<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, 1996

                       Commission file number 33-28809-A

                               ONE UP CORPORATION
                 (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-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: $2,259,997

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 May 20, 1997. Based on the
         closing bid price of the Common Stock on the National Association of
         Securities Dealers, Inc., OTC Bulletin Board as reported on May 20,
         1997 ($0.35), the aggregate market value of the 9,742,465 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 $3,409,863. 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 May 20, 1997, the
issuer had 27,452,251 shares of common stock, no par value, outstanding.





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                                     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 ONE UP CORPORATION, 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."

ALL TRANSACTIONS DESCRIBED HEREIN GIVE EFFECT TO THE COMPANY'S ONE FOR ONE AND
ONE-HALF (1 FOR 1.5) FORWARD STOCK SPLIT THE EFFECTIVE DATE OF WHICH WAS MARCH
25, 1996.

INTRODUCTION

One Up Corporation (the "Company" or "One Up") was incorporated in 1991. On
February 29, 1996, the Company entered into a reverse acquisition agreement
with New York Acquisitions, Inc., a publicly held "shell." One Up 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 One Up. The name New York Acquisitions,
Inc., was changed to One Up Corporation. For accounting purposes, the
reorganization of One Up and the public company is regarded as an acquisition
by the public company of all of the outstanding stock of One Up, and is
accounted for as a recapitalization of the public company with One Up as the
acquirer (a reverse acquisition). Accordingly, the historical financial
statements are those of One Up.

One Up 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. Its operations primarily
consist of contract computer programming education that compliments the
curriculum of One Up. The operations of One Up Computer Services, Ltd., in the
past have not been significant to the operations of One Up. Subsequent to year
end, One Up Computer Services, Ltd., ceased operations.

One Up is engaged in the development and sales of strategic applications
software migration computer industry term for converting software applications
such as billing, manufacturing (movement between operating systems such as OS/2
and Windows) technology. Migration is a



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control and consumer applications from their current operating system to a new
target operating system. The Company believes that there is a large potential
market for these services resulting from the competition between, and
widespread business use of, several different operating systems including IBM's
OS/2, Microsoft's Windows, and the various UNIX vendors.

One Up has been involved in several successful migration projects including
such well-known companies as Group 1 Software, Policy Management Systems
Corporation, AutoTester, Inc., Caterpillar Inc., Ameritech Library Services and
USAA. One Up's expertise, technologies and refined methods allow it to perform
migration projects for customers in months rather than in years. One Up's
technology and methodology result in both time and cost savings for companies
in need of migration services.

BACKGROUND

Throughout 1991 and 1992, the Company's primary business was providing OS/2
educational courses for IBM customers ranging from the establishment or the
administration of an OS/2 local-area network to advanced OS/2 development. By
August 1992, the Company had diversified operations to include application
product development, contract programming, and conducting IBM Migration
Workshops. By January 1993, in order to become independent from IBM, the
Company restructured the education line of business by building its own
curriculum. The contract programming line of business diminished as the Company
made a decision not to focus on the consulting/contract programming operations.
Product development expanded from 1993, and continues to expand today, evolving
from its beginnings in screen savers and screen capture tools to an expert
systems operation supporting platform migration projects.

The Workshops program was an operation created by IBM in its OS/2 Development
Lab located in Boca Raton, Florida. The intent of the Workshops program was to
simultaneously offer IBM customers OS/2 programming education and platform
migration assistance (consulting). The week-long workshops were intense
migration "boot camps" to educate software developers in the techniques
required to manage multi-person, multi-year migration efforts. By November
1992, the Company had become the lead provider of workshops for IBM, and,
shortly thereafter, became IBM's sole source for the workshops operation.

May 1993 marked the beginning of two consecutive one-year contracts with IBM
for OS/2 support for IBM's "Area-10" (a geographical region, or area, for IBM).
Pursuant to the Area-10 contract, the Company provided marketing and technical
support for OS/2 to IBM's customers located in Area-10. Services provided by
the Company under this agreement terminated in May 1995, upon expiration of the
contract.

LICENSE WITH IBM

With Workshops as One Up's premier line of business for 1993, the Company
sought to revolutionize the historical processes of platform application
migration.  As a first step, platform programming differences between Windows
and OS/2 were categorized and catalogued.  Second,


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a programmer's hyper-linking editor product was acquired.  Third, the two were
merged to produce the Company's first proof-of-concept migration expert system,
SMART(TM) (Source Migration Analysis Reporting Toolset).  Version 1.0 of
SMART(TM) was released in December 1993.

During the fall of 1993, the Company entered into an exclusive licensing
agreement (which expired in December 1995) with IBM to bring to market
SMART(TM). SMART(TM) was revolutionary. It analyzed, in minutes instead of
months, an entire application source base and reported every change required to
move the application from Windows to OS/2. Moreover, SMART(TM) could perform
many of these changes automatically, while inserting in-line comments to assist
the programmer with those changes not easily automated. For IBM's Workshop
customers, SMART(TM) created a road map report for their migration project in
the first hour of their first day, and it could automatically migrate up to 50%
of their application by simply "pushing a button." As a market test, IBM
licensed SMART(TM) 1.0 and distributed it to a worldwide audience via their
OS/2 Developer connection CDROM (DevCon) during the first half of 1994. It was
extremely well received, but most users had two consistent requests for
improvement.

IBM's customers wanted SMART(TM) to be programmable (extensible) and they
wanted it to be free. As a result, by September 1994 One Up created SMART(TM)
2.0 (programmable) and licensed it exclusively to IBM for marketing as well as
for distribution to its OS/2 customers at no cost.

One Up's exclusive licensing agreement with IBM included non-compete clauses
which, in the view of the Company's management, were too restrictive and did
not allow the Company to take advantage of a significant potential market for
its services. In order to take advantage of a large market, in late 1994 the
Company began to develop its next-generation migration expert systems and
methodology - Commander Technology(SM) and the Conversion Factory(SM),
respectively. Unlike other software conversion products of which the Company is
aware, Commander Technology(SM) is programmable, allowing the developer to
rearchitect source code, text, data and graphics. In addition, Commander
Technology(SM) allows the migration of source code in any direction, between
several platforms, rather than just being limited to Windows to OS/2
migrations.

SERVICES

During 1995, the Company evolved Commander Technology(SM) and its Conversion
Factory(SM) methodology by performing services-based migrations for large scale
customers between popular desktop platforms. The non-compete clause in the IBM
exclusive licensing agreement prohibited the Company from distributing
Commander Technology(SM) as a product during 1995. This restriction caused the
Company to evolve from intending to distribute Commander Technology(SM) as a
product to using Commander Technology(SM) as an internal-use-only technology
supporting its services-based operations, the Conversion Factory(SM).




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After the termination of the IBM agreements, the Company shifted its business
focus from servicing IBM's captive customers to attempting to market its
services to a broad range of potential customers. Throughout the last half of
1995 and all of 1996, the Company attempted to launch a services-based business
model with a highly-evolved, revolutionary technology and methodology. Early in
1996, the Company learned that it was necessary to restructure its operations
so that a greater emphasis would be placed on business development. During the
first six months of 1996, the Company developed a sales strategy that hoped to
effectively allow the Company to efficiently utilize its staff and technology
in order to market its advanced methodology and technology. 1996 also marked
the formulation of the Company's marketing and migration operations
infrastructure, constituting a learning, evolutionary process of applying
Company staff plans and abilities, market perceptions and offerings to an
"unprepared" marketplace. The Company formalized, documented and staffed its
Conversion Factory(SM). This Conversion Factory(SM) methodology is the key to
One Up's migration strategy, allowing the Company to manage large scale
migrations with minimal investment in direct labor costs. This methodology also
allows the Company to track project progress and quickly determine the need for
change orders, assuring the opportunity to maintain acceptable profit margins.

The Company has spent the first quarter of 1997 refining these processes so as
to ultimately be able to deliver its products and services through industry
partners. The Company enters 1997 with the belief that, through the development
of several significant assets, including i) an experienced technical team
employing state-of-the-art proprietary technology, ii) an extensive list of
prospective clients, and iii) an aggressive sales team employing an effective
sales strategy, it is well positioned to aggressively pursue its business
purpose of being an industry leader in computer platform migration.

The Company now offers customers a complete end-to-end migration service
through a turnkey, seven step process, Conversion Factory(SM). A portion of the
process incorporates the use of the Company's proprietary Commander
Technology(SM) migration expert system. The Commander Technology(SM) migration
expert system provides a high degree of automation to the analysis and
migration of application code. The Company's systems approach also includes the
use of SizeUp(SM), a tool used to determine the number of hours a particular
migration project will take to complete. The Company's seven step migration
solution service includes the following primary components in the conversion of
the source platform application to the target platform application: i) scope
and sizing, ii) code and data analysis, iii) preparation, iv) migration, v)
completion, vi) enhancements and vii) training and support.

SALES STRATEGY

The Company's sales staff and sales model evolved extensively during 1996.
While the Company's perception of the magnitude of the marketplace has not
changed, the Company's strategy regarding business development in the area of
migration projects has changed radically. Early in 1996, a smorgasbord of
migration services was offered to low-level technical customer contacts. The
decision makers of potential migration project customers typically have little
experience or expertise in migration methodology, migration technology and
target platform



                                     - 6 -
<PAGE>   7


particulars. While the Company was able to demonstrate its capabilities to a
knowledgeable and enthusiastic technical audience, or to third party vendor
channels, it struggled with selling to the decision maker.

Based on the experiences gained during 1996, the Company now attempts to
develop relationships with the decision makers of potential migration customers
before the potential customer is ready to start the migration process. This
change in sales approach will streamline the sales and marketing process.

Once a migration business case is justified, the following must be applied in
moving from source to target:

    1.   Knowledge of the source platform;
    2.   Knowledge of the source application;
    3.   Expertise/experience in performing migrations;
    4.   Migration project methodology;
    5.   Migration tool technology;
    6.   Knowledge of the target platform;
    7.   Streamline/update/standardize application during project; and
    8.   Knowledge of the target application's functional extensions (if
         different from source application).

Management believes the Company currently offers an efficient and effective
solution for the analysis and performance of migration project business cases.
With the rapid changes occurring in today's marketplace, such as the move to
WindowsNT, the development of 64 bit processors and year 2000 issues, the
opportunity for One Up to sell its migration products and services is growing
at a rapid rate. The market for migrations from OS/2 to Windows was
approximately $600 million in 1996 (a growth of 600% over 1995's $100 million),
with expectations for the same level of growth over the next three years as
major corporations react to IBM's reduced development and support for OS/2.

During 1997, the Company's new management will implement a highly focused sales
strategy that will (1) initially limit the type of projects to the Company's
area of expertise (conversions from OS/2 to Windows), (2) limit the duration
and value of projects to keep work levels manageable, (3) price and deliver all
projects at a profit, (4) seek out strategic alliances and partnerships with
large systems reengineering firms, (5) follow up and qualify all current sales
leads, (6) concentrate on retention of current customers by exploring
additional services to offer the current customer base, (7) expand the current
customer base, and (8) reestablish an R&D team to complete development of
Commander 4.0, which will enable the development of additional platform
technology, thereby greatly expanding One Up's market potential making the
Company more valuable, and help assure the Company of maintaining a strong
market position well into the next decade.



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Management believes this will position the Company to take advantage of the
endless market for its technology and methodology by aggressively promoting the
fact that One Up's products (migration technology and methodology) allow
customers to migrate critical software applications in much less the time at
greatly reduced costs by automating the necessary, time consuming and expensive
migration process.

