FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 (FEE REQUIRED)

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 or  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                         Commission File Number: 0-9562

                               Impact Energy, Inc.
             (Exact name of Registrant as specified in its charter)

         Colorado                                      84-0818655
(Jurisdiction of Incorporation)             (I.R.S. Employer Identification No.)

PO Box 980459, Houston Texas                                          77098-0459
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code:
(713) 526-8224

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

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

Yes[ ] No[x]  (Indicate by check mark whether the  Registrant  (1) has filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
Registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days.)

Not[X]  (Indicate  by check mark  whether if  disclosure  of  delinquent  filers
(ss.229.405)  is not and  will  not to the  best of  Registrant's  knowledge  be
contained  herein,  in definitive proxy or information  statements  incorporated
herein by reference or any amendment hereto.)

As of December 31, 1997, the aggregate  number of shares held by  non-affiliates
was approximately  33,931,739  shares. Due to the limited market for the Company
securities,  no estimate is being supplied herewith of the market value for such
securities.

As of December 31, 1997, the number of shares  outstanding  of the  Registrant's
Common Stock was 74,955,530.

                                                Exhibit Index is found on page 7


                                  Form 10-KSB
                           Exhibit Index is on page 7
Impact Energy, Inc.             December 31, 1997              Sequential Page 1

<PAGE>


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

                                     PART I

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


                                Item 1. Business.

(a)  Organization of the Issuer.

     Impact  Energy,  Inc. is a Colorado  corporation  organized  April 1, 1980,
originally formed to engage in exploration for, development and sale of, oil and
gas.  On or about  September  6, 1980,  the  Company  made its  initial  private
placement  of  14,075,000  of its no par  common  stock for cash,  services  and
property. In February 1981, the Company completed its initial public offering of
13,750,000  shares of common stock,  of no par value.  During 1987,  the Company
issued  6,466,996 for Southwest  Sites,  Inc. In 1988,  the Company  repurchased
3,486,800  shares,  and,  during  May,  1988,  the  Company  completed a private
placement of 44,176,804 restricted unregistered common stock, for a total issued
and outstanding of 75,000,000  shares.  It was determined that 44,470 previously
issued but  undelivered  shares  had not been paid for,  and were  returned  for
cancellation,  with the resulting total issued and outstanding 74,955,530 shares
of common stock, issued and outstanding, as of the date of this report.

(b)  The Business of Registrant.

     Impact  Energy,  Inc. is a Colorado  corporation  organized  April 1, 1980,
originally formed to engage in exploration for, development and sale of, oil and
gas.  During March of 1988,  Impact  contributed  all its  producing oil and gas
properties to Southwest Sites,  Inc., and distributed the ownership of Southwest
to the  shareholders  of Impact.  After the  disposition,  Impact began pursuing
investment opportunities in the financial services industry.  Impact made public
announcements  during 1988 of its intention to pursue the  acquisition of failed
Banks and Savings and Loans, in the State of Texas. No acquisitions were made in
1988,  although Impact did provide funding with respect to two Texas Banks.  The
Company became inactive in 1989 and has remained so to date.

(c)  Employees and Facilities.

     The Company has no employees or  facilities,  and enjoys the  non-exclusive
office services of its President and Majority Shareholder.

                               Item 2. Facilities.

     The Company has no employees or  facilities,  and enjoys the  non-exclusive
office services of its Officers and Principal Shareholders.


                                  Form 10-KSB
                           Exhibit Index is on page 7
Impact Energy, Inc.             December 31, 1997              Sequential Page 2

<PAGE>


                           Item 3. Legal Proceedings.

     There are no legal or other proceedings  pending against the Company, as of
the preparation of this Report,  and no facts are known or suspected which would
give rise to any anticipation of any such proceedings in the foreseeable future.

          Item 4. Submission of Matters to a Vote of Security Holders.

     There have been no matters  submitted to a vote of shareholders  during the
annual period covered by this report.

