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  years ended June 30, 1996 and
          1997.

[   ]     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      No  XX
                                      -----   -----

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  years are  $383,951  (1997) and
$448,574 (1996).

At  March  16,  1998,  the  aggregate   market  value  of  the  shares  held  by
non-affiliates  was  approximately  $1,569,975.  The aggregate  market value was
calculated by multiplying  the mean of the closing bid and asked prices ($0.475)
of the common stock of  Registrant  on the OTC Bulletin  Board  listing for that
date,  by the number of shares of stock  held by  non-affiliates  of  Registrant
(3,305,210).

At March 16, 1998,  there were  4,352,722  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.  Both
entities are inactive.

In 1996  Registrant  formed ISL Resources  Corporation  (ISLR) as a wholly-owned
subsidiary to pursue  uranium  opportunities.  In 1997  Registrant  conveyed 50%
interest in ISLR to an unaffiliated third party who was to arrange financing for
the  uranium  projects.  At that time,  ISLR had not been  capitalized  with the
uranium  properties in which at Registrant owned an interest,  although ISLR did
obtain rights to certain  information  that had been developed for the projects.
The financing was not accomplished, and Registrant reacquired the data from ISLR
in 1997 and resolved  other  outstanding  issues by conveying to the third party
20,000 shares of Registrant's  restricted common stock.  Registrant continues to
own 50% of ISLR but it is completely inactive.

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

During fiscal 1996 and 1997, and in the last half of calendar 1997 and the first
quarter of calendar  1998, in addition to oil and gas  activities,  Registrant's
management  focussed  attention  on uranium  deposits  in  sandstone  in Wyoming
because of the anticipated  shortfall of uranium needed for nuclear power plants
world-wide.  However,  a market for uranium projects did not develop quickly and
Registrant did not have  sufficient  funds  available to carry out the extensive
mining claim and lease acquisition and maintenance necessary to assemble a large
block  of  land  needed  for  the  uranium  exploration  programs.  Nevertheless
Registrant  was able,  in February,  1998,  to  negotiate  an  agreement  with a
newly-formed Canadian company which provided for Registrant and the newly-formed
Canadian  company to  cooperatively  explore and develop two uranium projects in
Wyoming.



                                        2

<PAGE>


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

     (B) Narrative Description of Business.

Registrant  owns  leasehold  or  royalty  interests  in  producing  oil  and gas
properties in California.

Oil and Gas Exploration and Development:

As noted  elsewhere  herein,  the future  conduct of  Registrant's  business  is
dependent  upon  a  number  of  factors,  and  there  can be no  assurance  that
Registrant  will be able to  conduct  its  operations  as  contemplated  herein.
Certain  statements  contained in this report,  such as the oil and gas reserves
and discussion of possible future activities of Registrant are  "forward-looking
statements." The accuracy of these  statements  cannot be guaranteed as they are
subject to a variety of risks  including,  but not limited  to: the  possibility
that the  estimates  on which  Registrant  is relying  are  inaccurate,  or that
unknown  or  unexpected  future  events  may  occur  that will tend to reduce or
increase Registrant's ability to operate successfully, if at all.

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
area of interest is in the state of California.

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 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  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.

Registrant has identified and will continue to identify  prospects  suitable for
drilling and acquisition through its management, through independent contractors
retained  from time to time by  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


                                        3

<PAGE>


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

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. Management of
Registrant  carried out field  exploration  for uranium  deposits in Wyoming and
found  several  geologically-favorable  areas for the  occurrence  of roll front
uranium deposits in sandstone.  Although  Registrant had  insufficient  funds to
carry out land acquisition usually necessary in large uranium projects involving
sedimentary  deposits,  Registrant was able to interest a newly-formed  Canadian
mining  company in providing  funding for two uranium  projects in Wyoming which
Registrant had identified and had gathered geological information about.

     (1)  Principal  products  produced  and  services  rendered:   Registrant's
products  during  fiscal  1997 were  crude oil and  natural  gas.  Crude oil and
natural  gas  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 and derives 100% of its revenues from crude oil
and natural gas sales.

                                        4

<PAGE>


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


     (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.

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


                                        5

<PAGE>


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

leases, delay rentals, advance royalties, the use of differential royalty rates,
the amount of annual rental payments and stipulations  requiring exploration and
production  commitments  by the lessee.  Companies  with far  greater  financial
resources,  existing  staff and labor  forces,  equipment  for  exploration  and
mining,  and vast  experience  will be in a better  position than  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 and 3  companies  in fiscal  1997
represented  sales in excess of 10%. 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  mining  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 mining
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  assigned  all its  interest in the mining
claims to Registrant. Registrant is holding 8 mining claims on Valdez Creek, but
has made no decision concerning further work in the area.

     (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.



                                        6

<PAGE>


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

     (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,  1997  Registrant  employed  three  full-time
persons.  Registrant also uses independent contractors and other consultants, as
needed.



                                        7

<PAGE>



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

     (A) Oil and Gas Properties

     (1) General Information

Registrant  increased  its net gas  reserves by a multiple of 15 (1630 MMCF from
106 MMCF) during fiscal year 1997 (in addition to replacing 100% of the reserves
it produced during the last fiscal year). The  undiscounted  future net revenues
forecast to be recovered from oil and gas reserves  increased by a multiple of 4
($3,648,000 from $907,000) during the last fiscal year.

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

     During the fiscal year ended June 30, 1996  Registrant  participated in the
drilling of 3 wells,  of which 1 was  completed as a  commercial  gas well and 2
were dry holes and plugged and abandoned.  During the fiscal year ended June 30,
1997  Registrant  participated  in the  drilling  of 2  wells,  of  which  1 was
completed  as a  commercial  gas  well  and 1 was a dry  hole  and  plugged  and
abandoned.

Denverton  Creek Field,  Solano  County,  California.  Registrant  owns a 23.55%
working  interest  in  approximately  1,611 net  acres  located  in this  field.
Registrant  drilled and completed the Emigh 34-1 well in the winter of 1996 to a
total depth of 10,200' and extended the previously  defined productive limits of
the field in a  northeasterly  direction.  One 6 foot interval was perforated in
November of 1996,  commenced  production at a flow rate of 3,300 MCFPD, 18 BCPD,
and 6 BWPD, and is currently  producing  approximately  1,000 MCFPD.  Cumulative
production to date is approximately 856,000 MCF.

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 and several
other zones. These zones will be tested in the future.  Registrant has 1,611 net
acres under lease in the immediate  vicinity and drilled a successful  follow-up
well, the Emigh 2-1, in the fall of 1997 (see Note 11, Subsequent Events). After
nearly  four  months of  production,  the Emigh 2-1 has  produced  approximately
532,000 MCF and is currently  producing  4,700 MCFPD of high BTU gas (1070),  25
barrels  of  condensate  per day,  and 8  barrels  of water per day at a flowing
tubing pressure of 2600#.

The Denverton Creek Field has produced approximately 27 BCF (billion cubic feet)
of high BTU (1045-1070) gas from the Bunker, McCormick, Martinez, Peterson, H&T,
and 1st Starkey Sands.

Rosedale  Field,  Kern County,  California.  Registrant  acquired a 12% operated
working  interest (9.51% net revenue  interest) in one flowing oil well, one gas


                                        8

<PAGE>


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

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 oil for over seven years. Cumulative production
to date is  approximately  211,000 barrels of oil and the current  production is
approximately 35 BOPD and 19 BWPD. The Arco 46X-10, a shut-in gas well, has been
tested at 2.6 million cubic feet of gas per day, and is  anticipated to commence
production in March, 1998.

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 123,000 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.  The
Brandt  26X-27 was drilled on the acreage and is currently  flowing over 90 BOPD
(See Note 11, Subsequent Events).



                                        9

<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, 1997 and
1996, and the average sales prices,  average production costs and direct lifting
costs per unit of production.

                                                       Years Ended June 30,
                                                    --------------------------
                                                      1997              1996
                                                      ----              ----
         Net Production
         --------------
         Oil (Bbls)                                   5,636             7,987
         Gas (Mcf)                                   81,523             7,846

         Average Sales Prices
         --------------------
         Oil (per Bbl)                               $19.99            $17.19
         Gas (per Mcf)                               $ 2.50            $ 1.04

         Average Production Cost(1,3)
         ----------------------------
         Per equivalent
           Bbl of oil                                $ 4.67            $17.87

         Average Lifting Costs(2,3)
         --------------------------
         Per equivalent
           Bbl of oil                                $ 1.93            $ 5.79
----------

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

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

3    Average   production   cost  and  average   lifting   costs  have  declined
     significantly  because the majority of high cost,  non-California oil wells
     were sold  effective  November  1,  1996 and a lower  cost gas well came on
     stream in December, 1966.



                                       10

<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, 1997:

                                            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
                  Emigh 34-1              --        1       --       0.2355

                                          --       --       ----     ------
                TOTAL                      3        4       0.42     0.5435
                                          ==       ==       ====     ======

----------

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.


