<PAGE>   1
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
   1934
           FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                        Commission file number 2-93426-D

                         UNISTAR FINANCIAL SERVICE CORP.
                 (Name of small business issuer in its charter)

             Delaware                                       87-0419568
   (State or other jurisdiction of                      (I.R.S.  Employer
   incorporation or organization)                       Identification No.)


       4635 McEwen Road, Dallas, Texas                        75244
   (Address of principal executive offices)                 (Zip Code)

ISSUER'S TELEPHONE NUMBER:                                    (972) 702-0800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:   None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:   None

      Check whether the issuer (1) 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 is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

      The issuer's gross written premiums for the year ended December 31, 1998,
which were derived solely from its fourth quarter operations, were $35,926,300.
The aggregate market value of the common stock held by non-affiliates of the
issuer, based upon the closing sale price of the common stock on December 16,
1998, as quoted on the OTC, was approximately $396,000,000. Shares of common
stock held by each officer and director and by each person who owns 5% or more
of the outstanding common stock (over 8,000,000 shares) have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes. As of March 15, 1999, the Registrant had outstanding 24,009,372 shares
of common stock.

      The information required by Items 10 through 12 of Form 10-KSB is
incorporated by reference into Part III hereof from the registrant's proxy
statement, which will be filed with the Securities and Exchange Commission
within 120 days of the close of the registrant's fiscal year ended December 31,
1998.

      Transitional Small Business Disclosure Format: YES [ ]  NO [X]


<PAGE>   2






                         UNISTAR FINANCIAL SERVICE CORP.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                               Page
Item                                                                                          Number
----                                                                                          ------ 
                                     PART I

<S>                                                                                             <C>
  1.  Description of Business  .................................................................. 1

  2.  Description of Properties .................................................................12

  3.  Legal Proceedings .........................................................................13

  4.  Submission of Matters to a Vote of Security Holders .......................................13

                                     PART II

  5.  Market for Common Equity and Related  Stockholder Matters  ................................13

  6.  Management's Discussion and Analysis of Financial Condition and
      Results of Operations .....................................................................14

  7.  Financial Statements ......................................................................16

  8.  Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure ......................................................................16

                                    PART III

  9.  Directors, Executive Officers, Promoters and Control Persons;
      Compliance With Section 16(a) of the Exchange Act  ........................................16

  10. Executive Compensation ....................................................................18

  11. Security Ownership of Certain Beneficial Owners and Management ............................18

  12. Certain Relationships and Related Transactions ............................................18

  13. Exhibits and Reports on Form 8-K ..........................................................19


Appendix A - Audited consolidated financial statements of Unistar Financial
      Service Corp., as of and for the Year Ended December 31, 1998.............................F-1
</TABLE>




<PAGE>   3


                                     PART I

ITEM  1.     DESCRIPTION OF BUSINESS.

ACQUISITION OF INSURANCE OPERATIONS IN 1998

     The completion of three significant transactions during 1998 provided
Unistar Financial Service Corp. (formerly Caldera, Inc.) (the "Company") with
its first active operations since 1991. As a result of these transactions, the
Company has completed its transformation from a dormant public shell into a
vertically integrated insurance and financial service holding company,
specializing in wholesale and retail auto insurance, premium financing, and
insurance claims management.

     On August 17, 1998, the stockholders of the Company approved: (i) a Stock
Purchase Agreement, dated as of July 7, 1998 (the "IFHC Acquisition"), whereby
the Company purchased all of the issued and outstanding shares of common stock
of International Fidelity Holding Corporation, a Texas insurance holding
corporation ("IFHC"), in exchange for 19,777,000 shares of common stock, $.01
par value per share, of the Company on a post-Reverse Stock Split basis, as
defined below, (ii) an amendment to the Certificate of Incorporation authorizing
a one-for-fifteen reverse stock split of the Company's outstanding Common Stock
(the "Reverse Stock Split") and (iii) an amendment to the Certificate of
Incorporation to change the name of the Company to Unistar Financial Service
Corp. Following the closing of the IFHC Acquisition on August 17, 1998, IFHC
became a wholly-owned subsidiary of the Company. The Company, through its sole
ownership of IFHC, controls IFHC's insurance subsidiary, International Surety
and Casualty Company (whose name is in the process of being changed to "Unistar
Insurance Company," and is referred to as such or "UIC" herein).

     On September 30, 1998, the Company completed the acquisition (the "USFH
Acquisition") of the assets and operations of U.S. Fidelity Holding Corp. and
its subsidiaries (collectively, "USFH"). USFH participates in the auto insurance
industry by providing multiple non-standard auto insurance products, premium
financing and claims administration. The USFH Acquisition was structured as a
stock-for-assets exchange, with the Company issuing 3,975,000 shares of Common
Stock in exchange for substantially all of the assets of USFH. The consideration
paid for USFH by was determined by the Company based upon its assessment of the
value created by the utilization of USFH's assets by the Company, including in
particular the synergies created by the accretion of USFH to the Company's
existing operations through UIC.

     The IFHC Acquisition was accounted for as a reverse-takeover, meaning that
for accounting purposes IFHC was the acquiror of the Company. Therefore, the
financial results of IFHC for all of 1998 are included in the Company's
consolidated financial statements contained herein. The USFH Acquisition, was
accounted for as an asset purchase, therefore only the financial results of USFH
subsequent to September 30, 1998 are included in the Company's consolidated
financial statements contained herein.

     On December 31, 1998, the Company acquired the rights to certain Stock and
Asset Only Purchase Agreements of several retail auto insurance agencies, two
automobile body shops and an automobile damage appraisal company. This
transaction had no impact on the Company's results of operations for 1998, since
it was consummated on the last day of the year, but it completed the vision of
the Company in becoming a vertically integrated insurance and financial service
holding company and sets the template for continued expansion into the retail
insurance and claims servicing businesses.




                                       1
<PAGE>   4

BACKGROUND OF THE COMPANY PRIOR TO AUGUST 17, 1998

     Prior to transactions discussed above, the Company, then known as Caldera,
Inc.("Caldera"), was a shell corporation with no operations or assets, which was
seeking to acquire a company that would become the business of Caldera. Caldera
was formerly MW Companies, Inc. ("MW Companies"), the successor corporation to
Sansidra Corporation ("Sansidra"). Sansidra was organized under the laws of the
state of Nevada in 1984, it completed a public offering of 700,000 shares of
common stock pursuant to a registration statement on Form S- 18 that became
effective November 9, 1984. In 1985, Sansidra merged with and into MW Companies,
changing its state of domicile to Delaware and its name to MW Companies, Inc. In
1988, the Company's name was changed to Caldera. From 1991 to August 1998,
Caldera was dormant as it sought out business opportunities.

THE COMPANY'S BUSINESS

     The discussion below includes certain events that have occurred subsequent
to December 31, 1998, in order to provide the most up-to-date information about
the Company.

GENERAL

     The Company is a vertically integrated insurance and financial service
holding company which, through its numerous wholly-owned subsidiaries,
participates in substantially all aspects of the personal lines auto insurance
distribution, underwriting, premium financing and claims process. The Company
operates a distribution network of over 100 Company-owned retail auto insurance
agencies under the name of Unistar Auto Insurance Agencies, and over 400
appointed independent retail auto insurance agencies, through which it markets
its expanding menu of insurance products. The Company has underwriting authority
for third-party insurance companies that it represents through four managing
general agencies. The Company, through its subsidiary, Unistar Insurance
Company, a Texas-domiciled property and casualty insurance company, acts as a
reinsurer of nonstandard personal automobile insurance in the State of Texas.
The Company internally processes claims made by its customers through its claims
adjusting company, Eagle Claims Corp, and offers premium financing to its own
insureds through Eagle Premium Finance Company. The Company also provides
reinsurance brokerage services, renter's insurance, collision repair, automobile
damage appraisal services and other ancillary services pertinent to its
operations through other wholly-owned subsidiaries.

     The Company markets and distributes third-party insurers' products and its
other services primarily in Texas, Florida, California and Illinois, through a
network of over 100 Company-owned retail auto insurance agencies and over 400
appointed independent retail auto insurance agencies. The Company believes that
it can be distinguished from its competitors because it generates revenue from
substantially all aspects of the personal lines auto insurance distribution,
underwriting, premium financing and claims process. The Company provides quality
service to both its agents and insureds by utilizing an integrated computer
system which links the Company's insurance and service entities. The Company's
computer and software systems allow for rapid automated premium quotation,
policy issuance, billing and payment and claims processing and enable the
Company to continuously monitor substantially all aspects of its business. Using
these systems, the Company's agents can access a customer's driving record,
quote a premium, offer premium financing and, if requested, generate a policy
on-site. The Company believes that these systems have facilitated its ability to
market and underwrite insurance products on a cost-efficient basis, and that
they will enhance the Company's ability to continue its expansion into Texas,
California, Florida, Illinois and other states.

     The Company's primary product is nonstandard personal automobile insurance,
which is principally provided to insureds who are unable to obtain preferred or
standard insurance coverage because of their




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<PAGE>   5

driving record, payment history, age, vehicle type or other factors, including
market conditions for preferred or standard risks. Underwriting standards for
preferred or standard insurance coverage have become more restrictive, thereby
requiring more drivers to seek coverage in the nonstandard automobile insurance
market. These factors have contributed to an increase in the size of the
nonstandard personal automobile insurance market. Based on information provided
by A.M. Best, a leading rating agency for the insurance industry, from 1993 to
1997, the nonstandard personal automobile insurance market in the United States
grew from approximately $14.2 billion to approximately $22.0 billion of annual
premium volume and from approximately 15.1% to approximately 19.2% of the total
personal automobile insurance market.

     Traditionally, nonstandard auto insurance has flourished in areas where
there has been substantial rate freedom and an assigned-risk plan that either
has high rates relative to the preferred market or does not require auto
physical damage insurance. A number of states offer both of these favorable
conditions. A recent A.M. Best study found that one of the most prolific
nonstandard auto insurance states is Texas. The table below reflects Texas auto
insurance premium growth over the last five years.

                 Texas Private Passenger Auto Insurance Premiums
                     Five-Year Totals (figures in millions)

<TABLE>
<CAPTION>
         Year                       Premium            Texas Loss Ratio   U.S. Loss Ratio
<S>                                 <C>                <C>                <C>  
         1997                       $8,219.2                  59.0%             64.0%
         1996                       $8,016.2                  63.6%             66.5%
         1995                       $7,696.1                  72.0%             67.1%
         1994                       $7,327.0                  70.7%             68.4%
         1993                       $6,800.4                  60.5%             66.8%
</TABLE>

MISSION STATEMENT AND BUSINESS STRATEGY

     The Company's mission is to pursue excellence and to forge a solid publicly
traded insurance and financial service holding company; to deliver the very best
results to our shareholders, agents and customers; and to maintain the highest
standards, while empowering each associate to grow as partners in our success.