                                     PART II

            Item 5. Market for Common Equity and Stockholder Matters.

(a)  Market Information.

     The  Registrant  Company has one class of  securities,  No Par Common Stock
("Common  Stock").  As of the date of this Annual Report,  the securities of the
Issuer  are not  traded  over the  counter  or on any  trading  exchange.  It is
foreseeable  that  the  common  stock  of  this  issuer  may  be  traded  in the
foreseeable  future over the counter.  If so  shareholders  and the public would
experience a young,  sporadic and potentially  volatile trading market for them.
Quotations  for, and  transactions  in the  Securities  so traded are capable of
rapid  fluctuations,  resulting  from the  influence  of  supply  and  demand on
relatively thin volume. There may be buyers at a time when there are no sellers,
and sellers when there are no buyers, resulting in significant variations of bid
and ask  quotations by  market-making  dealers,  attempting to adjust changes in
demand and supply.  A young  market is also  particularly  vulnerable  to "short
selling",  sell orders by persons  owning no shares of stock,  but  intending to
drive down the market  price so as to purchase  the shares to be  delivered at a
price  below the price at which the shares  were sold  "short".  Such future and
foreseeable  trading may not occur.  There is no assurance of any future trading
in or of the securities of this Issuer.

     Of the Company's issued and outstanding  74,955,530  shares of Common Stock
as of  December  31,  1998,  there  stands  of  record  11,728,620  unrestricted
free-trading,  and  63,226,910  issued as Restricted  Securities.  Many of these
latter shares, so issued, have been held continuously by non-affiliates for more
than two  years,  and are no longer  Restricted  Securities,  as defined by Rule
144(a) promulgated by the Securities and Exchange Commission pursuant to ss.3(b)
of the Securities Act of 1933, and might be re-sold in compliance with Rule 144,
in  brokerage  transactions,  at such time as there may be trading in the common
stock of this  Issuer.  Rule 144  provides  among  other  things and  subject to
certain limitations that a person holding  "Restricted  Securities" for a period
of two years, who is not an affiliate of the Issuer,  may sell those securities,
free of restriction in brokerage  transactions.  Further, shares issued pursuant
to 1933 Act Registration,  again subject to exceptions for affiliate  ownership,
are  not  "Restricted   Securities"  and  are  freely   tradeable  in  brokerage
transaction.  Affiliates  are  permitted  by Rule  144 to  sell  affiliate-owned
securities  (Restricted  Securities  held for more than one year and  Registered
Affiliate Control Securities however long held) in limited amounts.  Possible or
actual sales of the  Company's  Common  Stock under Rule 144 or otherwise  might
have a depressive effect upon the price of the Company's


                                  Form 10-KSB
                           Exhibit Index is on page 7
Impact Energy, Inc.             December 31, 1997              Sequential Page 3

<PAGE>


Common Stock, at such time, if and when the common stock of this Issuer might be
tradeable in brokerage transactions.

(b)  Holders.

     Management  calculates  that  the  approximate  number  of  holders  of the
Company's Common Stock, as of December 31, 1997 was 1,167.

(c)  Dividends.

     No cash  dividends have been paid by the Company on its Common Stock and no
such payment is anticipated in the foreseeable  future.  No other dividends have
been paid or declared by the Issuer and none are anticipated.

                        Item 6. Selected Financial Data.

     The following information is provided as of the Date of this Report:

================================================================================
   December 31, 1997                     1997             1996             1995
================================================================================
Total Assets                                0                0                0
--------------------------------------------------------------------------------
Revenues                                    0                0                0
--------------------------------------------------------------------------------
Operating Expenses                      4,893            4,893            4,893
--------------------------------------------------------------------------------
Net Earnings or (Loss)                 (4,893)          (4,893)          (4,893)
--------------------------------------------------------------------------------
Per Share Earnings
  or (Loss)                                (-)              (-)              (-)
--------------------------------------------------------------------------------
Average Common Shares
  Outstanding                      74,955,530       74,955,530       74,955,530
================================================================================

     Item 7.  Management's Discussion and Analysis of Financial Condition and
              Results of Operations.

