FORM 10-Q-SB

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C. 20549

           MARK ONE
             [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 1998

 
              [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

               For the transition period from ________ to ________

                          Commission File Number 0-9494

                          ASPEN EXPLORATION CORPORATION
              ----------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

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


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

                                 (303) 639-9860
                                 --------------


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                             Yes  [ X ]   No  [   ]

Indicate the number of shares  outstanding  of each of the  Issuer's  classes of
common stock as of the latest practicable date.

     Class                                      Outstanding at February 12, 1999
-----------------                               --------------------------------
  Common stock,
 $.005 par value                                            5,191,322


                                        1

<PAGE>

Part One.  FINANCIAL INFORMATION

     Item 1. Financial Statements

                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                   December 31,       June 30,
                                                      1998              1998
                                                      ----              ----
                                                   (Unaudited)        (Audited)
Current Assets:

  Cash and cash equivalents, including .......     $ 1,626,779      $   425,306
   $913,780 and $331,894 of invested
   cash at December 31, 1998 and June
   30, 1998 respective
  Precious metals ............................          18,823           18,823
  Accounts receivable, trade .................         447,269          115,144
  Prepaid expenses ...........................           6,142            8,762
                                                   -----------      -----------
     Total current assets ....................       2,099,013          568,035
                                                   -----------      -----------
Investment in oil and gas properties,
  at cost (full cost method of
  accounting) ................................       2,089,377        1,682,521

  Less accumulated depletion and
    valuation allowance ......................      (1,056,902)      (1,006,902)
                                                   -----------      -----------
                                                     1,032,475          675,619
                                                   -----------      -----------
Property and equipment, at cost:
  Furniture, fixtures and vehicles ...........         174,550          171,122
  Less accumulated depreciation ..............        (126,544)        (120,544)
                                                   -----------      -----------
                                                        48,006           50,578
                                                   -----------      -----------
Undeveloped mining properties, at cost .......          25,856           27,826
Cash surrender value, life insurance .........         231,314          231,314

Other ........................................            --              3,400
                                                   ===========      ===========
     TOTAL ASSETS ............................     $ 3,436,664      $ 1,556,772
                                                   ===========      ===========

                              (Statement Continues)
                 See notes to Consolidated Financial Statements

                                        2

<PAGE>


                 ASPEN EXPLORATION CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (Continued)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                  December 31,        June 30,
                                                     1998               1998
                                                     ----               ----
                                                  (Unaudited)        (Audited)
Current liabilities:

  Accounts payable and accrued
    expenses ...............................      $   633,141       $   409,815
  Advances from joint owners ...............          967,557            87,999

  Due to related parties ...................           23,958            68,750
  Notes payable - current ..................          123,462            52,205
                                                  -----------       -----------
  Total current liabilities ................        1,748,118           618,769
                                                  -----------       -----------
  Notes payable - long term ................          389,785           280,360
                                                  -----------       -----------
Stockholders' equity:

  Common stock, $.005 par value:
    Authorized: 50,000,000 shares
    Issued: At December 31, 1998:
    5,191,322 and June 30, 1998:
    4,916,322 ..............................           25,956            24,581


  Capital in excess of par value ...........        5,951,602         5,677,977
  Accumulated deficit ......................       (4,650,797)       (5,016,915)
  Deferred compensation ....................          (28,000)          (28,000)
                                                  -----------       -----------
  Total stockholders' equity ...............        1,298,761           657,643
                                                  -----------       -----------
Total liabilities and stockholders'
  equity ...................................      $ 3,436,664       $ 1,556,772
                                                  ===========       ===========

                 See Notes to Consolidated Financial Statements

                                        3

<PAGE>
<TABLE>
<CAPTION>

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


                                 Three Months Ended           Six Months Ended
                                     December 31,               December 31,
                            ---------------------------   ------------------------
                                 1998          1997           1998         1997
                                 ----          ----           ----         ----
Revenues:
---------
<S>                          <C>           <C>           <C>           <C>        
  Oil and gas ............   $   332,541   $   218,298   $   627,803   $   288,638

  Management fees ........        56,998        26,624        76,612        57,644
  Interest and other, net          8,066         6,118        14,955        11,888
                             -----------   -----------   -----------   -----------
Total Revenues ...........       397,605       251,040       719,370       358,170
                             -----------   -----------   -----------   -----------

