<PAGE>   1


                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB

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

                      For the Year Ended December 31, 1998

                       Commission file number 33-28809-A

                                 MIGRATEC, INC.
                 (Name of Small Business Issuer in its Charter)

            FLORIDA                                             65-0125664
(State or Other Jurisdiction of                              (I.R.S. Employer
 Incorporation or Organization)                             Identification No.)

      12801 NORTH STEMMONS FREEWAY, SUITE 710, FARMERS BRANCH, TEXAS 75234
                    (Address of Principal Executive Offices)

                                 (972) 969-0300
                (Issuer's Telephone Number, Including Area Code)

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

<TABLE>
<CAPTION>
        Title of Each Class                         Name of Each Exchange on Which
        to be so Registered                         Each Class is to be Registered
  ------------------------------                    ------------------------------
<S>                                                 <C>

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

  ------------------------------                    ------------------------------
</TABLE>

Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock (no par value)
                                (Title of Class)

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



<PAGE>   2


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

State issuer's revenues for its most recent fiscal year: $1,454,150

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days:

         Common Stock, no par value ("Common Stock") was the only class of
         voting stock of the Company outstanding on April 28, 1999. Based on
         the closing bid price of the Common Stock on the National Association
         of Securities Dealers, Inc., OTC Bulletin Board as reported on April
         28, 1999 ($0.3438), the aggregate market value of the 43,222,122
         shares of Common Stock held by persons other than officers, directors
         and persons known to the Company to be the beneficial owner (as that
         term is defined under the rules of the Securities and Exchange
         Commission) of more than five percent of the Common Stock on that date
         was approximately $14,859,766. By the foregoing statements, the
         Company does not intend to imply that any of these officers, directors
         or beneficial owners are affiliates of the Company or that the
         aggregate market value, as computed pursuant to rules of the
         Securities and Exchange Commission, is in any way indicative of the
         amount which could be obtained for such shares of Common Stock.

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of April 28, 1999, the
issuer had 47,428,576 shares of Common Stock, no par value, outstanding.

                                      -2-

<PAGE>   3


                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS


OTHER THAN HISTORICAL AND FACTUAL STATEMENTS, THE MATTERS AND ITEMS DISCUSSED
IN THIS ANNUAL REPORT ON FORM 10-KSB ARE FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS OF MIGRATEC, INC., AND ITS
SUBSIDIARY (COLLECTIVELY, THE "COMPANY"), MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT COULD
CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED WITH THE FORWARD- LOOKING
STATEMENTS THROUGHOUT THIS REPORT AND ARE SUMMARIZED IN THIS SECTION AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - FORWARD-LOOKING STATEMENTS - CAUTIONARY LANGUAGE."


INTRODUCTION

MigraTEC, Inc., was organized under the laws of the state of Florida on
February 24, 1989. MigraTEC, Inc., was a development stage enterprise until it
acquired a privately-owned, Texas-based company on February 29, 1996. At that
time, MigraTEC, Inc. ("MigraTEC") (then a privately-held Texas corporation)
entered into a reverse acquisition agreement with New York Acquisitions, Inc.,
a publicly-held "shell" Florida corporation. MigraTEC became a wholly- owned
subsidiary of the public company through the exchange of 11,337,432 shares on a
post-split basis of the public company's common stock for all of the
outstanding stock of MigraTEC. The name New York Acquisitions, Inc., was
amended to One Up Corporation and then subsequently to MigraTEC, Inc. For
accounting purposes, the reorganization of MigraTEC and the public company is
regarded as an acquisition by the public company of all of the outstanding
stock of MigraTEC, and is accounted for as a recapitalization of the public
company with MIGRATEC as the acquirer (a reverse acquisition).

MigraTEC, Inc. (the "Company" or "MigraTEC"), was incorporated in 1991. The
initial focus of the business was to provide contract computer programming
education services. Subsequently, several software products were developed and
sold, and the Company further diversified into consulting services and
providing assistance to clients wishing to migrate or convert their software
from the Windows operating system to the IBM OS/2 platform. Identifying the
need to automate the migration process, the Company developed its first set of
software tools for that purpose, and licensed the technology to IBM in 1993.
The IBM software license generated virtually all of the Company's revenues for
the next three years, during which the Company continued to enhance and further
automate its migration technology.

                                      -3-

<PAGE>   4


GENERAL

With the ongoing rapid development and availability of ever-advancing
technology, the process of companies continually seeking ways to upgrade their
information processing systems is taking place at an accelerating pace.

MigraTEC is a developer and provider of software technology and services which
automate the upgrade or "migration" process helping companies move their
existing software applications to new and more advanced hardware and software
platforms and which address the Year 2000 ("Y2K") challenge.

Ordinarily, the upgrade or migration process is a manual, time-consuming and
costly process. Migration avoids the business interruption, retraining and
reengineering problems created when a software application is totally replaced.
Thus, migration not only extends the productive life of existing software
applications, which have already been developed at significant cost, but also
preserves the functionality, business logic and consistency of the existing
software application, ensuring continued ease of ongoing maintenance of the
software.

MigraTEC's automated software "tools" can significantly decrease the time,
effort and cost of an upgrade or migration project. The Company believes that
the productivity of its software tools will produce a growing revenue stream
for the Company, principally produced from licensing of the tools to large
technology service organizations for use in delivering services to their own
customers.

BACKGROUND

MigraTEC's software technology has been utilized in over 400 migration
projects, facilitated either directly by the Company or through a license of
previous technology of the Company to IBM. Successful migration projects
performed by the Company include Caterpillar Inc., Ameritech Inc., USAA
Insurance, Duke Energy, Bell Sygma, The Sabre Group Inc., Payless ShoeSource
Inc., Group 1 Software Europe Ltd. and AutoTester Inc., including follow-up
projects at Duke Energy, Bell Sygma, Ameritech Inc. and The Sabre Group Inc.
The Company's Y2K technology and services have been utilized by several
companies including EDS, Metamor, Computer Horizons, The Sabre Group Inc. and
Reasoning Inc.

In order to facilitate the Company's transition from its prior dependency on
the revenues generated from the IBM software license which expired in 1996, a
new management team was brought into the Company in 1997 to implement a
turnaround plan based on developing a new generation of MigraTEC's proprietary
"core" software technology and establishing the Company as a "technology
partner" of large strategically positioned companies. Currently, MigraTEC is
focused on further developing its proprietary technology to serve as the
foundation for advanced "universal migration" software tools designed to
facilitate the transition between numerous computer languages and operating
platforms. The Company intends to utilize the enhanced technology to facilitate
its own provision of migration services and to generate revenues through the
licensing of the technology to large technical services organizations.

                                      -4-

<PAGE>   5


MARKET OVERVIEW AND STRATEGY

With rapid technological changes occurring in today's marketplace, such as the
move to the Internet, Windows and WindowsNT, the development of 64-bit
processors and operating systems, and Y2K compliance issues, management
believes that MigraTEC's proprietary software technology represents an
attractive resource for companies seeking access to technology that will allow
them to respond to these challenges and market opportunities.

The Company believes that the processes relating to the "core" portion of the
Company's technology, for which a patent application was filed in June of 1998,
can be used as the nucleus for many "best of breed" software products. To
maximize the opportunity that this "core" technology presents, the Company
formulated and has begun to execute a plan that allows it to assess market
opportunities and bring new products to market quickly at a relatively low
cost. The key steps to implement this plan have been:

      o  In April 1998 the Company retained Deloitte & Touche ("D&T") to
         conduct an in-depth analysis of the Company's "core" technology and to
         recommend potential "best of breed" products that can be developed
         from the "core" technology. This analysis confirmed that MigraTEC has
         valuable technology from which many software products or "tools" can
         be developed. The D&T analysis further identified over a dozen
         strategic market needs which can be addressed with further development
         of MigraTEC's "core" technology.

      o  In the second half of 1998 MigraTEC completed development of an
         expanded Y2K offering and began development of upgrade capabilities
         for the Sun Microsystems Solaris operating system from 32 to 64-bit.
         Initial development of the 32 to 64-bit technology was completed in
         April 1999.

      o  In the second half of 1998 MigraTEC also undertook the definition and
         development of the next generation of its migration software
         technology.

      o  The Company is currently in discussions with several large companies
         about possible joint ventures to develop additional products.

The Company believes that the further development of its technology will create
the following revenue opportunities:

      o  Funding for enhancing the Company's core technology pursuant to the
         specifications of "strategic partners."

      o  Royalties/revenue sharing produced from licensing the enhanced
         technology to "strategic partners."

      o  Revenues from software sales to "end user" customers.

      o  Revenues from expanded service offerings to be provided by the
         Company.

                                      -5-

<PAGE>   6


Larger companies such as Sun Microsystems, Oracle, IBM and EDS are seeking out
smaller technology companies like MigraTEC to form development partnerships to
address emerging market opportunities. MigraTEC is continuing to discuss
co-development opportunities with these companies and anticipates that with its
"core" technology there will be other opportunities for strategic
relationships.

The Company has recently signed a five-year agreement with EDS which licenses
MigraTEC's Y2K software to EDS and guarantees EDS access to future software
products developed by the Company. The Company has also signed agreements with
Computer Horizons, Metamor and Ctek licensing its Y2K software tool. Under the
terms of the agreements, MigraTEC will be paid an amount per line of code that
is processed using the MigraTEC2000 software tool.

The Company believes that its strategic "partnering" and co-development
strategy will provide:

      o  "Partners" that can direct development efforts towards emerging
         markets.

      o  "Partners" with extensive sales and marketing resources and a vested
         interest in getting the end product into the market.

      o  Funding necessary to expand key development efforts.

The Company believes that by concentrating on the further development of
"strategic partnerships" with large technology companies and services
providers, the Company can successfully benefit from such partners' strategic
market positions and growing customer bases.


PRODUCTS AND SERVICES

OVERVIEW

MigraTEC's proprietary technology is designed to automate a significant amount
of the upgrade or migration process by identifying critical code elements in
the software to be migrated, thereby automating a high percentage of the
changes required. In June of 1998, the Company submitted a patent application
covering certain processes relating to the "core" portion of its proprietary
software technology.

The Company is designing its software products so they can be used:

      o  by MigraTEC to provide a variety of services for its business
         customers, and

      o  by other services and/or systems integrators in order to facilitate
         their delivery of solutions and/or hardware to their customers.

                                      -6-

<PAGE>   7


"UNIVERSAL" MIGRATION TOOL

The Company is currently working on the development of a migration work bench
which is intended to be a "universal migration" software tool which will
incorporate the "core" technology already developed by the Company. This
software tool is being designed to further automate the migration of a
customer's software from a wide variety of existing operating system platforms
to a wide variety of target operating systems which should significantly
decrease the time and cost of the migration project. This should remove the
major obstacles facing most companies when making a decision with regard to
upgrading their operating systems or software applications.

The Company believes that the value of a migration work bench to a computer
hardware vendor would be immense in facilitating a "buy decision" by greatly
reducing the customer's total upgrade or migration process. The Company also
believes that a migration work bench would be extremely valuable to services
providers and systems integrators in reducing their costs and time requirements
involved in performing an upgrade or migration project. The Company believes
that there is significant potential for entering into strategic relationships
with hardware vendors, services providers and systems integrators under which
the Company can generate revenues through licensing agreements and/or
provisions of services utilizing the migration work bench. The Company is
currently in discussions with such entities regarding structuring of strategic
relationships involving the Company's technology.


32 TO 64-BIT UPGRADE TOOL

The Company recently announced the availability of its new 32 to 64-bit
technology designed to automate the upgrade process for software applications
utilizing Sun Microsystems' Solaris operating system. This represents the first
of the Company's new migration work bench tools and automates the otherwise
predominantly manual process of making changes to customers' existing software
applications so they will more fully utilize the increased capabilities of
Sun's 64-bit operating system. The Company will use the software tool in its
own 32 to 64-bit upgrade "factory" and plans to license the technology to
strategic services partners.


OTHER MIGRATION TOOLS

The Company is currently in the process of developing another 32 to 64-bit
upgrade tool for automating the upgrade of software applications running on the
Windows/Intel platform in conjunction with the anticipated release of
Microsoft's Windows2000 later this year. In addition, the Company is in the
process of developing several automated "Unix to Unix" software tools which
should be available by the end of the third quarter of 1999.

                                      -7-

<PAGE>   8


MIGRATEC2000

The first "product" to which the Company has applied its enhanced technology is
MigraTEC2000, a Y2K software tool to remediate Y2K problems for client/server
applications. The Company's MigraTEC2000 software product utilizes a parsing
technology to perform the following: (1) an inventory of the current source
code to ensure that all lines of code in the application are present for
analysis and remediation, (2) an analysis of the code to ensure that all lines
of code containing Y2K date related fields have been identified, and (3) an
automated remediation of the code pursuant to parameters and instructions
determined by the client. The patent application filed by the Company covered
the processes relating to the "core" portion of the Company's technology which
was incorporated into its MigraTEC2000 software product. Parsing technology,
which management believes is superior to scanning technologies, is a technology
that analyzes the structural relationships contained within computer program
code. The superiority that parsing technology achieves is in the identification
of not only the obvious names of program elements but also the numerous and
subtle ways in which those elements interact with each other to produce
secondary effects.

The Y2K problem arises from the widespread use of computer programs which were
programmed using two-digit year codes when calculating dates after December 31,
1999. Many "mission critical" programs do not presently have the ability to
correctly interpret and apply date codes representing the year 2000 and later.
"00" may be interpreted as the year 1900 instead of the year 2000 causing
potentially massive information processing and reporting mistakes and the
malfunction of systems which are controlled by date codes. Industries and
software applications which may be particularly affected include those related
to financial services, insurance, transportation, health care, billing,
planning and scheduling, and represent billions of lines of code containing
date-related instructions which will need to be checked and remediated. Failure
to correct Y2K problems may result in significant portions of a company's
business being inoperable.

Originally, the Y2K issue was thought to be a "mainframe only" problem. This
was due primarily to the fact that most non-mainframe (client/server) programs
had been written within the past ten years, and, thus, were thought to be Y2K
compliant. However, in reality, a significant percentage of client/server
programs are not Y2K compliant. Since most companies have just recently begun
to recognize the potential for Y2K problems in the client/server area, they
have a limited amount of time in which to bring their programs into compliance.

The Company's MigraTEC2000 software and proprietary migration software
technology have attracted the interest of several services providers including
IBM, Sun Microsystems, EDS, and Reasoning Inc., as well as others interested in
partnering opportunities. During 1998, EDS, Keane Inc., Ernst & Young, and
Reasoning Inc. evaluated MigraTEC2000. Each of these companies indicated that
MigraTEC2000 is a high-quality tool designed for the remediation of
client/server applications written in C and C++. The Company has entered into
agreements with EDS, Computer Horizons, Metamor, Ctek, and Reasoning Inc.
involving the use of MigraTEC2000, and the Company anticipates a growing volume
of relationships involving MigraTEC's software.

                                      -8-

<PAGE>   9


EMPLOYEES

As of the date hereof, the Company employs approximately 24 full time persons
and uses approximately ten contract programming consultants to expand the staff
for particular projects. None of the Company's employees are covered by
collective bargaining agreements. The Company believes its employee relations
are good.

ITEM 2.  DESCRIPTION OF PROPERTIES

The headquarters facility of the Company is located in Farmers Branch, a suburb
of Dallas, Texas, and consists of approximately 15,000 square feet. The lease
on the office space extends through April 2000, and the current annual rental
is approximately $128,000.

ITEM 3.  LEGAL PROCEEDINGS

On July 24, 1998, Carroll Independent School District filed suit against the
Company in District Court, Tarrant County, Texas, seeking payment for unpaid
business personal property taxes in the amount of $79,657, plus attorney's
fees, court costs, penalties and interest (Carroll Independent School District
v. One Up Corporation, Cause No. L-14690). The case is presently awaiting
trial, which has been set for May 22, 1999, as the Company continues its
efforts to settle the suit.

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

Not applicable.

                                      -9-

<PAGE>   10


                                    PART II


ITEM 5.  MARKET  FOR COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS

The Company's Common Stock has been traded on the NASDAQ Over-The-Counter
("OTC") Bulletin Board since June 14, 1996. The predecessor to the Company was
acquired by an inactive public company on February 29, 1996. The following
table sets forth, for the periods indicated, the high and low closing bid
prices for the Company's Common Stock on the OTC Bulletin Board. On April 28,
1999, the closing price for the Company's Common Stock on the OTC Bulletin
Board was $0.3438 per share. At April 28, 1999, the Company had 47,428,576
shares of Common Stock outstanding.

<TABLE>
<CAPTION>
                                                     High                   Low
                                                   --------               --------

<S>                                                <C>                    <C>     
                   First Quarter 1998              $   0.70               $   0.35
                   Second Quarter 1998             $   0.60               $   0.35
                   Third Quarter 1998              $   0.40               $ 0.1875
                   Fourth Quarter 1998             $ 0.2656               $ 0.1406
                   First Quarter 1999              $ 0.4375               $  0.125
                   Second Quarter 1999 through
                     April 30, 1999                $ 0.4062               $ 0.2812
</TABLE>

The Company does not currently pay dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. It is the present policy
of the Company's Board of Directors to retain earnings, if any, to finance the
expansion of the Company's business. The Company's Transfer Agent for its
Common Stock is Interwest Transfer Company, Inc., which is located in Salt Lake
City, Utah.

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

RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations
of MigraTEC should be read in conjunction with the audited consolidated
financial statements of MigraTEC included elsewhere herein.