(a)  Results of Operations.

     The Issuer (and its wholly-owned  subsidiary) has no current business,  and
has had no operations in the last fiscal year.

(b)  Liquidity and Capital Resources.

     The Issuer (and its wholly-owned subsidiary) has no capital resource and no
liquidity.  (Reference is made to Auditors Report of July 31, 1998, December 31,
1997, and 1996, filed herewith.


                                  Form 10-KSB
                           Exhibit Index is on page 7
Impact Energy, Inc.             December 31, 1997              Sequential Page 4

<PAGE>


(c)  Plan of Operation.  The Company is seeking a business  opportunity,  in the
nature of a business  combination,  joint  venture,  or structured  acquisition,
which,  if  effective,  would  create  profitability  for  the  Company  and its
shareholders.

              Item 8. Financial Statements and Supplementary Data.

     Auditors  Report  of July  31,  1998 is  filed  herewith.  Those  financial
statements, attached thereto are incorporated herein by this reference as though
fully  set forth  herein.  By virtue  of the late  filing  of this  Report,  the
Auditors Report includes information through July 31, 1998.

                     Item 9. Change of Registrant's Auditor.

     The last previous Audit,  conducted for the  Registrant,  was dated May 11,
1989,  for the years ended December 31, 1988,  1987 and 1986.  Todd D. Chisholm,
CPA, and the firm of Crouch,  Bierwolf & Chisholm, has been retained to provide,
and has provided the current Auditor's report. There has been no disagreement or
dispute of any kind or sort with any auditor as to any matter.

                                    PART III

                   Item 10. Directors and Executive Officers.

     The Directors  and  Executive  Officers of the Company are set forth below.
All Officers and Directors shall serve until the next meeting of shareholders or
until their successors be elected or appointed.

               JACK WELLS                   President/Director

               JOE KANE                     Secretary/Director

                        Item 11. Executive Compensation.

     Officers,  Directors and Management of this Issuer  presently serve without
compensation.

    Item 12. Security Ownership of Certain Beneficial Owners and Management.

                                  COMMON STOCK

     To the best of Registrant's  knowledge and belief the following  disclosure
presents, as of the date of this report, December 31, 1997, the total beneficial
security ownership of all Directors and Nominees,


                                  Form 10-KSB
                           Exhibit Index is on page 7
Impact Energy, Inc.             December 31, 1997              Sequential Page 5

<PAGE>


naming them, and by all Officers and Directors as a group,  without naming them,
of Registrant,  known to or discoverable  by Registrant,  and the total security
ownership  of all  persons,  entities and groups,  known to or  discoverable  by
Registrant,  to be the  beneficial  owner or owners of more than five percent of
any voting class of Registrant's  stock.  More than one person,  entity or group
could be beneficially  interested in the same  securities,  so that the total of
all percentages may accordingly exceed one hundred percent.  Registrant has only
one class of stock, namely Common Voting Equity Shares.

           SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS AND 5% OWNERS

<TABLE>
<CAPTION>
==========================================================================================================
                 Name and Address of Beneficial Owner                Amount and Nature            Percent
                                                                       of Ownership              of Class

----------------------------------------------------------------------------------------------------------
<S>                                       <C>                           <C>                       <C> 
Jack Wells                                president/director                   -0-                  0.00
PO Box 980459
Houston Texas 77098-0459
----------------------------------------------------------------------------------------------------------
Joe Kane                                  secretary/director                   -0-                  0.00
PO Box 980459
Houston Texas 77098-0459
==========================================================================================================
All Officers and Directors as a Group                                            0                  0.00
==========================================================================================================
T.M. Skillern  (1)                                                      14,400,000                 19.21
PO Box 980459
Houston Texas
----------------------------------------------------------------------------------------------------------
R. Ray Rankin (1)                                                       16,046,996                 21.41
5700 Bentree
Coreyville TX 76034
----------------------------------------------------------------------------------------------------------
James S. Clifton (1)                                                    10,576,804                 14.11
5335 Desota-D
Houston TX 77091
==========================================================================================================
Total Shares Issued and Outstanding                                     74,955,530                100.00
==========================================================================================================
</TABLE>

