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, 1996.

[   ]    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
--------------------------------------------------------------------------------
                (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   XX     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  Registrant'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 are $448,574.

At  December  4,  1996,  the  aggregate  market  value  of the  shares  held  by
non-affiliates  was  approximately  $460,491.  The  aggregate  market  value was
calculated by  multiplying  the mean of the closing bid and asked prices ($0.14)
of the common stock of  Registrant  on the NASD OTC Bulletin  Board  listing for
that date, by the number of shares of stock held by non-affiliates of Registrant
(3,289,220).

At December 4, 1996, there were 4,321,322  shares of common stock  (Registrant's
only class of voting stock) outstanding.


<PAGE>

                                     PART I.

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

     (A)  General  Development  of  Business.   Aspen  Exploration   Corporation
(hereinafter  "Registrant")  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 Registrant and its wholly-owned
subsidiaries,  Aspen Gold Mining  Company,  and Aspen Recursos de Mexico.  Aspen
Gold  Mining  Company  is  currently  inactive  and  Aspen  Recursos  de  Mexico
operations  to  date  have   consisted  of  its   organization   and  geological
investigation of certain areas in Mexico.

During fiscal 1996,  Registrant continued its operation of various producing oil
and gas properties.  During fiscal 1995,  Registrant  formed a subsidiary (Aspen
Recursos de Mexico,  S.A. de C.V.), which is qualified to do business in Mexico,
so that Registrant may pursue the  investigation of mineral  prospects in Mexico
and Central America. Aspen Recursos was inactive during 1996.

     (B) Narrative Description of Business.

Registrant  owns  leasehold  or  royalty  interests  in  producing  oil  and gas
properties in California,  Colorado,  Michigan, Montana, North Dakota, Oklahoma,
Texas and Wyoming, and leasehold and royalty
interests in mining properties in Alaska.

     Oil and Gas Exploration and Development:

     Registrant  engages in a broad range of activities  associated with the oil
     and gas business in an effort to develop oil and gas reserves. Registrant's
     primary areas of interest are in the states of California and Wyoming.

     During the last few fiscal years,  Registrant's  major emphasis has been on
     production from its oil and gas properties.  Registrant participated in the
     drilling  of three  wells  during the fiscal  year ended June 30,  1996 and
     acquired  operated  working  interests in two producing oil wells,  one gas
     well, and two shut-in oil wells located in Kern County,  California  within
     the fiscal year.  During  fiscal 1995 and 1996,  and the second  quarter of
     1997,  Registrant  sold  all of its  producing  properties  Montana,  North
     Dakota, Texas and Oklahoma.

     Registrant may purchase  production from other entities  through the use of
     its working  capital  (though working capital is currently very limited) or
     may acquire  interests in producing  properties  with loans from commercial
     financial   institutions,   which  expect  repayment  from  the  production
     
                                        2

<PAGE>


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

     revenues,  or Registrant may also purchase  production  from other entities
     through the  issuance  of its common  stock.  Registrant  does not have the
     financial  resources to finance any significant cash  acquisitions  itself.
     Consequently,   management  believes  that  the  diversification  available
     through stock acquisitions and acquisitions financed by third parties is in
     the best interests of Registrant.  However,  since Registrant's stock is no
     longer   quoted  on  NASDAQ's   Small  Cap  Market,   its  value  has  been
     significantly  reduced and it would be difficult  for  Registrant  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.

     The North  Strand #1 well located in Kern  County,  California  was spudded
     (drilling  commenced)  on August 15,  1995.  The total depth of 10,000' was
     reached on August  24,  1995.  While  drilling  was under way,  the mud log
     recorded oil and gas shows from two  intervals  located at depths below the
     surface of  approximately  9175' and 9700'.  These shows were  confirmed by
     electric logs and sidewall cores.

     Completion  operations  commenced  on the North Strand #1 well on September
     24, 1995. The lower Stevens  interval was  perforated  from 9706' to 9715'.
     Registrant elected to pump test this well to further evaluate its potential
     as an economic  producing oil well. The well was pump tested from the lower
     Stevens interval only (9706' to 9715') since this zone had a more favorable
     oil cut than the upper zone.  During 31 days of production  which commenced
     on  December  23,  1995 and ended on January  26, 1996 (with 4 days of down
     time due to a pump change),  the well produced 303 barrels of oil and 5,945
     barrels  of water.  This is an average of 10 BOPD and 192 BWPD (5% oil cut)
     which is an  uneconomic  rate.  On April 22,  1996 the well was plugged and
     abandoned.

     Registrant has a 10% working interest in the well and an estimated  capital
     investment at June 30, 1996 of approximately $45,000.

     The Grey  Wolf #1 well  located  in Kern  County,  California  was  spudded
     (drilling  commenced)  on October  10,  1995.  The total depth of 4200' was
     reached on October 20, 1995.  The mud log recorded gas shows while drilling
     from 3698' to 3708',  3715' to 3717', 3970' to 3973', and 4096' to 4098'. A
     full  suite of  electric  logs was run from  450' to 4200'.  After  careful
     analysis of the mud logs and electric logs,  production casing was cemented
     in the hole and the well was  perforated  from  3698' to 3708' and 3714' to
     3717'.


                                        3

<PAGE>

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

     The well was flow tested on a 1/4" positive choke for a 10 day period in an
     effort to determine if the  stabilized  production  rate was  sufficient to
     justify the expense of surface and pipeline  facilities.  At the end of the
     flow period, the well was producing approximately 300 MCFPD of high quality
     (1054  BTU)  gas.  The  well was then  shut in for a  pressure  build up to
     determine  if the post  production  shut-in  pressure  would  return to the
     initial shut-in  pressure of 1400 lbs. The current  pressure in the well is
     1160 lbs. and still slowly increasing.

     Registrant  has an 18% working  interest in the well and an actual  capital
     investment at June 30, 1996 of approximately $67,000.

     The Grey Wolf #1 commenced  gas  production  in October,  1996 at a rate of
     approximately  120 MCFPD on a flowing tubing  pressure of 1000 lbs. The gas
     is being sold to local farmers for irrigation purposes.

     Registrant  entered  into a purchase  and sale  agreement  with Capitol Oil
     Corporation,  an  unaffiliated  third  party,  to purchase all of Capitol's
     interest in certain  producing  properties  for cash.  This  agreement  was
     signed on November  9, 1995,  effective  November  1, 1995.  Closing of the
     purchase  and  sale  agreement  was  on  January  10,  1996.  The  acquired
     production consists of two producing oil wells, one producing gas well, and
     two shut-in  wells that will be plugged and  abandoned or converted to salt
     water  disposal   wells.   The  acquisition  is  located  in  Kern  County,
     California. Registrant has been designated operator of the properties.

     The total purchase price of the acquired properties was $925,000,  of which
     Registrant has 20% of the working interest acquired, for $185,000.

     Based on an independent  engineering estimate prepared by Resource Services
     International,  Inc., an independent  consulting  firm, as of July 1, 1996,
     net oil reserves acquired by Registrant were calculated to be approximately
     10,856  barrels of proved  producing  reserves  and 33,280 BOE (barrels oil
     equivalent)  of proved  behind  pipe  reserves.  All behind  pipe zones are
     scheduled to commence  production after depletion of the current  producing
     zone in each well.  In addition to the proved  producing  and proved behind
     pipe zones, there also exists approximately 680 acres which contain several
     high quality  drilling  locations.  A 3-D seismic survey is currently being
     permitted to enable Registrant to delineate future drilling locations.


                                        4

<PAGE>


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

     The Hopper #2 well located in Colusa County,  California was spudded on May
     16, 1996,  drilled to a total depth of 2,790', and plugged and abandoned on
     May 20, 1996. Registrant had a 5% working interest in the well.

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

     Where  Registrant  acquires an interest in acreage on which  exploration or
     development  drilling must be accomplished,  Registrant  itself will seldom
     assume the entire risk of  drilling.  Registrant  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,
     Registrant 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,  Registrant 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  Registrant's  risk  and  financial  commitment  to  a
     prospect, it also reduces Registrant's potential return should the drilling
     operations prove successful.

     Conversely,  Registrant  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  Registrant  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 Registrant
     than operations where it is offering the  participation to others (known as
     "farm-outs").

     Mineral Exploration and Development.

     In the minerals portion of Registrant's business, Registrant has curtailed,
     for the time being, active exploration for precious metals in Alaska and is
     concentrating  instead on uranium  exploration  in Wyoming.  In particular,
     Registrant is seeking favorable geological  situations wherein "roll front"
     uranium deposits may exist which are amenable to in-situ leaching. Although
     Registrant  carried out geological  reconnaissance  in northern Mexico,  no
     properties were acquired.


                                        5

<PAGE>


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

     (1)  Principal  products  produced  and  services  rendered:   Registrant's
products  during  fiscal 1996 were crude oil,  natural  gas and other  petroleum
products. Crude oil, natural gas and other petroleum products are generally sold
to various producers,  including pipeline  companies,  which usually service the
area in which the producing wells are located. In the fiscal year ended June 30,
1996 crude oil and natural gas sales and related revenues accounted for $209,936
or 47% of Registrant's revenues;  while $189,130 or 42% was in-kind gold royalty
income. Registrant is no longer receiving any mineral revenues.

     (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 Registrant's assets, or which otherwise is material.

     (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  Registrant to compete for such leases.  In addition,  the
ability of  Registrant to market any oil and gas which it might produce could be
severely limited by its inability to compete with larger companies  operating in
the same area, which may be willing or able to offer any oil and gas produced by
them at a price lower than that of Registrant.  Exploration and production costs
of minerals,  particularly precious metals, may impede the ability of Registrant
to offer such production at competitive prices.

In addition, the availability of a ready market for oil and gas will depend upon
numerous factors beyond Registrant'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.  Registrant  has a minimal  competitive
position in the oil and gas industry.


                                        6

<PAGE>


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

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  Registrant  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
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  Registrant to
compete for such leases.

     (5) Sources and availability of raw materials.  Raw materials  requisite to
the transaction of Registrant'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  Registrant  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 Registrant's business, two companies in fiscal 1996 and two companies
in fiscal 1995 represented sales in excess of 10% of Registrant'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
Registrant  could almost  assuredly be replaced by another buyer. In the mineral
segment  of  Registrant's  business,  in-kind  royalties  paid  by  Cambior  USA
(operator of the Valdez Creek mining property), represented 100% of Registrant's
total mineral  revenues for the fiscal year ended June 30, 1996. The termination
by Valdez  Creek  Mining  Company  ("VCMC") of its mining  operations  has had a
materially adverse effect on Registrant's business. Cambior, the operator of the
Valdez Creek mining property,  ceased mining operations effective June 30, 1995.
Gold processing, however, continued through September, 1995. The surface area of
the mine has been  restored,  and Cambior will  reassign all its interest in the
mining claims to Registrant.  Registrant is currently evaluating the possibility
of continued mining  operations on the property,  but has made no decision to do
so.