Costs and expenses:
-------------------

  Oil & gas production ...        18,920        27,312        30,182        33,169
  Depreciation, depletion
   and amortization ......        28,000        10,574        56,000        21,147

  Selling, general and
   administrative ........       105,475       186,146       249,303       300,710

  Interest expense .......        11,807         3,556        17,767         3,556
                             -----------   -----------   -----------   -----------
Total Costs & Expenses ...       164,202       227,588       353,252       358,582
                             -----------   -----------   -----------   -----------
NET INCOME (LOSS) ........   $   233,403   $    23,452   $   366,118   $      (412)
                             ===========   ===========   ===========   ===========

Basic earnings (loss) per
  common share ...........   $       .05         (.- )   $       .07         (.- )
                             ===========   ===========   ===========   ===========
Diluted earnings (loss)
 per common share ........   $       .05         (.- )   $       .07         (.- )
                             ===========   ===========   ===========   ===========
  
Weighted average number of
 common shares outstanding     4,916,322     4,877,920     4,913,322     4,877,920
                             ===========   ===========   ===========   ===========


                     The accompanying notes are an integral
                            part of these statements.

                                        4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

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


                                                          Six months ended December 31,
                                                               1998           1997
                                                               ----           ----
Cash flows from operating activities:
-------------------------------------
<S>                                                        <C>            <C>         
Net gain (loss) ........................................   $   366,118    $      (412)

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

  Depreciation, depletion & amortization ...............        56,000         21,147
  Loss on write off of investments .....................         3,400           --
  Services rendered for stock ..........................          --           69,900

Changes in assets and liabilities:

  Increase in accounts receivable ......................      (332,125)    (1,444,206)
  Decrease in prepaid expense ..........................         2,620          1,764
  Increase in accounts payable and accrued expense .....     1,102,884      1,214,449
  Increase (decrease) in due to related parties ........       (44,792)        33,393
                                                           -----------    -----------
  Net cash provided (used) by operating activities .....     1,154,105       (103,965)
                                                           -----------    -----------

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

  Conveyance of oil & gas properties for cash ..........       477,950           --
  Development & acquisition of oil & gas properties ....      (403,556)      (283,684)
  Purchase of office equipment .........................        (3,428)          --
  Sale of mining data ..................................         1,970           --
  Additions, undeveloped mining properties .............          --           (2,596)
  Prospect fees ........................................          --           86,500
  Additions to cash surrender value ....................          --           (9,487)
                                                           -----------    -----------

  Net cash used in investing activities ................        72,936       (209,267)
                                                           -----------    -----------

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

  Note payable - proceeds ..............................         2,571        151,000
  Repayment of notes payable ...........................       (28,139)        (9,251)
                                                           -----------    -----------
                                                               (25,568)       141,749

  Net increase in cash and cash equivalents ............     1,201,473       (171,483)

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

  Cash and cash equivalents, end of year ...............   $ 1,626,779    $    66,982
                                                           ===========    ===========

  Interest paid ........................................   $    17,767    $     3,556
                                                           ===========    ===========


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

  Stock issued for services & mining data ..............   $      --      $    19,500
  Notes payable issued for properties ..................       206,250           --
  Common stock issued for properties ...................       275,000           --
                                                           -----------    -----------

                                                           $   481,250    $    19,500
                                                           ===========    ===========


                       The accompanying notes are an integral
                              part of these statements.

                                          5
</TABLE>

<PAGE>

                          ASPEN EXPLORATION CORPORATION

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

                                December 31, 1998


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.

     The Company has oil and gas operations in California. The Company's primary
     mineral  projects  and  targets  of  exploration  (uranium)  are in central
     Wyoming.

     The Company has two wholly owned  subsidiaries:  Aspen Gold Mining  Company
     and Aspen  Recursos  de Mexico.  Aspen  Gold  Mining has staked 6 claims on
     Valdez Creek in central  Alaska.  Other than those  claims,  neither of the
     subsidiaries have any assets, liabilities or operations.

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

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

     The  consolidated   financial   statements  include  the  Company  and  its
     wholly-owned subsidiaries,  Aspen Gold Mining Company and Aspen Recursos de
     Mexico.  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.

                                        6

<PAGE>


Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     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 adopted SFAS No. 128 in
     fiscal year 1998.