EMPLOYEES

As of the date hereof, the Company employs approximately 25 full time persons
and uses five to 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 December 11, 1996, a former employee filed suit against the Company, for
Breach of Employment Agreement, in Circuit Court, Fairfax County, Virginia, in
connection with the Company's decision to terminate employment of the former
employee effective July 31, 1996, upon closing of the Company's remote sales
office located in Virginia (Sidney L. Smith v. One Up Corporation, Law No.
157244). Due to defective service of process, the Company was not aware that
this suit had been filed until March 1997 when the Company's counsel received
notice that the Virginia courts had awarded a default judgment against the
Company in the amount of 110,139 effective February 21, 1997. On March 27,
1997, the Company filed for a motion of continuance on the evidentiary hearing
on damages, which had been set for March 28, 1997, and for a motion to set
aside the default judgment. At the hearing held on April 11, 1997, the Virginia
courts again ruled against the Company upholding the previously awarded default
judgment. On April 18, 1997, the former employee offered to settle the matter
for 75% of the judgment plus an agreement from the Company to register the
21,000 restricted shares of the Company's common stock that he purchased in
April 1996. On April 29, 1997, the Company proposed a counter offer to settle
in the amount of $25,000, of which $12,500 would be payable by May 20, 1997,
with the balance payable in ten equal installments of $1,250 on the 15th of
each month until fully paid. The Company believes it has no liability resulting
from termination of the former employee and that the default judgment awarded
by the Virginia courts would not be upheld in the Texas courts where the former
employee will be forced to domesticate his award. The Company believes that it
has substantial defenses and remedies available and it will pursue all
available avenues to vigorously defend its position.




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On January 21, 1997, Integrated Documentation, Inc., filed suit against the
Company, for Breach of Contract, in County Court, Dallas County, Texas, seeking
payment for unpaid fees relating to the Company's trade accounts payable in the
amount of $24,854, plus attorney fees (estimated by the plaintiff to be
$19,925), court costs and interest (Integrated Documentation, Inc. v. One Up
Corporation, Cause No. CC-97-00555-E). On January 28, 1997, Integrated filed a
motion for summary judgment. On February 14, 1997, the Company filed its
response generally denying each and every material allegation and demanding
strict proof of the allegations. On April 18, 1997, Integrated was awarded a
judgment against the Company in the amount of $24,854. On April 25, 1997, the
Company received plaintiff's first set of interrogatories. On May 6, 1997, the
Company offered to settle for payout arrangements of $1,000 payable upon
settlement with the balance payable monthly in $1,000 equal installments until
fully paid. The case is presently awaiting trial, which has been set for June
24, 1997, as the Company continues its efforts to settle the suit.

On February 4, 1997, Romac International, Inc., filed suit against the Company,
for Breach of Contract, in District Court, Dallas County, Texas, seeking
payment for unpaid fees relating to the Company's trade accounts payable in the
amount of $137,448, plus attorney's fees and interest (Romac International,
Inc. v. One Up Corporation, Cause No. 348-167704-97). On March 25, 1997, the
Company filed its response generally denying each and every material allegation
and demanding strict proof of the allegations. At present, the Company is
awaiting a response from Romac while continuing to negotiate a settlement.

On March 7, 1997, a former employee filed suit against the Company, for Breach
of Contract, in County Court, Dallas County, Texas, seeking payment for the
unpaid balance relating to a Letter Agreement dated March 4, 1996, in the
amount of $25,000, plus attorneys' fees (estimated by the plaintiff at
$20,000), court costs and interest (American Technology Acquisition Corporation
v. One Up Corporation, Cause No. CC-97-02158-C). On March 25, 1997, the Company
filed its response generally denying each and every material allegation and
demanding strict proof of the allegations. The case is presently awaiting
trial, which has been set for June 23, 1997, as the Company continues
negotiations for a settlement.

On March 7, 1997, Boynton Beach Financial Corp. (a former consultant to the
Company) filed suit against the Company, for Fraud in the amount of $15,000 and
Tortious Interference in the amount of $15,000, in Circuit Court, Palm Beach
County, Florida (Boynton Beach Financial Corp. v. One Up Corporation, Richard
Dews, Leon H. Toups, and DMV, Inc., Case No. CL-97-002102). Subsequent to
filing the suit, the plaintiff's principal shareholder and officer died. The
Company believes this is sufficient cause for the suit to be withdrawn.
Additionally, the Company believes that the case has no merit, the Company has
no liability resulting from its relationship with the plaintiff, the Company
has substantial defenses and remedies available, and the Company will pursue
all available avenues to vigorously defend its position.




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On April 16, 1997, Business Aircraft Leasing, Inc., filed suit against the
Company, for Default, in Tennessee Judicial District Chancery Court, Nashville,
Tennessee, seeking payment for unpaid fees relating to the Company's trade
accounts payable in the amount of $22,764, plus attorney fees, litigation
expenses and interest (Business Aircraft Leasing, Inc. v. One Up Corporation,
Case File No. 97-1306-I). The case is presently in negotiations. The expected
outcome is settlement of the suit for approximately $15,000, 50% of which would
be payable upon settlement with the remainder to be paid out over time.

On April 24, 1997, Ciber, Inc., filed suit against the Company in District
Court, Dallas County, Texas, seeking payment for unpaid fees relating to the
Company's trade accounts payable in the amount of $55,650, plus attorney fees,
costs of suit and interest (Ciber, Inc. v. One Up Corporation, Cause No.
97-03722-C). On May 12, 1997, the Company filed its response generally denying
each and every material allegation and demanding strict proof of the
allegations. At present, the Company is awaiting a response from Ciber while
continuing to negotiate a settlement.

On April 27, 1997, Interactive Software, Inc., filed suit against the Company
in District Court, Dallas County, Texas, seeking payment for unpaid fees
relating to the Company's trade accounts payable in the amount of $71,000, plus
attorney fees, court costs and interest (Interactive Software, Inc. v. One Up
Corporation, Cause No. 97-03637-F). The case is presently in negotiations. The
expected outcome is settlement of the suit for approximately $50,000, 50% of
which would be payable upon settlement with the remainder to be paid out over
time.

On May 19, 1997, Innova Solutions, Inc., filed suit against the Company in
District Court, Dallas County, Texas, seeking payment for unpaid fees relating
to the Company's trade accounts payable in the amount of $100,227, plus
attorney fees, court costs and interest (Innova Solutions, Inc. v. One Up
Corporation, Cause No. 97-03592-H). The case is presently in negotiations. The
expected outcome is settlement of the suit for approximately $70,000, 50% of
which would be payable upon settlement with the remainder to be paid out over
time.

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

Not applicable.





                                     - 10 -
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                                    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 May 20,
1997, the closing price for the Company's Common Stock on the OTC Bulletin
Board was $0.35 per share. At May 20, 1997, the Company had 27,452,251 shares
of Common Stock outstanding.

<TABLE>
<CAPTION>
                                                     High               Low
                                                     ----               ---
<S>                                                  <C>               <C>
Second Quarter 1996 (from June 14, 1996)             $5.00             $2.50
Third Quarter 1996                                   $4.00             $1.125
Fourth Quarter 1996                                  $1.375            $0.4375
First Quarter 1997                                   $0.50             $0.0625
Second Quarter 1997 (through May 20, 1997)           $0.47             $0.31
</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 One Up should be read in conjunction with the audited consolidated financial
statements of One Up included elsewhere herein.

Management believes that, due to the change in the Company's business strategy
subsequent to the expiration of the non-compete agreement with IBM (which
provided IBM with the exclusive marketing rights to SMART(TM)), it is difficult
to analyze the comparison of the results of operations for the years ended
December 31, 1996 and 1995. During 1995, revenues posted by the Company
consisted almost entirely of amounts due under the non-compete agreement with
IBM (which expired on December 31, 1995) and from amounts due under the IBM
Area-10 contract (which expired on May 31, 1995). With the expiration of these
contracts, the


                                     - 11 -
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Company's revenues no longer reflect the substantial licensing and support fees
received from IBM but rather are generated from sales as the Company offers its
conversion services to the general public.

Management believes that the net loss posted for the year ended December 31,
1996, was in part due to the lack of sales as a result of a longer than
anticipated hiring and training process required to field a marketing and sales
staff capable of successfully selling its migration services to large corporate
clients. Also, the Company determined that a more extended sales cycle of four
to six months would be required to close a typical large-scale migration
contract, rather than the two to three months originally forecast. Another
factor was increased labor-related costs and expenses as migration and sales
staffing were increased to support the Company's new business strategy. In
addition, management was occupied for most of the second quarter with the
necessary activities required to qualify the Company's common stock to be
traded publicly beginning on June 14, 1996, and the additional responsibilities
of being a public company as well as with finalization of the Confidential
Regulation S Offering Memorandum ("Reg S Offering") in late summer and early
fall. Accordingly, management believes it is important to note that the
extraordinary fees and expenses related to the reverse merger and becoming a
public company in February and the Reg S Offering in October are nonrecurring
and will not continue to be a drain on the Company in future periods.

Although the Company experienced a significant net loss for 1996, management
believes it is important to note the growing opportunity for One Up to sell its
automated migration products and services based on (1) the rapid growth and
changes occurring in today's marketplace, (2) increasing market demand for
conversion services, especially in the area of OS/2 to Windows migration as
major corporations react to IBM's reduced development and support for OS/2, and
(3) implementation of a highly focused sales strategy. Management believes,
that by capitalizing on this opportunity, revenues and earnings will increase
throughout 1997, although no assurances can be given regarding such increase.

In order to minimize expenses, the Company's previous management instituted a
comprehensive cost control program early in the third quarter of 1996 and
instituted a series of layoffs in January 1997 in order to further reduce
overhead. In March 1997, after assessing the Company's precarious situation,
new management began implementation of its new business plan. The first step
involved a 30 day emergency plan which included (1) employee stabilization by
granting attractive stock options and significant salary increases, (2) cash
collection from all sources including outstanding receivables and federal
income tax refunds, (3) minimizing cash outflow by negotiating with accounts
payable vendors, (4) significantly reducing overhead by negotiating early
termination of the lease for existing facilities (which included forgiveness of
approximately $90,000 for past due rent, utilities and other related expenses)
and moving the Company to its present location, (5) liquidation of available
assets to raise cash, and (6) closing an immediate sales opportunity.
Additional aspects of the new business plan include (1) hiring new personnel to
fill several vacancies, but keeping the total number of employees to a
manageable level of not more than 35, (2) efforts to raise new capital, and (3)
a highly focused sales strategy. It is expected that implementation of the new
business plan coupled with the anticipated growth in



                                     - 12 -
<PAGE>   13



revenues will contribute to improved earnings for 1997, although no assurances
can be given regarding such improvement.

YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues

During 1996, One Up revenues decreased by approximately 75% to $2,259,997,
compared to $9,065,980 in 1995, resulting primarily from the lack of revenues
from the non-compete agreement with IBM and the IBM Area-10 contract, which
expired in December and May of 1995, respectively, as well as a longer than
anticipated hiring and training process required to field a marketing and sales
staff capable of successfully selling its migration services to large corporate
clients and a more extended sales cycle of four to six months required to close
a typical large-scale migration contract, rather than the two to three months
originally forecast.

Operating Expenses

One Up's total operating expenses increased by approximately 15% to $7,149,986
during 1996, compared to $6,191,332 for 1995, primarily due to expenditures for
(i) travel related to previous management's attempts to implement its business
strategy, (ii) legal and professional fees mainly related to the reverse
merger, the Reg S Offering and other fund raising activities, and (iii) other
merger, acquisition and consulting expenses. As a percentage of revenues, total
operating expenses increased to 316% for 1996, compared to only 68% for 1995,
resulting primarily from the lack of revenues as discussed above.