                                        7

<PAGE>

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

     (7)  Patents,  trademarks,   licenses,  franchises,   concessions,  royalty
agreements or labor contracts,  including duration:  Registrant does not own any
patents, licenses,  franchises, or concessions except oil, gas and other mineral
interests granted by governmental authorities and private landowners. Registrant
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 the Registrant  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,  as  well  as  mining  activities,   are  open  to
significant  governmental  regulation  including  worker 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:
Registrant 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 Registrant 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
Registrant's   earnings   potential,   and  could  cause  material   changes  in
Registrant's  proposed business.  At the present time, however, the existence of
environmental laws does not materially hinder nor adversely affect  Registrant's
business. Capital expenditures relating to environmental control facilities have
not been material to the operations of Registrant since its inception.

     (12)  Employees.  At June 30,  1996  Registrant  employed  three  full-time
persons.  Registrant also uses independent contractors and other consultants, as
needed.

Registrant  entered into an employment  agreement  with Robert A. Cohan on April
16, 1995. This employment agreement was renewed for a period effective April 16,
1996 and ending  April 15,  1997.  (See Item 10 (g) below.)  Registrant  and Mr.
Cohan agreed to utilize a portion of Mr. Cohan's home in Bakersfield, California
in which to conduct Registrant's  business. Mr. Cohan will not charge Registrant

                                        8

<PAGE>


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

any rent for the use of his home as a business  office.  Registrant 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 Registrant and lease payments on a motor vehicle.

                                        9

<PAGE>

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

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

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

Registrant  increased  its net oil reserves by 210% during  fiscal year 1996 (in
addition to replacing  100% of the  reserves it produced  during the last fiscal
year) primarily due to the acquisition of certain producing  properties  located
in Kern County,  California. The undiscounted future net revenues forecast to be
recovered from these reserves increased 243% during the last fiscal year.

During  the  fiscal  year  ended  June  30,  1996,  Registrant  sold oil and gas
properties  which had proven  marginal  or were  operated  at a loss.  Effective
November 1, 1996  Registrant  sold the remaining  producing  properties  located
outside  of  California  to  Registrant's  consulting  accountant,  officer  and
shareholder.

Rosedale  Field,  Kern County,  California.  Registrant  acquired a 12% operated
working  interest (9.51% net revenue  interest) in one flowing oil well, one gas
well,  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  approximately  70 to 80 barrels of oil per day
for over five and one-half years. The Arco 46X-10, a shut- in gas well, has been
tested at 2.6 million cubic feet of gas per day.

West Bellevue Extension Field, Kern County,  California.  Registrant 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 105,000 barrels
of high  gravity oil  (32(degree))  from the Stevens  formation  from a depth of
approximately  8,400' to 8,500'.  Two behind-pipe zones exist in this well which
will be tested at a later date.  Registrant  has 680 gross acres  contiguous  to
this well which appear to have several good offset drilling locations.

Other Oil and Gas Interests
---------------------------

Registrant  also owns working  interests  and  overriding  royalty  interests in
various  properties  located in the states of  California,  Colorado,  Michigan,
Montana, North Dakota, Oklahoma, Texas and Wyoming.  Effective November 1, 1996,
Registrant  sold all of its interest in areas outside of California  oil and gas
assets to Ray K. Davis, its consulting  accountant,  officer and shareholder for
$100,000 in cash.


                                       10

<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 Registrant for the fiscal years ended June 30, 1996 and
1995, and the average sales prices,  average production costs and direct lifting
costs per unit of production.

                                                      Years Ended June 30,
                                                      --------------------
                                                      1996             1995
                                                      ----             ----
         Net Production
         --------------
         Oil (Bbls)                                   7,987            15,162
         Gas (Mcf)                                    7,846            11,581

         Average Sales Prices
         --------------------
         Oil (per Bbl)                               $17.19            $13.71
         Gas (per Mcf)                               $ 1.04            $ 1.22

         Average Production Cost (1)
         ---------------------------
         Per equivalent
           Bbl of oil                                $17.87            $13.64

         Average Lifting Costs (2)
         -------------------------
         Per equivalent
           Bbl of oil                                $ 5.79            $10.45

(1)  Production  costs  include  all  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.



                                       11

<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  Registrant's  leasehold  interests in productive and
shut-in oil and gas wells, and in developed acres, at June 30, 1996:

                          Producing and Shut-In Wells
                          ---------------------------

                                             Gross            Net (1)
                                          ------------     -------------
                                          Oil      Gas      Oil      Gas
                                          ---      ---      ---      ---
       Prospect
       --------

       California:
         Arco 34X                          1       --       0.12      --
         Arco 35X                          1       --       0.12      --
         Arco 46X (2)                     --        1       --       0.12
         Brandt 16X                        1       --       0.18      --
         Grey Wolf #1 (3)                 --        1       --       0.18
         Sanborn 3-3                      --        1       --       0.008

       Colorado:
         Zenith Field (4)                  3       --       0.30      --

       Montana:
         Valley County (4)                 1       --       0.125     --

       North Dakota:
         Billings County (4)               5       --       0.21      --
         Williams County (4)               2       --       0.24      --

       Oklahoma:
         Harper County (4)                --        2       --       0.02

       Texas:
         Lucille Field (4)                 7       --       0.44      --
         Ira Corbin #1 & 1A (4)            2       --       0.03      --
         Williams #1 (4)                   1       --       0.01      --

                                          --       --       ----    -----
       TOTAL                              24        5       1.78     0.33
                                          ==       ==       ====    =====

(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.

(2)  Currently shut in.

(3)  Awaiting pipeline connection.

(4)  Sold effective November 1, 1996, for a total of $100,000.


                                       12

<PAGE>

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

                             Developed Acreage Table
                             -----------------------

                                                        Developed Acres (1)
                                                        -------------------
                                                   Gross (2)            Net (3)
                                                   ---------          ---------
         Prospect
         --------

         California:
                  Grey Wolf #1                       120.00             21.60
                  W Bellevue Ext Fld                  80.00             14.40
                  Rosedale Field                      80.00              9.60
                  Sanborn 3-3                        615.00              5.23

         Colorado:
                  Zenith Field                       640.00             64.00

         Montana:
                  Fallon Co. (4)                     160.00              6.51
                  Valley Co. (4)                     120.00             40.00

         North Dakota:
                  Billings Co. (4)                   640.00             33.00
                  Renville Co. (4)                   160.00             48.00
                  Williams Co. (4)                   320.00             39.01

         Oklahoma:
                  Harper Co. (4)                     640.00              4.80

         Texas:
                  Lucille Fld. (4)                   220.00             13.97
                  Corbin 1 & 1A (4)                  160.00              2.40
                  Williams #1 (4)                    171.00              1.28
                                                     ------            ------

                           TOTAL                   4,126.00            303.80
                                                   ========            ======

(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.

(4)  Sold effective November 1, 1996, for a total of $100,000.



                                       13

<PAGE>

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

          (ii) (b) Royalty Interests in Productive Wells and Developed  Acreage:
The following tables set forth at June 30, 1996  Registrant's  royalty interests
in productive oil and gas wells and in developed acres:

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

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

Michigan:
 Pentwater (2)              5.08             28       --              1,478

Montana:
 Richland Co. (2)           0.20              1       --                320
 Roosevelt Co. (2)          0.05              2       --                160
 Valley Co. (2)             5.00              1       --                 80

North Dakota:
 Billings Co. (2)           0.46              8       --              1,440
 Divide Co. (2)             2.07              2       --                320
 McKenzie Co. (2)           0.55             12       --              2,560
 Williams Co. (2)           1.87              3       --                480

Texas:
 Jordans (2                 0.13             --        2                 84

Wyoming:
Big Sand Draw (2)           0.03             21        7              3,740
                            ----             --       --            -------

                                             78        9             10,662
                                             ==       ==            =======

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

(2)  Sold effective November 1, 1996, for a total of $100,000.

          (iii) Delivery  Commitments.  Registrant 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 Registrant's properties have been
evaluated at June 30, 1995 and 1996 by Resource Services International, 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.

                                       14

<PAGE>


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

     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  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 VOLUMMETRIC  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 oil and gas
reserves and proved undeveloped oil and gas reserves of Registrant for the years
ended  June  30,  1994  and  1995.  See  Note  9 to the  Consolidated  Financial
Statements and the above discussion.

       Proved Reserves (1)                           Oil (Bbls)       Gas (Mcf)
       -------------------                           ----------       ---------

       Estimated quantity, June 30, 1994             136,000          101,000

         Revisions of previous estimates              (7,000)         (23,000)
         Sale of Properties                          (79,000)         (14,000)
         Production                                  (15,000)         (11,000)
                                                    ---------       ---------

       Estimated quantity, June 30, 1995              35,000          53,000

         Revision of previous estimates                2,000           1,000
         Acquisition of Properties                    42,000          58,000
         Production                                   (6,000)         (6,000)
                                                  ----------       ---------

       Estimated quantity, June 30, 1996              73,000         106,000
                                                  ==========        ========


                     Developed and Undeveloped Reserves (2)
                     --------------------------------------

                                       Developed      Undeveloped      Total
                                       ---------      -----------      -----
                                      
   Oil (Bbls)
         June 30, 1995.............     35,000            -0-           35,000
         June 30, 1996.............     44,000           29,000         73,000

   Gas (Mcf)
         June 30, 1995.............     53,000            -0-           53,000
         June 30, 1996.............     49,000           57,000        106,000

(1)  All  non-California  proved reserves have been sold.
(2)  All non-California developed and undeveloped reserves have been sold.


                                       15

<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 Registrant's  proved oil and gas reserves as well as other
reserve information, see Note 9 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  Registrant  with, or included in reports
to, any federal  authority or agency since the  beginning of  Registrant's  last
fiscal year.

     (B) Mineral Properties
         ------------------

From 1986 through  November  1992,  Registrant  concentrated  its efforts in its
mineral  segment,  on the  acquisition  and  exploration of  undeveloped  mining
properties near Nome,  Alaska.  While Registrant retains two small leases in the
area,  it lost the major  portion of its  interest in the Nome  properties  when
Newmont Exploration Ltd. abandoned the Anvil Joint Venture and Registrant's lode
mining lease. As a result of Newmont's  actions,  the  Registrant's  interest in
Nome Gold Joint Venture has become  significantly less valuable than at June 30,
1992.  The  following  sets forth a brief  discussion  of  Registrant's  mineral
properties:

Valdez Creek
------------

Registrant  had leased  certain  mining  claims  which it owns on Valdez  Creek,
Alaska,  to Valdez Creek Mining Company  ("VCMC"),  retaining an in-kind royalty
interest of from 4% to 5%.  Cambior USA (a VCMC  partner) is the Operator of the
mining operations at Valdez Creek.

Cambior,  the operator of the Valdez Creek mining  property,  has ceased  mining
operations effective June 30, 1995. The surface area of the mine was restored in
the fall of 1996,  and  Cambior  will  reassign  all its  interest in the mining
claims to  Registrant.  Registrant is currently  evaluating  the  possibility of
continued mining operations on the property,  but has made no decision to do so.
During the June 30, 1995 fiscal year,  Registrant  received  approximately 2,818
ounces of raw placer  gold and 748 ounces of raw placer gold during the June 30,
1996 fiscal year.


