U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-KSB

           [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended June 30, 1998

                                      OR

         [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                        Commission file number 0-14189

                            CELTIC INVESTMENT, INC.
          (Name of Small Business Issuer as specified in its charter)

                         Illinois                      36-3729989
            -------------------------------          --------------
            (State or other jurisdiction of        (I.R.S. employer
            incorporation or organization           identification No.)


                          17W220 22nd St., Suite 420
                          Oakbrook Terrace, Il  60181

                   (Address of principal executive offices)

        Issuer's telephone number, including area code:  (630) 993-9010

  Securities registered pursuant to Section 12(b) of the Exchange Act:  None

     Securities  registered pursuant to Section 12(g) of the Exchange Act: $.001
Par Value Common Stock

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

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

     The  Issuer's  revenues  for the  fiscal  year  ended  June 30,  1998  were
$3,731,000.

     As of September 8, 1998, 3,924,971 shares of the Issuer's common stock were
issued and  outstanding of which  2,312,087 were held by  non-affiliates.  As of
September 8, 1998,  the  aggregate  market  value shares held by  non-affiliates
(based  upon the  closing  price  reported  by the  NASDAQ  Small Cap  Market of
$1.9375) was approximately $7,604,631.

                  DOCUMENTS INCORPORATED BY REFERENCE:  NONE



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                                    PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

      Celtic  Investment,  Inc.  ("the  Company")  is  a  diversified  financial
services holding company. The Company has two wholly-owned  subsidiary operating
companies,  (1) U.S. Commercial Funding Corp. (USCF), and (2) Salt Lake Mortgage
Corp.  (SLM).  USCF is in the business of purchasing  accounts  receivable  from
small to medium  sized  businesses.  The  purchase  of  accounts  receivable  is
commonly referred to as "factoring". USCF's purchase of accounts receivable have
historically been true purchases of assets and not loan  transactions.  SLM is a
mortgage broker with operations in Utah,  California and Nevada.  SLM originates
residential  mortgage  loans for clients  seeking home  ownership,  "rate-terms"
refinances,  cash-out refinancing, and second mortgages. These subsidiaries have
their own  respective  Board of Directors  and  management  teams.  Although the
subsidiaries  operate  independently from one another, the Company requires that
each subsidiary  adopt a month by month operating plan for each fiscal year. The
Company oversees each operation and monitors the respective monthly results. Any
major cost or changes in business  direction  of the  subsidiaries  operation is
approved in advance by the Company's Board of Directors.

      The Company's  mission statement is two fold. First, to improve and expand
the existing business  subsidiaries'  operations.  Second, attempt to expand the
Company  through merger and/or  acquisitions  that meet the Company's  criteria.
There can be no assurance  that the company will be  successful in acquiring any
future businesses.

History of the Company

      The  Company,  was formed under the laws of the State of Delaware on March
22,  1989,  for  the  purpose  of  investing  in any and all  types  of  assets,
properties,  and  businesses.  In June 1992,  the Company  completed  an initial
public offering of Units of its Securities  consisting of shares of common stock
and  warrants  to  purchase  common  stock.  From  June 1992 to June  1994,  the
Company's  activities  were limited to searching for suitable  acquisitions  and
investments.

      In July 1994, the Company acquired US Commercial  Funding  Corporation,  a
Florida  corporation  (USCF -  Florida)  which had been  formed in April 1994 to
engage in the factoring  business.  In connection  with the acquisition of USCF,
the  Company  effected a 1-for 20 reverse  stock  split  reducing  the number of
shares issued and outstanding  from 9,000,000 to 450,000 and reducing the number
of outstanding  warrants and increasing the warrant exercise price respectively.
In connection with the acquisition of USCF-Florida, the Company issued 1,550,775
post split shares to the USCF-Florida  shareholders in exchange for their shares
of USCF-Florida  and converted  options to purchase shares of USCF-Florida  into
options to purchase 2,516,668 shares of the Company's common stock.


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<PAGE>



      The Company  commenced  operations in the factoring  business in July 1994
when it acquired  USCF-Florida.  Prior to the time  USCF-Florida was acquired by
the Company , its  activities  were limited to  developing  a business  plan and
raising  $1,000,000  from the sale of  securities.  USCF-  Florida's  first full
quarter of operation as a factoring  company was the quarter ending December 31,
1994. In February  1995,  the Company  raised an additional  $3,000,000 in gross
proceeds from the sale of securities.  In March 1995, the Company formed another
subsidiary  corporation  under the laws of the State of Illinois  under the name
U.S.  Commercial Funding  Corporation  ("USCF"),  in anticipation of its plan to
purchase receivable on a recourse basis as opposed to the nonrecourse  purchases
made by USCF-  Florida,  and in  anticipation  of the  relocation of the company
operations to Illinois.

      On January 31, 1997 the Company finalized a merger with Salt Lake Mortgage
Corp. (SLM), a Salt Lake City based mortgage broker, and a real estate marketing
company,  Advantage  Realty,  Inc.  (ADR).  The  merger  was a stock  for  stock
transaction.  The Company issued 1,100,000 shares of its stock for the shares of
SLM.  Five  Hundred  Thousand of such shares are held in escrow.  The release of
such  shares  are based on a formula  of future  SLM/ADR  pre-tax  earnings.  On
September 1, 1998 250,000 of such shares were canceled.

      SLM was founded in 1993. SLM  specializes  primarily in conforming  agency
and  government  loan  products,  such as FHA/VA.  SLM has changed its  strategy
shifting a significant  portion of its  originations  from refinance to purchase
loans.  In addition,  the company is beginning to originate more non -conforming
loans including B and C credit mortgages.

      ADR was founded in 1993. ADR is a real estate  brokerage  operation  which
lists real estate properties for sale.

      On February 22, 1998, the Company reincorporated in the State of Illinois.

      As of June 30, 1998,  the Company closed the ADR operations due to lack of
profitability.

      On May 24, 1998, the Company  entered into a non-binding  Letter of Intent
to acqiure Goodman Factors,  Inc., a Dallas,  Texas based asset based lender. On
September 21, 1998, the acquisition of Goodman Factors, Inc. was finalized.

USCF

General

      USCF  provides  working  capital  financing  for its clients by purchasing
their  accounts  receivable  (sometimes  hereafter  referred  to as  "invoices")
generally  at face value less a factors  fee.  USCF  provides  financing  to its
clients based  principally  on the financial  condition of the client's  account
debtors (which may be better than that of the client), rather than the financial
condition of the client itself.  This allows USCF's clients to maintain  regular
and predictable cash flow from

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receivable without (or as a supplement to) conventional  borrowing.  The sale by
the client of its accounts receivable to USCF may be accounted for by the client
as a true sale event, so that the client's  balance sheet reflects less leverage
than it would if the client financed its receivable  with a traditional  secured
loan.

      A client's receivable  typically permits assignment to USCF without notice
to or the consent of the account debtors. In addition,  in most instances,  USCF
and its client  notify the account  debtor that the invoice has been assigned to
USCF and instructs the account debtor to make all payments on the invoice to the
USCF's  Bank  lockbox.  The  Company  perfects  its  ownership  in the  accounts
receivable by making the appropriate  filing under the applicable  state Uniform
Commercial Codes.

      Most of the accounts receivable  purchased by USCF are short term invoices
that have payment terms within  thirty days or less from the invoice date.  USCF
typically  purchases  accounts  receivable from its clients at face value less a
factors  fee.  USCF will  typically  advance 60% to 80% of the face value of the
account  receivable  to its  customer  depending  upon the  size,  age,  type of
accounts being purchased,  the quality of client documentation,  USCF's judgment
as to the payment history,  and the credit worthiness of the account debtors. In
a continuing relationship with its client USCF will generally maintain a portion
of the payment in a reserve  account which may be used to fund a credit  reserve
to offset defaults of other invoices sold by the client to USCF. The factors fee
varies but are  generally  negotiated  on a individual  client basis on the face
value of the  receivable.  USCF  supplies a client  with  information  as to the
credit  worthiness of and potential  payment  problems with its account debtors.
USCF also provides the client with a monthly  portfolio  analysis which includes
an aging schedule of all open accounts receivable, by account debtor.

Business to Date

     The Company  acquired  USCF- Florida on July 22,1994.  As of June 30, 1995,
USCF-Florida  had been in business  for less than one year.  During this period,
USCF  hired a staff,  opened an office,  developed  marketing  plans,  developed
accounts  receivable  analysis and servicing  procedures,  raised  capital,  and
commenced  marketing.  From July 22,  1994 to June 30,  1995,  the  Company  had
factored $5,244,019 in invoices  purchased.  Most of the invoices purchased were
payable  by the debtor  within 30 days of receipt by the debtor of the  invoice.
The Company's  total revenues from factoring  invoices from July 1, 1994 to June
30, 1995 was $418,270.  Most of these  revenues  were earned after  December 31,
1995.  The  Company's  loss during the fiscal year ending June 30, 1995  totaled
$1,135,827 which is directly attributed to the startup expenses of operation and
lack of initial factoring volume.

      In the fiscal year ending June 30,  1996,  USCF  relocated  the company to
Illinois,  liquidated the Florida portfolio of non-recourse  factored  invoices,
obtained  a  rediscount  line of  credit,  and  improved  profitability  by both
increasing the volume of factored invoices and reducing costs. USCF successfully
achieved all of these objectives as factored invoice volume increased sharply to
$22,261,965,  which generated factored revenue of $1,141,802 and reduced the net
loss to $170,002.


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      USCF purchases invoices from clients involved in various  industries.  For
the year ending June 30, 1998, USCF purchased invoices totaling  $69,877,282,  a
82% increase over the year ending June 30, 1997. In addition,  USCF  diversified
the  overall   mixture  of  the  receivable   portfolio  which  improved  client
concentration  issues.  The  following  table  indicates  the amount of invoices
purchased by USCF for the year ended June 30, 1998 as compared to the year ended
June 30, 1997 on a industry basis:

                                                        Factored
                                                   Invoices Purchased

                                                For the year ended June
Business of Client                              1997        1998
------------------                              ----        ----

Audio Text                                   $ 902,286    $ 18,705,475
Professional Services                        4,358,272       5,464,448
Service Related                              4,058,059       8,001,027
Custom Manufacturing                        16,565,620      28,894,246
Temporary Help                               4,753,416       4,636,149
Distribution/Trucking                        6,799,010       4,175,906
Waste Disposal                                 939,097            -0-
                                           -----------    -------------

TOTAL                                      $38,375,760     $69,877,282
                                           ===========    ==============

      During the year ended June 30, 1998 the Company  purchased  invoices  from
approximately  68  different  clients.  During this period 8% of all of the face
value of invoices purchased were from a single active client, Primary Resourses,
and 17% were from the Company's largest five clients. During the year ended June
30, 1998 one client totaled more than 20% of the purchased  accounts  receivable
and 12% of gross revenue.  This client has terminated its relationship with USCF
in May 1998.  The  Company's  clients  are located in various  states  including
California, Arkansas, Florida, Illinois, and New York.

      On September 21, 1998, USCF finalized the acquisition of Goodman  Factors,
Inc. (GF). GF is a twenty-six  year old commercial  finance  company  located in
Dallas,  Texas. GF specializes in the purchase of client's  accounts  receivable
and  other  asset  based  financial  services.   The  total  financing  for  the
acquisition  and repayment of certain  liabilities was in excess of $21,000,000.
USCF's  rediscount line of credit was increased to $23,000,000 to provide growth
capital for the combined entities.

Competition

      USCF encounters significant competition in purchasing accounts receivable,
from factoring  companies,  commercial  banks, and other financial  institutions
engaged in secured  lending.  Additionally,  the Company's  client's will likely
seek  alternate  sources of financing  from many  different  sources,  including
finance companies, investment partnerships and entities, small business

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investment companies, suppliers and individuals. As a result, USCF competes with
a large number of local and regional sources of financing,  and a smaller number
of large national  competitors.  Many of USCF's  competitors have  significantly
greater  financial  and other  resources  than the Company and access to capital
markets  at a lower  cost  than  the  Company.  The  Company  believes  that the
principal  competitive  factors  in its  business  are  price,  flexibility  and
service.  There can be no assurance that the Company will be able to effectively
compete in the market place.