Although the Company experienced significant losses for 1998, 1997 and 1996,
management believes it is important to note the growing opportunity for
MigraTEC to sell its automated migration products and services based on the
rapid growth and changes occurring in today's marketplace, as well as
increasing market demand for migration products and services. Management
believes, that by capitalizing on this opportunity, revenues and earnings will
increase throughout 1999, although no assurances can be given regarding such
increase.

                                     -10-

<PAGE>   11


Management believes that the net loss posted for the year ended December 31,
1998, was in part due to expenditures for reengineering the Company's business
and shifting its strategic approach to exploiting its technology through
strategic partnerships. In addition to its first new product line
(MigraTEC2000), the Company now has a second new product line (a 32 to 64-Bit
Upgrade Tool) to sell, and intends to have two additional migration services
ready for sale in the second quarter of 1999. This leads management to believe
that the Company can achieve profitability by the end of 1999, although no
assurances can be given regarding such improvement.

YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997

Revenues

During 1998, the Company's sales revenues decreased by approximately 29% to
$1,454,150, compared to $2,045,607 for 1997. This decrease was primarily
attributable to the Company focusing its efforts on utilizing its technology by
developing agreements with strategic partners involving licensing and service
arrangements related to MigraTEC2000 as a foundation for future revenue growth.
Licensing and service revenue related to MigraTEC2000 approximated $605,878
during 1998. Service revenue from non-related MigraTEC2000 products and
services was $848,272 and $2,045,607 for 1998 and 1997, respectively.

Operating Expenses

The Company's total operating expenses increased by approximately 5% to
$4,741,330 during 1998, compared to $4,500,640 for 1997. Labor costs, including
benefits and insurance, decreased by approximately 20% to $2,197,511 compared
to $2,756,621, respectively for 1998 and 1997. This decrease primarily resulted
from a reduction in the labor force during the second and third quarters of
1998. General and administrative expenses decreased to $273,178 from $345,690,
primarily resulting from decreased expenditures for employee recruiting fees
and moving expenses (related to relocating the Company's principal offices in
1997). Advertising and marketing increased to $97,029 for 1998 compared to
$17,086 in 1997. Travel decreased to $15,973 for 1998 compared to $39,749 in
1997. Rent expense decreased to $127,800 for 1998, compared to $186,899 in
1997, attributable primarily to decreased monthly office rent due to the
Company's move in April of 1997 from its facilities located in Westlake, Texas,
to a smaller and less costly location in Farmers Branch, Texas. Depreciation
and amortization decreased to $156,167 in 1998, compared to $233,962 in 1997,
as a result of asset abandonments and retirements. Legal and professional fees
increased to $409,206 in 1998, compared to $211,936 in 1997, primarily due to
increased legal costs resulting from various litigation in which the Company
was involved. The decrease in labor costs was offset by a majority of the
expenditures for the Year 2000 program (which are comprised primarily of labor
costs). Year 2000 program costs of $1,462,741 incurred in 1998 consists of
labor costs and various other expenses related to the development and marketing
of the Company's Year 2000 tool set, as well as research and development
related to the development of other migration tools. Such costs for 1997
totaled $293,604, and were incurred only during the fourth quarter of 1997. As
a percentage of revenues, total operating expenses increased to 326% for 1998,
compared to 220% for 1997, primarily attributable to decreased revenues and
increased operating expenses as previously discussed.

                                     -11-

<PAGE>   12


Other Income and Expenses

The Company recognized interest income of $9,102 in 1998 relating to the
interest earned on cash balances invested in short-term certificates of
deposit. Interest expense (which includes loan origination fees) increased to
$234,534 in 1998, compared to $156,175 in 1997. This increase was primarily due
to (i) amortization of discount related to the Senior Secured Promissory Notes,
(ii) higher interest and loan fees connected with obtaining short-term
financing, (iii) interest on shareholder loans, and (iv) finance charges
assessed by trade creditors for late payment of accounts payable. Also, the
Company incurred financing fees of $139,783, of which $67,588 relates to the
amortized portion of fees paid in 1997 in connection with the issuance of the
Senior Secured Promissory Notes and $72,195 relates to stock purchase warrants
issued with debt.

Income Taxes

As a result of operating losses for 1998 and 1997, the Company has not had a
federal income tax obligation. At December 31, 1998, the Company had a total
net operating loss of approximately $7,450,000. The net operating loss
carryover generated for the year ended December 31, 1998, will expire in 2013.

Extraordinary Item

The Company recognized a gain of $282,999 in 1998 related to the forgiveness of
debt. This gain relates to reductions in amounts due to various vendors through
renegotiation of terms.

For the year ended December 31, 1998, MigraTEC incurred a net loss of
$3,458,075, or $0.086 per share, as compared with a net loss of $2,517,606, or
$0.094 per share, for the year ended December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used by operating activities was $3,611,131 for 1998, which resulted
from the operating loss, increased by net changes in assets and liabilities and
non-cash expenses and income of $239,659. This compares to net cash used by
operating activities of $2,153,297 for 1997, which resulted primarily from the
operating loss offset partially by net changes in assets and liabilities and
non-cash expenses and income of $364,309.

At December 31, 1998, the Company had a net working capital deficit of
$1,491,000, compared to a net working capital deficit of $1,563,162 at December
31, 1997.

At December 31, 1998, the Company had cash of $17,389 and $289,268 in
outstanding accounts receivable ($279,268 billed and $10,000 unbilled), all of
which is considered fully collectible.

                                     -12-

<PAGE>   13


At December 31, 1998, the Company's outstanding debt obligations included (i)
$150,000 in short-term loans from an outside investment group, (ii) $86,603 in
other notes payable relating to settlement of vendor lawsuits previously filed,
(iii) $1,087,141 in Senior Secured Promissory Notes (net of $25,359 unamortized
discount), and (iv) $30,000 in advances from an officer/ shareholder.

During 1998, the Company received proceeds of $3,620,244 from financing
activities. The Company collected (1) $4,844,250 in connection with the
issuance of Common Stock (of which $275,000 was from debt conversion) and (2)
$961,500 in proceeds from short-term loans from a bank, various outside
investment groups, directors, and an officer/shareholder. The cash proceeds
were offset by (1) $740,000 paid for the purchase of 9,400,000 shares of
treasury stock and (2) $1,332,543 expended for the repayment of principal of
short-term loans from a bank, various outside investment groups, directors and
an office/shareholder, shareholder advances and obligations under capital
lease.

The Company continues to actively work with trade creditors to negotiate
settlements regarding outstanding accounts payable on terms favorable to the
Company. As of the filing of this report, during 1997 and 1998 the Company has
been successful in settling $802,568 in outstanding accounts payable for
approximately $357,244, thereby saving the Company just over $445,324.

To continue to fund its operations for 1999, the Company has (1) completed a
private offering during March 1999 which yielded gross proceeds of $241,313
(unaudited), (2) entered into several short-term notes payable during the first
quarter of 1999 with outside investment groups, including one director and one
shareholder, totaling $447,500 (unaudited), and (3) received gross proceeds of
$47,537 (unaudited) for the exercise of warrants relating to various short-term
notes payable and the exercise of consultant and employee stock options. Most
recently, the Company has begun the process of obtaining additional capital
through a private offering whereby the Company plans to issue up to 6,000,000
shares of its Common Stock at $0.125 per share. In addition, if needed, the
Company is considering issuing additional equity through a private offering
during the second half of 1999 in an amount sufficient to meet the Company's
current operating expenses until such time that product revenues begin to ramp
up.

While much remains to be accomplished, the Company has made significant
progress towards stabilization. While the success of the Company will in part
depend upon its ability to market and sell its products and services,
management believes that the successful implementation of its plan to shift the
Company's strategic approach to exploiting its technology through strategic
relationships should move the Company forward with a focus on achieving
profitability by the end of 1999. The anticipated increase in revenues coupled
with a continued emphasis on controlling costs should position the Company to
achieve improved results for 1999. However, there can be no assurance that the
Company will generate an increase in revenues or earnings, or achieve improved
operating performance or results.

                                     -13-

<PAGE>   14


RISK FACTORS

This Form 10-KSB contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in or incorporated by reference into
this Form 10-KSB, are forward-looking statements. In addition, when used in
this document, the words "anticipate," "estimate," "project" and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations will prove to have
been correct.

Among the key factors that could cause actual results to differ materially from
expectations, estimates of costs, projected results or anticipated results are
the risk that the Company will be unable to generate sufficient cash flows to
fund operations or to obtain additional financing on favorable terms, the risk
that the Company will be unable to effectively penetrate its target markets for
migration products and services and Y2K product sales, the risk that new
untested management will be unable to successfully implement the business plan
and sales strategy, and the risk of unfavorable changes in economic and
industry conditions, as well as changes in regulatory requirements. The Company
has also made certain assumptions relating to its operations and the industry
in general. All written or oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by, but not limited to, the factors described above.

RECENT OPERATING LOSSES

The Company began active operations in January 1991, and while it has
experienced certain periods of profitability since its inception, the Company
has sustained substantial losses in recent times. For the years ended December
31, 1998, 1997 and 1996, the Company incurred net losses of $3,458,075,
$2,517,606 and $3,717,152, respectively. At December 31, 1998, the Company had
an accumulated deficit of $7,454,109. Results of operations in the future will
be influenced by numerous factors including technological developments, further
development of the Company's proprietary software products and services,
expansion of the Company's marketing program, capacity to further identify
itself as a Y2K and migrations solutions provider, ability to control increases
in expenses associated with sales growth, obtaining substantial additional
funding, market acceptance of the Company's products and services, the capacity
of the Company to expand and maintain the quality of its software migration
products, competition and the ability to attract and maintain a skilled and
cohesive management group, and the ability of the Company to control costs. In
addition, the Company will be subjected to all the risks incident to a rapidly
developing and technologically oriented business with only a limited history of
operations. See "Financial Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

                                     -14-

<PAGE>   15


LIMITED OPERATING HISTORY; GOING CONCERN QUALIFICATION IN INDEPENDENT
ACCOUNTANT'S REPORT

The Company has only a limited operating history upon which an evaluation of
the Company's performance and prospects can be made. The Company's prospects
must be considered in light of the numerous risks, expenses, delays, problems
and difficulties frequently encountered in the establishment of a new business
in industries characterized by emerging markets and products entailing high
levels of technological obsolescence, as well as intense competition and
regulation. Accordingly, there can be no assurance that the Company will be
able to successfully manage and expand, increase its revenues, attract
sufficient funding and develop profitable operations to offset the risks
inherent in the establishment of an expanding technology oriented business. As
a result of the aforementioned conditions and deficiencies, the Company's
independent certified public accountants included an explanatory paragraph in
their report dated April 19, 1999, indicating that such conditions raise
substantial doubt about the Company's ability to continue as a going concern.
See "Management's Discussion and Analysis of Financial Conditions and Results
of Operations" and "Financial Statements."

SIGNIFICANT CAPITAL REQUIREMENTS

The Company's capital requirements have been and will continue to be
significant due to the substantial costs associated with product development
and refinement, recruitment of skilled personnel and the marketing of
innovative software products and related services primarily to large
established corporations and other corporations. The Company's cash
requirements for purposes of developing its products have been substantial,
and, as a result, the Company is dependent upon capital resources provided by
investors in order to finance its operations. Based upon the Company's
currently proposed plans and assumptions relating to its current business plan,
the Company anticipates that it has sufficient cash requirements for three
months as of the date hereof. In the event the Company's products are not
developed and refined on a timely basis, contracts for the provision of
products and technology are not consummated in sufficient number, or in the
event the Company's current resources otherwise prove to be insufficient for
the implementation of the Company's business plan and working capital
requirements, the Company will be required to seek additional financing. The
Company has no current arrangements with respect to, or potential sources of,
additional financing, and it is not anticipated that existing shareholders will
satisfy any portion of the Company's future financing requirements. There can
be no assurance that any additional financing will be available to the Company
when needed, on commercially reasonable terms, or at all. Any inability to
obtain additional financing when needed would have a material adverse affect on
the Company, including the curtailment of its product development, marketing
and expansion activities. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."

RISKS ASSOCIATED WITH Y2K PRODUCTS

The Company believes that there will continue to be a market for its Y2K
software products based on pressure for companies and others to rewrite old
computer codes and convert computer systems to use new codes that acknowledge
the year 2000. Failure to successfully implement such programs for any reason,
whether or not attributable to the Company or its Y2K products,

                                      -15-

<PAGE>   16


could result in substantial exposure to the Company. While MigraTEC includes in
its contractual terms for the provision of its Y2K products various provisions
which limit its liability in the event that client companies are not able to
successfully implement Y2K conversions and adjustments, there can be no
assurances that customers confronting adverse economic conditions might not
seek to circumvent such limitations or that third parties affected by
unsuccessful implementation programs will not seek financial remedies against
the Company. Given the uncertainty of implementing Y2K programs, the Company
could find itself as a significant target of litigation in the future.

Furthermore, the Company anticipates that the competition for technical
personnel will increase substantially as companies continue to hire technical
personnel and consultants to perform services to implement Y2K solutions and
other technology enhancements. Such increased competition could materially and
adversely affect the Company's ability to attract and retain qualified
technical personnel in the future. Moreover, the Company expects that Y2K
projects will peak prior to calendar year 2000 as companies address their Y2K
needs, leaving the Company more dependent upon its more recently developed
technology and services. Thereafter, the availability of a substantial number
of information technology personnel formerly engaged in Y2K projects could have
a material adverse affect on the Company, including reducing the demand for the
Company's services, increasing competition for available customer engagements
and creating downward pressure on pricing for the Company's services and
products.

UNCERTAINTY OF MARKET ACCEPTANCE

Developing market acceptance for the Company's existing and proposed products
and services will require substantial marketing and sales efforts and the
expenditure of a significant amount of funds to inform customers as to the
benefits and cost advantages of the Company's services and products as well as
to achieve name recognition. Although the Company's strategy is to principally
rely on the marketing efforts and market presence of its "partners," there can
be no assurance that the Company will be able to successfully develop or
position its products or services, or that any marketing efforts undertaken by
the Company or its "partners" will result in increased demand for or market
acceptance of the Company's products and services.

RAPID TECHNOLOGY CHANGE

The software development industry in which the Company competes, as well as the
computer industry as a whole, is subject to rapid technological change and
obsolescence. In order for the Company to compete effectively, it must offer
products which receive customer and consumer acceptance and fulfill customer
and industry needs. To the extent that the Company is unable to keep pace with
technological advances and enhancements comparable to and competitive with
those made by others in the industry, the Company's products may become
obsolete. There can be no assurances that the Company's products will not be
rendered obsolete by changing technology or that the Company will be able to
respond to advances in technology or changes in customer or consumer needs in a
commercially feasible manner.

                                     -16-

<PAGE>   17


DEPENDENCE ON KEY PERSONNEL

The success of the Company will be largely dependent on the efforts of the
members of the management of the Company, particularly W. Curtis Overstreet,
its President and Chief Executive Officer, and Benjamin Swirsky, its Chairman.
Although the Company has entered into employment agreements with various
members of the management, including all officers of the Company, there can be
no assurance that such persons will continue their employment with the Company.
The loss of the services of one or more of such key personnel would have a
material adverse effect on the Company's ability to maximize its use of its
products and technologies or to develop related products and technologies. The
success of the Company also is dependent upon its ability to hire and retain
additional qualified executive, programming, engineering and marketing
personnel. There can be no assurance that the Company will be able to hire or
retain such necessary personnel.

RECRUITMENT AND RETENTION OF INFORMATION TECHNOLOGY PROFESSIONALS

The Company's business involves delivering services and products and remains
partially labor intensive. The Company's success depends upon its ability to
attract, develop, motivate and retain highly skilled information technology
consultants possessing the technical skills and experience necessary to meet
customer needs. Qualified information technology personnel are in high demand
worldwide and are likely to remain a limited resource for the foreseeable
future. The shortage of information technology professionals has in the past
and is likely in the future to result in wage inflation. The Company competes
for such individuals with general information technology service firms,
temporary staffing and personnel placement companies, general management
consulting firms, major accounting firms, divisions of large hardware and
software companies, systems consulting and implementation firms, programming
companies and niche providers of information technology services. There can be
no assurance that qualified information technology personnel will continue to
be available to the Company in sufficient numbers, or that the Company will be
successful in retaining current or future employees and consultants. Failure to
attract or retain qualified information technology personnel in sufficient
numbers could have a material adverse affect on the Company's business,
operating results and financial condition.

SUBSTANTIAL INDEBTEDNESS

The Company's operations have been financed in part from short-term and
long-term indebtedness provided by shareholders and others. The Company is
obligated to repay the Senior Secured Promissory Notes in the principal amount
of $1,112,500 on July 1, 1999. In the absence of sufficient financing, the
Company may be materially adversely affected by the requirement to repay the
Notes since it may not have use of such funds to either sustain or to continue
the development of its operations. If the Company is unable to secure
additional financing or to generate sufficient cash flow from operations to
meet scheduled or unscheduled debt payments, there can be no assurance that the
Company will be able to repay or restructure such indebtedness, and any default
on its debt would have a material adverse effect on the Company. See "Financial
Statements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

                                     -17-

<PAGE>   18


OTHER LIABILITY RISKS

The Company is exposed to liability risks with respect to other products and
services provided by the Company, such as damages caused by errors of MigraTEC
personnel and possible misuse of client proprietary information. Although the
Company maintains insurance coverage, due to the nature of the Company's
projects and engagements, there can be no assurance that such insurance
coverage will continue to be available on reasonable terms or that it will be
adequate to cover any such liability. Furthermore, many of the Company's
contracts involve projects that are critical to its customers' business or
products, and the benefits provided by the Company may be difficult to
quantify. The Company's failure or inability to meet a client's expectations in
the execution of its services or the provision of its products could result in
a material adverse effect on the Company's business or products and, therefore,
could give rise to claims against the Company or damage to the Company's
reputation, which might adversely affect its business, operating results and
financial condition.

