SECURITIES & EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   FORM 10-KSB

(MARK ONE)

[ X ]     Annual report under Section 13 or 15(d) of the Securities Exchange Act
          of 1934 [Fee Required] for the fiscal year ended June 30, 1998.

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


Commission File Number 0-9494

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

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


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


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

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

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

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

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.
 Yes XX   No

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

Issuer's revenues for its most recent fiscal year were $910,824.

At  September  25,  1998,  the  aggregate  market  value of the  shares  held by
non-affiliates  was  approximately  $2,117,690.  The aggregate  market value was
calculated by  multiplying  the mean of the closing bid and asked prices ($0.64)
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
(3,308,890).

At September 25, 1998, there were 4,916,322 shares of common stock (Registrant's
only class of voting stock) outstanding.


<PAGE>

                                     PART I.

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

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

The consolidated  financial  statements  include Registrant and its wholly-owned
subsidiaries, Aspen Gold Mining Company, Aspen Recursos de Mexico, and 50% owned
ISL Resources Corporation. All of the subsidiaries are 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, as described in more detail below.

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

     As noted elsewhere  herein,  the future conduct of  Registrant's  business,
non-oil and gas  exploration  activities,  stock  ownership,  and discussions of
possible future activities 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 using the terms
"may,"  "expects  to,"  and  other  terms  denoting  future  possibilities,  are
forward-looking   statements.   The  accuracy  of  these  statements  cannot  be
guaranteed  as  they  are  subject  to a  variety  of  risks  which  are  beyond
Registrant's ability to predict or control and which may cause actual results to
differ  materially from the  projections or estimates  contained  herein.  These
risks  include,  but are not  limited  to: the  possibility  that the  described


                                        2

<PAGE>


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

operations,  reserves,  or  exploration  or  production  activities  will not be
completed  or  continued  on  economic  terms,  if  at  all.  The   exploration,
development  and mining of oil and gas, and mineral  properties is an enterprise
attendant  with high risk,  including  the risk of  fluctuating  prices for oil,
natural gas and other minerals being sought,  imports of petroleum products from
other  countries,  the  risks of not  encountering  adequate  resources  despite
expending  large  sums of  money,  and the risk that test  results  and  reserve
estimates  may  not  be  accurate,   notwithstanding   appropriate  precautions.
Registrant's  ability to  participate  in these projects may be dependent on the
availability  to Registrant of adequate  financing  from third parties which may
not be  available on  commercially-reasonable  terms,  if at all.  Many of these
risks are described herein,  and it is important that each person reviewing this
report   understand  the  significant  risks  attendant  to  the  operations  of
Registrant.  Registrant  disclaims any obligation to update any  forward-looking
statement made herein.

     (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,  that unknown
or  unexpected  future  events  may occur  that will tend to reduce or  increase
Registrant's  ability to operate  successfully,  if at all, the possibility that
the described operations, reserves, or exploration or production activities will
not be completed or continued  on economic  terms,  if at all. The  exploration,
development  and  production of oil and gas mineral  properties is an enterprise
attendant  with high risk,  including  the risk of  fluctuating  prices for oil,
natural gas and other minerals being sought,  imports of petroleum products from
other  countries,  the  risks of not  encountering  adequate  resources  despite
expending  large  sums of  money,  and the risk that test  results  and  reserve
estimates  may  not  be  accurate,   notwithstanding   appropriate  precautions.
Registrant's  ability to  participate  in these projects may be dependent on the
availability  to Registrant of adequate  financing  from third parties which may
not be  available on  commercially-reasonable  terms,  if at all.  Many of these


                                        3

<PAGE>


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

risks are described herein,  and it is important that each person reviewing this
report   understand  the  significant  risks  attendant  to  the  operations  of
Registrant.  Registrant  disclaims any obligation to update any  forward-looking
statement made herein.

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 currently is in the state of California.

Registrant may purchase  production  from other entities  through the use of its
working capital or may acquire interests in producing properties with loans from
commercial  financial  institutions,  which expect repayment from the production
revenues, or Registrant may also purchase production from other entities through
the  issuance  of  its  common  stock,  or  arrange  participations  with  other
investors,  sometimes retaining a promoted interest itself.  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 stock value has been  significantly  reduced;
and it has become more difficult and expensive 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
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.


                                        4

<PAGE>


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

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.

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.  Registrant  was able to interest a
privately-held  Canadian mining company in providing  funding for two identified
uranium  projects  in  Wyoming  for which  Registrant  had  gathered  geological
information.

     (1)  Principal  products  produced  and  services  rendered:   Registrant's
products  during  fiscal  1998 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, 1998 crude oil and natural gas sales
and related revenues  accounted for $863,587 or 94.8% of Registrant's  revenues;
while  $47,237 or 5.2% was interest and other  income.  Registrant  is no longer
receiving  any mineral  revenues and derives 100% of its revenues from crude oil
and natural gas sales.

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

     (3) Status of any  publicly-announced  new products or services:  There has
been no public  announcement  of,  and no  information  otherwise  has been made
public about,  a new product or service which would require the  investment of a
material amount of 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


                                        5

<PAGE>


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

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
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

<PAGE>


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

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

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

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

     (9) Effect of  existing or probable  governmental  regulation:  Oil and gas
exploration  and  production,  as  well  as  mining  activities,   are  open  to
significant  governmental  regulation  including  worker health and safety laws,
employment regulations and environmental regulations.  Operations which occur on
public  lands  may be  subject  to  further  regulation  by the  Bureau  of Land
Management, the U.S. Army Corps of Engineers, or the U.S. Forest Service.

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

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


                                        7

<PAGE>


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

     (12)  Employees.  At June 30,  1998  Registrant  employed  three  full-time
persons.  Registrant also uses independent contractors and other consultants, as
needed.

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

     (A) Oil and Gas Properties

     (1) General Information

Registrant  increased  its net gas  reserves  by 7% (1742  MMCF from 1630  MMCF)
during  fiscal  year 1998 (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 remained constant ($3,653,000
from $3,648,000) during the last fiscal year.

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

     During the fiscal year ended June 30, 1998  Registrant  participated in the
drilling of 5 wells,  of which 3 were  completed as commercial  gas wells, 1 was
completed  as a  commercial  oil  well,  and 1 was a dry  hole and  plugged  and
abandoned,  a success ratio of 80%.  Registrant also successfully  recompleted 1
oil well and completed the  construction of a gas line which allowed  Registrant
to place a prolific flowing oil well on production.

Denverton Creek Field,  Solano County,  California.  Registrant owns a 23.55% to
23.80% working interest in  approximately  1,721 gross (1,610 net) acres located
in this field.  Registrant,  with other participants,  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.  Cumulative  production is approximately  990,000 MCF and the current
producing rate is 3,000 MCF per day.

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 1,610 net
acres under lease in the immediate  vicinity and drilled a successful  follow-up
well, the Emigh 2-1, in the fall of 1997.  After ten months of  production,  the
Emigh 2-1 has produced  approximately  1,400,000 MCF and is currently  producing
3,700  MCFPD of high BTU gas (1052),  20 barrels of  condensate  per day,  and 6
barrels of water per day at a flowing tubing pressure of 1775#.

Registrant  drilled a third well,  the Emigh 35-1,  to a depth of 10,500' in the
summer of 1998. The well  encountered more than 200 feet of pay contained in the
Bunker,  Starkey,  Martinez,  and McCormick formations.  Production commenced on

                                        8

<PAGE>


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

June 30, 1998 from the Starkey  and Bunker  formations  (the Bunker was added on
September 1, 1998). After  approximately  three months of production,  the Emigh
35-1 has produced  nearly 200,000 MCF and is currently  producing 3,000 MCFPD of
high BTU gas (1067),  25 barrels of  condensate  per day, and 5 barrels of water
per day.