                                        7

<PAGE>


Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     The following is a reconciliation  of the numerators and denominators  used
     in the  calculations of basic and diluted earnings (loss) per share for the
     six months ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>

                                       December 31,                       December 31,
                                          1998                                1997
                              --------------------------------  ------------------------------
                                                        Per                             Per
                              Net                       Share       Net                 Share
                              Income        Shares      Amount      Loss      Shares    Amount
                              ------        ------      ------      ----      ------    ------

Basic earnings per share:
<S>                             <C>        <C>            <C>        <C>     <C>         <C>        
  Net income (loss)
  and share amounts             366,118    4,916,322      .07        (412)   4,877,920    --

  Dilutive securities
   stock options                             460,000

  Repurchased shares                        (277,600)
                              --------------------------------------------------------------

Diluted earnings per share:

  Net income and assumed
  share conversion              366,118    5,098,722      .07        (412)   4,877,920    --
                              =========    =========      ===   =========    =========  ====

</TABLE>

     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 December 31, 1998.

     Oil and gas properties
     ----------------------

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

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

                                        8

<PAGE>


Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     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 December 31, 1998 and December 31, 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.

     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.

                                        9

<PAGE>


Note 2 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,  furniture,  fixtures and
     vehicles.

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

     The oil and gas segment  derives its revenues  from the sale of oil and gas
     and  prospect  generation  and  administrative  overhead  fees  charged  to
     participants in its oil and gas ventures.  The mining segment  receives its
     revenues  primarily from the sale of minerals and precious  metals and from
     time to time from the sale of a  mineral  venture  that it has  originated.
     Corporate income is primarily derived from interest income on funds held in
     money market accounts.

     During the six months ended  December  31, 1998 there were no  intersegment
     revenues.  The accounting  policies applied by each segment are the same as
     those used by the Company in general.

     Net sales to one customer of the oil and gas segment totalled approximately
     $540,000 of revenues or 76.7% for the six months ended December 31, 1998.

     There have been no differences  from the last annual report in the basis of
     measuring  segment profit or loss.  There have been no material  changes in
     the amount of assets for any operating segment since the last annual report
     except for the oil and gas segment which capitalized approximately $400,000
     for the  development  and acquisition of oil and gas property and increased
     its  accounts  receivable  due  from  industry  partners  by  approximately
     $300,000.

                                       10

<PAGE>


Note 2 SEGMENT INFORMATION (CONTINUED)

     Segment information consists of the following:

                                      Six months ended    Twelve months ended
                                     December 31, 1998    June 30, 1998
                                     -----------------    -------------------
         Revenue:
           Oil and gas .................   $   704,415    $   863,588
           Mining ......................           -0-            -0-
           General corporate ...........        14,955         47,236
                                           -----------    -----------

           Total revenue ...............   $   719,370    $   910,824
                                           ===========    ===========

         Results of operations
           (excluding overhead
            and interest costs):
           Oil and gas .................   $   624,233    $   680,605
           Mining ......................           -0-            -0-
           General corporate
             operations ................      (258,115)      (570,067)
                                           -----------    -----------

                  Net income ...........   $   366,118    $   110,538
                                           ===========    ===========

         Depreciation, depletion
             amortization and valuation
             charged to identifiable
             assets:

             Oil & gas depletion .......   $    50,000    $   107,208
             Mining ....................           -0-            -0-
             General corporate .........         6,000         12,445
                                           -----------    -----------

                  Total ................   $    56,000    $   119,653
                                           ===========    ===========

         Capitalized expenditures:

             Oil and gas ...............   $   403,556    $   545,034
                                           ===========    ===========

             Mining ....................   $       -0-    $     4,472
                                           ===========    ===========

             Corporate .................   $     3,428    $    40,291
                                           ===========    ===========

         Identifiable assets, net of
             accumulated depreciation,
             depletion and amortization:
             Oil and gas ...............   $ 1,479,744    $   789,522
             Mining ....................        44,679         47,890
             General corporate .........     1,912,241        719,360
                                           -----------    -----------


                  Total ................   $ 3,436,664    $ 1,556,772
                                           ===========    ===========


Note 3 MINING PROPERTIES

     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  and  engineering
     data pertaining to the Kaycee uranium prospect.