                                       16

<PAGE>

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

Anvil Gold Project
------------------

In April 1986 Registrant leased the lode exploration  rights to certain patented
lode mining claims near Nome,  Alaska from Alaska Gold Company (the "Lode Mining
Lease").  At the same time,  Registrant  formed a joint  venture (the 'Nome Gold
Joint Venture,'  "NGJV") whereby  financing was provided for initial work on the
project with TMS, Inc., a privately-held corporation,  which assigned its rights
to Northern Gold Company. As Northern failed to make subsequent contributions to
NGJV,  its interest has been  diluted to less than 1%.  Registrant  entered into
several joint ventures for the exploration and development of this property.

Registrant  believes that Newmont acted wrongfully in terminating the last joint
venture  relating to this property and the lease.  Consequently,  Registrant has
filed suit against Newmont,  which is detailed in "Item 3 - Legal  Proceedings",
below.

As a result of the  termination  of the AJV and the Lode  Mining  Lease,  and an
assignment of its interests by GGI to Registrant,  Registrant owns 100% interest
in two leases  (approximately  80 acres) in the Rock Creek and Snow Gulch areas.
Based on Registrant's currently available  information,  it does not appear that
these two leases are capable of economic  development  except in connection with
development of other neighboring properties owned by others.

Substantially  all of Registrant's  costs in these properties have been expensed
or  recovered  as a result of  payments  received  from  Newmont and prior joint
venture partners.

Cook Inlet
----------

In 1980, the Company filed applications for State of Alaska offshore prospecting
permits  for a total of  approximately  1.2  million  gross  acres in south  and
southeastern Alaska. Permits for approximately 146,000 acres were issued in May,
1987 but were allowed to expire during fiscal 1989 due to  management's  concern
with  environmental  sensitivity  in the area.  Applications  for  approximately
894,000  acres were  denied by the State,  and  applications  for  approximately
60,000 acres in central Cook Inlet are still pending,  as are  applications  for
approximately  100,000 acres in southern and southeast  Alaska. It is not likely
that these applications will be granted.

Echo Canyon
-----------

Registrant has staked and is currently  holding 14 claims in Nye County,  Nevada
which are prospective for gold mineralization.


                                       17

<PAGE>

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

Kaycee Uranium Project
----------------------

Registrant has staked 219 mining claims in Johnson County, Wyoming, on the basis
of  geological  and  engineering  information  gathered  in the period from 1969
through  1984.  These claims have been  recorded in Johnson  County and with the
Bureau of Land Management.  This project is known as the Kaycee Uranium Project.
Registrant is looking into the possibility of staking  additional claims on this
project  but  doing  so  depends  on the  financial  capability  of  Registrant.
Management of Registrant believes this project is well suited to the recovery of
uranium,  and possibly vanadium,  by in- situ leaching methods.  Registrant does
not have  proven  reserves  on these  claims  and  additional  drilling  will be
required to determine the presence and extent of any uranium  deposits which may
exist.  Registrant  has  available  the drilling logs from more than 4,000 drill
holes in the general  area where this  project  exists,  as well as maps showing
drill hole locations.

The Kaycee  Project data was the  proprietary  information  of Mr. R. V. Bailey,
president of  Registrant.  Registrant  has entered  into an  agreement  with Mr.
Bailey whereby  Registrant will provide funding for the project in order to earn
75%  interest  in the  project.  Mr.  Bailey  will retain 25% and will be paid a
portion of cash,  if any,  paid to  Registrant  by a third party when and if the
project is joint ventured or otherwise farmed out or sold. Before any payment is
made to Mr. Bailey, Registrant will recover its expenses.

Shamrock Uranium Project
------------------------

Registrant is  investigating  staking mining claims on another  Wyoming  uranium
project,  but the decision to do so will depend on the ability of  Registrant to
find a source of funding for the project. Management of Registrant believes that
this project is also suitable for in-situ leaching of uranium should any minable
deposits be discovered.  Registrant has no drilling information for this project
and the  presence  of uranium  at depth can only be  hypothesized  from  surface
indications.


                                       18

<PAGE>

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

      (C)  Title
           -----

       (1) Oil and Gas. As is customary in the oil and gas industry,  Registrant
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 Registrant is the Operator,  a thorough title examination
is conducted and significant defects remedied before proceeding with operations.
Registrant 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 Registrant  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.
Registrant  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 Registrant's business.

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

       (2) Mining.  Registrant does not have title opinions on its mining claims
or leases 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.

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.  Registrant relocated its offices in December, 1995
to a  two-story  office  building.  Registrant's  new office  space  consists of
approximately  1,108 square feet with an additional  750 square feet of basement
storage.  Registrant signed a two year lease agreement and is subject to a lease
rate of $816 per month, a monthly decrease of $304. Registrant has also paid

                                       19

<PAGE>


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

$816 as a security deposit for the term of the lease, which is in effect through
November 30, 1997.

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

Registrant  is  currently  involved in one legal  action in the State of Alaska.
(See  Item 2 (B)  "Mineral  Properties  - Anvil  Gold  Project"  for  background
information).  On February 14, 1994,  Registrant,  representing  Nome Gold Joint
Venture ("NGJV"), filed a complaint against Newmont Exploration Limited with the
Superior Court For the State of Alaska,  Second Judicial District,  Nome, Alaska
alleging several violations including breach of contract,  breach of covenant of
good faith and fair dealing, negligent misrepresentation,  and failure to expend
amounts committed to by Newmont. The suit requests unspecified damages.  Newmont
has filed a Motion for Summary Judgment,  to which Registrant has filed a Motion
in  Opposition.  The Motion for Summary  Judgment and the response by Registrant
are now in the hands of the Court.  The date for a trial in this matter has been
postponed from February,  1997 to an  undetermined  date, most likely in summer,
1997.

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

       No matters  were  presented  to  security  holders  for a vote during the
quarter ended June 30, 1996.

                                       20


<PAGE>

                                     PART II

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

     (A) Market Information
         ------------------

     Registrant's  common stock is now quoted on the NASD's 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.


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

  Fiscal Year Ended June 30, 1996:
  --------------------------------

           First Quarter                          15(cent)           19(cent)
           Second Quarter                         15(cent)           19(cent)
           Third Quarter                          15(cent)           19(cent)
           Fourth Quarter                         15(cent)           19(cent)

  Fiscal Year Ended June 30, 1995:
  --------------------------------

           First Quarter                          15(cent)           19(cent)
           Second Quarter                         15(cent)           19(cent)
           Third Quarter                          15(cent)           19(cent)
           Fourth Quarter                         15(cent)           19(cent)


     (B) Holders
         -------

     The approximate  number of  stockholders  of record of Registrant's  common
stock at June 30, 1996 was 1,428.  This number does not reflect an indeterminate
number of  beneficial  holders  who own their  shares  in  street  name  through
broker/dealers and other depositories.

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

     Holders of common stock are  entitled to receive  such  dividends as may be
declared by Registrant's Board of Directors. There were no dividends declared by
the Board of Directors during the fiscal year ended June 30, 1996 and Registrant
has paid no cash  dividends  on its common stock since  inception.  There are no
contractual  restrictions  on  Registrant's  ability  to  pay  dividends  to its
shareholders.


                                       21

<PAGE>



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

NOTE:  Company's financial statements are not audited.
------------------------------------------------------

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

June 30, 1996 as compared to June 30, 1995
------------------------------------------

Because  of  a  shortage  of  operating  funds,  Registrant  has  postponed  the
preparation of audited financial statements.  The financial statements contained
herein for the fiscal year ended June 30, 1996 are unaudited. Field work for the
audit has been completed and  Registrant  expects to complete the audit prior to
April 1, 1997.  The  Registrant has sustained  substantial  operating  losses in
recent years. In addition,  Registrant has used  substantial  amounts of working
capital in its operations. Current assets exceed current liabilities by $45,000,
a reduction of 93.5% from a year  earlier.  It is estimated  that at the time of
filing  this  document  that  current  liabilities  exceed  current  assets  and
Registrant will have a working capital deficit.

In view of this  deficit,  realization  of a major  portion of the assets in the
accompanying balance sheet is dependent upon continued operations of Registrant,
which in turn is  dependent  upon  Registrant's  ability  to meet its  financing
requirements,  and the success of future  operations.  Management  believes that
actions  presently being taken to revise  Registrant's  operations and financial
requirements  provide  the  opportunity  for  Registrant  to continue as a going
concern.

From June 30,  1995 to June 30,  1996,  Registrant's  working  capital  (current
assets less current liabilities) decreased by $645,152 or by 93.5%. The decrease
in working  capital is primarily  attributable to a decrease of over $496,500 in
the amount of precious metals  (primarily gold) held in inventory by Registrant.
The  decrease  in  precious  metals  inventory  is due to a decrease  of in-kind
production received by Registrant.  Registrant received approximately 748 ounces
of raw gold for the twelve-month period ended June 30, 1996 as compared to 2,818
ounces  of raw gold for the  twelve-month  period  ended  June 30,  1995,  a 74%
decrease.  Cambior, the operator of the Valdez Creek mining property, has ceased
mining operations effective June 30, 1995. Gold processing,  however,  continued
through  September,  1995.  The  surface  area of the mine is being  restored by
Cambior,  and they will  reassign  all their  interest  in the mining  claims to
Registrant. Registrant may explore for mineable lode gold deposits on the Valdez
Creek property if funding can be obtained from outside parties.

The financial information in this Form 10-KSB is unaudited because Registrant is
postponing the audit until additional funds are available to pay for such audit,
which is partially complete.

                                       22

<PAGE>


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

Due to the  cessation  of  royalties  from the Valdez Creek gold mine in Alaska,
Registrant  does not have  sufficient cash flow to fully carry on all activities
as was  done  previously.  Management  made a  decision  to enter  into  uranium
exploration and promotion by acquiring  certain  uranium  properties in calendar
1995 and 1996.  However,  Registrant has been unsuccessful thus far in finding a
joint venture partner for the uranium ventures and this has caused a shortage of
operating  funds.  In order to provide  interim  financing,  Registrant  has, in
November,  1996, withdrawn $125,000 against a split dollar insurance plan (total
value of the plan assets was approximately  $200,000).  Registrant has also sold
its  non-California  oil and gas  production for $100,000 cash to its consulting
accountant,  officer and shareholder.  Certain management of Registrant has also
elected to go on a deferred  compensation plan, whereby portions of salaries are
not paid and are postponed to a future time when  Registrant  may be able to pay
such deferred salaries.

Although Registrant is looking forward to increased revenues from California oil
and gas  production in the future,  current  income from  California oil and gas
production is inadequate to fund the monthly general and administrative costs of
Registrant and there is no other current source of income.

It is imperative that Registrant take steps in order to derive revenues from the
uranium properties at the earliest time. Registrant will also take such steps as
feasible  in order to keep costs for  uranium-related  activities  to a minimum.
However, certain costs cannot be avoided. Approximately $29,000 ($135 per claim)
was paid to the U. S. Bureau of Land  Management on November 25, 1996, to record
claims within the Kaycee  Project.  Holding costs for mining claims are $100 per
claim annually.

Registrant  has  formed  a  wholly-owned   subsidiary  in  1996,  ISL  Resources
Corporation,  a Wyoming corporation,  in order to carry on uranium activities in
Wyoming  and perhaps  elsewhere.  Management  of  Registrant  believes  that the
in-situ leaching of uranium,  commonly  referred to as ISL, is the best possible
way  to  license  and  commence   production   of  uranium   under  the  present
environmental  climate.  Discussions  for providing  financing for ISL Resources
have been held with certain parties, but there is no assurance that funding will
be provided.  Registrant  intends to vigorously pursue funding for ISL Resources
prior to the end of  calendar  year 1996.  Such  funding  may  include a private
placement of stock and the possible sale of stock on a Canadian market. There is
no assurance  such placement or sale will take place.  If no outside  funding is
found,  Registrant  runs the risk of losing the mining claims and the investment
in them.