                                       11

<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
                  Emigh 34-1                         160.00             37.68
                                                   --------             -----

                           TOTAL                   1,055.00             88.51
                                                   ========             =====

----------

1    Consists of acres spaced or assignable to productive wells.

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

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

          (ii) (b) Royalty Interests in Productive Wells and Developed  Acreage:
The following tables set forth at June 30, 1997 Registrant's royalty interest in
a productive gas well and developed acres:

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


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

     California:
      Emigh 34-1        2.1049           --        1             160.00

                                         --       --             ------

              TOTAL                      --        1             160.00
                                         ==       ==             ======
----------

1    Consists of acres spaced or assignable to productive wells.


          (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.

                                       12

<PAGE>


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

     (3) Reserve Information

Oil and Gas Reserves. Oil and gas reserves for Registrant's properties have been
evaluated at June 30, 1996 by Resource Services International,  Inc. and at June
30, 1997 by Cecil Engineering, Inc.

     RESERVE  CALCULATIONS  BY  INDEPENDENT   PETROLEUM  ENGINEERS  INVOLVE  THE
     ESTIMATION OF FUTURE NET RECOVERABLE RESERVES OF OIL AND GAS AND THE TIMING
     AND AMOUNT OF FUTURE NET REVENUES TO BE RECEIVED THEREFROM. THOSE ESTIMATES
     ARE BASED ON NUMEROUS  FACTORS,  MANY OF WHICH ARE VARIABLE AND  UNCERTAIN.
     RESERVE  ESTIMATORS  ARE  REQUIRED TO MAKE  NUMEROUS  JUDGMENTS  BASED UPON
     PROFESSIONAL TRAINING,  EXPERIENCE AND EDUCATIONAL  BACKGROUND.  THE EXTENT
     AND  SIGNIFICANCE  OF THE JUDGMENTS IN THEMSELVES  ARE SUFFICIENT TO RENDER
     RESERVE  ESTIMATES  INHERENTLY  IMPRECISE.   SINCE  RESERVE  DETERMINATIONS
     INVOLVE  ESTIMATES  OF  FUTURE  EVENTS,  ACTUAL  PRODUCTION,  REVENUES  AND
     OPERATING  EXPENSES MAY NOT OCCUR AS ESTIMATED.  ACCORDINGLY,  IT IS COMMON
     FOR THE ACTUAL  PRODUCTION AND REVENUES LATER RECEIVED TO VARY FROM EARLIER
     ESTIMATES.  ESTIMATES  MADE IN THE  FIRST FEW  YEARS OF  PRODUCTION  FROM A
     PROPERTY ARE GENERALLY NOT AS RELIABLE AS LATER ESTIMATES BASED ON A LONGER
     PRODUCTION  HISTORY.  RESERVE ESTIMATES BASED UPON VOLUMETRIC  ANALYSIS ARE
     INHERENTLY  LESS RELIABLE THAN THOSE BASED ON LENGTHY  PRODUCTION  HISTORY.
     ALSO, POTENTIALLY PRODUCTIVE GAS WELLS MAY NOT GENERATE REVENUE IMMEDIATELY
     DUE TO LACK OF PIPELINE  CONNECTIONS  AND POTENTIAL  DEVELOPMENT  WELLS MAY
     HAVE TO BE ABANDONED  DUE TO  UNSUCCESSFUL  COMPLETION  TECHNIQUES.  HENCE,
     RESERVE ESTIMATES MAY VARY FROM YEAR TO YEAR.


                                       13

<PAGE>


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

                           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,  1997  and  1996.  See  Note  9 to the  Consolidated  Financial
Statements and the above discussion.

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

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

           Revisions of previous estimates        2,000         1,000
           Acquisition of Properties             44,000        60,000
           Production                            (8,000)       (8,000)
                                             ----------    ----------

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

           Revisions of previous estimates      (20,000)        4,000
           Sale of Properties                   (32,000)      (40,000)
           Discoveries                           12,000     1,643,000
           Production                            (5,000)      (82,000)
                                             ----------    ----------

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


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

                                   Developed  Undeveloped    Total
                                   ---------  -----------    -----
            Oil (Bbls)
                  June 30, 1996      73,000           0      73,000
                  June 30, 1997      17,000      11,000      28,000

            Gas (Mcf)
                  June 30, 1996     106,000           0     106,000
                  June 30, 1997     591,000   1,040,000   1,631,000
----------

1    All  non-California  proved  reserves have been sold.

2    All non-California developed and undeveloped reserves have been sold.


                                       14

<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) Mining Properties

From 1986 through  November  1992,  Registrant  concentrated  the efforts in its
mining  segment  on  the  acquisition  and  exploration  of  undeveloped  mining
properties near Nome, Alaska.  Registrant 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,
Registrant's  interest in Nome Gold Joint Venture is of little or no value,  and
all remaining  costs,  which were nominal,  were written off in fiscal 1997. The
following sets forth a brief discussion of Registrant's mining properties:

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

Registrant  holds 8 unpatented  mining claims on Valdez Creek in central  Alaska
about halfway between Anchorage and Fairbanks. A placer gold mining operation on
Registrant's  claims on Valdez Creek was for a time the largest gold producer in
Alaska,  but that  mining  operation  has been  closed  and the land  reclaimed.
Management  of  Registrant  believes the source of much of the placer gold mined
previously may exist on the claims  currently being held by Registrant.  Further
studies will be required before a course of action may be decided upon for these
properties. The holding costs are $100/claim/year.

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 of offshore  state lands in southern and southeast
Alaska.  It is not likely  that these  applications  will be granted  because of
opposition from various  organizations and individuals.  These  applications are
not considered material to Registrant.

                                       15

<PAGE>


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


Kaycee and Shamrock Uranium Prospects, Wyoming
----------------------------------------------

Registrant  is  interested  in  two  uranium  prospects  in  Wyoming,   although
Registrant  has  substantially  no land position in either  prospect  area.  The
concept  that the prospect  areas may have  potential  for uranium  deposits was
derived from geological  ideas formulated over a long period of time relating to
specific  geographic  regions.  There is substantial  risk involved in acquiring
leases  or  mining  claims  within  the two  areas  and  there  is no  assurance
Registrant will be able to acquire  desirable  properties  within the two areas.
Further,  if certain properties were to be acquired,  Registrant must then carry
out  additional  exploratory  work to  investigate  the possible  occurrence  of
significant uranium deposits in order to prove the geologic theories.

For  the  Kaycee  prospect,   the  president  of  Registrant  had  made  uranium
discoveries  beginning in the 1960s and had  accumulated  data from drilling and
mapping  over a period of more than 10 years.  This data  included  maps showing
probable  locations for uranium  geochemical  interfaces  (commonly  called roll
fronts)  within a  defined  project  area.  Reports  by  consultants  were  also
available.  Mineral and surface ownership in the area is a mix of state, federal
and private ownership.

For the Shamrock prospect,  "altered"  sandstone suspected to be related to down
dip  uranium  deposits  was  recognized  in  1996  at the  surface  and  surface
geological  reconnaissance  revealed  a  number  of  characteristics  which  are
favorable  indicators  of uranium  roll front  deposits  down dip.  Mineral  and
surface  ownership  is a mix of mostly state and private  ownership,  although a
railroad owns the minerals under every other section.

Registrant  was  financially  unable to acquire the  substantial  land positions
needed to control a major part of the  mineral  rights on either  prospect,  but
Registrant has succeeded in reaching an agreement  with a newly-formed  Toronto,
Ontario-based company whereby Registrant has received a $50,000 cash payment and
a commitment to receive an  additional  $200,000 as financing can be arranged in
Canada.  Management of the newly-formed company will likely be based in Toronto.
Under the terms of the agreement  reached in March,  1998,  Registrant will also
own approximately 25% (2,000,000 shares) of the common stock of the newly-formed
company.  Registrant  knows of no market for the stock of this  company and does
not know if any market will ever  develop;  thus the stock may prove to be of no
value.  The  president  of  Registrant  is  expected to provide  geological  and
logistical  consulting services to the newly-formed  company and Registrant will
bill the  newly-formed  company  for  those  services  as well as  out-of-pocket
expenses related to the effort.

                                       16

<PAGE>


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


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

     (C) Title

     (1) Oil and Gas. As is  customary in the oil and gas  industry,  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.

                                       17

<PAGE>


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

Title examinations for a particular claim will be made when and if a significant
discovery is made on that claim.

     (D) Office Facilities.  Registrant's 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. Registrant has also paid $816 as a security deposit for the term
of the lease,  which was in effect  through  November 30, 1997.  Registrant  has
extended its existing  lease  agreement for an additional two year period at the
rate of $961 per month.

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

In the past fiscal  year,  Registrant  was  involved in one legal  action in the
State of Alaska:  a) proceeding  was pending in the Superior Court for the State
of Alaska, Second Judicial District at Nome; b) the complaint was filed February
14, 1994; c) Registrant, representing Nome Gold Joint Venture ("NGJV"), of which
Registrant was the majority  interest  owner and operator,  alleged that Newmont
Exploration Limited, a Delaware  corporation,  failed to live up to and abide by
the terms of VENTURE  AGREEMENT  dated March 1, 1992.  Plaintiffs  alleged that,
among other  deficiencies,  Newmont breached the covenant of good faith and fair
dealing - or was otherwise in breach of the venture agreement;  d) relief sought
was judgment by the court against the defendant,  compensatory damages, interest
on monetary awards,  attorney's fees, such additional relief as the court deemed
appropriate.  In early October, 1997, and after preliminary decisions adverse to
Registrant,  plaintiff  and  defendant  agreed  to  a  stipulation  whereby  the
litigation,  including all claims, was terminated with each party paying its own
legal costs.