     The Company's strategy is to seek continued growth of its business by
capitalizing on the efficiencies of its vertical integration, and:

      o  further penetrating the Texas, Florida, California and Illinois markets
         by acquiring additional retail auto insurance agencies and establishing
         relationships with additional independent retail auto insurance
         agencies in order to expand the Company's distribution network to
         market its products and services in other regions of those and other
         states;

      o  selectively expanding the Company's product offerings by underwriting
         additional insurance products and programs such as standard automobile
         insurance (see "Recent Developments" below regarding Kemper facility),
         renter's insurance, accidental death and dismemberment and hospital
         indemnity insurance, and marketing these products and programs through
         its distribution network;

      o  maintaining a commitment to provide quality service to its agents and
         insureds by emphasizing customer service;

      o  encouraging agents to place a high volume of quality business with the
         Company by providing them with attractive commission structures tied to
         premium levels and loss ratios;



                                       3
<PAGE>   6

      o  identifying and reviewing opportunities to acquire additional insurers;
         and

      o  employing the business practices developed and used in Texas to
         continue expanding into other selected states.

RECENT DEVELOPMENTS

     Along with the IFHC Acquisition and USFH Acquisition in late 1998, and in
addition to the revenue production from the Company's existing four auto
insurance products, premium financing and claims administration, the Company has
recently announced the following strategic initiatives:

      o  March, 1999 - the Company entered a relationship with Kemper Specialty
         Holdings, Inc. (now known as "Kempes"), a subsidiary of the Kemper
         Insurance Companies, in which it will market, administer and distribute
         personal lines auto insurance product, including the Company's initial
         STANDARD auto insurance product;

      o  March, 1999 - the Company rolled out its "Renter's Plus" insurance
         product;

      o  February, 1999 - the Company launched its Internet site,
         WWW.UNISTARAUTO.COM, which allows customers to access automobile
         insurance online from the Company's family of insurance products;

      o  February, 1999 - the Company entered a letter of intent to acquire
         "7/24 Insurance Services, Inc.", based in San Diego, California, which
         will serve as the Company's core for expansion into the California auto
         insurance market;

      o  February, 1999 - the Company completed its acquisition of First
         Grampian Premium Finance Company, based in Tampa, Florida, to write
         premium finance contracts for the Company's Florida customers;

      o  January, 1999 - the Company announced that it had completed the
         consolidation of its current vertically integrated operations,
         including Company-owned retail auto insurance agencies, multiple
         managing general agencies, premium finance, claims management,
         reinsurance and reinsurance brokerage services, auto collision and
         appraisal services;

      o  January, 1999 - the Company announced a program management agreement
         with American Safety Casualty Insurance Company for a new auto
         insurance facility that will allow the Company to market "private
         label" programs (nationwide) at competitive rates;

      o  January, 1999 - the Company completed its acquisition of the assets of
         AMSCOT Insurance, Inc., with 19 retail auto insurance locations in
         Florida, to serve as the Company's core for expansion into the Florida
         auto insurance market;

      o  November, 1998 - the Company commenced construction of its 9,000 square
         foot, 110-person customer service call center, with state-of-the-art
         computer and phone systems to better serve the Company's auto insurance
         agents and insureds;

      o  September, 1998 - the Company announced the release of its fourth auto
         insurance program, "Advanced Underwriters," a multi-tiered, premium
         financed auto insurance product that caters toward the "more standard"
         auto insurance customer;



                                       4
<PAGE>   7

      o  September, 1998 - the Company launched Unistar University, an on-site
         training facility designed to educate and empower the Company's staff
         in the insurance and financial service professions.

INSURANCE SERVICE OPERATIONS

     Retail Distribution Network

     The Company owns and operates over 100 retail auto insurance agencies in
the states of Texas, Florida, California and Illinois, under the name Unistar
Auto Insurance Agencies. The retail locations distribute the Company's expanding
menu of insurance products, including Renters Plus(R) and Accident Plus(R)
insurance products, as well as a variety of auto insurance programs. These
agencies operate as individual profit centers for the Company and exclusively
provide the Company's insurance products.

     Wholesale Distribution and Managing General Agencies

     The Company provides its products and services to over 400 independent
retail auto insurance agencies, also located in Texas, Florida, California and
Illinois. The Company owns several Managing General Agencies ("MGAs") that
develop and distribute insurance products through this extensive network. The
MGAs provide all underwriting, policy administration, marketing, accounting and
financial services to the Company's third-party insurance companies and the
Company's retail and independent agencies and participate in the negotiation of
reinsurance contracts. All of the Company's MGAs are licensed in Texas and
reinsured by a panel of "A" and "A+" rated companies, as rated by A.M. Best.

     GREAT SOUTHERN GENERAL AGENCY offers the Company's flagship line, an
innovative annual-term, premium-financed auto insurance product. Through Eagle
Premium Finance Company ("Eagle Premium"), Great Southern's offers a 10% premium
down payment (compared to the standard 15%) with 11 equal monthly installments.
The result is often a lower-than-average monthly payment for the consumer,
allowing for a seamless renewal.

     ADVANCED UNDERWRITERS offers a six-month or twelve-month, full coverage,
premium financed product. The Advanced product caters to a more preferred risk.

     FIRST CHOICE UNDERWRITERS offers a six-month, full coverage or
liability-only, direct bill insurance product.

     PEAK UNDERWRITERS offers a monthly, direct bill, liability-only insurance
product.

     UNISTAR SELECT offers a standard, full coverage direct bill auto insurance
product.

     Premium Finance

     EAGLE PREMIUM FINANCE COMPANY, the Company's Texas-licensed premium finance
company, provides premium financing to the Company's insureds. Premium financing
is marketed through the Company's distribution network of Company-owned agencies
and independent agencies. Traditionally, Eagle Premium has obtained financing
for its lending operations from a third-party credit facility.

     Premiums for property and casualty insurance are typically payable at the
time a policy is placed in force or renewed. Eagle Premium's services allow the
insured to pay a portion of the premium when the policy is placed in force and
the balance in monthly installments over the life of the policy (either six or
twelve




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<PAGE>   8

months). As security, Eagle Premium retains a contractual right, if a premium
installment is not paid when due, to cancel the insurance policy and to receive
the unearned premium from the insurer. In the event of cancellation, Eagle
Premium applies the unearned premium towards the payment obligation of the
insured. The premium financing that the Company offers to its own insureds
involves limited credit risk.


     The Company's premium financing program is subject to certain laws
governing the operation of premium finance companies. These laws pertain to such
matters as books and records that must be kept, forms, licensing, fees and
charges. For example, in Texas, the maximum late payment fee Eagle Premium may
charge is the greater of $10 per month or 5% of the amount of the overdue
payment.

     Reinsurance and Reinsurance Brokerage

     UNISTAR INSURANCE COMPANY operates as a Texas-domiciled property and
casualty insurance company. UIC reinsures a portion of the risk associated with
policies issued through the Company's MGAs.

     TALON FINANCIAL SERVICES LTD. is the Company's reinsurance brokerage
subsidiary.

     Underwriting and Systems Processing

     GENERAL. The Company underwrites insurance products (referred to herein as
"Unistar" products) through unrelated policy issuing insurance companies. The
Company also provides proprietary underwriting processing and management
information systems that enable the distribution of its multiple products and
services at all levels.

     NONSTANDARD AUTOMOBILE. Nonstandard personal automobile insurance is
principally provided to insureds who are unable to obtain standard insurance
coverage because of their payment history, driving record, age, vehicle type or
other factors, including market conditions. Underwriting standards for preferred
and standard coverage have become more restrictive, thereby requiring more
insureds to seek nonstandard coverage and contributing to increase in the market
share of the nonstandard automobile insurance industry. Nonstandard automobile
insurance, however, generally involves the potential for increased loss exposure
and higher claims experience. Loss exposure is limited because premiums usually
are at higher rates than those charged for standard insurance coverage and
because 100% of the policies issued through the Company provide the minimum
coverage required of the policyholder by statute. The Company currently
underwrites nonstandard personal automobile insurance in Texas, where the
minimum limits are $10,000 per individual and $40,000 per accident for bodily
injury and $15,000 per accident for property damage and comprehensive and
collision up to $50,000. The average annual premium on policies currently in
force is approximately $1,250. The Company underwrites this coverage on an
annual and semi-annual basis.

     Due to the purchasing habits of nonstandard automobile insureds (for
example, insureds seeking the least expensive insurance required of the
policyholder by statute which satisfies the requirements of state laws to
register a vehicle), policy renewal rates tend to be low compared to standard
policies. The Company's experience has been that a significant number of
existing policyholders allow their policies to lapse and then reapply for
insurance as new policyholders. The success of the Company's nonstandard
automobile insurance program, therefore, depends in part on its ability to
replace non-renewing insureds with new policyholders through marketing efforts.

     The Company markets its nonstandard personal automobile products primarily
through its network of Company-owned agencies and independent agencies. The
Company also markets its insurance on a limited basis directly to insureds
through its website, direct mail and media advertising.





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<PAGE>   9

     The Company emphasizes customer service to both its agents and insureds by
utilizing an integrated computer system which links all of the Company's
insurance and service entities. The Company's computer and software systems
allow for rapid automated premium quotation, policy issuance, billing and
payment and claims processing and enable the Company to monitor substantially
all aspects of its business. This system enables the Company's agents to rapidly
access the customer's driving record, quote a premium and, if requested,
generate the policy on-site.

     The Company intends to focus its efforts on further penetrating the Texas,
Florida, California and Illinois nonstandard personal automobile insurance
markets. Ultimately, the Company intends to expand into other selected states.
The Company will select states for expansion based on a number of criteria,
including the size of the personal automobile insurance market, statewide loss
results, competition and the regulatory climate. The Company's ability to expand
into other states will be subject to the prior regulatory compliance with all
requirements imposed by each state. There can be no assurance that the Company
will be able to obtain the required licenses, and the failure to do so would
limit the Company's ability to expand geographically.

     STANDARD AUTOMOBILE. Standard personal automobile insurance is principally
provided to insureds that present an average risk profile in terms of payment
history, driving record, vehicle type and other factors. As part of its
expansion strategy, in 1999 the Company will commence distributing standard
personal automobile insurance products through an arrangement with Kemper
Insurance Companies (see "Recent Developments" herein). Limits on standard
personal automobile insurance are generally significantly higher than those for
nonstandard coverage, but typically provide for deductibles and other
restrictive terms. The Company will market standard personal automobile
insurance through its network of Company-owned and independent agencies.

     RENTER'S INSURANCE. "Renter's Plus" is the Company's new renter's insurance
product designed to protect tenants' personal property against a loss due to
fire, wind, flood, smoke or theft. Approximately 87% of the Company's auto
insurance customers rent homes, apartments or condominiums. The Company also
offers premium financing on "Renter's Plus." The Company believes that providing
a complete package of quality insurance products reduces the risk of losing its
customers to a multi-lines insurance competitor, thereby increasing the
Company's retention rates and profitability.