                                       23

<PAGE>


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

Without  additional  funding from outside sources,  Registrant will be unable to
continue to operate at the current level,  even though Registrant has only three
full time employees.


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

1996 Compared to 1995
---------------------

For the twelve months ended June 30, 1996 Registrant's  operations  continued to
be focused on the production of oil and gas, and the  investigation for possible
acquisition of producing oil and gas properties and properties  prospective  for
precious  metals  production.  In  addition,  Registrant  received  in-kind gold
royalties from its Valdez Creek until September, 1995.

Registrant's precious metals revenues for the twelve-month period ended June 30,
1996 decreased by $745,221  compared to the  twelve-month  period ended June 30,
1995.  This 80% decrease in precious metals revenue was due to a decrease in the
amount of in-kind gold  royalties  received  from the Valdez  Creek mine,  which
decrease  was due to  decreased  total  production  from the mine.  All  advance
royalty  amounts  have now been  recouped by the  operator.  The operator of the
Valdez Creek mine, Cambior Alaska, has advised Registrant that operations at the
mine ceased  effective June 30, 1995 and that Registrant will receive no further
royalties.

Effective April 1, 1995 the Registrant sold its interest in the Divide Field oil
and gas  properties,  which  included a substantial  portion of its reserves for
$80,000.  As a  result,  the  Registrant  wrote  off its  capitalized  costs  of
$1,153,060  and  related  accumulated  depletion  and  impairment  of  $868,326,
realizing  a loss of  $204,734,  which is  included  in loss on  disposition  of
assets.

In  January,  1995 the  Registrant  abandoned  its  interest  in the Sand Spring
Prospect, Lincoln County, Nevada as uneconomic. Capitalized exploration costs of
$27,486 were written off and are included in the loss on disposition of assets.

Oil and gas revenues, which includes income from management fees, for the twelve
months ended June 30, 1996  decreased by 22% ($59,344) when compared to the same
period in the prior  year.  Such  decrease  was due to the sale of  Registrant's
remaining  proved  producing  oil and gas  reserves in Montana and North  Dakota
which were marginally  economic.  These sales occurred  between January 31, 1995
and April 1, 1995.

Oil and gas production  expenses decreased by about 70% ($124,905) when compared
to the prior year.  Between  January  31, 1995 and April 1, 1995 the  Registrant


                                       24

<PAGE>

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

sold some of its less profitable oil and gas interests. The reduction in overall
production  expenses for the current fiscal year, as compared to the prior year,
is attributable to Registrant's disposal of these interests.

Depletion, depreciation and amortization increased $48,041 (62%) from $77,179 at
June 30,  1995 to  $125,220  at June  30,  1996.  This  increase  in  depletion,
depreciation  and  amortization was also largely due to the sale and disposition
of  Registrant's  producing oil and gas properties  during the fiscal year ended
June 30, 1995, and the acquisition of new, shorter lived producing properties in
California in November, 1995.

During  January,  1995, the Registrant  received notice from the State of Alaska
Department of Revenue for unpaid  License Tax on Royalties from Mines and Mining
for the years 1991 through 1993.  Registrant  contested  these License Taxes and
believed  it to  be  exempt  from  these  taxes.  Pending  the  outcome  of  the
Registrant's  petition  seeking relief from these taxes,  Registrant  recorded a
liability of $45,000 at June 30, 1995 for the estimated  amount of taxes due. On
October 30, 1995 the Alaska  Department of Revenue  notified  Registrant that it
had accepted its petition for relief and no taxes were due through September 30,
1995.  Accordingly,  Registrant  reversed its recorded liability to the State of
Alaska  and  recorded  income in the amount of  $45,000  for the  Alaska  Mining
License Tax exemption.

Selling,  general and  administrative  expenses  increased  by $26,942 (5%) from
$564,955 at June 30, 1995 to $591,897 for the twelve months ended June 30, 1996,
reflecting the  appointment of Robert A. Cohan,  as Vice President of West Coast
operations in Bakersfield, California on April 1, 1995.

As a result of Registrant's  operations for the fiscal year ended June 30, 1996,
Registrant  ended the year with a net loss of ($322,325)  compared to net income
of $108,238  for the previous  year.  This  decrease  reflected  both  decreased
revenues and increased  expenses for the current  fiscal year as compared to the
prior year. The largest decline  $745,000,  or 80%, was in mineral income due to
the cessation of operations at the Valdez Creek Mine on September 30, 1995.

                                       25
<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (unaudited)

                                     ASSETS
                                                                    June 30,
                                                      ---------------------------------------
                                                           1996                      1995
                                                      -------------              ------------
                                                        Unaudited                  Audited
                                                        ---------                  -------

<S>                                                     <C>                       <C>    
Current Assets:
  Cash and cash equivalents, including
    $99,780 and $51,880 of invested
    cash in 1996 & 1995, respectively                   $  102,223                $  116,891
  Precious metals (Note 1)...........                      221,866                   718,388
  Accounts receivable, trade.........                       61,245                    30,997
  Prepaid expenses...................                        4,923                     4,651
                                                        -----------               -----------
  Total current assets...............                      390,257                   870,927
                                                        -----------               -----------
Investment in oil & gas properties, at
  cost (full cost method of
  accounting) (Note 9)...............                    1,349,047                 1,031,693
    Less accumulated depletion and
      valuation allowance............                   (  873,221)               (  760,874)
                                                        -----------               -----------
                                                           475,826                   270,819
                                                        -----------               -----------
Property and equipment, at cost:
  Furniture, fixtures & vehicles.....                      146,087                   135,147
    Less accumulated depreciation....                     ( 95,094)                 (104,348)
                                                        -----------               -----------
                                                            50,993                    30,799
                                                        -----------               -----------
Undeveloped mining properties, at
  cost (Note 2), less reserve for
  impairment of $193,495.............                       76,434                    11,633
                                                        -----------               -----------
Cash surrender value, life insurance
  (Note 3)...........................                      179,470                   129,627
                                                        -----------               -----------
Organization Cost,
  Aspen Recursos de Mexico (Note 1)..                       23,869                    29,187
                                                        -----------               -----------

Total assets                                            $1,196,849                $1,342,992
                                                        ===========               ===========
</TABLE>

                              (Statement Continues)

                 See Notes to Consolidated Financial Statements

                                       26

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (Continued)
                                   (unaudited)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                   June 30,
                                                   -------------------------------------
                                                       1996                      1995
                                                   ------------              -----------
                                                    Unaudited                  Audited
                                                    ---------                  -------
<S>                                                 <C>                          <C>   
Current liabilities:
  Accounts payable and accrued
    expenses (Note 10)...............               $    80,713              $    88,121
  Advances from joint interest owners
    (Note 10)........................                   245,481                     -0-
  Severance taxes payable (Note 10)..                    13,819                   83,419
  Due to related parties (Note 7)....                     5,216                    9,207
                                                    ------------             -----------

  Total current liabilities..........
                                                        345,229                  180,747
                                                    ------------             -----------
Commitments and contingencies
    (Note 10)
Stockholders' equity:
    (Notes 1 and 7):
    Common stock, $.005 par value:
      Authorized:  50,000,000 shares
      Issued:  4,424,922 in 1996 and
        4,297,922 in 1995............
      Outstanding:  4,321,322 in 1996                    22,124                   21,489
       and 4,194,322 in 1995.........

  Capital in excess of par value.....                 5,651,388                5,640,323
  Accumulated deficit................                (4,775,138)              (4,452,813)
                                                    ------------             ------------
                                                        898,374                1,208,999
  Less common stock in treasury, at
    cost; 103,600 shares.............                   (46,754)                 (46,754)
                                                    ------------             ------------

  Total stockholders' equity.........                   851,620                1,162,245
                                                    ------------             -----------

Total liabilities and stockholders'
  equity.............................               $ 1,196,849              $ 1,342,992
                                                    ============             ===========
</TABLE>
                  

                 See Notes to Consolidated Financial Statements

                                       27

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                            Year ended June 30,
                                                  ------------------------------------
                                                      1996                     1995
                                                  ------------              ----------
                                                    Unaudited                 Audited
                                                    ---------                 -------

<S>                                                  <C>                    <C>    
Revenues:
  Oil and gas (Note 9).............                $  145,448               $  221,875
  Mineral (Notes 1 and 2)..........                   189,130                  934,351
  Mineral severance tax settlement
    (Note 10)......................                    45,000                    -0-
  Fees and equipment rentals (Note 1)                  64,488                   47,405
  Interest.........................                     4,508                    2,648
                                                   -----------              ----------
                                                      448,574                1,206,279
                                                   -----------              ----------
Costs and expenses:
  Oil and gas production...........                    53,782                  178,687

  Loss on disposition of assets....                      -0-                   232,220
  Depreciation, depletion and
    amortization...................                   125,220                   77,179

  Mineral severance tax (Note 10)..                      -0-                    45,000
  Selling, general and administrative                 591,897                  564,955
                                                   -----------              ----------

                                                      770,899                1,098,041
                                                   -----------              ----------
Net income........................                 $ (322,325)              $  108,238
                                                   ===========              ==========

Net income per common share.......                 $    (.08)               $     .03
                                                   ===========              =========
Weighted average number of common
  shares outstanding..............                  4,274,489                4,194,322
                                                   ===========              ==========


                 See Notes to Consolidated Financial Statements

                                       28
</TABLE>

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                    Unaudited

<TABLE>
<CAPTION>
                                                  Common Stock                                              Treasury Stock
                                -----------------------------------------------                         ---------------------------
                                                                   Capital in                             Number
                                 Number             Par             Excess Of        Accumulated           of
                                Of Shares          Value            Par Value          Deficit            Shares          Cost
                                ---------       ------------       ------------      -----------         --------      ------------
<S>                            <C>             <C>                <C>               <C>                  <C>          <C>         
Balance, June 30, 1994          4,297,922       $     21,489       $ 5,640,323       $(4,561,051)         103,600      $   (46,754)
 

Net income for year                   ---                ---               ---           108,238              ---              ---
                              -----------       ------------       -----------       -----------       ----------      -----------

Balance, June 30, 1995          4,297,922       $     21,489       $ 5,640,323       $(4,452,813)         103,600      $   (46,754)

Stock issued to Employees         127,000                635            11,065               ---              ---              ---

Net loss for year                                                                       (322,325)
                              -----------       ------------       -----------       ------------     -----------     ------------

Balance, June 30, 1996          4,424,922       $     22,124       $ 5,651,388       $(4,775,138)         103,600      $   (46,754)
                              ===========       ============       ===========       ============      ==========     ============

</TABLE>


                                  See notes to consolidated financial statements

                                                        29

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                          Year Ended June 30,
                                                                     1996                      1995
                                                                 ------------              -----------
                                                                   Unaudited                 Audited
                                                                   ---------                 -------
<S>                                                              <C>                        <C>   
Cash flows from operating activities:

