instruments and Hedging Activities"
     ("SFAS No. 133"). SFAS No. 133 establishes standards for recognizing all
     derivative instruments including those for hedging activities as either
     assets or liabilities in the statement of financial position and measuring
     those instruments at fair value. This standard is effective for fiscal
     years beginning after June 30, 1999. The Company will adopt SFAS No. 133 in
     the year 2000 and believes that there will be no impact on its consolidated
     financial statements.

     Precious Metals and Revenues
     ----------------------------

     Precious metals inventories are valued at the lower of cost (specific
     identification method) or market. There is no allowance for unrealized
     losses against inventories due to market decline at June 30, 1999. There
     were no sales of gold from inventory for the years ended June 30, 1999 and
     1998.

     Oil and Gas Properties
     ----------------------

     The Company follows the "full-cost" method of accounting for oil and gas
     properties. Under this method, all costs associated with property
     acquisition, exploration and development activities, including internal
     costs that can be directly identified with those activities, are
     capitalized within one cost center. No gains or losses are recognized on
     the receipt of prospect fees or on the sale or abandonment of oil and gas
     properties, unless the disposition of significant reserves is involved.

     Depletion and amortization of the full-cost pool is computed using the
     units-of-production method based on proved reserves as determined annually
     by the Company and independent engineers. An additional depletion provision
     in the form of a valuation allowance is made if the costs incurred on oil
     and gas properties, or revisions in reserve estimates, cause the total
     capitalized costs of oil and gas properties in the cost cebter to exceed

                                       38

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     the capitalization ceiling. The capitalization ceiling is the sum of (1)
     the present value of future net revenues from estimated production of
     proved oil and gas reserves applicable to the cost center plus (2) the
     lower of cost or estimated fair value of the cost center's unproved
     properties less (3) applicable income tax effects. The valuation allowance
     was $281,719 at June 30, 1999 and June 30, 1998.

     Property and Equipment
     ----------------------

     Depreciation and amortization of property and equipment are expensed in
     amounts sufficient to relate the expiring costs of depreciable assets to
     operations over estimated service lives, principally using the
     straight-line method. Estimated service lives range from three to eight
     years. When assets are sold or otherwise disposed of, the cost and
     accumulated depreciation are removed from the accounts and any resulting
     gain or loss is reflected in operations in the period realized.
     Depreciation expense was $15,693 and $12,445 for the years ended June 30,
     1999 and 1998, respectively.

     Undeveloped Mining Properties
     -----------------------------

     The Company capitalizes all costs associated with acquiring, exploring and
     developing mineral properties, including certain internal costs which
     specifically relate to each mining property area ("cost center").
     Capitalized costs are deferred until the area of interest to which they
     relate is put into operation, sold, abandoned or impaired. The Company's
     pro rata share of advance mineral royalties, bonuses and other cash
     payments received by the Company from joint ventures or other exploration
     participants reduce the amount of a cost center as a recovery of
     capitalized costs. The excess of the Company's pro rata share of advance
     mineral royalties, bonuses and other cash payments received by the Company
     from joint ventures or other exploration participants over capitalized
     costs in a specific cost center are recognized as revenue in the period
     received. Gains or losses on the sale or abandonment of mining properties
     are charged to current operations. Aspen wrote off $25,856 of previously
     capitalized costs at June 30, 1999 as the result of management's evaluation
     of the payment status under an agreement involving two uranium projects in
     Wyoming.

     Deferred Compensation Costs
     ---------------------------

     The Company records stock bonuses to employees as an expense and an
     increase to paid-in capital in the year of grant unless the bonus vests

                                       39

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     over future years. Bonuses that vest are deferred and expensed ratably over
     the vesting period. During the fiscal year ended June 30, 1999 and 1998,
     the Company expensed $-0- and $6,000, respectively, in stock bonuses.

     Allowance for Bad Debts
     -----------------------

     The Company considers accounts receivable to be fully collectible as
     recorded as of June 30, 1999 and 1998; accordingly, no allowance for
     doubtful accounts is required.

Note 2 MINING PROPERTIES

     KAYCEE AND SHAMROCK URANIUM PROSPECTS
     -------------------------------------

     The Company has previously explored for in situ uranium deposits in
     Wyoming. During the years ended June 30, 1999 and 1998, the Company
     expended $-0- and $4,472, respectively, on the Kaycee and Shamrock
     prospects. In addition during 1998, the Company issued to the President
     100,000 shares of the Company's common stock, valued at $14,000, in
     exchange for the President's 25% interest in geological data and potential
     uranium prospects.

     During fiscal 1998, the Company sold the geological data of the Kaycee and
     Shamrock prospects to a privately-held Canadian company and, in exchange,
     received a $125,000 cash payment and a commitment to receive an additional
     $125,000 prior to December 31, 1998. As of September 17, 1999, the Company
     has not received the second payment of $125,000 and the privately-held
     Canadian company is in default. Discussions are underway to attempt to
     resolve this issue. Under the terms of the sales agreement reached in March
     1998, the Company also received 2 million shares or approximately 25% of
     the common stock of the privately-held company. To the knowledge of the
     Company, at the time of this filing, the stock had no market value. All
     capitalized mining costs have been written off as of June 30, 1999.


Note 3 EMPLOYEE BENEFIT PLANS

     Defined Contribution Plan
     -------------------------

     Effective July 1, 1990, the Company implemented a 401(k) defined
     contribution plan covering all employees. Under the amended terms of the
     plan, an employee is now eligible to participate in the plan immediately
     upon being hired to work at least 1,000 hours per year. The original terms


                                       40

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     of the plan required an employee to work at least 1,000 hours per year,
     have completed one year of service and be at least 21 years of age to be
     eligible to participate in the plan. Participants may contribute up to a
     maximum of 15% of their pre-tax earnings (not to exceed $10,000) to the
     plan. Under the plan, the Company may make discretionary contributions to
     the plan. The Company made no plan contribution for fiscal 1998 nor fiscal
     1999.

     Split Dollar Life Insurance Plan
     --------------------------------

     As part of the President's employment agreement dated November 8, 1991 (See
     Note 9), the Company purchased a split dollar life insurance policy for the
     President's benefit. The Company paid an annual premium of $60,000 per year
     through December 31, 1997, on behalf of the President, of which a portion
     ("split") constituted compensation for the President. In addition, the
     Company at each anniversary pays the President an amount as a bonus to
     reimburse the President for personal income tax on his split.

     In the event of termination of the plan, the Company would receive the
     lesser of the policy cash surrender value, or the accumulated Corporate
     Premium Payments (split). The President would receive the excess of the
     total policy cash surrender value over the corporate cash surrender value,
     if any. In the event of premature death of the President, the Company would
     receive an amount equal to the accumulated corporate premium payments and
     the President's named beneficiary would receive the proceeds of the death
     benefit.

     For the year ended June 30, 1998, the Company paid $30,000 in premiums, of
     which the President's portion was approximately $11,026. Additional
     compensation of $4,288 had been recognized as reimbursement to the
     President for income taxes. For the year ended June 30, 1999, the Company
     paid no premiums. The President's taxable amount was $33,306, equal to the
     "economic benefit" attributed to the President as defined by the Internal
     Revenue Code. Additional compensation of $9,331 has been recognized as
     reimbursement to the President for income taxes on the "economic benefit."

     As of June 30, 1999 and June 30, 1998, the Company's accumulated cash
     surrender value was $239,095 and $231,314, respectively, which has been
     included as an asset on the Company's balance sheet. During fiscal 1997 and
     1998, the Company withdrew $200,000 of cash surrender value to pay
     expenses. As of June 30, 1999, the Company had repaid the entire $200,000
     loan. The death benefit payable to the named beneficiary as of June 30,
     1999 and 1998, is approximately $760,000. At June 30, 1999, the cash
     surrender value net of accrued interest was approximately $209,300.

                                       41

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Medical Benefit Plan
     --------------------

     For the fiscal years ended June 30, 1999 and 1998, the Company had a policy
     of reimbursing employees for medical expenses incurred but not covered by
     the Company's paid medical insurance plan. Expenses reimbursed for fiscal
     1999 and fiscal 1998 were $5,400 and $12,500, respectively.


Note 4 MAJOR CUSTOMERS

     The Company derived in excess of 10% of its revenue from various sources
     (oil and gas sales and mineral royalties) as follows:


                                                The Company
                                              ----------------
                                              A       B     C
                                             ---     ---   ---
         Year ended:

           June 30, 1999                      87%    -      -
           June 30, 1998                      60%    11%    18%


                                       42

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 NOTES PAYABLE

     The Company owes the following debt:

                                                               June 30,
                                                         1999          1998
                                                      --------------------------
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-     $  210,437

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.                                              59,487       101,456

Note payable to auto dealership, interest
at 1.90% per annum, monthly principal and
interest payments of $879, due July 2000,
collateralized by new vehicle.                            10,336        20,672

Note payable to third party for the purchase
of producing oil and gas properties. Interest at
5.475% per annum. Principalpayments of $68,875
are due in January 2000 and January 2001.
There is no collateral for this note.                    137,750          -0-
                                                        --------      --------

                                                         207,573       332,565

         Less current portion                            126,570        52,205
                                                       ---------      --------

                                                       $  81,003      $280,360
                                                       =========      ========



                                       43

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Aggregate maturities of long term debt at June 30, 1999 are as follows:

         Year ending June 30,

         2000                       $ 126,570
         2001                          81,003
         2002                            -
         2003                            -
                                    ---------

                                    $ 207,573
                                    =========

     The weighted average interest rate on short term borrowings outstanding at
     June 30, 1999 was 7.2%.