Governmental Regulation

      Usury laws  generally  limit the amount of  interest  that a creditor  may
contract for, charge or receive in connection with a loan of money.  The Company
believes that its purchases of accounts  receivable should not be subject to the
usury laws because the purchases do not constitute loans of money. The Company's
position  is based  upon the  following:  (i) the  intention  of the  parties as
expressed  in the  documents  evidencing  the  purchases;  (ii) the absence of a
clients right to repurchase or redeem the purchased accounts  receivable at face
value;  (iii) the  arms-length  nature of the purchases and of the  negotiations
resulting  in a purchase  price;  (iv) the control that the Company has over the
collection and administration of the purchased accounts receivable;  and (v) the
accounting treatment of the transactions as purchases.  If, despite these facts,
a court or jury  were to  conclude  that the  Company's  purchases  of  accounts
receivable  should be  re-characterized  as loans of money,  the fees contracted
for,  charged and received by the Company in connection with the purchases could
be viewed as interest.  To the extent that the rate of interest  contracted for,
charged or received by the Company exceeds the usury ceiling,  the Company could
be subject to usury penalties under applicable law.

SLM AND ADR

General

      SLM is a mortgage  broker  operating in Utah,  California and Nevada.  SLM
originates  residential  mortgage  loans for  clients  seeking  home  ownership,
"rate-term"  refinances,   "cash-out"  refinances,  and  second  mortgages.  SLM
originates these mortgages through real estate industry referrals, relationships
with  builders,  and  direct  customer  solicitations.  SLM  uses a sales  force
comprised  of  loan  officers.   The  loan  officers   develop  sales  leads  by
implementing various  advertising/marketing  campaigns.  These campaigns utilize
radio, direct mail,  telemarketing,  and other mediums in an attempt to initiate
contact with potential customers in need of residential mortgage loan products.

      SLM has  historically  focused on the  "Prime"  mortgage  market  which is
dominated by Fannie Mae, Freddie Mac, and Government loans including traditional
VA and FHA.

      Once a mortgage  application is originated,  SLM processes the application
in accordance with the guidelines  which have been established for the different
types  of loan  products  it  offers.  The  majority  of SLM loan  products  are
currently  conventional,  or government  loans and are  therefore,  processed in
accordance with Fannie Mae, Freddie Mac, VA, or FHA guidelines. The

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     underwritten  application  is submitted to the  wholesale  mortgage  lender
which SLM has been awarded delegated underwriting authority. "Non-conforming" or
"Sub-Prime"  products are forwarded to the respective  lenders who will make the
underwriting  decision. An approved loan is generally closed at a Title Company.
A majority of SLM loans are funded using "Table  Funding" where the lender funds
directly to the Title Company who then makes the required disbursements.  In the
event SLM does fund directly, its is reimbursed within several days by the final
investor after review of the closing documents.

     ADR is a real estate  brokerage  firm and is a wholly owned  subsidiary  of
SLM. All operations of ADR have been discontinued.

Competition

      SLM's competition in the mortgage industry is significant.  There are many
mortgage  brokers who have created a competitive  environment.  Other  financial
institutions  also  compete on several  levels of  residential  lending as well.
Pricing is a key issue for the consumer as well as the mortgage  brokers.  While
mortgage loans are themselves a commodity,  the personalized service provided by
the mortgage broker creates a value added feature that  differentiates  mortgage
companies.  SLM believe's it offers clients more personalized services that , in
fact, set them apart from the competition.

Government Regulation

      Although SLM is not directly  supervised by any specific local, state , or
federal  government  agency it must  adhere to  certain  laws,  and  regulations
pertaining to the mortgage  industry.  The Real Estate Settlement and Procedures
Act  (RESPA)  has been  established  to  guarantee  borrowers  receive  adequate
disclosure upon initial loan application,  and dictates certain procedures which
must be followed at closing,  specifically the disclosure of all fees charged in
conjunction  with the loan.  In addition  SLM must  comply  with the  guidelines
established by the Department of Housing and Urban  Development (HUD) pertaining
to a Non-supervised  lender.  ADR must adhere to the laws and regulations of the
Real Estate  Division of the Department of Commerce of the State of Utah.  There
are annual reporting documents which must be filed with the Real Estate Division
to ensure compliance with Utah law. ADR has discontinued operations and as such,
is not currently licensed to engage in real estate brokerage activities.


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OTHER BUSINESS OPERATIONS

      The Company,  USCF,  and SLM have made  several  attempts to expand in the
financial services industry through the acquisition of other operating companies
or  through  starting  operations  internally.   The  Company's  subsidiary-USCF
recently completed the acquisition of another commercial finance entity, Goodman
Factors, Inc. The Company is evaluating other potential  acquisitions;  however,
there can be no  assurance  that the Company  will able to acquire  these or any
other opportunities.

Employees

      The Company and its subsidiaries currently have 17 full time employees. As
the Company's  business grows, it will hire such additional  employees as may be
reasonably necessary to conduct its business.

ITEM 2.   PROPERTIES

      The Company and its subsidiaries lease several office facilities which are
described below:

      The Company leases  approximately  500 square feet of space at 330 E. Main
St.,  Barrington,  Illinois 60010.  The lease is $250 per month,  and expires in
December 1998.

      USCF  currently  leases office  facilities at 17W220 22nd St.,  Suite 420,
Oakbrook  Terrace,  Illinois 60181.  The lease expires in November,  1999. These
facilities  currently consist of approximately  2,500 square feet and requires a
monthly rent of approximately $4,800.

      SLM currently leases office  facilities at 102 West 500 South,  Suite 300,
Salt Lake City, Utah 84101.  These  facilities  consists of  approximately  5400
square feet and  requires a monthly  rent of  approximately  $5,800.  This lease
expires in April,  2001.  SLM also leases office  facilities at 340 Main Street,
Suite 202, Park City, Utah 84060. These facilities consist of approximately 1000
square feet,  and a monthly rent of $1,148 that expires in December,  1999.  SLM
leases approximately 500 square feet of office space at 7966 Arjohn Drive, Suite
A-204, San Diego, CA for $350 per month on a month-to month basis.

ITEM 3.   LEGAL PROCEEDINGS

      In August 1998,  Roger  Davis,  a former  employee of a subsidiary  of the
Company,  filed a law suit  against the  Company,  Salt Lake  Mortgage and Reese
Howell in The Third  Judicial  District  Court of the State of Utah. Mr. Davis's
complaint alleges breach of contract,  wrongful  discharge,  constructive fraud,
fraudulent concealment,  slander, civil conspiracy and other claims against some
or all of the  defendants.  The Complaint  seeks  damages  according to proof at
trial, including  consequential damages and punitive damages. The Complaint also
seeks a rescission of the merger between the Company and Salt Lake Mortgage. The
defendants  have filed an Answer to the Complaint which  essentially  denies any
wrong doing. The Company and Salt Lake Mortgage have

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also filed a counter claim  against Mr. Davis for breach of contract,  violation
of fiduciary  duty,  fraud and for other  claims.  The Company  seeks damages as
proved at trial. The Company is unable to predict the outcome of the litigation;
however,  the Company  believes  that it has good faith  defenses  and claims in
connection with such litigation.

      USCF is involved in various  legal  proceedings  arising out of the normal
course of business, which they are the plaintiff.  None of the legal proceedings
which USCF is currently  involved  with is expected to have an adverse  material
effect on USCF business or its financial condition.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to the Companies'  shareholders  during the last
quarter of the fiscal year ended June 30, 1998.

ITEM 5.   MARKET FOR THE REGISTRANTS COMMON STOCK AND  RELATED SECURITY
          HOLDER MATTERS

      Since May 20,  1996 the  Company's  common  stock has traded on the NASDAQ
Small Cap market listing under the "CELT" symbol. The information with regard to
NASDAQ Small Cap quotes  contained in the following  table was obtained from the
NASDAQ and shows the range of representative bid prices for the Company's common
stock for the periods indicated. The prices represent quotations between dealers
and do not include retail mark ups and mark-downs or broker  commissions  and do
not necessarily represent actual transactions:

                                 Fiscal 1998               Fiscal 1997
                             High          Low           High        Low

First Quarter               $1.375        $1.00         $3.50       $2.25
Second Quarter               $2.00        $1.00         $2.50      $1.875
Third Quarter                $1.25        $.875        $1.906      $1.875
Fourth Quarter               $2.50        $1.00        $1.875       $1.00


Holders

      The number of record holders of the Company's common stock as of September
1, 1998 was 161. The Company  estimates that the number of beneficial  owners of
its common stock is more than 450.

Dividends

      The  Company  has not  paid  any  cash  dividends  to date  and  does  not
anticipate or contemplate paying dividends in the foreseeable  future. It is the
present  intention  of  management  to  utilize  all  available  funds  for  the
development of the Company's business.


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ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Overview

      The Company is a diversified  financial  services  company  engaged in the
business  of  purchasing  accounts  receivable   ("factoring")  and  originating
residential  mortgages.  USCF,  the Company's  factoring  subsidiary,  commenced
operations  in  July,  1994.  SLM,  the  Company's   residential  mortgage  loan
originator,  and ADR, a real estate  brokerage  operation,  were acquired by the
Company in January 1997 in a merger transaction.

Results of Operations

      The  following  discussion  and  analysis in the table below  presents the
significant changes in financial conditions and results of continuing operations
of the Company and is  catagorized by the Company's  subsidiaries  for the years
ended June 30, 1998 and 1997.  For the period ending June 30, 1997,  the results
of  operations  of SLM  and  ADR  are  included  in the  consolidated  financial
statement from the date of acquisition  only. As a result,  the discussion below
of SLM and ADR results of  operations  do not make a comparison  between  Fiscal
Year  1997 and  Fiscal  Year  ending  1998.  This  discussion  should be read in
conjunction  with the  consolidated  financial  statement  and notes thereto (in
thousand).

                                       Twelve Months Ended
                                          June 30 Ended
Revenues                                   1998             1997
                                     --------------------------------
     USCF                                  2,181           1,523
     SLM                                   1,550             232
                                       ---------       ---------
Total Revenue                              3,731           1,755

Operating Expense
     Interest                                566             258
     USCF                                  1,336           1,072
     SLM                                   1,465             342

     Corporate (Celtic)                      241             121
                                       ----------      ----------
     Total Operating Expense               3,608           1,793

Operating Profit (Loss) before Income
Taxes
     USCF                                    318             221
     SLM                                      46            -138

     Corporate (Celtic)                     -241            -121
     Operating Profit (Loss) before income   123             -38
        taxes

Income Tax (credit)                         -394             -20
(Loss) Income from Operations of
  Discontinued Segment less applicable
income tax effect                            -76              30
Net Income                                   441              12



Revenues

      USCF  revenues  increased  by $658,000 in Fiscal Year 1998, a 43% increase
from Fiscal Year June 30,  1997.  For the quarter  ended June 30, 1998  revenues
totaled  $527,000  versus  $509,000 for the quarter  ended June 1997.  The major
reason for the fiscal year  increase is the total volume of  purchased  accounts
receivable  increased  from  $38,375,760  to  $69,877,282,  a 82% increase.  The
disproportional  ratio of total  revenue  increase of 43%  compared to the total
accounts  receivable  volume  increase of 82% results from overall  lower factor
fees  earned.  The lower fees earned is a result of a more  competitive  general
market.

      SLM earned  revenues of $1,550,000  for the year ended June 30, 1998.  For
the quarter ended June 30, 1998 revenues  totaled $435,000 versus the comparable
quarter ended of June 30, 1997 of $64,000.  Management changes as well as a more
favorable  economic  environment  due  to  continued  low  interest  rates  have
increased the volume of home sales and refinances which has positively  impacted
SLM revenue.

      ADR earned  revenue of $189,000  for the year ended June 30,  1998.  As of
June 30, 1998, operations were terminated due to lack of profitability.

Operating Expense

      Interest expense totaled $566,000 for the year ending June 30, 1998 versus
$258,000  for the year ending June 30,  1997.  For the year ending June 30, 1998
the Line of Credit  was used to  finance  the  significant  growth  in  accounts
receivable purchases which resulted in the increase in interest expense.

      USCF operating expense,  not including interest,  for the year ending June
30,  1998  totaled  $1,336,000  or an  increase of $264,000 or 25% from the year
ending June 30, 1997.  For the quarter  ended June 30, 1998  operating  expenses
totaled $343,000 versus the comparable  quarter ended June 30, 1997 of $280,000.
The reason for this  increase in  operating  expenses in the  comparable  twelve
month  periods  ending  June 30,  1998 and June 30,  1997 are the  result of the
increased growth of 82% in purchased accounts receivable by USCF.

      SLM operating  expenses were $1,465,000 for the year ending June 30, 1998.
This  expense  total  includes:  Salaries  and  employee  benefits  -  $388,000,
Occupancy - $124,000, and direct loan expense including origination  commissions
amounted to $345,000.

      ADR operating expenses were $308,000 for the year ending June 30, 1998.

     The Company's corporate expense increased from $241,000 for the year ending
June 30, 1998 or an increase  of  $120,000  from the year ending June 30,  1997.
Professional fees totaled $155,000 for the year ending June 30, 1998 an increase
of $80,000 from the year ending June 30, 1997.