Registrant plans to spud its fourth well in the Denverton Creek Field, the Emigh
35-2, in late  September,  1998.  The well will be drilled to a depth of 10,600'
and will target the Martinez, McCormick, H&T, Bunker, and Starkey formations.

Rosedale  Field,  Kern County,  California.  Registrant  acquired a 12% operated
working  interest (9.51% net revenue  interest) in two flowing oil wells and two
shut-in oil wells  effective  November 1, 1995,  located in the Rosedale  Field,
Kern County, California.  These wells produce high gravity oil (32(degree)) from
the Stevens  formation at depths ranging from 6,400' to 6,600'.  The Arco 36X-10
has been  flowing oil for over seven  years.  Cumulative  production  to date is
approximately 218,000 barrels of oil and the current production is approximately
33 BOPD and 20 BWPD. The Arco 46X-10 commenced  production in April, 1998 and is
currently  flowing 125 BOPD, 75 MCFPD, and 0 BWPD with a flowing tubing pressure
of 750# on an 8/64" choke. The well is capable of much higher flow rates.

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 124,000 barrels
of high  gravity oil  (32(degree))  from the Stevens  formation  from a depth of
approximately  8,400' to 8,500'.  The well was  recompleted in April,  1998 in a
higher Stevens  interval at a depth of 7,655' to 7,664' (due to excessive  water
production from the lower Stevens interval). This zone has been steadily pumping
35 BOPD with no water since inception.  One behind-pipe zone exists 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.

In October, 1997, Registrant completed the Brandt 26X-27 well, an extension test
to its Brandt 16X-27 well.  The new well commenced  production  from the Stevens
formation in October,  1997,  and has been flowing  approximately  95 BOPD and 0
BWPD  with a  flowing  tubing  pressure  of  240#  since  inception.  Cumulative
production to date is approximately 34,000 BO in only one year.


                                        9

<PAGE>


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

Northwest Compton Landing,  Colusa County,  California.  Registrant  drilled and
completed the Compton Landing 97-1 well, located in Colusa County, California in
late fall of 1997 (October-November).  The well was drilled to a depth of 2,730'
and  dually  completed  from two Kione  intervals.  The well  declined  rapidly,
produced  only  45,000 MCF of 919 BTU gas,  and was  plugged  and  abandoned  in
September,  1998.  Registrant may acquire  additional  seismic data over its 370
gross (net) acre leasehold to evaluate any future potential.

Miller Lake, San Joaquin County, California.  Registrant drilled and plugged and
abandoned the Brocchini  4-1 well located in San Joaquin  County,  California in
May,  1998.  The well was drilled to a depth of 8,689' and did not encounter any
oil or gas shows.

     (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, 1998 and
1997, and the average sales prices,  average production costs and direct lifting
costs per unit of production.

                                                 Years Ended June 30,
                                           -------------------------------
                                            1998         1997        1996
                                            ----         ----        ----
         Net Production
         --------------
         Oil (Bbls)                          6,942       5,636       7,987
         Gas (Mcf)                         259,394      81,523       7,846

         Average Sales Prices
         --------------------
         Oil (per Bbl)                      $12.57      $19.99      $17.19
         Gas (per Mcf)                      $ 2.51      $ 2.50      $ 1.04

         Average Production Cost 1,3
         ---------------------------
         Per equivalent
           Bbl of oil                       $ 3.65      $ 4.67      $17.87

         Average Lifting Costs 2,3
         -------------------------
         Per equivalent
           Bbl of oil                       $ 1.51      $ 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  lower  cost gas wells  came on
     stream in 1997 and 1998.


                                       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, 1998:

                                                       Registrant's
                                                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                          1       --       0.12      --
             Brandt 16X                        1       --       0.18      --
             Brandt 26X                        1       --       0.1343    --
             Grey Wolf 1                      --        1       --       0.18
             Sanborn 3-3                      --        1       --       0.008
             Emigh 34-1                       --        1       --       0.2355
             Emigh 2-1                        --        1       --       0.2355
             Emigh 35-1                       --        1       --       0.2380
             Compton Landing 97-1             --        1       --       0.07
                                            ----     ----     --------   ------


           TOTAL                               5        6       0.6743   0.967
                                            ====     ====     ========   ======





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.


                                       11

<PAGE>


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

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


                                            Registrant's Developed Acres 1
                                            ------------------------------
                                              Gross 2             Net 3
                                              -------             -----
         Prospect
         --------

         California:
                  Grey Wolf 1                  120.00             21.60
                  W Bellevue Ext Fld           160.00             24.14
                  Rosedale Field                80.00              9.60
                  Sanborn 3-3                  615.00              5.23
                  Denverton Creek              480.00            113.44
                  NW Compton Landing           370.00             25.90
                                               ------             -----


                           TOTAL             1,825.00            199.91
                                             ========            ======

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, 1998 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 35-1           1.6800            --        1         160.00
                                                 --       --         ------


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

1    Consists of acres spaced or assignable to productive wells.

                                       12

<PAGE>


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

          (ii) (c) Drilling Activity: The following table sets forth the results
of Registrant's  drilling activities during the fiscal years ended June 30, 1998
and 1997:

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

1997  Exploratory       2        1           1        .34     .24          .10
      Development       0

1998  Exploratory       2        1           1        .17     .07          .10
      Development       3        3                    .61     .61


          (ii) (d)  Leasehold  Interests -  Undeveloped  Acreage:  The following
table sets forth Registrant's  leasehold interest in undeveloped acreage at June
30, 1998:

                                             Registrant's Undeveloped Acreage
                                             --------------------------------
                                                  Gross             Net
                                                  -----             ---

         California:
           Denverton Creek                       1,241.00          295.36
           Point of Rocks                          240.00           43.20
           W. Bellevue Extension
             Field                                 520.00           30.16
                                                   ------           -----


                           TOTAL                 2,001.00          368.72
                                                 ========          ======


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

     (3) Reserve Information

Oil and Gas Reserves. Oil and gas reserves for Registrant's properties have been
evaluated at June 30, 1998 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
   

                                       13

<PAGE>


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

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


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

     The following  tables set forth the estimated  proved developed oil and gas
reserves and proved undeveloped oil and gas reserves of Registrant for the years
ended  June  30,  1998  and  1997.  See  Note  9 to the  Consolidated  Financial
Statements and the above discussion.

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

         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

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

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




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

                                   Developed   Undeveloped    Total
                                   ---------   -----------    -----
            Oil (Bbls)
                  June 30, 1997      17,000        11,000      28,000
                  June 30, 1998      26,000         3,000      29,000

            Gas (Mcf)
                  June 30, 1997     591,000     1,040,000   1,631,000
                  June 30, 1998     907,000       835,000   1,742,000



                                       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

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

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 and other Alaska
---------------------------

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

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

Registrant has succeeded in reaching an agreement with a privately-held Toronto,
Ontario-based  company  whereby  Registrant has received a $125,000 cash payment
and a commitment to receive an additional  $125,000  prior to December 31, 1998.
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


                                       15

<PAGE>


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

privately-held  company.  Because there is, and may never be, a market for these
shares,  the stock may prove to be of no value.  The  president of Registrant is
expected  to  provide  geological  and  logistical  consulting  services  to the
privately-held  company and Registrant will bill the privately-held  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.