Note 6 STOCKHOLDERS' EQUITY

     Common Stock
     ------------

     On November 1, 1997, the Company granted 40,000 shares to directors. Also,
     on November 1, 1997, the Company granted 300,000 shares of common stock to
     the Company's vice president at a value of $.14 per share. The Company has
     the right to repurchase 200,000 shares of the vice president's common stock
     on or before December 31, 2000 if the officer is not employed by the
     Company on April 15, 2000. The Company has the right to repurchase 100,000
     shares of its common stock on or before December 31, 2001 if the officer is
     not employed by the Company on April 15, 2001. The repurchase price is $.01
     per common share. Accordingly, the Company has deferred $28,000 in
     compensation expense to the officer until the 200,000 common shares have
     been earned by the vice president.

     In July 1998, the Company acquired a 100% working interest in two gas
     properties for $275,000 in cash and 275,000 shares of the Company's common
     stock valued at $1.00 per share. Simultaneously with the acquisition, the
     Company sold a 79% working interest share in the properties for $477,950 in
     cash.

     Stock Options
     -------------

     On November 1, 1997, the Company granted stock options to purchase 50,000
     shares each to two officers and 20,000 shares each to two corporate
     directors at $.20 per share. In addition, stock options for another 420,000
     shares were granted but were not valued because the exercise price
     exceeded the market price on the measurement date.



                                       44

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     On February 2, 1998, the Company granted options to purchase 25,000 shares
     to an employee and 25,000 shares to a consultant at $.20 per share. In
     addition, stock options for another 150,000 shares were granted but were
     not valued because the exercise price exceeded the market price at the
     measurement date.

     As of June 30, 1998, the Company had an aggregate of 760,000 common shares
     reserved for issuance under its equity plans. These plans provide for the
     issuance of common shares pursuant to stock option exercises, restricted
     stock awards and other equity based awards.

     Stock options were granted which can be exercised over a period of four
     years in equal installments with exercisable prices ranging from $.20 per
     share in the first year to $.32 per share in the fourth year.

     Restricted stock option awards of the Company's common stock are made
     pursuant to its equity plans at a purchase price ranging from $.20 to $.32
     per common share. Unearned compensation, which is determined as the
     difference between the exercise price and the fair market value of the
     Company's stock discounted 70% on the date the option becomes exercisable,
     is charged to expense at that date. A total of 760,000 shares of restricted
     stock with a weighted average grant date value of $.12 per share using the
     Black-Scholes option pricing model were awarded in fiscal 1998. No
     restricted shares were awarded in fiscal 1999. Total compensation expense
     recognized in the statement of operations for restricted stock awards was
     $-0- during 1999 and $6,000 for 1998.


                                       45

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following information summarizes information with respect to options
     granted under the Company's equity plans:

                                                         Weighted Average
                                       Number of         Exercise Price of
                                        Shares           Shares Under Plans
                                       ---------         ------------------
         Outstanding
          June 30, 1998                760,000                $  .26

         Granted                         -0-                     -0-

         Exercised                       -0-                     -0-

         Forfeited or
          expensed                       -0-                     -0-
                                       -------                -------
         Outstanding
          June 30, 1999                760,000                $  .26
                                       =======                ======


     The following table summarizes information concerning outstanding and
     exercisable options as of June 30, 1999:
<TABLE>
<CAPTION>


                                         Outstanding                                  Exercisable
                           ---------------------------------------------       ---------------------------
                                            (1)
                                            Weighted
                                            Average          Weighted                             Weighted
                                            Remaining        Average                              Average
         Exercise           Number          Contractual      Exercisable       Number             Exercise
          Price            Outstanding      Life In Years    Price             Exercisable        Price
          -----            -----------      -------------    -----             -----------        -----

          <S>              <C>               <C>              <C>              <C>                <C>
         $.20              190,000          01/01/2002         $.20             190,000            $.20

          .24              190,000          01/01/2002          .24             190,000             .24

          .28              190,000          01/01/2002          .28              90,000             .28

          .32              190,000          01/01/2002          .32              90,000             .32
                           -------                                              -------

                           760,000                                              560,000
                           =======                                              =======
</TABLE>


     (1)  The term of the option will be the earlier of 01/01/2002 or the date
          the optionee is no longer an employee of the Company.

     The fair value of each option grant, as opposed to its exercisable price,
     is estimated on the date of grant using the Black-Scholes option-pricing
     model with the following weighted average assumptions in 1998: no dividend
     yield, expected volatility of 56.65% to 58.01%, risk free interest rates of
     8.5% and expected lives of 4 years.

                                       46

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The Company accounts for the two stock option plans under APB Opinion No.
     25, under which $28,400 in compensation cost was recognized in 1998. Had
     compensation cost for these plans been determined consistent with SFAS No.
     123, "Accounting for Stock-Based Compensation," the Company's net income
     and earnings per share would have been reduced to the following pro forma
     accounts:

                                                    1999             1998
                                                  -------          ------

            Net Income:       As Reported         330,250          110,538
                              Pro Forma           330,250           60,872
            Basic EPS:        As Reported             .06              .02
                              Pro Forma               .06              .01
            Diluted EPS:      As Reported             .06              .02
                              Pro Forma               .06              .01


Note 7 INCOME TAXES

     There is no current or deferred tax expense for the years ended June 30,
     1999 and 1998. In 1998, the Company had a net loss for income tax purposes.
     During 1999, the Company used $133,576 in net operating loss carryforwards
     to offset fiscal June 30, 1999 taxable income. At June 30, 1999 and 1998,
     approximately $139,000 and $386,000, respectively, of net operating loss
     carryforwards expired. The benefits of timing differences have not been
     previously recorded.

     During 1999, the Company reduced the valuation allowance related to the
     remaining net assets by $98,846 and increased the valuation allowance by
     $40,513 during 1998. The reduction reflects the Company's expectation that
     it is more likely than not that it will generate future taxable income to
     utilize this amount of net deferred tax assets.

     The deferred tax consequences of temporary differences in reporting items
     for financial statement and income tax purposes are recognized, if
     appropriate. Realization of future tax benefits related to the deferred tax
     assets is dependent on many factors, including the Company's ability to
     generate taxable income within the net operating loss carryforward period.
     Management has considered these factors in reaching its conclusion as to
     the valuation allowance for financial reporting purposes.


                                       47

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The income tax effect of temporary differences comprising the deferred tax
     assets and deferred tax liabilities on the accompanying balance sheet is
     the result of the following:

         Deferred tax assets:                      1999               1998
                                                ----------         ----------

           General business credit              $   23,325         $   23,325
           Federal tax loss
             carryforwards                       1,110,521          1,222,806
           Valuation allowance                  (1,103,692)        (1,202,538)
                                                ----------         ----------

                                                    30,154             43,593
                                                ----------         ----------

         Deferred tax liabilities:
           Property, plant and
             equipment                              30,154             43,593
                                                ----------         ----------
                                                $    -0-           $    -0-
                                                ==========         ==========


     A reconciliation between the statutory federal income tax rate (34%) and
     the effective rate of income tax expense for the two years ended June 30 is
     as follows:

                                                   1999              1998
                                                ----------         --------
           Statutory federal income
             tax rate                              (34%)               (34%)

           State tax, net of federal
             benefit                                 -                  -

           Increase in net operating
             loss carryforwards                     34%                 34%
                                                ----------         ---------

           Effective rate                           -0-%                -0-%
                                                ==========         =========

     The Company has available net operating loss carryforwards of approximately
     $3,260,000 ($508,000 expires after 6/30/99, $594,000 expires after 6/30/00,
     $14,000 expires after 6/30/01 with the balance expiring through the year
     ending 6/30/12).

     In addition, the Company has tax credit carryforwards of approximately
     $23,300 ($16,700 expires after 6/30/99, $4,900 expires after 6/30/00,
     $1,200 expires after 6/30/01 with the balance expiring after 6/30/02).



                                       48

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 8 SEGMENT INFORMATION

     The Company operates in three industry segments within the United States:
     (1) oil and gas exploration and development, (2) mineral exploration and
     development and (3) electrical generation construction.

     Identified assets by industry are those assets that are used in the
     Company's operations in each industry. Corporate assets are principally
     cash, cash surrender value of life insurance, and furniture, fixtures and
     vehicles.