Labor costs, including benefits and insurance, decreased by approximately 14%
to $3,954,015 compared to $4,573,734, respectively for 1996 and 1995, primarily
due to a decrease in the staffing level after expiration of the IBM Area-10
contract. General and administrative expenses increased to $721,966 from
$408,913, primarily due to increased expenditures for computer-related expenses
(related to hardware and software enhancements), employment fees (related to
recruiting costs for several key positions) and utilities (related to the new
office facilities). Advertising, marketing and product costs decreased to
$99,633 from $213,311, primarily due to the expiration of the two-year contract
with IBM to provide technical and marketing support for IBM's Area-10 program.
Travel increased to $465,530 from $258,587, resulting primarily from increased
sales calls being made as previous management attempted to implement its
business strategy. Rent expense increased to $386,106 for 1996, compared to
$378,074 in 1995, primarily due to moving the Company's principal offices to a
larger facility in June of 1995. This relocation was prompted as the lease for
the Company's prior facility expired, with new lease rates due to increase over
75% from $9.00 to $16.00 per square foot. Prior management's choice for the
Company's new location filled two important anticipated requirements for
implementation of their business strategy. It offered a better facility for the
Company's business purposes, at a lower lease rate per square foot, along with
increased space to support the additional staffing that would be required for
the Company's changing business strategy and projected growth. (Subsequent to
year end, as further discussed herein, the



                                     - 13 -
<PAGE>   14



Company moved from these facilities to a smaller and less costly location in
Farmers Branch, Texas). Depreciation and amortization increased to $317,036 in
1996, compared to $170,397 in 1995, attributable to expenditures in excess of
$900,000 for leasehold improvements, new furniture purchases and computer and
other equipment purchased during the second quarter of 1995 (all related to the
new office facilities). Legal and professional fees increased to $315,486 in
1996, compared to $72,284 in 1995, primarily due to fees incurred relative to
the reverse merger, the Reg S Offering and other fund raising activities.
Merger, acquisition and consulting expenses totaling $871,586 (which relate to
other expenses incurred as a result of the reverse merger in February 1996 and
becoming a public company, including the increased management consulting, and
additional accounting and legal work made necessary as a result of the reverse
merger and the various SEC filings related thereto) amounted to approximately
12% of total operating expenses for 1996.

Other Income and Expenses

Interest income decreased approximately 89% to $7,312 in 1996, compared to
$69,591 in 1995, primarily due to the steady depletion of cash balances
resulting from the significant decrease in sales revenues coupled with
increased operating expenses and costs and expenditures relating to the reverse
merger, the Reg S Offering and other fund raising activities. Interest income
on shareholder advance decreased to $33,522 in 1996, compared to $51,095 in
1995, due to payoff of the loan during the second quarter of 1996. Interest
expense (which includes loan origination fees) increased to $45,263 in 1996,
compared to only $897 in 1995, primarily due to (i) interest and loan fees
connected with obtaining short term financing, (ii) interest on convertible
debentures and shareholder loans, and (iii) finance charges assessed by trade
creditors for late payment of accounts payable. Sublease income decreased to
zero in 1996, compared to $28,159 in 1995, due to expiration of the Company's
lease for that facility. Royalty fees decreased to zero in 1996, compared to
$25,000 in 1995, due to the expiration of the non-compete agreement with IBM
and the IBM Area-10 contract in December and May of 1995, respectively.

Income Taxes

The Company recorded an income tax benefit of $1,177,227 for 1996. This
represents the amount of tax that can be recaptured for previous income taxes
paid based on a net operating loss carryover of approximately $4,155,000 for
the year ended December 31, 1996. A portion of this net operating loss was
carried back, resulting in an income tax receivable of $507,733. The portion of
the net operating loss eligible to be carried forward to future years will
expire in 2011.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used by operating activities was $2,304,344 for 1996, which resulted
primarily from the operating loss, offset partially by net increases in
accounts payable balances. This compares to net cash provided by operating
activities of $1,300,397 for 1995, attributable primarily to net income. At
December 31, 1996, the Company had a net working capital deficit of $1,147,820,
a decrease of $1,731,733 for the year then ended.


                                     - 14 -
<PAGE>   15



At December 31, 1996, the Company had a total of $319,227 in outstanding
accounts receivable ($116,157 billed and $203,070 unbilled). Based on an event
subsequent to year end, $80,410 of this amount may not be collectible.

At December 31, 1996, the Company's outstanding debt obligations included (i) a
$1,881 note payable related to vehicle financing, which was fully repaid in
February 1997, (ii) $68,682 in advances from shareholders, and (iii) $525,000
aggregate principal amount of 7% Convertible Subordinated Debentures, issued
during the fourth quarter of 1996, all of which were converted to common stock
on January 30, 1997, and February 4, 1997.

At December 31, 1996, the Company owed $603,028 for income taxes (including
accrued interest and penalties) related to 1995 operations which was due March
15, 1996. The Company did not pay this expense due to anticipating the net
operating loss for the year ended December 31, 1996. A portion of the 1996 net
operating loss was carried back, thereby generating a refund receivable for
prior taxes paid which, in part, was utilized to offset the entire 1995 tax
liability (including penalties and interest).

During 1996, the Company funded its operations primarily from the collection of
$1,022,740 in connection with the issuance of common stock, from the receipt of
$456,750 in connection with the issuance of convertible debentures (net of
$68,250 in financing fees), from the receipt of $100,000 in proceeds from a
short- term loan, from the receipt of $72,000 in loans from two shareholders,
from the receipt of a $109,364 rebate from its lessor for leasehold
improvements, from the increase in trade accounts payable of $693,674 and
accrued expenses of $223,615, and from the collection of accounts receivable
outstanding and the receipt of sales revenues and customer deposits totaling
$2,663,614. Receipts during the fourth quarter of 1996 included amounts in
excess of $600,000 in customer prepayments for new contracts signed. The total
value of all new contracts signed during the fourth quarter of 1996 exceeded
$1,500,000.

The Company is currently in a critical situation. Several key employees have
resigned, many others are threatening to do the same, several vendors have
filed suit for nonpayment on their accounts, there has been no R&D activity
since January 1997, and key members of prior management (including the
President/CEO and Vice President of Operations) have resigned. The ongoing
instability of the prior management and sales teams, poor cash management, and
lack of R&D activity have placed the Company at risk. In addition, since
mid-1996 the Company has been experiencing serious cash flow difficulties which
present a going concern problem that needs to be rectified in the short term.
One Up intends to continue funding its operating activities by obtaining
short-term financing, by raising additional capital, through the issuance of
stock, through the collection of outstanding accounts receivable, and through
the receipt of customer deposits as large-scale migration contracts are closed.
One Up is actively working with trade creditors to postpone the payment of
accounts payable, or offset a portion of certain payables by issuing stock to a
select group of trade creditors, as well as to postpone further action on
pending litigation.





                                     - 15 -
<PAGE>   16



In an effort to minimize expenses, the Company's prior management instituted a
comprehensive cost control program early in the third quarter of 1996, which
included reducing the annual salaries of the former president and two other
employees, from a combined annual total of over $395,000 to only $36,000, for
the remainder of 1996. In a second effort to further reduce overhead, prior
management implemented a series of layoffs in January 1997, effectively
eliminating annual labor costs in excess of $1,900,000. In March 1997, after
assessing the Company's precarious situation, new management began
implementation of its new business plan. The first step involved a 30 day
emergency plan which included (1) employee stabilization, (2) cash collection,
(3) minimizing cash outflow by negotiating with accounts payable vendors, (4)
negotiating early termination of the lease for existing facilities and moving
the Company to its present, less costly, location, (5) liquidation of available
assets to raise cash, and (6) closing an immediate sales opportunity for a
$115,000 migration project, one-half of which was collected upon execution of
the contract. Additional aspects of the new business plan include (1) hiring
new personnel, (2) keeping the total number of employees to a manageable level
of not more than 35, and (3) a highly focused sales strategy. It is expected
that implementation of the new business plan coupled with the anticipated
growth in revenues will contribute to improved earnings for 1997, although no
assurances can be given regarding such improvement.

In addition, One Up is actively discussing and negotiating with various outside
sources for bank financing, private placement, venture capital, investment
capital and other financing alternatives. Negotiations with an investment
banking firm, that has previously raised capital for One Up, to raise
$1,000,000 in the form of Senior Secured Promissory Notes and Common Stock
Purchase Warrants are being finalized, pending filing of this annual report.
Both the Company and the placement agent believe that prospects for successful
completion of this fund raising venture are highly probable. Negotiations with
a firm, that has previously made short-term loans to One Up, should prove
favorable in terms of lending the Company an amount sufficient to cover
continuing operations until such time that more permanent financing can be
finalized. However, ultimately there is no assurance from any entity that, if
the Company seeks additional financing from any of these sources, such
financing would be available upon acceptable terms, if at all.

Rapid changes occurring in the marketplace enhance the opportunity for One Up
to sell its migration products and services. Although One Up experienced a
significant net loss for 1996, new management (headed up by W. Curtis
Overstreet, newly elected President, CEO and Director) views the Company as
being in a turnaround situation. Mr. Overstreet has a history of successfully
turning around companies in similar situations and believes the Company has the
opportunity to achieve a turnaround with the advent of sufficient financing and
accommodations by certain of its creditors. The Company believes that
successful implementation of the Company's new business plan and sales strategy
will result in increased revenues and earnings for 1997, although no assurances
can be given regarding such increase.





                                     - 16 -
<PAGE>   17



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 the large corporate
market for migration services, 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 the outcome of various commercial, price and various
other items 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.

DEPENDENCE ON KEY PERSONNEL

The success of the Company is highly dependent upon the continued services of
Mr. W. Curtis Overstreet, its Chief Executive Officer.  The loss of Mr.
Overstreet's services would likely have a material adverse effect on the
business of the Company.  One Up does not presently maintain key man insurance
on the life of Mr. Overstreet.  There can be no assurances that the Company
will be able to replace Mr. Overstreet in the event his services become
unavailable.

LEGAL PROCEEDINGS

As described under Part I, Item 3, of this 10-KSB Annual Report, the Company is
subject to various claims and litigation relating to past transactions. In the
event the Company is not able to prevail or settle on advantageous terms
certain of the claims represented thereby, it may have a material adverse
effect on the Company's operations and substantially impair needed cash flow.





                                     - 17 -
<PAGE>   18



DECLINE IN REVENUE AND LACK OF PROFITABILITY

For the year ended December 31, 1996, the Company experienced a significant
decline in revenues and earnings, resulting primarily from (i) the expiration
of both the non-compete and the Area-10 agreements with IBM in 1995 (as
discussed elsewhere herein), (ii) increased expenses relating to the Company's
daily business activities as staffing was increased to support and implement
prior management's sales and marketing and business strategies, and (iii)
expenses incurred relating to the reverse merger activities in early 1996 as
well as other fund raising activities and the Reg S Offering in late 1996. Due
to the effects of such matters, the Company's new management has formulated a
restructuring plan (as discussed elsewhere herein). This new plan will be
implemented during the second quarter of 1997, with the first steps having been
implemented in March of 1997. While the success of the Company will in part
depend upon its ability to market and sell its migration and other related
services, management believes that the implementation of this plan should
return the Company to profitability in 1997. However, there can be no assurance
that the Company will generate an increase in revenues or earnings.

UNCERTAIN MARKET ACCEPTANCE

The Company's Commander Technology(SM) and its Conversion Factory(SM)
methodology appear to have a strong demand in the marketplace. The new
marketing and sales approach being taken to sell this technology and service is
expected to produce a number of potential prospects for the Company's services.
However, the Company's ability to deliver these services remains untested, thus
no assurance can be given that market acceptance will occur.

COMPETITION

The computer technology and services industry is extremely competitive. Despite
the Company's confidence that its technology is in many ways superior to that
of its competitors and that its migration services are among the most efficient
and effective solutions systems in the marketplace, One Up competes with many
firms which provide services similar to the Company's current and proposed
service offerings. The Company believes that its competitors' services are less
automated and, therefore, require more manual processing than One Up's
services. Most of these competitors have capital, name recognition and
financial, personnel and other resources far greater than those of One Up.
These competitors include IBM, Andersen Consulting, Computer Science
Corporation and many others. 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 with its competition.