  Net income.........................................            $  (322,325)              $   108,238

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

  Services rendered for stock........................                 11,700                      -
  Depreciation, depletion, amortization and
    valuation allowance..............................                125,220                    77,179
  (Gain) loss on disposal of precious metals,
    equipment and oil & gas properties...............                   -                      284,716
  Precious metals received...........................               (246,589)                 (934,500)
  Proceeds from the sale of precious metals..........                743,111                   546,546
  Changes in assets and liabilities:
    Decrease in accounts receivable, and
       prepaid expenses..............................                (30,520)                   17,126
    Increase (decrease) in accounts payable, accrued
       expenses and due to related parties...........                234,082                    33,052
    Decrease in production taxes payable.............                (69,600)                     -
                                                                  ----------                ----------

Net cash provided by operating activities............                445,079                   132,357

Cash flows from investing activities:

  Sale of vehicle....................................                   -                        4,800
  Sale and recovery of costs of oil and
    gas properties...................................                104,723                    90,902
  Purchases of oil and gas properties................               (422,076)                  (55,035)
  Equipment purchased................................                (13,955)                   (2,298)
  Additions to undeveloped mining properties.........                (64,802)                  (16,652)
  Additions to cash surrender value..................                (49,843)                  (54,038)
  Organization Cost - Recursos de Mexico.............                   (649)                  (29,187)
  Vehicle - Purchase.................................                (13,145)                     -
                                                                  ----------                ----------

Net cash (used in) investing activities..............               (459,747)                  (61,508)


Net increase (decrease) in cash and equivalents......                (14,668)                   70,849

Cash and cash equivalents, beginning of year.........                116,891                    46,042
                                                                 ------------              -----------

Cash and cash equivalents, end of year..............             $   102,223               $   116,891
                                                                 ============              ===========







                                  See notes to consolidated financial statements

                                                        30

</TABLE>

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

Note 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     Unaudited Financial Statements
     ------------------------------

     The Company has been unable to have its audit of its  financial  statements
     for the year ended June 30, 1996  completed due to its shortage of cash and
     efforts to reduce its  operating  expenses.  As a result,  the  Company has
     presented the accompanying annual financial statements for fiscal year 1996
     without audit along with the financial  statements  for fiscal 1995,  which
     were audited.  When and if the Company has sufficient  financial resources,
     it will have its independent  auditors  complete their audit of fiscal 1996
     and issue their audit opinion on those financial statements.

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

     Going Concern
     -------------

     The accompanying financial statements have been prepared in conformity with
     generally accepted accounting principles,  which contemplates  continuation
     of the Company as a going  concern.  However,  the  Company  has  sustained
     substantial operating losses in recent years. In addition,  the Company has
     used  substantial  amounts of working  capital in its  operations.  Current
     assets exceed current  liabilities by $45,000,  a reduction of 93.5% from a
     year earlier.  It is estimated  that at the time of filing these  financial
     statements  that current  liabilities  will exceed  current  assets and the
     Company will have a working capital deficit.

     In addition, the Company's loss for the 1996 fiscal year is ($322,325).  As
     of November  1996,  the Company has used a substantial  portion of its cash
     and gold  reserves and has withdrawn  $125,000  against the cash value of a
     life insurance policy on its president and has sold all its  non-California
     oil and gas properties  for $100,000 to pay creditors.  These matters raise
     substantial  doubt  about the  Company's  ability  to  continue  as a going
     concern.  Pending the financial outcome of these matters,  the accompanying
     financial  statements do not include any adjustments that might result from
     these uncertainties.


                                       31

<PAGE>

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     In view of these  matters,  realization of a major portion of the assets in
     the  accompanying  balance sheet is dependent upon continued  operations of
     the Company,  which in turn is dependent upon the Company's ability to meet
     its  financing   requirements,   and  the  success  of  future  operations.
     Management  believes  that  actions  presently  being  taken to revise  the
     Company's operating and financial  requirements provide the opportunity for
     the Company to continue its operations.

     In its oil and gas  operations,  the Company  intends to focus attention on
     opportunities  in  California,  particularly  those  situations  where  the
     Company may be able to require  investors to pay prospect  generation fees.
     Such fees may be sufficient to pay for the Company's working interest in an
     initial well.  The Company also typically will "back in" after payout for a
     more substantial  interest in successful  wells. The Company will also seek
     out production  purchase situations and, upon finding same, will attempt to
     retain a carried interest in such purchases. Funding likely would come from
     outside sources.

     In its uranium activities, through ISL Resources Corporation, a subsidiary,
     the  Company  will  attempt  to  form  joint  ventures  with  well-financed
     companies  and will  attempt  to recover at least 100% above the amount the
     Company has invested in any particular project.


     Consolidated financial statements
     ---------------------------------

     The  consolidated   financial   statements  include  the  Company  and  its
     wholly-owned subsidiaries,  Aspen Gold Mining Company and Aspen Recursos de
     Mexico.  Significant  intercompany  accounts  and  transactions  have  been
     eliminated. After the end of the 1996 fiscal year, the Company formed a new
     subsidiary, ISL Resources Corporation, for its uranium activities.

     Statement of cash flows
     -----------------------

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


                                       32

<PAGE>

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Precious metals and revenues
     ----------------------------

     Precious  metals  inventories  are  valued at the  lower of cost  (specific
     identification  method) or market.  There was no allowance  for  unrealized
     losses against  inventories due to market decline at June 30, 1996 or 1995.
     In-kind  gold  revenues  for the years  ended  June 30,  1996 and 1995 were
     $246,589 and  $969,065,  respectively.  In the  accompanying  statements of
     operations in-kind revenues have been reduced by losses on the sale of gold
     of $57,589 and $34,714 for fiscal 1996 and 1995, respectively.

     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 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 a
     unit-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 center to exceed
     the capitalization  ceiling.  The capitalization  ceiling is the sum of (1)
     the present  value of future net  revenues  from  estimated  production  of
     proved oil and gas  reserves  applicable  to the cost  center  plus (2) the
     lower  of cost or  estimated  fair  value  of the  cost  center's  unproved
     properties less (3) applicable income tax effects.  The valuation allowance
     was $281,720 at June 30, 1996 and June 30, 1995.

     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. 

                                       33

<PAGE>

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
     Investment in mining joint ventures
     -----------------------------------

     The Company accounts for its investments in joint ventures using the equity
     method.  Under the equity method,  the investment is accounted for at cost,
     adjusted for the Company's  proportionate share of earnings and losses. The
     Company's investment in the Nome Gold Joint Venture ("NGJV"), 99+% owned by
     Aspen, is accounted for using the equity method and its proportionate share
     of assets,  liabilities,  revenues and expenses are consolidated with those
     of Aspen in the balance sheet (See Note 2).

     Undeveloped mining properties
     -----------------------------

     The Company capitalizes all costs associated with acquiring,  exploring and
     developing  mineral  properties,  including  certain  internal  costs which
     specifically   relate  to  each  mining  property  area  ("cost   center").
     Capitalized  costs are  deferred  until the area of  interest to which they
     relate is put into operation,  sold,  abandoned or impaired.  The Company's
     pro rata  share of  advance  mineral  royalties,  bonuses  and  other  cash
     payments  received by the Company from joint  venture or other  exploration
     participants  reduce  the  amount  of  a  cost  center  as  a  recovery  of
     capitalized  costs.  The excess of the  Company's pro rata share of advance
     mineral royalties,  bonuses and other cash payments received by the Company
     from joint venture or other exploration participants over capitalized costs
     in a specific cost center are recognized as revenue in the period received.
     The  Company's  pro rata  share of costs  incurred  by the Nome Gold  Joint
     Venture that are associated with finding joint venture  partners to explore
     and develop mining properties are expensed as incurred, and are included in
     selling,  general and administrative  expenses.  Gains or losses on sale or
     abandonment of mining properties are charged to current operations.

     Net income per common share and stock split
     -------------------------------------------

     Net income  per common  share is based on the  weighted  average  number of
     shares of common stock outstanding during the period.

     Organization Costs
     ------------------

     During the first quarter ended  September  30, 1994,  the Company  formed a
     subsidiary, Aspen Recursos de Mexico, S.A. de C.V. ("Aspen Recursos").

                                       34

<PAGE>

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Aspen  Recursos is  qualified  to do business in Mexico and that will allow
     the Company to investigate  and acquire  interests in mineral  prospects in
     Mexico.  The Company will amortize the  organization  costs over a 60 month
     period.  For the 12 months ended June 30, 1996 the Company amortized $5,967
     of Aspen Recursos  organization  costs. As of June 30, 1996, the subsidiary
     had no operations.


Note 2   MINING PROPERTIES

     VALDEZ CREEK
     ------------

     Mining on the gold  claims  held by the  Company on Valdez  Creek in Alaska
     ceased in 1995. Cambior, a Canadian-based  company,  was the Operator,  and
     Cambior is in the process of restoring the property.  The Company  received
     no gold  royalties  from these  properties in calendar 1996, and no further
     royalties  are  expected.  The Company is looking into the  possibility  of
     investigating  the lode gold potential of the  properties,  but no decision
     has been made in that regard. Such investigation would probably require the
     participation  of a second party in order for exploration  funds to be made
     available.

     The Company has recovered  its  investment in the Valdez Creek area and has
     recognized royalty revenue of $189,130 and $934,351 in the years ended June
     30, 1996 and 1995,  respectively.  Through June 30,  1996,  the Company has
     received $2,511,679 in in-kind gold production payments.

     NOME PROPERTIES
     ---------------

     In March 1992,  the Company,  through Nome Gold Joint  Venture,  formed the
     Anvil Joint Venture ("AJV") to carry forward renewed lode gold  exploration
     in the area of  interest,  and  contributed  the Lode Mining  Lease to that
     joint venture.  The Anvil Joint Venture included NGJV, Newmont  Exploration
     Ltd.  ("Newmont")  and Golden  Glacier,  Inc.  ("GGI"),  an Alaskan  native
     corporation.  Newmont,  as operator of AJV, assumed the  responsibility  of
     making the annual  royalty  payments to Alaska  Gold  Company  ("AGC",  the
     landowner)  plus any other  required  bonus  payments.  In  November,  1992
     Newmont advised NGJV that it was withdrawing  from the Anvil Joint Venture.
     Such  withdrawal  terminated  the lode mining lease between NGJV and AGC as
     well.

     In February, 1994 the Company filed a complaint against Newmont Exploration
     Ltd.  with the  Superior  Court for the State of  Alaska,  Second  Judicial
     District, Nome, Alaska alleging several violations (including breach of 

                                       35

<PAGE>

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     contract,  breach of  covenant  of good faith and fair  dealing,  negligent
     misrepresentation,  and failure to expend amounts committed to by Newmont).
     The lawsuit requests unspecified  damages.  Newmont has filed a "Motion for
     Summary  Judgment",  to which the Company has filed an Objection along with
     supporting documentation. The Motion and the Objection are now in the hands
     of the Court.  The date for a trial in this matter has been  postponed from
     February, 1997 to an undetermined date, most likely in summer, 1997.

     The Company owns 100%  interest in two leases  (approximately  80 acres) in
     the Rock  Creek  and Snow  Gulch  Areas  near  Nome,  Alaska.  Based on the
     Company's  currently available  information,  it does not appear that these
     two leases are capable of economic  development  except in connection  with
     development of other  neighboring  properties owned by others.  The Company
     continues  to keep  these  leases in force by making  annual  delay  rental
     payments to the owners.