By letter dated  February  11,  1998,  the  Securities  and Exchange  Commission
threatened to commence an enforcement  proceeding  against Registrant because of
Registrant's  failure to file reports as required under the Securities  Exchange
Act of 1934,  as amended.  According to the  Commission's  allegations,  reports
commencing  with the  annual  report on Form  10-KSB for the year ended June 30,
1996,  were not  timely  filed in  accordance  with the  Commission's  rules and
regulations. To Registrant's knowledge, the filing of this annual report and the
quarterly reports being filed herewith will alleviate the Commission's concerns,
but  there can be no  assurance  that the  Commission  may not  proceed  to take
enforcement action against Registrant. To Registrant's knowledge, no such action
has been  commenced.  If commenced,  the action could  involve  civil  sanctions
against  Registrant or its officers or directors,  including  possible  monetary
penalties.



                                       18

<PAGE>


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, 1997, or any subsequent period.

                                       19

<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 OTC Bulletin Board under the
symbol  "ASPN".  The  quotations  reflect  inter-dealer  prices  without  retail
mark-up, mark-down or commission and may not reflect actual transactions.

     The OTC Bulletin  Board has recently  proposed new rules which would result
in companies not current in their  reporting  requirements  under the Securities
Exchange Act of 1934 being  removed  from the  quotation  service.  Such action,
should it  occur,  would  have a  material  adverse  impact  on the  market  for
Registrant's common stock.

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

                                                   Low Bid          High Bid
                                                  ---------------------------

         Fiscal Year Ended June 30, 1997:
         --------------------------------

                  First Quarter                    13(cent)          25(cent)
                  Second Quarter                    3(cent)          19(cent)
                  Third Quarter                     3(cent)          14(cent)
                  Fourth Quarter                    3(cent)          11(cent)

         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, 1997 was 1,427.  This number does not reflect an indeterminate
number of  beneficial  holders  who own their  shares  in  street  name  through
broker/dealers and other depositories.


                                       20

<PAGE>



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

     (C) Dividends

     Holders of common stock are  entitled to receive  such  dividends as may be
declared by Registrant's Board of Directors. There were no dividends declared by
the Board of  Directors  during the fiscal year ended June 30, 1996 or 1997,  or
subsequently,  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
        -------------

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

June 30, 1997 as compared to June 30, 1996
------------------------------------------

Registrant  has  sustained  operating  losses  in  recent  years.  In  addition,
Registrant has used substantial amounts of working capital in its operations. At
June 30,  1996  current  assets  exceeded  current  liabilities  by  $45,000,  a
reduction of 93.5% from the year earlier.  At June 30, 1997 current  liabilities
exceeded current assets by $113,345 and Registrant has a working capital deficit
to that extent.  Consequently,  Registrant has been required to defer payment of
certain accounts payable which were otherwise due.

In order to provide interim financing,  Registrant has withdrawn $185,000 during
fiscal 1997 and an additional $15,000 in September,  1997 against a split dollar
insurance  plan.  Registrant  has  also  sold  its  non-California  oil  and gas
production  for $100,000  cash to an  affiliate as described  better in Item 12.
Further,  during  August  and  October  of  1997,  Registrant  has  borrowed  an
additional $130,000 to finance its share of drilling an offset well on the Emigh
property  from the same person.  In addition,  officers of the  Registrant  have
elected to defer a portion of their salary and expense  reimbursements.  At June
30,  1997,  the amount due to officers was  approximately  $72,000 and $5,000 at
June  30,  1996.  At the  time of this  filing,  Registrant  owed  its  officers
approximately $122,000.

In view of its working  capital  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. In light of successful drilling operations by the Registrant in
recent months, increased revenues should reduce or eliminate the working capital
deficit and contribute  considerably to the Registrant's cash flow in the coming
year.

From June 30, 1996 to June 30, 1997,  Registrant's  working capital decreased by
$158,373 to a negative  $113,345.  The  decrease was due to the  expenditure  of
funds by Registrant  for its  necessary  continuing  operations,  an increase in
current   liabilities   as  officers   agreed  to  defer  salaries  and  expense


                                       22

<PAGE>



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

reimbursements,  and a  decrease  in  Registrant's  precious  metals  inventory.
Registrant  received  no  additional  revenues  from the sale of gold  following
October  1995  to  compensate  for  the  expenditures   and  increased   current
liabilities.  Therefore,  commencing  in fiscal  1996  Registrant  reviewed  all
aspects  of its  operations  in an  effort  to  reduce  expenditures  as much as
possible while making efforts to preserve  Registrant's assets and build up cash
flow. These decisions  included:  the sale of Registrant's oil and gas assets in
Montana, North Dakota,  Oklahoma and Texas; the decision to defer the payment of
portions  of  salaries  and  expense  reimbursements;   the  decision  to  defer
compliance with Registrant's reporting obligations under the Securities Exchange
Act of 1934, as amended,  and the decision to concentrate on the  development of
cash flow from oil and gas  operations  in  California,  in which a former  (now
current) officer of Registrant has significant experience. Based on Registrant's
view of the uranium industry,  Registrant also believed that the market would be
receptive to an attractive  uranium  prospect,  although since that decision was
made the market for uranium has not improved as management had anticipated.

These  decisions  resulted in  Registrant  sharing  certain oil and gas drilling
opportunities with third party investors (including some affiliated investors as
described in Item 12, below) and taking a reduced interest until after payout to
the third  party  investors.  Payout in several of the wells has  occurred,  and
consequently Registrant is now receiving increased revenues from its oil and gas
operations.  This  commenced  in the first  quarter of  calendar  year 1998.  In
addition,  Registrant  has  received a  non-refundable  $50,000  payment from an
unaffiliated investor interested in pursuing Registrant's uranium prospects.  In
addition,  this investor has made non-binding  commitments to advance additional
funds if it chooses to pursue this project further.

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. Registrant was financially unable to acquire the substantial land
positions needed to control a major part of the mineral rights on the Kaycee and
Shamrock prospects,  but Registrant has reached an agreement with a newly-formed
Toronto,  Ontario-based  company whereby  Registrant has received a $50,000 cash
payment and a commitment to receive an  additional  $200,000 as financing can be
arranged in Canada.  Management of the newly-formed company will likely be based
in Toronto.  Under the terms of the agreement reached in March, 1998, Registrant
will also own  approximately  25% (2,000,000  shares) of the common stock of the
newly-formed company.


                                       23

<PAGE>



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

Registrant knows of no market for the stock of this company and does not know if
any market will ever  develop;  thus the stock may prove to be of no value.  The
president  of  Registrant  is  expected  to provide  geological  and  logistical
consulting  services to the  newly-formed  company and Registrant  will bill the
newly-formed  company  for  those  services  as well as  out-of-pocket  expenses
related to the effort.

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

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

1997 Compared to 1996
---------------------

For the twelve months ended June 30, 1997 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
uranium production.

Effective  November  1,  1996  Registrant  sold  its  interest  in  all  of  its
non-California  properties  for  $100,000.  Proceeds  from the sale were used to
reduce the basis of its full cost pool and no gain or loss was recognized on the
transaction.

During 1997,  Registrant  wrote off its  remaining  investment  in the Nome Gold
Joint Venture and Echo Canyon of  approximately  $13,000.  Registrant also wrote
off $30,500 in organizational costs relating to Aspen Recursos de Mexico and ISL
Resources Corporation.

Oil and gas revenues, which includes income from management fees, for the twelve
months ended June 30, 1997 increased $155,791,  from $209,936 to $365,727, a 74%
improvement.  This increase reflects increased emphasis on operations  conducted
in  California  and the  initial  production  from the Emigh lease which came on
stream in November, 1996.

Oil and gas production expenses decreased $16,766 from $53,782 to $37,016, a 31%
decrease.  The sale of all  non-California  properties which had relatively high
operating  costs and higher  production  tax rates  contributed to the decrease.
Also, Registrant had a higher percentage of gas wells than oil wells at June 30,
1997, which typically have much lower operating costs.


                                       24

<PAGE>


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

Depletion,  depreciation and amortization decreased significantly, from $125,220
to $39,691,  an $85,529  reduction  or 68%.  This  reduction  was due  primarily
because of the sale of marginal  short lived  properties in November of 1996 and
the addition of longer lived gas reserves during the year.

Selling,  general and  administrative  expenses  remained fairly constant during
fiscal 1997, increasing approximately 3%.

As a result of Registrant's  operations for the fiscal year ended June 30, 1997,
Registrant  ended the year with a net loss of ($352,315)  compared to a net loss
of ($322,325) a year earlier. This increase of approximately $30,000 reflected a
decrease in total  revenues of $64,623 due primarily to the  elimination of gold
sales and the one time mineral tax  settlement  of $45,000 in 1996.  The revenue
reduction was partially offset by increased revenues from oil and gas operations
(including fees) of approximately $156,000.

