ASPEN EXPLORATION CORP, 10KSB, 1998-09-28

ASPEN EXPLORATION CORP
10KSB, 1998-09-28
MINERAL ROYALTY TRADERS

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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

<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

<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.

<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

<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.

<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.

<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

<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.

<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.

<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.

<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.

<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

<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

<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

<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.

(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.

<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.

<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.

<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.

<PAGE>

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

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.

<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

<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.

<PAGE>

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,

<PAGE>

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.

<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

<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

<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

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

<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

<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.

<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.

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

<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.

<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.

<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.

<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.

<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.

<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
========== ==========

<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

<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.

<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.

<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.

<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).

<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
=========== ===========

<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.

<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.

<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
======== ========

<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.

<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

<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
======= =======

<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

<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.

<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.

<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.

<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.

<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.,

<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).

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.

<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.

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

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

<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.

<PAGE>

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

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.

<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

<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.

<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.

<PAGE>

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

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.

<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

<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
---- ------ ----------- ------ ----- -----

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.

<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.

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.

<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.

<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

<ARTICLE> 5

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<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 425,306 238,465
<SECURITIES> 18,823<F1> 18,823<F1>
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<DEPRECIATION> (1,006,902) (899,694)
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0 0
0 0
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<INCOME-PRETAX> 0 0
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<INCOME-CONTINUING> 110,538 (352,315)
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</TABLE>