PRODUCT DEVELOPMENT RISKS

The Company's business is, to a large degree, subject to continued updating of
existing technology, enhancing current application software migration products
and development of new products and services. Product enhancement and
development involves a high degree of risk, and there is no assurance that
development efforts of the Company will be successful or, if successful, that
such efforts can be completed on a cost effective and timely basis. Additional
funds may be necessary to develop or enhance a product, and there can be no
assurance that such funds will be available upon acceptable terms. Finally,
there is no assurance that, once a product has been developed, it will be
accepted in the marketplace, will be commercially successful, or will not be
rendered technologically obsolete soon after its development.

COMPETITION

The Company is engaged in a highly competitive segment of the data processing
industry. The Company competes, directly or indirectly, with a large number of
companies providing various levels of services or products comparable with
those provided by the Company. MigraTEC competes with many firms which provide
products and services similar to the Company's current and proposed offerings.
Most of these competitors have capital, name recognition and financial,
personnel and other resources far greater than those of MigraTEC. The Company's
ability to compete effectively will depend, in part, upon its systems'
features, their cost effectiveness, the ability of the Company to maintain
state-of-the-art technology, the ability of the Company to service its products
efficiently and the Company's success in marketing and selling such products
and services. No assurance can be given that the Company will effectively
compete within its market.

Industry standards with respect to the markets for the technology and products
being developed by the Company are continually evolving, which often results in
product obsolescence or short product life cycles. Accordingly, the ability of
the Company to compete will depend on its ability to complete development and
introduce into the marketplace its proposed products and

                                     -18-

<PAGE>   19


technology, to continually enhance and improve its products and technology in a
timely manner, to adapt its proposed products in order to be compatible with
specific products manufactured by others, and to successfully develop and
market new products and technology. There can be no assurance that the Company
will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable, or that the Company will
be able to successfully enhance its proposed products or technology or adapt
them satisfactorily.


DIFFICULTIES IN MAINTAINING PROPRIETARY RIGHTS

The Company's success is dependent upon its proprietary applications software
technology, which may be difficult to protect. The Company currently relies on
a combination of contractual rights, trade secrets, know-how, trademarks,
patents, nondisclosure agreements and technical knowledge to establish and
protect its proprietary rights. There can be no assurance, however, that the
measures taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of the technology or independent
development by others of products with features based upon, or otherwise
similar to, those of the Company's products. Additionally, although the Company
believes that its technology has been independently developed and does not
infringe on the proprietary rights or trade secrets of others, there can be no
assurance that the Company's technology does not and will not so infringe, or
that third parties will not assert infringement claims, trade secret
violations, competitive torts or other proprietary rights violations against
the Company in the future. In the case of infringement, the Company could,
under certain circumstances, be required to modify its products or obtain
licenses, which would likely require cash or other consideration. There can be
no assurance that the Company would be able to do either in a timely manner or
upon acceptable terms and conditions, and such failure could have a material
adverse effect on the Company. In addition, there can be no assurance that the
Company will have the resources to defend or prosecute a patent infringement or
other proprietary rights infringement action.


NO ASSURANCE OF PROTECTION FOR PROPRIETARY RIGHTS; RELIANCE ON TRADE SECRETS

The Company will seek to maintain its proprietary rights by patents, trade
secret protection and by the use of nondisclosure and restrictive covenant
agreements with its employees. While the Company has taken legal precautions to
protect its interests, there can be no assurance that meaningful proprietary
protection can be attained, that the Company will be able to enter into or
enforce patents and agreements which restrict competitive activities of its
employees, or that various individuals trained by the Company may not seek to
engage in competitive activities subsequent to their employment by the Company.
The Company has filed a patent application on its MigraTEC2000 technology.
While the Company believes that, if granted, this patent would provide
protection for its technology, there can be no assurance that any patent will
issue.

                                     -19-

<PAGE>   20


NO DIVIDENDS ANTICIPATED TO BE PAID

The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends in the foreseeable
future. The future payment of dividends is directly dependent upon future
earnings of the Company, the capital requirements of the Company, its financial
requirements, and other factors to be determined by the Company's Board of
Directors. For the foreseeable future, it is anticipated that earnings, if any,
which may be generated from the Company's operations will be used to finance
the growth of the Company, and that cash dividends will not be paid to Common
Stock shareholders.

POSSIBLE RESALES OF SECURITIES BY CURRENT SHAREHOLDERS AND DEPRESSIVE EFFECT ON
MARKET

At April 30, 1998, 27,370,962 shares of the Company's Common Stock outstanding
are "restricted securities" as that term is defined by Rule 144 under the
Securities Act of 1933 as amended. Certain of such shares will be eligible for
public sale only if registered under the Securities Act or if sold in
accordance with Rule 144. Under Rule 144, a person who has held restricted
securities for a period of one year may sell a limited number of shares to the
public in ordinary brokerage transactions. Sales under Rule 144 may have a
depressive effect on the market price of the Company's Common Stock due to the
potential increased number of publicly held securities. The timing and amount
of sales of Common Stock could have a depressive effect on the market price of
the Company's Common Stock.

LIMITED MARKET FOR THE COMPANY'S COMMON STOCK; POSSIBLE VOLATILITY OF
SECURITIES PRICES

There is currently only a limited trading market for the Common Stock of the
Company. The Common Stock of the Company trades on the OTC Bulletin Board under
the symbol "MIGR," which is a limited market and subject to substantial
restrictions and limitations in comparison to the NASDAQ System. There can be
no assurance that a substantial trading market will develop (or be sustained,
if developed) for the Company's Common Stock, or that purchasers will be able
to resell their securities or otherwise liquidate their investment without
considerable delay, if at all. Recent history relating to the market prices of
newly public companies indicates that, from time to time, there may be
significant volatility in the market price of the Company's securities because
of factors unrelated, as well as related, to the Company's operating
performance. There can be no assurances that the Company's Common Stock will
ever qualify for inclusion within the NASDAQ System, or that more than a
limited market will ever develop for its Common Stock.

BROKER-DEALER SALES OF COMMON STOCK AND LIMITATION ON MARKETABILITY; POSSIBLE
FAILURE TO QUALIFY FOR NASDAQ SMALLCAP MARKET LISTING

The Company's Common Stock is not presently included for trading on the NASDAQ
System, and there can be no assurances that the Company will ultimately qualify
for inclusion within that system. The Nasdaq Stock Market, Inc., has recently
adopted certain changes to the entry and maintenance criteria for listing
eligibility on The Nasdaq SmallCap Market. The entry standards now require at
least $4 million in net tangible assets or $750,000 in net income in two of the
last

                                     -20-

<PAGE>   21


three years. The entry standards also require a public float of at least one
million shares, a $5 million market value of public float, a minimum bid price
of $4.00 per share, at least three market makers, and at least 300 round lot
shareholders. The newly enacted maintenance standards (as opposed to entry
standards) require at least $2 million in net tangible assets or $500,000 in
net income in two of the last three years, a public float of at least 500,000
shares, a $1 million market value of public float, a minimum bid price of $1.00
per share, at least two market makers, and at least 300 round lot shareholders.
The Company currently does not meet the minimum NASDAQ (SmallCap) financial
criteria and no assurance can be given that the Common Stock of the Company
will ever qualify for inclusion on the NASDAQ System. Until the Company's
shares qualify for inclusion in the NASDAQ System, the Company's Common Stock
will be traded in the over-the-counter markets on the OTC Bulletin Board. As a
result, the Company's Common Stock is covered by a Securities and Exchange
Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in
excess of $5 million or individuals with net worth in excess of $1 million or
annual income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and may
also affect the ability of shareholders to sell their shares in the secondary
market.

POSSIBLE APPLICABILITY OF RULES RELATING TO LOW PRICED STOCK

Any shares which trade under $5.00 per share are considered Penny Stock. In the
event that the share price of the Company's stock does not reach $5.00 per
share, these shares will be subject to the Penny Stock Rules promulgated under
the Securities Exchange Act of 1934. These rules regulate broker-dealer
practices in connection with transactions in "Penny Stocks." Penny Stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
Penny Stock Rules require a broker-dealer, prior to a transaction in a Penny
Stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about Penny Stocks and the nature
and level of risks in the Penny Stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the Penny Stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each Penny Stock
held in the customer's account. The bid and offer quotations, and the
broker-dealer and salesperson compensation information, must be given to the
customer orally or in writing prior to effecting the transaction and must be
given to the customer in writing before or with the customer's confirmation.

In addition, the Penny Stock Rules require that prior to a transaction in a
Penny Stock not otherwise exempt from such rules, the broker and/or dealer must
make a special written determination that the Penny Stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the

                                     -21-

<PAGE>   22


effect of reducing the level of purchases in the instant offering and trading
activity in the secondary market for the Company's Common Stock. If the
Company's Shares are, or become, subject to the Penny Stock Rules, investors in
this offering may find it more difficult to sell such securities.

ANTI-TAKEOVER PROVISIONS

The Board of Directors has the authority to issue 1,000,000 shares of
Redeemable Convertible 12% Preferred Stock (the "Redeemable Preferred Stock"),
none of which are outstanding, and to fix the dividends, liquidation,
conversion, redemption and other rights, preferences and limitations of such
shares without any further vote or action of the shareholders. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
Redeemable Preferred Stock, as well as other preferred stock, with dividend,
liquidation, conversion voting or other rights which could adversely affect the
voting power or the rights of the holders of the Company's Common Stock. In the
event of issuance, any class of preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in the control of the Company. Furthermore, certain provisions of the
Company's Articles of Incorporation and Bylaws may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt of the
Company. In addition, certain provisions of the Florida Business Corporation
Act also may be deemed to have certain anti-takeover effects.

LIMITATION OF LIABILITY

The Florida Business Corporation Act provides that a director is not personally
liable for monetary damages to the Company or any other person for breach of
fiduciary duty, except under very limited circumstances. Such a provision makes
it more difficult to assert a claim and obtain damages from a director in the
event of his non-intentional breach of fiduciary duty.

ITEM 7.  FINANCIAL STATEMENTS

The financial statements are included under Item 13 (a) of this Report.


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

Not applicable.

                                     -22-

<PAGE>   23


                                    PART III


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

The following table sets forth the names, ages and positions with the Company
of the executive officers and directors of the Company. Directors will be
elected at the Company's annual meeting of shareholders and serve for one year
or until their successors are elected and qualify. Officers are elected by the
Board and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board.

<TABLE>
<CAPTION>
             Name                   Age           Position with the Company
    --------------------            ---           ---------------------------------------

<S>                                  <C>          <C>
    W. Curtis Overstreet             53           President, Chief Executive Officer and
                                                       Director

    Benjamin Swirsky (1)(2)          57           Chairman of the Board and Director

    Rick J. Johnson                  40           Chief Operating Officer

    Mark C. Myers                    45           Chief Financial Officer, Secretary and
                                                       General Counsel

    Joseph B. Meredith               44           Vice President of Business Development

    Deane C. Watson, Jr. (1)(2)      52           Director

    Marcus R. Rowan (2)              38           Vice Chairman of the Board and Director

    Richard A. Gray, Jr. (1)         51           Director
</TABLE>

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

    (1) Member of the Audit Committee.

    (2) Member of the Compensation Committee.

W. CURTIS OVERSTREET. Mr. Overstreet was appointed President and Chief
Executive Officer of MigraTEC, Inc., and elected to the Board of Directors on
April 14, 1997. Prior to his appointment as President, Mr. Overstreet served as
a consultant to Company management for several weeks, during which time he
reviewed the Company's management and technical expertise, the status of
current client projects, the prospects for future contracts and also analyzed
the Company's financial situation. The review and analysis of this information
and data was used to prepare the new business plan for the Company. From
October 1994 to March 1997, Mr. Overstreet served as Regional Vice President
for Software AG, based in Dallas, Texas. Prior thereto, from January 1992 to
October 1994, Mr. Overstreet served as President of the Dallas-based company
which he founded, AutoTester, Inc. From August 1987 to October 1992, Mr.
Overstreet served as Executive Vice President for Software Recording
Corporation, based in Dallas, Texas. From August 1982 to August 1987, Mr.
Overstreet served as Executive Vice President of the Company he founded,
PetroWare, based in Dallas, Texas. From May 1976 to August 1982, Mr. Overstreet
served as President of the Amarillo-based company which he founded, Computer
Software Resources. Prior thereto, from February 1968 to May 1976, Mr.
Overstreet was Systems Engineer/Marketing Representative for IBM at their
offices located in Amarillo, Texas.

                                     -23-

<PAGE>   24


BENJAMIN SWIRSKY. Mr. Swirsky was elected to the Board of Directors in July
1997, and subsequently was elected Chairman in December 1997. Currently, Mr.
Swirsky is serving as Chairman and CEO of Nextel Group Inc., a
telecommunications company headquartered in Toronto, Canada. From 1993 to 1998,
Mr. Swirsky served as the President and CEO of Slater Steel, Inc., a
diversified industrial company with investments in steel production, service,
forging and hardware and trucking industries. Slater Steel is headquartered in
Toronto, Ontario, and conducts operations in Canada and the United States. From
1978 to 1993, Mr. Swirsky served in the various capacities of President, CEO
and Vice Chairman of Bramalea, one of North America's largest real estate
development companies. Prior thereto, from 1968 to 1978, Mr. Swirsky was
employed by Peat, Marwick, Mitchell, Chartered Accountants, ultimately becoming
a senior partner and a member of the executive committee. Mr. Swirsky currently
serves on the boards of directors of Visual Data Inc., Four Seasons Hotels
Inc., P.C. Docs Inc., Cam Vec Inc., Commercial Alcohols Inc., and Easy Access
Inc.

RICK J. JOHNSON. Mr. Johnson was appointed Chief Operating Officer of MigraTEC,
Inc., on July 1, 1997, and served as Secretary of the Company from July 1997
through March 1998. From January to March 1997, Mr. Johnson served as Director
of Operations Support - Integrated Business Solutions and thereafter also
Director of Applications Solutions for Software AG, based in Dallas, Texas.
Prior thereto, from January 1995 to December 1996, Mr. Johnson served as
Business Manager - West U.S. Area for that company. From February 1982 to
January 1995, Mr. Johnson served in various consulting and management
capacities with Andersen Consulting and its predecessor division at Arthur
Andersen & Co., based in Dallas, Texas.

MARK C. MYERS. Mr. Myers was appointed to the position of Chief Financial
Officer, General Counsel and Secretary of MigraTEC, Inc., on April 1, 1998.
From 1996 to 1997, Mr. Myers served as COO and CFO for Interactive Software,
Inc., an Oracle software consulting services and software sales company, based
in Dallas, Texas. Prior thereto, Mr. Myers served in numerous executive
capacities including President of Healthtronix from 1992 to 1996, President and
founder of United Medicorp, Inc., a high-tech medical insurance claim
processing and consulting company, from 1989 to 1992, President of Premier
Services, Inc., from 1986 to 1989, Vice President and General Counsel for ARM,
Inc., from 1985 to 1986, Assistant General Counsel and Director of Regulatory
Affairs for U.S. Telephone from 1982 to 1985, and a practicing attorney for
Moseley, Jones, Enoch & Martin from 1980 to 1982.

JOSEPH B. MEREDITH. Mr. Meredith was appointed Vice President of Business
Development of MigraTEC, Inc., on June 2, 1997. From January 1995 to May 1997,
Mr. Meredith served as Account Executive for Software AG, based in Dallas,
Texas. Prior thereto, from August 1993 to November 1994, Mr. Meredith served as
Director of Business Development for BSG Corporation, based in Houston, Texas.
From May 1986 to August 1993, Mr. Meredith was Senior Account Executive for EDS
Corporation located in Dallas, Texas. From October 1982 to April 1986, Mr.
Meredith served as Regional Vice President for Parker North America Corporation
headquartered in Newport Beach, California.

DEANE C. WATSON, JR. Mr. Watson was elected to the Board of Directors in March
1998. Currently, Mr. Watson is a practicing attorney in general business
practice with an emphasis in oil and gas, real estate and collections. Since
1992, Mr. Watson has also served as President and

                                     -24-

<PAGE>   25


Managing Director of Omega Energy Corporation, an oil and gas production
company. Prior thereto, Mr. Watson has served in numerous other capacities
including residential builder/developer from 1986 to 1989, independent
petroleum landman from 1989 to 1992 and from 1980 to 1986, and Vice
President/Escrow Officer of Chicago Title Company from 1973 to 1980.

MARCUS R. ROWAN. Mr. Rowan was elected to the Board of Directors as both Vice
Chairman and Director in April 1998. Presently, Mr. Rowan serves as President
of Berkshire Interests, a commercial real estate property development and
investments firm, headquartered in Dallas, Texas. Previously, Mr. Rowan has
served in other capacities with an emphasis in commercial real estate,
including commercial real estate broker for Helmsley-Spear Inc. located in New
York, New York, and Henry S. Miller Company located in Dallas, Texas. Mr. Rowan
currently serves on the board of directors of American Electromedics
Corporation.