     During the fourth quarter of 1998, the Company adopted Statement of
     Financial Accounting Standards No. 131, "Disclosures about Segments of an
     Enterprise and Related Information" (SFAS 131). The adoption of SFAS 131
     requires the presentation of descriptive information about reportable
     segments which is consistent with that made available to the management of
     the Company to assess performance.

     The oil and gas segment derives its revenues from the sale of oil and gas
     and prospect generation and administrative overhead fees charged to
     participants in its oil and gas ventures.

     The mining segment receives its revenues primarily from the sale of
     minerals and precious metals and from time to time from the sale of a
     mineral venture that it has originated. Currently, this segment is
     inactive. However, Aspen continues to hold a number of mining claims.

     The electrical generation construction segment will receive its revenues
     from the sale, design, construction and/or operation of gas turbine or
     other electrical generation projects. As of June 30, 1999, the Company was
     in the planning stage of this segment and no revenues have been received.

     During the year ended June 30, 1999, there were no intersegment revenues.
     The accounting policies applied by each segment are the same as those used
     by the Company in general.

     Net sales to one customer of the oil and gas segment totalled approximately
     $1,014,000 of revenues or 86.5% for the year ended June 30, 1999.


                                       49

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     There have been no differences from the last annual report in the basis of
     measuring segment profit or loss. There have been no material changes in
     the amount of assets for any operating segment since the last annual report
     except for the oil and gas segment which capitalized approximately $627,000
     for the development and acquisition of oil and gas property.

     Segment information consists of the following:
<TABLE>
<CAPTION>


                                     Oil and Gas                Mining         Power Plant        Corporate      Consolidated
                                     -----------                ------         -----------        ---------      ------------
         Revenues:

<S>        <C>                        <C>                      <C>               <C>               <C>             <C>
           1999                       $1,290,692               $  -0-           $  -0-            $  26,185       $1,316,877
           1998                          863,588                  -0-              -0-               47,236          910,824

         Income (loss) from
          operations:

           1999                       $  938,318               $(25,856)        $(83,950)         $(498,262)      $  330,250
           1998                          680,605                   -0-             -0-             (570,607)         110,538

         Identifiable assets:

           1999                       $1,138,174               $ 18,823         $   -0-           $ 626,634       $1,783,631
           1998                          790,763                 46,649             -0-             719,360        1,556,772

         Depreciation, depletion
          and valuation charged to
          identifiable assets:

           1999                       $  273,403               $   -0-          $   -0-           $  15,693       $  289,096
           1998                          107,208                   -0-              -0-              12,445          119,653

         Capital expenditures:

           1999                       $  627,046               $   -0-          $   -0-           $   7,281       $  634,327
           1998                          367,063                  4,472             -0-              27,562          399,097

</TABLE>


                                                  50

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 9 RELATED PARTY TRANSACTIONS

     At June 30, 1999 and 1998, the Company owed its officers, shareholders and
     directors $-0- and $68,750, respectively. The amounts were primarily owed
     for accrued but unpaid compensation and unreimbursed medical, travel and
     entertainment expenses.

     During the years ended June 30, 1999 and 1998, the Company provided one
     vehicle each to the Company's president and to an employee/officer. The
     Company has also paid travel, lodging and meal expenses for spouses who,
     from time to time, accompanied directors or officers when they were
     traveling or entertaining on the Company's business. The cost of these
     items to the Company totaled less than $5,000 in each of the years ended
     June 30, 1999 and 1998. Management believes that the expenditures benefited
     the Company.

     In January 1983, the Company entered into a Stock Purchase Agreement with
     the Company's president, R. V. Bailey, whereby Mr. Bailey granted the
     Company an option to purchase up to 75% of the Company's common stock owned
     by him at his death. The agreement was replaced by a Stock Purchase
     Agreement dated June 4, 1993 which requires the Company to apply 75% of any
     key man insurance proceeds it receives upon Mr. Bailey's death towards the
     purchase of up to 75% of the common shares owned by him at the time of his
     death. Mr. Bailey's estate is obligated to sell such shares to the Company.
     The purchase price of the shares acquired under the Agreement shall be the
     fair market value of the shares on the date of death. Both the Company and
     Mr. Bailey agree that the fair market value of the shares on the date of
     death may not necessarily be the market price of the stock on the date of
     death as quoted on the OTC Bulletin Board, or as reported by another NASDAQ
     quotation service or any exchange on which the Company's common stock is
     quoted. The 1993 Agreement further requires the Company to maintain one or
     more life insurance policies on Mr. Bailey's life in the amount of
     $1,000,000 for the purposes of this Agreement. Therefore, the Company may
     be required to expend up to $750,000 of the insurance proceeds to acquire
     up to 75% of the shares owned by Mr. Bailey at the time of his death.
     Premiums for this policy were $6,970 for each of the two fiscal years ended
     June 30, 1999 and 1998.

     Mr. Cohan, the Company's vice president who resides in California, provides
     the Company an office in his home at no cost to the Company. The Company
     reimburses Mr. Cohan for expenses he incurs in his home office on behalf of
     the Company, such as telephone and other general and administrative
     expenses.


                                       51

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Larry Baccari, President and 15% minority shareholder of Aspen Power
     Systems received compensation of $73,103 relating to consulting fees
     incurred in the startup of this venture.

     Royalties in the fiscal year ended June 30, 1999 were assigned to employees
     on January 1, 1999 on newly acquired leases in the Denverton Creek Prospect
     and on the Johnson and Gay Units. A value of $18,150 was assigned to the
     Johnson and Gay Unit overrides since they were assigned after the first
     production runs were received. The value assigned was based on the market
     value established by the immediate sale of 79% of the leases to unrelated
     parties. The value assigned to the Denverton Creek leases is considered
     nominal, as the assignments were made before the leases were proved. The
     overriding royalty interests in these California properties granted to its
     employees were as follows:

                                            Denverton         Johnson
                                            Creek              & Gay
                                            Leases             Units
                                            ----------        --------

         R. V. Bailey                       1.27008%          1.26000%

         Robert A. Cohan                    1.27008%          1.26000%

         Judith L. Shelton                  0.48384%          0.48000%


                                       52

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     R. V. Bailey, President and director of the Company, Robert A. Cohan, Vice
     President and director of the Company, and Ray K. Davis, consultant and
     officer of the Company, each have working and royalty interests in certain
     of the California oil and gas properties operated by the Company. The
     related parties paid for their proportionate share of all costs to acquire,
     develop and operate these properties on the same terms as other
     unaffiliated participants. As of June 30, 1999, working interests of the
     Company and its related parties in certain producing California properties
     are set forth below:


                                        ASPEN          R. V.   R. A.    R. K.
       WELL                STATUS     EXPLORATION     BAILEY   COHAN   DAVIS
       ----                ------     -----------     ------   -----   -----

       ARCO 36X-10          PROD        12.00%         1.20%      -%    5.40%
       ARCO 46X-10          PROD        12.00          1.20       -     5.40
       BRANDT 16X-27        PROD        18.00          1.80       -     8.10
       BRANDT 26X-27        PROD        13.43          1.80     1.00    4.60
       ELEKTRA 1            PROD         7.56           .72      .72    1.80
       EMIGH 34-1           PROD        23.55             -       -     1.00
       EMIGH 2-1            PROD        23.55             -       -     1.00
       EMIGH 35-1           PROD        23.80             -       -     1.00
       EMIGH 35-2           PROD        27.55             -       -     1.00
       GAY UNIT             PROD        21.00          2.00     2.00    5.00
       GREY WOLF 1          PROD        18.00          2.00     2.50    2.00
       JOHNSON UNIT         PROD        21.00          2.00     2.00    5.00
       SANBORN 3-3          PROD          .85             -       -       -


     See Note 12 for additional related party disclosure.



                                       53

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 CONCENTRATION OF CREDIT RISK

     Financial instruments which potentially subject the Company to
     concentrations of credit risk consist principally of cash and cash
     equivalents and accounts receivable. While the Company has approximately
     $235,600 in excess of the FDIC $100,000 limit at one bank, the Company
     places its cash and cash equivalents with high quality financial
     institutions in order to limit credit risk. Concentrations of credit risk
     with respect to accounts receivable are limited since relatively small
     amounts are due from each account, and the accounts are distributed across
     unrelated businesses and individuals, with the exception of one major gas
     purchaser, who normally settles within 25 days of the previous month's gas
     purchases. The Company believes its exposure to credit risk is minimal.