     FUTURE PRODUCTS. The Company intends to expand its product offerings by
developing additional insurance products and programs and marketing them through
its distribution network. Specifically, the Company intends to expand its
product offerings to include accidental death and dismemberment and hospital
indemnity insurance. The Company currently has not, however, taken any
significant steps toward expanding the foregoing product offerings. Expansion of
the Company's product offerings may result in an increase in expenses due to
additional costs incurred in additional actuarial rate justifications, software
and personnel. Also, future products may require certain regulatory approval.
There can be no assurance that the Company can successfully obtain the necessary
agreements and approvals to produce and profitably market and distribute any of
these products.

     Claims Management

     EAGLE CLAIMS CORP. is an in-house captive claims management firm that
provides services exclusively to the Company's MGAs. The Company-owned and
independent agencies have no authority to settle claims or otherwise exercise
control over the claims process. The Company's management team believes that the
claims-handling process is a major key to the success of all insurance programs.
Also, management believes that the employment of salaried claims personnel, as
opposed to independent adjusters, results in reduced ultimate loss payments,
lower LAE and improved customer service. The Company only retains independent
appraisers and adjusters on an as needed basis.




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<PAGE>   10

     Claims settlement authority levels are established for each adjuster or
manager based on the employee's ability and level of experience. Upon receipt,
each claim is reviewed and assigned to an adjuster based on the type and
severity of the claim. All claim-related litigation is monitored by Company
personnel. The claims policy of the Company emphasizes prompt and fair
settlement of meritorious claims and the establishment of appropriate liability
for claims. The Company believes that the internal processing of claims, its
highly sophisticated claims-handling software and proactive legal team enable it
to provide quality customer service while controlling claims adjustment
expenses.

     Collision Repair and Appraisal Services

     STAR CARE COLLISION REPAIR and MIRROR FINISHES AND COLLISION OF TEXAS are
the Company's collision repair centers located in Dallas and Houston,
respectively. Their primary function is to provide superior customer service in
a more cost-effective manner, which should ultimately improve the insurance
operations' loss ratios.

     NATIONAL AUTOMOBILE CLAIMS & APPRAISAL provides the Company with
significant cost savings and control of the auto damage appraisal function by
expediting the collision repair process. This subsidiary oversees all damage
estimates provided by the Company's preferred collision repair centers to ensure
the most accurate and cost-effective repair possible.

MARKETING AND DISTRIBUTION

     The Company markets and distributes its insurance products and services in
Texas, Florida, California and Illinois through a network of over 100
Company-owned retail auto insurance agencies and over 400 appointed independent
retail auto insurance agencies. The Company believes that it provides its
independent agents with attractive commission structures. The Company
compensates its agents by paying a commission based on a percentage of premiums
produced. The Company supports its agency network by advertising in various
media.

     Company-employed and independent agents have the authority to sell and bind
insurance coverages in accordance with procedures established by the Company's
several MGAs. The MGA reviews all coverages bound by the agents promptly and
generally accepts all coverages which fall within stated underwriting criteria.
The MGA generally also has the right within a period of 60 days from a policy's
inception to cancel any policy upon 10 days notice, even if the risk falls
within its underwriting criteria.

     The Company believes that its integrated computer system, which allows for
rapid automated premium quotation and policy issuance by its agents, is a key
element in providing quality service to both its agents and insureds. For
example, upon entering a customer's basic personal information, the customer's
driving record is accessed and a premium rate is quoted. If the customer chooses
to purchase the insurance, the system generates the policy on-site.

     The Company believes that its distribution system will ultimately enable it
to lower its expense ratio and operate with more favorable loss experience. A
lower expense ratio will, in turn, allow the Company to more effectively compete
with larger providers of nonstandard automobile and other forms of insurance.

     During 1999, the Company will seek to expand its distribution network and
market its products and services by acquiring additional insurance agencies and
establishing relationships with additional independent agents. As the Company
expands its insurance operations into other states, the Company will 



                                       8
<PAGE>   11

seek to replicate its existing distribution network in those states. There can
be no assurance that the Company will be able to obtain the required regulatory
approvals to offer additional insurance products or expand into states other
than those in which it currently operates.

REINSURANCE

     The Company utilizes various policy issuing insurance companies, which are
unrelated insurance companies, to write its various insurance products. The
relationships with such companies are designed to be virtually non-risk bearing
for the policy issuing insurance company, therefore the Company arranges for
100% reinsurance for each company. The Company utilizes a nationally-known
reinsurance broker to arrange relationships, document and account for the
reinsurance. Reinsurance involves an insurance company transferring (or
"ceding") all or a portion of its exposure on insurance underwritten by it to
another insurer, known as a "reinsurer." The reinsurer assumes a portion of the
exposure in return for a portion, or quota share, of the premium, and pays the
ceding company or MGA a commission based upon the amount of insurance ceded.

     Reinsurance is ceded under separate contracts or "treaties" for the
separate lines of business underwritten. The Company's reinsurance for
automobile insurance is primarily ceded to the following reinsurers:

<TABLE>
<CAPTION>
                          Reinsurer                          A.M. Best Rating

<S>                                                           <C>
                  Kemper Reinsurance Company                           A
                  Trenwick American Reinsurance Corp.                  A+
                  Odyssey Reinsurance Corporation                      A-
                  Underwriters Reinsurance Company                     A+
                  Everest Reinsurance Company                          A+
                  Signet Star Reinsurance Company                      A
                  American Re-Insurance Company                        A
                  St. Paul Reinsurance Management Corp.                A+
                  Folksamerica Reinsurance Company                     A
                  SAFR Reinsurance Corporation                         A-
                  Sydney Reinsurance Corporation                       A-
</TABLE>

     Unistar Insurance Company assumes approximately 10% of the reinsurance
premiums and losses as a retrocession from one of the above named reinsurers.
The reinsurance program renews annually, although the Company continually
reviews the program and may elect to change it more frequently. Reinsurance is
placed directly by the Company and through national reinsurance intermediaries
in conjunction with the Company's own intermediary, Talon Financial Services,
Ltd..

     The Company is selective in choosing a reinsurer and considers numerous
factors, the most important of which is the financial stability of the
reinsurer, its history of responding to claims and its overall reputation. In an
effort to minimize its exposure to the insolvency of a reinsurer, the Company
evaluates the acceptability and reviews the financial condition of the reinsurer
at least annually. The Company's current policy is to primarily use reinsurers
that have an A.M. Best rating of "A (Excellent)" or better.

LIABILITY FOR UNPAID LOSSES AND LAE

     The issuing carrier is directly liable for loss and loss adjustment expense
("LAE") payments under the terms of the insurance policies that the Company
writes. As required by insurance regulations and accounting



                                       9
<PAGE>   12

rules, the issuing carrier reflects the liability for the ultimate payment of
all incurred losses and LAE by establishing a liability for those unpaid losses
and LAE for both reported and unreported claims, which represent estimates of
future amounts needed to pay claims and related expenses. The Company also
operates to reinsure the issuing companies substantially against risk, as
outlined above.

     When a claim involving a probable loss is reported, the Company establishes
a liability for the estimated amount of the issuing carrier's ultimate loss and
LAE payments. The estimate of the amount of the ultimate loss is based upon such
factors as the type of loss, jurisdiction of the occurrence, knowledge of the
circumstances surrounding the claim, severity of injury or damage, potential for
ultimate exposure, estimate of liability on the part of the insured, past
experience with similar claims and the applicable policy provisions.

     All newly reported claims received with respect to nonstandard personal
automobile policies are set up with an initial average liability. The average
liability for these claims are determined every quarter by dividing the number
of closed claims into the total amount paid during the three month period. If a
claim is open more than 30 days, that open case liability is evaluated and the
liability is adjusted upward or downward according to the facts and damages of
that particular claim. The Company anticipates that it will adopt a similar
policy with respect to standard automobile policies, for its issuing carriers.

     In addition, management provides for a liability on an aggregate basis to
provide for incurred but not reported losses ("IBNR"). The Company utilizes
independent actuaries to help establish the liability for unpaid losses and LAE
for the issuing carrier and reinsurers.

INVESTMENTS

     The Company's investment objective is to maximize total rate of return
after federal and state income taxes while maintaining liquidity and minimizing
risk. The Company complies with applicable laws and regulations that restrict
the type, quality and concentration of investments. In general, these laws and
regulations permit investments, within specified limits and subject to certain
qualifications, in Federal, state and municipal obligations, corporate bonds,
preferred and common equity securities and real estate mortgages. The Company's
investment policy is established by the Investment Committee of the Board of
Directors and is reviewed on a regular basis.

COMPETITION

     The Company operates in a highly competitive market and faces competition
from both national and regional insurance companies, brokers and agencies, many
of whom are larger and have greater financial and other resources than the
Company. The Company's competitors include other companies which market their
products through agents, as well as companies that sell insurance directly to
their customers. Large national writers may have certain competitive advantages
over agency writers, including increased name recognition, increased loyalty of
their customer base and reduced policy acquisition costs. The Company may also
face competition from new or temporary entrants in its niche markets. In some
cases, such entrants may, because of inexperience, desire for new business or
other reasons, price their insurance below that of the Company. Although the
Company's pricing is inevitably influenced to some degree by that of its
competitors, management of the Company believes that it is generally not in the
Company's best interest to compete solely on price, choosing instead to compete
on the basis of underwriting criteria, its distribution network and superior
service to its agents and insureds. Companies of comparable or smaller size that
compete with the Company in the nonstandard automobile insurance industry
include Omni, Concord and Arrowhead, as well as major insurers such as GEICO and
Progressive Casualty Insurance Company. Competition could have a material
adverse effect on the Company's business, results of operations and financial
condition.




                                       10
<PAGE>   13

REGULATION

     General

     The Company is subject to certain laws and regulations in states in which
it seeks to conduct business. The regulations cover all aspects of its business
and are generally designed to protect the interests of insurance policyholders,
as opposed to the interests of shareholders. Such regulations relate to
authorized lines of business, capital requirements, allowable rates, forms and
licensing (particularly for the nonstandard auto segment), underwriting
limitations, transactions with affiliates, dividend limitations, changes in
control, market conduct, maximum amount allowable for premium financing service
charges and a variety of other financial and non-financial components of the
insurance business.

     Many states have also enacted laws which restrict an insurer's underwriting
discretion, such as the ability to terminate policies, terminate agents or
reject insurance coverage applications, and many state regulators have the power
to reduce, or to disallow increases in, premium rates. These laws may adversely
affect the ability of a company to earn a profit and effectively competitively
in the marketplace.

     Most states require licensure or regulatory approval prior to the marketing
of new insurance products. Typically, licensure review is comprehensive and
includes a review of a company's business plan, solvency, reinsurance, character
of its officers and directors, rates, forms and other financial and
non-financial aspects of the Company. The regulatory authorities may not allow
entry into a new market by withholding approval or not granting a license which,
in turn, would have a material adverse effect on the Company's ability to expand
its operations.

     All insurance companies must file quarterly and annual statements with
certain regulatory agencies and are subject to regular and special examinations
by those agencies. The last regulatory examination of UIC covered the prior
three-year period ended on December 31, 1996.