RICHARD A. GRAY, JR. Mr. Gray was elected to the Board of Directors in April
1998. From 1986 to the present, Mr. Gray has served as President of Gray & Co.
Realtors, Inc., a commercial real estate company involved in the sale,
development and management of real estate for both Asian and U.S. markets. Gray
& Co. Realtors, Inc., is headquartered in Dallas, Texas, and conducts
operations mainly in the Pacific Rim (Hong Kong, China, Philippines, Vietnam
and Thailand) and the United States. Prior thereto, from 1974 to 1986, Mr. Gray
was a partner of Hudson & Hudson, a commercial real estate company located in
Dallas, Texas.

Each director is elected to hold office until the next annual meeting of
shareholders or until his successor is elected and qualified. The officers of
the Company serve at the pleasure of the Company's board of directors.

There are no family relationships among any of the executive officers or
directors of the Company.

BOARD COMMITTEES

Effective December 16, 1997, the Company established a Compensation Committee
and an Audit Committee.

The Compensation Committee, being comprised of a majority of independent
directors, will administer the Company's stock option plan and make
recommendations to the full Board of Directors concerning compensation,
including incentive arrangements, of the Company's officers and key employees.
Currently, members of the Compensation Committee include Benjamin Swirsky,
Deane C. Watson, Jr., and Marcus R. Rowan.

The Audit Committee, being comprised of a majority of independent directors,
will review the engagement of the independent accountants and review the
independence of the accounting firm. The Audit Committee will also review the
audit and non-audit fees of the independent accountants and the adequacy of the
Company's internal accounting controls. Currently, members of the Compensation
Committee include Benjamin Swirsky, Deane C. Watson, Jr., and Richard A. Gray,
Jr.

                                     -25-

<PAGE>   26


BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file with the
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors
and greater than ten percent (10%) stockholders are required by Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Due to recent changes in management and certain ambiguity as to whether
the Company's Common Stock was registered under Section 12(g) of the Securities
Exchange Act of 1934, Messrs. W. Curtis Overstreet, H. Wayne Sanderson,
Benjamin Swirsky, Rick J. Johnson, Mark C. Myers, Joseph B. Meredith, Deane C.
Watson, Jr., Marcus R. Rowan, and Richard A. Gray, Jr., were late in filing
their Initial Report of Beneficial Ownership. In addition, Mr. Richard G. Dews,
a former member of management, has failed to file such report.

To the Company's knowledge, except as indicated above, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
(10%) beneficial owners were completed.

ITEM 10. EXECUTIVE COMPENSATION

Total cash compensation paid to all executive officers as a group for services
provided to the Company in all capacities during the year ended December 31,
1998, aggregated to $535,382. Set forth below is a summary compensation table
in the tabular format specified in the applicable rules of the Securities and
Exchange Commission.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                 Other                                               All
       Name and                                                  Annual      Restricted                             Other
       Principal                                                 Compen-        Stock      Options/      LTIP       Compen-
       Position           Period      Salary        Bonus        sation        Award(s)    SARs (#)     Payouts     sation
       --------           ------      ------        -----        ------        --------    --------     -------     ------

<S>                        <C>      <C>           <C>           <C>           <C>          <C>             <C>     <C>      
 W. Curtis Overstreet,     1998     $ 132,917     $      --     $  28,404     $      --    6,000,000       --      $      --
 President, CEO and        1997     $  64,442     $  48,000     $   5,483     $      --           --       --      $  29,500
 Director                  1996     $      --     $      --     $      --     $      --           --       --      $      --

 Rick J. Johnson, COO      1998     $ 121,833     $      --     $      --     $      --    1,500,000       --      $      --
                           1997     $  62,500     $  15,000     $      --     $      --           --       --      $      --
                           1996     $      --     $      --     $      --     $      --           --       --      $      --

 Mark C. Myers, CFO        1998     $  87,500     $      --     $      --     $  15,369      900,000       --      $      --
 and Secretary             1997     $      --     $      --     $      --     $      --           --       --      $      --
                           1996     $      --     $      --     $      --     $      --           --       --      $      --

 Joseph B. Meredith,       1998     $  85,667     $      --     $  16,061     $      --    1,200,000       --      $      --
 V.P. of Business          1997     $  43,750     $      --     $  14,656     $      --           --       --      $      --
 Development               1996     $      --     $      --     $      --     $      --           --       --      $      --

 Richard G. Dews,          1998     $      --     $      --     $      --     $      --           --       --      $      --
 Former President,         1997     $   1,500     $      --     $      --     $      --           --       --      $      --
 CEO and Chairman          1996     $ 145,636     $      --     $      --     $  63,650           --       --      $      --
 </TABLE>

                                     -26-

<PAGE>   27


Employment Agreements

On April 14, 1997, the Company entered into an employment agreement with its
President and Chief Executive Officer. The agreement includes provisions for an
annual base salary (currently $140,000), with incentives to earn salary
increases and bonuses to be determined by and subject to discretion of the
Board of Directors.

On July 1, 1997, the Company entered into an employment agreement with its
Chief Operating Officer. The agreement includes provisions for an annual base
salary (currently $117,000), with incentives to earn salary increases and
bonuses to be determined by and subject to discretion of the Board of
Directors.

On April 1, 1998, the Company entered into an employment agreement with its
Chief Financial Officer. The agreement includes provisions for an annual base
salary (currently $112,500), with incentives to earn salary increases and
bonuses to be determined by and subject to discretion of the Board of
Directors.

On June 2, 1997, the Company entered into an employment agreement with its Vice
President of Business Development. The agreement includes provisions for an
annual base salary (currently $88,000), with incentives to earn salary
increases and bonuses to be determined by and subject to discretion of the
Board of Directors, as well as sales commissions ranging from 2% to 4% of sales
as stipulated in the agreement.


OPTION EXERCISES AND VALUES AT YEAR END

              AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                                                                    Value of
                                                                             Number of             Unexercised
                                                                            Unexercised           In-the-Money
                                                                           Options/SARs           Options/SARs
                                Shares                                     at FY-End (#)            at FY-End
                              Acquired on               Value              Exercisable/           Exercisable/
         Name                Exercise (#)             Realized             Unexercisable          Unexercisable
------------------------ ---------------------- ---------------------- ---------------------- ----------------------

<S>                                <C>                   <C>            <C>                      <C>
W. Curtis Overstreet               -                     $ -            4,000,000/2,000,000      $800,000/$400,000

Rick J. Johnson                    -                     $ -            1,000,000/500,000        $200,000/$100,000

Mark C. Myers                      -                     $ -              337,500/562,500        $ 67,500/$112,500

Joseph B. Meredith                 -                     $ -              800,000/400,000        $160,000/$80,000

Richard G. Dews                    -                     $ -              600,000/     --        $150,000/$    --
</TABLE>

Effective April 1, 1998, pursuant to the terms of a one year employment
agreement, the Company granted options to purchase 900,000 shares of the
Company's Common Stock at an exercise price of $0.20 per share to its Chief
Financial Officer. The options vest at the rate of 1/24 per month beginning
April 1, 1998, and are exercisable at vesting at any time during employment.

                                     -27-

<PAGE>   28


Effective May 1, 1998, the Company granted stock options to three officers to
purchase an aggregate of 8,700,000 shares of the Company's Common Stock at
$0.20 per share. The options were 50% vested at May 1, 1998, and vest an
additional 1/24 at the end of each month thereafter. Vested options are
exercisable at any time during employment. These new options replace those
which had been previously granted, and have been canceled, during the second
quarter of 1997 to the three officers at per share prices ranging from $0.31 to
$0.37, and which contained an anti-dilutive clause that increased the number of
options available for exercise upon recapitalization, stock split, stock
dividend, or issuance of stock below fair market value. These new options
contain no such anti-dilutive clause. In addition, the options previously
granted vested over a shorter period of time, and would have been fully vested
by June 13, 1999. At April 15, 1998, the number of options that would have been
available to the three officers pursuant to the canceled second quarter 1997
grant totaled approximately 6,000,000.

Effective May 1, 1998, the Company granted stock options to four directors to
purchase an aggregate of 4,300,000 shares of the Company's Common Stock at
$0.20 per share. The options vest 1/24 at the end of each month beginning May
1, 1998, and expire on May 31, 2002. Approximately one-half of these new
options replace those that had been previously granted to the chairman of the
board and another director during the second quarter of 1997. The options
previously granted (which were to purchase an aggregate of 75,000 shares of the
Company's Common Stock at $0.35 per share, were fully vested at date of grant,
and expired after three years) have been canceled.

EMPLOYEE STOCK PURCHASE PLAN

In April 1997, management announced plans to terminate the Employee Stock
Purchase Plan that the Company had adopted effective July 1, 1996. As a result,
employees who were participating in the Stock Purchase Plan terminated their
participation effective April 1, 1997, and all amounts previously withheld for
the second quarter 1997 were refunded to the participants.

EMPLOYEE STOCK OPTION PLAN

In 1997, the Company adopted a new stock option plan, the 1997 Stock Option
Plan, authorizing the issuance of incentive stock options, non-statutory
options and reload options to eligible persons as described in the Plan.
Pursuant to the Plan, the Company granted stock options during 1998 as follows:

    (i)   to one individual who was employed as of January 1, 1998, to purchase
          192,000 shares of the Company's Common Stock at $0.41 per share. The
          options vest at a rate of 1/48 each month, are exercisable at
          vesting, and expire one year after fully vested;

    (ii)  to seven individuals who were employed as of May 1, 1998, to purchase
          69,600 shares of the Company's Common Stock at $0.53 per share. The
          options vest at a rate of 1/48 each month, are exercisable at
          vesting, and expire one year after fully vested;

    (iii) to 20 individuals who were employed as of September 1, 1998, to
          purchase 787,392 shares of the Company's Common Stock at $0.23 per
          share. The options vest at a rate of 1/48 each month, are exercisable
          at vesting, and expire one year after fully vested;

                                     -28-

<PAGE>   29


    (iv)  to nine employees who were hired subsequent to January 1, 1998, to
          purchase 137,800 shares of the Company's Common Stock at prices
          ranging from $0.67 to $0.1562 per share. The options are vested 6.25%
          ninety days after each employee's date of hire, vest an additional
          1/48 each month thereafter, are exercisable at vesting, and expire
          one year after fully vested.

Subsequent to December 31, 1998, management terminated the 1997 Stock Option
Plan which had not been approved by the Company's shareholders within the time
specified in the 1997 Plan. Therefore, all of the outstanding options issued
pursuant to the 1997 Plan have been canceled. Effective March 1, 1999, the
Company adopted a new stock option plan, the 1999 Stock Option Plan,
authorizing the issuance of incentive stock options, non-statutory options and
reload options to eligible persons as described in the 1999 Plan. Pursuant to
the 1999 Plan, as of the date hereof, the Company has granted to members of its
management and employees options to purchase an aggregate of 1,435,936 shares
of Common Stock of the Company exercisable at prices ranging from $0.3438 to
$0.1875 per share.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth Common Stock ownership as of April 28, 1999,
with respect to (i) each person known to the Company to be the beneficial owner
of five percent (5%) or more of the Company's outstanding Common Stock, (ii)
each director of the Company, and (iii) all executive officers and directors of
the Company as a group. This information as to beneficial ownership was
furnished to the Company by or on behalf of the persons named. Unless otherwise
indicated, the business address of each person is 12801 North Stemmons Freeway,
Suite 710, Farmers Branch, Texas 75234. Information with respect to the percent
of class is based on 47,428,576 shares of the Company's Common Stock issued and
outstanding as of April 28, 1999.

<TABLE>
<CAPTION>
                                   Shares                                  
                                Beneficially          Percentage of Shares    
            Name                   Owned              Beneficially Owned     
  ---------------------------    ----------        --------------------

<S>                              <C>                      <C>            
  W. Curtis Overstreet(3)         4,750,000                7.15           
  Benjamin Swirsky (4)            1,397,500                2.10           
  Deane C. Watson, Jr.(5)         1,478,560                2.23           
  Marcus R. Rowan(6)              2,502,417                3.77           
  Richard A. Gray, Jr.(7)         2,833,333                4.27           
  Directors and Officers as a
       group (8 persons)(8)      16,023,037               24.13           
</TABLE>

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

(1)      Unless otherwise indicated below, the address of each person is c/o
         the Company at 12801 North Stemmons Freeway, Suite 710, Farmers
         Branch, Texas 75234. Unless otherwise noted, the Company believes that
         all persons named in the table have sole voting and investment power
         with respect to all the shares of Common Stock beneficially owned by
         them.

                                     -29-

<PAGE>   30


(2)      A person is deemed to be the beneficial owner of securities that can
         be acquired by such person within 60 days from the date of this Form
         10-KSB upon the exercise of warrants or options. Each beneficial
         owner's percentage ownership is determined by assuming that warrants
         or options that are held by such person (but not those held by any
         other person) and that are exercisable within 60 days from the date of
         this Form 10-KSB have been exercised.

(3)      Mr. Overstreet is the Company's current President and CEO, as well as
         a Director. Includes 4,750,000 shares of Common Stock underlying
         options exercisable until May 31, 2000, at an exercise price of $0.20
         per share.

(4)      Mr. Swirsky is the Company's current Chairman. Includes 897,500 shares
         of Common Stock underlying options and warrants exercisable until May
         31, 2002, at an exercise price of $0.20 per share.

(5)      Mr. Watson is a Director of the Company. Includes: (i) 583,333 shares
         of Common Stock underlying options and warrants exercisable until May
         31, 2002, at an exercise price of $0.20 per share, (ii) 100,000 shares
         of Common Stock underlying warrants exercisable until January 29,
         2000, at an exercise price of $0.01 per share, (iii) 200,000 shares of
         Common Stock owned by The Watson Family Trust, and (iv) 100,000 shares
         of Common Stock owned by The Watson Family Trust underlying warrants
         exercisable until September 9, 2001, at an exercise price of $0.10 per
         share.

(6)      Mr. Rowan is the Company's current Vice Chairman. Includes 2,102,417
         shares of Common Stock underlying options and warrants exercisable
         until May 31, 2002, at an exercise price of $0.20 per share.

(7)      Mr. Gray is a Director of the Company. Includes: (i) 583,333 shares of
         Common Stock underlying options and warrants exercisable until May 31,
         2002, at an exercise price of $0.20 per share, (ii) 100,000 shares of
         Common Stock owned by Mr. Gray's spouse, and (iii) 100,000 shares of
         Common Stock owned by The Gray Family Trust.

(8)      Includes: (i) 11,616,583 shares of Common Stock underlying options and
         warrants exercisable until May 31, 2002, at an exercise price of $0.20
         per share, (ii) 100,000 shares of Common Stock underlying warrants
         exercisable until January 29, 2000, at an exercise price of $0.01 per
         share, (iii) 200,000 shares of Common Stock owned by The Watson Family
         Trust, (iv) 100,000 shares of Common Stock owned by Mr. Gray's spouse,
         (v) 100,000 shares of Common Stock owned by The Gray Family Trust, and
         (vi) 100,000 shares of Common Stock owned by The Watson Family Trust
         underlying warrants exercisable until September 9, 2001, at an
         exercise price of $0.10 per share.

                                     -30-

<PAGE>   31


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During January and February of 1998, the Company entered into short-term notes
payable with three directors with varying terms and maturities totaling
$254,000. Additional terms and conditions of the loan agreements included (1) a
conversion feature whereby the loans could be converted to shares of the
Company's Common Stock at $0.20 per share and (2) the issuance of warrants to
purchase an aggregate of 175,000 shares of the Company's Common Stock at prices
ranging from $0.20 to $0.01 per share. On March 26, 1998, the Company issued
1,000,000 shares of its Common Stock to the three directors in connection with
the first March 1998 private offering and pursuant to the conversion feature
contained in the loan agreements. The remaining balance of the notes payable
not converted and accrued interest were paid in full effective April 22, 1998.
Subsequent to December 31, 1998, on March 30 and 31, 1999, the Company issued
75,000 shares of its commons stock to two of the directors as a result of the
exercise of warrants to purchase shares at $0.20 per share.

In addition to the directors discussed above, the Company issued 500,000 shares
of its Common Stock to a director/shareholder at $0.20 per share under terms of
the first March 1998 private offering which commenced March 9, 1998.

Effective March 25, 1998, the Company reached an agreement with its former
principal executive officer, Mr. Richard G. Dews, regarding actions of Mr. Dews
as Chairman and CEO, efforts by Mr. Dews to sell shares of the Company's Common
Stock, originally acquired and restricted pursuant to Rule 144 of the Act, and
claims made against the Company by Mr. Dews totaling approximately $640,000.
Pursuant to the agreement, which was finalized on March 31, 1998, (1) the
Company acquired from Mr. Dews 9,400,000 shares of the Company's Common Stock
for $740,000, (2) the Company agreed to file a registration statement or take
other appropriate steps to allow free trading of the remaining shares owned by
Mr. Dews, (3) the Company issued to Mr. Dews a transferable warrant to purchase
up to 600,000 shares of the Company's unregistered and free trading Common
Stock, subject to Section 144 rules and regulations, at $0.25 per share, (4)
the Company paid to Mr. Dews $60,000 in full satisfaction, including principal
and accrued interest, of amounts previously loaned to the Company by Mr. Dews,
(5) the Company released Mr. Dews from all claims arising from or relating to
the employment of Mr. Dews or the promissory note from the Company to Mr. Dews,
(6) Mr. Dews released the Company from all claims, estimated by Mr. Dews to
total approximately $640,000, arising from or relating to the employment of Mr.
Dews or the promissory note from the Company to Mr. Dews, including back wages
relating to accrued but unused vacation pay, and (7) pursuant to a promissory
note dated March 25, 1998, no stated interest, the Company agreed to pay to
Marilyn Johnson the amount of $68,250 in installments of $1,000 for 68 months
on the tenth of each month beginning April 10, 1998, with the final payment of
$250 being due on December 10, 2003. Attorney fees paid by the Company as a
result of negotiating the settlement with Mr. Dews were comprised of (1) the
transfer of 390,454 shares of the Company's Common Stock and (2) $210,523 paid
in cash. One-half of the attorney fees paid related to this settlement were
paid to a director of the Company, acting in the capacity of the Company's
legal counsel.