Note 11 OIL AND GAS ACTIVITIES

     Capitalized costs
     -----------------

     Capitalized costs associated with oil and gas producing activities are as
     follows:

                                                         June 30,
                                               -----------------------------
                                                  1999               1998
                                               ----------         ----------

           Proved properties                   $2,309,566         $1,682,521
                                               ----------         ----------

           Accumulated depreciation,
             depletion and
             amortization                        (998,586)          (725,183)

           Valuation allowance                   (281,719)          (281,719)
                                               -----------        -----------

                                               (1,280,305)        (1,006,902)
                                               -----------        -----------

           Net capitalized costs               $1,029,261         $  675,619
                                               ===========        ==========




                                       54

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Results of operations
     ---------------------

     Results of operations for oil and gas producing activities are as follows:

                                                      Year ended June 30,
                                                  -----------------------------
                                                     1999               1998
                                                  ----------          ---------
         Revenues*                                $1,290,692          $ 863,588
         Production costs                            (78,971)           (75,775)
         Depreciation and depletion                 (273,403)          (107,208)
                                                  ----------          ---------

         Results of operations
           (excluding corporate overhead)         $  938,318          $ 680,605
                                                  ==========          =========


     *  Includes oil and gas related fees and equipment rentals.

     Fees charged by the Company to operate the properties totaled approximately
     $9,891 per month in 1999 and $10,347 per month in 1998. In November 1996,
     the Company sold all of its oil and gas interests outside of California for
     $100,000 to the Company's consulting accountant, who is an officer and
     shareholder. No gain or loss was recognized on the transaction and the
     proceeds were used to adjust the full cost pool. The sale price was for a
     discount of approximately 30% of the future net cash flows related to those
     properties.

     Prospect generation fees received from outside investors in wells drilled
     during fiscal 1999 and 1998 amounted to $12,900 and $146,500, respectively.
     These amounts were charged against the full cost pool.

     Unaudited oil and gas reserve quantities
     ----------------------------------------

     The following unaudited reserve estimates presented as of June 30, 1999 and
     1998 were prepared by an independent petroleum engineer. There are many
     uncertainties inherent in estimating proved reserve quantities and in
     projecting future production rates and the timing of development
     expenditures. In addition, reserve estimates of new discoveries that have
     little production history are more imprecise than those of properties with
     more production history. Accordingly, these estimates are expected to
     change as future information becomes available.

     Proved oil and gas reserves are the estimated quantities of crude oil,
     condensate, natural gas and natural gas liquids which geological and
     engineering data demonstrate with reasonable certainty to be recoverable in
     future years from known reservoirs under existing economic and operating
     conditions.

                                       55

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     Proved developed oil and gas reserves are those reserves expected to be
     recovered through existing wells with existing equipment and operating
     methods.

     Unaudited net quantities of proved and proved developed reserves of crude
     oil (including condensate) and natural gas (all located within the United
     States) are as follows:

     Changes in proved reserves
     --------------------------
                                                       (Bbls)          (MCF)
                                                       ------          -----
                                                          (in thousands)

         Estimated quantity, June 30, 1997              28             1,631

           Revisions of previous estimates               5              (116)
           Discoveries                                   3               487
           Production                                   (7)             (260)
                                                      -----            ------

         Estimated quantity, June 30, 1998              29             1,742

           Revisions of previous estimates             ( 3)              (25)
           Discoveries                                   1               400
           Purchase of producing properties              -               192
           Production                                  (10)             (458)
                                                      -----            ------

         Estimated quantity, June 30, 1999              17             1,851
                                                      =====            =====


                                                  Developed
         Proved reserves         Developed      Non-Producing          Total
          at year end            ---------      -------------          -----
         ---------------                        (In Thousands)

         Oil (Bbls)

           June 30, 1998             26                   3               29
           June 30, 1999             14                   3               17

         Gas (MCF)

           June 30, 1998            907                 835            1,742
           June 30, 1999            606               1,245            1,851



                                       56

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Unaudited standardized measure
     ------------------------------

     The following table presents a standardized measure of the discounted
     future net cash flows attributable to the Company's proved oil and gas
     reserves. Future cash inflows were computed by applying year-end prices of
     oil and gas to the estimated future production of proved oil and gas
     reserves. The future production and development costs represent the
     estimated future expenditures (based on current costs) to be incurred in
     developing and producing the proved reserves, assuming continuation of
     existing economic conditions. Future income tax expenses were computed by
     applying statutory income tax rates to the difference between pre-tax net
     cash flows relating to the Company's proved oil and gas reserves and the
     tax basis of proved oil and gas properties and available net operating loss
     carryforwards. Discounting the future net cash inflows at 10% is a method
     to measure the impact of the time value of money.

                                                        June 30,
                                           ---------------------------------
                                             1999                     1998
                                           --------                 --------
                                                      (in thousands)

         Future cash inflows               $  4,740                  $ 4,418
         Future production and
           development costs                   (526)                    (311)
         Future income tax
           expense                           (1,433)                  (1,396)
                                           --------                  -------

         Future net cash flows                2,781                    2,711

         10% annual discount
           for estimated timing
           of cash flows                     (1,357)                  (1,004)
         Net operating loss
           carryforward                       1,433                    1,396
                                           --------                  -------

         Standardized measure
           of discounted future
           net cash flows                  $  2,857                  $ 3,103
                                           =========                 =======





                                       57

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following presents the principal sources of the changes in the
     standardized measure of discounted future net cash flows:


                                                Years ended June 30,
                                            ------------------------------
                                              1999                 1998
                                            --------              --------
                                                   (in thousands)
     Standardized measure of
       discounted future net
       cash flows, beginning
       of year                              $  2,754              $  2,550
                                            --------              --------

     Sales and transfers of
       oil and gas produced,
       net of production
       costs                                  (1,093)                 (663)

     Net changes in prices
       and production costs
       and other                                 182                    31

     Net change due to
       discoveries                               521                   664

     Acquisition of reserves                     246                    --

     Revisions of previous
       quantity estimates                        (54)                  (98)

     Other                                        26                    15

     Accretion of discount                       275                   255
                                              ------              --------

                                                 103                   204
                                              ------              --------
     Standardized measure
       of discounted future
       cash flows, end of
       year                                   $2,857              $  2,754
                                              ======              ========


     Net changes in prices and production costs of $182,000 were the result of a
     decline in the price received for oil and gas at year end which was offset
     by a greater reduction in operating costs associated with more producing
     gas wells in 1999 than in 1998 and fewer oil wells. The revision of
     previous estimates of $54,000 was the result of assigning 1,350 fewer
     recoverable barrels of oil to the Brandt and Arco wells and decreasing the
     Emigh wells recoverable reserves by 3,400 barrels. The Arco 46X-10 well


                                       58

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     recoverable reserves were reduced by 5,036 MCF while the Emigh lease was
     reduced by 22,000 MCF. The increase of 521,000 MCF in new discoveries was
     the direct result of the Company's successful drilling of the Emigh 35-2,
     which proved up the surrounding acreage and the successful drilling of the
     Elektra 1 well.


Note 12 COMMITMENTS AND CONTINGENCIES

     At June 30, 1999 the Company was committed to the following development and
     acquisition projects in California:

     1.       Drill, complete and equip the Yerxa 2-1 well.
     2.       Drill, complete and equip the Brandt 46X-27 well.
     3.       Drill, complete and equip the Emigh 3-1 well.

     Total costs for the Yerxa 2-1 well are estimated to be $347,000 of which
     $62,807 is to be paid by the Company. As of June 30, 1999, the Company had
     received funds from one third party investor for his share of the Yerxa
     well. Aspen drilled, plugged and abandoned the Yerxa 2-1 well in September
     1999.

     Total costs for the Brandt 46X-27 well are estimated to be $573,000 of
     which $33,234 is to be paid by the Company. As of June 30, 1999, the
     Company had received no funds from third party investors for their share of
     the Brandt well. It is estimated that work on the Brandt 46X-27 well will
     begin some time in late October or November of 1999.

     Total costs for the Emigh 3-1 well are estimated to be $991,000 of which
     $194,000 is to be paid by the Company. As of June 30, 1999, the Company had
     received no funds from third party investors for their share of the Emigh
     well. It is estimated that work on the Emigh 3-1 well will begin some time
     in late October or November of 1999.

     On July 16, 1998, the Company acquired a net 21% working interest (16.17%
     net revenue interest) in two natural gas units, the Johnson and Gay Units,
     in addition to a 5.00% royalty interest in the Gay Unit, located in Tehama
     and Glenn Counties, California. The Company acquired a 100% working
     interest in the two properties from D. E. Craggs, Inc., an unaffiliated
     third party for $275,000 in cash and 275,000 shares of the Company's
     restricted common stock valued at $1.00 per share. Simultaneously with the
     acquisition, the Company sold a 79% working interest in the two prospects
     to certain unaffiliated and three affiliated purchasers for a total price
     of $477,950 ($6,050 per one percent working interest, as compared to the

                                       59

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Company's purchase price of $5,500 per one percent working interest). The
     affiliated purchasers are the Company's president, R.V. Bailey, vice
     president, Robert Cohan, and consulting accountant, Ray Davis, who acquired
     working interests of 3%, 2%, and 5%, respectively. The affiliated and
     unaffiliated parties who purchased the working interests from the Company
     paid their entire purchase price prior to the closing.