     Substantially all costs incurred by the Company on NGJV have been recovered
     or expensed as of June 30, 1996.

     COOK INLET
     ----------

     In 1980,  the  Company  filed  applications  for State of  Alaska  offshore
     prospecting permits for a total of approximately 1.2 million gross acres in
     south and southeastern Alaska. Permits for approximately 146,000 acres were
     issued in May,  1987 but were allowed to expire  during  fiscal 1989 due to
     management's   concern  with   environmental   sensitivity   in  the  area.
     Applications for approximately  894,000 acres were denied by the State, and
     applications for approximately 60,000 acres in central Cook Inlet are still
     pending,  as are applications for  approximately  100,000 acres in southern
     and southeast Alaska. Net capitalized costs have been written off.

     ECHO CANYON
     -----------

     The  Company has staked and is  currently  holding 14 claims in Nye County,
     Nevada  which are  prospective  for gold  mineralization.  The  Company  is
     currently  exploring these claims and, as of June 30, 1996, has capitalized
     an insignificant amount of costs in the project.

     SAND SPRING
     -----------

     The Sand  Spring  prospect  was  acquired in 1994.  The  Company  continued
     exploration into 1995, when it was abandoned. As a result, $27,486 in costs
     were written off in fiscal year 1995 and included in loss on disposition of
     assets.

                                       36

<PAGE>

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     ALASKA MINING TAX
     -----------------

     During January,  1995, the Company received notice from the State of Alaska
     Department  of Revenue for unpaid  License Tax on Royalties  from Mines and
     Mining  ("License  Taxes")  for the years 1991  through  1993.  Pending the
     outcome of the  Company's  petition  seeking  relief from these taxes,  the
     Company  recorded,  as of June 30,  1995,  a liability  of  $45,000,  which
     approximates  the amount of taxes due under the second  phase of the Valdez
     Creek operations.

     On October  30,  1995 the Alaska  Department  of Revenue  notified  and the
     Company that the Department of Natural Resources had issued Certificates of
     Initial Production to the Department of Revenue.  The Department of Revenue
     further stated that no taxes were due for the period 1991 through September
     30, 1995. Accordingly, the $45,000 liability has been reversed and shown as
     income from mining tax exemptions for the nine months ended March 31, 1996.


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
     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 to the plan.  Under the plan, the
     Company may make discretionary contributions to the plan. At June 30, 1995,
     the  Company had  accrued  $7,000 to the plan for the Plan Year 1995.  This
     accrual was paid during fiscal 1996. The Company made no plan  contribution
     for fiscal 1996.


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

     As part of the President's employment agreement dated November 8, 1991 (See
     Note 10), the Company  purchased a split dollar life  insurance  policy for
     
                                       37

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     the President's  benefit. The Company pays an annual premium of $60,000 per
     year on behalf of the President,  of which a portion ("split")  constitutes
     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, 1995, the Company paid $60,000 in premiums,  of
     which  the  President's  portion  was  approximately  $20,520.   Additional
     compensation  of  $7,833  had  been  recognized  as  reimbursement  to  the
     President for income taxes.  For the year ended June 30, 1996,  the Company
     paid $60,000 in  premiums,  of which the  President's  portion was $21,273.
     Additional  compensation of $8,127 has been recognized as  reimbursement to
     the President for income taxes.  As of June 30, 1996 and June 30, 1995, the
     Company's  accumulated  cash  surrender  value was $179,470  and  $129,627,
     respectively,  which has been included as an asset on the Company's balance
     sheet.  In November 1996, the Company  withdrew  $125,000 of cash surrender
     value to pay expenses.  The death benefit payable to the named  beneficiary
     as of June 30,  1996 and 1995,  is  approximately  $877,060  and  $837,581,
     respectively.  At June 30,  1996 there was an excess cash  surrender  value
     available to the executive of approximately  $9,000. At June 30, 1995 there
     was no excess cash surrender value available to the executive.
     
     Medical Benefit Plan
     --------------------

     For the fiscal  years ended June 30, 1995 and 1996 the Company had a policy
     of reimbursing  employees for medical expenses  incurred but not covered by
     the Company paid medical  insurance  plan.  Expenses  reimbursed for fiscal
     1995 and fiscal 1996 were $1,500 and $8,800, 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
                                                      ---     ---
                 Year ended:

                    June 30, 1995                     78%     10%
                    June 30, 1996                     57%     16%


                                       38

<PAGE>

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5    INCOME TAXES

     The Company adopted  Statement of Financial  Accounting  Standards No. 109,
     "Accounting  for Income Taxes",  as of July 1, 1993.  There was no material
     cumulative  effect of this change in accounting for income taxes as of July
     1, 1993.  At June 30,  1996 the  Company  had Net  Operating  Loss  ("NOL")
     carry-forwards  for tax purposes of approximately  $4,246,000  (expiring in
     the  years  1997  to  2008).  In  addition,  the  Company  had  tax  credit
     carry-forwards  of  approximately  $30,400  (expiring  in the years 1997 to
     2001).

     Deferred tax assets (liabilities) at June 30, 1996 and 1995 are as follows:

                                                     1996         1995
                                                 -----------   ----------
         Gross deferred tax assets:
           Net operating loss carry-forward      $1,443,626    $1,607,779
           Valuation allowance for deferred
             tax assets....................      (1,443,626)   (1,601,456)
                                                 -----------   -----------

             Net deferred tax asset                   -0-           6,323
                                                 -----------   -----------

         Gross deferred tax liabilities:
           Depreciation and other property,
             plant and equipment basis
             differences...................      (    -0-   )       (6,323)
                                                 -----------   -----------

         Net deferred tax asset
           (Liabilities)                         $    -0-      $       -0-
                                                ===========    ============

     Deferred  income  taxes are  recorded  to reflect the tax  consequences  on
     future years of differences between the tax basis of assets and liabilities
     and their financial reporting amounts at each year end. Deferred income tax
     assets are  recorded to reflect  the tax  consequences  on future  years of
     income tax carry-forward benefits,  reduced by benefit amounts not expected
     to be  realized  by the  Company.  As of  June  30,  1996  $628,040  of net
     operating  loss  carryforwards  and $6,054 of  investment  tax credits have
     expired.

                                       39

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


     The components of income tax expenses for the years ended June 30, 1996 and
     1995 are as follows:

                                                        1996            1995
                                                     --------         ---------

                  Current                            $  -0-           $ 59,060

                  Benefits of income
                    tax carry-forward                 ( -0- )         (59,060)

                  Deferred                              -0-               -0-
                                                     --------          -------

                  Income tax expense                 $  -0-            $  -0-
                                                     ========          =======

     The effective  income tax rate applicable to the current  provision  before
     applying the tax carry-forward benefit was -0-% and 31% for the years ended
     June 30, 1996 and 1995, respectively.



                                       40

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

Note 6   SEGMENT INFORMATION

     The Company operates in two industry segments within the United States: (1)
     oil and gas exploration  and  development  and (2) mineral  exploration and
     development (primarily gold).

     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, and furniture, fixtures and vehicles.

     Segment  information  consists of the  following:

                                                Year ended June 30, 
                                          --------------------------------- 
                                             1996                  1995 
                                          ----------            ----------- 
         Revenue: 
           Oil and  gas............       $  312,252             $  269,280  
           Mineral................           234,130                934,351  
           General  corporate......            4,508                  2,648
                                          -----------            ----------
           Total revenue                  $  550,890             $1,206,279
                                          ===========            ==========

         Results of operations
           (excluding overhead
            and interest costs):
           Oil and gas............         $   43,807            $ (177,141)
           Mineral exploration....            234,130               861,865
           General corporate
             operations...........           (600,262)             (576,486)
                                           -----------           ----------
                  Net income (loss)        $ (322,325)           $  108,238
                                           ===========           ==========

         Depreciation, depletion
             amortization and valuation
             charged to identifiable
             assets:

             Oil & gas depletion...        $  112,347            $   63,000
             General corporate.....            12,873                14,179
                                          -----------            ----------
                  Total                    $  125,220            $   77,179
                                          ===========            ==========

         Capitalized expenditures:

             Oil and gas...........        $  376,348            $   55,035
                                          ===========            ==========

             Mineral...............        $   56,908            $   16,652
                                          ===========            ==========

             Corporate.............        $   10,939            $   85,523
                                           ===========           ==========

         Identifiable  assets,  net of
             accumulated  depreciation,
             depletion and
             amortization:
             Oil and gas...........        $  537,071            $  301,816
             Mineral exploration...           298,300               730,021
             General corporate.....           361,477               311,155
                                          -----------            ----------

                  Total                    $1,196,849            $1,342,992
                                          ===========            ==========


                                       41

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

Note 7   RELATED PARTY TRANSACTIONS

     At June 30, 1996 and 1995, the Company owed its officers,  shareholders and
     directors $5,216 and $9,207 respectively.

     During the years  ended June 30,  1996 and 1995 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 totalled less than $15,000 and $10,000,  respectively,
     in the years ended June 30, 1996 and 1995. In the years ended June 30, 1996
     and 1995 management believes that the expenditures benefitted 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 in NASDAQ or the Electronic  Bulletin Board, or as reported
     by any  exchange.  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.


                                       42

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

     Royalties  in fiscal  year ended June 30,  1996 were  assigned on the North
     Strand  #1 (a dry hole  effective  April  22,  1996)  and  Grey  Wolf #1 (a
     marginally  economic  well) on  October  1, 1995.  Registrant  assigned  an
     overriding royalty interest in these California properties to its employees
     and consultants in the following amounts:

                                       North (1)                  Grey
                                      Strand #1                  Wolf #1
                                      ---------                  -------

                                      Percent                    Percent
                                      -------                    -------

         R. V. Bailey                  1.25                       1.00

         Robert A. Cohan               1.25                       1.00

         Ray K. Davis                  0.50                       0.25

         Judith L. Shelton             0.333333                   0.1333330


(1)  This well was plugged and abandoned April 22, 1996.


Note 8  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.  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. The Company believes its exposure to credit risk is minimal.


                                       43

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

Note 9   OIL AND GAS ACTIVITIES

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

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

                                                        June 30, 
                                            -------------------------------
                                               1996                 1995 
                                            ----------           ----------

       Proved properties                    $1,349,047           $1,031,693
                                            ----------           ----------

       Accumulated depreciation,
         depletion and
         amortization                         (591,501)            (479,154)

       Valuation allowance                    (281,720)            (281,720)
                                            -----------          -----------

                                              (873,221)            (760,874)
                                            -----------          -----------

       Net capitalized costs                $  475,826           $  270,819
                                            ===========          ==========

     Costs incurred
     --------------

     Information  relating to the  Company's  costs  incurred in its oil and gas
     operations is summarized as follows: 

                                                 Year ended June 30, 
                                            ------------------------------ 
                                              1996                 1995
                                            --------              --------

         Property acquisition               $186,000              $ 52,937
         Development                         133,642                 2,098
                                            --------              --------
                                            $319,642              $ 55,035
                                            ========              ========

     Fees   charged  by  the   Company  to  operate  the   properties   totalled
     approximately  $5,374  per  month in 1996  and  $2,395  per  month in 1995.
     Additionally,  the Company sold minor interests in wells located in Montana
     and South Dakota for $9,153 during fiscal 1995 and minor interests in wells
     located in Montana and South Dakota for $2,400  during  fiscal 1996.  These
     wells  had  reserves  that  were   insignificant   at  the  time  of  their
     disposition.  In  November  1996,  the  Company  sold all of its  interests
     outside of California to the Company's consulting  accountant,  officer and
     shareholder for $100,000. 