                                     - 18 -
<PAGE>   19



NEED FOR QUALIFIED PERSONNEL

In order to meet its business objectives, it has been and will continue to be
necessary for the Company to develop and update the Company's sales model and
to employ and train qualified marketing and sales personnel and consulting
staff to carry out the new sales approach. Furthermore, due to the
formalization of the Conversion FactorySM methodology, the Company may develop
the need for expertise in the solutions services aspect of the Company.
Competition for qualified personnel in the computer migrations services
industry is intense and the Company will be required to compete for such
personnel with companies having greater financial and other resources than the
Company. There can be no assurance that the Company will be able to attract and
retain qualified personnel.

UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY

The Company is currently seeking a patent for its Commander Technology(SM)
migration services technology. While the Company believes that this patent will
provide protection for its technology and products, no assurance can be given
that the Company will be able to obtain a patent or effectively protect its
rights in the marketplace.

ITEM 7.  FINANCIAL STATEMENTS

The financial statements are included under Item 13 (a) (1) and (2) of this
Report.

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

Not applicable.





                                     - 19 -
<PAGE>   20



                                    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                51             President, CEO and Director

H. Wayne Sanderson                  60             Director of Administration, Controller
                                                   Vice President, Secretary and Director
</TABLE>

W. CURTIS OVERSTREET. Mr. Overstreet was appointed President of One Up
Corporation and elected to the Board of Directors on April 10, 1997. He is a
seasoned senior executive with almost 30 years of experience in the computer
software industry. He has had consistent success in both growth and turnaround
situations involving domestic and international environments. He has particular
expertise in the development of high performance sales and management teams,
which, in the opinion of the Board of Directors, are needed by the Company at
this time. 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. Mr.
Overstreet graduated with a B.S. degree in Economics from West Texas State
University, a member of the Texas Agricultural and Mechanical University
system, located in Canyon, Texas.

The Company entered into a one year employment agreement with Mr. Overstreet
effective April 10, 1997. The agreement includes provisions for an annual base
salary of $90,000, incentives to earn additional compensation in the forms of
salary increases and various performance bonuses upon meeting certain criteria,
as stipulated in the agreement, and sales commissions.

In addition, the employment agreement contains a provision whereby Mr.
Overstreet is granted options to purchase ten percent (10%) of the total number
of common shares outstanding as of the date of the agreement (2,745,225 shares)
at an exercise price of $0.37 per share. The options vest at the rate of 25%
after each six month period beginning April 10, 1997. Any unexercised options
will expire four years after the vesting date, except as noted in the
agreement.



                                     - 20 -
<PAGE>   21



H. WAYNE SANDERSON.  Mr. Sanderson has served as Controller and Director of
Administration of the Company since 1992, as a Director since March 1996, and
as a Vice President since October 1996.  From 1990 to 1992, Mr. Sanderson
worked as an independent consultant advising clients on the use of computer
systems to improve business operations including inventory control, sales
analysis and accounting.  From 1974 to 1990, Mr. Sanderson served as Vice
President of Swieco, Inc., an electronics distribution company.  From 1970 to
1974, Mr. Sanderson served as President of Special Systems, Inc., an
electronics manufacturing company.  From 1964 to 1970, Mr. Sanderson served in
various capacities as an Aerosystems Engineer for General Dynamics Corporation.
Mr. Sanderson holds a B.S. Degree in Electrical Engineering from the University
of Texas at Arlington, located in Arlington, Texas.

The Company entered into a one year employment agreement with Mr. Sanderson
effective March 21, 1996, pursuant to which he was to receive an annual salary
of $105,000. On July 15, 1996, Mr. Sanderson's annual salary was temporarily
reduced to $52,000. From August 1, 1996, to March 31, 1997, Mr. Sanderson's
annual salary was further reduced to $12,000. Mr. Sanderson's annual salary was
restored to $70,000 effective April 1, 1997. As soon as it is economically
feasible, the Company intends to retroactively compensate Mr. Sanderson for a
portion of the reduction in wages that were imposed beginning in 1996. Accrued
expenses as of December 31, 1996, includes $24,896 relating to this
compensation due to Mr. Sanderson, which totals $36,396 to date.

In addition, the employment agreement contains a provision whereby Mr.
Sanderson is granted options to purchase 26,006 common shares at an exercise
price of $4.0375 per share. Mr. Sanderson may exercise the options during the
period from July 1, 1997, through June 30, 1998. Any unexercised options will
expire after close of business on June 30, 1998.

The Company does not pay cash Directors' fees.

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 and H. Wayne Sanderson 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.


                                     - 21 -
<PAGE>   22



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,
1996, aggregated to $331,045. Set forth below is a summary compensation table
in the tabular format specified in the applicable rules of the Securities and
Exchange Commission.

<TABLE>
<CAPTION>
                                                SUMMARY COMPENSATION TABLE
                                                ------- ------------ -----
                                                                   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>   
 RICHARD G. DEWS,           1996   $  145,636     $     --       $    --      $   63,650           --        -     $     --  
 FORMER CHMN,               1995   $  250,020     $  891,743     $    --      $     --        2,154,112      -     $     --  
 PRES & CEO                 1994   $  102,208     $1,000,000     $    --      $   98,802      3,854,727      -        154,252
                                                                                                                             
 H. WAYNE SANDERSON,        1996   $   62,813     $     --       $    --      $    3,350         26,006      -     $     --
 DIRECTOR, SECRETARY &      1995   $  100,000     $     --       $    --      $     --          113,374      -     $     --
 FIN'L & ACCTG OFFICER      1994   $   45,833     $  130,500     $    --      $    8,718        340,123      -     $    9,240
</TABLE>


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>
 Richard G. Dews          2,154,112       $  63,650        - /   -           $ - / $    -
 H. Wayne Sanderson         113,374       $   3,350        - / 26,006        $ - / $105,000
</TABLE>


To date, the Company has previously granted to members of its management and
employees options to purchase an aggregate of 3,474,231 shares of Common Stock
of the Company exercisable at prices ranging from $4.0375 to $0.35.

EMPLOYEE STOCK OPTION PLAN

Effective March 25, 1996, the Company adopted an Employee Stock Option Plan
(the "Stock Option Plan") that provides for the grant of incentive and
non-qualified stock options to officers and key employees of the Company and
its subsidiaries. Incentive Stock Options are intended to comply with Section
422A of the Internal Revenue Code of 1986, as amended. The Incentive Stock
Option portion of the plan is available to the employees only after the Company
achieves total revenues of $50,000,000 and net, after-tax earnings of 25%. The
Stock Option Plan allows for the issuance of options to purchase up to
1,000,000 shares of Common Stock.




                                     - 22-
<PAGE>   23



Subsequent to year end, management announced plans to terminate the Stock
Option Plan. The Board is in the process of reviewing a replacement plan, the
details of which are not yet available, and anticipates adoption of the new
plan by June 30, 1997.

EMPLOYEE STOCK PURCHASE PLAN

Effective July 1, 1996, the Company adopted an Employee Stock Purchase Plan
(the "Stock Purchase Plan"). The Stock Purchase Plan was established to
facilitate employee ownership by offering an incentive to employees to purchase
the Common Stock of the Company, thereby enhancing the employees' personal
interest in the continued success of the Company. Pursuant to the Stock
Purchase Plan, via semimonthly payroll deduction on an after-tax basis,
eligible employees may elect to withhold up to 15% of their gross annual salary
for the purpose of purchasing the Company's Common Stock. At the end of each
quarter, the stock is purchased at the closing trade price on the last business
day of the calendar quarter, and employees are issued their purchased shares as
soon as is administratively feasible, but no later than 45 days after the end
of the quarter. In addition, the Company contributes 50% of each dollar
contributed by each purchasing employee. The participant shall become vested in
such employer contributions at a rate of 20% for each year of participation in
the Stock Purchase Plan so that the employer's contribution becomes fully
vested after it has remained in the Stock Purchase Plan for five years.

Subsequent to year end, management announced plans to terminate the Stock
Purchase Plan. 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. The Board is in the process of reviewing a replacement plan, the
details of which are not yet available, and anticipates adoption of the new
plan by June 30, 1997.

Pursuant to the Board's plan for replacement of both the Employee Stock Option
and the Employee Stock Purchase Plan, effective May 1, 1997, the Company
granted stock options to 20 existing employees to purchase 344,000 shares of
the Company's common stock at $0.35 per share. The options are vested 25% at
the option date, and will vest an additional 25% each succeeding year. In
addition, during May 1997, the Company granted stock options to three new
employees to purchase 9,000 shares of the Company's common stock at an exercise
price equal to that of the closing bid price per share 90 days after their date
of hire. The options vest 25% after each six month period beginning at the date
of hire. These options are exercisable upon vesting and expire one year after
100% vested.

ITEM 11.         SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS  AND
                 MANAGEMENT

The following table sets forth Common Stock ownership as of May 20, 1997, 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


                                     - 23-
<PAGE>   24



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 27,452,251 shares of the Company's
Common Stock issued and outstanding as of May 20, 1997.

<TABLE>
<CAPTION>
                                                        Shares
                                                    Beneficially     Percentage of Shares
                         Name                           Owned         Beneficially Owned
----------------------------------------------------------------------------------------
          <S>                                        <C>                   <C> 
          Richard G. Dews                            11,426,976(1)(2)      41.62
          Aronowitz RI Family, L.P.                   2,000,000             7.29
          Robert D. Keyser, Jr                        2,000,000             7.29
          CLR Associates, Inc.                        1,602,564             5.84
          H. Wayne Sanderson                            680,246             2.48
          W. Curtis Overstreet                               --               --
          Directors and Officers as a                   680,246             2.48
               group (2 persons)
</TABLE>


(1) Mr. Dews resigned  in all capacities with the Company on February 9, 1997.
    Includes 25,000 shares owned by Mr. Dews' father.

(2) Includes 5,903,614 shares which are subject to an option to purchase such
    shares granted by Mr. Dews to EAI Partners, Inc. ("EAI"), pursuant to the
    terms of an Option Agreement entered into on November 12, 1996, by and
    between Mr. Dews, the Company and EAI. The options will vest over time
    according to a schedule included in the Option Agreement. Upon execution of
    the Option Agreement, Mr. Dews will maintain the right to vote 5,523,362
    shares of common Stock, or 20.12% of the shares of Common Stock currently
    issued and outstanding. Pursuant to the terms of an Irrevocable Proxy
    related to the Option Agreement, EAI was to have the right to vote 50% of
    the shares of Common Stock underlying the unexercised but not yet
    terminated portion of the option, and Mr. Dews agreed not to vote the
    remaining 50% of the shares underlying the unexercised but not yet
    terminated portion of the option. However, by letter dated February 1,
    1997, EAI canceled their proxy to vote any One Up shares owned by Mr. Dews
    effective immediately.

ITEM 12.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On March 6, 1996, the Company entered into an agreement to pay $100,000 over a
12 month period to a former employee in exchange for services rendered. An
acceleration clause requires any remaining balance to be paid in full upon the
Company raising $500,000 of capital. The December 31, 1996, balance sheet
reflects the remaining unpaid balance of $25,000 as an accrued liability.

Effective April 18, 1996, two employees of the Company purchased 91,000 shares
of restricted common stock at per share prices ranging from $1.50 to $1.75.

Effective June 14, 1996, the Company received into its treasury 854,903 shares
of Common Stock, valued at $1.25 per share, from Richard G. Dews, then the
President, Chief Executive Officer and majority shareholder of the Company, in
exchange for retirement of $1,068,629 shareholder advances (composed of
$984,013 principal advanced to Mr. Dews during the year



                                     - 24-
<PAGE>   25



ended December 31, 1995, plus $84,616 accrued and unpaid interest earned on the
advance through June 14, 1996). The closing price of the Common Stock on June
14, 1996, on the NASDAQ OTC Bulletin Board was $5.00 per share.