                                      10

<PAGE>





      At June 30, 1998, the Company did not provide for a valuation allowance on
its deferred tax assets. The valuation allowance of $516,200 was provided for at
June 30, 1997. This has resulted in a large increase in June 30, 1998 income tax
credits and net income. The Company did not provide for a valuation allowance as
it has generated taxable income for the past two years. The Company expects this
trend to continue with its recent acquisition of Goodman Factors,  Inc. Based on
past  profitability,  expected continued  profitability,  and the acquisition of
Goodman  Factors,  Inc.,  management  expects to  realize  the  benefits  of its
deferred tax assets.


Operating Profit (Loss)

      USCF had an operating profit of $318,000 for the year ending June 30, 1998
compared to a operating  profit of  $221,000  for the year ending June  30,1997.
This profit  increase of $97,000 is the result of a strong increase in volume of
factored purchased accounts receivable and continued expense control.

      SLM had an  operating  profit of $46,000 for the year ending June 30, 1998
compared to the operating loss of $138,000 for the five month period ending June
30, 1997.  Senior  management  changes have had a positive  effective on revenue
generation  coupled with a better  economic  climate  related to lower  mortgage
interest rates which account for the increased profitability.

      The  consolidated  net income for the year  ending  June  30,1998  totaled
$441,000.  This is an increase of $429,000  from the year ending June 30,  1997.
This  profitability  increase  is largely a direct  result of the removal of the
valuation allowance on the Company's deferred tax assets. The continued increase
in  profitability  of USCF and the turn around of SLM were offset by the loss of
the closed operations of ADR and increased corporate expense of the company.

Recent Developments

      On September 21, 1998, the  corporation  completed the purchase of 100% of
the common stock of Goodman Factors, Inc. for approximately $21,500,000 in cash,
notes,  and assumption of  liabilities.  The Company  funded the  transaction by
borrowing $4,500,000 in term debt, issuing $3,750,000 in notes payable to former
Goodman stockholders, using $1,750,000 proceeds from the sale of preferred stock
and the assumption of  $11,500,000 in liabilities of Goodman.  Goodman had total
assets of  $14,580,000  and  purchased  invoices of  approximately  $120,000,000
during the year ended June 30, 1998. The acquisition  will be recorded under the
purchase method of accounting.

      In July, 1998, the Company began offering 100,000 shares of 9% Cumulative,
Redeemable  Series A Preferred  Stock.  Holders of the preferred  shares will be
entitled to receive  cumulative  preferential  cash  contributions at the annual
rate of 9% of the liquidation preference of $100.00 per

                                      11

<PAGE>



preferred  share,  accruing  from  the date of  original  issuance  and  payable
quarterly  in  arrears  on the last day of each  calendar  quarter of each year,
commencing September 30, 1998.

      The preferred shares are redeemable at the option of the Company, in whole
or in part,  from time to time,  after June 30, 1999,  at $100.00 per  preferred
share, plus any accumulated and unpaid dividends thereon. However, redemption is
not permitted unless the Company's common stock is trading at $3.00 per share or
greater.  The  preferred  shares are, at the option of the holder of the shares,
convertible into shares of the Company's common stock at $3.00 per share subject
to certain adjustments.

      In the event of the  dissolution of the Company,  the holders of preferred
shares will be entitled to a liquidation  preference for each preferred share of
$100.00,  plus any  accumulated  and  unpaid  dividends  thereon  to the date of
payment,  subject to certain  limitations.  The  Company has  received  net cash
proceeds  after  offering  expenses of $1,750,000  and issued  19,000  preferred
shares through September 21, 1998.

Liquidity and Capital Resources

      The  Company's  capital  requirements  will most  likely  increase  as the
Company's mission statement is achieved.  The requirement may include additional
resources to increase volume of purchased receivable,  expansion of the mortgage
brokerage operation, and financing any acquisition/merger  activity. Inasmuch as
the  Company's  operations  in the past were  limited  to USCF  operations,  the
existing equity capital and line of credit was sufficient.  However, in order to
expand USCF's ability to purchase receivable on a meaningful basis and implement
the Company's  overall plan, the Company will need to access  additional  equity
and debt capital.

      USCF  entered  into a  rediscount  line of credit  agreement  with Capital
Business Credit, a division of Capital Factors Inc. of Los Angeles,  California.
In  December,  1997 the  line of  credit  was  successfully  re-negotiated  with
significant improvement in terms. Specifically, the line of credit was increased
from $6,000,000 to $15,000,000. The Company is a guarantor of this agreement and
has agreed to subordinate  certain  interests  with regard to the agreement.  In
August,  1998, USCF  successfully  renegotiated  the line of credit to provide a
maximum of $23,000,000 to purchase client's accounts receivable for the combined
entities of USCF and Goodman Factors, Inc.

      At June 30,  1998,  the Company had total assets of  $9,605,396  and total
liabilities of  $5,460,915.  This compares to the total assets of $7,911,086 and
total liabilities of $4,208,177 at June 30, 1997. The increase in net assets and
liabilities  is the  direct  result  of the use of the  line of  credit  and the
increased level of factoring  business  activity.  Cash at June 30, 1998 totaled
$905,093  compared to $941,789 at June 30,  1997.  The Company used this cash to
fund additional  receivable  purchases,  and fund it's ongoing  operations.  The
Company intends to continue to purchase  accounts  receivable  through  existing
cash and  through  the use of the line of credit as well as expand its  mortgage
origination operation.


                                      12

<PAGE>



      The Company anticipates that its monthly general and administrative costs,
exclusive of depreciation and marketing  expenses,  commissions and professional
fees,  will be  approximately  $110,000 for each of the next six months based on
current operations. However, if operations increase, the Company may be required
to increase its staff which will increase its monthly general and administrative
expenses.  The Company anticipates that existing working capital and the line of
credit may not be adequate to fund its  projected  factoring  volume  during the
next six months.

      The company is reviewing  several  alternatives with a number of financial
institutions  that may  provide the capital  requirements  for the next  several
years.

Inflation

      In the opinion of management,  inflation has not had a material  effect on
the operations of the Company.  Given current  inflationary  trends, the Company
does not believe inflation will have any future adverse effect.

Year 2000

      The year 2000  ("Y2K")  issue is the result of computer  programs  using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems  will be unable to  interpret  dates  beyond  1999,  which could cause a
system failure or other computer  errors,  leading to disruptions in operations.
In 1997, the Company developed a three-phase program for Y2K information systems
compliance.  Phase I is to  identify  those  systems  with which the Company has
exposure to Y2K issues. Phase II is the development and implementation of action
plans  to be Y2K  compliant  in all  areas  by  January  1999.  Phase  III to be
completed  by Mid-1999,  is the final  testing of each major area of exposure to
ensure  compliance.  The Company has identified the major areas determined to be
critical for successful Y2K compliance.  (1) financial and informational  system
applications, and (2) third party relationships.

      The  Company,  in  accordance  with Phase I of the  program  conducted  an
internal review of all systems and contacted all software suppliers to determine
major areas of exposure to Y2K issues.  In the financial and information  system
area, a number of  applications  have been identified as being Y2K compliant due
to their recent  implementation.  The  Company's  core  financial  and reporting
systems are Y2K compliant. In the third-party area, the Company has communicated
with the primary  vendors  and has  determined  that all are making  significant
progress toward their Y2K compliance.

      Although the Company  expects all of its systems to be Year 2000 compliant
by January  31,  1999,  there can be no  assurance  that all  business  software
providers  will be functional by January 31, 1999.  The Company's cost to comply
with Year 2000 initiative is not expected to be significant.




                                      13

<PAGE>

Forward-looking Statements

      The  foregoing  discussion  in  "Management's  Discussion  and Analysis of
Financial  Condition  and  Results  of  Operations"   contains   forward-looking
statements,  within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act, which reflect  Management's  current
views with  respect to future  events and  financial  performance.  Such forward
looking  statements  may be deemed to include,  among other  things,  statements
relating to  anticipated  growth,  and  increased  profitability,  as well as to
statements relating to the Company's strategic plan,  including plans to develop
and increase loan originations and to selectively acquire other companies. These
forward-looking  statements  are  subject  to certain  risks and  uncertainties,
including,  but not limited to, future financial  performance and future events,
competitive  pricing  for  services,  costs  of  obtaining  capital  as  well as
national,  regional and local economic  conditions.  Actual results could differ
materially from those addressed in the forward looking  statements.  Due to such
uncertainties  and risks,  readers are cautioned not to place undue  reliance on
such forward-looking statement, which speak only as of the date whereof.

ITEM 7.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            Celtic Investment Financial Statements

                  Independent Auditor's Report(s)                    15

                  Consolidated Balance Sheet as of
                  June 30, 1998 and 1997                             16

                  Consolidated Statements of Income                  17
                  For the Years ended June 30, 1998 and 1997

                  Consolidated Statements of Stockholders' Equity    18
                  For the years ended June 30, 1998 and 1997

                  Consolidated Statements of Cash Flows for the      19-20
                  years ended June 30, 1998 and 1997

                  Notes to Consolidated Financial Statements         21

                                      14

<PAGE>



                         INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Stockholders
Celtic Investment, Inc.
Oakbrook Terrace, Illinois

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Celtic
Investment,  Inc. and subsidiaries as of June 30, 1998 and 1997, and the related
consolidated  statements of income,  stockholders' equity and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
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 audit 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 consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Celtic Investment,
Inc.  and  subsidiaries  as of June 30, 1998 and 1997,  and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.

                                          MCGLADREY & PULLEN, LLP


Chicago, Illinois
August 18, 1998, except for Note 13 as to
      which the date is September 21, 1998

                                      15

<PAGE>



ASSETS                                                1998      1997
---------------------------------------------- ----------- -----------
Cash and cash equivalents                      $   905,093 $   941,789
Mortgage loans held for sale                             -     113,786
Receivables                                      6,597,960   5,209,907
Notes receivable                                   245,400     426,037
Construction Loans receivable                      553,968     123,441
Prepaid expenses and other assets                  109,981     162,564
Deferred taxes                                      81,000        -
                                               ----------------------------

            Total current assets                 8,493,402   6,977,524
                                               ----------------------------

Furniture, fixtures and equipment, net of 
  accumulated depreciation 1998 $162,126; 
  1997 $127,912                                     94,327     145,218
Deferred finance fees, net of accumulated 
  amortization 1998 $162,434 1997 $90,157           39,397     111,674
Deferred taxes                                     391,000           -
Goodwill, net of accumulated amortization 
  in 1998 of $65,733; 1997 $19,333                 587,270     676,670
                                                ---------------------------
                                                 1,111,994     933,562

            Total assets                        $9,605,396  $7,911,086
                                                ===========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable                                   $3,619,496  $2,448,060
Due to factoring clients                         1,489,063   1,404,072
Current portion of long-term debt                   22,906      22,016
Accounts payable and accrued expenses               314,760     293,772
                                                ---------------------------

            Total current liabilities            5,446,225   4,167,920
                                                ---------------------------

Long-Term Debt, less current portion                 14,690      40,257
                                                 --------------------------

Stockholders' Equity
  Common stock, $.001 par value; authorized 25,000,000
  shares; issued and outstanding 3,906,471;
  Additional paid-in capital                         3,906       3,906
  Accumulated deficit                            5,076,054   5,076,054
                                                 (871,767) (1,313,159)
                                                ---------------------------
Less notes receivable from stockholders          4,208,193   3,766,801
                                                   (63,712)   (63,892)
                                                ---------------------------
                                                 4,144,481   3,702,909
                                                ---------------------------
                                                $9,605,396  $7,911,086
                                                ===========================

See Notes to Consolidated Financial Statements


                                       16

<PAGE>

CELTIC INVESTMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1998 and 1997
                                                     1998         1997
Revenues:
  Factoring income                                $2,129,147   $1,424,363
  Mortgage fee income                              1,473,196      228,418
  Interest                                            82,886      102,548
  Other                                               45,966          -
                                                --------------------------
          Total revenue                            3,731,195    1,755,329

Interest expense                                     565,794       258,781
                                                -------------------------- 

          Revenue after interest expense           3,165,401    1,496,548

Provision for credit losses                           136,437      18,460
          Revenue after interest expense and 
            provision for credit losses             3,028,964    1,478,088
                                                --------------------------
Operating Expenses:
  Salaries and employee benefits                   1,109,853      748,741
  Occupancy                                          206,965      139,434
  Servicing costs                                    174,756       81,217
  Commissions and other costs                        360,640       66,978
  Professional fees                                  372,268      233,328
  Amortization of goodwill                            46,400       19,333
   Other                                             635,543      227,549
                                                --------------------------
          Total operating expenses                 2,906,425    1,516,580
                                                --------------------------

          Income (loss) from continuing operations
          before income taxes                        122,539     (38,492)