The  Company  is aware of the issues  associated  with the  programming  code in
existing computer systems as the millennium (Year 2000) approaches. Accordingly,
as of June 30, 1997,  the Company has converted all of its computer  software to
accommodate the "Year 2000" issue. The amount expensed in 1997 was immaterial.

                                       25

<PAGE>

                          INDEPENDENT AUDITORS' REPORT




         Board of Directors
         Aspen Exploration Corporation and Subsidiaries
         Denver, Colorado

         We have audited the  consolidated  balance sheets of Aspen  Exploration
         Corporation  and  Subsidiaries  as of June  30,  1997  and 1996 and the
         related statements of operations,  stockholders' equity, and cash flows
         for the years ended June 30, 1997 and 1996. These financial  statements
         are the responsibility of the Company's management.  Our responsibility
         is to express an opinion  on these  consolidated  financial  statements
         based on our audits.

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

         In our opinion,  the  financial  statements  referred to above  present
         fairly,  in all  material  respects,  the  financial  position of Aspen
         Exploration  Corporation and Subsidiaries as of June 30, 1997 and 1996,
         and the results of their consolidated operations and cash flows for the
         years  ended  June  30,  1997  and 1996 in  conformity  with  generally
         accepted accounting principles.




                                                GORDON, HUGHES & BANKS, LLP

         Englewood, Colorado
         March 2, 1998



                                       26

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS
                                                              June 30,
                                                   ----------------------------
                                                       1997             1996
                                                   -----------      -----------

Current Assets:

  Cash and cash equivalents, including
    $238,415 and $99,780 of invested
    cash in 1997 & 1996, respectively ........     $   238,465      $   102,223

  Precious metals (Note 1) ...................          18,823          221,866

  Accounts receivable, trade, net of
    allowance for doubtful accounts
    of $12,495 in 1997 and $37,000 in
    1996 .....................................          46,870           61,245

  Prepaid expenses ...........................           3,732            4,923
                                                   -----------      -----------
  Total current assets .......................         307,890          390,257
                                                   -----------      -----------
Investment in oil & gas properties, at
  cost (full cost method of
  accounting) (Note 11) ......................       1,315,458        1,349,047

    Less accumulated depletion and
      valuation allowance ....................        (899,694)        (873,221)
                                                   -----------      -----------
                                                       415,764          475,826
                                                   -----------      -----------
Property and equipment, at cost:

  Furniture, fixtures & vehicles .............         143,559          146,087

    Less accumulated depreciation ............        (108,098)         (95,094)
                                                   -----------      -----------
                                                        35,461           50,993
                                                   -----------      -----------
Undeveloped mining properties, at
  cost (Note 2), less reserve for
  impairment of $193,495 in 1996 .............         134,354           76,434
                                                   -----------      -----------
Cash surrender value, life insurance
  (Note 3) ...................................         217,471          179,470
                                                   -----------      -----------
Organization Cost,
  Aspen Recursos de Mexico (Note 1) ..........             -0-           23,869
                                                   -----------      -----------

Total assets .................................     $ 1,110,940      $ 1,196,849
                                                   ===========      ===========

                              (Statement Continues)

                 See Notes to Consolidated Financial Statements

                                       27

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (Continued)


                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                             June 30,
                                                   ----------------------------
                                                      1997              1996
                                                   -----------      -----------
Current liabilities:

  Accounts payable and accrued
    expenses (Note 10) .......................     $   118,220      $    80,713

  Advances from joint interest owners
    (Note 10) ................................         230,624          245,481

  Severance taxes payable ....................             -0-           13,819

  Due to related parties (Note 9) ............          72,391            5,216
                                                   -----------      -----------

  Total current liabilities ..................         421,235          345,229
                                                   -----------      -----------
Commitments and contingencies
    (Note 12)

Note payable (Note 5) ........................         185,000              -0-
                                                   -----------      -----------
Stockholders' equity:
    (Notes 1 and 6):
    Common stock, $.005 par value:
      Authorized:  50,000,000 shares
      Issued:  4,559,922 in 1997 and
        4,424,922 in 1996
      Outstanding:  4,456,322 in 1997 ........          22,799           22,124
       and 4,321,322 in 1996

  Capital in excess of par value .............       5,609,359        5,604,634

  Accumulated deficit ........................      (5,127,453)      (4,775,138)
                                                   -----------      -----------
  Total stockholders' equity .................         504,705          851,620
                                                   -----------      -----------

Total liabilities and stockholders'
  equity .....................................     $ 1,110,940      $ 1,196,849
                                                   ===========      ===========

                 See Notes to Consolidated Financial Statements

                                       28

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                        Year ended June 30,
                                                   ----------------------------
                                                       1997             1996
                                                   -----------      -----------


Revenues:

  Oil and gas (Note 9) .......................     $   316,162      $   145,448

  Mineral (Notes 1 and 2) ....................             -0-          189,130

  Mineral severance tax settlement
    (Note 2) .................................             -0-           45,000

  Fees and equipment rentals (Note 1) ........          49,565           64,488
  Interest ...................................           4,281            4,508
  Other income ...............................          13,943              -0-
                                                   -----------      -----------
                                                       383,951          448,574
                                                   -----------      -----------
Costs and expenses:

  Oil and gas production .....................          37,016           53,782

  Loss on mineral sales ......................           7,027              -0-

  Depreciation, depletion and
    amortization .............................          39,691          125,220

  Write off of mineral properties ............          13,082              -0-

  Write off organizational costs .............          30,529              -0-

  Selling, general and administrative ........         608,921          591,897
                                                   -----------      -----------
                                                       736,266          770,899
                                                   -----------      -----------
Net (loss) ...................................     $  (352,315)     $  (322,325)
                                                   ===========      ===========

Net (loss) per common share ..................     $      (.08)     $      (.08)
                                                   ===========      ===========
Weighted average number of common
  shares outstanding .........................       4,490,019        4,274,489
                                                   ===========      ===========


                 See Notes to Consolidated Financial Statements

                                       29

<PAGE>
<TABLE>
<CAPTION>


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

                                         ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY



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

Stock issued to Officers
 for services at $.08
 per share                                      50,000             250          3,750           --              --             --

Stock issued to Directors,
 Employees, and Consultants
 for services at $.10 per
 share                                          77,000             385          7,315           --              --             --

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)

Stock issued to Officers,
 Directors, Employees
 and Consultants for
 services at $.04 per share                    135,000     $       675    $     4,725           --              --             --

Net loss for year                                                                           (352,315)
                                           -----------     -----------    -----------    -----------     -----------    -----------
Balance, June 30, 1997                       4,559,922     $    22,799    $ 5,656,113    $(5,127,453)        103,600    $   (46,754)
                                           ===========     ===========    ===========    ===========     ===========    ===========



                                         See notes to consolidated financial statements

                                                               30
</TABLE>

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                           Year Ended June 30,
                                                            1997         1996
                                                         ---------    ---------

Cash flows from operating activities:
-------------------------------------

  Net (loss) .........................................   $(352,315)   $(322,325)

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

  Services rendered for overriding royalty interest ..      10,000         --
  Services rendered for stock ........................       5,400       11,700
  Depreciation, depletion, amortization and
    valuation allowance ..............................      39,691      125,220
  (Gain) loss on disposal of precious metals,
    equipment and mineral properties .................      50,638         --
  Precious metals received ...........................        --       (246,589)
  Proceeds from the sale of precious metals ..........     196,016      743,111
  Changes in assets and liabilities:
    (Increase) decrease in accounts receivable, and
       prepaid expenses ..............................      15,566      (30,520)
    Increase (decrease) in accounts payable, accrued
       expenses and due to related parties ...........      89,825      234,082
    Decrease in production taxes payable .............     (13,819)     (69,600)

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

Net cash provided by operating activities ............      41,002      445,079

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

  Prospect fees ......................................      81,237         --
  Return of computer equipment .......................       4,790         --
  Sale of oil and gas properties .....................     100,000      104,723
  Development of oil and gas properties ..............    (157,648)    (422,076)
  Office equipment purchased .........................      (2,262)     (27,100)
  Additions to undeveloped mining properties .........     (71,002)     (64,802)
  Additions to cash surrender value ..................     (38,001)     (49,843)
  Organization Cost - Recursos de Mexico and ISLR ....      (6,874)        (649)

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

Net cash (used in) investing activities ..............     (89,760)    (459,747)

Cash flows from financing activities:
-------------------------------------

  Note from life insurance policy ....................     185,000         --

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

Net cash provided by financing activities ............     185,000         --

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

Net increase (decrease) in cash and equivalents ......     136,242      (14,668)

Cash and cash equivalents, beginning of year .........     102,223      116,891
                                                         ---------    ---------

Cash and cash equivalents, end of year ...............   $ 238,465    $ 102,223
                                                         =========    =========



                 See notes to consolidated financial statements

                                       31

<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.

     Through  November  1996, the Company had oil and gas operations in Wyoming,
     Montana,  North  Dakota,  Colorado and  California,  after  November  1996,
     principally  in  California.  The Company's  primary  mineral  projects and
     targets of exploration are in central Wyoming.