     (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.


                                       16

<PAGE>


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

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

     (D) Office Facilities.  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
$961 per month. Registrant has also paid $816 as a security deposit for the term
of the lease, which was in effect through November 30, 1999.

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
notified  Registrant  that  an  enforcement   proceeding  may  be  initiated  if
Registrant  did not bring 10-QSB and 10-KSB filings up to date 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
1996 and 1997 annual reports and the quarterly reports filed have alleviated 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.


                                       17

<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, 1998, or any subsequent period.

                                       18

<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 Prices
                                                        --------------------
                                                            Common Stock
                                                        --------------------
                                                        Low Bid     High Bid
                                                        -------     --------

         Fiscal Year Ended June 30, 1998:
         --------------------------------

                  First Quarter                           $.07        $ .20
                  Second Quarter                           .20         1.00
                  Third Quarter                            .20          .45
                  Fourth Quarter                           .28         1.25


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

                  First Quarter                           $.13        $ .25
                  Second Quarter                           .03          .19
                  Third Quarter                            .03          .14
                  Fourth Quarter                           .03          .11


     (B) Holders

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


                                       19

<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,  1998,  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.


                                       20

<PAGE>



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

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

June 30, 1998 as compared to June 30, 1997
------------------------------------------

Registrant  has  sustained  operating  losses  in  recent  years.  In  addition,
Registrant has used substantial amounts of working capital in its operations. At
June 30, 1997 current liabilities  exceeded current assets by $113,345.  At June
30, 1998 current  liabilities  exceeded current assets by $50,734 and Registrant
has a working  capital  deficit to that extent.  However,  Registrant's  working
capital and cash flow position has improved  substantially  in recent months due
to successful drilling of oil and gas wells.

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 further  described in Item 12.
Also,  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,  an officer of the Registrant has elected to
defer a portion of his salary.  At June 30, 1998, the amount due to officers was
approximately  $69,000 and $72,000 at June 30, 1997. At the time of this filing,
Registrant owed its officers approximately $60,000.

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 have reduced or eliminated the working capital
deficit and will contribute  considerably to the  Registrant's  cash flow in the
coming year.

From June 30, 1997 to June 30, 1998,  Registrant's  working capital increased by
$62,611 to a negative  $50,734.  The increase was due to an increase in cash and
accounts receivable of approximately  $260,000 reflecting an increase in oil and
gas sold and net income from  operations  for the twelve  months  ended June 30,
1998. The increase in cash and receivables was offset by an increase in accounts
and short term notes  payable of  approximately  $198,000  because of  increased



                                       21

<PAGE>



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

drilling  activity at year end and  commitments to repay funds borrowed in 1997.
Commencing in fiscal 1996 and continuing through 1998,  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   officers'salaries;   the  decision  to  defer   compliance   with
Registrant's reporting obligations under the Securities Exchange Act of 1934, as
amended, the voluntary reduction of certain officers' salaries, and the decision
to  concentrate  on the  development of cash flow from oil and gas operations in
California,   in  which  a  former  (now  current)  officer  of  Registrant  has
significant  experience.  Based on  Registrant's  view of the uranium  industry,
Registrant  also believes that the market is receptive to an attractive  uranium
prospect.

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.

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 privately-held Toronto, Ontario-based
company whereby Registrant has received a $125,000 cash payment and a commitment
to receive an  additional  $125,000  as  financing  can be  arranged  in Canada.
Management of the privately-held  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  privately-held
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 privately-held company and Registrant will
bill the  privately-held  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.

                                       22

<PAGE>



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

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

1998 Compared to 1997
---------------------

For the twelve months ended June 30, 1998 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.

Oil and gas revenues, which includes income from management fees, for the twelve
months ended June 30, 1998 increased $423,264, from $316,162 to $739,426, a 133%
improvement.  This increase reflects increased emphasis on operations  conducted
in California  and the continued  production  from the Emigh lease which came on
stream in  November,  1996,  and now includes  three  producing  gas wells.  The
increase in oil and gas revenues  were  further  enhanced by the addition of the
Brandt  26X-27 and Arco  46X-10  which come on line during  September,  1997 and
April, 1998.

Oil and gas production  expenses  increased  $38,759 from $37,016 to $75,775,  a
105% increase. This increase was due primarily to the addition of five producing
oil and gas wells during the year.

Depletion,  depreciation and amortization increased significantly,  from $39,691
to $119,653, a $79,962 increase or 201%. This increase was due to an increase in
the full cost pool of approximately $370,000,  causing the depletable base to be
larger and a substantial increase in the production of oil and gas when compared
to fiscal 1997. On an MCF  equivalent  basis reserves at June 30, 1998 increased
6.6% from a year earlier.

Selling,  general and  administrative  expenses decreased $32,966 or 5.4% during
fiscal 1998, reflecting  Management's  continued commitment to contain costs and
increase cash flow.

As a result of Registrant's  operations for the fiscal year ended June 30, 1998,
Registrant ended the year with a net gain of $110,538  compared to a net loss of
($352,315) a year earlier. This increase of approximately  $462,853 reflected an
increase of approximately  $498,000 in oil and gas sales and related  management
fees.  These  increases  are  the  direct  result  of  successful  drilling  and
production operations conducted in California. Other income increased $13,770 or
99% from  $13,943 in 1997 to  $27,713  in 1998.  The  increase  in other  income
includes  billings to third parties for services rendered by officers of $6,750,


                                       23

<PAGE>


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

the  recapture of  allowance  for doubtful  accounts now deemed  collectible  of
$12,500,  and the  adjustment  of officer  accrued  vacation  salary  payable of
$7,200.

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, 1998,  the Company has converted all of its computer  software to
accommodate the "Year 2000" issue. The amount expensed in 1998 was immaterial.

                                       24

<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,  1998 and 1997 and the related  statements  of
operations,  stockholders'  equity,  and cash flows for the years ended June 30,
1998  and  1997.  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,  1998  and  1997,  and the  results  of their
consolidated  operations  and cash flows for the years  ended June 30,  1998 and
1997 in conformity with generally accepted accounting principles.



                                         GORDON, HUGHES & BANKS, LLP

Englewood, Colorado
September 10, 1998



                                       25
<PAGE>



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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                                              June 30,
                                                     --------------------------
                                                         1998          1997
                                                        ------        ------

Current Assets:
  Cash and cash equivalents, including
    $331,894 and $238,415 of invested
    cash in 1998 & 1997, respectively
    (Note 10) .....................................  $   425,306    $   238,465

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

  Accounts receivable, trade, net of
    allowance for doubtful accounts
    of $12,495 in 1997 ............................      115,144         46,870

  Prepaid expenses ................................        8,762          3,732
                                                     -----------    -----------

  Total current assets ............................      568,035        307,890
                                                     -----------    -----------
Investment in oil & gas properties, at
  cost (full cost method of
  accounting) (Note 11) ...........................    1,682,521      1,315,458

    Less accumulated depletion and
      valuation allowance .........................   (1,006,902)      (899,694)
                                                     -----------    -----------

                                                         675,619        415,764
                                                     -----------    -----------
Property and equipment, at cost:

  Furniture, fixtures & vehicles ..................      171,122        143,559

    Less accumulated depreciation .................     (120,544)      (108,098)
                                                     -----------    -----------

                                                          50,578         35,461
                                                     -----------    -----------
Undeveloped mining properties, at
  cost (Note 2) ...................................       27,826        134,354

Cash surrender value, life insurance
  (Note 3) ........................................      231,314        217,471