Income taxes (credit)                              (394,963)     (20,000)
          Income (loss) from continuing 
            operations                              517,502      (18,492)
(Loss income from operations of discontinued 
     segment, less applicable income tax effect 
      of 1997($51,000); 1996 $20,000
                                                    (76,110)      30,222
          Net income
                                               $    441,392   $   11,730
                                               ===========================
Net income (loss) per share; Basic:
     Continuing operations
     Discontinued operations                   $       0.13   $    (0.01)
           Net Income                                 (0.02)       (0.01)
                                               -----------------------------
                                               $       .011   $       -
                                               =============================
   Dilutive:
      Continuing operations
      Discontinued operations                  $       0.13   $    (0.01)
                                                      (0.02)        0.01
                                               -----------------------------
                                               $       .011   $       -
                                               =============================

See Notes to Consolidated Financial Statements



                                      17

<PAGE>



CELTIC INVESTMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years ended June 30, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                    Note
                                                        Additional               Receivable      Total
                                      Common Stock       Paid-in   Accumulated     from       Stockholders'
                                  Shares       Amount    Capital     Deficit    Stockholders    Equity
----------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>        <C>       <C>             <C>         <C>

Balance, June 30, 1996          3,306,471    $  3,306   4,232,904 $(1,324,889)    (71,276)     2,840,045
 Net decrease in notes
   receivable from director-           -           -         -            -         7,384          7,384
   stockholders
 Common stock issued in           600,000        600     843,150          -           -          843,750
  acqusition
 Net income                            -          -           -       11,730          -           11,730
                                --------- ---------- ----------- ------------   -----------   -----------
Balance, June 30, 1997          3,906,471      3,906   5,076,054  (1,313,159)    (63,892)      3,702,909
Net decrease in notes
receivable from director-              -          -           -            -         180             180
stockholders
 Net Income                            -          -           -      441,392           -         441,392
                                --------- ---------- ----------- ------------   -----------   -----------
Balance, June 30, 1998          3,906,471     $3,906  $5,076,054   $(871,767)   $(63,712)     $4,144,481
                                ========= ========== =========== ============   ===========   ===========

</TABLE>


See Notes to Consolidated Financial Statements.




                                            18

<PAGE>



CELTIC INVESTMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1998 and 1997

<TABLE>
<CAPTION>
                                                                1998             1997
----------------------------------------------            ----------------- ---------------
<S>                                                        <C>               <C> 

Cash Flows From Operating Activities
   Net Income                                              $      441,392    $     11,730
   Adjustments to reconcile net income to net cash
     (used in) operating activities:
   Provision for credit losses                                    136,437          18,460
   Depreciation                                                    49,018          42,241
   Amortization of deferred finance fees                           72,277          77,277
   Amortization of goodwill                                        46,400          19,333
   Deferred taxes                                                (429,000)             -
   Loss on disposal of furniture, fixtures and equipment           18,095              -
   Change in assets and liabilities, net of effects from
      purchase of Salt Lake Mortgage Company:
      (Increase) in receivables                                (1,749,563)     (1,528,242)
     Decrease (increase) in notes receivable                     (405,710)       (356,552)
     (Increase) in construction loans receivable                 (430,527)       (123,441)
     (Increase) decrease in mortgage loans held for sale          113,786        (113,786)
     (Increase) decrease in prepaid expenses and other assets      52,583        (123,737)
     (Decrease) increase in accounts payable and accrued           20,988        (116,623)
        expenses
     Increase in due to factoring clients                          84,991          82,243
                                                             ----------------- ---------------
       Net cast (used in) operating activities                 (1,167,413)     (2,111,097)
                                                             ----------------- ---------------

Cash Flows From Investing Activities
  Cash acquired on purchase of Salt Lake Mortgage                      -          253,905
    Corporation
  Acquisition costs paid on purchase of Salt Lake                      -          (69,985)
    Mortgage Corporation
  Purchase of furniture, fixtures and equipment                   (16,222)         (3,690)
  Payment received on notes receivable from stockholders              180           7,384
                                                             ----------------- ---------------
</TABLE>





                                            19

<PAGE>



                                                      1998             1997
---------------------------------------------- ----------------- ---------------

   Net cash provided by (used in) investing 
     activities                                      (16,042)        187,614
                                               ----------------- ---------------
Cash Flows From Financing Activities
  Payments on long-term debt                         (24,677)         (3,652)
  Payment of deferred finance fees                        -          (30,000)
  Net proceeds from notes payable                  1,171,436       2,448,060
                                               ----------------- ---------------
    Net cash provided by financing activities      1,146,759       2,414,408
                                               ----------------- ---------------
    Net increase (decrease) in cash and cash 
     equivalents                                     (36,696)        490,925
Cash and cash equivalents:
Beginning                                            941,789         450,864
                                               ----------------- ---------------
Ending                                           $   905,093         941,789
                                               ================= ===============

Supplemental Disclosure of Cash Flow Information
   Cash paid for interest                        $   565,794         258,781
Supplemental Disclosure of Noncash Financing and
    Investing Activities
    Accounts  receivable  transferred to notes 
      receivable                                     225,073  

Reduction in valuation  allowance for purchased net   
operating loss carryforwards
    recorded as a reduction of goodwill               43,000

Debt incurred for the purchase of furniture, 
    fixtures, and equipment and prepaid expenses                  $   43,485

Acquisition of Salt Lake Mortgage Corporation:
  Cash acquired                                                   $  253,905
  Other current assets acquired                                       23,263
  Long-term assets acquired                                          106,595
  Goodwill                                                           696,004
  Current liabilities assumed                                       (152,530)
  Long-term liabilities assumed                                      (13,502)
  Acquisition costs incurred                                         (69,985)
                                                                 --------------
  Common stock issued                                            $   843,750
                                                                 ===============

See accompanying notes to financial statements.




                                            20

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


1.    Nature of Business and Significant Accounting Policies

US Commercial Funding Corp., US Commercial Funding Corp. Illinois  (collectively
"USCF"),  and Salt Lake Mortgage  Company are the wholly owned  subsidiaries  of
Celtic Investment, Inc. US Commercial Funding Corp. Illinois was formed in 1995,
and the operations were moved from Florida to Illinois.  USCF purchases accounts
receivable,  with recourse,  from clients located in major U.S. cities.  Clients
are found by the Company and by independent  commissioned  representatives.  The
Company pays for a portion of the accounts  receivable  when  purchased  and the
balance,  net of fees and  interest,  after the  accounts  receivable  have been
collected.  The  Company  requires a security  interest  in all of the  client's
assets as part of the factoring  arrangement.  Salt Lake Mortgage Corporation is
engaged in the  mortgage  brokerage  and real  estate  brokerage  business  with
offices in Utah and Nevada.  The real estate brokerage business was discontinued
in 1998.

Significant accounting policies are as follows.

Principles of consolidation:  The accompanying consolidated financial statements
include  the  accounts of the Company  and its wholly  owned  subsidiaries.  All
significant intercompany accounts and transactions have been eliminated.

Accounting estimates: The preparation of financial statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Concentration  of business and credit risk:  The Company  maintains  its cash in
bank accounts with financial  institutions which may, at times, exceed federally
insured limits.  Approximately 13 percent of factored invoices at June 30, 1998,
consist  of  amounts  due from a single  client.  Approximately  62  percent  of
factored  invoices at June 30, 1997,  consist of amounts due from three clients.
The Company  originates  the majority of its  residential  mortgage  loans for a
single investor.

Financial  instruments:  The Company has no financial  instruments for which the
carrying value differs materially from fair value.

Cash and cash  equivalents:  For purposes of reporting  cash flows,  the Company
considers all highly liquid debt instruments  purchased with a maturity of three
months or less to be cash equivalents.




                                            21

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


Note 1.     Nature of Business and Significant Accounting Policies  (Continued)

Mortgage  loans  held for sale:  Mortgage  loans  held for sale,  consisting  of
mortgage loans made to individuals that are  collateralized  by residential one-
to four-family dwellings, are carried at the lower of aggregate cost or market.

Fees  received for the funding of mortgage  loans held for sale to investors are
recognized when the mortgages are sold to the investors. Loans are usually sold,
along with the servicing  rights to  investors,  within two weeks of the initial
closing.

Furniture, fixtures and equipment:  Furniture, fixtures and equipment are stated
at cost.  Depreciation  and  amortization  are computed using the  straight-line
method over the estimated useful lives of the assets.

Deferred  finance fees:  Deferred  finance fees consist of costs incurred in the
acquisition of an operating line of credit and are being amortized straight line
over the term of the line of credit.


Goodwill:  The Company  has  classified  as goodwill  the cost in excess of fair
value of the net assets of the  business  acquired  in a  purchase  transaction.
Goodwill is being amortized on a straight-line  method over 15 years  commencing
with the purchase of the business.

Impairment of long-lived assets:  Long-lived assets are evaluated for impairment
based on a periodic analysis of projected, undiscounted future cash flows at the
operating level to which the assets relate.

Factoring  operations:  Income from  factored  invoices is recorded as earned in
accordance  with the  related  agreements  with  clients.  Income is earned when
receivables  are purchased and over the time that a receivable  remains  unpaid.
The terms are normally 1 percent at the time of purchases and 1 percent every 10
days the invoice remains uncollected.  A provision for credit losses on factored
invoices is charged to income in an amount sufficient to provide for anticipated
losses  on such  invoices.  The  Company  determines  those  invoices  that  are
uncollectible  based upon a detailed  review.  Any write-offs are charged to the
allowance for credit losses on such invoices. The Company has a right to amounts
due to  factoring  clients if a factored  invoice  becomes  uncollectible.  Upon
collection of the purchased  invoices,  amounts collected in excess of factoring
income and the initial  payment are  remitted to clients.  Such  amounts may, in
some instances, be applied to offset uncollected factored invoices.

Commission and mortgage fee income:  Commission and mortgage fee income consists
of loan brokerage fees, application fees and commissions on sales of residential
real estate.  Revenue from loan  origination  fees is  recognized at the time of
closing  or, for loans held for sale,  when the loan is sold.  Loan  origination
fees are  comprised  of the fees paid to the  Company by lenders of the  various
residential  mortgage  placements.  The loan  origination  fees vary  based upon
current market rates for  residential  mortgages.  Real estate  commissions  are
recognized at closing.




                                            22

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


Note 1.     Nature of Business and Significant Accounting Policies  (Continued)

Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are  recognized for deductible  temporary  differences  and operating
loss and tax credit  carryforwards  and deferred tax  liabilities are recognized
for taxable  temporary  differences.  Temporary  differences are the differences
between  the  reported  amounts of assets and  liabilities  and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management,  it is more likely than not that some portion or all of the deferred
tax  assets  will not be  realized.  Deferred  tax assets  and  liabilities  are
adjusted  for the  effects  of  changes  in tax  laws  and  rates on the date of
enactment.

Earnings per share:  In 1997, the Financial  Accounting  Standards  Board issued
Statement  of  Financial  Accounting  Standards  No.  128,  Earning  Per  Share.
Statement  128 replaces the  previously  reported  primary and fully diluted net
income with basic and diluted net income per share.  Unlike primary earnings per
share,  basic earnings per share excludes any diluted  effects of stock options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously  reported fully diluted  earnings per share.  All earnings per
share  amounts for all periods have been  presented,  and where  necessary,  are
restated to conform to the Statement 128 requirements.  A reconciliation between
the  weighted  average  shares  outstanding  used in the basic and  diluted  EPS
computations is as follows:

                                                         1998          1997

Numerators, income (loss) from continuing operations   $ 517,502    $ (18,492)
                                                       ==========   ===========
Denominators:
  Basic earnings per share, weighted average common
    shares outstanding                                 3,906,471    3,556,471
  Dilutive common stock options                          225,954        2,695
                                                       ----------   -----------
  Diluted earnings per share                         $ 4,132,425   $3,559,166
                                                       ==========   ===========




                                            23

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


Note 2.  Business Combination

     On January  31,  1997,  the  Company  completed  its merger  with Salt Lake
Mortgage Corporation, whereby Salt Lake Mortgage Corporation became a subsidairy
of Celtic  Investment,  Inc.  through the issuance of 1,100,000 shares of common
stock  of  which  500,000  shares  were  being  held in  escrow  subject  to the
satisfaction of certain  conditions,  for all of the oustanding  common stock of
Salt Lake Mortgage Corporation.

The transaction  was accounted for as a purchase and required the  consideration
of  $843,750  for the  issuance  of the  600,000  shares  including  $69,985 for
acquisition  costs.  The excess of cost over the net assets acquired of $696,004
was recorded as goodwill and is being amortized using the  straight-line  method
over 15 years. Subsequent to year-end, it was determined that certain conditions
mentioned above were not met.  Therefore,  250,000 shares held in escrow will be
returned to Celtic Investment, Inc. At this time, it is not known whether or not
the  conditions  will be met in  relation  to the 250,000  shares  remaining  in
escrow.  The value of any of the shares issued will be recognized as an increase
in goodwill.  The goodwill was decreased by $43,000 at June 30, 1998, due to the
reduction of the valuation allowance on deferred tax assets.