     In some instances, various states routinely require deposits of assets for
the protection of policyholders either in those states or for all policyholders.
As of December 31, 1998, securities representing $50,000 of the carrying value
of the Company's total investments, were on deposit with the State of Texas.

     Insurance Holding Company Regulation

     The Company is subject to laws governing insurance holding companies in
Texas where UIC is domiciled. These laws, among other things, (i) require the
Company to file periodic information with the Texas Department of Insurance,
including information concerning its capital structure, ownership, financial
condition and general business operations, (ii) regulate certain transactions
between the Company and its affiliates, including the amount of dividends and
other distributions and the terms of surplus notes and (iii) restrict the
ability of any one person to acquire certain levels of the Company's voting
securities without prior regulatory approval. Any purchaser of 10% or more of
the outstanding shares of Common Stock of the Company will be presumed to have
acquired control of UIC.

     Under Texas laws, UIC is generally not permitted to pay dividends to the
Company without prior regulatory approval. Although the Company believes that
amounts required for it to meet its financial and operating obligations will be
available, there can be no assurance in this regard. Further, there can be no
assurance that, if requested, the Texas Department of Insurance will allow any
dividends to be paid by UIC in the future.




                                       11
<PAGE>   14

     The maximum dividends permitted by state law are not necessarily indicative
of an insurer's actual ability to pay dividends or other distributions to a
parent company, which also may be constrained by business and regulatory
considerations, such as the impact of dividends on capital surplus, which could
affect an insurer's competitive position, the amount of premiums that can be
written and the ability to pay future dividends. Further, state insurance laws
and regulations require that the statutory capital surplus of an insurance
company following any dividend or distribution by it be reasonable in relation
to its outstanding liabilities and adequate for its financial needs.

     While the non-insurance company subsidiaries are not subject directly to
the dividend and other distribution limitations, insurance holding company
regulations govern the amount which a subsidiary within the holding company
system may charge any of the insurance companies for service (e.g., management
fees and commissions).

     Underwriting and Marketing Restrictions

     During the past several years, various regulatory and legislative bodies
have adopted or proposed new laws or regulations to deal with the cyclical
nature of the insurance industry, catastrophic events and insurance capacity and
pricing. These regulations include (i) the creation of "market assistance plans"
under which insurers are induced to provide certain coverages, (ii) restrictions
on the ability of insurers to rescind or otherwise cancel certain policies in
mid-term, (iii) advance notice requirements or limitations imposed for certain
policy non-renewals and (iv) limitations upon or decreases in rates permitted to
be charged.

     Legislation

     From time to time, new regulations and legislation are proposed to limit
damage awards, to control plaintiffs' counsel fees, to bring the industry under
regulation by the Federal government, to control premiums, policy terminations
and other policy terms and to impose new taxes and assessments. It is not
possible to predict whether, in what form or in what jurisdictions, any of these
proposals might be adopted, or the effect, if any, on the Company.

EMPLOYEES

     As of December 31, 1998, the Company and its subsidiaries had approximately
350 employees, all full-time, including ten executive officers. The Company is
not a party to any collective bargaining agreement and has not experienced work
stoppages or strikes as a result of labor disputes. The Company considers
relations with its employees to be satisfactory.

         The Company's executive offices are located at 4635 McEwen Road Dallas,
Texas 75244, its telephone number is (972) 702-0800, and its Internet website is
www.unistarfinancial.com.

ITEM 2.   DESCRIPTION OF PROPERTIES.

     The Company (including all subsidiaries) operates out of a 30,000 square
foot facility designed to its specifications in Dallas, Texas. The facility is
leased from 4635 Partners L.P., an affiliate of an officer of the Company, for
approximately $250,000 per year.

     The Company-owned retail auto insurance agencies are located in leased
locations pursuant to leases expiring at various times through December 31,
2000. The average annual rental for each facility is approximately $12,000.



                                       12
<PAGE>   15

ITEM 3.  LEGAL PROCEEDINGS.

     The Company is subject to routine legal proceedings in the ordinary course
of business. The Company believes that the ultimate resolution of these lawsuits
will not have a material adverse effect on its business, financial condition or
results of operations. The Company provides for a liability for both the amount
of estimated damages attributable to these lawsuits and the estimated costs of
litigation.

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

     There were no matters submitted to a vote of stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1998.

                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The Company's Common Stock has been quoted on the OTC under the symbol UNSF
since August 18, 1998. The following table sets forth prices of the Common
Stock, as reported by the OTC, giving effect to the one-for-fifteen reverse
stock split that occurred on August 17, 1998. The following data reflects
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions:

<TABLE>
<CAPTION>
                                                          High     Low
     Fiscal Year Ended December 31, 1998                  ----     ---  
     ------------------------------------                   
<S>                                                       <C>     <C> 
        August 18, 1998 through September 30, 1998        $ 30    $ 20
        Fourth Quarter                                      27      17
</TABLE>

     At December 31, 1998, there were approximately 240 stockholders of record
of the Company's Common Stock, although the Company believes that there may
actually be more than 550 beneficial owners of its Common Stock. None of the
Company's authorized Preferred Stock was issued or outstanding.

     The Company has not paid dividends on its Common Stock and anticipates that
for the foreseeable future all earnings, if any, will be retained for the
operation and expansion of the Company's business. Any future determination to
pay cash dividends will be made by the Board of Directors in light of the
Company's earnings, financial position, capital requirements and such other
factors as the Board of Directors deems relevant. Moreover, the ability of the
Company to pay dividends if and when its Board of Directors determines to do so,
may be restricted by applicable provisions of the Delaware General Corporation
Law and by regulatory limits on the amount of dividends which Unistar Insurance
Company is permitted to pay to the Company. See "Description of
Business--Regulation."

     During the fourth quarter of 1998, the Company issued the following equity
securities: On November 2, 1999, the Company issued 15,000 shares of Common
Stock in payment for $375,000 of consulting fees owed to two consultants who had
provided the Company consulting services regarding its strategic acquisitions.
The issuance was unregistered, as the Company was relying on the exemption from
registration contained in Section 4(2) of the Securities Act on the basis that
such transactions did not involve a public offering.



                                       13
<PAGE>   16

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

OVERVIEW

     The Company, through its subsidiaries, is primarily engaged in the
distribution, premium financing, reinsurance, claims processing and other
ancillary areas of the personal lines auto insurance business. The Company has
over 100 wholly-owned retail auto insurance agencies and over 400 independent
auto insurance agencies that generate income from policy fees, commissions,
premium financing and the marketing of ancillary services. Eagle Premium
generates revenue from premium financing provided to the Company's customers.
The Company's several managing general agencies generate revenue through
commissions, policy fee income and other administrative fees from the marketing
of the Company's insurance products through the Company's auto insurance agency
distribution network. Unistar Insurance Company, the Company's insurance
subsidiary, generates revenues from reinsurance retrocessions and the collection
and investment of premiums.

EFFECT OF 1998 ACQUISITIONS ON THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS


     The Company's consolidated financial statements as of and for the year
ended December 31, 1998 (the "1998 Financial Statements") were significantly
impacted by the Company's acquisition activity in 1998. An understanding of the
Company's 1998 Financial Statements results requires that the accounting
treatment of the 1998 acquisitions be explained (See "History of the
Company-Acquisition of Insurance Operations in 1998."):

     January 1, 1998 through August 16, 1998: The Company, then known as
     Caldera, Inc., was a dormant public shell, with no operations or activity
     of any sort;

     August 17, through September 30, 1998: The Company completed the IFHC
     Acquisition on August 17, 1998, which was accounted for as a
     reverse-takeover, meaning that for accounting purposes IFHC was the
     acquiror of Caldera, Inc. Therefore, the financial results of IFHC (and its
     sole subsidiary Unistar Insurance Company) for all twelve months of 1998
     are included in the Company's consolidated financial statements contained
     herein. In other words, if no other transactions had occurred in 1998, the
     1998 Financial Statements would be identical to those of IFHC. Instead,
     because of the other transactions that took place in 1998, IFHC did not
     have a significant effect on the 1998 Financial Statements in terms of the
     Company's consolidated net income or total assets.

     September 30, 1998 through December 31, 1998: The Company completed the
     USFH Acquisition on September 30, 1998, which gave the Company the
     substantial portion of its present operations. The USFH Acquisition was
     accounted for as an asset purchase, therefore only the financial results of
     USFH for the three months subsequent to September 30, 1998 are included in
     the 1998 Financial Statements.

     December 31, 1998: The acquisitions completed by the Company on December
     31, 1998 had no effect on its income statement in 1998, but the assets
     acquired and liabilities assumed are included in the December 31, 1998
     balance sheet.

     Given the impact of the Company's 1998 acquisitions, the focus of this
Section will be on the fourth quarter of 1998, since that was the first period
in which the Company conducted its integrated auto insurance operations. The
1998 Financial Statements are not comparable to the results of operations or
financial condition of the Company in 1997, given the transformation that the
Company made in late 1998.




                                       14
<PAGE>   17

RESULTS OF OPERATIONS - 1998 (PRIMARILY THE THREE MONTHS ENDED DECEMBER 31,
1998)

     Gross written premiums. The multiple MGAs that the Company acquired through
the USFH Acquisition produced gross premiums written of $35.9 million during the
fourth quarter of 1998. The Company's marketing efforts contributed to the
amount of premiums written by the MGAs during this period. The Company's
December 31, 1998 acquisition of the auto retail insurance agencies and
continuing strategy of increasing the number of Company-owned and independent
retail auto insurance agencies distributing the Company's insurance products
should increase revenues from gross premiums written in 1999.

     Net commissions and fees earned. Net commissions and fees earned of $11.4
million in 1998 ($9.1 million of which occurred in the fourth quarter) consisted
of fees earned through the Company's MGAs placing and administering business for
third-party insurers.

     Finance revenue. Finance revenue of $3.4 million was produced by Eagle
Premium in the fourth quarter of 1998, acting exclusively as a premium finance
source for the Company's insurance products.

     Commissions and loss adjustment expenses. Commissions and loss adjustment
expenses were $6.5 million during 1998. Commissions and loss adjustment
expenses, the Company's most significant expense, represent actual payments made
and changes in estimated future payments to be made to or on behalf of its
policyholders, including expenses required to settle claims and losses. Losses
and loss adjustment expenses are influenced by loss severity and frequency.

     Other operating expenses. Other operating expenses were $5.1 million in
1998, consisting primarily of payroll costs; taxes, licenses and fees; provision
for losses in the premium finance operations; and accrued profit-sharing
expenses. Operating expenses may continue to be higher than normal, primarily
because of the increase in costs associated with supporting the growth of the
Company's operations.

     Amortization. Amortization is from acquired customer lists, which are
amortized straight-line over 40 years.