     The Company has two wholly  owned  subsidiaries  and owns a 50% interest in
     another company.  None of the subsidiaries have any assets,  liabilities or
     operations.

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

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

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

     The  consolidated   financial   statements  include  the  Company  and  its
     wholly-owned subsidiaries,  Aspen Gold Mining Company and Aspen Recursos de
     Mexico,   and  its  50%  owned  ISL  Resources   Corporation.   Significant
     intercompany accounts and transactions, if any, have been eliminated.

     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.

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

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

                                       32

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

     In February 1997, the Financial Accounting Standards Board issued Financial
     Accounting  Standard  No. 128 ("SFAS No.  128"),  addressing  earnings  per
     share.  SFAS No. 128 changed the  methodology of  calculating  earnings per
     share and renamed the two calculations  basic earnings per share (currently
     primary) and diluted  earnings per share  (currently  fully  diluted).  The
     calculations  differ by eliminating any common stock  equivalents  (such as
     stock  options,  warrants,  and  convertible  preferred  stock)  from basic
     earnings per share and changes certain  calculations when computing diluted
     earnings per share.  SFAS No. 128 is effective for reporting periods ending
     after December 15, 1997. The Company will adopt SFAS No. 128 in fiscal year
     1998.



                                       33

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     In February 1997, the Financial  Accounting Standards Board issued SFAS No.
     129,  "Disclosure of Information about Capital Structure" ("SFAS No. 129"),
     which requires all companies to disclose all relevant information regarding
     their  capital  structure.  SFAS  No.  129  presentation  is  required  for
     reporting  periods  ending after  December  15, 1997.  Based on the capital
     structure disclosures presented in the accompanying  consolidated financial
     statements  and  notes  thereto,  the  Company  does not  believe  that any
     additional  disclosures  will be  required  as a result  of  adopting  this
     pronouncement.

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

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
     "Reporting  Comprehensive  Income"  ("SFAS  No.  130"),  which  establishes
     standards  for  reporting  of  comprehensive   income.  This  pronouncement
     requires that all items recognized under accounting standards as components
     of comprehensive income, as defined in the pronouncement,  be reported in a
     financial  statement  that is displayed  with the same  prominence as other
     financial  statements.  Comprehensive income includes all changes in equity
     during a period  except  those  resulting  from  investments  by owners and
     distributions  to owners.  The financial  statement  presentation  required
     under  SFAS No.  130 is  effective  for all fiscal  years  beginning  after
     December 15, 1997.  The Company will adopt SFAS No. 130 in 1998. For fiscal
     years 1997 and 1996, the impact of adopting this pronouncement has not been
     determined.

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

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
     "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
     No. 131"),  which amends the requirements for a public enterprise to report
     financial  and  descriptive  information  about  its  reportable  operating
     segments.  Operating  segments,  as  defined  in  the  pronouncement,   are
     components of an enterprise about which separate  financial  information is
     available  that is  evaluated  regularly  by the Company in deciding how to
     allocate resources and in assessing performance.  The financial information
     is  required  to be  reported  on the  basis  that is used  internally  for
     evaluating  segment  performance and deciding how to allocate  resources to
     segments.  The  disclosures  required by SFAS No. 131 are effective for all
     fiscal years beginning after December 15, 1997. The Company will adopt SFAS
     No.  131  in  fiscal  1998.  As of  June  30,  1997,  the  impact  of  this
     pronouncement has not been determined.

                                       34

<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, 1997 or 1996.
     Sales of gold from  inventory  for the years  ended June 30,  1997 and 1996
     were $196,016 and $743,111, 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 receipt of prospect fees or on the sale or  abandonment  of oil and gas
     properties, unless the disposition of significant reserves is involved.

     Depletion  and  amortization  of the  full-cost  pool is  computed  using 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, 1997 and June 30, 1996.

     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.

                                       35

<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.

     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 (loss) per common share
     ---------------------------

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

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

     The Company records organization costs associated with its subsidiaries and
     amortizes them over 60 months. During the first quarter ended September 30,
     1994,  the Company formed a subsidiary,  Aspen Recursos de Mexico,  S.A. de
     C.V.  ("Aspen  Recursos").  Aspen  Recursos is  qualified to do business in
     Mexico and that will allow the Company to investigate and acquire interests
     
         

                                       36

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     in mineral  prospects in Mexico.  In September of 1996 the Company formed a
     mining  subsidiary  called ISL  Resources  Corporation  to prospect for and
     acquire mining  leases.  Both ISL Resources and Aspen Recursos are inactive
     and the  Company  expensed  costs  associated  with these  subsidiaries  of
     approximately $30,500 at June 30, 1997.


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 has restored 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  in-kind  net royalty  income of $-0- and  $189,130 in the years
     ended June 30, 1997 and 1996, respectively.  From inception in 1985 through
     June 30,  1997,  the  Company  has  received  $2,707,695  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.  A  settlement  has been  reached by the  parties
     whereby each party pays its own legal costs and other expenses  involved in
     the litigation. No damages were paid by either party.

                                       37

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       
     The Company owned 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
     dropped these leases during 1997 by non payment of delay rentals due.

     All costs incurred by the Company on NGJV have been expensed as of June 30,
     1997.

     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.

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

     The Company has recently begun  exploration for in situ uranium deposits in
     Wyoming.  At June 30, 1997 and 1996,  the Company had expended  $63,352 and
     $134,430, respectively, on the two prospects.

     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.

     On October 30, 1995 the Alaska  Department of Revenue  notified the Company
     that the Department of Natural Resources had issued Certificates of Initial
     Production to the Department of Revenue.  The Department of Revenue further
     

                                       38

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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 in fiscal 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  (not to exceed  $9,500) to the
     plan. Under the plan, the Company may make  discretionary  contributions to
     the plan. The Company made no plan  contribution for fiscal 1996 nor fiscal
     1997.

     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
     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, 1996, the Company paid $60,000 in premiums,  of
     which  the  President's  portion  was  approximately  $21,273.   Additional
     compensation  of  $8,127  had  been  recognized  as  reimbursement  to  the
     President for income taxes.  For the year ended June 30, 1997,  the Company
     paid $60,000 in premiums, of which the President's portion was $22,051.

                                       39

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Additional  compensation of $8,422 has been recognized as  reimbursement to
     the President for income taxes.  As of June 30, 1997 and June 30, 1996, the
     Company's  accumulated  cash  surrender  value was $217,471  and  $179,470,
     respectively,  which has been included as an asset on the Company's balance
     sheet.  During 1997, the Company withdrew  $185,000 of cash surrender value
     to pay expenses.  The death benefit payable to the named  beneficiary as of
     June  30,  1997  and  1996,   is   approximately   $760,000  and  $798,000,
     respectively.  At June 30,  1997 there was an excess cash  surrender  value
     available to the executive of approximately $43,600. At June 30, 1996 there
     was little or no excess cash surrender value available to the executive.

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

     For the fiscal years ended June 30, 1996 and 1997, the Company had a policy
     of reimbursing  employees for medical expenses  incurred but not covered by
     the Company's paid medical insurance plan.  Expenses  reimbursed for fiscal
     1996 and fiscal 1997 were $12,000 and $10,000, respectively.


Note 4 MAJOR CUSTOMERS

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

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

                    June 30, 1996            57%     16%     -      -
                    June 30, 1997             -      36%    16%    13%


Note 5 NOTE PAYABLE

     As of June 30,  1997,  the  Company  has  borrowed  $185,000  from the cash
     surrender value of the split dollar life insurance policy disclosed in Note
     3. The Company pays  interest on the debt at 6% (also the average  interest
     rate) per year which is collateralized by the cash surrender value owned by
     the  Company.  There  is no  maturity  date  for the  debt  other  than the
     termination of the policy.


                                       40

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 COMMON STOCK

     On the balance  sheet,  the Company has  presented  the  treasury  stock as
     netted  against the  outstanding  shares and netted  against the additional
     paid-in  capital.  Treasury  shares  have  been  shown  separately  in  the
     Statement of Stockholders' equity.

     On September 11, 1995, the Company  granted 50,000 shares to two directors,
     25,000 shares to the Company's  consultant  and officer and 2,000 shares to
     one of the  Company's  employees,  all at $.10 per share.  On February  16,
     1996,  the Company  granted  50,000 shares of common stock to the Company's
     vice president at $.08 per share.  The weighted average fair value of stock
     awards for fiscal 1996 was $.09 per share.

     On January 6, 1997, the Company granted 75,000 shares to the Company's vice
     president,  40,000  shares to  directors,  10,000  shares to the  Company's
     consultant and officer and 10,000 shares to one of the Company's  employees
     at a value (and  weighted  average  fair value for fiscal 1997) of $.04 per
     share.

     In  1996  the  Company  formed  ISL  Resources   Corporation  (ISLR)  as  a
     wholly-owned  subsidiary  to  pursue  uranium  opportunities.  In 1997  the
     Company  conveyed 50% interest in ISLR to an  unaffiliated  third party who
     was to arrange financing for the uranium  projects.  At that time, ISLR had
     not been capitalized with the uranium properties in which the Company owned
     an interest,  although ISLR did obtain rights to certain  information  that
     had been  developed for the projects.  The financing was not  accomplished,
     and the Company  reacquired  the data from ISLR in 1997 and resolved  other
     outstanding  issues by conveying  to the third party  20,000  shares of the
     Company's restricted common stock. The Company continues to own 50% of ISLR
     but it is completely inactive.