                                     -31-

<PAGE>   32


In addition to the attorney fees discussed above, for the year ended December
31, 1998, the Company incurred fees totaling $37,639 related to legal services
which were provided by a director of the Company acting in the capacity of the
Company's legal counsel.

Effective July 1, 1998, the Company granted, to three directors, who had either
been involved as Placement Agents in the two March 1998 private stock offerings
or who had furnished consulting services to the Company, stock warrants to
purchase an aggregate of 1,683,250 shares of the Company's Common Stock at
$0.20 per share. The warrants were fully vested at the date of grant, and are
exercisable on or before July 1, 2001.

Effective November 27, 1998, the Company entered into a short-term loan
agreement whereby an officer/shareholder loaned the Company $30,000, bearing
interest at 16% per annum, payable December 31, 1998. Additional terms and
conditions of the loan agreement included payment of a $600 loan origination
fee and issuance of a two-year warrant to purchase 3,000 shares of the
Company's Common Stock at $0.01 per share. As of December 31, 1998, accrued
expenses includes $1,060 in interest, including the loan origination fee.
Subsequent to December 31, 1998, the loan, including accrued interest, was paid
in full, and the warrant was exercised effective February 8, 1999.

During 1998, the Company paid fees totaling $24,584 to four directors in their
capacity as directors.

Subsequent to December 31, 1998, effective January 29, 1999, the Company
entered into a short-term loan agreement whereby an officer/shareholder loaned
the Company $30,000, bearing interest at 16% per annum. Additional terms and
conditions of the loan agreement included payment of a $600 loan origination
fee and issuance of a two-year warrant to purchase 3,000 shares of the
Company's Common Stock at $0.01 per share. The loan, including accrued
interest, was paid in full, on March 15, 1999, and the warrant was exercised
effective February 8, 1999.

Subsequent to December 31, 1998, effective February 8, 1999, the Company
entered into a short-term loan agreement whereby a director/shareholder loaned
the Company $25,000, bearing interest at 10% per annum, payable February 8,
2000. Additional terms and conditions of the loan agreement included the
issuance of a two-year warrant to purchase 50,000 shares of the Company's
Common Stock at $0.01 per share. The warrant was exercised effective February
25, 1999.

Subsequent to December 31, 1998, effective March 15, 1999, the Company issued
160,000 shares of its Common Stock to an officer/shareholder at $0.125 per
share under terms of a private offering. In a related transaction, the Company
granted to the officer/shareholder a two-year warrant to purchase 32,000 shares
of its Common Stock at $0.20 per share.

                                     -32-

<PAGE>   33


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Financial Statements

         The financial statements listed on the index to financial statements
         on Page F-1 are filed as part of this Form 10-KSB.

(c)      Exhibits

         3.1      Articles of Incorporation, as amended (1)

         3.2      By-Laws (1)

         4.1      Form of Common Stock Certificate (1)

         10.1     Agreement for the Exchange of Common Stock between New York
                  Acquisitions Inc. and MigraTEC Inc. (formerly One Up
                  Corporation) dated February 29, 1996 (1)

         10.2     Commercial Lease Agreement between the Company and TDC Dallas
                  Partners No. 2 Ltd. dated April 7, 1997 (1)

         10.3     Employment Agreement between the Company and W. Curtis
                  Overstreet dated April 10, 1997 (1)

         10.4     Employment Agreement between the Company and Joseph B.
                  Meredith dated June 1, 1997 (1)

         10.5     Employment Agreement between the Company and Rick J. Johnson
                  dated July 1, 1997 (1)

         10.6     Employment Agreement between the Company and Mark C. Myers
                  dated April 1, 1998 (1)

         10.7     Settlement Agreement between the Company and Richard G. Dews
                  dated March 25, 1998 (1)

         10.8     Strategic Product Assessment Report prepared for the Company
                  by Deloitte & Touche Consulting Group dated April 6, 1998 (1)

         10.9     Agreement between the Company and Reasoning Inc. dated August
                  4, 1998 (1)

         10.10    Agreement between the Company and Electronic Data Systems
                  Corporation dated September 1, 1998 (1)

                                     -33-

<PAGE>   34


         24.1     Power of Attorney relating to the signing of amendments
                  hereto is incorporated in the signature pages of this Form
                  10-KSB

         27.1     Financial Data Schedule (2)

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

              (1) Incorporated by reference from Post-Effective Amendment No. 1
                  to the Company's Registration Statement on Form SB-2 dated
                  May 7, 1999, File No. 333-65093.

              (2) Filed herewith.

                                     -34-

<PAGE>   35


                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized on this 12th day of May, 1999.

                                       MIGRATEC, INC.

                                       By: /s/ W. CURTIS OVERSTREET
                                           -------------------------------------
                                           W. Curtis Overstreet, President
                                           and Chief Executive Officer

In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant, and in the capacities and on the
date indicated.

<TABLE>
<S>                                      <C>                                    <C>
By: /s/ W. CURTIS OVERSTREET                                                    05/12/99
    -------------------------------                                            ----------
    W. Curtis Overstreet                 President, Chief Executive             Dated
                                         Officer, Principal Executive
                                         Officer, and Director

By: /s/ BENJAMIN SWIRSKY                                                        05/12/99
    -------------------------------                                            ----------
    Benjamin Swirsky                     Chairman of the Board and              Dated
                                         Director

By: /s/ RICK J. JOHNSON                                                         05/12/99
    -------------------------------                                            ----------
    Rick J. Johnson                      Chief Operating Officer                Dated


By: /s/ MARK C. MYERS                                                           05/12/99
    -------------------------------                                            ----------
    Mark C. Myers                        Chief Financial Officer,               Dated
                                         Principal Financial Officer,
                                         and Secretary

By: /s/ CYNTHIA K. ALDERMAN                                                     05/12/99
    -------------------------------                                            ----------
    Cynthia K. Alderman                  Chief Accounting Officer               Dated


By: /s/ DEANE WATSON, JR.                                                       05/12/99
    -------------------------------                                            ----------
    Deane Watson, Jr.                    Director                               Dated


By: /s/ MARCUS R. ROWAN                                                         05/12/99
    -------------------------------                                            ----------
    Marcus R. Rowan                      Vice Chairman of the Board             Dated
                                         and Director

By: /s/ RICHARD A. GRAY, JR.                                                    05/12/99
    -------------------------------                                            ----------
    Richard A. Gray, Jr.                 Director                               Dated
</TABLE>
<PAGE>   36


                   ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K


(a)      Financial Statements

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----

<S>                                                                                               <C>
Report of Independent Certified Public Accountants                                                F-2

Financial Statements

         Consolidated Balance Sheets                                                              F-3

         Consolidated Statements of Operations                                                    F-4

         Consolidated Statements of Stockholders' Deficit                                         F-5

         Consolidated Statements of Cash Flows                                                    F-6

         Notes to Consolidated Financial Statements                                               F-7
                                                                                                through
                                                                                                  F-26

EXHIBITS

(11)     Computations of Net Loss Per Share                                                       F-27
</TABLE>

                                      F-1

<PAGE>   37


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
MigraTEC, Inc.

We have audited the consolidated balance sheets of MigraTEC, Inc. and
Subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
then ended. 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MigraTEC, Inc. and
Subsidiary as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company's losses in 1998 and 1997, net capital deficiency,
amounts due in the short term under notes payable, and the outstanding
contingencies raise substantial doubt about the Company's ability to continue
as a going concern. Management plans as to these matters are also described in
Note 3. The financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and classifications
of liabilities that might result from the outcome of the uncertainty.



                                       KING GRIFFIN & ADAMSON P.C.


Dallas, Texas
April 19, 1999

                                      F-2

<PAGE>   38


                        MIGRATEC, INC. AND SUBSIDIARY
                          Consolidated Balance Sheets
                           December 31, 1998 and 1997

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

 CURRENT ASSETS
      Cash                                                                               $    17,389         $     4,076
      Accounts receivable - billed, net of allowance for
           doubtful accounts of $0 and $123,720 respectively                                 279,268             394,755
      Accounts receivable - unbilled                                                          10,000                  --
      Shareholder advance                                                                      3,766               3,766
      Restricted cash                                                                             --              28,150
      Deferred tax asset                                                                          --               9,024
      Other current assets                                                                    29,624              16,600
                                                                                         -----------         -----------
           Total current assets                                                              340,047             456,371

 PROPERTY AND EQUIPMENT, NET                                                                 198,702             452,555

 OTHER ASSETS
      Financing fees                                                                          33,794             101,382
      Other assets                                                                            21,548              21,548
                                                                                         -----------         -----------
           Total other assets                                                                 55,342             122,930
                                                                                         -----------         -----------

           Total Assets                                                                  $   594,091         $ 1,031,856
                                                                                         ===========         ===========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
 CURRENT LIABILITIES
      Cash overdraft                                                                     $        --         $   112,963
      Notes payable, net of discount of $25,359 and $0, respectively,
           including $30,000 and $63,276, respectively, due to shareholders                1,297,579             338,276
      Transfer liability                                                                          --             187,500
      Accounts payable
                                                                                             347,294             779,904
      Accrued expenses                                                                       159,069             404,258
      Obligation under capital lease                                                          27,105              25,267
      Customer deposits in excess of unbilled receivables                                         --             171,365
                                                                                         -----------         -----------
           Total current liabilities                                                       1,831,047           2,019,533

 LONG-TERM LIABILITIES
      Long-term portion of notes payable, net of discount of $0 and $76,077,
 respectively                                                                                 56,165           1,036,423
      Long-term portion of obligation under capital lease                                     14,283              41,388
      Deferred tax liability                                                                      --               9,024
                                                                                         -----------         -----------
           Total long-term liabilities                                                        70,448           1,086,835

 MINORITY INTEREST                                                                            (3,752)             (3,752)

 COMMITMENTS AND CONTINGENCIES (NOTES 3, 10, AND 16)

 REDEEMABLE CONVERTIBLE 12%  PREFERRED STOCK; $1,000  PAR VALUE; 1,000,000
      SHARES AUTHORIZED; REDEEMABLE AT PAR VALUE PLUS CUMULATIVE DIVIDENDS;
      NONE ISSUED OR OUTSTANDING                                                                  --                  --

 STOCKHOLDERS'  DEFICIT
      Common stock; no par value; 200,000,000 shares authorized;
           54,421,618 and 30,199,154 shares issued in 1998 and 1997, respectively          7,041,890           2,197,640
      Additional paid-in capital                                                             886,458             796,263
      Treasury stock, at cost (9,864,449 and 854,903 shares, respectively)                (1,777,891)         (1,068,629)
      Accumulated deficit                                                                 (7,454,109)         (3,996,034)
                                                                                         -----------         -----------
           Total stockholders' deficit                                                    (1,303,652)         (2,070,760)
                                                                                         -----------         -----------
           Total Liabilities and Stockholders'  Deficit                                  $   594,091         $ 1,031,856
                                                                                         ===========         ===========
 </TABLE>


       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-3

<PAGE>   39


                        MIGRATEC, INC. AND SUBSIDIARY
                     Consolidated Statements of Operations
                     Years Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                           1998                 1997
                                                                                       ------------         ------------

<S>                                                                                    <C>                  <C>         
 REVENUES                                                                              $  1,454,150         $  2,045,607

 COSTS AND EXPENSES
      Salaries and benefits                                                               1,626,335            2,084,146
      Contract labor                                                                        571,176              672,475
      General and administrative                                                            273,178              345,690
      Advertising and marketing                                                              97,029               17,086
      Travel                                                                                 15,973               39,749
      Rent                                                                                  127,800              186,899
      Depreciation and amortization                                                         156,167              233,962
      Legal and professional fees                                                           409,206              211,936
      Year 2000 program costs                                                             1,462,741              293,604
      Provision for contract losses                                                              --                6,800
      Bad debt expense                                                                        1,725              123,720
      Loss on release of assets                                                                  --              284,573
                                                                                       ------------         ------------
           Total operating expenses                                                       4,741,330            4,500,640
                                                                                       ------------         ------------
      Loss from operations                                                               (3,287,180)          (2,455,033)

 OTHER INCOME (EXPENSES)
      Interest income                                                                         9,102                1,281
      Miscellaneous income                                                                    4,807                   --
      Interest expense                                                                     (234,534)            (156,175)
      Financing fees                                                                       (120,363)            (108,806)
      Financing fees, related parties                                                       (19,420)                  --
      Gain (loss) on sale of assets                                                         (93,486)               8,392
                                                                                       ------------         ------------
           Total other income (expenses)                                                   (453,894)            (255,308)
      Minority interest in (income) loss of consolidated subsidiary                              --                9,384
                                                                                       ------------         ------------

      Loss before income taxes and extraordinary item                                    (3,741,074)          (2,700,957)

      Provision for income tax expense (benefit)                                                 --                   --
                                                                                       ------------         ------------

      Net loss before extraordinary item                                                 (3,741,074)          (2,700,957)

      Extraordinary income from forgiveness of debt (net of income taxes of $0)             282,999              183,351
                                                                                       ------------         ------------

      Net loss                                                                         $ (3,458,075)        $ (2,517,606)
                                                                                       ============         ============


 Loss before extraordinary item per common share                                       $     (0.093)        $     (0.100)
                                                                                       ============         ============
 Extraordinary income per common share                                                 $      0.007         $      0.006
                                                                                       ============         ============
 Net loss per common share (basic and diluted)                                         $     (0.086)        $     (0.094)
                                                                                       ============         ============

 Weighted average common shares and common
      equivalents outstanding                                                            40,220,420           26,910,116
                                                                                       ============         ============
 </TABLE>


       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-4

<PAGE>   40
                         MIGRATEC, INC. AND SUBSIDIARY
                Consolidated Statements of Stockholders' Deficit
                     Years Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                         Common              Common                               Treasury   
                                                         Stock               Stock            Treasury             Stock     
                                                         Issued              Amount            Stock               Amount    
                                                       -----------        -----------        -----------         ----------- 
<S>                                                     <C>               <C>                   <C>              <C>         
 Balance at January 1, 1997                             18,002,253        $ 1,166,960           (854,903)        $(1,068,629)
 Issuance of stock to employees under the
      Employee Stock Purchase Plan for cash                 13,367              5,080                 --                  -- 

 Issuance of stock in connection with the
      conversion of debentures                          10,291,534            525,000                 --                  -- 

 Issuance of stock in connection with the
      exercise of warrants for cash                         60,000                600                 --                  -- 

 Issuance of stock in connection with private
      placements for cash                                1,800,000            500,000                 --                  -- 

 Issuance of stock for services rendered                    32,000                 --                 --                  -- 

 Discount related to issuance of Secured
      Promissory Notes with Warrants                            --                 --                 --                  -- 

 Net loss                                                       --                 --                 --                  -- 
                                                       -----------        -----------        -----------         ----------- 
 Balance at December 31, 1997                           30,199,154          2,197,640           (854,903)         (1,068,629)

 Issuance of stock in connection with private
      placements for cash                               22,790,000          4,558,000                 --                  -- 

 Issuance of stock in connection with
      conversion of debt to equity                       1,375,000            275,000                 --                  -- 

 Issuance of stock in connection with the
      exercise of options and warrants for cash             54,000             11,250                 --                  -- 

 Treasury stock received in exchange for cash                   --                 --         (9,400,000)           (740,000)

 Issuance of stock for services rendered                        --                 --            390,454              30,738 

 Issuance of warrants for computer
      consulting services rendered                              --                 --                 --                  -- 

 Issuance of warrants for financing fees                        --                 --                 --                  -- 

 Issuance of stock to employees under the
      Employee Stock Purchase Plan -
      shares matched by employer                             3,464                 --                 --                  -- 

 Net loss                                                       --                 --                 --                  -- 
                                                       -----------        -----------        -----------         ----------- 
 Balance at December 31, 1998                           54,421,618        $ 7,041,890         (9,864,449)        $(1,777,891)
                                                       ===========        ===========        ===========         =========== 

<CAPTION>
                                                       Additional                          
                                                        Paid-in           Accumulated
                                                        Capital            Deficit               Total
                                                       -----------        -----------         -----------
<S>                                                    <C>                <C>                 <C>         
 Balance at January 1, 1997                            $   712,186        $(1,478,428)        $  (667,911)
 Issuance of stock to employees under the
      Employee Stock Purchase Plan for cash                     --                 --               5,080

 Issuance of stock in connection with the
      conversion of debentures                                  --                 --             525,000

 Issuance of stock in connection with the
      exercise of warrants for cash                             --                 --                 600

 Issuance of stock in connection with private
      placements for cash                                       --                 --             500,000

 Issuance of stock for services rendered                     8,000                 --               8,000