(1) For purposes of this Report the share  ownership of family  members with the
same surnames have been attributed to the named  shareholder,  without regard to
same or separate addresses, and without any investigation of actual relationship
or current affiliation.

            Item 13. Certain Relationships and Related Transactions.

                                      None.


                                  Form 10-KSB
                           Exhibit Index is on page 7
Impact Energy, Inc.             December 31, 1997              Sequential Page 6

<PAGE>


                                     PART IV

   Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) Financial  Statements.  Reference  is made to  Auditors  Report  of July 31,
                            1998 and  December 31,  1997,  and 1996,  filed with
                            herewith.  Those financial  statements,  attached as
                            Exhibit "F" thereto are incorporated  herein by this
                            reference as though fully set forth herein.

(b) Form 8-K Reports.       No Reports  on Form 8-K were  filed  during the last
                            quarter covered by this Annual Report.

(c) Exhibits.               Please see Exhibit Index, following.

                                  Exhibit Index

                       Financial Statements and Documents
                    Furnished as a part of this Annual Report

Exhibit F.                  Audited  Financial   Statements  -  July  31,  1998,
                            December 31, 1997 and 1996.


                                   Form 10-KSB
                           Exhibit Index is on page 7
Impact Energy, Inc.             December 31, 1997              Sequential Page 7

<PAGE>


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

                 Supplementary Information to be Furnished With
              Reports Filed Pursuant to Section 15(d) of the Act by
                Registrants which Have Not Registered Securities
                       Pursuant to Section 12 of the Act.

       No annual report or proxy material has been sent to security holders.

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

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the individual capacities and on the date indicated.

Dated: January 16, 1998

                               Impact Energy, Inc.
                             A COLORADO CORPORATION

                                       by

/s/ Jack Wells                                                      /s/ Joe Kane
-----------------------                                  -----------------------
Jack Wells                                                              Joe Kane
PRESIDENT/DIRECTOR                                           SECRETARY/TREASURER


                                  Form 10-KSB
                           Exhibit Index is on page 7
Impact Energy, Inc.             December 31, 1997              Sequential Page 8

<PAGE>


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


                                    Exhibit F

        Audited Financial Statements - December 31, 1998, 1997 and 1996.


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

<PAGE>


                               Impact Energy, Inc.
                          (a Development Stage Company)
                        Consolidated Financial Statements
                    July 31, 1998, December 31, 1997 and 1996

<PAGE>


                                 C O N T E N T S

Accountants' Report .......................................................    3

Consolidated Balance Sheets ...............................................    4

Consolidated Statements of Operations .....................................    5

Consolidated Statements of Stockholders' Equity ...........................    6

Consolidated Statements of Cash Flows .....................................    7

Notes to the Consolidated  Financial Statements ...........................    8

<PAGE>


                    [CROUCH, BIERWOLF & CHISHOLM LETTERHEAD]


                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders of
Impact Energy, Inc.