     Income tax expense. The Company's estimated effective income tax rate was
48.3% for 1998, due to the amortization of customer lists not being deductible
by the Company for federal tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary sources of capital are derived from its insurance
operations, including premiums collected (net of policy cancellations and
premiums ceded), commissions, service fees and investment income. Commencing
September 30, 1998, the Company utilized borrowings under formal credit
facilities for the premium finance portion its business. Because the Company is
a holding company, it is largely dependent upon its subsidiaries for cash flow.
A substantial portion of the Company's liquid assets are held by Unistar
Insurance Company and are not available for general corporate purposes, pursuant
to insurance regulations. Also, the Company's management intends to continue to
aggressively investigate opportunities for future growth and expansion, the
funding of which may require additional capital.

YEAR 2000 MATTERS

     In 1998, the Company began converting its computer systems to be year 2000
compliant. The Company has evaluated its internal systems, both hardware and
software, facilities, and interactions with business partners in relation to
year 2000 issues. As of December 31, 1998, the Company believes that it had
completed its efforts to bring the systems in compliance. The total cost
incurred during the year ended




                                       15
<PAGE>   18

December 31, 1998 to modify these existing systems, which include both internal
and external costs of programming, coding and testing, was not material. The
Company continually evaluates computer hardware and software upgrades and,
therefore, many of the costs to replace existing items with year 2000 compliant
upgrades are not likely to be incremental costs to the Company. During 1999, the
Company will continue to contact its business partners (including agents, banks,
motor vehicle departments and rating agencies) to determine the status of their
compliance and to assess the impact of noncompliance on the Company. The Company
believes that it is taking the necessary measures to mitigate issues that may
arise relating to the year 2000. To the extent that any additional issues arise,
the Company will evaluate the impact on its business, results of operations and
financial condition and, if material, make the necessary disclosures and take
appropriate remedial action.

RISKS ASSOCIATE WITH FORWARD-LOOKING STATEMENT INCLUDED IN THIS FORM 10-KSB

     This Form 10-KSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations, including plans and objectives relating to
future growth of the Company's business activities and availability of funds.
The forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, regulatory framework, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in this Form
10-KSB will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.

ITEM 7.  FINANCIAL STATEMENTS.

      The financial statements of the Company are annexed to this report as
Appendix A, beginning on page F-1.

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

      As disclosed in Item 5 of the Company's Form 10-QSB for the quarter ended
September 30, 1998, in February 1999, the Company changed its independent
accountants for the year ended December 31, 1998 from BDO Dunwoody LLP to
Karlins Arnold & Corbitt, P.C. This changed was approved by the Company's Board
of Directors. The financial statements of the Company (then known as Caldera,
Inc.) for each of the two years in the two-year period ended December 31, 1997
were audited by BDO Dunwoody LLP. The Company has had no disagreements on
accounting or financial disclosure matters with either its current or
predecessor independent public accountants.

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

      The Company's management team has extensive experience in the insurance
business. Members of management are equity participants, thereby giving them a
vested interest in the success of the Company. Unless otherwise indicated, each
executive officer and director has served the Company in his present




                                       16
<PAGE>   19

position since the August 17, 1998 Special Meeting of Stockholders. Set forth
below is certain information concerning the directors and executive officers of
the Company, as of December 31, 1998:

<TABLE>
<CAPTION>

NAME                                        AGE     POSITION

<S>                                         <C>     <C>                                                              
Marc A. Sparks(1)(4)..............          41      Chairman, Chief Executive Officer, Secretary and Director
F. Jeffrey Nelson(4)..............          42      President, Chief Financial Officer and Director
James G. Leach(1)(3)..............          51      Vice Chairman, General Counsel and Director
Kerry A. Sebree(1)(2).............          35      Executive Vice President, Chief Operating Officer and Director
Morris Belzberg(4)................          68      Director
Brent Brown(2)....................          49      Director
J. Paul Caver(3)(5)...............          31      Director
Leonard Feldman(2)(3)(4)..........          73      Director
Patrick Rastiello.................          44      Director
</TABLE>

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

(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) Member of Investment Committee.
(5) Resigned from the Company's Board effective January 1, 1999.

     MARC A. SPARKS has founded, owned and operated several insurance-related
corporations. Mr. Sparks has extensive experience in the insurance, surety
bonding, premium finance, and investment banking fields. For the last several
years, Mr. Sparks has owned and managed property and casualty insurance
companies, multi-location insurance agencies, a nationally recognized surety
bonding agency, and a managing general agency's for surety and insurance. He is
licensed by the Texas Department of Insurance as a Managing General Agent (MGA),
Local Recording Agent (LRA Broker), Surplus Lines Agent, and he holds a Texas
Premium Finance license. Mr. Sparks is certified (Form A approved) by the Texas
Department of Insurance to own and operate Texas property and casualty insurance
companies.

     F. JEFFREY NELSON has been in the insurance business since 1978. He has
been involved in all aspects of life insurance and property and casualty
insurance companies. He is responsible for overseeing day-to- day activities of
each company and subsidiary for which he is an officer. Mr. Nelson's emphasis is
on the financial performance and management of profit and loss and balance sheet
activities. A substantial amount of his time is spent in reinsurance
negotiations and management to achieve the greatest financial protection for the
company and its policyholders. Mr. Nelson also directs and participates in
corporate management activities such as legal regulatory matters, general
litigation activities, claim settlements and management of corporate finance. He
is the liaison to industry associations and oversees cash flow management.

     JAMES G. LEACH joined the Company as Vice Chairman, General Counsel and
Director in August, 1998. He was previously Senior Vice President and General
Counsel for certain American Safety Insurance Group companies since 1993. He was
a reinsurance intermediary for American Safety from 1990 to 1993. Mr. Leach has
held numerous executive insurance and securities positions since 1975. He holds
degrees in Physics and Economics, an M.B.A. in Finance and Accounting, an M.I.
in Insurance, and a J.D. He also holds a CPCU and CLU designation, and is a
licensed Insurance Agent and Broker in several states. Mr. Leach is a General
Securities Principal with series 7, 63 and 24 licenses.

     KERRY SEBREE has an extensive background in insurance operations, sales and
marketing, as well as an understanding of all facets of managing a business
enterprise. He has substantial experience in the auto insurance industry as an
owner of a multi-location retail auto insurance agency and through his extensive





                                       17
<PAGE>   20

involvement in premium finance business development. Mr. Sebree's primary
responsibility with the Company is to manage and balance underwriting,
processing and claims as well as to identify and evaluate quality acquisition
candidates and formulate and negotiate company acquisitions.

     MORRIS BELZBERG has been Chairman Emeritus of Budget Rent a Car Corporation
since 1991. During his 35-year tenure at Budget, Mr. Belzberg held the titles of
Chief Executive Officer, Chairman of the Board, and Chairman of the Executive
Committee. Although semi-retired, Mr. Belzberg continues to assist Budget with
its market strength and budgetary goals.

     BRENT BROWN is a Director of the legal firm of Abernathy, Roeder,
Robertson, Boyd & Joplin since 1998 and from 1988 to 1998 he was a partner with
the law firm of Bracewell & Patterson. Mr. Brown is admitted to the Bar in the
states of Texas and Missouri, and specializes in the areas of corporate and
insurance law and litigation.

     J. PAUL CAVER is Vice President, Chief Financial Officer and General
Counsel of Eco Technologies International Inc., a publicly-traded environmental
contractor. He previously practiced corporate law with Haynes and Boone, LLP,
specializing in securities offerings and mergers and acquisitions. Mr. Caver has
also practiced accounting in industry and with Deloitte & Touche, LLP. He is
admitted to the State Bar of Texas and a Certified Public Accountant. Mr. Caver
resigned from his Director position effective January 1, 1999, and his Board
seat remains open at this time.

     LEONARD FELDMAN joined the Company's Board as a Director in January, 1999.
He has been a member of the Chicago Mercantile Exchange, the International
Monetary Fund, the London Financial Exchange, the Chicago Board of Trade, and
the Chicago Board of Options Exchange for 30 years. Mr. Feldman served as
financial advisor to Rene Champion, Senior Vice President of Swiss Bank
Corporation Zurich, with interests in the financial markets.

     PATRICK RASTIELLO is currently Vice President at Aon Re Worldwide and is
responsible for production and marketing of all lines of insurance and
reinsurance business. His experience in the reinsurance and insurance fields is
extensive, as Vice President of American International Underwriters - London
(for American International Group) from 1978 to 1985, as Senior Vice President
in charge of all worldwide broker treaty underwriting operations for US
International Reinsurance Company from 1985 - 1989, as Vice President of Treaty
Underwriting with Folksamerica Reinsurance Company from 1989 - 1994, and as a
Vice President of Minet Re Intermediaries, which was acquired by Aon Corporation
in 1997.

ITEM 10. EXECUTIVE COMPENSATION.

     Incorporated by reference to the caption "Executive Compensation" in the
Proxy Statement for the Company's 1999 Annual Meeting of Stockholders (the
"Proxy Statement").

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Incorporated by reference to the caption "Principal Stockholders" in the
Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Incorporated by reference to the caption "Certain Relationships and Related
Transactions" in the Proxy Statement.



                                       18
<PAGE>   21



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits

   2.1   Stock Purchase Agreement, dated as of July 7, 1998, by and among
         Caldera, Inc., Marc A. Sparks, F. Jeffrey Nelson and Nicole Clayton
         Caver.(2)

   2.2   Asset Only Purchase Agreement, dated as of September 30, 1998, by and
         among Unistar Financial Service Corp., U.S. Fidelity Holding Corp. and
         Rockford Partners Ltd.(3)

   3.1   Articles of Incorporation, as amended.(1)

   3.2   Bylaws of the Registrant, as amended.(1)

   3.3   Certificate of Amendment to Certificate of Incorporation authorizing
         one-for-fifteen reverse stock split, filed with the Secretary of State
         of Delaware on August 17, 1998.(2)

   10.1* Registrant's 1998 Stock Option Plan.(2)

   16.1  Letter from BDO Dunwoody LLP regarding change in certifying
         accountant.(3)

   21.0  List of Subsidiaries.(4)

   27.0  Financial Data Schedule.(4)

   99.1  Proxy Statement for the Special Meeting of Stockholders held August 17,
         1998.(2)

   *  Denotes management contract or compensatory plan.

(1)   Incorporated by reference to the Registrant's Form 10-KSB for the year
      ended December 31, 1997.

(2)   Incorporated by reference to the Registrant's Report on Form 8-K filed
      September 2, 1998.

(3)   Incorporated by reference to the Registrant's Form 10-QSB for the quarter
      ended September 30, 1998.

(4)   Filed herewith.

     (b) Reports on Form 8-K

     The Company filed a Report on Form 8-K on October 15, 1998, dated September
30, 1998, to report the acquisition of the assets and operations of U.S.
Fidelity Holding Corp. and its subsidiaries.

     The Company filed a Report on Form 8-K/A on December 15, 1998, dated August
17, 1998, to amend a Report on Form 8-K filed on September 2, 1998, reporting
the acquisition of International Fidelity Holding Corporation ("IFHC"). The Form
8-K/A contained the unaudited consolidated financial statements of IFHC as of
and for the six months ended June 30, 1998 and 1997, and the audited
consolidated financial statements of IFHC as of and for the years ended December
31, 1997 and 1996.