                                       11

<PAGE>


Note 3 MINING PROPERTIES (CONTINUED)

     During fiscal 1998, the Company sold the geological  data of the Kaycee and
     Shamrock  prospects to a privately-held  Canadian company and, in exchange,
     received a $125,000  cash payment and a commitment to receive an additional
     $125,000  prior to December  31,  1998.  This payment was not received on a
     timely basis and the Company is engaged in  discussions  with the purchaser
     in order to arrange  terms for the  payment of the  amount  due.  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 4 NOTES PAYABLE

     The Company owes the following debt:

                                                   December 31,    June 30,
                                                       1998          1998
                                                   -------------------------

     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    $  210,437 
  
                                                                               
     Note  payable  to  related   party,                                       
     monthly   principal   and  interest                                       
     payments of $4,269,  due September,                        
     2000,   collateralized  by  working                                       
     interests in the Emigh lease                       81,056       101,456 
                                                                               
     Note  payable  to auto  dealership,                                       
     monthly   principal   and  interest                                       
     payments of $879,  due July,  2000,                                       
     collateralized by new vehicle                      15,504        20,672  
                             

                                       12
<PAGE>

                                  
Note 4 NOTES PAYABLE (CONTINUED)
                                                                               
     Note  payable  to  an  unaffiliated                                       
     third party for the  acquisition of                    
     producing gas  properties in Tehama                    
     and  Glenn  Counties,   California,                    
     interest at 5.475%                                 206,250          --    
                                                     ----------    ----------

                                                        513,247       332,565  
                                                                               
     Less current portion                               123,462        52,205  
                                                     ----------    ----------  
                                                           
                                                     $  389,785    $  280,360 
                                                     ==========    ==========  
                                                                               
Note 5 COMMITMENTS AND CONTINGENCIES

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

          1.   Drill, complete and equip the Emigh 35-2.
          2.   Drill, complete and equip the Cilker 4-1 well.
          3.   Drill, complete and equip the Brandt 46X-27 well.


     The Emigh 35-2 well was  successfully  deepened to a depth of approximately
     11,100' and  completed  as a producing  gas well,  producing  approximately
     2,100 MMBTU and 20 BO per day.

     The Cilker 4-1 well was drilled and  abandoned  as a dry hole in  November,
     1998.

     The  drilling of the Brandt  46X-27 well was  deferred  until a future date
     because of low oil prices.


                                       13

<PAGE>


Item 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


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

December 31, 1998 as compared to December 31, 1997
--------------------------------------------------

Registrant  has  sustained   operating  losses  in  prior  years.  In  addition,
Registrant has used  substantial  amounts of working  capital in its operations.
However,  at December 31, 1998 current assets  exceeded  current  liabilities by
$350,895, and cash provided by operations was approximately  $1,154,000. At June
30, 1998 current  liabilities  exceeded current assets by $50,734 and Registrant
had a working  capital  deficit to that extent.  The  improvement of $401,629 in
working capital from a negative $50,734 to a positive  $350,895 is due primarily
a  significant  increase  in net  income  and  cash  flow  from  its  California
properties  during the six months ended December 31, 1998 and the acquisition of
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.  Registrant acquired
a 100%  working  interest in the two  properties  from D. E.  Craggs,  Inc.,  an
unaffiliated  third  party for $68,500 in cash a note for  $206,500  and 275,000
shares of  Registrant's  restricted  common  stock  valued  at $1.00 per  share.
Simultaneously  with the acquisition  Registrant sold a 79% working  interest in
the two prospects to certain unaffiliated and three affiliated  purchasers for a
total price of $477,950.  The date of the  acquisition  and disposition was July
16, 1998.  Pursuant to the agreement with Craggs,  Registrant 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.

In light  of  recent  successful  drilling  operations  and the  acquisition  of
producing properties, increased revenues will continue to have a positive effect
on Registrant's working capital and contribute significantly to its cash flow in
the coming months.

Registrant  is now focusing most of its efforts on drilling for or acquiring oil
and gas production in the state of California.

Registrant  shares certain oil and gas drilling  opportunities  with third party
investors  (including  some affiliated  investors) and takes a reduced  interest
until after payout to the third party  investors.  Payout in Registrant's  major
oil and gas projects 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 1997 when Emigh 34-1 paid out,  and will  continue for
the foreseeable future.