 Discount related to issuance of Secured
      Promissory Notes with Warrants                        76,077                 --              76,077

 Net loss                                                       --         (2,517,606)         (2,517,606)
                                                       -----------        -----------         -----------
 Balance at December 31, 1997                              796,263         (3,996,034)         (2,070,760)

 Issuance of stock in connection with private
      placements for cash                                       --                 --           4,558,000

 Issuance of stock in connection with
      conversion of debt to equity                              --                 --             275,000

 Issuance of stock in connection with the
      exercise of options and warrants for cash                 --                 --              11,250

 Treasury stock received in exchange for cash                   --                 --            (740,000)

 Issuance of stock for services rendered                        --                 --              30,738

 Issuance of warrants for computer
      consulting services rendered                          18,000                 --              18,000

 Issuance of warrants for financing fees                    72,195                 --              72,195

 Issuance of stock to employees under the
      Employee Stock Purchase Plan -
      shares matched by employer                                --                 --                  --

 Net loss                                                       --         (3,458,075)         (3,458,075)
                                                       -----------        -----------         -----------
 Balance at December 31, 1998                          $   886,458        $(7,454,109)        $(1,303,652)
                                                       ===========        ===========         ===========
 </TABLE>

       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-5
<PAGE>   41


                        MIGRATEC, INC. AND SUBSIDIARY
                     Consolidated Statements of Cash Flows
                     Years Ended December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                                          1998                 1997
                                                                                       -----------         -----------

<S>                                                                                    <C>                 <C>         
 CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                           $(3,458,075)        $(2,517,606)
    Adjustments to reconcile net loss to net cash used by operating activities:
       Depreciation and amortization                                                       156,167             233,962
       (Gain) loss on sale and disposal of assets
                                                                                            93,486             276,181
       Assets given in lieu of wages, net                                                       --              14,233
       Bad debt expense                                                                      1,725             123,720
       Financing fees                                                                       67,588              68,250
       Warrants issued for financing fees                                                   72,195                  --
       Amortization of discount on notes payable                                            50,718                  --
       Common stock and warrants issued for goods and services                              48,738               8,000
       Minority interest                                                                        --              (9,384)
       Extraordinary income from forgiveness of debt                                      (282,999)           (183,351)
       Change in assets and liabilities:
          (Increase) decrease in accounts receivable - billed                              113,762            (402,318)
          (Increase) decrease in accounts receivable - unbilled                            (10,000)            203,070
          Decrease in income tax refund receivable                                              --             507,733
          (Increase) decrease in restricted cash                                            28,150             (28,150)
          Increase in other current assets                                                 (13,024)            (11,773)
          Increase in other assets                                                              --            (122,930)
          Increase (decrease) in accounts payable                                         (149,611)             92,896
          Increase (decrease) in accrued expenses                                         (158,586)            101,255
          Decrease in customer deposits in excess of unbilled receivables                 (171,365)           (507,085)
                                                                                       -----------         -----------
       Total adjustments                                                                  (153,056)            364,309
                                                                                       -----------         -----------
       Net cash used by operating activities                                            (3,611,131)         (2,153,297)

 CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment                                                         --             (46,726)
    Sales of property and equipment                                                          4,200              15,700
                                                                                       -----------         -----------
       Net cash provided (used) in investing activities                                      4,200             (31,026)

 CASH FLOWS FROM FINANCING ACTIVITIES:
    Increase (decrease) in cash overdraft                                                 (112,963)            112,963
    Proceeds from notes payable, excluding shareholder amounts                             854,000             575,000
    Proceeds from (repayment of) transfer of accounts receivable with recourse            (187,500)            187,500
    Proceeds from other debt financing                                                          --           1,112,500
    Proceeds from issuance of common stock                                               4,569,250             505,680
    Purchase of treasury stock                                                            (740,000)                 --
    Payments under obligations of capital lease                                            (25,267)            (34,724)
    Proceeds from (repayment of) shareholder advances                                      (33,276)             (5,406)
    Repayment of notes payable, excluding shareholder amounts                             (704,000)           (302,053)
                                                                                       -----------         -----------
       Net cash provided in financing activities                                         3,620,244           2,151,460
                                                                                       -----------         -----------

       Net increase (decrease) in cash                                                      13,313             (32,863)

 Cash - beginning                                                                            4,076              36,939
                                                                                       -----------         -----------

 Cash - ending                                                                         $    17,389         $     4,076
                                                                                       ===========         ===========

 SUPPLEMENTAL DISCLOSURES:
       Interest paid                                                                   $   192,067         $    41,809
                                                                                       ===========         ===========
       Income taxes paid                                                               $        --         $        --
                                                                                       ===========         ===========

 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
       Issuance of stock in connection with the conversion of debentures               $        --         $   525,000
                                                                                       ===========         ===========
       Equipment obtained under capital lease                                          $        --         $   101,379
                                                                                       ===========         ===========
       Issuance of stock upon conversion of debt to equity                             $   275,000         $        --
                                                                                       ===========         ===========
 </TABLE>



       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      F-6

<PAGE>   42


                        MIGRATEC, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997


NOTE 1.  BACKGROUND AND BUSINESS ACTIVITY

MigraTEC, Inc., was organized under the laws of the state of Florida on
February 24, 1989. MigraTEC, Inc., was a development stage enterprise until it
acquired a privately-owned, Texas-based company on February 29, 1996. At that
time, MigraTEC, Inc. ("MigraTEC") (then a privately-held Texas corporation)
entered into a reverse acquisition agreement with New York Acquisitions, Inc.,
a publicly-held "shell" Florida corporation. MigraTEC became a wholly-owned
subsidiary of the public company through the exchange of 11,337,432 shares on a
post-split basis of the public company's common stock for all of the
outstanding stock of MigraTEC. The name New York Acquisitions, Inc., was
amended to One Up Corporation and then subsequently to MigraTEC, Inc. For
accounting purposes, the reorganization of MigraTEC and the public company is
regarded as an acquisition by the public company of all of the outstanding
stock of MigraTEC, and is accounted for as a recapitalization of the public
company with MigraTEC as the acquirer (a reverse acquisition).

The initial focus of the business was to provide contract computer programming
education. A professional curriculum was developed as the foundation for these
courses. By 1992, MigraTEC had developed and sold several software products, as
well as further diversifying into consulting services and migration assistance
for clients wishing to migrate their software from the Windows operating system
to the IBM OS/2 platform. By 1993, MigraTEC had identified a need for an
automated migration technique and developed its first set of software tools for
that purpose. Initially, MigraTEC licensed the tools to IBM on an exclusive
basis until December 31, 1995. During 1995, MigraTEC developed more advanced
migration technologies and methodologies, the Company automated much of the
migration process, allowing clients to migrate source code from Windows 16 bit
to Windows 95 and NT, from OS/2 to Windows 95 and NT, and enhanced its
capabilities to migrate Windows source code to OS/2. Since January 1996,
MigraTEC has offered its migration services to the public, utilizing these new
techniques, continuing in the development and sale of strategic applications
software migration technology.

During 1997 the Company made a decision to reorient its strategic approach to
exploit its technology as a product offering as opposed to a service offering.
Consequently, since October 1997, the technical focus of the Company has been
reoriented to concentrating on product development and building a technical
marketing organization. Development efforts initiated in October 1997 have lead
to MigraTEC currently launching a new flagship product for the Year 2000
analysis and remediation of desktop applications called MigraTEC2000.
Additionally, during the fourth quarter R&D efforts have enabled the Company to
market its Resource Migration Service, a service which provides a complete
process for migrating resource files (containing dialog boxes and controls,
icons, cursors, bitmaps and fonts) and their corresponding resource header
files and is supported by MigraTEC proprietary, automated resource migration
utility which greatly reduces the time and effort traditionally required to
manually migrate an application's resources.

                                      F-7

<PAGE>   43


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 1.  BACKGROUND AND BUSINESS ACTIVITY (CONTINUED)

MigraTEC is the parent of a majority owned foreign subsidiary, One Up Computer
Services, Ltd. One Up Computer Services, Ltd., was incorporated under the laws
of the Province of Ontario, Canada, in October 1992. The operations of One Up
Computer Services, Ltd., in the past had not been significant to the operations
of MigraTEC. Early in the first quarter of 1997, One Up Computer Services,
Ltd., ceased operations.

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The financial statements include the accounts of MigraTEC, the public company,
and its majority owned foreign subsidiary, collectively referred to as the
Company. Intercompany transactions and balances have been eliminated in
consolidation.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and
amortization. The Company provides for depreciation on the straight-line basis
over the estimated useful lives of the related assets ranging from three to ten
years. Leasehold improvements are amortized straight-line over the life of the
improvements or the lease term if shorter.

Major repairs or replacements of property and equipment are capitalized.
Maintenance, repairs and minor replacements are charged to operations as
incurred.

Software Development Costs

During 1998 and 1997 the Company expensed $1,462,741 and $293,604 of costs,
respectively, in connection with its Year 2000 program. The Company begins to
capitalize costs for the development of any new software after technological
feasibility has been established. Costs for newly developed software will be
amortized over the estimated economic life of the software from the time that a
particular product is developed.

Income Taxes

Deferred income taxes are determined using the asset and liability method,
under which deferred tax assets and liabilities are determined based on
differences between financial accounting and tax basis of assets and
liabilities. Income tax expense or benefit is the payable or refund for the
period plus or minus the change during the period in deferred tax assets and
liabilities. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.

                                      F-8

<PAGE>   44


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

The Company recognizes revenue as services are performed in accordance with the
terms as set forth in their contract agreements. Losses expected to be incurred
on contracts in progress are charged to operations in the period such losses
are determined. At December 31, 1998 and 1997, accrued expenses include
approximately $0 and $6,800, respectively, of additional direct labor costs
that exceed related contract revenues.

Currency Translation

The functional currency translation of the majority owned subsidiary's assets,
liabilities, revenues and expenses was insignificant to the Company's
consolidated financial statements. Accordingly, the accompanying consolidated
financial statements do not include translation gains and losses.

Statements of Cash Flows

For purposes of the statements of cash flows, cash equivalents include time
deposits, certificates of deposits, and all highly liquid debt instruments with
original maturities of three months or less when purchased.

Loss Per Share

Loss per share has been computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the respective periods. The
effect of outstanding warrants and options on the net loss for 1998 and 1997
would be anti-dilutive and, accordingly, they are not included in the
computation of weighted average shares for the years ended December 31, 1998
and 1997.

Use of Estimates and Assumptions

Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.

The Company recognizes revenue as services are performed. Estimated losses are
recorded in the period determined. Revenue or losses could change if estimates
of percentage complete on contracts changes due to delays or unforeseen
problems.

                                     F-9

<PAGE>   45


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation

The Company measures compensation cost for its stock-based compensation plans
under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." The difference, if any, between the
fair value of the stock on the date of grant over the amount received for the
stock is accrued over the related vesting period. Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," requires companies electing to continue to use APB 25 to account
for its stock-based compensation plan to make pro forma disclosures of net
income (loss) and earnings (loss) per share as if SFAS 123 had been applied
(See Note 13).

Adoption of New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 is effective beginning in
2000. The adoption of SFAS 133 is not expected to have a material impact on the
financial position or results of operations of the Company.

In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5
("SOP 98-5"), "Reporting on the Costs of Start-up Activities." This statement
is required to be adopted for fiscal years beginning after December 15, 1998,
and requires the expensing of all start-up costs, as defined, as they are
incurred. The Company has voluntarily applied accounting policies consistent
with SOP 98-5 for the years ended December 31, 1998 and 1997.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires enterprises to report, by major component and in total, all changes in
equity from non-owner sources. The Statement is effective for the Company's
fiscal year ended December 31, 1998. There was no impact to the Company's
disclosure as a result of adopting this standard.

Reclassifications

Certain amounts recorded in prior periods have been reclassified to conform to
the current classification.

                                      F-10

<PAGE>   46


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 3.  GOING CONCERN UNCERTAINTY

As reflected in the accompanying consolidated financial statements, the Company
incurred a loss of $3,458,075 and used operating cash of $3,611,131 for the
year ended December 31, 1998. In addition, the Company's current liabilities
exceed current assets by $1,491,000 at December 31, 1998, and the Company was
unable to meet certain debt maturities at December 31, 1998. The Company's
continued existence and plans for future growth are dependent in part upon its
ability to obtain the capital necessary to operate, primarily through the
issuance of additional debt or equity, and in part on its ability to
effectively penetrate the market for software migration services, related
products, and Year 2000 software products and services. If the Company is not
able to achieve break-even, obtain additional or alternative funding, or
generate sufficient sales revenues and cash flows in the near term, the Company
will be unable to continue as a going concern.

Recently, the Company began reengineering its business focus, shifting its
strategic approach to exploiting its technology through the development of
strategic relationships. To continue to fund its operations for 1999, the
Company has (1) completed a private offering during March 1999 which yielded
gross proceeds of $241,313 (unaudited), (2) entered into several short-term
notes payable during the first quarter of 1999 with certain investor groups,
including one director and one officer, totaling $447,500 (unaudited), and (3)
received gross proceeds of $47,537 (unaudited) for the exercise of warrants
relating to various short-term notes payable and the exercise of consultant and
employee stock options. Most recently, the Company has begun the process of
obtaining additional capital through a private offering whereby the Company
plans to issue up to 6,000,000 shares of its Common Stock at $0.125 per share.
In addition, if needed, the Company is considering issuing additional equity
through a private offering during the second half of 1999 in an amount
sufficient to meet the Company's current operating expenses until such time
that product revenues begin to ramp up. Management anticipates that its efforts
will move the Company forward with a focus on achieving improved operating
performance by the end of 1999.

The anticipated increase in revenues coupled with a continued emphasis on
controlling costs should position the Company to achieve improved results for
1999, although no assurances can be given regarding such increase. While much
remains to be accomplished, management believes that the Company has made
significant progress towards stabilization. While the success of the Company
will in part depend upon its ability to market and sell its products and
services, management believes that the successful implementation of its plan to
shift the Company's strategic approach to exploiting its technology through
strategic relationships, should move the Company forward with a focus on
achieving profitability by the end of 1999. The anticipated increase in
revenues coupled with a continued emphasis on controlling costs should position
the Company to achieve improved results for 1999. However, there can be no
assurance that the Company will generate an increase in revenues or earnings,
or achieve improved operating performance or results.

                                      F-11

<PAGE>   47


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 3.  GOING CONCERN UNCERTAINTY (CONTINUED)

The financial statements do not include any adjustments to reflect the possible
effects on recoverability and classification of assets or classification of
liabilities which may result from the inability of the Company to continue as a
going concern.

NOTE 4.  PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                         1998                       1997     
                                                     -----------                -----------
<S>                                                  <C>                        <C>        
Furniture and equipment                              $   697,312                $   904,127
Equipment under capital lease                            101,379                    101,379
Leasehold improvements                                    30,746                     30,746
                                                     -----------                -----------
                                                         829,437                  1,036,252
Less accumulated depreciation and amortization          (630,735)                  (583,697)
                                                     -----------                -----------
                                                     $   198,702                $   452,555
                                                     ===========                ===========
</TABLE>

Depreciation expense for the years ended December 31, 1998 and 1997, was
$120,573 and $166,790, respectively. Amortization expense on equipment under
capital lease and leasehold improvements was $35,594 and $67,172, as of
December 31, 1998 and 1997, respectively.

NOTE 5.  NOTES PAYABLE

The notes payable at December 31, 1998 and 1997, includes the following:

<TABLE>
<CAPTION>
                                                                                    1998                1997
                                                                                ------------        ------------
<S>                                                                             <C>                 <C>
    (i) a note payable to an officer/shareholder, dated November 27, 1998,
        bearing interest at 16% per annum, payable December 31, 1998            $     30,000        $      -

    (ii) a note payable to a third party, dated December 4, 1998, bearing
        interest at 16% per annum, collateralized by all assets owned or
        thereafter acquired, payable December 31, 1999                               150,000               -

    (iii) a note payable to a former employee, dated March 25, 1998, bearing
        interest at 14% per annum, payable December 10, 2003                          42,603               -

    (iv) a note payable to a third party, dated October 29, 1998, payable
        October 10, 2000                                                              44,000               -
</TABLE>

                                     F-12

<PAGE>   48

                         MIGRATEC, INC. AND SUBSIDIARY
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          December 31, 1998 and 1997


NOTE 5.  NOTES PAYABLE (CONTINUED)

<TABLE>
<CAPTION>
                                                                                              1998              1997
                                                                                          ------------      ------------
<S>                                                                                       <C>               <C>
    (v) Senior Secured Promissory Notes, in the amount of $1,112,500, less
        discount of $25,359 and $76,077, respectively, collateralized by
        accounts receivable, equipment, and intellectual property, payable
        July 1, 1999                                                                         1,087,141         1,036,423

    (vi) a note payable to a third party, dated June 10, 1997, bearing interest
        at 16% per annum, collateralized by all assets owned or thereafter
        acquired, originally payable September 10, 1997, and subsequently
        extended to April 15, 1998                                                                --             100,000

    (vii) a note payable to a third party, dated August 25, 1997, bearing
        interest at 18% per annum, payable November 26, 1997                                      --             100,000

    (viii) a note payable to a third party, dated September 1, 1997, bearing
        interest at 16% per annum, payable November 30, 1997                                      --              75,000

    (ix) a note payable to a former officer/shareholder, dated September 27,
        1997, bearing interest at 8% per annum, payable on demand                                 --              10,161

    (x) a note payable to a former officer/shareholder, dated August 15, 1996,
        bearing interest at 8% per annum, payable on demand                                       --              53,115

                                                                                         -------------      ------------
                                                                                             1,353,744         1,374,699
        Less current portion                                                                (1,297,579)         (338,276)
                                                                                          ------------      ------------
        Long-term portion                                                                 $     56,165      $  1,036,423
                                                                                          ============      ============
</TABLE>

A summary of the future maturities of the notes are as follows:

<TABLE>
<CAPTION>
   Year ended December 31,
<S>                              <C>       
            1999                 $1,297,579
            2000                     27,400
            2001                      8,505
            2002                      9,775
            2003                     10,485
                                 ----------
                                 $1,353,744
                                 ==========
</TABLE>

                                     F-13

<PAGE>   49

                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 6.  CAPITAL LEASE

The Company acquired office equipment under the provisions of a long-term
capital lease. For financial reporting purposes, minimum lease payments
relating to the office equipment have been capitalized. The lease expires in
June 2000.