The following  unaudited pro forma  consolidated  results of operations  for the
year ended June 30, 1997,  as though Salt Lake  Mortgage had been acquired as of
July 1, 1995, are as follows:


Revenue                                                              $2,774,000
Net Income                                                              189,000
Net Income per common share:
  Basic                                                                    0.05
  Diluted                                                                  0.05

The above amounts represent the effect of combining actual results of operations
and recording the effect of  amortization of goodwill.  The Company  believes no
other  adjustments  are  necessary.  The pro forma  results  do not  necessarily
represent  results  which would have  occurred if the business  combination  had
taken place at the date on the basis assumed above.

The Company acquired the following assets and liabilities in the merger:


Cash                                                                   $253,905
Accounts receivable                                                      23,263
Goodwill                                                                696,004
Other assets                                                            106,595
                                                                 --------------
                                                                      1,079,767

Accounts payable and accrued expenses                                   132,195
Other liabilities                                                        33,837
Acquisition costs paid                                                   69,985
                                                                 --------------
   Total consideration                                                 $843,750
                                                                 ==============







                                            24

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


Note 3.  Receivables

Receivables at June 30, 1998 and 1997, are summarized as follows:



                                                         1998         1997

Factored invoices on a                             $ 6,831,359      $ 5,309,306
  recourse basis
Less allowance for credit                             (233,399)         (99,399)
  losses                                      ----------------- ---------------
                                                   $ 6,597,960      $ 5,209,907
                                              ================= ===============


Notes receivable  consist of client notes receivable of $2,300 at June 30, 1998.
The notes bear  interest at 18 percent.  The  remaining  note  receivable  terms
provide for  monthly  payments  of $5,000  plus  interest at 10 percent  through
August 1998 and payments of $7,500 plus  interest  through May 1999 with a final
payment on June 1, 1999.  Notes  receivable  totaled $245,373 and $426,037 as of
June 30, 1998 and 1997.

Construction  loans  receivable  at June 30,  1998  and  1997,  consists  of the
following:

<TABLE>
<S>                                                                                       <C>            <C> 
                                                                                          1998           1997
Construction  line  of  credit  for  the  development  of  a  resident                   ------         ------
subdivision. The Comnpany has committed to lend the borrower up to $700,000. The
loan is  collateralized  by the property under  development.  The line of credit
bears  interest at a rate of Prime (8.5% at June 30, 1998) + 3%. The  oustanding
balance is due upon demand. The Company receives an origination fee in an amount
equal to 3% of the entire loan  amount.  In addition,  the borrower  will pay an
additional  amount of $5,000 per lot, for any lot  developed  while the borrower
remains owner of the property.                                                            $553,968       $75,805

Construction line of credit with an $80,000 limit and bears interest at a
rate of Prime + 2%.  The loan is collaterized by the property under
construction.  The outstanding balance was due along with accrued
interest on October 31, 1997.                                                                 -            7,204

Construction line of credit with an $122,800 limit and bears interest at a
rate of Prime + 3%.  The loan is collateralized by the property under
construction.  The oustanding balance along with accrued interest was
due on September 30, 1997.                                                                     -          40,432
                                                                                         -----------   ------------
                                                                                          $553,968       $123,441
                                                                                         ===========   ============
</TABLE>






                                            25

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


Note 3.  Receivables (continued)

All loans and notes  receivable  have been  evaluated  for  collectibility  on a
note-by-note  basis. The Company does not recognize  interest on loans and notes
receivable  once they have been  deemed to be  impaired  unless the  interest is
collected.

The following is an analysis of the activity in the allowance for credit losses:

 
                                                        Years Ended June 30,
                                                       1998                1997
                                                  ----------          ----------
Balance at beginning of year                       $  99,399          $  74,733
  Provision for credit losses                        136,437             18,460
  Recoveries                                               -             10,255
  Charge-offs                                        (2,437)            (4,049)
                                                 -----------         ----------
Balance at end of year                             $ 233,399          $  99,399
                                                     =======            =======

Note 4.  Related Party Transactions

The Company incurred expenses related to promotion and professional services for
the years ended June 30, 1998 and 1997,  of  approximately  $10,500 and $11,000,
respectively,  which were provided by a corporation owned by a major stockholder
of the Company.

Note 5.  Bank Line of Credit and Long-Term Debt

The Company  has a  $15,000,000  line of credit  from a  financial  institution,
collateralized  by substantially all of the Company's assets and due April 1999.
The Company can borrow in aggregate the lesser of  $15,000,000  or its borrowing
base,  essentially 80 percent of factored accounts receivable.  At June 30, 1998
and 1997, the outstanding  balance was $3,619,496 and $2,448,060,  respectively.
The revolving  line of credit bears interest at 2 percent plus the prime rate on
the average daily balance.

The Company has debt  obligations  for the  purchase of certain  equipment.  The
notes are payable in monthly installments totaling $2,389 and are collateralized
by the equipment with a carrying value of $36,495.  The notes bear interest at a
rate of 10 percent and 15 percent per annum.  Aggregate  maturities  required at
June 30, 1998, are as follows:


Year ending June 30                                                   $  22,906
  1999                                                                   14,690
  2000                                                             ------------
                                                                      $  37,596
                                                                   =============







                                            26

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


Note 6.  Income Taxes

The deferred tax assets and liabilities  consist of the following  components as
of June 30, 1996 and 1997:


                                                     1998             1997
                                                     ----             ----
Deferred tax assets:
  Allowance for credit losses                     $  81,000        $  38,300
  Loss carryforwards                                391,000          477,900
                                                ------------     -----------
                                                    472,000          516,200
  Loss valuation allowance                             -             516,200
                                                ------------     ------------
                                                  $ 472,000        $    -
                                                =============    ============

The Company  continues to generate  taxable  income.  Taxable income should also
increase due to the subsequent events discussed in Note 13. As such, the Company
has reported a deferred tax of $472,000 as of June 30, 1998. Realization of this
asset is  dependent  on  future  taxable  income.  Although  realization  is not
assured,  management  believes that it is more likely than not that the deferred
tax asset will be realized.  The amount  realizable could be reduced in the near
term if estimates of future taxable income are reduced.

The  deferred  tax  amounts   mentioned   above  have  been  classified  in  the
accompanying  consolidated  balance  sheets  as of June 30,  1998 and  1997,  as
follows:


                                                     1998             1997
                                                     ----             ----

Current assets                                    $  81,000         $   -
Noncurrent assets                                   391,000             -
                                                -----------        --------
                                                  $ 472,000        $   -
                                                ===========        ========

Reconciliations  of income taxes  (credits)  computed at the  statutory  federal
income tax rate to the Company's income tax (credits) from continuing operations
for the years ended June 30, 1998 and 1997, are as follows:





                                            27

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------



                                                      1998             1997
                                                      ----             ----

Computed "expected" taxes                        $    42,900      $   (13,500)
  (credits)
Increase (decrease) resulting
  from:
  State income taxes, net of                           3,200           1,600
   federal tax benefit                                19,000          10,500
  Nondeductible expenses                            (465,200)        (17,400)
  Valuation allowances                                 5,137          (1,200)
                                                   -----------    -----------
  Other                                           $ (394,963)     $  (20,000)
                                                   ===========    ===========

At June 30, 1998, the Company had available net operating loss  carryforwards of
approximately  $1,140,000  for income tax  purposes  which  expire in years 2005
through 2010.

Income tax (credit) consists of the following as of June 30, 1998 and 1997:


                                                      1998             1997
                                                      ----             ----

   Current                                        $   34,307       $     -
   Deferred                                         (429,000)        (20,000)
                                                 ------------     -----------
                                                  $ (394,693)        (20,000)
                                                 ============     ============


Note 7.  Notes Receivable and Interest Receivable from Stockholders

During 1996, the Company issued notes receivable to two officer-stockholders for
the purchase of Company stock from a minority  stockholder totaling $51,000. The
principal  and interest at 5.5 percent per annum are due in June 1999.  Interest
accrued on these  notes was $2,713 and $2,616 for the years  ended June 30, 1998
and 1997,  respectively.  Since  these  notes  result  from the  purchase of the
Company's  common stock they are  presented  in the  financial  statements  as a
reduction in stockholders' equity.

During 1996,  the Company  issued a note  receivable  and advanced  $20,000 to a
director-stockholder.  This item has been presented in the financial  statements
as a  reduction  in  stockholders'  equity  since  the  amount  is  due  from  a
stockholder.  During 1998 and 1997,  the Company  received  payments of none and
$10,000 on this note, respectively.

Notes  receivable and interest  receivable  from  stockholders  were $63,712 and
$63,892 for the years ended June 30, 1998 and 1997, respectively.





                                            28

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


Note 8.  Common Stock Options and Warrants

There  are  currently   outstanding  various  warrants  and  options  which,  if
exercised,  will result in the issuance of  additional  shares of the  Company's
common  stock.  The  following  table sets forth  information  about options and
warrants:


                                                                      Exercise
                                                         Shares      Price Per
                                                        Issuable       Share
                                                      ------------- ------------
Outstanding Options and Warrants
June 30, 1998:
         Management Options(1)                        300,000       $1.00
         Private Placement Debt Options(2)            25,000        3.50 or 3.00
         Management Options(3)                        75,000        1.00
         Ferguson Warrants(4)                         100,000       3.00
         Glick Morganstern Options(5)                 60,000        3.00
         USCF Management Options(6)                   42,500        1.00
         USCF Management Options(7)                   12,500        3.00
         USCF Management Options(8)                   572,500       1.00
         Salt Lake Mortgage Corporation Options(9)    260,937       1.00
         Salt Lake Mortgage Corporation Options(10)   7,500         1.00
         Director Options(15)                         20,000        1.00
         Management Options(16)                       400,000       1.25

Options and Warrants Canceled/Expired
Year Ended June 30, 1998:
         USCF Management Options(6)                   12,500        3.13
         Salt Lake Mortgage Corporation Options(9)    239,063       1.00
         Salt Lake Mortgage Corporation Options(10)   37,500        3.00
Year Ended June 30, 1997:
         Class A Warrants(11)                         300,000       4.00
         Class B Warrants(11)                         300,000       8.00
         USCF Options(12)                             716,667       4.00
         Private Placement Options(13)                1,357,134     4.00
         Underwriter Warrants(14)                     130,000       2.50
         USCF Management Options(8)                   537,500       3.00
         Salt Lake Mortgage Corporation Options(9)    500,000       3.00

(1)      The Company  management had been granted options to purchase  1,800,000
         shares of the  Company's  common stock.  These options are  exercisable
         only upon  fulfillment  of  certain  conditions  and are not  currently
         exercisable.  During 1996, the Company and management  agreed to reduce
         the number of options to 300,000.  The options are exercisable  through
         April 26, 1999.




                                            29
<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


(2)      These  options  were issued as part of the units sold in the  Company's
         private debt  placement in December  1995.  11,625  options  contain an
         option to purchase one share of the  Company's  common stock at a price
         of $3.50 per share.  The remaining  13,375 options contain an option to
         purchase  one share of the  Company's  common stock at a price of $3.00
         per share. The options are exercisable through December 31, 1999.

(3)      These  options  were  originally  granted  April  26,  1994,  Each unit
         contains an option to purchase one share of the Company's common stock.
         The  options  may  only  be  exercised  if the  Company  meets  certain
         financial conditions relating to net worth. The options are exercisable
         through April 26, 1999.

(4)      These  warrants  were issued in  consideration  of the  execution  of a
         financial   consulting  agreement  which  entitles  the  individual  to
         purchase 100,000 shares of the Company's common stock at any time prior
         to June 1, 1999, at a price of $3.00 per share.

(5)      These  options  were  issued  to  Glick  Morganstern  as part of  their
         compensation in obtaining the line of credit in April 1996. The options
         carry  certain  registration  rights.  These  options  are  exercisable
         through April 30, 1999.

(6)      Under  employment  agreements,  management has been granted  options to
         purchase 25,000 share of the Company's common stock at a price of $3.13
         per share.  During 1998, the Company and the employee  agreed to reduce
         the number of  options to 12,500 in  exchange  for a  reduction  in the
         option  price to $1.00 per share.  The  Company  granted an  additional
         30,000  options to  purchase  common  stock on July 22,  1997 at $1.00.
         These options will expire on August 29, 1998.

(7)      Und er employment  agreements,  management has been granted  options to
         purchase 12,500 shares of the Company's common stock through  September
         18, 2000.