We have audited the accompanying  consolidated  balance sheets of Impact Energy,
Inc. (a Development  Stage  Company) as of July 31, 1998,  December 31, 1997 and
1996 and the related consolidated statements of operations, stockholders' equity
and cash  flows for the seven  months  ended July 31,  1998 and the years  ended
December  31,  1997,  1996  and  1995.   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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Impact Energy, Inc.
(a Development  Stage  Company) as of July 31, 1998,  December 31, 1997 and 1996
and the results of its operations and cash flows for the seven months ended July
31, 1998 and the years ended December 31, 1997, 1996 and 1995 in conformity with
generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial  statements,  the  Company  has no  assets  and no  operations  and is
dependent upon financing to continue operations. These factors raise substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regard  to these  matters  are  also  described  in the  Note 2.  The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


/s/ CROUCH, BIERWOLF & CHISHOLM


Salt Lake City, Utah
August 26, 1998

--------------------------------------------------------------------------------
            MEMBER AMERICAN INSTITUTE OF CPAS, SEC PRACTICE SECTION,
                          AND UTAH ASSOCIATION OF CPAS



<PAGE>


                               Impact Energy, Inc.
                          (a Development Stage Company)

                           Consolidated Balance Sheets

                                     Assets

<TABLE>
<CAPTION>
                                                       July 31,             December 31,
                                                    ------------    ----------------------------
                                                        1998            1997            1996 
                                                    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>          
Current assets
   Cash                                             $       --      $       --      $       --   
                                                    ------------    ------------    ------------
Total Current Assets                                        --              --              --   
                                                    ------------    ------------    ------------
      Total Assets                                  $       --      $       --      $       --   
                                                    ============    ============    ============

                      Liabilities and Stockholders' Equity

Current Liabilities
   Accounts payable                                       48,932          48,932          48,932
   Accrued interest                                       37,106          34,252          29,359
                                                    ------------    ------------    ------------
       Total Current Liabilities                          86,038          83,184          78,291
                                                    ------------    ------------    ------------
Stockholders' Equity
   Common Stock, authorized
     75,000,000 shares of no par value,
     issued and outstanding 74,955,530
     shares respectively                                    --           749,555         749,555
   Additional Paid in Capital/(Discount on stock)        (48,932)     12,360,560      12,360,560
   Deficit Accumulated During the
     Development Stage                                   (37,106)    (13,193,299)    (13,188,406)
                                                    ------------    ------------    ------------
       Total Stockholders' Equity                        (86,038)        (83,184)        (78,291)
                                                    ------------    ------------    ------------
Total Liabilities and Stockholders' Equity          $       --      $       --      $       --   
                                                    ============    ============    ============
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       4

<PAGE>


                               Impact Energy, Inc.
                          (a Development Stage Company)

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                         For the                                                        Deficit
                                      Seven Months                                                    Accumulated
                                          Ended              For the years ended December 31,          during the
                                         July 31,      --------------------------------------------    development
                                          1998            1997            1996            1995           Stage
                                      ------------    ------------    ------------    ------------    ------------
<S>                                   <C>             <C>             <C>             <C>             <C>       
Revenues:                             $       --      $       --      $       --      $       --      $       --

Expenses:

   Interest Expense                          2,854           4,893           4,893           4,893          37,106
                                      ------------    ------------    ------------    ------------    ------------

          Total Expenses                     2,854           4,893           4,893           4,893          37,106
                                      ------------    ------------    ------------    ------------    ------------

Net (Loss)                            $     (2,854)   $     (4,893)   $     (4,893)   $     (4,893)   $    (37,106)
                                      ============    ============    ============    ============    ============

Net Loss Per Share                    $      (--)     $      (--)     $      (--)     $      (--)     $      (--)
                                      ============    ============    ============    ============    ============

Weighted average shares outstanding     74,955,530      74,955,530      74,955,530      74,955,530      74,955,530
                                      ============    ============    ============    ============    ============
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       5

<PAGE>


                               Impact Energy, Inc.
                          (a Development Stage Company)

                 Consolidated Statement of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                      Additional        Deficit
                                                                        Paid-in       Accumulated
                                                                        Capital        During the
                                             Common Stock            (Discount on     Development
                                         Shares         Amount          Stock)           Stage   
                                      ------------   ------------    ------------    ------------
<S>                                     <C>          <C>             <C>             <C>          
Balance at beginning of development
 stage - January 1, 1990                74,955,530   $    749,555    $ 12,360,560    $(13,159,047)