Effective July 31, 1996, the Company entered into an agreement with one of its
key employees whereby the employee had the option, expiring December 31, 1996,
to purchase 50,000 shares of restricted common stock at a per share price of
$2.00. As of December 31, 1996, the Company had received $31,500 for 15,750
shares of common stock as a result of the employee exercising the option to buy
shares relating to the agreement. The option to purchase the remaining 34,250
shares expired unexercised on December 31, 1996.

ITEM 13.         EXHIBITS AND REPORTS ON FORM 8-K

(a)      (1) and (2)      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.

(b)      Reports on Form 8-K

          (I)  Form 8-K Current Report dated November 12, 1996, pertaining to
               the sale of $250,000 aggregate principal amount of 7%
               Convertible Subordinated Debentures due in 1999.

          (II) Form 8-K Current Report dated November 27, 1996, pertaining to
               the sale of $250,000 aggregate principal amount of 7%
               Convertible Subordinated Debentures due in 1999.

          (III) Form 8-K Current Report dated December 16, 1996, pertaining to
               the sale of $25,000 aggregate principal amount of 7% Convertible
               Subordinated Debentures due in 1999.

(c)      Exhibits

          3.1  Certificate of Incorporation of the Company (incorporated herein
               by reference to Form S-18 Registration Statement under the
               Securities Act of 1933, as amended, filed with the Commission
               under S.E.C. File Number 33-28809-A).

          3.2  By-Laws of the Company (incorporated herein by reference to Form
               S-18 Registration Statement under the Securities Act of 1933, as
               amended, filed with the Commission under S.E.C. File Number
               33-28809-A).

          16.1 Letter from Angel E. Lana, C.P.A., to the Securities and
               Exchange Commission dated June 4, 1996 (incorporated by
               reference to the 8-K Current Report dated June 14, 1996).


                                     - 25 -
<PAGE>   26



                                   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 4th day of June, 1997.

                                          ONE UP CORPORATION

                                          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.



 By:  /s/ W. CURTIS OVERSTREET                                    June 4, 1997
    -------------------------------                               ------------
        W. Curtis Overstreet         President, Chief Executive      Dated
                                     Officer, Principal Executive
                                     Officer, and Director
                                     
 By:  /s/ H. WAYNE SANDERSON                                      June 4, 1997
    -------------------------------                               ------------
        H. Wayne Sanderson           Vice President, Secretary,      Dated
                                     Principal Financial and
                                     Accounting Officer, and
                                     Director



                                     - 26 -
<PAGE>   27


                   ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K


(A) (1) AND (2)  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' EQUITY (DEFICIT)         F-5

       CONSOLIDATED STATEMENTS OF CASH FLOWS                             F-6

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        F-7
                                                                       THROUGH
                                                                         F-29
</TABLE>





                                      F-1
<PAGE>   28




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
One Up Corporation

We have audited the consolidated balance sheets of One Up Corporation and
Subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, 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 One Up Corporation
and Subsidiary as of December 31, 1996 and 1995, 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 loss in 1996, net capital deficiency 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
May 12, 1997
<PAGE>   29
                       ONE UP CORPORATION AND SUBSIDIARY
                          Consolidated Balance Sheets
                           December 31, 1996 and 1995


<TABLE>
<CAPTION>
                               ASSETS                                   1996           1995
                                                                    --------------------------
 <S>                                                                 <C>                 <C>
 CURRENT ASSETS
      Cash                                                          $    36,939    $   713,421
      Accounts receivable - billed, net of allowance for
           doubtful accounts of $0 and $85,000, respectively            116,157        491,819
      Accounts receivable - unbilled                                    203,070           --
      Shareholder advance                                               345,035          3,766
      Income tax refund receivable                                      507,733           --
      Other current assets                                                4,827         14,984
                                                                    --------------------------
           Total current assets                                         872,492      1,565,259

 PROPERTY AND EQUIPMENT, NET                                            843,226      1,174,609

 OTHER ASSETS
      Shareholder advance, net of current portion                          --          690,072
      Financing fees                                                     68,250           --
      Deferred tax asset                                                 97,765           --
      Other assets                                                        1,300         38,098
                                                                    --------------------------
           Total other assets                                           167,315        728,170
                                                                    --------------------------

           Total Assets                                             $ 1,883,033    $ 3,468,038
                                                                    ==========================

          LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 CURRENT LIABILITIES
      Notes payable                                                 $     2,053    $    10,932
      Accounts payable                                                  870,359        176,685
      Accrued expenses                                                  303,003         79,388
      Customer deposits in excess of unbilled receivables               678,450           --
      Shareholder advances                                               68,682          1,840
      Current income taxes payable                                         --          603,214
      Deferred tax liability                                             97,765        109,287
                                                                    --------------------------
           Total current liabilities                                  2,020,312        981,346

 LONG-TERM LIABILITIES
      Long-term portion of notes payable                                   --            1,872
      Convertible debentures                                            525,000           --
      Deferred tax liability                                               --           18,269
                                                                    --------------------------
           Total long-term liabilities                                  525,000         20,141

 MINORITY INTEREST                                                        5,632          5,671

 COMMITMENTS AND CONTINGENCIES (NOTES 3, 6, 7, 9, 10, 11, 12, 14,                            
 15, 16)                                                                   --             -- 

 STOCKHOLDERS' EQUITY (DEFICIT)
      Common stock; no par value; 200,000,000 shares authorized;
           18,002,253 and 11,337,432 shares issued in 1996 and
           1995, respectively                                         1,166,960          1,000
      Additional paid-in capital                                        712,186         66,559
      Treasury stock, at cost (854,903 shares)                       (1,068,629)          --
      Retained earnings (accumulated deficit)                        (1,478,428)     2,393,321
                                                                    --------------------------
           Total stockholders' equity (deficit)                      (  667,911)     2,460,880
                                                                    --------------------------

           Total Liabilities and Stockholders' Equity (Deficit)     $ 1,883,033    $ 3,468,038
                                                                    ==========================
</TABLE>





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

                                      F-3





<PAGE>   30


                       ONE UP CORPORATION AND SUBSIDIARY
                     Consolidated Statements of Operations
                    Years Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>
                                                         1996           1995
                                                    ----------------------------
 <S>                                                <C>             <C>
 REVENUES                                           $  2,259,997    $  9,065,980

 COSTS AND EXPENSES
      Salaries and benefits                            3,118,811       3,824,307
      General and administrative                         721,966         408,913
      Advertising and marketing                           98,037         165,776
      Product costs                                        1,596          47,535 
      Travel                                             465,530         258,587
      Contract labor                                     835,204         749,427
      Rent                                               386,106         378,074
      Depreciation and amortization                      317,036         170,397
      Insurance                                           16,662          15,193
      Bad debt expense                                      --            85,000
      Legal and professional fees                        315,486          72,284
      Automobile expense                                   1,966          15,839
      Merger, acquisition and consulting expenses        871,586            --
                                                    ----------------------------
           Total operating expenses                    7,149,986       6,191,332
                                                    ----------------------------

      Income (loss) from operations                   (4,889,989)      2,874,648

 OTHER INCOME (EXPENSES)
      Interest income                                      7,312          69,591
      Interest income on shareholder advance              33,522          51,095
      Interest expense                                   (45,263)           (897)
      Sublease income                                       --            28,159
      Other income                                          --            15,598
      Royalty fees                                          --           (25,000)
                                                    ----------------------------
           Total other income (expenses)                  (4,429)        138,546 

      Minority interest in income (loss) of
           consolidated subsidiary                            39            (633)
                                                    ----------------------------

      Income (loss) before income taxes               (4,894,379)      3,012,561

      Provision for income tax expense (benefit)      (1,177,227)      1,027,647
                                                    ----------------------------

      Net income (loss)                             $ (3,717,152)   $  1,984,914
                                                    ============================

 Net income (loss) per common share                 $     (0.231)   $      0.175
                                                    ============================

 Weighted average common shares and common
      equivalents outstanding                         16,087,903      11,337,432
                                                    ============================
</TABLE>





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

                                      F-4





<PAGE>   31


                       ONE UP CORPORATION AND SUBSIDIARY
           Consolidated Statements of Stockholders' Equity (Deficit)
                     Years Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>
                                                                                                           
                                                 Common          Common        Preferred     Preferred              
                                                 Stock           Stock           Stock         Stock       Treasury 
                                                 Issued          Amount          Issued       Amount         Stock  
                                             -----------------------------------------------------------------------
 <S>                                         <C>                <C>             <C>           <C>           <C>     
 Balance at January 1, 1995,                                                                                        
   including effect of stock split            11,337,432   $     1,000          --      $      --             --    
                                                                                                                    
 Net income                                         --            --            --             --             --    
                                             -----------------------------------------------------------------------
                                                                                                                    
 Balance at December 31, 1995                 11,337,432         1,000          --             --             --    
                                                                                                                    
 Issuance of stock for services rendered       2,267,486          --            --             --             --    
                                                                                                                    
 Effect of reverse acquisition                 1,660,350       106,220            37         37,000           --    
                                                                                                                    
 Conversion of preferred stock                                                                                      
   to common stock                                37,018        37,000           (37)       (37,000)          --    
                                                                                                                    
 Issuance of stock in connection with private                                                                       
   placement for cash                            418,500       279,000          --             --             --    
                                                                                                                    
 Issuance of stock related to various                                                                               
   consulting agreements and for cash          2,146,000       550,000          --             --             --    
                                                                                                                    
 Issuance of stock to key                                                                                           
   employees for cash                            106,750       173,250          --             --             --    
                                                                                                                    
 Treasury stock received in                                                                                         
   exchange for shareholder advances                --            --            --             --         (854,903) 
                                                                                                                    
 Issuance of stock to employees                                                                                     
   under the Employee Stock Purchase              28,717        20,490          --             --             --    
 Plan for cash                                                                                                      
                                                                                                                    
 Net loss                                           --            --            --             --             --    
                                             -----------------------------------------------------------------------
                                                                                                                    
 Balance at December 31, 1996                 18,002,253   $ 1,166,960          --      $      --         (854,903) 
                                             =======================================================================

</TABLE>

<TABLE>
<CAPTION>
                                                                             Retained
                                               Treasury      Additional       Earnings              
                                                 Stock         Paid-in      (Accumulated             
                                                 Amount        Capital         Deficit)     Total    
                                             --------------------------------------------------------
 <S>                                         <C>            <C>             <C>           <C>      
 Balance at January 1, 1995,                                             
   including effect of stock split           $       --      $    66,559   $   408,407    $   475,407   
                                                                                                       
 Net income                                          --             --       1,984,914      1,984,914  
                                             --------------------------------------------------------
                                                                                                       
 Balance at December 31, 1995                        --           66,559     2,393,321      2,460,880  
                                                                                                       
 Issuance of stock for services rendered             --           67,000          --           67,000  
                                                                                                       
 Effect of reverse acquisition                       --           11,377      (154,597)          --    

 Conversion of preferred stock                                                                         
   to common stock                                   --             --            --             --    
                                                                                                       
 Issuance of stock in connection with private                                                          
   placement for cash                                --             --            --          279,000  
                                                                                                       
 Issuance of stock related to various                                                                  
   consulting agreements and for cash                --          567,250          --        1,117,250  
                                                                                                       
 Issuance of stock to key                                                                              
   employees for cash                                --             --            --          173,250  
                                                                                                       
 Treasury stock received in                                                                            
   exchange for shareholder advances           (1,068,629)          --            --       (1,068,629) 
                                                                                                       
 Issuance of stock to employees                                                                        
   under the Employee Stock Purchase                 --             --            --           20,490  
 Plan for cash                                                                                         
                                                                                                       
 Net loss                                            --             --      (3,717,152)    (3,717,152) 
                                             --------------------------------------------------------
                                                                                                       
 Balance at December 31, 1996                $ (1,068,629)   $   712,186   $(1,478,428)   $  (667,911) 
                                             ========================================================
</TABLE>        
                
                
                