(8)      Un der employment  agreements,  management has been granted  options to
         purchase  750,000  shares of the  Company's  common stock at a price of
         $3.00 per  share.  700,000  of the  options  are  exercisable  as to 25
         percent as of June 28, 1995,  and an additional 25 percent on each June
         30, 1996,  1997,  and 1998.  The remaining  50,000 of these options are
         exercisable  as  to 25  percent  as  of  September  26,  1995,  and  an
         additional 25 percent on each  September 30, 1996,  1997, and 1998. The
         Company  granted  options to purchase an additional  325,000  shares to
         certain  officers  and  employees  on July 1, 1996.  During  1997,  the
         Company  and  management  agreed to reduce  the  number of  options  to
         537,500 shares in exchange for a reduction in the option price to $1.00
         per share. The Company granted an additional 35,000 options to purchase
         common stock on April 1, 1998, at $1.00 under an employment  agreement.
         These options expire through July 1, 2003.

(9)  Under the merger  agreement dated January 31, 1997, with Salt Lake Mortgage
     Corporation, the Company granted the option to purchase 1,000,000 shares of
     the Company's common stock at a price of $3.00 per share.  During 1997, the
     Company  and  management  of Salt Lake  Mortgage  have agreed to reduce the
     number of shares to 500,000 in exchange  for  reduction of the option price
     to $1.00 per share.  During 1998,  239,063 of these options were  canceled.
     These options expire through June 30, 2007.




                                            30

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


(10)     Under the merger  agreement  dated  January  31,  1997,  with Salt Lake
         Mortgage Corporation, the Company granted the option to purchase 45,000
         shares of the  Company's  common  stock at a price of $3.00 per  share.
         During 1998,  30,000 of these options were canceled.  Also, the Company
         and an  employee  agreed to reduce the number of  remaining  options to
         7,500 in  exchange  for a  reduction  in the option  price to $1.00 per
         share. These options expire through July 1, 2004.

(11)     These  warrants  were  issued  as part of the  units  sold in  Celtic's
         initial  public  offering.  As a result of the 1 for 20  reverse  split
         effective in June 1994,  the exercise  price of the Class A and Class B
         warrants was adjusted to $6.00 and $12.00, respectively.  The Company's
         Board  of  Directors  subsequently  adopted  resolutions  reducing  the
         exercise  price of the Class A and B  warrants  following  the  reverse
         split to $4.00 and $8.00, respectively. In December 1995, the Company's
         Board of Directors  extended  the exercise  period of the Class A and B
         warrants to December 31, 1996. In December 1996, the Company's Board of
         Directors  extended the exercise period of the Class A warrants to June
         30, 1997. The Class A warrants expired on June 30, 1997.

(12)     These  options  were issued to USCF  stockholders  as part of the units
         sold by USCF in a private placement  effected prior to the merger.  The
         shares underlying these options carry certain  registration rights. The
         options expired on June 30, 1997.

(13)     These  options  were issued as part of the units sold in the  Company's
         private placement  effective  September 27, 1994. Each unit consists of
         an option to purchase  one share of the  Company's  common  stock.  The
         options expired on June 30, 1997.

(14)     These  warrants,  which  expired on October  21,  1996,  were issued as
         underwriter compensation to ACAP, Inc. the underwriter of the Company's
         initial public offering.

(15)     The  Company  granted the option to  purchase  20,000  shares of common
         stock to a member of the board of directors through April 17, 2003.

(16)     Under an  employment  agreement,  the  Company  granted  the  option to
         purchase  400,000 shares of common stock.  150,000 of these options may
         only be exercised if the Company  meets  certain  financial  conditions
         relating to total  consolidated  assets.  The  options are  exercisable
         through June 30, 2006.

Employee stock option  agreements are accounted for following APB Opinion No. 25
and related  interpretations.  Accordingly,  no expense has been  recognized for
grants under the stock option agreements.  Had compensation costs for all of the
stock option  agreements been determined  based on the grant date fair values of
awards (the method described in FASB Statement No. 123), reported net income and
earnings per common share would have been reduced to the pro forma amounts shown
below.




                                            31

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------



                                                    1998         1997
                                               ----------- ------------
Net income (loss):
  As reported                                  $  441,392  $    11,730
  Pro forma                                        54,305     (123,684)

Net income (loss) per share:
  Basic:
   As reported                                       0.11         0.00
   Pro forma                                         0.01         (.03)

  Diluted:
   As reported                                       0.11         0.00
   Pro forma                                         0.01         (.03)


The per  share  weighted  average  fair  value of stock  options  granted  under
employee  stock option  agreements  granted during 1998 was $1.24 on the date of
grant.

The option values were determined using the Black Scholes  option-pricing  model
with the following  assumptions:  expected  dividend  yield 0 percent,  expected
volatility 79 percent for 1998 and 42 percent for 1997,  risk-free interest rate
varying from 5.34 percent to 6.22 percent and expected lives of 2 to 8 years.

A summary of the status of the  Company's  stock options and warrants as of June
30, 1998 and 1997, and changes during the years then ended is presented below:


                                       1998                        1997
                           ----------------------------- ----------------------
                                             Weighted                  Weighted
                                             Average                   Average
                                             Exercise                  Exercise
                               Shares         Price         Shares      Price
                           -------------- -------------- ------------ ---------
Options outstanding
  beginning of year             1,680,000      $1.32       4,013,801    $3.77
Options granted                   485,000       1.21       1,507,500     3.00
Options expired/canceled         (289,063)      1.35      (3,841,301)    3.99
                           ----------------------------------------------------
                                1,875,937       1.27       1,680,000    $1.32
                           ====================================================









                                            32

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------




The following  table  summarizes  the stock options and warrants  outstanding at
June 30, 1998:


Options and Warrants Outstanding          Options and Warrants Exercisable
--------------------------------- ---------------------------------------------
                                      Average                    Total Weighted
                      Number         Remaining         Number  Average Exercise
 Exercise Price    Outstanding    Contractual Life  Exercisable      Price
     $3.50           25,000            1.50            25,000
      1.25          400,000            6.40           100,000
      3.00          172,500            1.00           172,500
      1.00        1,278,437            3.40           963,437
                 -----------           ----           -------
                  1,875,937            3.80         1,260,937         1.34
                 ===========           ====         =========         ====



Note 9.  Commitments, Contingencies and Related Expenses

The Company has entered into employment  agreements  with certain  officers that
expire at various times through January 2002. Under the terms of the agreements,
the Company has agreed to pay  approximately  $780,000 in  compensation  for the
remainder of the agreements' terms.

The Company  leases  office  space under  operating  lease  agreements  expiring
through April 2001.  The Company also leases office  equipment  under  operating
leases expiring through May 2000.

Total lease commitments are:

Years ending June 30:
         1999                                   $ 151,101
         2000                                     118,487
         2001                                      69,279
                                                ------------
                                                $ 338,867

Rent expense  under all  operating  leases  including  insurance and real estate
taxes for the years  ended June 30,  1998 and 1997,  amounted  to  approximately
$155,000 and $151,000, respectively.

The  Company  has a  servicing  agreement  with a  factoring  company to process
factored invoices.  The agreement can be terminated by either party with 30 days
written notice. The agreement requires the Company to pay fees that vary from .6
percent  of the face value of  invoices  collected  to 1.45  percent of the face
value of invoices  collected plus 20 percent of the  collected.  Fees paid under
this  agreement  were  $37,705 and $81,216 for the years ended June 30, 1998 and
1997, respectively.





                                            33

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


     In 1997,  the Company  entered into a servicing  agreement with a factoring
company to process factored invoices.  The agreement can be terminated by either
party within 45 days written notice. The agreement requires the Company to share
35 percent of any revenues earned on purchased  invoices.  Revenues earned under
the  agreement  were  approximately  $363,000 and $86,000 of which  $236,000 and
$56,000 was  retained by the Company for the years ended June 30, 1998 and 1997,
respectively.

         In August 1998,  Roger Davis, a former  employee of a subsidiary of the
Company,  filed a law suit  against the  Company,  Salt Lake  Mortgage and Reese
Howell in The Third  Judicial  District  Court of the State of Utah. Mr. Davis's
complaint alleges breach of contract,  wrongful  discharge,  constructive fraud,
fraudulent concealment,  slander, civil conspiracy and other claims against some
or all of the  defendants.  The Complaint  seeks  damages  according to proof at
trial, including  consequential damages and punitive damages. The Complaint also
seeks a rescission of the merger between the Company and Salt Lake Mortgage. The
defendants  have filed an Answer to the Complaint which  essentially  denies any
wrong doing.  The Company and Salt Lake Mortgage have also filed a counter claim
against Mr. Davis for breach of contract, violation of fiduciary duty, fraud and
for other  claims.  The  Company  seeks  damages  as proved at trial.  While the
Company is unable to predict the outcome of its litigation, the Company believes
that it has good faith defenses and claims in connection with such litigation.

         USCF is involved in various legal proceedings arising out of the normal
course of business, which they are the plaintiff.  None of the legal proceedings
which USCF is currently  involved  with is expected to have an adverse  material
effect on USCF business or its financial condition.

Note 10. Retirement Plan

The Company sponsors a 401(k) retirement plan covering  substantially all of its
employees. Plan contributions are at the discretion of management. There were no
contributions for the years ended June 30, 1998 and 1997.

Note 11. Segment Information and Discontinued Segment

Effective  January  1,  1998,  the  Company  adopted  the  Financial  Accounting
Standards  Board's  Statement  of  Financial   Accounting   Standards  No.  131,
Disclosures about Segments of an Enterprise and Related  Information.  Statement
131 establishes  standards for reporting information about operating segments in
interim  and  annual  financial  statements.   Statement  131  also  establishes
standards for related disclosure about products and services,  geographic areas,
and major  customers.  The adoption of Statement  131 did not effect  results of
operations  or  financial  position  but did  affect the  disclosure  of segment
information.  The Company's  operations  include three primary segments that are
strategic business units offering  different products and services:  purchase of
accounts  receivable,   mortgage  brokerage  and  real  estate  brokerage.   The
accounting  policies  of the  segments  are the same as those  described  in the
summary of significant  accounting  policies  except that  management  evaluates
performance  based on profit or loss from operations  before corporate  expenses
and income taxes.  Selected  financial  information by business  segment for the
years ended December 31 is included in the following summary:





                                            34

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                     Purchase of
                       Accounts     Mortgage    Real Estate
                      Receivable   Brokerage    Brokerage**   Other***       Total
-------------------- ------------ ------------ ------------- -----------   ----------
<S>                   <C>          <C>            <C>         <C>         <C>

Year Ended June 30,
  1998
Revenue                $2,181,037   $1,550,158      $189,477  $    -       $3,920,672
Interest expense          527,475       38,315             -       -          565,790
Depreciation and
  amortization             19,104       76,314             -       -           95,418
Segment profit (loss)     317,731       45,805     (127,110)   (240,997)       (4,571)

Segment assets          7,916,572    1,688,824             -       -        9,605,396

Year Ended June 30,
  1997
Revenue*                1,523,537      231,792       268,600       -        2,023,929
Interest expense          257,491        1,290             -       -          258,781
Depreciation and
  amortization             18,540       43,034             -       -           61,574
Segment profit (loss)*    220,235    (138,269)        50,222   (120,458)       11,730

Segment assets          6,561,442    1,327,238        22,406       -        7,911,086

   *     The  amounts  for the  mortgage  brokerage  and real  estate  brokerage
         segments reflect the period from January 31, 1997 to June 30, 1997.
 **      In 1998, the Company discontinued its real estate brokerage operations.
***      These amounts represent unallocated corporate expenses.

</TABLE>

Note 12. New Accounting Pronouncements

In June 1997, the FASB issued  Statement  130,  Reporting  Comprehensive  Income
which the Company  will adopt for the year ended June 30,  1999.  The  Statement
establishes  standards for the reporting and display of comprehensive income and
its  components  in a full set of  general  purpose  financial  statements.  The
Statement does not address when transactions are recorded, how they are measured
in the financial statements, or whether they should be included in net income or
other  comprehensive  income.  The impact of compliance with this statement will
not impact the consolidated  financial position, net income or cash flows of the
Company.

During  1998,  the FASB issued  Statement  No. 133,  Accounting  for  Derivative
Instruments  and for Hedging  Activities,  which  establishes  new standards for
reporting information about derivatives and hedging. It is effective for periods
beginning  after June 15, 1999, and will be adopted by the Company as of July 1,
2000. The Company  expects that adoption of this Standard will have no effect on
its  consolidated  financial  position,  results of operations or on disclosures
within the financial  statements  as they  currently do not engage in the use of
derivative instruments or other hedging activities.