     Pursuant to the agreement with Craggs, the Company paid Craggs 25% of the
     purchase price at the closing ($68,750 cash and 68,750 common shares); and
     an additional $68,750 cash was paid, and 68,750 common shares of stock were
     issued during January of 1999. The Company is obligated to pay an
     additional 25% (plus interest on the cash from the date of closing at the
     daily rate of 0.015%) in January of 2000 and 2001.

     The Company has an employment agreement with its President which provides
     for compensation of $100,000 per year to be paid, plus reimbursement of
     travel, entertainment, and medical expenses, health insurance, and other
     benefits, including a split dollar life insurance plan (See Note 3). The
     agreement provides for a two year term which is automatically renewable for
     two additional two year terms (through November 8, 1999) at the President's
     option. The Company is only entitled to terminate this agreement upon the
     President's death, disability, or for "cause" (as defined in the
     agreement).

     The President may terminate the agreement if his duties for the Company
     change substantially from those he is currently performing, or in the event
     there is a "change of control" in the Company as defined in the agreement.
     If the President terminates the agreement for either of the foregoing
     reasons, the Company will be obligated to pay the President severance pay
     in an amount equal to the remaining amount due under the agreement, but not
     less than two years' salary. This payment must be made in a lump sum to the
     President within thirty days of his termination of the agreement.

     The Company entered into an employment agreement with Robert A. Cohan on
     April 16, 1998, which provides for the payment of $90,000 for the first
     year of employment, plus reimbursement of expenses, including health
     insurance. The Company has renewed the agreement effective April 15, 1999
     to April 15, 2002 at the rate of $95,000 per year for the year commencing
     April 15, 1999, $100,000 for the year commencing April 15, 2000 and
     $105,000 for the year commencing April 15, 2001. The Company and Mr. Cohan
     agreed to utilize a portion of Mr. Cohan's home in Bakersfield, California

                                       60

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     in which to conduct the Company's business. Mr. Cohan will not charge the
     Company any rent for the use of his home as a business office. The Company
     did agree to pay for all office supplies, communication and copy equipment
     used by Mr. Cohan in his office, as well as the monthly telephone expense
     incurred by Mr. Cohan on behalf of the Company.

Note 13 SUBSEQUENT EVENTS

     In July 1999, the Houghton 25-1 well was drilled to a depth of 4,600' and
     dually completed from two Forbes intervals for an initial estimated
     combined rate of 3,200 MCFPD. Gas sales are anticipated to commence in
     October 1999 when the pipeline hook-up is completed. The Company owns a
     7.77% working interest in the well.

     In July 1999, the Eastby 36-2 well was drilled to a depth of 4,700' and
     dually completed from the Eocene and Forbes formations. Gas sales are
     anticipated to commence in October 1999 from the Eocene formation at a rate
     of approximately 875 MCFPD. The Company owns a 7.77% working interest in
     the Eocene formation and a 7.00% working interest in the Forbes formation.

     In August 1999, the Elektra 1 well (discussed in Item 2) located in the
     Malton Black Butte Field commenced production at a rate of approximately
     2,500 - 3,000 MCFPD. This rate should be increased to 3,500 MCFPD in
     October 1999 when the well should be tied in to P.G.& E.'s 16" pipeline.

     Aspen drilled and plugged and abandoned the Yerxa 2-1 well in September
     1999. Aspen's net share of the dry hole costs was approximately $19,000
     ($26,000 - $7,000 in income for overhead fees).

Note 14 INTERIM FINANCIAL DATA

     The year end adjustment that is material to the results of the fourth
     quarter is the adjustment to depreciation, depletion and amortization as a
     result of receiving the reserve study from an independent reservoir
     engineer. The aggregate effect of this year end adjustment to the results
     of the fourth quarter was to increase depletion expense for the year from
     an estimated $107,000 based on prior years' reserve studies to an actual
     depletion expense of approximately $273,000, an increase of $166,000 or
     155%.


                                       61

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 15 OPERATING LEASE

     The Company leases office space from an unrelated party. The lease is for a
     term of 2 years and expires December 31, 1999. Rent is due monthly at $999.
     Rent expense for the years ended June 30, 1999 and 1998 were $11,798 and
     $10,369, respectively.

     Future minimum lease payments are as follows: $5,994 for fiscal year 2000.

Note 16 ASPEN POWER SYSTEMS

     During the year ended June 30, 1999, the Company established an 85% owned
     subsidiary (APS) to seek opportunities in the electrical power industry.
     Various startup costs were incurred, totaling $83,950 which have been
     expensed by the Company.

                                       62


<PAGE>


Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure
------------------------------------------------------------------------


     Holben, Boak, Cooper & Co., formerly independent accountants for Aspen,
resigned as auditor on December 3, 1997 due to the pending dissolution of the
accounting firm. No disagreements exist with any former accountant on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure.

                                    PART III


Item 9. Directors and Executive Officers of the Company
-------------------------------------------------------

     (a) Identification of Directors and Executive Officers
     ------------------------------------------------------

     As described below, the Board of Directors is divided into three classes
which, under Delaware law, must be as nearly equal in number as possible. The
members of each such class are elected for three-year terms at each successive
meeting of stockholders. Aspen has held no annual meetings since February 25,
1994. Therefore the terms of each class of director expires at the next annual
meeting of stockholders.

     The executive officers and directors of Aspen are as follows:

                                                                       Director
         Name           Age     Position               Class            Since
         ----           ---     --------               -----            -----

  R. V. Bailey          67      President,                I             1980
                                Treasurer
                                and Director

  Robert F. Sheldon     76      Director                  II            1981

  Robert A. Cohan       42      Vice President,          III            1998
                                Secretary and
                                Director

     The executive officers and directors of Aspen Power Systems are as follows:

                                                                       Director
         Name           Age     Position                   Class         Since
         ----           ---     --------                   -----         -----

  R. V. Bailey          67      Chairman,                    -            1999
                                Assistant Secretary
                                and Director

  Larry Baccari         58      President                    -            1999
                                and Director

  Ray K. Davis          57      Vice President,              -            1999
                                Secretary,
                                Treasurer and
                                Director


                                       63

<PAGE>

Item 9.  Directors and executive Officers of the Company (Continued)
-------  -----------------------------------------------------------

     All directors will be up for reelection at the next Meeting of
Shareholders.

     Executive officers are appointed annually by the Board of Directors and
hold office until their successors are duly elected and qualified. No
arrangement exists between any of the above officers and directors pursuant to
which any of those persons was elected to such office or position. None of the
directors are also directors of other companies filing reports under the
Securities Exchange Act of 1934.

     (b) Business Experience.
     ------------------------

     R. V. Bailey. R. V. Bailey obtained a Bachelor of Science degree in Geology
from the University of Wyoming in 1956. He has approximately 36 years experience
in exploration and development of mineral deposits, primarily gold, uranium,
coal, and oil and gas. His experience includes basic conception and execution of
mineral exploration projects. Mr. Bailey is a member of several professional
societies, including the Society for Mining and Exploration, the Society of
Economic Geologists and the American Association of Petroleum Geologists, and
has written a number of papers concerning mineral deposits in the United States.
He is the co-author of a 542-page text, published in 1977, concerning applied
exploration for mineral deposits. Mr. Bailey is the founder of Aspen and has
been an officer and director since its inception.

     Robert F. Sheldon. Mr. Sheldon obtained a Bachelor of Science degree in
Geological Engineering from the University of British Columbia in 1948. He
served a total of approximately 40 years at various mining companies, with his
experience covering a wide range of mineral commodities including gold, silver,
copper, uranium, lead, zinc, nickel, mercury, molybdenum and tungsten. He is a
member of the Professional Engineers of British Columbia, the Society of Mining
Engineers, the Canadian Institute of Mining and Metallurgy, and the Yukon
Chamber of Mines (where he served as an officer for four years). Mr. Sheldon
joined Aspen's Board of Directors in April 1981.

     Robert A. Cohan. Mr. Cohan obtained a Bachelor of Science degree in Geology
from the State University College at Oneonta, NY in 1979. He has approximately
20 years experience in oil and gas exploration and development, including
employment in Denver, CO with Western Geophysical, H. K. van Poollen & Assoc.,
Inc., as a Reservoir Engineer and Geologist, Universal Oil & Gas, and as a

                                       64

<PAGE>


Item 9. Directors and Executive Officers of the Company (Continued)
-------------------------------------------------------------------

principal of Rio Oil Co., Denver, CO. Mr. Cohan served as Manager, Oil & Gas
Operations, Aspen Exploration Corporation, Denver, CO from 1989 to 1992. He was
employed as Vice President, Oil & Gas Operations, for Tri-Valley Oil & Gas Co.,
Bakersfield, CA. from 1992 to April 1995, at which time Mr. Cohan rejoined Aspen
Exploration Corporation as Vice President, West Coast U.S. Petroleum Exploration
& Production, opening an office in Bakersfield, CA. He is a member of the
Society of Petroleum Engineers (SPE) and the American Association of Petroleum
Geologists (AAPG).