Other .............................................        3,400            -0-

Deferred compensation costs (Note 6)  .............       28,000            -0-
                                                     -----------    -----------

Total assets ......................................  $ 1,584,772    $ 1,110,940
                                                     ===========    ===========

                              (Statement Continues)
                 See Notes to Consolidated Financial Statements

                                       26

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (Continued)


                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                             June 30,
                                                   ----------------------------
                                                       1998             1997
                                                   -----------      -----------


Current liabilities:

  Accounts payable and accrued
    expenses (Note 10) .......................     $   409,815      $   118,220

  Advances from joint interest owners
    (Note 10) ................................          87,999          230,624

  Due to related parties (Note 9) ............          68,750           72,391

  Short term notes payable (Note 5) ..........          52,205              -0-
                                                   -----------      -----------

  Total current liabilities ..................         618,769          421,235
                                                   -----------      -----------

Notes payable (Note 5) .......................         280,360          185,000
                                                   -----------      -----------
Stockholders' equity:
    (Notes 1 and 6):
    Common stock, $.005 par value:
      Authorized:  50,000,000 shares
      Issued:  4,916,322 in 1998 and
        4,456,322 in 1997 ....................          24,581           22,281

  Capital in excess of par value .............       5,677,977        5,609,877

  Accumulated deficit ........................      (5,016,915)      (5,127,453)
                                                   -----------      -----------

  Total stockholders' equity .................         685,643          504,705
                                                   -----------      -----------

Total liabilities and stockholders'
  equity .....................................     $ 1,584,772      $ 1,110,940
                                                   ===========      ===========

                 See Notes to Consolidated Financial Statements

                                       27

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                        Year ended June 30,
                                                    ---------------------------
                                                        1998           1997
                                                    -----------     -----------


Revenues:

  Oil and gas (Note 9) ........................     $   739,426     $   316,162

  Management fees (Note 1) ....................         124,162          49,565

  Interest ....................................          19,523           4,281

  Other income ................................          27,713          13,943
                                                    -----------     -----------

                                                        910,824         383,951
                                                    -----------     -----------
Costs and expenses:

  Oil and gas production ......................          75,775          37,016

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

  Depreciation, depletion and
    amortization ..............................         119,653          39,691


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

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

  Interest expense ............................          28,903             -0-

  Selling, general and administrative .........         575,955         608,921
                                                    -----------     -----------

                                                        800,286         736,266
                                                    -----------     -----------

Net gain (loss) ...............................     $   110,538     $  (352,315)
                                                    ===========     ===========

Basic earnings (loss) per common share ........     $       .02     $      (.08)
                                                    ===========     ===========
Diluted earnings (loss) per common
  share .......................................     $       .02     $      (.08)
                                                    ===========     ===========
Weighted average number of common
  shares outstanding ..........................       4,687,342       4,490,019
                                                    ===========     ===========


                 See Notes to Consolidated Financial Statements

                                       28

<PAGE>
<TABLE>
<CAPTION>


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

                         ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                         CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY




                                             Common Stock
                                 -------------------------------------
                                                            Capital in
                                  Number         Par        Excess Of     Accumulated
                                 Of Shares      Value       Par Value       Deficit        Total
                                 ---------      -----       ---------       -------        -----

<S>                             <C>         <C>           <C>           <C>            <C>        
Balances, June 30, 1996          4,321,322   $    21,606   $ 5,605,152   $(4,775,138)   $   851,620

Stock issued to Officers,
 Directors, Employees
 and Consultants for
 services at $.04 per share        135,000           675         4,725          --            5,400

Net (loss) for year                   --            --            --        (352,315)      (352,315)
                               -----------   -----------   -----------   -----------    -----------

Balances, June 30, 1997          4,456,322        22,281     5,609,877    (5,127,453)       504,705

Stock issued to Officers,
 Directors, Employees
 and Consultant for
 services at $.14 per share        460,000         2,300        62,100          --           64,400

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

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

Balances, June 30, 1998          4,916,322   $    24,581   $ 5,677,977   $(5,016,915)   $   685,463
                               ===========   ===========   ===========   ===========    ===========



                        See notes to consolidated financial statements

                                              29
</TABLE>

<PAGE>


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

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                           Year Ended June 30,
                                                         ----------------------
                                                           1998          1997
                                                           ----          ----

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

  Net gain (loss) ....................................   $ 110,538    $(352,315)

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

  Services rendered for overriding royalty interest ..       7,500       10,000
  Services rendered for stock ........................      28,400        5,400
  Depreciation, depletion, amortization and
    valuation allowance ..............................     119,653       39,691
  (Gain) loss on disposal of precious metals,
    equipment and mineral properties .................        --         50,638
  Proceeds from the sale of precious metals ..........        --        196,016
  Changes in assets and liabilities:
    (Increase) decrease in accounts receivable, and
       prepaid expenses ..............................     (73,304)      15,566
    Increase (decrease) in accounts payable, accrued
       expenses and due to related parties ...........     145,329       89,825
    Decrease in production taxes payable .............        --        (13,819)
    Increase in interest payable .....................      10,437         --
                                                         ---------    ---------


Net cash provided by operating activities ............     348,553       41,002

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

  Prospect fees ......................................     168,575       81,237
  Sale of mining data ................................     125,000         --
  Return of computer equipment .......................        --          4,790
  Sale of oil and gas properties .....................       1,897      100,000
  Development of oil and gas properties ..............    (545,034)    (157,648)
  Office equipment purchased .........................      (6,891)      (2,262)
  Additions to undeveloped mining properties .........      (4,472)     (71,002)
  Additions to cash surrender value ..................     (13,843)     (38,001)
  Organization Cost - Recursos de Mexico and ISL .....        --         (6,874)
  Additions to other assets ..........................      (3,400)        --
                                                         ---------    ---------


Net cash (used in) investing activities ..............    (278,168)     (89,760)


                 See notes to consolidated financial statements

                                       30

<PAGE>


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

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


                                                           Year Ended June 30,
                                                         ----------------------
                                                           1998           1997
                                                           ----           ----

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

  Notes payable-proceeds ............................      151,000       185,000
  Notes payable-repayments ..........................      (34,544)         --
                                                         ---------     ---------


Net cash provided by financing activities ...........      116,456       185,000
                                                         ---------     ---------


Net increase (decrease) in cash and equivalents .....      186,841       136,242

Cash and cash equivalents, beginning of year ........      238,465       102,223
                                                         ---------     ---------

Cash and cash equivalents, end of year ..............    $ 425,306     $ 238,465
                                                         =========     =========


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

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

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


                                                         $  34,672     $    --
                                                         =========     =========

Interest Paid .......................................    $  10,153     $     514
                                                         =========     =========




                 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 uranium and other mineral
     properties.

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

     The Company has three wholly owned  subsidiaries.  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 three gas
     wells and three oil wells,  which has allowed the Company to pay  creditors
     and resume normal operations.

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

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

     The  consolidated   financial   statements  include  the  Company  and  its
     wholly-owned  subsidiaries,  Aspen Gold Mining  Company,  Aspen Recursos de
     Mexico and 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.  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 and estimated reserves. Price declines reduce the estimated quantity
     of proved reserves and increase annual amortization expense (which is based
     on proved reserves).

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

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

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

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

     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 and diluted
     earnings per share. The calculations differ by eliminating any common stock
     equivalents  (such as stock options,  warrants,  and convertible  preferred
     stock) from basic earnings per share and changes certain  calculations when
     computing  diluted earnings per share. The Company has adopted SFAS No. 128
     in fiscal year 1998.