                                       41

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 INCOME TAXES

     At June 30, 1997 the Company had a Net Operating Loss ("NOL") carry-forward
     for tax purposes of approximately $3,987,393 (expiring in the years 1998 to
     2008).  In  addition,   the  Company  had  tax  credit   carry-forwards  of
     approximately $30,400 (expiring in the years 1998 to 2001).

     Deferred tax assets (liabilities) at June 30, 1997 and 1996 are as follows:

                                                   1997           1996
                                                ----------    ----------
     Gross deferred tax assets:
       Net operating loss carry-forward         $1,355,714    $1,443,626
       Valuation allowance for deferred
         tax assets....................         (1,264,484)   (1,335,408)
                                                ----------    -----------

         Net deferred tax asset                     91,230       108,218
                                                ----------    ----------

     Gross deferred tax liabilities:
       Depreciation and other property,
         plant and equipment basis
         differences...................            (91,230)     (108,218)
                                                ----------    ----------

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

     During  fiscal  1997,  the  valuation  allowance  for  deferred  tax assets
     declined by $70,924.

     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,  1997  $786,030  of net
     operating  loss  carryforwards  and $1,890 of  investment  tax credits have
     expired.




                                       42

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 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.

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

     Segment information consists of the following:

                                                      Year ended June 30,
                                                 ------------------------------
                                                    1997                1996
                                                 -----------        -----------
Revenue:
  Oil and gas ............................       $   365,727        $   209,936
  Mining .................................               -0-            234,130
  General corporate ......................            18,224              4,508

                                                 -----------        -----------
  Total revenue ..........................       $   383,951        $   448,574
                                                 ===========        ===========

Results of operations
  (excluding overhead
   and interest costs):
  Oil and gas ............................       $   302,237        $    43,807
  Mining .................................           (20,109)           234,130
  General corporate
    operations ...........................          (634,443)          (600,262)

                                                 -----------        -----------
         Net income (loss) ...............       $  (352,315)       $  (322,325)
                                                 ===========        ===========

Depreciation, depletion
    amortization and valuation
    charged to identifiable
    assets:

    Oil & gas depletion ..................       $    26,474        $   112,347
    Mining ...............................            20,109                -0-
    General corporate ....................            43,746             12,873

                                                 -----------        -----------
         Total ...........................       $    90,329        $   125,220
                                                 ===========        ===========

Capitalized expenditures:
                       
    Oil and gas ..........................       $   157,648        $   422,076
                                                 ===========        ===========

    Mining ...............................       $    71,002        $    56,908
                                                 ===========        ===========

    Corporate ............................       $    47,137        $    27,100
                                                 ===========        ===========

Identifiable  assets,  net of
    accumulated  depreciation,
    depletion and amortization:
    Oil and gas ..........................       $   472,634        $   537,072
    Mining ...............................           153,177            298,300
    General corporate ....................           495,129            361,477
                                                 -----------        -----------

         Total ...........................       $ 1,120,940        $ 1,196,849
                                                 ===========        ===========


                                       43

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 RELATED PARTY TRANSACTIONS

     At June 30, 1997 and 1996, the Company owed its officers,  shareholders and
     directors $72,391 and $5,216, respectively.  The amounts are primarily owed
     for accrued but unpaid  compensation and unreimbursed  medical,  travel and
     entertainment expenses.

     During the years  ended June 30,  1997 and 1996 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 $5,000 and $15,000,  respectively,
     in the years ended June 30,  1997 and 1996.  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 on the OTC Bulletin Board, or as reported by another Nasdaq
     quotation  service or any exchange on which the  Company's  common stock is
     quoted.  The 1993 Agreement further requires the Company to maintain one or
     more  life  insurance  policies  on Mr.  Bailey's  life  in the  amount  of
     $1,000,000 for the purposes of this Agreement.  Therefore,  the Company may
     be required to expend up to $750,000 of the  insurance  proceeds to acquire
     up to 75% of the  shares  owned by Mr.  Bailey  at the  time of his  death.
     Premiums for this policy were $6,970 for each of the two fiscal years.

     The Vice President in California provides the Company an office in his home
     at no cost to the Company.


                                       44

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Royalties  in the fiscal year ended June 30, 1997 were  assigned on October
     2, 1996 on the Emigh  leases on which the Emigh 34-1 well was  drilled  and
     later completed. A nominal value of $10,000 was assigned to these overrides
     since  the well was not  determined  to be  proved  until  after  the first
     production runs in mid-November  1996. The overriding  royalty interests in
     these  California  properties  granted  to its  employees  resulted  in the
     following percentages:

                                             Emigh 34-1
                                            Before   After
                                            Payout   Payout
                                            -------  -------
     R. V. Bailey                           1.3068%  1.1266%

     Robert A. Cohan                        1.3069%  1.1266%

     Judith L. Shelton                      0.2500%  0.2156%

     R. V. Bailey,  President and director of the Company, Robert A. Cohan, Vice
     President of the Company,  and Ray K. Davis,  consultant and officer of the
     Company,  each  have  working  and  royalty  interests  in  certain  of the
     California oil and gas properties  operated by the Company.  The affiliates
     paid for their  proportionate  share of all costs to  acquire,  develop and
     operate these  properties.  As of June 30, 1997,  working  interests of the
     Company and its affiliates in certain  California  properties are set forth
     below:

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

         HOPPER 2              DRY          5.50%           -%        -%     -%
         NORTH STRAND 1        DRY         14.05         2.70         -   2.70
         GREY WOLF 1           PROD        18.00         2.00      2.50   2.00
         BRANDT 16X-27         PROD        18.00         1.80         -   8.10
         ARCO 36X-10           PROD        12.00         1.20         -   5.40
         ARCO 46X-10           SHUT IN     12.00         1.20         -   5.40
         ARCO 34X-10           SHUT IN     12.00         1.20         -   5.40
         ARCO 35X-10           SHUT IN     12.00         1.20         -   5.40
         ENRON 66X             DRY         10.00            -         -   1.00
         EMIGH 34-1            PROD        23.55            -         -   1.00
         SANBORN 3-3           PROD          .95            -         -      -

     See Note 12 for additional related party disclosure.


Note 10 CONCENTRATION OF CREDIT RISK

     Financial   instruments   which   potentially   subject   the   Company  to
     concentrations  of  credit  risk  consist  principally  of  cash  and  cash
     

                                       45

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     equivalents and accounts  receivable.  While the Company has  approximately
     $140,000  in excess of the FDIC  $100,000  limit at one bank,  the  Company
     places  its  cash  and  cash  equivalents   with  high  quality   financial
     institutions in order to limit credit risk.  Concentrations  of credit risk
     with respect to accounts  receivable  are limited  since  relatively  small
     amounts are due from each account,  and the accounts are distributed across
     unrelated businesses and individuals.  The Company believes its exposure to
     credit risk is minimal.


Note 11 OIL AND GAS ACTIVITIES

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

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

                                                 June 30,
                                        --------------------------
                                            1997           1996
                                        -----------    -----------

            Proved properties           $ 1,325,458    $ 1,349,047
                                        -----------    -----------

            Accumulated depreciation,
              depletion and
              amortization                 (617,975)      (591,501)

            Valuation allowance            (281,719)      (281,720)
                                        -----------    -----------

                                           (899,694)      (873,221)
                                        -----------    -----------

            Net capitalized costs       $   425,764    $   475,826
                                        ===========    ===========

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

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

                                            Year ended June 30, 
                                         ------------------------
                                           1997            1996
                                         --------        --------

     Property acquisition                $   -0-         $288,434
     Development                          157,648         133,642
                                         --------        --------
                                         $157,648        $422,076
                                         ========        ========

     Fees   charged  by  the   Company  to  operate  the   properties   totalled
     approximately  $4,130 per month in 1997 and  $5,374 per month in 1996.  The
     Company sold 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 oil and gas interests  outside of California to the
     

                                       46

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Company's consulting  accountant,  officer and shareholder for $100,000. No
     gain or loss was recognized on the  transaction  and the proceeds were used
     to  adjust  the full  cost  pool.  The sale  price  was for a  discount  of
     approximately 30% of the future net cash flows related to those properties.

     Prospect  generation fees received from outside  investors in wells drilled
     during   fiscal  1997  and  1996   amounted  to  $139,800   and   $114,700,
     respectively. These amounts were charged against the full cost pool.

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

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

                                                   Year ended June 30,
                                               -------------------------
                                                  1997            1996
                                               ---------       ---------

     Revenues*                                 $ 365,727       $ 209,936
     Production costs                            (37,016)        (53,782)
     Depreciation and depletion                  (26,474)       (112,347)
                                               ---------       ---------

     Results of operations
       (excluding corporate overhead)          $ 302,237       $  43,807
                                               =========       =========

     *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, 1997 and
     1996 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.