                                            35

<PAGE>


CELTIC INVESTMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Note 13. Subsequent Events

Acquisition of Goodman Factors: On September 21, 1998, the Corporation completed
the  purchase of 100 percent of the common  stock of Goodman  Factors,  Inc. for
approximately  $21,500,000  in cash,  notes and assumption of  liabilities.  The
Company  funded the  transaction by borrowing  $4,500,000 in term debt,  issuing
$3,750,000 in notes payable to former  Goodman  stockholders,  using  $1,750,000
proceeds from the sale of preferred  stock and the  assumption of $11,500,000 in
liabilities  of Goodman.  The  acquisition  will be recorded  under the purchase
method of accounting.

Issuance of preferred  stock:  In July 1998, the Company began offering  100,000
shares of 9 percent Cumulative,  Redeemable Series A Preferred Stock. Holders of
the preferred shares will be entitled to receive  cumulative  preferential  cash
contributions  at an annual rate of 9 percent of the  liquidation  preference of
$100 per  preferred  share,  accruing  from the date of  original  issuance  and
payable  quarterly in arrears on the last day of each  calendar  quarter of each
year, commencing September 30, 1998.

The preferred shares are redeemable at the option of the Company, in whole or in
part,  from time to time,  after June 30, 1999, at $100 per preferred share plus
any  accumulated  and  unpaid  dividends  thereon.  However,  redemption  is not
permitted  unless the  Company's  common  stock is trading at $3.00 per share or
greater.  The  preferred  shares are, at the option of the holder of the shares,
convertible into shares of the Company's common stock at $3.00 per share subject
to certain adjustments.

In the event of the dissolution of the Company,  the holders of preferred shares
will be entitled to a liquidation  preference for each  preferred  share of $100
plus any  accumulated  and  unpaid  dividends  thereon  to the date of  payment,
subject to certain limitations. The Company has received net cash proceeds after
offering  expenses of $1,750,000  and issued  19,000  preferred  shares  through
September 21, 1998.








                                            36
<PAGE>




ITEM 8.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

                     Not applicable.

                                         PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
         PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
         ACT.

     Identification of Directors and Executive  Officers.  The current directors
and  officers of the  Company  who will serve  until the next annual  meeting of
shareholders  or until their  successors are elected or appointed and qualified,
are set forth below:

Name                        Age        Position

Douglas P. Morris           43         Director of Celtic, USCF, SLM, ADR,
                                       Chairman and President of Celtic

Larry D. Meek               46         Director of Celtic and USCF,
                                       President and CEO of USCF

Howard D. Talks             44         Director of Celtic

Reese Howell Jr.            30         Director and Senior Vice President of
                                       Celtic, Director, President, and CEO
                                       of SLM, Director of ADR

Robert Gregory              40         Director of Celtic

Frank Lucchese              48         CFO, Secretary/Treasurer of Celtic;
                                       Director, Secretary /Treasurer,  and CFO
                                       of USCF, Director of SLM and ADR

         There are no family  relationships  among the  Company's  officers  and
directors.   Background   information  concerning  the  Company's  officers  and
directors is as follows:

     Douglas P.  Morris.  Mr.  Morris has been an officer  and  director  of the
Company since July, 1994. Mr. Morris is, and has been since 1988, the owner of H
& M Capital Investments,  Inc., a privately-held business consulting firm, H & M
Capital  Investments,  Inc. is engaged in  consulting  with  privately-held  and
publicly-held  companies  relating  to  management,  debt  financing  and equity
financing. Mr. Morris has inactivated H & M Capital Investments,  Inc. From 1984
to 1988,  Mr.  Morris was  self-employed  in managing his own  investments.  Mr.
Morris received his Masters Degree in Public Administration at the University of
Southern  California  in  1982  and his  Bachelor  of Arts  Degree  in  Judicial
Administration  from Brigham Young  University in 1978. Mr. Morris is a director
and officer of Emerald Capital  Investments,  Inc., a publicly held company with
no current operations. Mr. Morris is a director of Millenniun Electronics, Inc.,
a  publicly-held  computer/electronics  company.  Mr.  Morris is a  director  of
Dauphin  Technology,  Inc.,  a  publicly  traded  electronic  manufacturing  and
computer company.




                                            37

<PAGE>



     Howard D. Talks. Mr. Talks has been a director of the Company since July 1,
1994.  Mr. Talks has been  involved in the real estate  industry for the past 19
years. Mr. Talks has developed and/or purchased  commercial and residential real
estate  properties in Florida.  He has lectured at Dale Carnegie  seminars.  Mr.
Talks attended Queensboro Community College in New York.

     Larry D. Meek.  Mr. Meek became a director of the Company and  President of
USCF in August 1995. He has over twenty years  experience  in sales,  marketing,
general management, and business development. From 1992 to 1995, he was the Vice
President of Sales and Marketing for Oxford Capital Corporation. Mr. Meek served
in a number of positions with Budget Rent A Car and Hertz  Corporation  prior to
Oxford Capital Corporation.  Mr. Meek earned his B.A. in Business Administration
from the University of Mississippi.

     Frank  Lucchese.  Mr. Lucchese was appointed CFO of the Company and USCF in
August 1995.  Mr.  Lucchese is also a director of SLM and ADR. Mr.  Lucchese has
over twenty years  experience in financial  management  with  companies  such as
Budget Rent A Car and Continental  Grain.  Mr.  Lucchese earned his M.B.A.  from
Northern  Illinois  University and his B.S. in Accounting from Southern Illinois
University.

     Reese  Howell Jr Mr.  Howell  was  appointed  Senior  Vice-President  and a
director of the Company in January  1997. He also serves as President and CEO of
SLM and is a director of ADR. Mr.  Howell was the founder of SLM and has been in
the mortgage industry since 1990. Prior to entering the mortgage industry he was
involved in the federal  procurement process for IBM's Federal Systems Division.
Mr Howell  obtained his B.S. in Finance and his M.B.A.  from the  University  of
Utah.

     Robert  Gregory  Mr.  Gregory  was  appointed  a director of the Company in
February  1998.  He is currently  employed by Westpointe  Capital  Management as
President.  Mr.  Gregory  has over 20 years  experience  in  finance  and  asset
management  with such  companies as Dart Energy and Union Texas  Petroleum.  Mr.
Gregory  earned a M.B.A.  in finance and a B.A. in economics from Michigan State
University and a B.B.A. in accounting from the University of Texas.


Compliance With Section 16(a) of the Exchange Act

         Section 16(a) of the Exchange Act requires the  Company's  officers and
directors,  and persons who beneficially own more than 10% of a registered class
of the  Company's  securities,  to file  reports  of  ownership  and  changes in
ownership with the Securities and Exchange Commission.  Officers,  directors and
greater than 10%  shareholders  are required by the Exchange Act  regulations to
furnish to the Company copies of all Section 16(a) forms they file with the SEC.
Except as  disclosed  below and based solely on its review of the copies of such
forms received by it, or written representations from certain reporting persons,
the Company believes that during the fiscal year ended June 30, 1998, all filing
requirements  applicable  to  its  officers,  directors  and  greater  than  10%
beneficial owners were complied with.

     Frank  Lucchese and Robert  Gregory  were each granted  options to purchase
shares of the  Company's  common stock in April 1998 as incentive  compensation.
Mr. Lucchese and Mr. Gregory




                                            38

<PAGE>




inadvertently failed to file the required reports relating to the grant of these
options in a timely  manner.  However,  the  required  reports  have been filed.
Neither of the options have been exercised.

ITEM 10.  EXECUTIVE COMPENSATION

Summary Compensation Table

         The following table sets forth the aggregate  compensation  paid by the
Company  for  services  rendered  during  the last three  calendar  years to the
Company's  President  and to the  Company's  most highly  compensated  executive
officers whose annual salary and bonus exceeded $100,000:




<TABLE>
                             SUMMARY COMPENSATION TABLE
<CAPTION>
                                                                                     Long Term Compensation
                       Annual Compensation(1)                                 Awards                      Payouts
                                                                    Restricted     Securities
Name and              Fiscal                        Other Annual    Stock          Underlying  LTIP      All Other
Principal Position     Year      Salary     Bonus   Compensation    Award(s)       Option(s)   Payouts   Compensation
----------------------------------------------------------------------------------------------------------------------
<S>                   <C>      <C>          <C>         <C>           <C>         <C>           <C>        <C>  

Douglas P. Morris     1998      $41,224     $-0-        $-0-          $-0-        # 400,000(2)  $-0-        $-0-
                      1997      $26,000     $-0-        $-0-          $-0-        #-0-          $-0-        $-0-
                      1996      $26,000     $-0-        $-0-          $-0-        #-0-          $-0-        $-0-
----------------------------------------------------------------------------------------------------------------------
Larry Meek            1998     $143,548    $18,583      $-0-          $-0-        #-0-          $-0-        $-0-
                      1997     $133,337     $-0-        $-0-          $-0-        # 150,000(2)  $-0-        $-0-
                      1996     $125,000     $-0-        $-0-          $-0-        # 560,000(2)  $-0-        $-0-

----------------------------------------------------------------------------------------------------------------------
Frank Lucchese        1998      $91,062    $12,882      $-0           $-0-        # 35,000(3)   $-0-        $-0-
                      1997      $91,062     $-0-        $-0-          $-0-        # 150,000(2)  $-0-        $-0-
                      1996      $85,000     $-0-        $-0-          $-0-        # 140,000     $-0-        $-0-
----------------------------------------------------------------------------------------------------------------------
Reese Howell Jr.      1998      $90,000     $-0-        $-0-          $-0-        #-0-          $-0-         $-0-
                      1997      $37,500     $-0-        $-0-          $-0-        # 560,000(2)  $-0-         $-0-
                      1996      $   -0-     $-0-        $-0-          $-0-        #-0-          $-0-         $-0-
----------------------------------------------------------------------------------------------------------------------


</TABLE>

(1) See the discussions under the caption  "EXECUTIVE  COMPENSATION - Employment
Contracts"  regarding  certain  other  compensation  the  named  officer  may be
entitled to upon certain specified events.

(2) These options were granted pursuant to Employment Agreements.

(3) These Options were granted as performance  bonus for fiscal year 1996,  1997
and 1998.





                                      39

<PAGE>




Stock Options Granted in Last Fiscal Year

The  following  table set forth  grants of stock  options made during the fiscal
year ended June 30, 1998 to the employees of the Company.



<TABLE>
<CAPTION>
                               Individual Grants
 
                                                % of Total
                                                Options/SARs
                        Number of Securities    Granted to     Exercise or
                        Underlying Options/     Employees in   Base Price
Name                    SARs Granted (#)        Fiscal Year    ($/Share)    Expiration Date
<S>                     <C>                     <C>             <C>         <C> 

Douglas P. Morris (1)     400,000                 87.0%          $1.25          Various
Frank Lucchese (2 )        35,000                  7.6%          $1.00         6/30/2003
</TABLE>



(1) These  Options are granted  pursuant to a employment  agreement  The 100,000
signing  bonus  options have an  expiration  date of May 12,  2003.  The 150,000
performance  based  options  are  granted  based on a  formula  relating  to the
Company's  performance.  They expire five years after being earned. 150,000 time
based options will vest in three equal  installments on May 12, 1999,  2000, and
2001. These options are exercisable five years from the date of vesting.

(2) These Options are granted pursuant to a employment agreement and have a June
30, 2003 expiration date.

Aggregate Option Exercises and Number/Value of Unexercised Options

         The following  table  provides  information  concerning the exercise of
options during the last fiscal year by persons named in the Summary Compensation
Table, the number of unexercised  options held by such persons at the end of the
last fiscal year, and the value of such unexercised options as of such date:

<TABLE>
<CAPTION>
              Shares                         Total Number of          Value of Unexercised In-
              Acquired on     Value         Unexercised Options at       the-Money Options at
Name          Exercise (1) Realized ($)           6/30/98 (1)                6/30/98 (1)
----          ------------ ------------ ----------------------------------------------------------
                                           Exercisable  Unexercisable  Exercisable   Unexercisable
<S>                <C>          <C>        <C>          <C>            <C>           <C>

Douglas P.         -0-          -0-          200,000      300,000       $100,000        $112,500
Morris
Larry Meek         -0-          -0-          355,000        -0-         $221,875        $   -0-  
Frank Lucchese     -0-          -0-          180,000        -0-         $112,500        $   -0-
Reese Howell, Jr.  -0-          -0-           37,500      212,500       $ 23,438        $132,813

</TABLE>



                                      40

<PAGE>


         1 An  "In-the-Money"  stock  option is an option  for which the  market
         price of the company's  Common Stock  underlying the option on June 30,
         1998 exceeded the option exercise price.  The value shown is calculated
         by  multiplying  the number of  unexercised  options by the  difference
         between (i) the  average of the bid and ask price for the Common  Stock
         on the NASDAQ  Small Cap Market on June 30, 1998 of $1.625 and (ii) the
         exercise price of the stock options of $1.00 or $1.25.