                                       33

<PAGE>
<TABLE>
<CAPTION>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The following is a reconciliation  of the numerators and denominators  used
     in the  calculations of basic and diluted earnings (loss) per share for the
     years ended June 30, 1998 and 1997:


                                            1998                              1997
                              -------------------------------- --------------------------------
                                                         Per                              Per
                                Net                     Share     Net                    Share
                               Income       Shares      Amount    Loss       Shares      Amount
                               ------       ------      ------    ----       ------      ------
<S>                             <C>        <C>           <C>    <C>         <C>           <C>  
Basic earnings per share:

  Net income (loss)
  and share amounts             110,538    4,687,342     .02    (352,315)   4,490,019     (.08)

  Dilutive securities
   stock options                             460,000

  Repurchased shares                         (90,880)
                              ----------------------------------------------------------------
Diluted earnings per share:

  Net income and assumed
  share conversion              110,538    5,056,462     .02    (352,315)   4,490,019     (.08)
                              =========    =========     ===   =========    =========      ===

</TABLE>

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

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

                                       34

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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 has adopted SFAS No. 130 in 1998.

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

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

     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, 1998. Sales of
     gold from  inventory  for the years  ended June 30, 1998 and 1997 were $-0-
     and $196,016, 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.


                                       35

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Depletion  and  amortization  of the full-cost  pool is computed  using the
     units-of-production  method based on proved reserves as determined annually
     by the Company and independent engineers. An additional depletion provision
     in the form of a valuation  allowance is made if the costs  incurred on oil
     and gas  properties,  or  revisions in reserve  estimates,  cause the total
     capitalized  costs of oil and gas  properties  in the cost 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 $281,719 at June 30, 1998 and June 30, 1997.

     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.

     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.
     Gains or losses on the sale or abandonment of mining properties are charged
     to current operations.

                                       36

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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
     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.

     Deferred compensation Costs
     ---------------------------

     The  Company  records  stock  bonuses to  employees  as an  expense  and an
     increase  to paid-in  capital in the year of grant  unless the bonus  vests
     over future years. Bonuses that vest are deferred and expensed ratably over
     the vesting period.

     Treasury Stock
     --------------

     In 1997  and in  prior  years,  the  Company  presented  treasury  stock as
     separate information in the statement of stockholders' equity. However, the
     corporate  laws in Colorado were recently  revised and do not recognize the
     existence of treasury  stock.  The Company has  restated  the  statement of
     stockholders'  equity to  eliminate  the  treasury  stock  for all  periods
     presented.


Note 2 MINING PROPERTIES

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

     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
     abandoned  these leases  during 1997 by non payment of lease delay  rentals
     due.

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

                                       37

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     The Company has recently begun  exploration for in situ uranium deposits in
     Wyoming.  During  the  years  ended  June 30,  1998 and 1997,  the  Company
     expended  $4,472 and  $63,352,  respectively,  on the  Kaycee and  Shamrock
     prospects.  In addition  during 1998,  the Company  issued to the president
     100,000  shares  of the  Company's  common  stock,  valued at  $14,000,  in
     exchange for the  president's 25% interest in geological data and potential
     uranium prospects.

     During fiscal 1998, the Company sold the geological  data of the Kaycee and
     Shamrock prospects (owned by ISL) to a privately-held Canadian company and,
     in exchange,  received a $125,000  cash payment and a commitment to receive
     an additional  $125,000 prior to December 31, 1998.  Under the terms of the
     sales agreement reached in March, 1998, the Company also received 2 million
     shares  or  approximately  25% of the  common  stock of the  privately-held
     company.  To the knowledge of the Company,  at the time of this filing, the
     stock had no market value.

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 1997 nor fiscal
     1998.

     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.

                                       38

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        
     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, 1997, the Company paid $60,000 in premiums,  of
     which  the  President's  portion  was  approximately  $22,051.   Additional
     compensation  of  $8,422  had  been  recognized  as  reimbursement  to  the
     President for income taxes.  For the year ended June 30, 1998,  the Company
     paid $30,000 in  premiums,  of which the  President's  portion was $11,026.
     Additional  compensation of $4,288 has been recognized as  reimbursement to
     the President for income taxes. As of June 30, 1998 the Company had accrued
     but not paid $30,000 in premiums on the split dollar insurance  policy.  As
     of June 30,  1998  and  June  30,  1997,  the  Company's  accumulated  cash
     surrender  value was $231,314 and  $217,471,  respectively,  which has been
     included as an asset on the Company's  balance sheet.  The recognized  cash
     surrender  value of $231,314 is $88,843 less than the $306,314  reported by
     the  insurance  company.  The Company is in the process of  clarifying  the
     allocation,  if any, between the Company and the insured. The allocation of
     the $88,843 is unresolved at June 30, 1998. At the time of this filing, the
     outcome of this  matter  cannot be  predicted.  During  1997 and 1998,  the
     Company  withdrew  $200,000 of cash  surrender  value to pay expenses.  The
     death  benefit  payable to the named  beneficiary  as of June 30,  1998 and
     1997, is approximately $1,000,000 and $760,000,  respectively.  At June 30,
     1998,  the cash  surrender  value net of the loan and accrued  interest was
     approximately $14,029.

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

     For the fiscal years ended June 30, 1997 and 1998, the Company had a policy
     of reimbursing  employees for medical expenses  incurred but not covered by
     the Company's paid medical insurance plan.  Expenses  reimbursed for fiscal
     1997 and fiscal 1998 were $9,600 and $12,000, respectively.

                                       39

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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      E      F
                                         --------------------------------------
         Year ended:

           June 30, 1997                 36%    16%    13%    -      -      -
           June 30, 1998                 -      -      -     60%     11%    18%

Note 5 NOTES PAYABLE

     The Company owes the following debt:

                                                            June 30
                                                   -------------------------
                                                      1998          1997
                                                   -------------------------

     Borrowings   from  life   insurance
     company on cash surrender  value of
     officer life insurance, interest at
     6% per annum, no specific due date,
     however,  the  Company  intends  to
     repay  this   obligation  in  equal
     installments  during  fiscal  years
     6/30/2000      and       6/30/2001,
     collateralized  by  cash  surrender
     value of policy                               $  210,437    $  185,000

     Note  payable  to  related   party,
     monthly   principal   and  interest
     payments of $4,269,  due September,
     2000,   collateralized  by  working
     interests in the Emigh lease                     101,456          --

     Note  payable  to auto  dealership,
     monthly   principal   and  interest
     payments of $879,  due July,  2000,
     collateralized by new vehicle                     20,672          --

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

                                                      332,565       185,000

         Less current portion                          52,205          --
                                                   ----------    ----------

                                                   $  280,360    $  185,000
                                                   ==========    ==========

                                       40

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Aggregate maturities of long term debt at June 30, 1998 are as follows:

         Year ending June 30,

         1999                       $  52,205
         2000                         162,575
         2001                         117,785
         2002                            -
         2003                            -
                                    ---------

                                    $ 332,565
                                    =========


     The weighted average interest rate on short term borrowings  outstanding at
     June 30, 1998 was 9.2%.


Note 6 STOCKHOLDERS' EQUITY

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

     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.