     Larry Baccari. Larry Baccari has 34 years experience working in the
electric power industry, following graduation from the University of Wyoming in
1964. He obtained degrees in Civil and Electrical Engineering, and is registered
as a professional engineer in both disciplines in a number of states. From 1964
to 1985 he worked as a consultant to electric utilities in the western United
States, including Alaska. In 1981 he formed the consulting business of Baccari &
Associates. In response to changes associated with deregulation of the electric
power industry, Baccari & Associates expanded their activities in the areas of
project development and construction management, beginning in 1985. In 1999 he
joined in the formation of Aspen Power Systems to focus on project development
and construction of gas fired combustion turbine electric generation plants. He
has been responsible for construction management, utility interface, and
commissioning of transmission, substations and generation plant on a number of
projects. He has had experience on projects with very difficult logistic and
schedule problems. He is a member of The Institute of Electrical and Electronics
Engineers (IEEE) and the American Society of Civil Engineers (ASCE).

     Ray K. Davis. Ray K. Davis has been associated with Aspen Exploration
Corporation since 1992 and Aspen Power Systems Corp. since its inception in the
capacity of Financial Consultant and provides the company with administrative
services, accounting, SEC reporting and tax support. Mr. Davis is a 1967
graduate of the University of Denver, Denver, Colorado with a Bachelor of
Science Degree in Business Administration. He has 30 years experience in the oil
and gas and mining industries, with emphasis on asset acquisition, mergers and
project due diligence. Merger and acquisition negotiations as well as due
diligence projects have taken him to Russia, Alaska, Mexico and Europe. Mr.
Davis has been a consultant to the oil and gas industry since November, 1984.
From May of 1977 through October, 1984 he was Treasurer of Macey and Mershon
Oil, Inc. responsible for financial planning and operations of the company and
its owners. From June, 1973 to April, 1977 he was a partner in the firm of


                                       65

<PAGE>


Item 9. Directors and Executive Officers of the Company (Continued)
-------------------------------------------------------------------


Ballard-Davis Associates which provided financial and accounting services to
small and newly formed companies in the oil and gas industry. From November,
1969 to March, 1973 Mr. Davis was Controller of the Baumgartner Companies with
oil, gas, mining and drilling operations in the United States and Canada. From
November, 1968 to November, 1969 he was Assistant Controller of The Colorado
Corporation, a wholly owned subsidiary of King Resources, Inc. Mr. Davis is a
past officer and director of the Colorado Society of Petroleum Accountants. For
three years he taught oil and gas accounting at Arapahoe Community College.

     (c) Family Relationships.
     -------------------------

     There are no family relationships among any of Aspen's officers and
directors.


     (d) Involvement in Certain Legal Proceedings.
     ---------------------------------------------

          (d)(1)       During the past five years there have been no
                       filings of petitions under the federal bankruptcy
                       laws, or any state insolvency laws, by or against
                       any partnership in which any director or executive
                       officer of Aspen was a general partner or executive
                       officer at the time or within two years before the
                       time of such a filing.

          (d)(2)       No director or executive officer of Aspen has,
                       during the past five years, been convicted in a
                       criminal proceeding or is the named subject of a
                       pending criminal proceeding (excluding traffic
                       violations and other minor offenses);

          (d)(3)       During the past five years no director or executive
                       officer of Aspen has been the subject of any order,
                       judgment or decree, not subsequently reversed,
                       suspended or vacated by any court of competent
                       jurisdiction permanently or temporarily enjoining
                       him from or otherwise limiting his involvement in
                       any type of business, securities or banking
                       activities.

          (d)(4)       During the past five years no director or executive
                       officer of Aspen has been found by a court of
                       competent jurisdiction in a civil action, nor by
                       the Securities and Exchange Commission nor the
                       Commodity Futures Trading Commission to have
                       violated any federal or state securities or
                       commodities law, which judgment or finding has not
                       been subsequently reversed, suspended or vacated.

                                       66

<PAGE>



     (e) Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") requires Aspen's directors
and officers and any persons who own more than ten percent of Aspen's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Directors, officers and greater
than ten-percent shareholders are required by SEC regulation to furnish Aspen
with copies of all Section 16(a) reports files.

     Based solely on its review of the copies of the reports it received from
persons required to file, Aspen believes that during the period from July 1,
1995 through September 17, 1999, all filing requirements applicable to its
officers, directors and greater- than-ten-percent shareholders were complied
with.

Item 10. Executive Compensation

     (a) and (b) Summary Compensation Table.

     The following tables set forth information regarding compensation paid to
the Chief Executive Officer and Vice President of Petroleum Exploration &
Production of Aspen during the fiscal year ended June 30, 1999 and previous
years:
<TABLE>
<CAPTION>


                  Annual Compensation ($$)           Long Term Compensation
                  ------------------------           ----------------------
                                                        Awards     Payouts
                                                     ---------------------
(a)                (b)      (c)        (d)      (e)      (f)        (g)           (h)             (i)
                                                      Restricted
Name and                                                Stock     Options         LTIP           Other
Position          Year     Salary     Bonus     Other   Awards     & SARs        Payouts       Compensation*
--------          ----     ------     -----     -----   ------     ------        -------       -------------
                            ($$)       ($$)     ($$)     ($$)       (##)          ($$)              ($$)

<S>               <C>     <C>           <C>     <C>        <C>          <C>         <C>           <C>
R. V. Bailey,     1999    100,000       0       9,331      0            0           0             19,007
as President      1998    118,749       0      24,801      0      200,000           0             12,528
and Chief         1997    125,000       0      38,501      0            0           0             14,464
Executive
Officer


                  Annual Compensation ($$)           Long Term Compensation
                  ------------------------           ----------------------
                                                        Awards     Payouts
                                                     ---------------------
(a)                (b)      (c)      (d)     (e)      (f)      (g)       (h)            (i)
                                                    Restricted
Name and                                            Stock    Options     LTIP          Other
Position          Year     Salary   Bonus   Other   Awards   & SARs     Payouts     Compensation*
--------          ----     ------   -----   -----   ------   ------     -------     -------------
                            ($$)    ($$)    ($$)     ($$)     (##)       ($$)          ($$)

R. A. Cohan,      1999     91,042     0      0           0        0        0           9,069
as Vice           1998     86,042     0      0      42,000  200,000        0           1,400
President of      1997     81,042     0      0       3,000        0        0           5,464
Oil & Gas
Exploration
</TABLE>


*         Aspen has an  "Amended  Royalty and  Working  Interest  Plan" by which
          Aspen  is able to  assign  overriding  royalty  interests  or  working
          interests  in oil and gas  properties  or in  mineral  properties,  at
          Aspen's  discretion.  This  plan is  intended  to  provide  additional
          compensation  to  Aspen's  personnel   involved  in  the  acquisition,
          exploration   and  development  of  Aspen's  oil  or  gas  or  mineral
          prospects.

                                       67

<PAGE>


Item 10. Executive Compensation - Continued
-------------------------------------------

     Aspen adopted a medical insurance plan for its employees and those of its
subsidiaries, and a life insurance plan for its president and chief executive
officer, R. V. Bailey. This life insurance plan includes the split-dollar
insurance plan for the benefit of Mr. Bailey, which is described in Note 3 to
the financial statements. $33,306 is the taxable portion for 1999, representing
the executive compensation factor for this policy, and is considered
compensation to Mr. Bailey. $9,331 was paid to Mr. Bailey to reimburse the tax
effect of the executive compensation factor.

     Aspen adopted a Profit-Sharing 401(k) Plan which took effect July 1, 1990.
All employees are immediately eligible to participate in this Plan. Aspen's
contribution (if any) to this plan is determined by the Board of Directors each
year. At June 30, 1998, Aspen contributed $-0- to the plan for the Plan Year
1998. At June 30, 1999, Aspen paid $-0- to the plan for the Plan Year 1999. When
amounts are contributed to Mr. Bailey's and Mr. Cohan's accounts (which amounts
are fully vested), these amounts are also included in column (e) of the tables,
above.

     Aspen has furnished a vehicle to Mr. Bailey, and the compensation allocable
to this vehicle, plus amounts paid for various travel and entertainment paid on
behalf of Mr. Bailey and Mr. Bailey's wife when she accompanied him for business
purposes, are also included in column (i) of the table. Aspen also purchased a
vehicle for Mr. Cohan. This vehicle is used substantially for business purposes;
therefore, no vehicle costs were charged to Mr. Cohan.

     Aspen has agreed to reimburse its officers and directors for out-of-pocket
costs and expenses incurred on behalf of Aspen.