                                     F-5
<PAGE>   32

                       ONE UP CORPORATION AND SUBSIDIARY
                     Consolidated Statements of Cash Flows
                    Years Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>
                                                                            1996           1995
                                                                         --------------------------
 <S>                                                               <C>                     <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                    $(3,717,152)   $ 1,984,914
    Adjustments to reconcile net income (loss) to net
       cash provided (used) by operating activities:
       Depreciation and amortization                                         317,036        170,397
       Bad debt expense                                                         --           85,000
       Deferred income tax expense (benefit)                                (127,556)       103,772
       Stock compensation expense                                             67,000           --
       Minority interest                                                         (39)           633
       Merger, acquisition and consulting expenses paid for in               567,250           --
 stock
       Change in assets and liabilities:
          (Increase) decrease in accounts receivable                         375,662       (363,081)
          Increase in unbilled revenue                                      (203,070)          --
          Increase in shareholder advance                                    (33,522)    (1,035,107)
          Decrease in inventory                                                 --           28,791
          Increase in income tax refund receivable                          (507,733)          --
          (Increase) decrease in other current assets                         10,157        (13,455)
          Increase in other assets                                           (44,902)       (26,349)
          Increase (decrease) in accounts payable                            693,674        (49,570)
          Increase in accrued expenses                                       223,615         79,388
          Increase (decrease) in income taxes payable                       (603,214)       334,616
          Increase in customer deposits                                      678,450           --
          Increase in other long-term liabilities                               --              448
                                                                         --------------------------
       Total adjustments                                                   1,412,808       (684,517)
                                                                         --------------------------
       Net cash provided (used) by operating activities                   (2,304,344)     1,300,397

 CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment                                      (81,567)    (1,040,789)
    Rebate from lessor for leasehold improvements                            109,364           --
                                                                         --------------------------
       Net cash provided (used) in investing activities                       27,797     (1,040,789)

 CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock                                 1,022,740           --
    Proceeds from note payable                                               100,000           --
    Proceeds from convertible debentures                                     525,000           --
    Shareholder advances                                                      63,076           --
    Repayment of notes payable                                              (110,751)       (10,223)
                                                                         --------------------------
       Net cash provided (used) in financing activities                    1,600,065        (10,223)
                                                                         --------------------------

       Net increase (decrease) in cash                                      (676,482)       249,385

 Cash - beginning                                                            713,421        464,036
                                                                         --------------------------

 Cash - ending                                                           $    36,939    $   713,421
                                                                         ==========================

 SUPPLEMENTAL DISCLOSURES:
       Interest paid                                                     $    39,445    $       897
                                                                         ==========================
       Income taxes paid                                                 $    50,000    $   590,731
                                                                         ==========================

 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
    ACTIVITIES:
       Settlement of shareholder advances through purchase of
          treasury stock                                                 $ 1,068,629    $      --
                                                                         ==========================
</TABLE>





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

                                      F-6


<PAGE>   33


                       ONE UP CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995



NOTE 1.  BACKGROUND AND BUSINESS ACTIVITY


One Up Corporation (formerly New York Acquisitions, Inc.) was organized under
the laws of the state of Florida on February 24, 1989. The company was a
development stage enterprise until it acquired a privately-owned, Texas-based
company on February 29, 1996. At that time, One Up Corporation ("One Up")(then
a privately-held Texas corporation) entered into a reverse acquisition
agreement with New York Acquisitions, Inc., a publicly-held "shell" Florida
corporation. One Up 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 One Up. The name New
York Acquisitions, Inc., was amended to One Up Corporation. For accounting
purposes, the reorganization of One Up and the public company is regarded as an
acquisition by the public company of all of the outstanding stock of One Up,
and is accounted for as a recapitalization of the public company with One Up as
the acquirer (a reverse acquisition). Accordingly, the historical financial
statements are those of One Up.


One up was founded January 7, 1991, by Richard G. Dews. 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, One Up 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, One Up had identified a need for an automated
migration technique and developed its first set of software tools for that
purpose. Initially, One Up licensed the tools to IBM on an exclusive basis
until December 31, 1995. During 1995, One Up developed more advanced migration
technologies and methodologies 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, One Up has offered its migration services to the public, utilizing these
new techniques, continuing in the development and sale of strategic
applications software migration technology.


One Up 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. Its operations primarily
consist of contract computer programming education that compliments the
curriculum of One Up. The operations of One Up Computer Services, Ltd., in the
past have not been significant to the operations of One Up. Subsequent to year
end, One Up Computer Services, Ltd., ceased operations.





                                      F-7





<PAGE>   34



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation

The financial statements include the accounts of One Up, 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

The Company begins to capitalize software development costs after technological
feasibility has been established. Software costs are 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.

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, 1996 and 1995, accrued expenses include
approximately $0 and $39,300, respectively, of additional direct labor costs
that exceed related contract revenues.



                                      F-8





<PAGE>   35



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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.

Income (Loss) Per Share

Income (loss) per share has been computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the
respective periods. The effect of outstanding warrants, options and convertible
debentures on the net loss for 1996 would be anti-dilutive and, accordingly,
they are not included in the computation of weighted average shares for the
year ended December 31, 1996.

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.

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 and earnings




                                      F-9





<PAGE>   36



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


per share as if SFAS 123 had been applied (See Note 14).

Adoption of New Accounting Standards

The Company intends to adopt Statement of Financial Accounting Standards No.
128 ("SFAS 128"), "Earnings Per Share," effective December 15, 1997. This
statement requires the replacement of primary earnings per share with basic
earnings per share and fully diluted earnings per share with diluted earnings
per share. Management of the Company does not expect that the adoption of this
statement will have a material impact on the earnings per share computation.

Reclassifications

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


NOTE 3.  GOING CONCERN UNCERTAINTY


As reflected in the accompanying consolidated financial statements, the Company
incurred losses from continuing operations of $4,889,989 during the year ended
December 31, 1996. If the Company does not obtain funding in the near term, the
Company will be unable to continue as a going concern. The Company's new
management (headed up by a new President and CEO) is in the process of
implementing its new business plan with a highly focused sales strategy, and
believes that the growing opportunity for One Up to sell its automated
migration products and services, based on rapid growth and changes in the
marketplace and increasing market demand for conversion services, will yield
increased revenues and earnings for 1997, although no assurances can be given
regarding such increase.


The loss from continuing operations reflects the first year of activity since
the Company has attempted to offer its migration services to the general public
(declining renegotiation of the two lucrative IBM contracts) during which
progress has been made restructuring the Company, improving efficiencies and
expanding potential customer network base. Additionally, the loss includes (i)
substantial expenditures for legal and other professional fees related to the
reverse acquisition, the Reg S Offering, and other capital fund raising
activities, (ii) a significant increase in sales and marketing staff and
related expenses as the Company's previous management




                                      F-10





<PAGE>   37



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 3.  GOING CONCERN UNCERTAINTY (CONTINUED)


attempted to implement various business and sales strategies, and (iii)
increased expenditures attributable to the Company's relocation to larger
facilities in Westlake, Texas, such as rent, utilities and property taxes as
well as depreciation expense relating to the significant costs of leasehold
improvements, furniture and equipment.

Management believes that the Company is now positioned to move toward
profitability during the year ended December 31, 1997. 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 migration services by way of successful implementation of the
new business plan and sales strategy.


To continue to fund its operations for the year ended December 31, 1997, the
Company is actively discussing and negotiating with various outside sources for
bank financing, private placement, venture capital, investment capital and
other financing alternatives. Negotiations with an investment banking firm,
that has previously raised capital for One Up, to raise 1,000,000 in the form
of Senior Secured Promissory Notes and Common Stock Purchase Warrants are being
finalized, pending filing of this annual report. Both the Company and the
placement agent believe that prospects for successful completion of this fund
raising venture are highly probable. Negotiations with a firm, that has
previously made short-term loans to One Up, should prove favorable in terms of
lending the Company an amount sufficient to cover continuing operations until
such time that more permanent financing can be finalized. However, ultimately
no assurance can be given that such financing can be arranged or that the terms
and conditions of such financing will be acceptable to the Company.

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.  ADVANCE TO SHAREHOLDER


During the year ended December 31, 1995, One Up advanced $984,013 to its
President/CEO and majority shareholder pursuant to provisions contained in the
President's employment agreement.





                                      F-11





<PAGE>   38



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 4.  ADVANCE TO SHAREHOLDER (CONTINUED)


The advance was subject to an annual interest rate of 7 1/2% which was accrued
as an additional advance. During the years ended December 31, 1996 and 1995,
the advance earned interest income of $33,522 and $51,095, respectively. The
employment agreement called for the advance to be repaid during the three year
period ended December 31, 1998. However, as discussed in Note 11, on June 14,
1996, the Company received into its treasury 854,903 common shares in exchange
for early retirement of the shareholder advances plus accrued interest.



NOTE 5.  PROPERTY AND EQUIPMENT


Property and equipment consists of the following at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                 1996               1995
                                                                 ----               ----
<S>                                                             <C>            <C>
Furniture and equipment                                         $   932,110    $   860,083
Vehicle                                                                --           46,936
Leasehold improvements                                              410,512        510,336
                                                                -----------    -----------
                                                                $ 1,342,622    $ 1,417,355
Less accumulated depreciation and amortization                     (499,396)      (242,746)
                                                                -----------    -----------
                                                                $   843,226    $ 1,174,609
                                                                ===========    ===========
</TABLE>


Depreciation expense for the years ended December 31, 1996 and 1995, was
$303,586 and $157,553, respectively.

Subsequent to year end, on March 31, 1997, the leasehold improvements with a
net book value at December 31, 1996, of $310,567 were released to the landlord
as a result of the Company successfully negotiating the early termination of
its lease for office facilities in Westlake, Texas, and moving to its present
location in Farmers Branch, Texas (See Note 11).


NOTE 6.  NOTE PAYABLE


In 1994 One Up entered into an installment vehicle note payable to GMAC
Financial Services. The note bore interest at 6.75% annually, had monthly
principal and interest payments of $955, and was fully repaid at maturity in
February 1997.


                                      F-12





<PAGE>   39



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 7.  CONVERTIBLE DEBENTURES


On October 30, 1996, the Company entered into a Regulation S Offering
Memorandum (the "Offering"). The Offering provided for up to $1,500,000 (plus a
15% over allotment allowance) aggregate principal amount of 7% Convertible
Subordinated Debentures (the "Debentures"). Each Debenture was convertible, at
the option of the holder, at any time after 40 days following the issuance of
such Debenture, and prior to maturity, into shares of the Company's common
stock at a conversion price of 50% of the prior five day average closing bid
price per share. The Offering, which was scheduled to terminate on November 15,
1996, was extended for a period of 45 days until December 31, 1996. The
Debentures were being offered by the Placement Agent on a "best efforts" basis.
As of December 31, 1996, the Offering yielded net proceeds to the Company of
$456,750.


On the final closing date of the Offering, December 31, 1996, the Company was
to sell to the Placement Agent a five year warrant to purchase up to the number
of shares of the Company's common stock into which a Debenture in the amount of
10% of the aggregate principal amount of the Debentures sold (which was
$525,000) would be convertible, or 204,878 shares. As of the report date, the
Company has not completed this transaction.


On November 12, 1996, the Company entered into a financial consulting agreement
(the "Agreement") with the Placement Agent. The Agreement provides for a
monthly fee of $10,000 to be paid by the Company to the Placement Agent for a
duration of 24 months for financial consulting services to be provided by the
Placement Agent, unless the Agreement is terminated under terms stipulated in
the Agreement. (To date, the Company has remitted no monthly fee amounts due
under the Agreement, the entire balance of which is included in the Company's
outstanding accounts payable.) The Agreement also provides that the Company
shall grant to the Placement Agent warrants exercisable from time to time,
either in whole or in part, during a period of five years from November 12,
1996, to purchase 250,000 shares of the Company's common stock at an exercise
price of $1.00 per share. In addition, the Agreement provides that the
Placement Agent shall have the right of first refusal to act as the Company's
exclusive managing underwriter or placement agent in any offering of securities
without the assistance of any underwriter or placement agent.