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

     In  1996,  the  Company  formed  ISL  Resources  Corporation  ("ISL")  as a
     wholly-owned  subsidiary  to pursue  uranium  opportunities.  In 1997,  the
     Company conveyed 50% interest in ISL to an unaffiliated third party who was
     to arrange financing for the uranium  projects.  At that time, ISL obtained
     

                                       41

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     rights from the Company to certain  information that had been developed for
     the  projects.  The  financing  was  not  accomplished,   and  the  Company
     reacquired the data from ISL in 1997 and resolved other outstanding  issues
     by conveying to the third party 20,000 shares of the  Company's  restricted
     common stock.

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

     On November 1, 1997, the Company  granted stock options to purchase  50,000
     shares  each to two  officers  and  20,000  shares  each  to two  corporate
     directors at $.02 per share. In addition, stock options for another 120,000
     shares were granted but were not valued because the exercise price exceeded
     the market price on the grant date.

     On February 2, 1998, the Company  granted options to purchase 25,000 shares
     to an employee  and 25,000  shares to a  consultant  at $.06 per share.  In
     addition,  stock options for another  150,000  shares were granted but were
     not valued  because the  exercise  price  exceeded  the market price at the
     grant date.

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

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

     Restricted  stock  option  awards of the  Company's  common  stock are made
     pursuant to its equity plans at a purchase  price ranging from $.20 to $.32
     per  common  share.  Unearned  compensation,  which  is  determined  as the
     difference  between the  exercise  price and the fair  market  value of the
     Company's stock discounted 70% on the date the option becomes  exercisable,
     is charged to expense at that date. A total of 760,000 shares of restricted
     stock with a weighted  average grant date value of $.12 per share using the
     Black-Scholes  option  pricing  model  were  awarded  in  fiscal  1998.  No
     restricted shares were awarded in fiscal 1997. Total  compensation  expense
     recognized in the statement of operations for  restricted  stock awards was
     $6,000 during 1998 and none for 1997.


                                       42

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                   Weighted Average
                                    Number of     Exercise Price of
                                     Shares       Shares Under Plans
                                     ------       ------------------

              Outstanding
               June 30, 1997            -0-             $ -0-

              Granted                760,000               .26

              Exercised                 -0-               -0-

              Forfeited or
               expensed                 -0-               -0-
                                     --------           ------

              Outstanding
               June 30, 1998          760,000           $  .26
                                     ========           ======


     The following  table  summarizes  information  concerning  outstanding  and
     exercisable options as of June 30, 1998:

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

     $.20      190,000       01/01/2002      $.20         190,000       $.20

      .24      190,000       01/01/2002       .24          90,000        .24

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

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

               -------                                    -------
               760,000                                    460,000
               =======                                    =======


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

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

                                       43

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  
     The Company  accounts  for the two stock option plans under APB Opinion No.
     25,  under  which  $6,000 in  compensation  cost has been  recognized.  Had
     compensation cost for these plans been determined  consistent with SFAS No.
     123,  "Accounting for Stock-Based  Compensation,"  the Company's net income
     and earnings per share would have been reduced to the  following  pro forma
     accounts:

                                                                  1998
                                                                  ----

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

     There were no outstanding  options at June 30, 1997;  hence,  no comparison
     data is presented.


Note 7 INCOME TAXES

     There is no current or  deferred  tax  expense for the years ended June 30,
     1998 and 1997.  The  Company in 1998 and 1997 had net losses for income tax
     purposes.  The  benefits  of timing  differences  have not been  previously
     recorded.

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



                                       44

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

         Deferred tax assets:                         1998          1997
                                                  -----------    -----------

           General business credit                $    23,325    $    23,325
           Federal tax loss
             carryforwards                          1,465,286      1,415,202
           Valuation allowance                     (1,139,666)    (1,162,025)
                                                  -----------    -----------


                                                      348,945        276,502
                                                  -----------    -----------

         Deferred tax liabilities:
           Property, plant and
             equipment                                348,945        276,502
                                                  -----------    -----------

                                                  $    -0-       $    -0-
                                                  ===========    ===========


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

                                               1998    1997
                                               ----    ----
                   Statutory federal income
                     tax rate                  (34%)   (34%)

                   State tax, net of federal
                     benefit                   --      --

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


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

     The Company has available net operating loss carryforwards of approximately
     $4,309,665  (expiring in the years 1999 to 2013). In addition,  the Company
     has tax credit  carryforwards  of  approximately  $23,325  (expiring in the
     years 1999 to 2001).



                                       45

<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,
                                           --------------------------
                                               1998           1997
                                           -----------    -----------
         Revenue:
           Oil and gas .................   $   863,588    $   365,727
           Mining ......................           -0-            -0-
           General corporate ...........        47,236         18,224
                                           -----------    -----------

           Total revenue ...............   $   910,824    $   383,951
                                           ===========    ===========

         Results of operations
           (excluding overhead
            and interest costs):
           Oil and gas .................   $   680,605    $   302,237
           Mining ......................           -0-        (20,109)
           General corporate
             operations ................      (570,067)      (634,443)
                                           -----------    -----------

                  Net income (loss) ....   $   110,538    $  (352,315)
                                           ===========    ===========

         Depreciation, depletion
             amortization and valuation
             charged to identifiable
             assets:

             Oil & gas depletion .......   $   107,208    $    26,474
             Mining ....................           -0-         20,109
             General corporate .........        12,445         43,746
                                           -----------    -----------

                  Total ................   $   119,653    $    90,329
                                           ===========    ===========

         Capitalized expenditures:

             Oil and gas ...............   $   545,034    $   157,648
                                           ===========    ===========

             Mining ....................   $     4,472    $    71,002
                                           ===========    ===========

             Corporate .................   $    40,291    $    47,137
                                           ===========    ===========

         Identifiable assets, net of
             accumulated depreciation,
             depletion and amortization:
             Oil and gas ...............   $   789,522    $   462,634
             Mining ....................        47,890        153,177
             General corporate .........       747,360        495,129
                                           -----------    -----------


                  Total ................   $ 1,584,772    $ 1,110,940
                                           ===========    ===========


                                       46

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 RELATED PARTY TRANSACTIONS

     At June 30, 1998 and 1997, the Company owed its officers,  shareholders and
     directors $68,750 and $72,391, respectively. The amounts are primarily owed
     for accrued but unpaid  compensation and unreimbursed  medical,  travel and
     entertainment expenses.

     During the years ended June 30, 1998 and 1997,  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 in each of the years ended
     June  30,  1998  and  1997.   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 ended
     June 30, 1998 and 1997.

     The Company's vice president who resides in California provides the Company
     an office in his home at no cost to the Company.


                                       47

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Royalties in the fiscal year ended June 30, 1998 were assigned to employees
     on May 1, 1998 on the Emigh  leases  and on the Emigh 2-1 well.  A value of
     $7,500 was  assigned to the Emigh 2-1  overrides  since they were  assigned
     after the first production runs were received. The value assigned was based
     on the present value of the interests according to the oil and gas reserves
     as determined by the independent engineer. The overriding royalty interests
     in these California properties granted to its employees were as follows:

                                                    Emigh 2-1
                                                      After
                                                     Payout
                                                     ------

         Robert A. Cohan                             0.5000%

         Judith L. Shelton                           0.1000%

     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 related
     parties paid for their proportionate share of all costs to acquire, develop
     and  operate  these  properties  on the same  terms  as other  unaffiliated
     participants. As of June 30, 1998, working interests of the Company and its
     related parties in certain California properties are set forth below:

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

     ARCO 36X-10               PROD        12.00%         1.20%      -%    5.40%
     ARCO 46X-10               PROD        12.00          1.20       -     5.40
     ARCO 34X-10               SHUT IN     12.00          1.20       -     5.40
     ARCO 35X-10               SHUT IN     12.00          1.20       -     5.40
     BRANDT 16X-27             PROD        18.00          1.80       -     8.10
     BRANDT 26X-27             PROD        13.43          1.80    1.00     4.60
     BROCCHINI 4-1             DRY         10.00             -       -     2.00
     COMPTON LD 97-1           DRY          7.00             -       -        -
     EMIGH 34-1                PROD        23.55             -       -     1.00
     EMIGH 2-1                 PROD        23.80             -       -     1.00
     EMIGH 35-1                PROD        23.80             -       -     1.00
     ENRON 66X                 DRY         10.00             -       -     1.00
     GREY WOLF 1               PROD        18.00          2.00    2.50     2.00
     HOPPER 2                  DRY          5.50             -       -        -
     NORTH STRAND 1            DRY         14.05          2.70       -     2.70
     SANBORN 3-3               PROD          .95             -       -        -

     See Note 12 for additional related party disclosure.