Compensation of Directors

         During the year ended June 30, 1998 the Company paid no compensation to
directors  except  under  employment  agreements  set forth above in the Summary
Compensation Table and below in "Employment Agreements."

Employment Agreements

         The  Company  is  currently  a  party  to  the   following   Employment
Agreements:

         Douglas P. Morris.  In May 1998, the Company entered into an employment
agreement  with Mr.  Morris.  The  agreement  is for a term of three  years  and
provides  for an  annual  salary  of  $100,000  with  cost  of  living  increase
provisions.  The  agreement  granted Mr.  Morris an option to  purchase  400,000
shares of the Company's common stock  exercisable at $1.25 per share. A total of
100,000 of such options  vested on the date of the  execution of the  agreement.
Options  for  150,000  shares  vest  over  three  years - 50,000  shares  on the
anniversary date of the agreement. Options for the remaining 150,000 shares vest
if certain financial performance is achieved by the Company.

     Larry D. Meek.  On June 28,  1995,  the Company and Mr. Meek entered into a
three year Employment  Agreement.  The agreement provides for a signing bonus of
$50,000 and a salary of $125,000  with  annual  cost of living  adjustments  not
greater than 10%. Mr Meek is eligible for bonuses in subsequent years subject to
the  discretion of the Board of Directors.  Mr Meek has been granted  options to
purchase  560,000  shares at $3.00 of the Company's  common stock.  Mr. Meek was
granted  150,000  share  options at $3.00 in July 1996.  In June 1997,  Mr. Meek
canceled  355,000  options  shares  in  consideration  of the  reduction  in the
Exercise Price from $3.00 to $1.00.



                                      41

<PAGE>


     Frank Lucchese. On June 28, 1995, the Company and Mr. Lucchese entered into
a three  year  Employment  Agreement.  The  agreement  provides  for a salary of
$85,000  with  annual  cost of living  adjustments  not  greater  than 10%.  Mr.
Lucchese is eligible for bonuses in subsequent  years subject to the  discretion
of the Board of  Directors.  Mr.  Lucchese has been granted  options to purchase
140,000 shares at $3.00 of the Company's  common stock. Mr. Lucchese was granted
150,000  options on the Company's  shares at $3.00 in July,  1996. In June 1997,
Mr. Lucchese canceled 145,000 option shares in consideration of the reduction in
the Exercise Price from $3.00 to $1.00. In April, 1998, Mr. Lucchese was granted
options to purchase 35,000 shares at $1.00 of the Company's common stock.

     Martha  Marroquin.  On September  26, 1995,  the Company and Ms.  Marroquin
entered into a three year  Employment  Agreement.  The agreement  provides for a
salary of $45,000 with annual cost of living  adjustments  not greater than 10%.
Ms.  Marroquin  is  eligible  for  bonuses in  subsequent  years  subject to the
discretion of the Board of Directors.  Ms. Marroquin has been granted options to
purchase 50,000 shares at $3.00 of the Company's common stock. In June 1997, Ms.
Marroquin canceled 25,000 option shares in consideration of the reduction of the
Exercise Price from $3.00 to $1.00.

         Reese  Howell Jr. On January  31,  1997,  the  Company  and Mr.  Howell
entered into a five year  Employment  Agreement.  The  agreement  provides for a
salary of $90,000 with annual cost of living  adjustments  not greater than 10%.
Mr.  Howell is  entitled  to a bonus of 7.5% of  pre-tax  profits of SLM and ADR
until such time as his annual compensation reaches $150,000.  After the $150,000
threshold is met, Mr. Howell is entitled to an  additional  bonus of 1.5% of the
pre-tax  profits  of SLM and ADR.  Mr.  Howell has been  granted  time based and
performance  based options to purchase  500,000 shares of the Company"s stock at
$3.00  per  share.   The  performance   based  options  are  contingent  on  the
profitability  of SLM and ADR. In June 1997, Mr. Howell agreed to cancel 250,000
options  shares in  consideration  of the  reduction in the Exercise  Price from
$3.00 to $1.00.

Future Incentive Plans

         The Company will likely adopt additional  incentive  compensation plans
which might include incentive stock options,  pension plans, or a profit sharing
plan.  The  Company  offers  to  employees  a 401K  plan.  The  Company  made no
contribution to the plan for the year ending June 30,1998.






                                      42

<PAGE>




ITEM 11.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
               AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

         The  following  table sets forth  information  regarding  shares of the
Company's common stock  beneficially  owned as of September 8, 1998 by: (i) each
officer and director of the Company;  (including  the officers and  directors of
USCF,  SLM, and ADR) (ii) all officers and directors as a group  (including  the
officers and  directors of USCF,  SLM, and ADR);  and (iii) each person known by
the Company to beneficially  own 5 percent or more of the outstanding  shares of
the Company's common stock.

Douglas P. Morris(1)(2)                      848,765                 14.1%
515 Red Cypress Road
Cary, IL 60013

Howard D. Talks(1)(3)                        451,384                 7.5%
P.O. Box 250
Palm Beach, FL 33480

Larry D. Meek (1)(4)                         375,401                 6.2%
17W220 22nd St.. #420
Oakbrook Terrace, IL  60181

Frank Lucchese(1)(5)                         195,028                 3.3%
17W220 22nd St.. #420
Oakbrook Terrace, IL 60181

Reese Howell Jr. (1)(6)                      700,500                11.6%
102 West 500 South #300
Salt Lake City, Utah    84101

Laurence J. Pin                              308,257                 5.1%
c/o Open University
Orlando, FL 33480





                                      43

<PAGE>




Roger Davis                                  335,873             5.6%
1552 East 1300 South
Salt Lake City, Utah 84105

All Officers and Directors                   2,571,078          43.7%
as a group (5 people)
-----------

         (1) Except as otherwise  noted,  each  stockholder  has sole voting and
investment  power with  respect to the shares  beneficially  owned.  Each of the
above-listed  persons is an officer and/or  director of the Company and/or USCF,
and SLM, .

         (2) A total of 208,527 of these  shares  are owned by Mr.  Morris.  The
remaining 140,239 shares are owned by Hyacinth Resources.  Inc., an affiliate of
Mr.  Morris.  The number of shares listed  includes  100,000 shares which may be
issued upon the exercise of an option exercisable at a price of $1.00 per share.
The number of shares listed includes 400,000 shares which may be issued upon the
exercise of an option exercisable at a price of $1.25 per share.
(See "Management Employment Agreement)

         (3) Mr. Talks and his wife Carol Hall are joint owners of these shares.
The total  includes  100,000  shares which may be issued upon the exercise of an
option exercisable at a price of $1.00 per share.

         (4) The total  includes up to 355,000  shares  which may be issued upon
the exercise of stock options granted in connection  with Mr. Meek's  employment
at an exercise price of $1.00 per share (See Management Employment Agreement).

         (5) The total  includes up to 180,000  shares  which may be issued upon
the  exercise  of stock  options  granted  in  connection  with  Mr.  Lucchese's
employment at an exercise price of $1.00 per share (See  "Management  Employment
Agreement).

         (6) The total  includes  305,500  shares  issued in the stock for stock
exchange of SLM and ADR, to Mr.  Howell.  In addition,  125,000 shares are being
held in escrow for Mr. Howell based on a profitability  operation formula of SLM
and ADR.  The total also  includes  250,000  shares which may be issued upon the
exercise  of an  option at $1.00  per  share.  These  shares  relate to  certain
employment agreements between Mr. Howell and the Company,  75,000 of such shares
are time based option shares and 175,000 are performance  option shares based on
a profitability formula of SLM and ADR. (See "Management Employment Agreement")

         (7) The total  includes  199,936  shares  issued in the stock for stock
exchange of SLM and ADR, to Mr.  Davis.  In addition,  125,000  shares are being
held in escrow for Mr. Davis based on a profitability  operation  formula of SLM
and ADR.  The total also  includes  10,937  shares  which may be issued upon the
exercise of an option at $1.00 per share.





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<PAGE>




          (8) The Company had 3,924,971 shares outstanding on September 8, 1998.
Options held by directors, officers, and others totaled 1,850,937 shares.

Warrants and Options

         There are currently  outstanding various warrants and options which, if
exercised,  will result in the issuance of  additional  shares of the  Company's
common stock.  There are outstanding  warrants and options entitling the holders
to purchase  1,850,937  shares of the Company's  common stock at prices  ranging
from $1.00 to $3.50. (See "Footnote 8 to Financial Statements".)

Changes in Control

         No changes in control are currently contemplated.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

         Douglas P. Morris and Reese Howell,  Jr., both of whom are officers and
directors of the Company, each personally pledged 175,000 of their shares of the
Company's common stock to Capital Resources Funding,  Inc. to enable the Company
to  obtain a loan in the  amount of  $700,000.  The loan  proceeds  were used to
complete the acquisition of Goodman Factors, Inc.

         In September  1998, the Company  borrowed  $500,000 from  affiliates of
Robert  Gregory,  a director of the Company.  The loan proceeds were used in the
Goodman Factors purchase transaction.  The loans are for a term of twelve months
and bear  interest  at 14% per  annum.  There is also a  quarterly  success  fee
payable  in the  amount of  $25,000  up to a maximum  of  $100,000.  There is no
prepayment penalty for repayment of the loan.

ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K

        A.  The  Exhibits  which  are  filed  with  this  Report  or  which  are
            incorporated herein by reference are set forth in the Exhibits Index
            which appears below.

        B. The Company filed no Form 8-K during the fiscal year ended  September
30, 1998.






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<PAGE>


<TABLE>
<CAPTION>
Exhibits to Form 10-KSB
                                                                          Sequentially
Exhibit                                                                    Numbered
Number  Exhibit                                                              Page
<S>     <C>                                             <C>

 3.1    Articles of Incorporation                                            (1)
 3.2    Bylaws                                                               (1)
10.1    Form of 1997 Stock Option Plan                                       (1)
10.2    Agreement and Plan of Merger - USCF                           Form 8-K July, 1994
10.4    Stock Option - Laurence J. Pino                                 Form 10-KSB, 1994
10.5    Stock Option - Douglas P. Morris                                Form 10-KSB, 1994
10.6    Stock Option - Howard D. Talks                                  Form 10-KSB, 1994
10.7    Form Indemnification Agreement                                  Form 10-KSB, 1994
              (Identical Agreement for all officers
               and directors)
10.8    Employment Agreement-Larry Meek                                 Form 10-KSB, 1995
10.9    Employment Agreement-Frank Lucchese                             Form 10-KSB, 1995
10.10.  Loan and Security Agreement                                     Form 10-KSB, 1996
10.11   Agreement and Plan of Merger                     Form 8-K filed February 18, 1997
10.12.  Escrow Agreement                                 Form 8-K filed February 18, 1997
10.13   Employment Agreement - Reese Howell, Jr.         Form 8-K filed February 18, 1997
10.14   Employment Agreement - Roger Davis               Form 8-K filed February 18, 1997
10.15   Stock Option Agreement - Reese Howell, Jr.       Form 8-K filed February 18, 1997
10.16   Stock Option Agreement - Roger Davis             Form 8-K filed February 18, 1997
10.17.  Employment Agreement - Douglas P. Morris                            48
10.18   Loan Agreement RE: USCF                                             58
10.19   Loan Agreement RE: Goodman Factors, Inc.                           103
11.1    Schedule of Weighted Average Shares                                (2)
21.1    Subsidiaries of Registrant                                         147
23.1    Consent of Independent Accountant                                  148

</TABLE>


        (1)  Incorporated  by  reference to Proxy  Statement  relating to Annual
        Meeting of Shareholders held January 1998.

        (2) Contained in Financial Statements.










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<PAGE>




                                  SIGNATURES

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

                                      Celtic Investment, Inc.



Date: September 25, 1998            By:  /s/ Douglas P. Morris
                                          Douglas P. Morris
                                         President/Principal Executive Officer


Date: September 25, 1998            By:  /s/ Frank Lucchese
                                         Frank Lucchese
                                         Chief Financial Officer
                                         Principal Financial Officer

            In accordance with the Securities Exchange Act, this report has been
signed  below by the  following  persons  on  behalf of the  Company  and in the
capacities and on the dates indicated.

Signature                           Capacity                Date

/s/Douglas P. Morris                President//Director     September 25, 1998
Douglas P. Morris

/s/ Larry Meek                      Director                September 25, 1998
Larry Meek

/s/ Reese Howell, Jr.               Director                September 25, 1998
Reese Howell, Jr.

/s/ Howard Talks                    Director                September 25, 1998
Howard Talks

/s/Robert Gregory                   Director                September 25, 1998
Robert Gregory




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