The future minimum lease payments under the capital lease and the net present
value of the future minimum lease payments at December 31, 1998, are as
follows:

<TABLE>

<S>                                           <C>       
  1999                                        $   29,156
  2000                                            14,578
                                              ----------
  Total minimum lease payments                    43,734
  Amount representing interest                    (2,346)
                                              ----------
  Net present value of the future minimum
       lease payments (including current
       portion of $27,105)                    $   41,388
                                              ==========
</TABLE>

NOTE 7.  INCOME TAXES

Deferred tax assets and liabilities at December 31, 1998 and 1997, consist of
the following:

<TABLE>
<CAPTION>

                                                      1998             1997 
                                                  -----------      -----------
<S>                                               <C>              <C>        
Current deferred tax asset                        $    24,600      $   106,424
Current deferred tax liability                        (22,745)         (22,745)
Valuation allowance                                    (1,855)         (74,655)
                                                  -----------      -----------
Net cur  rent deferred tax asset (liability)      $      --        $     9,024
                                                  ===========      ===========

Noncurrent deferred tax asset                     $ 2,400,559      $ 1,161,802
Noncurrent deferred tax liability                        --            (22,745)
Valuation allowance                                (2,400,559)      (1,148,081)
                                                  -----------      -----------
Net noncurrent deferred tax asset (liability)     $      --        $    (9,024)
                                                  ===========      ===========
</TABLE>

The current deferred tax asset results primarily from accrued salaries, the
allowance for doubtful accounts, and other expenses not currently deductible
for tax purposes. The current deferred tax liability results from an adjustment
for the change from the cash to the accrual method for federal income tax
purposes in a prior year. The noncurrent deferred tax asset results primarily
from differences in depreciation rates for book and federal income tax purposes
and the benefit of net operating losses. The remaining net current and
long-term deferred tax assets have a 100% valuation allowance recorded against
them due to the uncertainty of generating future taxable income. The valuation
allowance increased from December 31, 1997, to December 31, 1998, by
$1,179,678. 

                                     F-14

<PAGE>   50


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          December 31, 1998 and 1997


NOTE 7.  INCOME TAXES (CONTINUED)

The Company's income tax expense (benefit) for the years ended December 31,
1998 and 1997, differed from the statutory federal rate of 34 percent as
follows:

<TABLE>
<CAPTION>

                                               1998              1997 
                                            -----------      -----------
<S>                                         <C>              <C>         
Statutory rate applied to income (loss)
     before income taxes                    $(1,175,745)     $  (918,325)
Increase (decrease) in income taxes:
     Penalties and interest                        --              1,847
     Valuation allowance                      1,179,678          838,274
     Extraordinary item                            --             62,339
     Amounts not deductible for
          federal income tax purposes
          and other                              (3,933)          15,865
                                            -----------      -----------
Income tax expense (benefit)                $      --        $      --   
                                            ===========      ===========
</TABLE>

Net operating losses generated through December 31, 1998, eligible to be
carried forward to future years of approximately $6,900,000 (subject to
limitations of Internal Revenue Code Section 382) will expire between 2010 and
2013.

NOTE 8.  RELATED PARTY TRANSACTIONS

During January and February of 1998, the Company entered into short-term notes
payable with three directors with varying terms and maturities totaling
$254,000. Additional terms and conditions of the loan agreements included (1) a
conversion feature whereby the loans could be converted to shares of the
Company's Common Stock at $0.20 per share and (2) the issuance of warrants to
purchase an aggregate of 175,000 shares of the Company's Common Stock at prices
ranging from $0.20 to $0.01 per share. On March 26, 1998, the Company issued
1,000,000 shares of its Common Stock to the three directors in connection with
the first March 1998 private offering and pursuant to the conversion feature
contained in the loan agreements. The remaining balance of the notes payable
not converted and accrued interest were paid in full effective April 22, 1998.
Subsequent to December 31, 1998, on March 30 and 31, 1999, the Company issued
75,000 shares of its commons stock to two of the directors as a result of the
exercise of warrants to purchase shares at $0.20 per share.

In addition to the directors discussed above, the Company issued 500,000 shares
of its Common Stock to a director/shareholder at $0.20 per share under terms of
the first March 1998 private offering which commenced March 9, 1998.


                                     F-15

<PAGE>   51


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997

NOTE 8.  RELATED PARTY TRANSACTIONS (CONTINUED)

Effective March 25, 1998, the Company reached an agreement with its former
principal executive officer, Mr. Richard Dews, regarding actions of Mr. Dews as
Chairman and CEO, efforts by Mr. Dews to sell shares of the Company's Common
Stock, originally acquired and restricted pursuant to Rule 144 of the Act, and
claims made against the Company by Mr. Dews totaling approximately $640,000.
Pursuant to the agreement, which was finalized on March 31, 1998, (1) the
Company acquired from Mr. Dews 9,400,000 shares of the Company's Common Stock
for $740,000, (2) the Company agreed to file a registration statement or take
other appropriate steps to allow free trading of the remaining shares owned by
Mr. Dews, (3) the Company issued to Mr. Dews a transferable warrant to purchase
up to 600,000 shares of the Company's unregistered and free trading Common
Stock, subject to Section 144 rules and regulations, at $0.25 per share, (4)
the Company paid to Mr. Dews $60,000 in full satisfaction, including principal
and accrued interest, of amounts previously loaned to the Company by Mr. Dews,
(5) the Company released Mr. Dews from all claims arising from or relating to
the employment of Mr. Dews or the promissory note from the Company to Mr. Dews,
(6) Mr. Dews released the Company from all claims, estimated by Mr. Dews to
total approximately $640,000, arising from or relating to the employment of Mr.
Dews or the promissory note from the Company to Mr. Dews, including back wages
relating to accrued but unused vacation pay, and (7) pursuant to a promissory
note dated March 25, 1998, no stated interest, the Company agreed to pay to
Marilyn Johnson the amount of $68,250 in installments of $1,000 for 68 months
on the tenth of each month beginning April 10, 1998, with the final payment of
$250 being due on December 10, 2003. Attorney fees paid by the Company as a
result of negotiating the settlement with Mr. Dews were comprised of (1) the
transfer of 390,454 shares of the Company's Common Stock and (2) $210,523 paid
in cash. One-half of the attorney fees paid related to this settlement were
paid to a director of the Company, acting in the capacity of the Company's
legal counsel.

In addition to the attorney fees discussed above, for the year ended December
31, 1998, the Company incurred fees totaling $37,639 related to legal services
which were provided by a director of the Company acting in the capacity of the
Company's legal counsel.

Effective July 1, 1998, the Company granted, to three directors, who had either
been involved as Placement Agents in the two March 1998 private stock offerings
or who had furnished consulting services to the Company, stock warrants to
purchase an aggregate of 1,683,250 shares of the Company's Common Stock at
$0.20 per share. The warrants were fully vested at the date of grant, and are
exercisable on or before July 1, 2001.

Effective July 15, 1998, the balances remaining due as of December 31, 1997, to
a shareholder/ former officer for amounts previously advanced to the Company of
$10,153 and for back wages of $24,417 were paid in full.

                                     F-16

<PAGE>   52


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997

NOTE 8.  RELATED PARTY TRANSACTIONS (CONTINUED)

Effective November 27, 1998, the Company entered into a short-term loan
agreement whereby an officer/shareholder loaned the Company $30,000, bearing
interest at 16% per annum, payable December 31, 1998. Additional terms and
conditions of the loan agreement included payment of a $600 loan origination
fee and issuance of a two-year warrant to purchase 3,000 shares of the
Company's Common Stock at $0.01 per share. As of December 31, 1998, accrued
expenses includes $1,060 in interest, including the loan origination fee.
Subsequent to December 31, 1998, the loan, including accrued interest, was paid
in full, and the warrant was exercised effective February 8, 1999.

During 1998, the Company paid fees totaling $24,584 to four directors in their
capacity as directors.

NOTE 9.  STOCKHOLDERS DEFICIT AND STOCK OPTIONS

Pursuant to the terms and conditions of certain short-term loans made to the
Company by certain investor groups, including three directors and one officer,
during 1998 the Company granted 468,000 stock warrants, fully vested at date of
grant, to purchase shares of its Common Stock with varying exercise prices and
terms. On March 9, 1998, the Company issued 22,500 shares of its Common Stock
as a result of the exercise of warrants to purchase shares at $0.01 per share.
On February 8, 1999, the Company issued 33,000 shares of its Common Stock to
certain investor groups, including one officer, as a result of the exercise of
warrants to purchase shares at $0.01 per share. As a result of issuing these
warrants with exercise amounts below fair value, the Company booked a charge to
financing fees of $72,195. On March 30 and 31, 1999, the Company issued 112,500
shares to certain investor groups, including two directors, of its Common Stock
as a result of the exercise of warrants to purchase shares at $0.20 per share.
As of the date of this report, 300,000 of the aforementioned warrants remain
unexercised and outstanding.

On March 31, 1998, pursuant to the terms and conditions of an agreement reached
with its former principal executive officer, Mr. Richard G. Dews, effective
March 25, 1998 (See Note 8), (1) the Company acquired from Mr. Dews 9,400,000
shares of the Company's Common Stock for $740,000, and (2) the Company issued
to Mr. Dews a transferable warrant to purchase up to 600,000 shares of the
Company's unregistered and free trading Common Stock at $0.25 per share.
Additionally, pursuant to an agreement with the Company's legal counsel, the
Company satisfied a portion of the attorney fees incurred by the Company as a
result of negotiating the settlement with Mr. Dews through the transfer of
390,454 shares of the Company's Common Stock.

                                     F-17

<PAGE>   53


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 9.  STOCKHOLDERS DEFICIT AND STOCK OPTIONS (CONTINUED)

Effective April 1, 1998, pursuant to the terms of a one-year employment
agreement, the Company granted options to purchase 900,000 shares of the
Company's Common Stock at an exercise price of $0.20 per share to its Chief
Financial Officer. The options vest at the rate of 1/24 per month beginning
April 1, 1998, and are exercisable at vesting at any time during employment.

Effective April 30, 1998, the exercise price of 500,000 warrants (previously
granted to the Placement Agent for the Regulation S Offering, which commenced
in November 1996 to raise debt financing) was reduced from $0.50 to $0.40 per
share.

Effective May 1, 1998, the Company granted stock options to three officers to
purchase an aggregate of 8,700,000 shares of the Company's Common Stock at
$0.20 per share. The options were 50% vested at May 1, 1998, and vest an
additional 1/24 at the end of each month thereafter. Vested options are
exercisable at any time during employment. These new options replace those
which had been previously granted, and have been canceled, during the second
quarter of 1997 to the three officers at per share prices ranging from $0.31 to
$0.37, and which contained an anti-dilutive clause that increased the number of
options available for exercise upon recapitalization, stock split, stock
dividend, or issuance of stock below fair market value. These new options
contain no such anti-dilutive clause. In addition, the options previously
granted vested over a shorter period of time, and would have been fully vested
by June 13, 1999. At April 15, 1998, the number of options that would have been
available to the three officers pursuant to the canceled second quarter 1997
grant totaled approximately 6,000,000.

Effective May 1, 1998, the Company granted stock warrants to four directors to
purchase an aggregate of 4,300,000 shares of the Company's Common Stock at
$0.20 per share. The warrants vest 1/24 at the end of each month beginning May
31, 1998, and expire on May 31, 2002. Approximately one-half of these new
warrants replace those that had been previously granted to the chairman of the
board and another director during the second quarter of 1997. The warrants
previously granted (which were to purchase 75,000 shares of the Company's
Common Stock at $0.35 per share, were fully vested at date of grant, and
expired after three years) have been canceled.

Effective July 1, 1998, the Company granted, to various individuals, including
three directors, who had either been involved as Placement Agents in the two
March 1998 private stock offerings or who had furnished consulting services to
the Company, stock warrants to purchase an aggregate of 2,147,750 shares of the
Company's Common Stock at $0.20 per share. The warrants were fully vested at
the date of grant, and are exercisable on or before July 1, 2001.

Effective July 28, 1998, the Company canceled warrants previously granted to a
consultant to purchase 15,000 and 50,000 shares at $0.50 and $0.75 per share,
respectively.


                                     F-18
<PAGE>   54


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997

NOTE 9.  STOCKHOLDERS DEFICIT AND STOCK OPTIONS (CONTINUED)

Effective October 5, 1998, pursuant to the terms of a Work for Hire Agreement
between the Company and two consultants, whereby the Company received certain
computer consulting services from the consultants, the Company granted to the
consultants stock warrants to purchase an aggregate of 200,000 shares of the
Company's Common Stock at $0.12 per share. The warrants were fully vested at
the date of grant, and are exercisable on or before November 19, 2000.

In 1997, the Company adopted a new stock option plan, the 1997 Stock Option
Plan, authorizing the issuance of incentive stock options, non-statutory
options and reload options to eligible persons as described in the Plan.
Pursuant to the Plan, the Company granted stock options during 1998 as follows:

   (i)   to one individual who was employed as of January 1, 1998, to purchase
         192,000 shares of the Company's Common Stock at $0.41 per share. The
         options vest at a rate of 1/48 each month, are exercisable at vesting,
         and expire one year after fully vested;
         
   (ii)  to seven individuals who were employed as of May 1, 1998, to purchase
         69,600 shares of the Company's Common Stock at $0.53 per share. The
         options vest at a rate of 1/48 each month, are exercisable at vesting,
         and expire one year after fully vested;
         
   (iii) to 20 individuals who were employed as of September 1, 1998, to
         purchase 787,392 shares of the Company's Common Stock at $0.23 per
         share. The options vest at a rate of 1/48 each month, are exercisable
         at vesting, and expire one year after fully vested;
         
   (iv)  to nine employees who were hired subsequent to January 1, 1998, to
         purchase 137,800 shares of the Company's Common Stock at prices
         ranging from $0.67 to $0.1562 per share. The options are vested 6.25%
         ninety days after each employee's date of hire, vest an additional
         1/48 each month thereafter, are exercisable at vesting, and expire one
         year after fully vested.

Subsequent to December 31, 1998, management terminated the 1997 Stock Option
Plan which had not been approved by the Company's shareholders within the time
specified in the 1997 Plan. Therefore, all of the outstanding options issued
pursuant to the 1997 Plan have been canceled. Effective March 1, 1999, the
Company adopted a new stock option plan, the 1999 Stock Option Plan,
authorizing the issuance of incentive stock options, non-statutory options and
reload options to eligible persons as described in the 1999 Plan. Pursuant to
the 1999 Plan, as of the date hereof, the Company has granted to members of its
management and employees options to purchase an aggregate of 1,435,936 shares
of Common Stock of the Company exercisable at prices ranging from $0.3438 to
$0.1875 per share.


                                     F-19

<PAGE>   55


                         MIGRATEC, INC. AND SUBSIDIARY
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          December 31, 1998 and 1997

NOTE 9.  STOCKHOLDERS DEFICIT AND STOCK OPTIONS (CONTINUED)

Substantially all options and warrants granted during 1998 have exercise prices
which approximate fair value at the date of grant.

On February 3, 1998, the Company issued to certain investor groups, including a
director, 125,000 shares of its Common Stock at $0.20 per share under a private
placement memorandum for total net cash proceeds of $25,000.

On March 9, 1998, the Company commenced the first of two private offerings (the
"Offering #1"). The Offering #1 provided for up to 17,500,000 shares of the
Company's Common Stock for a maximum of $3,500,000. The Offering #1 was offered
on a "best efforts" basis. The Offering #1, which terminated March 26, 1998,
after an eight day extension, yielded gross proceeds to the Company totaling
$2,831,000. Included in the Offering #1 are 1,000,000 shares issued to three
directors upon conversion of debt pursuant to terms and conditions contained in
various loan agreements.

On March 30, 1998, the Company commenced the second private offering (the
"Offering #2"). The Offering #2 provided for up to 8,500,000 shares of the
Company's Common Stock for a maximum of $1,700,000. The Offering #2 was offered
on a "best efforts" basis. The Offering #2, which terminated May 6, 1998, after
a twenty-one day extension, yielded gross proceeds to the Company totaling
$1,669,500. Included in the Offering #2 are 375,000 shares issued to two
individuals upon conversion of debt pursuant to terms and conditions contained
in various loan agreements.

On May 29, 1998, the Company issued 31,500 shares of its Common Stock to a
former employee upon exercise of options previously granted to purchase shares
at $0.35 per share.