                                       44

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


     Included above is the Divide Field oil and gas operations which the Company
     sold for $80,000 in April,  1995.  The Divide Field  included a substantial
     portion of the  Company's  reserves.  As a result,  the  Company  wrote off
     capitalized  costs of  $1,153,060  and related  accumulated  depletion  and
     impairment of $868,326,  realizing a loss of $204,734, which is included in
     loss on disposal of assets.

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

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

                                                      Year ended June 30,
                                                  --------------------------
                                                     1996            1995
                                                  ---------        ---------

    Revenues*                                     $ 209,936        $ 269,280
    Production costs                                (53,782)        (178,687)
    Depreciation and depletion                     (112,347)         (63,000)
    Loss on sale of Divide Field                       -            (204,734)
                                                  ---------        ---------

    Results of operations
      (excluding corporate overhead)              $  43,807        $(177,141)
                                                  ==========       ==========

    *Includes oil and gas related fees and equipment rentals.

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

     The following unaudited reserve estimates presented as of June 30, 1996 and
     1995 were prepared by  independent  petroleum  consultants.  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.

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


                                       45

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

     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, 1994                  136              101
       Revisions of previous estimates                   (7)             (23)
       Improved Recovery                                (79)             (14)
       Production                                       (15)             (11)
                                                        ----             ----

     Estimated quantity, June 30, 1995                   35               53
       Revisions of previous estimates                    2                1
       Acquisitions                                      42               58
       Production                                        (6)              (6)
                                                        ----             ----

     Estimated quantity, June 30, 1996                   73              106
                                                        ====             ===


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

    Oil (Bbls)
      June 30, 1995             35                0               35
      June 30, 1996             44               29               73

    Gas (MCF)

      June 30, 1995             53                0               53
      June 30, 1996             49               57              106



                                       46

<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,
                                           ----------------------------------
                                             1996                      1995
                                           ---------                 --------
                                                     (in thousands)

       Future cash inflows                 $  1511                   $   677
       Future production and
         development costs                  (  604)                   (  304)
       Future income tax
         expense                               --                       --

                                           --------                  -------
       Future net
          cash flows                           907                       373

       10% annual discount
         for estimated timing
         of cash flows                        (373)                     (155)
                                           --------                  --------

       Standardized measure
         of discounted future
         net cash flows                    $   534                   $   218
                                           ========                  =======




                                       47

<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,
                                                 -------------------------
                                                   1996             1995
                                                 --------         --------
                                                       (in thousands)

     Standardized measure of
       discounted future net
       cash flows, beginning
       of year                                   $  218           $    700
                                                 --------         --------

     Sales and transfers of
       oil and gas produced,
       net of production
       costs                                        (92)               (43)

     Net changes in prices
       and production costs
       and other                                     92                 41

     Acquisition of reserves                        265                 --

     Sale and farm-out of
       proved reserves
       in place                                      --               (331)

     Revisions of previous
       quantity estimates                            10                (43)

     Other                                           19               (176)

     Net change in income
       taxes                                         --                 --

     Accretion of discount                           22                 70
                                                 --------         ---------

                                                    316               (482)
                                                 --------         ---------
     Standardized measure
       of discounted future
       cash flows, end of
       year                                      $  534           $    218
                                                 ========         ========

     In 1996,  the upward  revision in quantity  estimates of $10,000 was due to
     improved  pricing for oil and gas.  The $92,000  increase due to prices and
     production  costs  reflects the overall  improvement of prices as well as a
     reduction in operating costs incurred when Registrant shifted operations to

                                       48

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

     California.   In  1995,  the  downward  revision  of  $43,000  was  due  to
     substantial declines in the price of gas received by the Company, the early
     abandonment  of producing  properties,  and the shut in of certain wells in
     which the Company owns overriding royalty interests.  The "other" change of
     $56,000 in 1994 and  $176,000 in 1995 is  primarily  attributed  to reduced
     sales  revenue  due to the  decline of oil prices and  higher-than-expected
     production  costs  during  fiscal 1994 and 1995 as compared to revenues and
     production costs projected for the same period as of July 1, 1993 and 1994.


Note 10  COMMITMENTS AND CONTINGENCIES

     At June 30, 1996 the Company was  committed to the  following  drilling and
     development projects in California:

     1.   Drill, complete and equip the Emigh #34-1 well.
             
     2.   Install a pipeline and put the Grey Wolf #1 well on production.
              
     3.   Complete seismic work on the Brandt 16X-27 well.


     As of June 30,  1996,  the Company has received  approximately  $245,000 in
     prepayments  from third party  investors  for their  share of the  projects
     outlined above.

     As of the date of  December  4, 1996,  the Emigh #34-1 and the Grey Wolf #1
     wells have been completed as producing gas wells. The Company  continues to
     conduct  seismic studies on the Brandt 16X- 27 well.  Unexpended  funds due
     investors or to be spent on projects were approximately $99,500 at the time
     of filing.

     The Company has an employment  agreement with its President  which provides
     for  compensation  of  $125,000  per  year  to be  paid,  reimbursement  of
     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, 1997) 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

                                       49

<PAGE>

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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 Cohan on April
     16, 1995,  which  provides for the payment of $75,000 for the first year of
     employment, plus reimbursement of expenses,  including health insurance and
     the payments on a truck. The Company will also assign 1/4th of 1% of 8/8ths
     overriding  royalty  interest to Mr. Cohan for each project  brought to the
     Company by Mr.  Cohan and acquired by the  Company.  The Company  wishes to
     employ  Mr.  Cohan for an  additional  12 months  and Mr.  Cohan  wishes to
     continue his employment with the Company.  The renewal employment agreement
     is  effective  April 16,  1996 to April 15, 1997 at the rate of $80,000 per
     year.

Note 11  SUBSEQUENT EVENTS

     The Company has recently drilled and completed the Emigh #34-1 well located
     in the Denverton Creek Field,  Solano County,  California.  The Emigh #34-1
     was drilled to a total depth of 10,200' and extended the previously defined
     productive  limits of the field in a northwesterly  direction.  The Company
     perforated a six foot  interval in the Bunker  Formation  which tested at a
     stabilized  flow rate of 2,100  MCFPD of high BTU  natural gas with a light
     mist of condensate and formation water. Gas prices in November,  1996, were
     $2.59 per MMBTU.

     Based on log analysis and mud log shows, it appears that  approximately  70
     feet to 100 feet of  additional  pay may exist  behind-pipe  in the Bunker,
     McCormick,  H&T, and 1st Starkey  Sands.  These zones will be tested in the
     future. The Company has 960 acres under lease in the immediate vicinity and
     may drill a follow-up well in the spring of 1997.

     The  Denverton  Creek Field has produced  approximately  26 BCF of high BTU
     (1045-1070) gas from the Bunker,  McCormick,  Martinez,  Peterson, H&T, and
     1st Starkey Sands.

     The Company has formed a subsidiary,  ISL Resources Corporation,  a Wyoming
     corporation, in order to carry on uranium activities in Wyoming and perhaps
     elsewhere.  Management of the Company believes that the in-situ leaching of
     uranium,  commonly  referred to as ISL, is the best possible way to license
     and commence production of uranium under the present environmental climate.
     Discussions  for providing  financing for ISL Resources have been held with
     certain  parties,  but there is no assurance that funding will be provided.
     The Company intends to vigorously pursue funding for ISL Resources prior to

                                       50

<PAGE>

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     the end of  calendar  year  1996  and in  subsequent  months.  There  is no
     assurance such funding will take place. If no outside funding is found, the
     Company  runs the risk of losing the mining  claims and the  investment  in
     them.

                                       51


<PAGE>

Item 8.   Changes in and Disagreements with Accountants on  Accounting and
          Financial Disclosure
--------------------------------------------------------------------------------
         
     This  item  is  not  applicable  since  there  has  not  been a  change  of
accountants during the past twenty-four months.


                                    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.  Registrant 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 the Registrant are as follows:

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

  R. V. Bailey              64      President,             I             1980
                                    Treasurer
                                    and Director

  Lawton L. Clark           72      Director,             III            1993
                                    Secretary

  Robert F. Sheldon         74      Director               II            1981

  Robert A. Cohan           40      Vice President        N/A             N/A

     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.



                                       52

<PAGE>


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

     (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 35 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 Association of
Exploration  Geochemists,  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 the  Registrant  and has been an officer
and director since its inception.

     Lawton L. Clark.  Mr.  Clark  currently is an oil and gas  consultant  with
offices  in  downtown  Denver.  Since  1984,  Mr.  Clark  has been  active as an
independent  agent in assembling  acquisitions and exploration deals for various
companies,  including deals in which Aspen Exploration  participated.  Mr. Clark
graduated  from the  University  of  Wyoming  in 1948 with a degree in  business
administration  and has been in the oil business in various  capacities for many
years,  including being one of the founders of Mesa Petroleum  (Mesa Inc.).  Mr.
Clark is a member of the  American  Association  of  Petroleum  Landmen  and the
Independent  Petroleum  Association  of Mountain  States  (IPAMS).  He served as
Membership  Chairman of IPAMS for several terms. Mr. Clark joined the Registrant
as a member of the Board of Directors in June 1993.

     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 the Registrant'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
16  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

                                       53

<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.

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

     There are no family  relationships  among any of the Registrant'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  Registrant  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 Registrant  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 Registrant 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  Registrant  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.


                                       54

<PAGE>


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

     (e) Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the
Securities  Exchange Act of 1934 (the "Exchange Act") requires the  Registrant's
directors  and  officers  and any  persons  who own more than ten percent of the
Registrant'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 the  Registrant  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, the  Registrant  believes that during the period from
July 1, 1995 through December 4, 1996 all filing requirements  applicable to its
officers,  directors  and  greater-than-ten-percent  shareholders  were complied
with.



                                       55

<PAGE>

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 the  Registrant  during the fiscal  year ended June 30,  1996 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,
as President      1996     125,000      750     29,400      0       0        0        15,000
and Chief         1995     125,000      750     28,354      0       0        0        10,228
Executive         1994     125,000      750     39,942      0       0        0        19,840
Officer           1993     125,000        0     44,214      0       0        0        15,501



                  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,
as Vice
President of      1996     75,000    750       0      4,000       0       0       6,000
Oil & Gas         1995     15,625      0       0          0       0       0           0
Exploration       1994          0      0       0          0       0       0           0
</TABLE>



*    Registrant has a "Royalty and Working Interest Plan" by which Registrant is
     able to assign overriding  royalty interests of up to 2% of 100% in oil and
     gas  properties  (up to 3% in other mineral  properties),  at  Registrant's
     discretion.  This plan is intended to provide  additional  compensation  to
     Registrant's  personnel  involved  in  the  acquisition,   exploration  and
     development of Registrant's mineral prospects.  Registrant had assigned 1/2
     of 1% royalty  interest on the Valdez Creek claims to R. V. Bailey in 1986.
     Royalty  payments are made directly from Valdez Creek Mining Company to Mr.
     Bailey and since  Registrant  does not control these  payments,  Registrant
     does not  know the  amount  of any  royalty  payment  Mr.  Bailey  may have
     received pursuant to this assignment.