                                       19
<PAGE>   22


                                   SIGNATURES

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

                                    UNISTAR FINANCIAL SERVICE CORP.
                                             (Registrant)

Dated: March 31, 1999               By     /s/ MARC A. SPARKS 
                                       ------------------------------------
                                               Marc A. Sparks
                                      Chairman and Chief Executive Officer
                                          (Principal Executive Officer)


Dated: March 31, 1999               By     /s/ F. JEFFREY NELSON         
                                       ----------------------------------
                                                F. Jeffrey Nelson
                                      President and Chief Financial Officer
                                           (Principal Financial Officer
                                              and Accounting Officer)

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 capacities and on the dates indicated.

<TABLE>
<CAPTION>
         Signature                             Capacity                            Date
         ---------                             --------                            ----        
<S>                                            <C>                              <C> 
 /s/ MARC A. SPARKS                            Director                         March 31, 1999
---------------------------------
Marc A. Sparks


 /s/ F. JEFFREY NELSON                         Director                         March 31, 1999
---------------------------------
F. Jeffrey Nelson


 /s/ JAMES G. LEACH                            Director                         March 31, 1999
--------------------------------- 
James G. Leach


 /s/ KERRY A. SEBREE                           Director                         March 31, 1999
---------------------------------
Kerry A. Sebree


 /s/ BRENT BROWN                               Director                         March 31, 1999
---------------------------------
Brent Brown
</TABLE>


      SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
          TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS

    Other than this Form 10-KSB, the Company is not preparing an annual report
for its fiscal year ended December 31, 1998. The Company will send a proxy
statement to its Stockholders subsequent to the filing of this Form 10-KSB.





                                       20
<PAGE>   23

                                   APPENDIX A

                         AUDITED FINANCIAL STATEMENTS OF
                         UNISTAR FINANCIAL SERVICE CORP.
                 AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998














<PAGE>   24


                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
UNISTAR FINANCIAL SERVICE CORP.

We have audited the accompanying consolidated balance sheet of UNISTAR FINANCIAL
SERVICE CORP. as of December 31, 1998, and the related consolidated statements
of income, other comprehensive income, stockholders' equity and cash flows for
the year ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 audit provides 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 UNISTAR FINANCIAL
SERVICE CORP. as of December 31, 1998, and the results of their operations and
their cash flows for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.

/s/ KARLINS ARNOLD & CORBITT, P.C.

KARLINS ARNOLD & CORBITT, P.C.
The Woodlands, Texas
March 9, 1999






                                      F-1
<PAGE>   25





                         UNISTAR FINANCIAL SERVICE CORP.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1998
<TABLE>

                                     ASSETS

<S>                                                                         <C>          
Equity securities available for sale, at fair value                         $     346,932
Cash                                                                            5,865,430
Finance contracts receivable, net of allowance for
     credit losses of $996,146                                                 38,453,842
Premiums due from agents and policyholders                                      1,684,575
Amounts due from reinsurers                                                       347,712
Property and equipment, at cost, less accumulated
     depreciation and amortization                                              3,535,328
Customer lists, net of accumulated amortization                                86,175,838
License, Bermuda reinsurance                                                    5,000,000
Investments                                                                     6,283,155
Other assets                                                                    1,640,280
                                                                            -------------

     TOTAL ASSETS                                                           $ 149,333,092
                                                                            =============    
                       LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Reserve for commissions and loss
     adjustment expenses                                                    $   5,340,000
Unearned premiums                                                               2,750,499
Unearned commissions and policy fees                                            6,179,651
Amount due reinsurer                                                            1,923,256
Notes payable                                                                  38,571,437
Accounts payable and accrued liabilities                                        6,675,099
Federal income tax payable                                                        989,711
State income tax payable                                                          133,244
Deferred income tax                                                             1,805,989
                                                                            -------------
      TOTAL LIABILITIES                                                        64,368,886
                                                                            =============    
Commitments and contingencies

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized
     5,000,000 shares; no shares issued or outstanding                               --
Common stock, $.01 par value, authorized 50,000,000
     shares; 24,009,372 issued and outstanding                                    240,094
Additional paid-in capital                                                     85,202,702
Accumulated other comprehensive income                                           (857,441)
Retained earnings                                                                 552,601
Less treasury stock, at cost (63,333 shares)                                     (173,750)
                                                                            -------------
   TOTAL SHAREHOLDERS' EQUITY                                                  84,964,206

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $ 149,333,092 
                                                                            =============    
</TABLE>



See notes to consolidated financial statements





                                      F-2
<PAGE>   26

                         UNISTAR FINANCIAL SERVICE CORP
                        CONSOLIDATED STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>

<S>                                                     <C>         
REVENUE

GROSS WRITTEN PREMIUMS                                  $ 35,926,300

Net commissions and fees earned                         $ 11,416,750
Finance revenue                                            3,390,478
Net realized losses                                          (20,672)
Other income, net                                            221,465
                                                        ------------
         Total revenues and other income                  15,008,021

EXPENSES
     Commissions and loss adjustment expenses              6,525,671
     Other operating expenses                              5,067,376
     Amortization of customer lists                          537,581
     Interest expense                                        852,040
                                                        ------------
         Total expenses                                   12,982,668


INCOME BEFORE PROVISION FOR INCOME TAX                     2,025,353

PROVISION FOR INCOME TAX
     Current                                               1,133,355
     Deferred                                               (154,787)
         Total income tax expense                            978,568

NET INCOME                                              $  1,046,785
                                                        ============



Basic earnings per share                                $        .05
Diluted earnings per share                              $        .05

Weighted average number of common shares outstanding:
Basic                                                     21,014,262
Diluted                                                   21,014,262
</TABLE>





See notes to consolidated financial statements.




                                      F-3
<PAGE>   27

                         UNISTAR FINANCIAL SERVICE CORP.
                 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>

<S>                                                     <C>        
NET INCOME                                              $ 1,046,785

OTHER COMPREHENSIVE INCOME
     Unrealized loss on securities available for sale    (1,389,068)
     Income tax effect on other comprehensive income        531,627
                                                           (857,441)

COMPREHENSIVE INCOME                                    $   189,344
                                                        ===========
</TABLE>



See notes to consolidated financial statements.




                                      F-4
<PAGE>   28

                         UNISTAR FINANCIAL SERVICE CORP.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>

<S>                                                  <C>         
COMMON STOCK, number of shares
     Balance, beginning of year                         3,345,000
     Reverse stock split                               (3,117,628)
     Issuance of stock:
     Acquisition of International
         Fidelity Holding Corp.                        19,777,000
     Acquisition of U.S. Fidelity
         Holding Corp.                                  3,975,000
     For services                                          30,000
                                                     ------------
     Balance, end of year                              24,009,372
                                                     ============

COMMON STOCK, consideration
     Balance, beginning of year                      $     33,450
     Reverse stock split                                  (31,176)
     Issuance of stock:
     Acquisition of International
         Fidelity Holding Corp.                           197,770
     Acquisition of U.S. Fidelity
         Holding Corp.                                     39,750
     For services                                             300
                                                     ------------
     Balance, end of year                            $    240,094
                                                     ============

ADDITIONAL PAID-IN CAPITAL
     Balance, beginning of year                      $    574,702
     Reverse stock split                                   31,176
     Issuance of stock:
     Acquisition of International
         Fidelity Holding Corp.                         2,819,292
     Acquisition of U.S. Fidelity
         Holding Corp.                                 74,501,438
     Acquisitions of Unistar Auto Insurance Agency      6,553,394
     For services                                         722,700
                                                     ------------
     Balance, end of year                              85,202,702
                                                     ============

ACCUMULATED OTHER COMPREHENSIVE INCOME
     Balance, beginning of year                      $       --
     Change in net unrealized loss on
         investments, net of tax                         (857,441)
                                                     ------------
     Balance, end of year                            $   (857,441)
                                                     ============

RETAINED EARNINGS (DEFICIT)
     Balance, beginning of year                      $   (494,184)
     Net income                                         1,046,785
                                                     ------------
     Balance, end of year                            $    552,601
                                                     ============

TREASURY STOCK
     Balance, beginning of year                      $       --
     Common shares acquired, at cost                     (173,750)
                                                     ------------
     Balance, end of year                            $   (173,750)
                                                     ============

TOTAL STOCKHOLDERS' EQUITY                           $ 84,964,206
                                                     ============
</TABLE>



 See notes to consolidated financial statements.



                                      F-5
<PAGE>   29





                         UNISTAR FINANCIAL SERVICE CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>


<S>                                                         <C>        
Cash flows from operating activities:
     Net income                                             $ 1,046,785
     Adjustments to reconcile net income to net cash
         provided by operating activities:
     Depreciation and amortization                              615,358
     Deferred income taxes                                    2,094,224
     Loss on sales of investments                                20,672
     Change in finance contract receivables                  (6,836,084)
     Change in premiums due from agents and policyholders    (1,253,885)
     Change in amount due reinsurers                            481,439
     Change in other assets                                    (279,006)
     Change in reserve for commissions and loss expenses        380,000
     Change in unearned premiums                              1,640,669
     Change in unearned commissions and policy fees           1,539,870
     Change in amount due reinsurer                          (3,251,707)
     Change in accounts payable and accrued liabilities         752,255
     Change in federal income tax payable                    (1,798,527)
     Change in state income tax payable                         133,244
                                                            -----------
         Net cash used in operating activities               (4,714,693)
                                                            -----------

Cash flows from investing activities:
     Proceeds from sales of equity securities                    72,670
     Businesses acquired in purchase transactions net of
         cash acquired                                        3,400,471
     Purchases of property and equipment                        (68,845)
     Purchase of investments                                   (243,877)
                                                            -----------
         Net cash provided by investing activities            3,160,419
                                                            -----------

Cash flows from financing activities:
     Proceeds from notes payable                              6,170,638
     Repayments of notes payable                               (441,323)
     Proceeds from sale of common stock                       1,000,000
     Purchase of treasury stock                                (173,750)
                                                            -----------
         Net cash provided by financing activities            6,555,565
                                                            -----------

Net increase in cash                                          5,001,291

Cash, beginning of year                                         864,139

Cash, end of year                                           $ 5,865,430
                                                            ===========
</TABLE>





See notes to consolidated financial statements.



                                      F-6
<PAGE>   30




                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unistar Financial Service Corp. ("Unistar" or "the Company")is a vertically
integrated insurance holding company which, through its subsidiaries controls
substantially all aspects of the auto insurance underwriting, distribution and
claims process. Through its insurance subsidiaries (U.S. Fidelity Insurance
Services), Unistar provides non-standard personal lines automobile insurance.
The Company internally processes claims made by its customers through its claims
adjusting company, Eagle Claims Corp, and offers premium financing to its own
insureds through Eagle Premium Finance Company. The Company also provides
reinsurance brokerage services, renter's insurance, collision repair, appraisal
services and other ancillary services pertinent to its operations through other
wholly-owned subsidiaries. International Surety & Casualty Company operates as a
property and casualty insurance company domiciled in the State of Texas and
reinsures non-standard automobile insurance produced and underwritten by
affiliated companies in Texas.