                                       48

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 CONCENTRATION OF CREDIT RISK

     Financial   instruments   which   potentially   subject   the   Company  to
     concentrations  of  credit  risk  consist  principally  of  cash  and  cash
     equivalents and accounts  receivable.  While the Company has  approximately
     $232,000  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,
                                             --------------------------
                                                 1998           1997
                                             -----------    -----------

                 Proved properties           $ 1,682,521    $ 1,315,458
                                             -----------    -----------

                 Accumulated depreciation,
                   depletion and
                   amortization                 (725,183)      (617,975)

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

                                              (1,006,902)      (899,694)
                                             -----------    -----------

                 Net capitalized costs       $   675,619    $   415,764
                                             ===========    ===========

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

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

                                          Year ended June 30,
                                          -------------------
                                            1998       1997
                                            ----       ----

                   Property acquisition   $    -0-   $    -0-
                   Development             545,034    157,648
                                          --------   --------
                                          $545,034   $157,648
                                          ========   ========


                                       49

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Fees   charged  by  the   Company  to  operate  the   properties   totalled
     approximately  $10,347  per month in 1998 and $4,130 per month in 1997.  In
     November 1996, the Company sold all of its oil and gas interests outside of
     California to the Company's  consulting  accountant,  who is an 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  1998  and  1997   amounted  to  $168,575   and   $139,800,
     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,
                                              ----------------------
                                                 1998        1997
                                                 ----        ----

           Revenues*                          $ 863,588    $ 365,727
           Production costs                     (75,775)     (37,016)
           Depreciation and depletion          (107,208)     (26,474)
                                              ---------    ---------


           Results of operations
             (excluding corporate overhead)   $ 680,605    $ 302,237
                                              =========    =========

           *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, 1998 and
     1997 were prepared by an  independent  petroleum  engineer.  There are many
     uncertainties  inherent in  estimating  proved  reserve  quantities  and in
     projecting   future   production   rates  and  the  timing  of  development
     expenditures.  In addition,  reserve estimates of new discoveries that have
     little production  history are more imprecise than those of properties with
     more  production  history.  Accordingly,  these  estimates  are expected to
     change as future information becomes available.

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

                                       50

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

             Estimated quantity, June 30, 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

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

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


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

             Oil (Bbls)

               June 30, 1997            17           11          28
               June 30, 1998            26            3          29

             Gas (MCF)

               June 30, 1997           591        1,040        1,631
               June 30, 1998           907          835        1,742



                                       51

<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,
                                           ------------------
                                             1998      1997
                                            ------    ------

                                             (in thousands)

                  Future cash inflows      $ 3,952    $ 4,185
                  Future production and
                    development costs         (299)      (537)
                  Future income tax
                    expense                 (1,242)    (1,240)
                                           -------    -------


                  Future net
                     cash flows              2,411      2,408

                  10% annual discount
                    for estimated timing
                    of cash flows             (899)    (1,098)
                  Net operating loss
                    carryforward             1,242      1,240
                                           -------    -------


                  Standardized measure
                    of discounted future
                    net cash flows         $ 2,754    $ 2,550
                                           =======    =======


                                       52

<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,
                                            --------------------
                                              1998       1997
                                              ----       ----
                                               (in thousands)
                Standardized measure of
                  discounted future net
                  cash flows, beginning
                  of year                    $ 2,550    $   534
                                             -------    -------

                Sales and transfers of
                  oil and gas produced,
                  net of production
                  costs                         (663)      (279)

                Net changes in prices
                  and production costs
                  and other                       31       (180)

                Net change due to
                  discoveries                    664      2,506

                Acquisition of reserves         --         --

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

                Revisions of previous
                  quantity estimates             (98)      (149)

                Other                             15        259

                Net change in income taxes      --         --

                Accretion of discount            255         53
                                             -------    -------


                                                 204      2,016
                                             -------    -------
                Standardized measure
                  of discounted future
                  cash flows, end of
                  year                       $ 2,754    $ 2,550
                                             =======    =======


     Net changes in prices and production  costs of $31,000 were the result of a
     decline in the price  received for oil and gas at year end which was offset
     by a greater  reduction in operating  costs  associated with more producing
     

                                       53

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     gas  wells in 1998  than in 1997 and  fewer  oil  wells.  The  revision  of
     previous  estimates  of  $98,000  was the  result of  assigning  4,100 more
     recoverable  barrels of oil to the Brandt and Arco wells and increasing the
     Emigh 2-1 well recoverable  reserves by 1,300 barrels. The Arco 46X-10 well
     recoverable  reserves  were reduced by 58,000 MCF while the Emigh lease was
     reduced by 58,000 MCF. The increase of 664,000 MCF in new  discoveries  was
     the direct result of the Company's  successful  drilling of the Emigh 35-1,
     which proved up the surrounding acreage.


Note 12 COMMITMENTS AND CONTINGENCIES

     At June 30, 1998 the Company was committed to the following development and
     acquisition projects in California:

     1.   Drill,  complete and equip the Emigh 35-2 well.
     2.   Acquire the Johnson and Gay Units.

     Total costs for the Emigh 35-2 well are  estimated  to be $825,000 of which
     $185,000 is to be paid by the Company.  As of June 30, 1998 the Company had
     received no funds from third  parties for their share of the Emigh well. It
     is estimated  that work on the Emigh 35-2 well will begin  sometime in late
     September.

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

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

                                       54

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

     The Company  entered into an employment  agreement  with Robert A. Cohan on
     April 16,  1998,  which  provides  for the payment of $90,000 for the first
     year of  employment,  plus  reimbursement  of  expenses,  including  health
     insurance.  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 15, 1999 to April 15,
     2002 at the rate of  $95,000  per year for the year  commencing  April  15,
     1999,  $100,000 for the year commencing April 15, 2000 and $105,000 for the
     year commencing April 15, 2001. The Company and Mr. Cohan agreed to utilize
     a  portion  of Mr.  Cohan's  home in  Bakersfield,  California  in which to
     conduct the Company's  business.  Mr. Cohan will not charge the Company any
     rent for the use of his home as a business office. The Company did agree to
     pay for all office supplies,  communication  and copy equipment used by Mr.
     Cohan in his office,  as well as the monthly  telephone expense incurred by
     Mr. Cohan on behalf of the Company.



                                       55

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 SUBSEQUENT EVENTS

     In July, 1998 the Company  acquired a net 21% working  interest (16.17% net
     revenue  interest) in two natural gas units,  the Johnson and Gay Units, in
     addition to a 5.00% royalty interest in the Gay Unit, located in Tehama and
     Glenn  Counties,  California.  The  Johnson  Unit  consists  of  660  acres
     including 3 natural gas wells. The Gay Unit consists of 615 acres including
     3 natural gas wells. (See Note 12.)