                                       47

<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, 1995               35                53
       Revisions of previous estimates                2                 1
       Acquisitions                                  42                58
       Production                                    (6)               (6)
                                                    ---               ---

     Estimated quantity, June 30, 1996               73               106

       Revisions of previous estimates              (20)                4
       Sale of properties                           (32)              (40)
       Discoveries                                   12             1,643
       Production                                    (5)              (82)
                                                   ----             -----

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


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

     Oil (Bbls)

       June 30, 1996                   73             0              73
       June 30, 1997                   17            11              28

     Gas (MCF)

       June 30, 1996                  106             0             106
       June 30, 1997                  591         1,040           1,631



                                       48

<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,
                                      --------------------------
                                        1997              1996
                                      --------          --------

                                            (in thousands)

     Future cash inflows              $  4,185          $ 1,511
     Future production and
       development costs                  (537)            (604)
     Future income tax
       expense (1)                        --               --
                                      --------          -------

     Future net
        cash flows                       3,648              907

     10% annual discount
       for estimated timing
       of cash flows                    (1,098)            (373)
                                      --------          -------

     Standardized measure
       of discounted future
       net cash flows                 $  2,550          $   534
                                      ========          =======


     (1)  Net operating loss carryforward exceeds future net cash flows.


                                       49

<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,
                                             -------------------
                                               1997       1996
                                             -------    --------
                                               (in thousands)
                Standardized measure of
                  discounted future net
                  cash flows, beginning
                  of year                    $   534    $   218
                                             -------    -------

                Sales and transfers of
                  oil and gas produced,
                  net of production
                  costs                         (226)       (92)

                Net changes in prices
                  and production costs
                  and other                     (180)        92

                Net change due to
                  discoveries                  2,506       --

                Acquisition of reserves         --          265

                Sale and farm-out of
                  proved reserves
                  in place                      (194)      --

                Revisions of previous
                  quantity estimates            (149)        10

                Other                            206         19

                Net change in income taxes      --         --

                Accretion of discount             53         22

                                             -------    -------
                                               2,016        316
                                             -------    -------
                Standardized measure
                  of discounted future
                  cash flows, end of
                  year                       $ 2,550    $   534
                                             =======    =======

     Net changes in prices of $180,000 were the result of a decline in the price
     received for oil and gas at year end. This decline was offset somewhat by a
     significant reduction in operating costs associated with more producing gas
     

                                       50

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     wells and fewer oil wells.  The revision of previous  estimates of $149,000
     was the result of assigning 21,000 fewer recoverable  barrels of oil to the
     Brandt and Arco wells.  The increase of $2,506,000 in new  discoveries  was
     the direct result of the Company's  successful  drilling of the Emigh 34-1,
     which  proved  up the  surrounding  acreage.  The  Company  sold all of its
     non-California  properties  effective  November  1,  1996  resulting  in  a
     reduction of future net cash flows of $194,000.


Note 12 COMMITMENTS AND CONTINGENCIES

     At June 30, 1997 the Company was  committed to the  following  drilling and
     development projects in California:

      1.      Drill, complete and equip the Emigh 2-1 well.
      2.      Drill, complete and equip the Brandt 26X-27 well.
      3.      Drill, complete and equip the Compton Landing 97-1 well.
      4.      Install a pipeline and put the Arco 46X well on production.


     Total costs for these  projects was  estimated to be  $1,789,000,  of which
     $270,000  was to be paid by the Company.  As of June 30, 1997,  the Company
     had  received  approximately  $230,600  in  prepayments  from  third  party
     investors for their share of the projects outlined above.

     The Company has an employment  agreement with its President  which provides
     for  compensation  of $125,000 per year  (reduced  voluntarily  to $100,000
     effective  February  1,  1998) to be paid,  plus  reimbursement  of travel,
     entertainment,  and medical expenses, health insurance, and other benefits,
     including a split dollar life  insurance  plan (See Note 3). The  agreement
     provides  for a two year  term  which is  automatically  renewable  for two
     additional  two year terms  (through  November 8, 1999) at the  president's
     option.  The Company is only entitled to terminate  this agreement upon the
     president's  death,   disability,   or  for  "cause"  (as  defined  in  the
     agreement).

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

                                       51

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The Company entered into an employment agreement with Robert Cohan on April
     16, 1997,  which  provides for the payment of $85,000 for the first year of
     employment, plus reimbursement of travel,  entertainment,  medical expenses
     and certain office costs,  including health insurance and the payments on a
     truck.  If 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, 1998 to April 15,
     1999 at the rate of $90,000 per year.

Note 13 SUBSEQUENT EVENTS

     In October 1997, the Company drilled and completed an extension development
     well just west of Bakersfield in Kern County,  California. The Company, the
     operator of the well, has  approximately  680 acres of surrounding  acreage
     under lease.

     In addition,  in November  1997 the Company  drilled an extension  well and
     completed the Emigh 2-1 gas well in Solano County,  California.  A pipeline
     has been  completed  and the well was placed on  production on November 10,
     1997.  The  Company  has  approximately  1,611 net acres under lease in the
     vicinity of the well and several more drilling locations are expected to be
     identified.

     The Company  drilled and  completed a gas well,  the Compton  Landing 97-1,
     located   in  Colusa   County,   California   in  the  late  fall  of  1997
     (October-November). The Company has approximately 370 acres under lease.

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

     The Company borrowed $130,000 from Ray K. Davis on October 15, 1997 for the
     drilling and completion of the Emigh 2-1 payable over 36 months.  This loan
     bears interest of 10.5% and is collateralized by a portion of the Company's
     interest in the Emigh 2-1.

     The Company  granted  Stock Options  expiring  January 1, 2002, to purchase
     shares  of  the  Company's   restricted   common  stock  to  the  following
     individuals for their service to the Company:

     Robert A. Cohan,  officer,  options to acquire  200,000  shares  granted on
     November 1, 1997;

     R. V.  Bailey,  officer,  options  to  acquire  200,000  shares  granted on
     November 1, 1997;

                                       52

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Judith L. Shelton,  employee,  options to acquire 100,000 shares granted on
     February 1, 1998;

     Ray K. Davis,  consultant  and officer,  options to acquire  100,000 shares
     granted on February 1, 1998;

     Lawton L. Clark,  director,  options to acquire  80,000  shares  granted on
     November 1, 1997;

     Robert F. Sheldon,  director,  options to acquire  80,000 shares granted on
     November 1, 1997;

     The options awarded to Robert Cohan are exercisable as follows: 25% of such
     options on November 1, 1997 at 20(cent)  per share;  25% of such options on
     October 15, 1998 at 24(cent) per share;  25% of such options on October 15,
     1999 at 28(cent) per share;  and 25% of such options on October 15, 2000 at
     32(cent) per share.

     The options  awarded to Ray K. Davis and Judith L. Shelton are  exercisable
     as follows:  25% of such options on February 1, 1998 at 20(cent) per share;
     25% of such options on October 15, 1998 at 24(cent) per share;  25% of such
     options on October 15, 1999 at 28(cent) per share;  and 25% of such options
     on October 15, 2000 at 32(cent) per share.

     The options  awarded to Messrs.  Bailey,  Clark and Sheldon are immediately
     exercisable in full at November 1, 1997 as follows:  25% of such options at
     20(cent) per share,  25% of such options at 24(cent) per share, 25% of such
     options at 28(cent)  per share,  and 25% of such  options at  32(cent)  per
     share.

     The Company  awarded  common stock to the following  individuals  for their
     service to the Company:

     Lawton L. Clark, director, 20,000 shares granted on November 1, 1997;

     Robert F. Sheldon, director, 20,000 shares granted on November 1, 1997;

     Robert A.  Cohan,  officer,  300,000  shares  granted on  November 1, 1997.
     Company  management  is  negotiating  with Mr.  Cohan a  possible  buy-back
     agreement  whereby the Company can acquire,  for nominal cost,  portions of
     the stock granted should Mr. Cohan leave the employment of the Company.



                                       53

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     On November 1, 1997, the Company agreed to acquire extensive  geologic data
     associated with the Kaycee and Shamrock uranium projects from the Company's
     President in exchange for 100,000 shares of the Company's common stock.

     On March 1, 1998, the Company entered into an agreement with a newly-formed
     Canadian company to provide all of the Company's  existing  geological data
     on the uranium projects,  Kaycee and Shamrock, in exchange for $250,000 and
     2,000,000  shares of the Canadian  company's  common stock. On February 27,
     1998,  the Company  received the first  installment of $50,000 of the total
     $250,000.

                                       54

<PAGE>


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

     Holben,  Boak,  Cooper  & Co.,  formerly  independent  accountants  for the
Registrant,  resigned  as  auditor  on  December  3,  1997  due to  the  pending
dissolution of the accounting firm.

     Until the filing of this 10-KSB, no audits have been completed for the last
two fiscal years due to inadequate cash flow;  however,  no disagreements  exist
with any former accountant on any matter of accounting  principles or practices,
financial statement disclosure, or auditing scope of procedure.