The accompanying consolidated financial statements include the accounts of
Unistar and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.

On August 17, 1998, the stockholders of the Company approved: (i) a Stock
Purchase Agreement, dated as of July 7, 1998 (the "IFHC Acquisition"), whereby
the Company purchased all of the issued and outstanding shares of common stock
of International Fidelity Holding Corporation, a Texas insurance holding
corporation ("IFHC"), in exchange for 19,777,000 shares of common stock, $.01
par value per share ("Common Stock"), of the Company on a post-Reverse Stock
Split basis, as defined below, (ii) an amendment to the Certificate of
Incorporation authorizing a one-for-fifteen reverse stock split of the Company's
outstanding Common Stock (the "Reverse Stock Split") and (iii) an amendment to
the Certificate of Incorporation to change the name of the Company to Unistar
Financial Service Corp. Following the closing of the IFHC Acquisition on August
17, 1998, IFHC became a wholly-owned subsidiary of the Company. The Company,
through its sole ownership of IFHC, controls IFHC's insurance subsidiary,
International Surety and Casualty Company, a Texas property and casualty
insurance corporation ("ISCC").

On September 30, 1998, the Company completed the acquisition (the "USFH
Acquisition") of the assets and operations of U.S. Fidelity Holding Corp. and
its subsidiaries (collectively, "USFH"). USFH participates in the auto insurance
industry by providing multiple non-standard auto insurance products, premium
financing and claims administration and auto collision appraisal and repair
services. The USFH Acquisition was structured as a stock-for-assets exchange,
valued at approximately $75 million, with the Company issuing 3,975,000 shares
of Common Stock in exchange for substantially all of the assets of USFH.

The IFHC Acquisition was accounted for as a reverse-takeover, meaning that for
accounting purposes IFHC was the acquirer of the Company. Therefore, the





                                      F-7
<PAGE>   31
                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)                                                         

financial results of IFHC for all of 1998 are included in the Company's
consolidated financial statements contained herein. The USFH Acquisition,
however, was accounted for as an asset purchase, therefore only the financial
results of USFH subsequent to September 30, 1998 are included in the Company's
consolidated financial statements contained herein.

Securities Available for Sale - Equity securities are classified as
"available-for-sale" as defined by SFAS 115. In accordance with that Statement,
they are reported at aggregate fair value with unrealized losses excluded from
earnings and reported as other comprehensive income, net of deferred taxes. The
cost of securities sold was determined by the average cost method.

Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation of plant and equipment is provided over the estimated useful
lives of the respective assets using the straight-line method, generally from
five to forty years.

Expenditures for additions, major renewals and betterments are capitalized and
expenditures for maintenance and repairs are charged to earnings as incurred.

When property, plant and equipment are retired or otherwise disposed of, the
cost thereof and the applicable accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is reflected in earnings.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Risks - The following is a description of the most significant risks facing the
Company and how it mitigates those risks:

     Legal/regulatory risks - the Company utilizes third party policy-issuing
insurance companies to write premium which the Company produces. These companies
are subject to legal and regulatory risks. The risk that changes in the
regulatory environment in which insurer operates will create additional expenses
not anticipated by the insurer in pricing its products. That is, regulatory
initiatives designed to reduce insurer profits, restrict underwriting practices
and risk classifications, mandate rate reductions and refunds, and new legal
theories or insurance company insolvencies through guaranty fund assessments may
create costs for the insurer beyond those recorded in the financial statements.
The Company attempts to mitigate this risk by monitoring proposed regulatory
legislation and by assessing the impact of new laws. As the Company at December
31, 1998 wrote business only in the state of Texas, it was more exposed to this
risk than some of its more geographically balanced competitors.



                                      F-8
<PAGE>   32
                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)                                                         

     Credit risk - the Company is subject to several credit risks, some of which
are the ability of agents to refund unearned commissions in the event that a
policy cancels, the ability of a premium finance customer to adhere to their
installment agreement, and solvency of it reinsurers. The Company is in the
practice of reserving a portion of each agent's commission as a contingency for
the refund of unearned commission, which reduces its exposure. In addition,
agents which do not timely remit unearned commissions lose their authority with
the Company. Premium finance contracts are strictly monitored and, via systems
automation, policies are promptly canceled for non-payment of premium finance
contracts, thereby eliminating exposure to the Company, for uncollectable
balances. The Company attempts to minimize reinsurance risk by maintaining sound
reinsurance agreements with a number of reinsurers, and by providing for any
amounts deemed uncollectible.

     Interest rate risk - the risk that interest rates will change and cause a
decrease in the value of an insurer's investments. To the extent that
liabilities come due more quickly than assets mature, an insurer might have to
sell assets prior to maturity and potentially recognize a gain or a loss. The
Company attempts to mitigate this risk by attempting to match the maturity
schedule of its assets with the expected payouts of its liabilities.

Customer Lists - Customer lists are amortized on a straight-line basis over 40
years. Management reviews, on an annual basis, the carrying value of customer
lists in order to determine whether an impairment has occurred. Impairment is
based on several factors including the Company's projection of future
undiscounted operating cash flows. If an impairment of the carrying value were
to be indicated by this review, the Company would adjust the carrying value of
goodwill to its estimated fair value.

Long-Lived Assets - The Company reviews its long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If such events or changes in circumstances are present, a loss
is recognized to the extent the carrying value of the asset is in excess of the
sum of the undiscounted cash flows expected to result from the use of the asset
and its eventual disposition.

Premium Finance - Premium finance contracts are carried at unpaid balances.
Management, considering current information and events regarding the borrowers'
ability to repay their obligations, considers a loan to be impaired when it is
probable that Unistar will be unable to collect all amounts due according to the
original contractual terms of the note agreement. When a loan, in management's
judgment, becomes impaired, interest income is subsequently recognized only to
the extent of cash payments received.

Management maintains allowances for premium finance contracts at a level which





                                      F-9
<PAGE>   33
                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)

management believes is adequate to absorb potential losses in the portfolios.
The allowances are based on an evaluation of the notes, past loss experience,
current economic conditions, volume, growth and other relevant factors.

Reserve For Unpaid Commissions And Loss Adjustment Expenses - The reserve for
unpaid commissions and loss expenses is undiscounted and represents cash-basis
estimates of reported losses and estimates based on certain actuarial
assumptions regarding the past experience of unreported losses. Estimated
amounts of salvage and subrogation are deducted from the reserve for unpaid
commissions and loss expenses. Management believes that the reserve for unpaid
commissions and loss expenses is adequate to cover the ultimate liability.
However, such estimate may be more or less than the amount ultimately paid when
the claims are finally settled.

Revenue Recognition - Premium commissions are recognized upon the approval and
payment of the insurance policy. Policy fee income are recognized ratably over
the related policy terms, based upon the estimated ultimate amounts to be paid.

Finance charges are recorded as unearned income at the beginning of installment
finance contracts with customers. Unistar recognizes finance charge income using
the effective interest rate method over the life of each contract that typically
approximates eleven months.

Reinsurance arrangements are short-duration prospective contracts for which
prepaid reinsurance premiums are amortized ratably over the related policy terms
based on the estimated ultimate amounts to be paid. Premiums ceded for contracts
with retrospective adjustment features are calculated based upon the related
estimated incurred losses and loss expenses including a provision for unreported
losses.

Contingent Reinsurance Commission - The Company's reinsurance contracts provide
ceding commissions for premiums written which are subject to adjustment. The
amount of ceding commissions is determined by the loss experience for the
reinsurance agreement term. The reinsurer provides commissions on a sliding
scale with maximum and minimum achievable levels. The reinsurer provides the
Company with the provisional commissions. The Company has recognized the
commissions based on the current loss experience for the policy year premiums.
This results in establishing a contingent liability, included in due from
reinsurers, for the excess of provisional commissions retained compared to
amounts recognized, which is subject to variation until the ultimate loss
experience is determinable.

Fair Value - The fair value of the Company's investments are estimated based on
bid prices published by financial services or quotations received from
securities dealers and is reflective of the interest rate environment that
existed as of the close of business on December 31, 1998. Changes in interest
rates subsequent to December 31, 1998 may affect the fair value of the Company's
investments.

The carrying amounts for the following financial instrument categories




                                      F-10
<PAGE>   34
                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)

approximate their fair values at December 31, 1998 because of their short-term
nature: cash and cash equivalents, finance contracts receivable, due from
reinsurers, prepaid reinsurance premiums, unearned premiums, finance contracts
payable and notes payable.

Income Taxes - Deferred income tax has been provided for the effects of
temporary differences between financial reporting and tax bases assets and
liabilities and has been measured using the enacted marginal tax rates and laws
that are currently in effect.

Cash Equivalents - Unistar considers all certificates of deposit, United States
government securities and commercial paper with original maturities of three
months or less to be cash equivalents.

Earnings per Share - Earnings per share is computed in accordance with the
Financial Accounting Standards Board (FASB) Statement No 128 "Earnings per
Share". Basic earnings per share is computed based on the weighted average
number of common shares outstanding, excluding any dilutive effects of options,
awards and convertible securities. Dilutive earnings per share is computed based
on the weighted average number of common shares outstanding plus the dilutive
effects of options, awards and convertible securities.

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                    Income           Shares         Per
                                                 (Numerator)     (Denominator)     Share
                                                  ----------     -------------     -----
<S>                                               <C>            <C>               <C> 
For the year ended December 31, 1998:
     Income per share                             $1,046,785        21,014,262      $.05

     Income per share assuming dilution           $1,046,785        21,014,262      $.05
</TABLE>



Other Comprehensive Income - In June 1997, the FASB issued SFAS 130, "Reporting
Comprehensive Income," which requires transactions that are currently reported
directly to stockholders' equity be reported in a financial statement that is
displayed as prominently as other financial statements. SFAS 130, which is
effective for fiscal years beginning after December 15, 1997, impacts disclosure
requirements only. Therefore, SFAS 130 will have no impact on the Company's
financial condition, cash flows or results of operations.

Segment Information - In June 1997, the FASB issued SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 supersedes SFAS 14,
"Financial Reporting for Segments of a Business Enterprise," and requires
companies to report financial and descriptive information about their reportable
operating segments. The financial information is required to be reported on the
basis that is used internally for evaluating segment performance and deciding
how to allocate resources to segments. SFAS 131 requires disclosure only and
will




                                      F-11
<PAGE>   35

                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



have no impact on the Company's financial condition, cash flows or results of
operations.

EQUITY SECURITIES AVAILABLE FOR SALE

Securities available for sale consist of 209,500 shares of common stock of
American Eco Corporation. These securities are valued at $1.66 per share as of
December 31, 1998, on the consolidated balance sheet, which reflects the market
value.

Proceeds and gross realized gains from the sale of securities classified as
available-for-sale for the year ended December 31, 1998 was as follows:

<TABLE>

<S>                                                          <C>     
Gross proceeds                                               $ 72,670
Gross realized loss                                          $(20,672)
</TABLE>

CASH RESTRICTIONS

At December 31, 1998, Unistar Insurance had restricted cash of approximately
$2,695,000 on deposit to comply with a trust agreement executed with Trenwick
America Reinsurance Corporation.