                                       56

<PAGE>


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

     Royalties  in fiscal  year ended June 30,  1996 were  assigned on the North
     Strand  #1 (a dry hole  effective  April  22,  1996)  and  Grey  Wolf #1 (a
     marginally  economic  well) on  October  1, 1995.  Registrant  assigned  an
     overriding royalty interest in these California properties to its employees
     and consultants in the following amounts:

                                              North (1)       Grey
                                             Strand #1        Wolf #1
                                             ---------        -------

                                             Percent          Percent
                                             -------          -------

          R. V. Bailey                        1.25             1.00

          Robert A. Cohan                     1.25             1.00

          Ray K. Davis                        0.50             0.25

          Judith L. Shelton                   0.333333         0.1333330


(1)  This well was plugged and abandoned April 22, 1996.

     Registrant  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.  $21,273 of the premium paid for this policy
in fiscal 1996 is considered compensation to Mr. Bailey and $8,127 was also paid
to reimburse the tax effect of the executive's  split, both of which amounts are
included in column (e) of the table, above.

     Registrant  adopted a Profit-Sharing  401(k) Plan which took effect July 1,
1990.  All  employees  are  immediately  eligible to  participate  in this Plan.
Registrant's  contribution  (if any) to this plan is  determined by the Board of
Directors  each year. At June 30, 1995  Registrant  had accrued but not yet paid
$7,000 to the plan for the Plan  Year  1995.  At June 30,  1996  Registrant  had
accrued but not yet paid an amount yet to be calculated to the plan for the Plan
Year 1996.  The amounts  contributed to Mr.  Bailey's and Mr.  Cohan's  accounts
(which  amounts are fully vested) are also included in column (e) of the tables,
above.

     Registrant  has  furnished  vehicles to Mr.  Bailey,  and the  compensation
allocable to these vehicles, plus amounts paid for various moving/storage costs,
and  travel  and  entertainment  paid on  behalf of Mr.  Bailey's  wife when she
accompanied  him for business  purposes,  are also included in column (i) of the
table. Registrant

                                       57

<PAGE>


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

also is  paying  a lease  on a  vehicle  for Mr.  Cohan.  This  vehicle  is used
substantially for business purposes,  therefore no vehicle costs were charged to
Mr. Cohan.

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

     Finally,  Registrant  has entered into an  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.

     Registrant 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

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



                                       58

<PAGE>


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

     (f) Compensation of Directors

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

     Prior to the fiscal  year ended June 30, 1994 each  director  has been paid
$150 per meeting attended,  plus all expenses incurred in attending the meeting.
There  was one  board of  directors  meeting  in  fiscal  1996  attended  by all
directors, and nine telephonic board of directors meetings.

     On  September  11, 1995  (effective  September 1, 1995)  Registrant  issued
25,000 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 the
Registrant.

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

     Registrant  has entered into an employment  agreement with Mr. Bailey which
provides for the payment of $125,000 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  1997) at Mr.
Bailey's  option.  Registrant 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  Registrant  changes  his duties
substantially from those he is currently performing, or if there is a "change of
control" of the Registrant. If Mr. Bailey terminates the Agreement for either of
the foregoing reasons,  Registrant 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,  Registrant  entered into a Stock Purchase  Agreement with
Mr. Bailey whereby Mr. Bailey granted Registrant an option to purchase up to 75%
of  Registrant'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 Registrant 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 the  Registrant.  The purchase price of the shares  acquired
under the 1993 Agreement

                                       59

<PAGE>


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

shall be the  fair  market  value  of the  shares  on the  date of  death.  Both
Registrant  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 in NASDAQ or the Electronic Bulletin Board, or as reported by
any exchange.  The 1993 Agreement further requires that Registrant  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.

     Registrant entered into an employment agreement with Mr. Cohan on April 16,
1995,  which  provides  for  the  payment  of  $75,000  for  the  first  year of
employment,  reimbursement  of  expenses,  including  health  insurance  and the
payments  on a lease of a truck.  Registrant  will  also  assign  1/4th of 1% of
8/8ths  overriding  royalty  interest to Mr. Cohan for each  project  brought to
Registrant by Mr. Cohan and acquired by Registrant.  Registrant wishes to employ
Mr.  Cohan for an  additional  12 months and Mr.  Cohan  wishes to continue  his
employment with Registrant.  The renewal employment agreement is effective April
16, 1996 to April 15, 1997 at the rate of $80,000 per year.

     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, 1996 or subsequently.


                                       60

<PAGE>

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

     (a)-(b) The  following  table sets forth as of November 27, 1996 the number
and percentage of  Registrant'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 &            886,942*                21.10%
                            Beneficial

Robert A. Cohan             Record               50,000**                1.00%

Robert F. Sheldon           Record               43,160**                1.03%

Lawton L. Clark             Record               25,000**                0.10%


All Officers and            Both Record       1,005,102                 23.26%
Directors as a              & Beneficial
Group (4 persons)



*    Thisnumber  includes  870,622 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 option  granted by Bailey to Registrant to purchase up to
     75% of the common shares of  Registrant  owned by Bailey at the time of his
     death. This option expires 120 days from the date of Bailey's death.

**   This number  includes 25,000 shares of common stock issued on September 11,
     1995, effective September 1, 1995, and 50,000 shares of common stock issued
     on February 16, 1996, effective January 2, 1996.


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

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

                                       61

<PAGE>

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

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

     Some of the  Directors  and Officers of  Registrant  are engaged in various
aspects of oil and gas and mineral  exploration  and  development  for their own
account.  Registrant  has no policy  prohibiting,  nor does its  Certificate  of
Incorporation  prohibit,  transactions  between  Registrant and its Officers and
Directors. Registrant 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 Registrant's Board.

     R. V. Bailey, President and a Director of Registrant,  owns a minor working
interest in oil and gas  acreage in which  Registrant  also has a minor  working
interest.  During 1995,  both the Registrant and Mr. Bailey sold their interests
in jointly owned oil and gas properties.  He also owns minor overriding  royalty
interests  granted  to him by  Registrant  in the  Valdez  Creek  and Nome  Gold
Properties.  The  Management  Committee  granted  Mr.  Bailey a 4% net  proceeds
royalty on the Registrant's  share of profits from certain properties near Nome,
Alaska.

     R. V. Bailey, President and a Director of Registrant,  owns a minor working
interest in a property  located in Kern County,  California.  Registrant  is the
operator of this property.  Two wells were drilled.  Subsequently,  one well was
plugged and abandoned, and the remaining well is marginally economic.

     On April 1, 1996,  Registrant  entered into an agreement with R. V. Bailey,
the  president  and  chairman of the board of  directors  of  Registrant,  for a
venture to explore and develop the Kaycee 96 Project (the "Project"), located on
the  western  margin of the Powder  River Basin in  Wyoming.  Registrant  is the
designated Operator for the Project and has spent approximately  $130,000 on the
Project  to  date.  Over a period  of more  than 20 years  Bailey  had  acquired
geological and engineering data relating to the Project area, including maps and
drill hole logs for more than  4,000  drill  holes.  An  independent  geological
consultant  has estimated  more than 1.7 million pounds of U3O8 in resources for
this Project, but substantial  additional drilling and other data gathering will
be  required  in order to evaluate  the  Project  potential.  In addition to the
substantial  expenditures by others estimated to be  approximately  $10,000,000,
Bailey had  personally  incurred  substantial  expenditures  in the  approximate
amount of  $100,000  on the  project  in the early  1980's  before  the price of
uranium  decreased  substantially.  Under the agreement,  Registrant's  interest
shall  be 75% and  Bailey's  interest  25%.  Registrant  shall  expend  funds as
available and as necessary to acquire properties

                                       62

<PAGE>



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

within the defined  area of  interest.  A third party  joint  venturer  shall be
sought to provide  funding for the project and to reimburse  Registrant  for its
expenditures  for the  project.  In the event a source of funding is found,  and
after  Registrant  has  recovered its  expenditures,  Bailey shall be reimbursed
$100,000.  Any  additional  sums  paid  by a  third  party  may be  retained  by
Registrant.

     None of the other  Officers or Directors of Registrant or any other persons
or entities  affiliated  with  Registrant or its Officers or Directors  owns any
other  working  interest or  overriding  royalty  interest in or near acreage in
which Registrant owns a working interest.

     During the 1996 fiscal year,  Registrant issued 25,000 shares of its common
stock to each of its outside  directors,  Mr. Sheldon and Mr. Clark,  and 50,000
shares of its common stock to Robert A. Cohan, vice president.

     During the fiscal years ended June 30, 1995 and 1996,  Registrant also paid
$60,000  annually in premiums on a split-dollar  life  insurance  policy for the
benefit of  Registrant's  president,  as required by the terms of his employment
agreement. (See Note 3 to Consolidated Financial Statements).

     In addition, during the fiscal year Registrant paid for various hospitality
functions  and for travel,  lodging  and  hospitality  expenses  for spouses who
occasionally  accompanied  directors  when they were  traveling on  Registrant's
business.  Registrant's  president  has also  supplied  Registrant  with certain
promotional  items.  The net effect of these items has been a cost to Registrant
of approximately $15,000 for the fiscal year ended June 30, 1996 and $10,000 for
the fiscal year ended June 30, 1995.  Management  believes that the expenditures
were to Registrant's benefit.

     Registrant  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.



                                       63

<PAGE>


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

     (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 Registrant in an amount in excess of
$60,000 at any time since June 30, 1992.

     (d) Transactions with Promoters.

     Not applicable.


                                       64

<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)

             10.9       Anvil Joint Venture Agreement between Nome Gold
                        Joint Venture, Golden Glacier, Inc. and Newmont
                        Exploration Ltd., dated March 1, 1992 (8)

             10.10      Purchase and Sales Agreement for the Divide Oil
                        Field Purchase, dated September 13, 1991 (8)

             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)


                                       65

<PAGE>



Item 13.  Exhibits and Reports on Form 8-K (Continued)
------------------------------------------------------

           Exhibit No.
           -----------

              22.1       Subsidiaries of the Registrant

                                     Aspen Gold Mining Company, Colorado

                                     Aspen Recursos de Mexico, S.A. de C.V.,
                                     Chihuahua, Mexico (10)

-----------------

(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
Registrant on Form 8-K.



                                       66

<PAGE>



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

                                       ASPEN EXPLORATION CORPORATION




                                       /s/ R. V. Bailey
December 4, 1996                       ----------------------------------------
                                       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 Registrant  and in
the capacities and on the dates indicated.

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


     /s/ R. V. Bailey
-------------------------------------        December 4, 1996
R. V. Bailey, Director,
Chief Executive Officer,
Principal Financial Officer


     /s/ Lawton L. Clark
------------------------------------         December 4, 1996
Lawton L. Clark, Director


     /s/ Robert F. Sheldon
------------------------------------        December 4, 1996
Robert F. Sheldon, Director

                                       67