Net loss December 31, 1990-1994               --             --              --           (19,573)

Net loss December 31, 1995                    --             --              --            (4,893)

Net loss December 31, 1996                    --             --              --            (4,893)
                                      ------------   ------------    ------------    ------------
Balance, December 31, 1996              74,955,530        749,555      12,360,560     (13,188,406)

Net loss December 31, 1997                    --             --              --            (4,893)
                                      ------------   ------------    ------------    ------------
Balance, December 31, 1997              74,955,530        749,555      12,360,560     (13,193,299)

Reorganization - April 28, 1998               --         (749,555)    (12,311,628)     13,159,047

Net loss for the seven months ended
 July 31, 1998                                --             --              --            (2,854)
                                      ------------   ------------    ------------    ------------
Balance, July 31, 1998                  74,955,530   $       --      $    (48,932)   $    (37,106)
                                      ============   ============    ============    ============
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       6

<PAGE>


                               Impact Energy, Inc.
                          (a Development Stage Company)

                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                             January 1,
                                       For the                                             1990 (inception
                                        Seven                                                  of the
                                        Months                                               development
                                        Ended          For the years ended December 31,       stage) to
                                       July 31,      ------------------------------------      July 31,
                                         1998          1997          1996          1995          1998 
                                       --------      --------      --------      --------      --------
<S>                                    <C>           <C>           <C>           <C>           <C>      
Cash Flows form Operating
 Activities
     Net loss                          $ (2,854)     $ (4,893)     $ (4,893)     $ (4,893)     $(37,106)
     Adjustments to reconcile
       net loss to net cash
       provided by operations
       Accrued expenses                   2,854         4,893         4,893         4,893        37,106
                                       --------      --------      --------      --------      --------
Net Cash Flows used in
 Operating Activities                      --            --            --            --            --   
                                       --------      --------      --------      --------      --------
Cash Flows from Investment
 Activities:                               --            --            --            --            --

Cash Flows from Financing
 Activities:                               --            --            --            --            --

Net increase (decrease) in cash            --            --            --            --            --
Cash, beginning of year                    --            --            --            --            --   
                                       --------      --------      --------      --------      --------
Cash, end of year                      $   --        $   --        $   --        $   --        $   --   
                                       ========      ========      ========      ========      ========

Supplemental Cash Flow Information
   Cash Paid for:
     Interest                          $   --        $   --        $   --        $   --        $   --
     Taxes                             $   --        $   --        $   --        $   --        $   --
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       7

<PAGE>


                               Impact Energy, Inc.
                          (a Development Stage Company)

                 Notes to The Consolidated Financial Statements
                    July 31, 1998, December 31, 1997 and 1996


NOTE 1 - Summary of Significant Accounting Policies

     a.   Organization

          Impact  Energy,  Inc.,  ("the  Company")  is  a  Colorado  corporation
     organized  on April 1,  1980.  Impact  was  originally  formed to engage in
     exploration  for,  and  development,  production  and sale of, oil and gas.
     During  March,  1988  Impact  contributed  all  its  producing  oil and gas
     properties  to  Southwest  Sites Inc.  and  distributed  the  Ownership  of
     Southwest to Impact's  shareholders.  After the  disposition of the oil and
     gas  properties,  Impact began  pursuing  investment  opportunities  in the
     financial services industry.

          Impact made  public  announcements  during 1988  stating its intent to
     pursue the  acquisition  of failed Banks and Savings and Loans in the state
     of Texas. No acquisitions were made in 1988 although Impact did provide the
     financing  for the  recapitalization  of one  Texas  bank and  provide  the
     capital to refinance the control group of another.

          The Company went inactive in 1989 and has been dormant ever since.