     On  September  2,  1998 the  Compton  Landing  97-1  well was  plugged  and
     abandoned.

                                       56

<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.  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           66      President,              I             1980
                                 Treasurer
                                 and Director

  Lawton L. Clark        73      Director,              III            1993
                                 Secretary

  Robert F. Sheldon      75      Director                II            1981

  Robert A. Cohan        42      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.  None of the
directors  are also  directors  of other  companies  filing  reports  under  the
Securities Exchange Act of 1934.


                                       57

<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 36 years experience
in exploration and  development of mineral  deposits,  primarily gold,  uranium,
coal, and oil and gas. His experience includes basic conception and execution of
mineral  exploration  projects.  Mr. Bailey is a member of several  professional
societies,  including  the  Society for Mining and  Exploration,  the Society of
Economic Geologists and the American  Association of Petroleum  Geologists,  and
has written a number of papers concerning mineral deposits in the United States.
He is the co-author of a 542-page text,  published in 1977,  concerning  applied
exploration  for mineral  deposits.  Mr. Bailey is the founder of 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
20  years  experience  in oil and gas  exploration  and  development,  including
employment in Denver, CO with Western  Geophysical,  H. K. van Poollen & Assoc.,


                                       58

<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.

                                       59

<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  September 28, 1998 all filing  requirements  applicable to
its officers, directors and greater-than-ten-percent  shareholders were complied
with.



                                       60

<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,  1998 and
previous years:

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

<S>               <C>     <C>       <C>     <C>       <C>     <C>          <C>       <C>   
R. V. Bailey,     1998    118,749      0    24,801     0      200,000       0        12,528
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,      1998    86,042     0          0    42,000     200,000      0        1,400
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

</TABLE>


*    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
$68,250 for R. V. Bailey 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


                                       61

<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.  $30,077 of the premium paid for this policy
in fiscal 1997 is considered compensation to Mr. Bailey and $8,424 was also paid
to reimburse the tax effect of the executive's  split, in fiscal 1998 $15,314 of
the premium paid for this policy is  considered  compensation  to Mr. Bailey and
$4,288 was also paid to reimburse the tax effect of the executive split.

     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, 1997  Registrant  contributed  $-0- to the plan
for the Plan Year 1997.  At June 30, 1998  Registrant  paid $-0- to the plan for
the Plan Year 1998. 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 purchased 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, 1998 were  assigned on May 1, 1998
on the  Emigh  leases  and on the Emigh  2-1  well.  A value of $7,500  has been
assigned to the Emigh 2-1  overrides  since they were  assigned  after the first
production  runs  were  received.  The  overriding  royalty  interests  in these
California  properties  granted  to its  employees  resulted  in  the  following
percentages:

                                                     Emigh 2-1
                                                     After
                                                     Payout
                                                     ------

          Robert A. Cohan                            0.5000%

          Judith L. Shelton                          0.1000%

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


                                       62

<PAGE>


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

     (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.

     There was one board of  directors  meeting in fiscal  1998  attended by all
directors.

     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.

     On March 5, 1998  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  1999) at Mr.  Bailey's  option.
Registrant is not entitled to terminate this agreement  except upon Mr. Bailey's
death,  disability,  or for cause (as defined in the agreement).  Mr. Bailey may
terminate  the  agreement if Registrant  changes his duties  substantially  from
those he is  currently  performing,  or if there is a "change of control" of the
Registrant.  If Mr. Bailey  terminates the Agreement for either of the foregoing
reasons,  Registrant will be obligated to pay Mr. Bailey  severance pay equal to
the  amount  remaining  due under the  agreement,  but not less than two  years'
salary.  That  payment  must be made in a lump  sum  within  thirty  days of Mr.
Bailey's termination of the agreement.

                                       63

<PAGE>


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

     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.

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

     Registrant  entered into an  employment  agreement  with Robert A. Cohan on
April 16, 1998,  which provides for the payment of $90,000 for the first year of
employment,  plus  reimbursement  of expenses,  including health  insurance.  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 15, 1999 to April 15, 2002 at the rate of $95,000
per  year  for the  year  commencing  April  15,  1999,  $100,000  for the  year
commencing  April 15, 2000 and $105,000 for the year commencing  April 15, 2001.
(See Item 10 (g) below.) 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.

     In conjunction with Mr. Cohan's employment  agreement,  on November 1, 1997
the  Registrant  granted  300,000  shares of common stock at a value of $.14 per
share. Registrant has the right to repurchase 200,000 shares of its common stock


                                       64

<PAGE>


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

issued  on or  before  December  31,  2000 if the  officer  is not  employed  by
Registrant on April 15, 2000.  Registrant  has the right to  repurchase  100,000
shares of its common stock on or before  December 31, 2001 if the officer is not
employed by  Registrant  on April 15,  2001.  The  repurchase  price is $.01 per
common share.  Accordingly,  Registrant has deferred recognizing as compensation
to Mr. Cohan 200,000 of the 300,000 common shares issued.

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


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

     (h) Report on Repricing of Options/SARs.

     No options or stock  appreciation  rights are  outstanding or were repriced
during the fiscal year ended June 30, 1998 or subsequently.


                                       65

<PAGE>



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

     (a)-(b) The following  table sets forth as of September 28, 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 has been 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.

                                       66

<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.

                                       67

<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
privately-held  Canadian  mining  company  whereby the  privately-held  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.

     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

                                       68

<PAGE>


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

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,  1998,  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
        ----                 ------   -----------      ------   -----    -----

        ARCO 36X-10          PROD        12.00%         1.20%      -%    5.40%
        ARCO 46X-10          PROD        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
        BRANDT 16X-27        PROD        18.00          1.80       -     8.10
        BRANDT 26X-27        PROD        13.43          1.80    1.00     4.60
        BROCCHINI 4-1        DRY         10.00             -       -     2.00
        COMPTON LD 97-1      DRY          7.00             -       -        -
        EMIGH 34-1           PROD        23.55             -       -     1.00
        EMIGH 2-1            PROD        23.80             -       -     1.00
        EMIGH 35-1           PROD        23.80             -       -     1.00
        ENRON 66X            DRY         10.00             -       -     1.00
        GREY WOLF 1          PROD        18.00          2.00    2.50     2.00
        HOPPER 2             DRY          5.50             -       -        -
        NORTH STRAND 1       DRY         14.05          2.70       -     2.70
        SANBORN 3-3          PROD          .95             -       -        -

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

     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  year  ended June 30,  1997,  Registrant  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 1998 Registrant borrowed
$15,000 and 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.

                                       69

<PAGE>



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

     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.

     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 11.2%.

     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  $5,000 for the fiscal year ended June 30, 1998 and $5,000 for
the fiscal year ended June 30, 1997.  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.


                                       70

<PAGE>



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

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

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

3.1       Certificate of Incorporation 1

3.2       Bylaws 1

3.3       Bylaws - Subsidiary 1

10.1      Royalty and Working Interest Plan 1

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

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

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

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

22.1      Subsidiaries of 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.


                                       71

<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
September 28, 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
------------------------------                      September 28, 1998
R. V. Bailey, Director,
Chief Executive Officer,
Principal Financial Officer


/s/ Lawton L. Clark
------------------------------                      September 28, 1998
Lawton L. Clark, Director


/s/ Robert F. Sheldon
------------------------------                      September 28, 1998
Robert F. Sheldon, Director

                                       72