                                    PART III


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

     (a) Identification of Directors and Executive Officers

     As described  below,  the Board of Directors is divided into three  classes
which,  under  Delaware law, must be as nearly equal in number as possible.  The
members of each such class are elected for three-year  terms at each  successive
meeting of  stockholders.  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               65      President,              I         1980
                                     Treasurer
                                     and Director

  Lawton L. Clark            73      Director,              III        1993
                                     Secretary

  Robert F. Sheldon          74      Director                II        1981

  Robert A. Cohan            41      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.

                                       55

<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 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
19  years  experience  in oil and gas  exploration  and  development,  including
employment in Denver, CO with Western  Geophysical,  H. K. van Poollen & Assoc.,


                                       56

<PAGE>


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

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

     (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.

                                       57

<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  March 16, 1998 all filing  requirements  applicable to its
officers,  directors  and  greater-than-ten-percent  shareholders  were complied
with.



                                       58

<PAGE>
<TABLE>
<CAPTION>




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,  1997 and
previous years:

                  Annual Compensation ($$)                    Long Term Compensation
                  ------------------------                 --------------------------
                                                              Awards         Payouts
                                                           --------------------------
<S>               <C>      <C>       <C>       <C>      <C>          <C>       <C>       <C>
(a)               (b)      (c)       (d)       (e)      (f)          (g)       (h)       (i)
                                                        Restricted
Name and                                                Stock        Options   LTIP      Other
Position          Year     Salary    Bonus     Other    Awards       & SARs    Payouts   Compensation*
--------          ----     ------    -----     -----    ------       ------    -------   -------------
                            ($$)      ($$)      ($$)     ($$)         (##)       ($$)        ($$)
R. V. Bailey,
as President      1997     125,000       0     38,501      0            0         0         14,464
and Chief         1996     125,000     750     37,820      0            0         0         16,300
Executive         1995     125,000     750     28,354      0            0         0         10,228
Officer           1994     125,000     750     39,942      0            0         0         19,840
                  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           1997     81,042         0        0     3,000           0        0           5,464
President of      1996     76,000       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



*    Registrant  has an "Amended  Royalty and  Working  Interest  Plan" by which
     Registrant  is able to  assign  overriding  royalty  interests  or  working
     interests  in  oil  and  gas  properties  or  in  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   oil  or  gas  or  mineral
     prospects.

     The above  table  includes  all  amounts  paid or unpaid,  other than stock
awards.  Amounts unpaid, at the election of the named executive  officers,  were
$52,000  for R. V.  Bailey and $6,666 for R. A. Cohan and were  included  in the
table.

     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


                                       59
</TABLE>

<PAGE>


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

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, in fiscal 1997 $30,077 of
the premium paid for this policy is  considered  compensation  to Mr. Bailey and
$8,424 was also paid to reimburse the tax effect of the executive split. At June
30, 1997 Registrant had accrued and not paid the $8,424 tax  reimbursement.  All
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, 1996  Registrant  contributed  $-0- to the plan
for the Plan Year 1996.  At June 30, 1997  Registrant  paid $-0- to the plan for
the Plan Year 1997. When amounts are contributed to Mr. Bailey's and Mr. Cohan's
accounts  (which amounts are fully  vested),  these amounts are also included in
column (e) of the tables, above.

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

     Royalties  in fiscal year ended June 30,  1997 were  assigned on October 2,
1996 on the Emigh  leases on which the  Emigh  34-1 well was  drilled  and later
completed. A nominal value of $10,000 has been assigned to these overrides since
the well was not determined to be proved until after the first  production  runs
in  mid-November  1996. The  overriding  royalty  interests in these  California
properties granted to its employees resulted in the following percentages:

                                        Emigh 34-1
                                       Before   After
                                       Payout   Payout
                                       ------   ------

          R. V. Bailey                 1.3068%  1.1266%

          Robert A. Cohan              1.3069%  1.1266%

          Judith L. Shelton            0.2500%  0.2156%

                                       60

<PAGE>


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

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

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

     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.

     (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. There was one board
of directors  meeting in fiscal 1997  attended in person by two  directors and a
third by telephone, and 6 telephonic board of directors meetings.

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

          (2) Other Arrangements.

     There are no other  arrangements  for the  compensation of directors of 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 (reduced  voluntarily  to $100,000
effective February 1, 1998) 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


                                       61

<PAGE>


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

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  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  on the OTC  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 Robert A. Cohan on
April 16, 1997,  which provides for the payment of $85,000 for the first year of
employment,  plus reimbursement of expenses,  including health insurance and the
lease  payments  on a truck.  If  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, 1998 to
April  15,  1999 at the rate of  $90,000  per  year.  (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  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
truck.

     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, 1997 or subsequently.


                                       62

<PAGE>



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

     (a)-(b) The following  table sets forth as of March 16, 1998 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 &           1,187,272(1)            20.61%
                            Beneficial

Robert A. Cohan             Record               625,000(2)            10.85%

Robert F. Sheldon           Record               163,160(3)             2.83%

Lawton L. Clark             Record               145,000(4)             2.52%


All Officers and            Both Record        2,120,432               36.81%
Directors as a              & Beneficial
Group (4 persons)

(1)  This number includes  870,952 shares of stock held of record in the name of
     R. V.  Bailey  and  16,320  shares of record in the name of Mieko  Nakamura
     Bailey, his wife. In addition,  all shares held in the name of R. V. Bailey
     are subject to an  obligation  of  Registrant  to purchase up to 75% of the
     common shares of Registrant owned by Bailey at the time of his death.  This
     obligation  expires 120 days from the date of Bailey's  death. In addition,
     the number of shares owned includes  100,000 shares of common stock granted
     in a property  exchange  and stock  options  granted for 200,000  shares of
     common stock on November 1, 1997.

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

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

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

                                       63

<PAGE>



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

     (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.

                                       64

<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.

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

     On March 1, 1998,  Registrant entered into an agreement with a newly-formed
Canadian mining company whereby the  newly-formed  Canadian company will acquire
data from Registrant related to two uranium prospects in Wyoming. Geological and
engineering  data  suggest  that  uranium  deposits  amenable  to in situ mining
methods may exist within the two defined  prospect  areas.  Under the agreement,
Registrant  will be  paid  US  $250,000  in  three  cash  payments  in 1998  and
Registrant will be issued  approximately 25% (2,000,000  shares) of common stock
of a new Canadian  company based in Toronto.  The Canadian  company will provide
certain funding for land  acquisition and exploration work on the two prospects.
Management of Registrant will likely perform  geological  consulting work on the
prospects  and the Canadian  company  will be billed for such work.  There is no
assurance  that work on the two prospects will result in discovery or definition
of minable uranium deposits.




                                       65

<PAGE>



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

     R. V. Bailey,  President and director of Registrant,  Robert A. Cohan, Vice
President of Registrant, and Ray K. Davis, consultant and officer of Registrant,
each have working and royalty interests in certain of the California oil and gas
properties  operated by Registrant.  The affiliates paid for their proportionate
share of all costs to acquire, develop and operate these properties.  As of June
30,  1997,  working  interests  of the  Company  and its  affiliates  in certain
California properties are set forth below:

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

      HOPPER 2           DRY          5.50%            -%      -%       -%
      NORTH STRAND 1     DRY         14.05          2.70       -     2.70
      GREY WOLF 1        PROD        18.00          2.00    2.50     2.00
      BRANDT 16X-27      PROD        18.00          1.80       -     8.10
      ARCO 36X-10        PROD        12.00          1.20       -     5.40
      ARCO 46X-10        SHUT IN     12.00          1.20       -     5.40
      ARCO 34X-10        SHUT IN     12.00          1.20       -     5.40
      ARCO 35X-10        SHUT IN     12.00          1.20       -     5.40
      ENRON 66X          DRY         10.00             -       -     1.00
      EMIGH 34-1         PROD        23.55             -       -     1.00
      SANBORN 3-3        PROD          .95             -       -        -

     During the 1997 fiscal year,  Registrant issued 20,000 shares of its common
stock to each of its outside  directors,  Mr. Sheldon and Mr. Clark,  and 75,000
shares of its common stock to Robert A. Cohan,  vice president.  Registrant also
issued 10,000 shares of its common stock to its  consulting  accountant,  Ray K.
Davis, and 10,000 shares to employee Judith L. Shelton.

     During the fiscal years ended June 30, 1996 and 1997,  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 calendar year
1997 Registrant borrowed $185,000 from the split-dollar life insurance policy in
order to pay certain ongoing corporate expenses.  Registrant has agreed to repay
this loan plus interest.

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

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


                                       66

<PAGE>



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

     Registrant  borrowed $130,000 from Ray K. Davis on October 15, 1997 for the
drilling and completion of the Emigh 2-1 payable over 36 months. This loan bears
interest of 10.5%.

     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 $10,000 for the fiscal year ended June 30, 1997 and $15,000 for
the fiscal year ended June 30, 1996.  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.

     (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.


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<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)

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.

                                       68

<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
                                         ---------------------------------------
March 16, 1998                           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
------------------------------                     March 16, 1998
R. V. Bailey, Director,
Chief Executive Officer,
Principal Financial Officer


/s/ Lawton L. Clark
------------------------------                     March 16, 1998
Lawton L. Clark, Director


/s/ Robert F. Sheldon
------------------------------                     March 16, 1998
Robert F. Sheldon, Director

                                       69