                                       14

<PAGE>

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


December 31, 1998 Compared to December 31, 1997
-----------------------------------------------

For the six months ended December 31, 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.

Oil and gas  revenues  for the six months  ended  December  31,  1998  increased
$339,165,  from $288,638 to $627,803,  a 118% increase.  This increase  reflects
Registrant's  continued successful efforts in drilling exploratory and extension
wells in California  as well as bringing  recent  acquisitions  into the revenue
stream.

Oil and gas production  expenses  decreased $2,987 or 9% from $33,169 to $30,182
for the period ended December 31, 1998. This decrease was due to a number of new
wells  coming  into  production  during  the  past  year on the same  lease  and
location,  thereby providing increased operating  efficiencies.  These new wells
also reflect positively on increased oil and gas revenue.  Production costs as a
percentage of oil and gas revenues  were 4.8% for the six months ended  December
31, 1998 compared to 11.5% for the six months ended December 31, 1997.

Depletion,  depreciation and amortization increased significantly,  from $21,147
to $56,000,  a $34,853 or 165%  increase.  This increase  reflects added volumes
produced  from the new wells which  caused  Registrant  to deplete the full cost
pool at a higher rate.

Selling,  general and administrative expenses decreased by $51,407 or 17.1% from
$300,710 to $249,303.  The bulk of this  decrease  resulted  from the absence of
stock issued for services rendered in the current period. During the same period
ended  December 31, 1997  Registrant  issued  common stock valued at $66,000 for
services.  Salary expense was reduced by $12,500 because Registrant's  president
took a voluntary  $25,000 per year pay reduction.  Administrative  expenses were
further  reduced  by  $20,500  because  Registrant's   commitment  to  fund  its
president's split dollar life insurance plan has been fulfilled. These decreases
were offset in part by increases in accounting  and audit fees of  approximately
$32,000 over the prior year because Registrant had no audit performed for fiscal
1997 and an increase in accounting consulting fees due to increased drilling and
acquisition activities in California. Consulting fees increased by approximately
$12,000  because  Registrant  began  actively  reviewing  potential  mining  and
electrical generation projects.

As a result  of  Registrant's  operations  for the three  and six  months  ended
December 31, 1998,  net income was $233,403 for the three month period  compared
to  $23,452  for the same  period  ended  December  31,  1997,  an  increase  of
approximately  $210,000,  or 895%.  Net income for the six months ended December
31,  1998  compared to December  31,  1997 was  $366,118  for 1998 and a loss of

                                       15

<PAGE>


($412) for 1997.  Net income on a diluted  earnings per share basis was $.05 per
share  and $.07 per share of common  stock  for the three and six  months  ended
December 31, 1998.

The energy industry is experiencing  the worst oil price in a generation.  There
is little  prospect for  improvement  in the short run.  The energy  industry is
suffering  the negative  aspects of these low prices with  employee  layoffs and
exploration and development  curtailments.  However, assuming stable oil and gas
prices at their current level,  Registrant  anticipates continued improvement in
its oil and gas sales  with the  addition  of the Emigh  35-2 well which came on
line January 12, 1999. With management's continued emphasis on controlling costs
and its  improving gas sales,  Registrant  believes its net income and per share
earnings  will  continue  to grow  through the end of its fiscal year which ends
June 30, 1999.

Year 2000
---------

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

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

Registrant  has completed an  assessment of its IT systems to determine  whether
these systems are Year 2000  compliant.  Registrant  has  determined  that these
systems are either compliant or with relatively minor  modifications or upgrades
(many  of which  would  have  been  made in any  event  as part of  Registrant's
continuing  effort to enhance its IT systems) will be  compliant.  All necessary
modifications  and upgrades and the testing thereof are expected to be completed
by the end of the second quarter of 1999.

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

To date  Registrant  has relied upon its internal  staff to access its Year 2000
readiness.  The costs associated with assessing  Registrant's Year 2000 internal
compliance  and  related  systems  modification,  upgrading  and testing are not
currently expected to be material.

                                       16

<PAGE>


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

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

Subsequent Events
-----------------

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

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

Pursuant to the requirements 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
                                                       (Registrant)




                                              /s/ R. V. Bailey
                                              -------------------------------
                                              By:  R. V. Bailey,
February 12, 1999                                  Chief Executive Officer,
                                                   Principal Financial Officer

                                       17