BUSINESS ACQUISITIONS

Effective September 30, 1998, the Company acquired substantially all of the
assets and assumed certain liabilities of U.S. Fidelity Holding Corp. The
purchase price exceed the fair value of net assets by approximately $84.1
million and has been included in customer lists.

Effective December 31, 1998, Unistar acquired the operations of independent
insurance agencies in Texas. These acquisitions were contributed to the Company
by Unistar Insurance Agencies, LLC, owned by significant stockholders of the
Company and valued at approximately $10.6 million based upon cash and note
considerations. Included in this amount is $5 million value assigned to Talon
Financial Services, LTD. ("Talon"), a Bermuda-based reinsurance brokerage
company.

The unaudited pro forma results, assuming the above acquisitions had occurred on
January 1, 1998 are as follows:

<TABLE>

<S>                                                        <C>         
Revenues                                                   $179,400,000
Net income                                                 $ 10,500,000
Basic earnings per share                                   $       0.44
</TABLE>

The unaudited pro forma summary is not necessarily indicative either of results
of operations that would have occurred had the acquisitions been made at the
beginning of the periods presented, or of future results of operations of the
combined companies.




                                      F-12
<PAGE>   36


                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


PROPERTY AND EQUIPMENT
Property and equipment consists of the following:

<TABLE>

<S>                                                           <C>       
Furniture and fixtures                                        $1,501,790
Equipment                                                        621,759
Leasehold improvements                                         1,509,656
                                                              ----------
                                                               3,633,205
Accumulated depreciation and amortization                         97,877
                                                              ----------
                                                              $3,535,328
                                                              ==========
</TABLE>

REINSURANCE

The Company reinsures (cedes) a portion of its written premiums on a quota-share
basis to nonaffiliated insurance companies in order to limit its loss exposure.
The Company also maintains coverages to limit losses from large exposures, which
the Company believes are adequate for its current volume. To the extent that
reinsuring companies are unable to meet their obligations assumed under the
reinsurance agreements, the Company remains primarily liable to its
policyholders.

The Company received approximately $5.8 million in commissions on premiums ceded
during the year ended December 31,1998. Had all of the Company's reinsurance
agreements been canceled at December 31, 1998, the Company would have returned a
total of approximately $1.6 million in contingent reinsurance commissions to its
reinsurers; in turn, its reinsurers would have returned approximately $2.7
million in unearned premiums to the Company.

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

The liability for unpaid losses and loss adjustment expenses is determined on an
individual-case basis for all incidents reported. The liability also includes
amounts for unallocated expenses, anticipated future claim development and IBNR.

Based upon consultations with the Company's independent actuarial consultants
and their statement of opinion on losses and loss adjustment expenses, the
Company believes that the liability for unpaid losses and loss adjustment
expenses is adequate to cover all claims and related expenses which may arise
from incidents reported.

NOTES PAYABLE

The following is a summary of outstanding debt at December 31, 1998:

<TABLE>

<S>                                                                                               <C>
Note payable, Perry & Co., secured demand note,
interest at prime plus 2.50% (10.25% at December
31, 1998); collateralized by finance contracts
receivable of Eagle Premium Finance Company.                                                       $34,370,450

Note payable, Deere Park Capital, Inc., due on or
before December 10, 1999, interest at 10%, due
monthly, collateralized by all assets of Unistar
Financial Services, LLC.                                                                             4,000,000

Notes payable, other.                                                                                  200,987
                                                                                                   ----------- 
                                                                                                   $38,571,437
                                                                                                   ===========      
</TABLE>





                                      F-13
<PAGE>   37






                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Eagle Premium Finance Company ("EPFC"), has a secured demand note payable to
Perry & Co., to finance automobile insurance premiums for which EPFC has
extended credit to its customers. Maximum allowable borrowings under the secured
demand note payable are $35,000,000. Under the provisions of the agreement,
Perry accepts drafts drawn on its accounts by EPFC, which are primarily the
sight drafts discussed above. In December, 1998, EPFC, among others, signed an
agreement as co-guarantors of Perry's $57,500,000 credit facility. EPFC's
guaranty is limited to the amount of outstanding indebtedness in the secured,
demand note payable to Perry.

Unistar is committed under various operating lease agreements for office space,
non-standard automobile retail selling locations and property and equipment.
Rent expense and future minimum lease payments under these agreements are not
material to the accompanying consolidated financial statements.

INCOME TAXES


A summary of the provision for income tax expense for the year ended December
31, 1998 is as follows:

<TABLE>

<S>                                                  <C>       
Current:
Federal                                              $  998,877
State                                                   134,478
                                                     ----------
                                                      1,133,355
Deferred:
Federal                                                (127,254)
State                                                   (17,133)
                                                     ----------
                                                       (154,787)
                                                     ----------
                                                     $  978,568
                                                     ==========
</TABLE>
  
The actual income tax expense differs from the "expected" income tax expense for
year ended December 31, 1998 (computed by applying U.S. federal tax rate of 34
percent to income before provision for income tax expense) as follows:

<TABLE>

<S>                                                     <C>     
Computed "expected" tax expense,
     at federal rate                                    $688,620
State tax expense                                        117,345
Goodwill                                                 182,590
Other, net                                                (9,987)
                                                        --------
Provision for income tax, as reported                   $978,568
                                                        ========
</TABLE>


Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets and liabilities as of December 31, 1998
are as follows:

<TABLE>

<S>                                                              <C>       
Deferred tax assets:
     Unrealized loss on investments available for sale              $  531,627
                                                                    ----------
      Total gross deferred tax assets                                  531,627
                                                                    ----------
Deferred tax liabilities:
     Unearned premiums                                               1,958,817
     Allowance for losses                                              337,690
     Other, net                                                         40,909
                                                                    ----------
         Total gross deferred tax liabilities                        2,337,416
                                                                    ----------
Net deferred tax liability                                          $1,805,989
                                                                    ==========
</TABLE>

                                      F-14
<PAGE>   38
                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. At December 31, 1998,
based upon the level of historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize the
benefits of these deductible differences.

STATUTORY INSURANCE ACCOUNTING PRINCIPLES

Statutory regulations generally limit the payment of cash dividends in any one
year to an amount equal to the greater of net investment income reported for the
previous calendar year or 10% of surplus as regards policyholders as of the
previous year-end. Surplus in excess of this limitation is not available for
dividends without special approval of the regulatory authorities. The Company
has no surplus available at December 31, 1998, for payment of cash dividends in
fiscal 1999.

Since August 26, 1997, ISCC has operated under Regulatory Administrative
Oversight by the Texas Department of Insurance (the "TDI"). The more significant
requirements were for ISCC to provide certain financial statements, projections
and business plans for approval and review. The TDI also required ISCC to adopt
and amend certain policies and procedures.

ISCC responded to the Texas Department of Insurance on November 3, 1997
regarding the aforementioned issues. As of December 31, 1998, management
believes they have adequately addressed all of the significant issues.

OTHER COMPREHENSIVE INCOME

Changes in other comprehensive income for the year ended December 31, 1998 are
shown below:

<TABLE>

<S>                                                           <C>       
Unrealized loss on securities
     available for sale                                       $1,389,068
Income tax benefit                                              (531,627)
                                                              ----------
Net unrealized loss on securities available for sale          $  857,441
                                                              ==========
</TABLE>


COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims and legal actions arising in the




                                      F-15
<PAGE>   39
                         UNISTAR FINANCIAL SERVICE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.

RELATED PARTY TRANSACTIONS

An Officer of Unistar leases the Dallas facility to the Company. For the year
ended December 31, 1998, Unistar incurred $67,979 for rent expense to this
officer. As of December 31, 1998, the officer owes the Company $196,470.
Additionally, a law firm for which a director of the Company is employed at was
paid approximately $197,000.

Unistar has entered into employment agreements with certain executives which
grant the executives the right to receive certain benefits, including base
salary, should such executives be terminated other than for cause.

SUBSEQUENT EVENT

In February, 1999, the Company entered a letter of intent to acquire "7/24
Insurance Services, Inc.", based in San Diego, California, which will serve as
the Company's core for expansion into the California auto insurance market.
There can be no assurance that the transaction will be consummated.

In February, 1999, the Company acquired First Grampian Premium Finance Company,
based in Tampa, Florida, to write premium finance contracts for the Company's
Florida customers.

In January, 1999,the Company acquired the assets of AMSCOT Insurance, Inc., with
19 retail auto insurance locations in Florida, to serve as the Company's core
for expansion into the Florida auto insurance market.

SEGMENT INFORMATION

The operating segments of the Company are classified into Insurance and Service.
Expense allocations are based on assumptions and estimates; stated segment
operating results would change if different methods were applied. The Company
does not allocate assets to segments.

<TABLE>
<CAPTION>
                                                                   Pretax
                                                   Revenues        Profit
                                                -------------   -------------
<S>                                             <C>             <C>          
Insurance operations                            $  10,887,780   $   1,992,716
Service operations                                  4,120,241       1,762,676
                                                -------------   -------------
     Total operations                              15,008,021       3,755,392
Interest expense and other costs                         --        (1,730,039)
                                                -------------   -------------
                                                $  15,008,021   $   2,025,353
                                                =============   =============
</TABLE>
  




                                      F-16
<PAGE>   40

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

 EXHIBIT
  NO.    DESCRIPTION
 ------- -----------     
<S>      <C>                  
   2.1   Stock Purchase Agreement, dated as of July 7, 1998, by and among
         Caldera, Inc., Marc A. Sparks, F. Jeffrey Nelson and Nicole Clayton
         Caver.(2)

   2.2   Asset Only Purchase Agreement, dated as of September 30, 1998, by and
         among Unistar Financial Service Corp., U.S. Fidelity Holding Corp. and
         Rockford Partners Ltd.(3)

   3.1   Articles of Incorporation, as amended.(1)

   3.2   Bylaws of the Registrant, as amended.(1)

   3.3   Certificate of Amendment to Certificate of Incorporation authorizing
         one-for-fifteen reverse stock split, filed with the Secretary of State
         of Delaware on August 17, 1998.(2)

   10.1* Registrant's 1998 Stock Option Plan.(2)

   16.1  Letter from BDO Dunwoody LLP regarding change in certifying
         accountant.(3)

   21.0  List of Subsidiaries.(4)

   27.0  Financial Data Schedule.(4)

   99.1  Proxy Statement for the Special Meeting of Stockholders held August 17,
         1998.(2)
</TABLE>

   *  Denotes management contract or compensatory plan.

(1)   Incorporated by reference to the Registrant's Form 10-KSB for the year
      ended December 31, 1997.

(2)   Incorporated by reference to the Registrant's Report on Form 8-K filed
      September 2, 1998.

(3)   Incorporated by reference to the Registrant's Form 10-QSB for the quarter
      ended September 30, 1998.

(4)   Filed herewith.