During September 1998, the Company issued 1,537,500 shares of its Common Stock
to 14 individual investors at $0.20 per share under terms of a private offering
for total net cash proceeds of $307,500. In a related transaction, the Company
granted warrants to purchase an aggregate of 1,000,000 shares of its Common
Stock at $0.10 per share. The warrants expire September 9, 2001. Subsequent to
December 31, 1998, effective February 8, 1999, the Company issued 50,000 shares
of its Common Stock in connection with the exercise of a portion of the
warrants (See Note 16).

During 1998, the Company issued to three former employees an aggregate of 3,464
shares of its Common Stock representing the Company's 50% matching of shares
previously purchased by the employees pursuant to the terms of the Employee
Stock Purchase Plan.


                                     F-20

<PAGE>   56


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 10.  COMMITMENTS AND CONTINGENCIES

MigraTEC leases its present office facility under a noncancelable operating
lease, which expires April 30, 2000. Future minimum commitments under this
lease are as follows:

<TABLE>
<CAPTION>

         Period ending December 31,
         <S>                                       <C>
                  1999                             $   127,800
                  2000                                  42,600
                                                   -----------
                  Total                            $   170,400
                                                   ===========
</TABLE>

Beginning in April and May of 1998, the Company entered into a series of
one-year lease agreements with Green Tree Vendor Services and United Capital
Leasing Corp. for various computer equipment at an average monthly cost of
approximately $2,800.

During 1996 the Company entered into employment agreements with several key
employees for a term of one year (automatically renewing each year), of which
three remain employed by the Company to date. The total annual base salaries of
the three remaining employees is approximately $225,000.

On July 24, 1998, Carroll Independent School District filed suit against the
Company in District Court, Tarrant County, Texas, seeking payment for unpaid
business personal property taxes in the amount of $79,657, plus attorney's
fees, court costs, penalties and interest. As of December 31, 1998, accounts
payable includes $88,756 related to the property taxes. The case is presently
awaiting trial, which has been set for May 22, 1999, as the Company continues
its efforts to settle the suit.

In October 1998, the Company reached an agreement to settle the suit previously
filed by Copelco Credit Corporation (seeking payment for the remainder of the
balance due under a contract for leased copier equipment in the amount of
$90,763 plus attorney fees, court costs and interest) for $51,000. The Company
made an initial payment of $5,000 upon execution of the settlement agreement,
and has agreed to make monthly payments in the amount of $2,000 on the tenth of
each month for 23 months beginning December 10, 1998. The balance remaining at
December 31, 1998, of $44,000 is included in the accompanying balance sheet as
a note payable (See Note 5).

For the year ended December 31, 1998, the Company booked extraordinary income
of $282,999 relating to forgiveness of debt. This income relates to reductions
in amounts due to various vendors through renegotiation of terms.

                                     F-21

<PAGE>   57


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997

NOTE 10.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

In April 1999, the Company reached an agreement to settle the suit previously
filed by Business Aircraft Leasing, Inc., (seeking payment for unpaid fees
relating to the Company's trade accounts payable of $29,349 plus attorney fees,
litigation expenses and interest) for $35,000. The Company made an initial
payment of $5,000 upon execution of the settlement agreement, and has agreed to
make monthly payments in the amount of $1,500 on the fifteenth of each month
for 20 months beginning May 15, 1999. The total amount of the unpaid fees at
December 31, 1998, of $29,349 is included in the accompanying balance sheet as
an accrued expense.

NOTE 11.  CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments of the Company that are subject to credit risk are cash
and trade accounts receivable. Approximately $262,189 of the net accounts
receivable has been collected through the date of this report. The Company's
accounts receivable balances are generally unsecured. In the event of complete
nonperformance of accounts receivable, the maximum exposure to the Company is
the recorded amount shown on the balance sheet.

For the year ended December 31, 1998, approximately 84% of the Company's gross
revenues were earned from three customers, each of whom separately contributed
46%, 25% and 13% to the Company's total gross revenues for the year then ended.

For the year ended December 31, 1997, approximately 75% of the Company's gross
revenues were earned from three customers, each of whom separately contributed
45%, 15% and 15% to the Company's total gross revenues for the year then ended.

NOTE 12.  FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments," requires disclosure about the fair value of
all financial assets and liabilities for which it is practicable to estimate.
Cash, trade accounts receivable, accounts payable, accrued liabilities and
other liabilities are carried at amounts that reasonably approximate their fair
values.

<TABLE>
<CAPTION>

                                    December 31, 1998 
                                -------------------------
                                 Carrying         Fair
                                  amount          value     
                                ----------     ----------
<S>                             <C>            <C>       
Fixed rate debt, short-term     $1,297,579     $1,297,579
                                ==========     ==========
Fixed rate debt, long-term      $   56,165     $   56,165
                                ==========     ==========
</TABLE>

The fair values of the Company's fixed rate debt have been estimated based upon
relative changes in the Company's variable borrowing rates since origination of
the fixed rate debt.

                                     F-22
<PAGE>   58


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 13.  STOCK OPTIONS AND WARRANTS

Pursuant to the 1997 Stock Option Plan (the "1997 Plan"), as well as in
accordance with certain employee and consultant agreements, the Company has
issued stock options and warrants (See Note 16). The options under the 1997
Plan and other options and warrants included in the table below are all
considered compensatory.

Following is a summary of compensatory warrant and option activity:

<TABLE>
<CAPTION>

                                                                                         Warrant/Option Price 
                                                                                     ------------------------------     
                                        Options         Warrants         Total        Per Share            Total         
                                      ----------       ---------      ----------     -----------        -----------     
<S>                                   <C>              <C>            <C>            <C>                <C>              
Outstanding at December 31, 1996         752,352         454,878       1,207,230     $    1.2970        $ 1,565,750      
     Granted                           4,701,255         440,000       5,141,255          0.3795          1,951,056      
     Canceled                            730,346         250,000         980,346          1.4379          1,409,650      
     Exercised                              --              --              --              --                 --        
                                      ----------       ---------      ----------     -----------        -----------     
Outstanding at December 31, 1997       4,723,261         644,878       5,368,139          0.3925          2,107,156      
                                                                                                                         
     Granted                          15,576,492       2,347,750      17,924,242          0.2130          3,817,573      
     Canceled                          4,915,061         140,000       5,055,061          0.3962          2,002,934      
     Exercised                            31,500            --            31,500          0.3500             11,025      
                                      ----------       ---------      ----------     -----------        -----------
Outstanding at December 31, 1998      15,353,192       2,852,628      18,205,820     $    0.2148        $ 3,910,770      
                                      ==========       =========      ==========     ===========        ===========      
</TABLE>

The outstanding stock options and warrants with contractual lives expire from
April 30, 1999, through November 22, 2003. Included in the 15,353,192 options
outstanding are 1,392,736 options issued under the 1997 Plan which were canceled
subsequent to December 31, 1998, because the 1997 Plan was not approved by the
shareholders within the time specified in the 1997 Plan.

The following summarizes information about compensatory options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>

                              Outstanding Options                                      Options Exercisable
---------------------------------------------------------------------------       ---------------------------------
                                           Weighted Avg.                                           
      Range of             Number            Remaining        Weighted Avg.         Number          Weighted Avg.
  Exercise Prices        Outstanding     Contractual Life    Exercise Price       Exercisable     Exercisable Price
-----------------        -----------     ----------------    --------------       -----------     -----------------
<S>                      <C>             <C>                 <C>                  <C>             <C>
Options with contractual lives
  $0.67 to $0.1562        5,753,192         3.47 Years           $0.2243           1,842,074           $0.2313
Options without contractual lives
       $0.20              9,600,000             n/a               $0.20            6,137,500            $0.20
</TABLE>

The options issued without contractual lives expire when the employees are
terminated with cause.


                                     F-23

<PAGE>   59

                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 13.  STOCK OPTIONS AND WARRANTS (CONTINUED)

A summary of changes in the Company's non-compensatory options follows:

<TABLE>
<CAPTION>

                                   Non-Compensatory  Weighted Average
                                        Options       Exercise Price
                                     ------------     ------------
<S>                                  <C>              <C>         
Outstanding at December 31, 1996             --               --
Granted                                 3,748,591     $     0.3646
Exercised                                  60,000           0.0100
Canceled                                     --               --
                                     ------------     ------------
Outstanding at December 31, 1997        3,688,591           0.3703
Granted                                 2,568,000           0.1854
Exercised                                  22,500           0.0100
Canceled                                  500,000           0.5000
                                     ------------     ------------
Outstanding at December 31, 1998        5,734,091     $     0.2776
                                     ============     ============
</TABLE>

The Company has recorded compensation expense in 1998 and 1997 for all options
and warrants issued to non-employees. Such compensation expense was determined
using the Black-Scholes method option-pricing model, using assumptions
consistent with those noted below. Included in the options granted in 1998 were
options issued in connection with debt. Such options have been valued using the
Black-Scholes method option-pricing model, using assumptions consistent with
those noted below. Such resulting amount has been recorded as a financing fee to
be expensed over the term of the debt. All options issued to employees and
directors were issued with exercise prices equal to fair value. Fair value for
all options issued is generally the trading price at the date of issuance.
However, where significant amounts of stock options were issued to officers and
directors as described in Note 9, and for warrants issued in connection with
debt related to the Private Offerings also described in Note 9, within a
relatively short time frame, at or around the time the Private Offerings were
completed, management determined for this large block of shares that the Private
Offering price (which also constituted a large block of shares) was a better
indicator of fair value than the trading price. Had compensation cost for the
Company's stock options been determined consistent with SFAS 123, the Company's
net loss per share would have been adjusted to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>

                                                               Years ended December 31,
                                                                  1998             1997     
                                                          --------------      --------------
<S>                                                       <C>                 <C>            
Net income (loss)                   As reported           $   (3,458,075)     $   (2,517,606)
                                                          ==============      ==============
                                    Pro forma             $   (5,081,264)     $   (3,180,214)
                                                          ==============      ==============

Income (loss) per common share      As reported           $       (0.086)     $       (0.094)
                                                          ==============      ==============
                                    Pro forma             $       (0.126)     $       (0.118)
                                                          ==============      ==============
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes method option-pricing model. The following assumptions were used
for grants in 1998: dividend yield of 0%, volatility of 86%, risk free interest
rate estimated as 5% with an expected life of 1 to 5 years. The following
assumptions were used for grants in 1997: dividend yield of 0%, volatility of
133%, risk free interest rate estimated as 6% with an expected life of 1 to 5
years.

The model is based on historical stock prices and volatility which, due to the
low volume of transactions, may not be representative of future price
variances. 

                                     F-24

<PAGE>   60


                         MIGRATEC, INC. AND SUBSIDIARY
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          December 31, 1998 and 1997


NOTE 14.  EMPLOYEE SAVINGS PLAN

Effective January 1, 1994, the Company adopted a discretionary 401(k) savings
plan ("Plan") for its employees. This Plan is available to all employees meeting
certain eligibility requirements, as further described in the Plan documents. No
discretionary employer contributions were made for the years ended December 31,
1998 and 1997. Participants are 100% vested in the portion of the plan
representing employee contributions. Participants vest 20% in employer
contributions after two years of service (as defined by the Plan document) and
20% each year thereafter.

NOTE 15.  YEAR 2000

The Company has completed a survey of internal administrative office equipment
and software for Year 2000 ("Y2K") issues. Additionally, the software developed
by the Company is Y2K compliant. The Company plans to continue to evaluate the
Y2K readiness of its consultants, vendors, and suppliers and develop contingency
plans where necessary. Based on current information, the Company believes that
the cost of compliance with the Year 2000 will not be material to the Company's
financial condition or operations, and will not significantly affect the
Company's ability to deliver its products and services; however, given the
uncertain consequences of Y2K issues outside the scope or control of the
Company, there can be no assurance that any one or more such Y2K consequences
would not have a material adverse effect on the Company.

NOTE 16.  SUBSEQUENT EVENTS

Subsequent to December 31, 1998, management terminated the 1997 Stock Option
Plan which had not been approved by the Company's shareholders within the time
specified in the 1997 Plan. Therefore, all of the outstanding options issued
pursuant to the 1997 Plan have been canceled. Effective March 1, 1999, the
Company adopted a new stock option plan, the 1999 Stock Option Plan, authorizing
the issuance of incentive stock options, non-statutory options and reload
options to eligible persons as described in the Plan. Pursuant to the 1999 Stock
Option Plan, as of the date hereof, the Company has granted to members of its
management and employees options to purchase an aggregate of 1,435,936 shares of
Common Stock of the Company exercisable at prices ranging from $0.3438 to
$0.1875 per share (See Note 9).

Subsequent to December 31, 1998, the Company entered into several short-term
notes payable with certain investor groups, including one director and one
officer, with varying terms and maturities totaling $447,500 (unaudited) (See
Note 3).


                                     F-25

<PAGE>   61


                         MIGRATEC, INC. AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998 and 1997


NOTE 16.  SUBSEQUENT EVENTS (CONTINUED)

Pursuant to the terms and conditions of the aforementioned short-term loans
made to the Company by certain investor groups, including one director and one
officer, the Company granted 638,000 stock warrants, fully vested at date of
grant, to purchase shares of its Common Stock with varying exercise prices and
terms. Additionally, during the first quarter of 1999, the Company issued
783,500 shares of its Common Stock to certain investor groups, including three
directors and one officer, as a result of the exercise of warrants previously
granted to purchase shares at prices ranging from $0.20 to $0.01 per share.

Effective February 8, 1999, the Company issued 50,000 shares of its Common
Stock to one individual upon exercise of warrants previously granted to
purchase shares at $0.10 (See Note 9).

During March 1999, the Company issued 1,930,500 shares of its Common Stock to 12
individual investors and one officer at $0.125 per share under terms of a
private offering for total net cash proceeds of $241,313 (unaudited). In a
related transaction, the Company granted two-year warrants to purchase an
aggregate of 386,100 shares of its Common Stock at $0.20 per share.

During the first quarter of 1999, the Company issued to a former employee 332
shares of its Common Stock representing the Company's 50% matching of shares
previously purchased by the employee pursuant to the terms of the Employee
Stock Purchase Plan.

During April of 1999, the Company issued (1) an aggregate of 7,075 shares of
its Common Stock to two former employees upon exercise of options previously
granted to purchase shares at $0.1875 per share and (2) 100,000 shares of its
Common Stock to a consultant upon exercise of options previously granted to
purchase shares at $0.12 per share.


                                     F-26


<PAGE>   62


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  (11)     Computations of Net Loss Per Share

<TABLE>
<CAPTION>

                                                                             1998              1997
                                                                        -------------     -------------
<S>                                                                     <C>               <C>           
Numerator:
     Numerator for basic and diluted loss per share -

     Net loss before extraordinary item                                 $  (3,741,074)    $  (2,700,957)

     Extraordinary item                                                       282,999           183,351
                                                                        -------------     -------------
     Net loss                                                           $  (3,458,075)    $  (2,517,606)
                                                                        =============     =============

Denominator:
     Denominator for basic loss per share - weighted average shares        40,220,420        26,910,116

Effect of dilutive securities:
     Stock options and warrants                                                  --                --
                                                                        -------------     -------------

     Dilutive potential common shares                                            --                --
                                                                        -------------     -------------

     Denominator for diluted earnings per share - adjusted weighted
     average shares and assumed conversions                                40,220,420        26,910,116
                                                                        =============     =============



     Basic loss per share                                               $      (0.086)    $      (0.094)
                                                                        =============     =============

     Diluted loss per share                                             $      (0.086)    $      (0.094)
                                                                        =============     =============
</TABLE>

As the Company incurred a net loss for the years ended December 31, 1998 and
1997, there were no adjustments for potentially dilutive securities as the
adjustments would have been anti-dilutive.

<PAGE>   63



                                 EXHIBIT INDEX

         3.1      Articles of Incorporation, as amended (1)

         3.2      By-Laws (1)

         4.1      Form of Common Stock Certificate (1)

         10.1     Agreement for the Exchange of Common Stock between New York
                  Acquisitions Inc. and MigraTEC Inc. (formerly One Up
                  Corporation) dated February 29, 1996 (1)

         10.2     Commercial Lease Agreement between the Company and TDC Dallas
                  Partners No. 2 Ltd. dated April 7, 1997 (1)

         10.3     Employment Agreement between the Company and W. Curtis
                  Overstreet dated April 10, 1997 (1)

         10.4     Employment Agreement between the Company and Joseph B.
                  Meredith dated June 1, 1997 (1)

         10.5     Employment Agreement between the Company and Rick J. Johnson
                  dated July 1, 1997 (1)

         10.6     Employment Agreement between the Company and Mark C. Myers
                  dated April 1, 1998 (1)

         10.7     Settlement Agreement between the Company and Richard G. Dews
                  dated March 25, 1998 (1)

         10.8     Strategic Product Assessment Report prepared for the Company
                  by Deloitte & Touche Consulting Group dated April 6, 1998 (1)

         10.9     Agreement between the Company and Reasoning Inc. dated August
                  4, 1998 (1)

         10.10    Agreement between the Company and Electronic Data Systems
                  Corporation dated September 1, 1998 (1)

<PAGE>   64


         24.1     Power of Attorney relating to the signing of amendments
                  hereto is incorporated in the signature pages of this Form
                  10-KSB

         27.1     Financial Data Schedule (2)

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

              (1) Incorporated by reference from Post-Effective Amendment No. 1
                  to the Company's Registration Statement on Form SB-2 dated
                  May 7, 1999, File No. 333-65093.

              (2) Filed herewith.