As a condition to the Placement Agent entering into the Agreement, on November
12, 1996, Richard G. Dews, the Company and an outside investment group (the
"Group") entered into an option agreement (the "Option Agreement") whereby Mr.
Dews granted to the Group certain rights with respect to 6,000,000 shares of
the Company's common stock owned by Mr. Dews.



                                      F-13





<PAGE>   40



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 7.  CONVERTIBLE DEBENTURES (CONTINUED)


An option was granted to purchase 2,000,000 shares, at the prior five day
average closing bid price per share ("Standard Exercise Price"), expiring the
later of June 30, 1997, or 90 days after registration. An option was granted to
purchase an additional 4,000,000 shares in 1,000,000 share blocks, at the
greater of $0.50 per share or the Standard Exercise Price ("Alternate Exercise
Price"), with each block vesting on June 30, 1997, September 30, 1997, December
31, 1997, and March 31, 1998, respectively, and terminating 180 days, 270 days,
365 days, and one year and 90 days, respectively, from the initial tranche
termination date. The Group paid $50,000 to Mr. Dews in connection with the
grant of options in exercise of an applicable number of shares at the Alternate
Exercise Price. The Group agrees that by the later of April 15, 1997, or 30
days after registration, they will exercise their option to purchase $250,000
of an applicable number of shares at the Alternative Exercise Price. The Option
Agreement provided that the Company shall file a shelf registration statement
with the SEC within 45 days of November 12, 1996, in order to register the
6,000,000 shares underlying the option. As of the report date, the Company has
not completed the registration of these shares.


Subsequent to year end, all of the Debentures (with an aggregate principal face
value of $525,000) were converted to a combined total of 10,291,534 common
shares on January 30, 1997, and February 4, 1997, at effective per share prices
of $0.09125 and $0.04875, respectively.


NOTE 8.  INCOME TAXES


Deferred tax assets and liabilities at December 31, 1996, and December 31,
1995, consist of the following:


<TABLE>
<CAPTION>
                                                                   1996        1995
                                                                   ----        ----
<S>                                                             <C>          <C>
Current deferred tax asset                                      $    --      $  28,900
Current deferred tax liability                                    (97,765)    (138,187)
                                                                ---------    ---------
Net current deferred tax liability                              $ (97,765)   $(109,287)
                                                                =========    =========


Noncurrent deferred tax asset                                   $ 545,986    $    --
Noncurrent deferred tax liability                                    --        (18,269)
Valuation allowance                                              (448,221)        --
                                                                ---------    ---------
Net noncurrent deferred tax asset                               $  97,765    $ (18,269)
                                                                =========    =========
</TABLE>




                                      F-14





<PAGE>   41



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 8.  INCOME TAXES (CONTINUED)


The current deferred tax asset at December 31, 1995, results primarily from the
timing of deductibility of the allowance for doubtful accounts and compensation
not currently recorded for federal income tax purposes. The noncurrent deferred
tax asset at December 31, 1996, results primarily from merger and acquisition
costs capitalized for federal income tax purposes and the benefit of net
operating losses. The net operating loss has a 100% valuation allowance
recorded against it due to the uncertainty of generating future taxable income.
The current deferred tax liability at December 31, 1996 and 1995, results from
the cash basis of accounting for federal income tax purposes versus the accrual
basis for financial accounting purposes. The noncurrent deferred tax liability
at December 31, 1995, arises from the use of accelerated methods of
depreciation of property and equipment for federal income tax purposes.


The components of the provision for federal income taxes for the years ended
December 31, 1996 and 1995, are as follows:


<TABLE>
<CAPTION>
                                                        1996            1995
                                                        ----            ----
<S>                                                  <C>            <C>
Current expense (benefit)                            $(1,049,671)   $   923,875
Deferred expense (benefit)                              (127,556)       103,772
                                                     -----------    -----------
                                                     $(1,177,227)   $ 1,027,647
                                                     ===========    ===========
</TABLE>


The Company's income tax expense (benefit) for the years ended December 31,
1996 and 1995, differed from the statutory federal rate of 34 percent as
follows:


<TABLE>
<CAPTION>
                                                    1996          1995
                                                    ----          ----
<S>                                             <C>            <C>
Statutory rate applied to income (loss)
     before income taxes                        $(1,664,089)   $ 1,024,270
Increase (decrease) in income taxes:
     Penalties and interest                          64,588           --
     Valuation allowance                            448,221           --
     Amounts not deductible for
          federal income tax purposes
          and other                                  26,631          3,377
                                                -----------    -----------
Income tax expense (benefit)                    $(1,177,227)   $ 1,027,647
                                                ===========    ===========
</TABLE>





                                      F-15





<PAGE>   42



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 8.  INCOME TAXES (CONTINUED)


At December 31, 1996, the Company owed $603,028 for income taxes (including
accrued penalties and interest), related to 1995 operations, which was due
March 15, 1996. The Company did not pay this expense due to anticipating the
net operating loss for the year ended December 31, 1996. In January 1997, a
portion of the 1996 net operating loss was carried back in order to recapture
prior taxes paid, thereby generating a refund receivable for those prior taxes
which was utilized, in part, to offset the entire 1995 tax liability (including
penalties and interest).


At December 31, 1996, the Company has recorded an income tax receivable (net of
the $603,028 taxes due for 1995 discussed above) of $507,733 relating to the
net operating loss generated during 1996 of approximately $4,155,000. The
portion of the net operating loss generated for the year ended December 31,
1996, eligible to be carried forward to future years in the amount of $725,000
will expire in 2011.


NOTE 9.  RELATED PARTY TRANSACTIONS


Effective June 14, 1996, pursuant to a meeting of the Board of Directors, the
Company received into its treasury, from its President/CEO and majority
shareholder, 854,903 common shares, valued at $1.25 per share, in exchange for
early retirement of the $1,068,629 shareholder advances (comprised of $984,013
principal advanced to the key employee during the year ended December 31, 1995,
plus $84,616 accrued and unpaid interest earned on the advance through June 14,
1996).


The employment agreement with the Company's former President/CEO/majority
shareholder, which, among other provisions, called for annual compensation of
$600,000 from January 1, 1996, to December 31, 1998, was set aside pending
renegotiation. For 1996, the former President agreed to waive the annual
compensation as called for in the agreement and to accept as compensation those
amounts which were received.


During 1996, two shareholders/officers advanced amounts to the Company totaling
$72,000. At December 31, 1996, the balance remaining due to the two
shareholders was $68,682 plus $482 in accrued interest.





                                      F-16





<PAGE>   43



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 10.  STOCKHOLDERS EQUITY (DEFICIT) AND STOCK OPTIONS


Effective February 29, 1996, 2,267,486 common shares were issued to two
officers of the Company pursuant to stock option agreements dated November 1,
1995. Rather than receiving cash at the exercise of these options,
consideration for the shares was recorded as compensation to the shareholders
totaling $67,000 during the quarter ended March 31, 1996.

On February 29, 1996, all of the outstanding preferred stock (37 shares) was
converted to 37,018 shares of common stock.

In March 1996, the Board of Directors authorized a private placement offering
of 418,500 shares of common stock at $0.667 per share. The offering was fully
subscribed as of March 31, 1996.

Effective March 25, 1996, the Company authorized a 1 for 1.5 forward common
stock split. The financial statements, including all references to the number
of shares of common stock and all per share information, have been adjusted to
reflect the common stock split on a retroactive basis.

The Company entered into various consulting agreements which included the
issuance of common shares during 1996 as follows: (The value of each consulting
agreement was to be amortized over the life of the individual contract.
However, due to no subsequent future value having been received as a result of
these agreements, a one-time adjustment was recorded to expense the remaining
previously unamortized value of these agreements in the amount of $158,271.)

    i) Effective April 10, 1996, pursuant to various consulting agreements for
accounting, financial and legal services provided from February 29, 1996, to
February 28, 1997, and valued at $91,000, the Company issued 1,365,000 shares
of common stock.

    ii) Effective April 10, 1996, pursuant to a consulting agreement for
accounting and financial services provided from March 29, 1996, to March 28,
1997, and valued at $50,000, the Company issued 40,000 shares of common stock.

    iii) Effective April 17, 1996, pursuant to a consulting agreement for legal
services provided from April 15, 1996, to October 15, 1996, and valued at
$12,500, the Company issued 10,000 shares of common stock.




                                      F-17





<PAGE>   44



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 10.  STOCKHOLDERS EQUITY (DEFICIT) AND STOCK OPTIONS (CONTINUED)


    iv) Effective April 17, 1996, pursuant to a consulting agreement for
    services provided from April 8, 1996, to April 7, 1997, and valued at
    $13,750, the Company issued 11,000 shares of common stock. In addition, the
    Company granted warrants to purchase up to 800,000 common shares at per
    share prices ranging from $1.00 to $2.50. At December 31, 1996, only
    400,000 warrants had been exercised, for which 400,000 shares of common
    stock were issued and $550,000 was received by the Company. The remaining
    400,000 warrants were not exercised and expired prior to December 31, 1996.

    v) Effective June 27, 1996, pursuant to a consulting agreement for services
    provided from January 5, 1996, to June 30, 1997, and valued at $375,000, the
    Company issued 300,000 shares of common stock.

    vi) Effective June 27, 1996, pursuant to a consulting agreement for
    services provided from January 5, 1996, to December 31, 1996, and valued at
    $25,000, the Company issued 20,000 shares of common stock.


Effective April 18, 1996, two employees of the Company purchased 91,000 shares
of restricted common stock at per share prices ranging from $1.50 to $1.75.


Effective July 9, 1996, the Company entered into a consulting agreement whereby
in exchange for public relations services the Company was to issue, as partial
compensation for the services, common stock valued at $92,500 on September 30,
1996, and $92,500 on December 31, 1996, based on the closing bid price at the
date of issue. At December 31, 1996, no shares had been issued as a result of
this agreement, and the Company owed $40,640 for public relations services
relating to the agreement which was past due and unpaid (currently recorded as
an outstanding trade accounts payable). Subsequent to year end, both the
Company and the firm providing the public relations services mutually agreed to
cancel the consulting agreement. Additionally, it was agreed that compensation
for the public relations services would be that which was billed for those
services and that no common stock was to be issued as a result of the
consulting agreement.


Effective July 31, 1996, the Company entered into an agreement with one of its
key employees whereby the employee had the option, expiring December 31, 1996,
to purchase 50,000 shares of restricted common stock at a per share price of
$2.00. As of December 31, 1996, the Company had received $31,500 for 15,750
shares of common stock as a result of the employee exercising the option to buy
shares relating to the agreement. The option to purchase the remaining 34,250
shares expired unexercised on December 31, 1996.



                                      F-18





<PAGE>   45



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 10.  STOCKHOLDERS EQUITY (DEFICIT) AND STOCK OPTIONS (CONTINUED)


Effective July 1, 1996, the Company adopted a stock purchase plan ("Plan")
designed to provide its employees with a proprietary interest in the Company.
The Plan's fiscal year end is June 30. This Plan is available to all employees
meeting certain eligibility requirements, as further described in the Plan
documents. Under this Plan, via semi-monthly payroll deduction, eligible
employees may elect to withhold up to 15% of their gross annual salary for the
purpose of purchasing the Company's common stock. At the end of each quarter,
the stock is purchased at the closing trade price on the last date of the last
month of the calendar quarter, and employees are issued their purchased shares
as soon as it is administratively feasible, but no later than 45 days after the
end of the quarter. In addition, each participant purchase is matched 50% by
the Company. Participants' vesting in the Company match will increase 20% on
July 1 of each year for the stock purchased during the preceding Plan year, and
stock certificates will be issued after the match for the affected plan year
has become 100% vested.