          On April 23, 1998, the Company merged with Impact Energy, Inc. a Texas
     corporation  organized  on  April  22,  1998.  The  Texas  corporation  has
     75,000,000 no par value shares  authorized,  and a share for share exchange
     took place. A  reorganization  adjustment was made on the books and records
     and the retained deficit was eliminated.

     b.   Accounting Method

          The Company  recognizes  income and  expenses on the accrual  basis of
     accounting.

     c.   Earnings (Loss) Per Share

          The  computation of earnings per share of common stock is based on the
     weighted average number of shares  outstanding at the date of the financial
     statements.

     d.   Cash and Cash Equivalents

          The Company considers all highly liquid investments with maturities of
     three months or less to be cash equivalents.

                                       8

<PAGE>


                               Impact Energy, Inc.
                          (a Development Stage Company)

                 Notes to the Consolidated Financial Statements
                    July 31, 1998, December 31, 1997 and 1996


NOTE 1 - Summary of Significant Accounting Policies (Continued)

     e.   Provision for Income Taxes

          No provision  for income taxes has been  recorded due to net operating
     loss carryforwards  totaling  approximately  $1,700,000 that will be offset
     against future taxable income.  These NOL carryforwards  have already begun
     to expire.  No tax benefit has been  reported in the  financial  statements
     because  the  Company  believes  there  is a  50%  or  greater  chance  the
     carryforward will expire unused.

          Deferred  tax assets and the  valuation  account is as follows at July
     31, 1998 and December 31, 1997 and 1996.

                                    July 31,                      December 31,
                                      1998            1997            1996
                                   ---------       ---------       ---------
     Deferred tax asset:
        NOL carrryforward          $ 578,000       $ 578,000       $ 578,000
     Valuation allowance            (578,000)       (578,000)       (578,000)
                                   ---------       ---------       ---------
     Total                         $    --         $    --         $    --  
                                   =========       =========       =========

     f.   Use of estimates

          The  preparation of financial  statements in conformity with generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that  affect  reported  amounts  of  assets  and  liabilities,
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial statements and revenues and expenses during the reporting period.
     In these financial  statements,  liabilities  involve extensive reliance on
     management's estimates. Actual results could differ from those estimates.

     g.   Principles of Consolidation

          The Consolidated  Financial  Statements include the accounts of Impact
     Energy, Inc. a Colorado  corporation and its wholly owned subsidiary Impact
     Energy,   Inc.  a  Texas   corporation.   All  intercompany   accounts  and
     transactions have been eliminated in the consolidation.

NOTE 2 - Going Concern

          The accompanying financial statements have been prepared assuming that
     the Company will continue as a going concern. The Company has no assets and
     no  operating   activity  and  is  dependent  upon  financing  to  continue
     operations.  The financial  statements do not include any adjustments  that
     might result from the outcome of this uncertainty.  It is management's plan
     to find an operating  company to merge with providing  necessary  operating
     capital.

NOTE 3 - Development Stage Company

          The Company is a  development  stage  company as defined in  Financial
     Accounting   Standards   Board   Statement  No.  7.  It  is   concentrating
     substantially  all of its  efforts in raising  capital and  developing  its
     business operations in order to generate significant  revenues.  Management
     has  elected  to use  January  1,  1990 as the date the  Company  began the
     development stage.

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<PAGE>


                               Impact Energy, Inc.
                          (a Development Stage Company)

                 Notes to the Consolidated Financial Statements
                    July 31, 1998, December 31, 1997 and 1996


NOTE 4 - Liens and Judgements

          The Company has two tax liens and one outstanding judgement. Taxes are
     owed  to the IRS and the  State  of  Texas  in the  amount  of  $9,812.  An
     outstanding  judgement of $39,120 is also outstanding on the records of the
     County Clerk of Dallas County,  Texas.  These  liabilities are reflected on
     the records as accounts  payable and  estimated  accrued  interest on these
     obligations have also been recorded through July 31, 1998.

                                       10