     Royalties in the fiscal year ended June 30, 1999 were assigned to employees
on January 1, 1999 on newly acquired leases in the Denverton Creek Prospect and
on the Johnson and Gay Units. A value of $18,150 was assigned to the Johnson and
Gay Unit overrides since they were assigned after the first production runs were
received. The value assigned was based on the market value established by the
immediate sale of 79% of the leases to unrelated parties. The value assigned to
the Denverton Creek leases is considered nominal, as the assignments were made


                                       68

<PAGE>


Item 10.  Executive Compensation - Continued
--------  ----------------------------------


before the leases were proved. The overriding royalty interests in these
California properties granted to its employees were as follows:

                                  Denverton                 Johnson
                                  Creek                      & Gay
                                  Leases                     Units
                                  ------                     -----

          R. V. Bailey            1.27008%                  1.26000%

          Robert A. Cohan         1.27008%                  1.26000%

          Judith L. Shelton       0.48384%                  0.48000%

     Finally, Aspen has entered into employment agreements with Mr. Bailey and
Mr. Cohan, as described in Item 10(g), below.

     (c) and (d) Option/SAR Granted During the Last Fiscal Year.

     Aspen does not have a stock option or stock appreciation rights plan.
Therefore this section is not applicable.

     (e) Long Term Incentive Plans/Awards in Last Fiscal Year

     Aspen has no long-term incentive plans and consequently has made no such
awards.

     (f) Compensation of Directors

          (1) Standard Arrangements.
          --------------------------

     There was one board of directors meeting in fiscal 1999 attended by all
directors.

     On February 11, 1997 (effective December 13, 1996) Aspen issued 20,000
shares of common stock each to its outside directors, Lawton L. Clark and Robert
F. Sheldon.

     On March 5, 1998 Aspen issued 20,000 shares of common stock each to its
outside directors, Lawton L. Clark and Robert F. Sheldon.

          (2) Other Arrangements.
          -----------------------

     There are no other  arrangements  for the compensation of directors of
Aspen.



                                       69

<PAGE>


Item 10.  Executive Compensation - Continued
--------  ----------------------------------

     (g) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.

     Aspen has entered into an employment agreement with Mr. Bailey which
provides for the payment of $100,000 per year to him, reimbursement of expenses,
health insurance, and other benefits (including the split-dollar life insurance
plan). The agreement provides for a two-year term which is automatically
renewable for two additional two-year terms (through November 1999) at Mr.
Bailey's option. Aspen is not entitled to terminate this agreement except upon
Mr. Bailey's death, disability, or for cause (as defined in the agreement). Mr.
Bailey may terminate the agreement if Aspen changes his duties substantially
from those he is currently performing, or if there is a "change of control" of
Aspen. If Mr. Bailey terminates the Agreement for either of the foregoing
reasons, Aspen will be obligated to pay Mr. Bailey severance pay equal to the
amount remaining due under the agreement, but not less than two years' salary.
That payment must be made in a lump sum within thirty days of Mr. Bailey's
termination of the agreement.

     In January 1983, Aspen entered into a Stock Purchase Agreement with Mr.
Bailey whereby Mr. Bailey granted Aspen an option to purchase up to 75% of
Aspen's common stock owned by him at his death. This agreement was replaced by a
Stock Purchase Agreement dated June 4, 1993. The 1993 agreement requires that
Aspen apply 75% of any key man insurance proceeds it receives upon Mr. Bailey's
death towards the purchase of up to 75% of the common shares owned by him at the
time of his death, and Mr. Bailey's estate is obligated to sell such shares to
Aspen. The purchase price of the shares acquired under the 1993 Agreement shall
be the fair market value of the shares on the date of death. Both Aspen and Mr.
Bailey agree that the fair market value of the shares on the date of death may
not necessarily be the market price of the stock on the date of death as quoted
on the OTC Bulletin Board, or as reported by any exchange. The 1993 Agreement
further requires that Aspen maintain one or more life insurance policies on Mr.
Bailey's life in the amount of $1,000,000 for the purposes of this Agreement.

     On November 1, 1997, Aspen granted Stock Options expiring January 1, 2002,
to Mr. Bailey to purchase 200,000 shares of Aspen's restricted common stock. The
options are immediately exercisable in full as follows: 25% of such options at
20(cent) per share, 25% of such options at 24(cent) per share, 25% of such
options at 28(cent) per share, and 25% of such options at 32(cent) per share.

     Aspen entered into an employment agreement with Robert A. Cohan on April
16, 1998, which provides for the payment of $90,000 for the first year of

                                       70

<PAGE>


Item 10.  Executive Compensation - Continued
--------  ----------------------------------

employment, plus reimbursement of expenses, including health insurance. The
Company has renewed the agreement effective April 15, 1999 to April 15, 2002 at
the rate of $95,000 per year for the year commencing April 15, 1999, $100,000
for the year commencing April 15, 2000 and $105,000 for the year commencing
April 15, 2001. (See Item 10 (g) below.) Aspen and Mr. Cohan agreed to utilize a
portion of Mr. Cohan's home in Bakersfield, California in which to conduct
Aspen's business. Mr. Cohan will not charge Aspen any rent for the use of his
home as a business office. Aspen did agree to pay for all office supplies,
communication and copy equipment used by Mr. Cohan in his office, as well as the
monthly telephone expense incurred by Mr. Cohan on behalf of Aspen.

     In conjunction with Mr. Cohan's employment agreement, on November 1, 1997,
Aspen granted 300,000 shares of common stock at a value of $.14 per share. Aspen
has the right to repurchase 200,000 shares of its common stock issued on or
before December 31, 2000, if the officer is not employed by Aspen on April 15,
2000. Aspen has the right to repurchase 100,000 shares of its common stock on or
before December 31, 2001, if the officer is not employed by Aspen on April 15,
2001. The repurchase price is $.01 per common share. Accordingly, Aspen has
deferred recognizing as compensation to Mr. Cohan 200,000 of the 300,000 common
shares issued.

     On November 1, 1997, Aspen granted Stock Options expiring January 1, 2002,
to Mr. Cohan to purchase 200,000 shares of Aspen's restricted common stock. The
options are exercisable as follows: 25% of such options on November 1, 1997 at
20(cent) per share, 25% of such options on October 15, 1998 at 24(cent) per
share, 25% of such options on October 15, 1999 at 28(cent) per share, and 25% of
such options on October 15, 2000 at 32(cent) per share.

     See also Item 12(a) Transactions with Management and Others.

     (h) Report on Repricing of Options/SARs.

     No options or stock appreciation rights are outstanding or were repriced
during the fiscal year ended June 30, 1999 or subsequently.


                                       71

<PAGE>



Item 11. Security Ownership of Certain Beneficial Owners & Management
---------------------------------------------------------------------

          (a)-(b) The  following  table sets forth as of September  17, 1999 the
number and percentage of Aspen's shares of $.005 par value common stock owned of
record and  beneficially  owned by each person  owning more than five percent of
such common stock, and by each Director,  and by all Officers and Directors as a
group.


  Individual              Ownership            # Shares                 Percent
  ----------              ---------            --------                 -------

R. V. Bailey              Record &              1,187,272(1)             22.87%
                          Beneficial

Robert A. Cohan           Record                  625,000(2)             12.04%

Robert F. Sheldon         Record                  163,160(3)              3.14%


All Officers and          Both Record           1,975,432               38.05%
Directors as a            & Beneficial
Group (3 persons)

(1)  This number includes 970,952 shares of stock held of record in the name
     of R. V. Bailey and 16,320 shares of record in the name of Mieko Nakamura
     Bailey, his wife. In addition, all shares held in the name of R. V. Bailey
     are subject to an obligation of Aspen to purchase up to 75% of the common
     shares of Aspen owned by Bailey at the time of his death. This obligation
     expires 120 days from the date of Bailey's death. In addition, the number
     of shares owned includes 100,000 shares of common stock granted in a
     property exchange and stock options granted for 200,000 shares of common
     stock on November 1, 1997.

(2)  This number includes 300,000 shares of common stock granted and stock
     options granted for 200,000 shares of common stock on November 1, 1997,
     some of which are not currently exercisable. An agreement for reacquisition
     of shares granted has been negotiated between Aspen and Mr. Cohan.

(3)  This number includes 20,000 shares of common stock granted December 13,
     1996, 20,000 shares of common stock granted November 1, 1997 and stock
     options granted for 80,000 shares of common stock on November 1, 1997.




                                       72

<PAGE>



Item 11.  Security Ownership of Certain Beneficial Owners & Management
          - Continued
-----------------------------------------------------------------------

     (c) Changes in Control.
     -----------------------

     Except with respect to Aspen's option to purchase R. V. Bailey's shares
upon his death, and the employment agreement between Aspen and R. V. Bailey,
Aspen knows of no arrangements which may at a subsequent date result in a change
of control of Aspen. Aspen has no knowledge of any change in control since the
beginning of its last fiscal year.

                                       73

<PAGE>



Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------

     (a) Transactions with Management and Others.
     --------------------------------------------

     Some of the Directors and Officers of Aspen are engaged in various aspects
of oil and gas and mineral exploration and development for their own account.
Aspen has no policy prohibiting, nor does its Certificate of Incorporation
prohibit, transactions between Aspen and its Officers and Directors. Aspen plans
to enter into cost-sharing arrangements with respect to the drilling of its oil
and gas properties. Directors and Officers may participate, from time to time,
in these arrangements and such transactions may be on a non-promoted basis
(actual costs), but must be approved by a majority of the disinterested
directors of Aspen's Board.

     On April 1, 1996, Aspen entered into an agreement with R. V. Bailey, the
president and chairman of the board of directors of Aspen, for a venture to
explore and develop the Kaycee prospect, located on the western margin of the
Powder River Basin in Wyoming. Aspen is the designated Operator for the prospect
and has spent approximately $130,000 on the prospect to date. Over a period of
more than 10 years prior to his association with Aspen, Bailey had acquired
geological and engineering data relating to the prospect area, including maps
and drill hole logs for more than 2,000 drill holes. An independent geological
consultant has estimated more than 1.7 million pounds of U3O8 in resources for
this prospect, but substantial additional drilling and other data gathering will
be required in order to evaluate the prospect potential. Aspen has agreed to
acquire 100% of Bailey's interest in the prospect, and all of the data, for
100,000 shares of Aspen's common stock.

     On March 1, 1998, Aspen entered into an agreement with a privately-held
Canadian mining company whereby the Canadian company acquired data from Aspen
related to two uranium prospects in Wyoming. Geological and engineering data
suggest that uranium deposits amenable to in situ mining methods may exist
within the two defined prospect areas. Under the agreement, Aspen was paid US
$125,000 in 1998 and Aspen was issued 2,000,000 shares of common stock of a new
Canadian company based in Toronto. Per the terms of the agreement, Aspen was due
an additional US $125,000 to be paid prior to December 31, 1998. As of this
filing, the privately-held Canadian company is in default to Aspen in the amount
of US $125,000. Discussions are underway to attempt to resolve this issue. The
Canadian company is to provide certain funding for land acquisition and
exploration work on the two prospects. There is no assurance that work on the
two prospects will result in discovery or definition of minable uranium
deposits.


                                       74

<PAGE>



Item 12. Certain Relationships and Related Transactions (Continued)
-------------------------------------------------------------------

     R. V. Bailey, President and director of Aspen, Robert A. Cohan, Vice
President and director of Aspen, and Ray K. Davis, consultant and officer of
Aspen, each have working and royalty interests in certain of the California oil
and gas properties operated by Aspen. The affiliates paid for their
proportionate share of all costs to acquire, develop and operate these
properties. As of June 30, 1999, working interests of the Company and its
affiliates in certain producing California properties are set forth below:

                                   ASPEN         R. V.     R. A.        R. K.
  WELL                 STATUS    EXPLORATION    BAILEY     COHAN        DAVIS
  ----                 ------    -----------    ------     -----        -----

  ARCO 36X-10           PROD       12.00%        1.20%       -%         5.40%
  ARCO 46X-10           PROD       12.00         1.20        -          5.40
  BRANDT 16X-27         PROD       18.00         1.80        -          8.10
  BRANDT 26X-27         PROD       13.43         1.80       1.00        4.60
  ELEKTRA 1             PROD        7.56          .72        .72        1.80
  EMIGH 34-1            PROD       23.55           -         -          1.00
  EMIGH 2-1             PROD       23.55           -         -          1.00
  EMIGH 35-1            PROD       23.80           -         -          1.00
  EMIGH 35-2            PROD       27.55           -         -          1.00
  GAY UNIT              PROD       21.00         2.00       2.00        5.00
  GREY WOLF 1           PROD       18.00         2.00       2.50        2.00
  JOHNSON UNIT          PROD       21.00         2.00       2.00        5.00
  SANBORN 3-3           PROD         .85           -         -           -


     During the 1998 fiscal year, Aspen issued 100,000 shares of its common
stock to its president, R. V. Bailey, 20,000 shares of its common stock to its
outside directors, Mr. Sheldon and Mr. Clark, and 300,000 shares of its common
stock to Mr. Cohan, its vice president.

     In 1998, Aspen borrowed $15,000 and in calendar year 1997 Aspen borrowed
$185,000 from the split-dollar life insurance policy in order to pay certain
ongoing corporate expenses. In June of 1999, Aspen repaid the $200,000 loan.

     Aspen borrowed $6,000 from R. V. Bailey on September 15, 1997 payable
January 15, 1998. This loan bears interest of 10% and was repaid on March 2,
1998.

     During fiscal 1997, Aspen entered into negotiations with Ray K. Davis, its
consulting accountant for the purchase and sale of certain producing oil and gas
properties located outside of California. Effective November 1, 1996, Aspen sold
all of its non- California properties for $100,000 to Mr. Davis. The sale price
was for a discount of approximately 30% of the future net cash flows related to
those properties.

     Aspen borrowed $130,000 from Ray K. Davis on October 15, 1997 for the
drilling and completion of the Emigh 2-1 payable over 36 months. This loan bears
interest of 11.2%.


                                       75

<PAGE>



Item 12. Certain Relationships and Related Transactions (Continued)
-------------------------------------------------------------------

     Effective January 25, 1999 Lawton L. Clark resigned from Aspen's Board of
Directors and the position of Corporate Secretary for personal reasons. Mr.
Clark had no disagreement with management.

     Effective January 25, 1999 Robert A. Cohan was appointed to Aspen's Board
of Directors and the position of Corporate Secretary to fill the vacancies
caused by Lawton L. Clark's resignation.

     In addition, during the fiscal year Aspen paid for various hospitality
functions and for travel, lodging and hospitality expenses for spouses who
occasionally accompanied directors when they were traveling on Aspen's business.
Aspen's president has also supplied Aspen with certain promotional items. The
net effect of these items has been a cost to Aspen of approximately $2,500 and
$5,000 for the fiscal year ended June 30, 1999 and 1998, respectively, and
$5,000 for the fiscal year ended June 30, 1997. Management believes that the
expenditures were to Aspen's benefit.

          Aspen  also  has  entered  into an  employment  agreement  and a Stock
Purchase  Agreement  with its  president,  as  discussed  in "Item 10 - Employee
Compensation".

     (b) Certain Business Relationships.

     None.

     (c) (1)-(5) Indebtedness of Management.

     No director, executive, officer, nominee for election as a director, any
member of the immediate family of any of the foregoing, or any corporation or
organization of which any of the foregoing persons is an executive officer,
partner or beneficial holder of ten percent or more of any class of equity
securities, or any trust or other estate in which any such person has a
substantial beneficial interest or as to which such person serves as a trustee
or in a similar capacity, was indebted to Aspen in an amount in excess of
$60,000 at any time since June 30, 1992.

     (d) Transactions with Promoters.

     Not applicable.

                                       76

<PAGE>



Item 13. Exhibits and Reports on Form 8-K
-----------------------------------------

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

Exhibit No.

3.1         Certificate of Incorporation(1)

3.2         Bylaws(1)

3.3         Bylaws - Subsidiary(1)

10.1        Royalty and Working Interest Plan(1)

10.8        Stock Purchase Agreement between R. V. Bailey and Aspen
            Exploration Corporation dated January, 1983(7)

10.11       Employment Agreement between Aspen Exploration Corp. and R. V.
            Bailey, dated November 8, 1991(8)

10.13       Split-Dollar Life Insurance Plan for R. V. Bailey(8)

10.15       Stock Purchase Agreement between Aspen Exploration Corp. and R. V.
            Bailey, dated June 1993(9)

22.1        Subsidiaries of Aspen

            Aspen Gold Mining Company, Colorado

            Aspen Recursos de Mexico, S.A. de C.V., Chihuahua, Mexico10

            Aspen Power Systems Corporation, Colorado
-----------------

(1)  Incorporated by reference from Commission File No. 2-69324.

(7)  Incorporated by reference from Annual Report on Form 10-K dated June 30,
     1991 (filed on September 27, 1991).

(8)  Incorporated by reference from Annual Report on Form 10-K dated June 30,
     1992 (filed on October 3, 1992).

(9)  Incorporated by reference from Annual Report on Form 10-KSB dated June 30,
     1993 (filed on September 27, 1993).

(10) Incorporated by reference from Annual Report on Form 10-KSB dated June 30,
     1994 (filed on September 26, 1994).

     (b) During the fiscal year ended June 30, 1994 there were no filings by
Aspen on Form 8-K.


                                       77

<PAGE>


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

                                         ASPEN EXPLORATION CORPORATION




                                         /s/  R. V. Bailey
September 17, 1999                       ---------------------------------------
                                         R. V. Bailey, President



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

          Signatures                              Date
          ----------                              ----


/s/  R. V. Bailey
---------------------------                    September 17, 1999
R. V. Bailey, Director,
Chief Executive Officer,
Principal Financial Officer


/s/ Robert F. Sheldon
---------------------------                   September 17, 1999
Robert F. Sheldon, Director


/s/ Robert A. Cohan
---------------------------                   September 17, 1999
Robert A. Cohan, Director



                                       78