During the third quarter of 1996, pursuant to the Plan, employees purchased
8,455 shares of the Company's common stock valued at $11,626 based on the
September 30, 1996, closing bid price of $1.375 per share. 1,574 shares of
common stock (representing the Company's 50% match due to participants who, to
date, remain employed by the Company) will be issued effective July 1, 1997,
subject to vesting requirements as described in the Plan documents.


During the fourth quarter of 1996, pursuant to the Plan, employees purchased
20,262 shares of the Company's common stock valued at $8,864 based on the
December 31, 1996, closing bid price of $0.4375 per share. 4,778 shares of
common stock (representing the Company's 50% match due to participants who, to
date, remain employed by the Company) will be issued effective July 1, 1997,
subject to vesting requirements as described in the Plan documents.


Subsequent to year end, management announced plans to terminate the Employee
Stock Purchase Plan. As a result, employees who were participating in the Plan
terminated their participation effective April 1, 1997, and all amounts
previously withheld for the second quarter 1997 were refunded to the
participants. The Board is in the process of reviewing a replacement plan, the
details of which are not yet available, and anticipates adoption of the new
plan by June 30, 1997.





                                      F-19





<PAGE>   46



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 11.  COMMITMENTS AND CONTINGENCIES


In May 1995, One Up leased its former office facility located in Westlake,
Texas, from IBM under a noncancelable operating lease, which was to expire
April 2000. In March 1997, however, due to the forthcoming increase in rental
rates per square foot to more than double the current rates coupled with the
Company's need to reduce overhead and monthly expenses, One Up's new management
successfully negotiated a settlement for early cancellation of the lease. The
terms of the agreement reached between One Up and IBM included cancellation of
the lease effective March 31, 1997, in turn for One Up's payment of $20,000 to
IBM in settlement of approximately $90,000 owed to IBM and the property
management company for past due rent, utilities and other related expenses. In
addition, One Up released to the landlord leasehold improvements that it had
previously made to the facility with a net book value of $310,567 at December
31, 1996.


On April 7, 1997, One Up leased 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>
         1997                                      $     93,720
         1998                                           127,800
         1999                                           127,800
         2000                                            42,600
                                                   ------------
         Total                                     $    391,920
                                                   ============
</TABLE>


In May 1995, the Company leased two copiers from Danka under a noncancelable
operating lease, which was to expire April 2000. However, due to the Company's
urgent need to reduce overhead and monthly expenses, in March 1997, at which
time One Up was four months in arrears on payments ($9,766) for the leased
copiers, the Company contacted Danka in an attempt to negotiate return of one
or both of the copiers. The Company was not successful in negotiating a change
to the lease and was, therefore, forced to abandon the copiers effective March
31, 1997. At that time, the copiers were repossessed by Danka to be refurbished
and sold with any difference between the proceeds and the remaining total
payments on One Up's lease ($90,679) to be charged back and billed to the
Company at that time. Any such difference to be charged back would relate to
the year ended December 31, 1997, and will be recorded by the Company
accordingly.





                                      F-20





<PAGE>   47



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 11.  COMMITMENTS AND CONTINGENCIES (CONTINUED)


Beginning in April 1996, the Company entered into a series of one year lease
agreements with AT&T for various computer equipment at an average monthly cost
of approximately $12,000 for the first year. Under terms of the agreement, for
each year thereafter that the Company renews its lease for the equipment, the
monthly cost will be reduced by one-half the cost of the first year, to
approximately $6,000 from this date forward.


In June 1996, the Company leased their telephone system from Southwestern Bell
under a noncancelable operating lease, which will expire April 2000. The lease
calls for monthly payments in the amount of $2,187.


In April 1997, the Company leased a refurbished copier from The Copier Source
under a thirty-six month, noncancelable operating lease. The lease calls for
monthly payments in the amount of $124.


Effective May 1, 1995, One Up entered into an employment agreement through
December 31, 1998, with its former President/CEO and majority shareholder. The
agreement, which provided for annual compensation of $600,000, an automobile
allowance, and group, life and disability insurance coverage, was set aside
pending renegotiation. For 1996, the former President agreed to waive the
annual compensation as called for in the agreement and to accept as
compensation those amounts which were received. The original agreement also
provided for an advance to the key employee of up to $1,000,000 prior to
December 31, 1995, at an annual interest rate of 7 1/2%. The advance amount was
to be repaid during the three year period ended December 31, 1998 (See Note 4).


In addition to the previously mentioned employment agreement with its former
President/CEO, during 1996 the Company entered into employment agreements with
several key employees for a term of one year (automatically renewing each
year), of which six remain employed by the Company to date. The total base
salary of the six remaining employees is approximately $431,250.


Pursuant to provisions within the remaining key employee employment agreements,
one employee was granted common stock options equal to his annual base salary.
Such options, valued at 85% of the market value of the Company's common stock
on July 1, 1996 ($4.75),




                                      F-21





<PAGE>   48



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 11.  COMMITMENTS AND CONTINGENCIES (CONTINUED)


must be exercised in the period from July 1, 1997, to June 20, 1998. The annual
base salary of the employee as of the date the options were granted was
approximately $105,000.


On October 25, 1996, pursuant to amendments to some of the employment
agreements, three employees were granted options to purchase 450,000 and
200,000 shares of the Company's common stock at per share prices of $1.00 and
$2.00, respectively, exercisable from March 2, 1997, to March 1, 1998, and from
June 2, 1997, to June 1, 1998, respectively. Effective January 15, 1997,
200,000 and 100,000 of the aforementioned options were canceled upon
resignation of one of the employees. Although another of the employees was
laid-off effective February 14, 1997, pursuant to terms of the Amendment, those
options remain exercisable due to circumstances stipulated in the Amendment.
Therefore, to date, 250,000 and 100,000 of the options remain exercisable.


Subsequent to year end, a key employee, who had entered into a one year
employment agreement with the Company during 1996, was laid-off. Pursuant to
terms of an amendment to the employment agreement, the Company believes it may
be liable to the employee for severance pay equal to the employee's annual
salary of approximately $70,000. Any such liability would relate to the year
ended December 31, 1997, and will be recorded by the Company accordingly.


Effective April 10, 1997, the Company entered into a one year employment
agreement with its newly elected President and CEO. The agreement includes
provisions for an annual base salary of $90,000, incentives to earn additional
compensation in the forms of salary increases and various performance bonuses
upon meeting certain criteria, as stipulated in the agreement, and sales
commissions. In addition, the agreement contains a provision granting options
to purchase ten percent (10%) of the total number of common shares outstanding
as of the date of the agreement (which computes to 2,745,225 shares) at an
exercise price of $0.37 per share. The options vest at the rate of 25% after
each six month period beginning April 10, 1997. Any unexercised options will
expire four years after the vesting date, except as provided under special
conditions and circumstances as noted in the agreement.


On December 11, 1996, a former employee filed suit against the Company, for
Breach of Employment Agreement, in Fairfax County, Virginia, in connection with
the Company's decision to terminate employment of the former employee effective
July 31, 1996, upon closing of the Company's remote sales office located in
Virginia. Due to defective service of process,



                                      F-22





<PAGE>   49



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 11.  COMMITMENTS AND CONTINGENCIES (CONTINUED)


the Company was not aware that this suit had been filed until March 1997 when
the Company's counsel received notice that the Virginia courts had awarded a
default judgment against the Company in the amount of $110,139 effective
February 21, 1997. On March 27, 1997, the Company filed for a motion of
continuance on the evidentiary hearing on damages, which had been set for March
28, 1997, and for a motion to set aside the default judgment. At the hearing
held on April 11, 1997, the Virginia courts again ruled against the Company
upholding the previously awarded default judgment. On April 18, 1997, the
former employee offered to settle the matter for 75% of the judgment plus an
agreement from the Company to register the 21,000 restricted shares of the
Company's common stock that he purchased in April 1996. On April 29, 1997, the
Company proposed a counter offer to settle in the amount of $25,000, of which
$12,500 would be payable by May 20, 1997, with the balance payable in ten equal
installments of $1,250 on the 15th of each month until fully paid. The Company
believes that it has substantial defenses and remedies available and it will
pursue all available avenues to vigorously defend its position. The Company
believes it has no liability resulting from termination of the former employee
and that the default judgment awarded by the Virginia courts would not be
upheld in the Texas courts where the former employee will be forced to
domesticate his award. However, the Company has accrued $31,250 at December 31,
1996, in connection with this suit. Ultimately, the settlement amount, if any, 
may differ from the Company's expected settlement amount as discussed above.


On March 7, 1997, Boynton Beach Financial Corp. (a former consultant to the
Company) filed suit against the Company, for Fraud in the amount of $15,000 and
Tortious Interference in the amount of $15,000, in Circuit Court, Palm Beach,
Florida. Subsequent to filing the suit, the plaintiff's principal shareholder
and officer died. The Company believes this is sufficient cause for the suit to
be withdrawn. Additionally, the Company believes that the case has no merit,
the Company has no liability resulting from its relationship with the
plaintiff, the Company has substantial defenses and remedies available, and the
Company will pursue all available avenues to vigorously defend its position.
The Company has not accrued any amounts in connection with this suit as it
believes no amounts are due or will be paid.


On March 6, 1996, the Company entered into an agreement to pay $100,000 over a
12 month period to a former employee in exchange for services rendered. An
acceleration clause requires any remaining balance to be paid in full upon the
Company raising $500,000 of capital. The December 31, 1996, balance sheet
reflects the remaining unpaid balance of $25,000 as an accrued liability.
Subsequent to year end, on March 7, 1997, the former employee filed suit
against the Company, for Breach of Contract, in County Court, Dallas County,
Texas, seeking



                                      F-23





<PAGE>   50



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 11.  COMMITMENTS AND CONTINGENCIES (CONTINUED)


payment for the unpaid balance in the amount of $25,000, plus attorneys' fees
(estimated by the former employee at $20,000), court costs and interest. On
March 25, 1997, the Company filed its response generally denying each and every
material allegation and demanding strict proof of the allegations. The case is
presently awaiting trial, which has been set for June 23, 1997, as the Company
continues negotiations for a settlement.


On January 21, 1997, Integrated Documentation, Inc., filed suit against the
Company, for Breach of Contract, in County Court, Dallas County, Texas, seeking
payment for unpaid fees relating to the Company's trade accounts payable in the
amount of $24,854, plus attorney fees (estimated by Integrated to be $19,925),
court costs and interest. On January 28, 1997, Integrated filed a motion for
summary judgment. On February 14, 1997, the Company filed its response
generally denying each and every material allegation and demanding strict proof
of the allegations. On April 18, 1997, Integrated was awarded a judgment
against the Company in the amount of $24,854. On April 25, 1997, the Company
received plaintiff's first set of interrogatories. On May 6, 1997, the Company
offered to settle for payout arrangements of $1,000 payable upon settlement
with the balance payable monthly in $1,000 equal installments until fully paid.
The case is presently awaiting trial, which has been set for June 24, 1997, as
the Company continues its efforts to settle the suit.


On February 4, 1997, Romac International, Inc., filed suit against the Company,
for Breach of Contract, in District Court, Dallas County, Texas, seeking
payment for unpaid fees relating to the Company's trade accounts payable in the
amount of $137,448, plus attorney's fees and interest. On March 25, 1997, the
Company filed its response generally denying each and every material allegation
and demanding strict proof of the allegations. At present, the Company is
awaiting a response from Romac while continuing to negotiate a settlement.


On April 16, 1997, Business Aircraft Leasing, Inc., filed suit against the
Company, for Default, in Tennessee Judicial District Chancery Court, Nashville,
Tennessee, seeking payment for unpaid fees relating to the Company's trade
accounts payable in the amount of $22,764, plus attorney fees, litigation
expenses and interest. The case is presently in negotiations. The expected
outcome is settlement of the suit for approximately $15,000, 50% of which would
be payable upon settlement with the remainder to be paid out over time.





                                      F-24





<PAGE>   51



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 11.  COMMITMENTS AND CONTINGENCIES (CONTINUED)


On April 24, 1997, Ciber, Inc., filed suit against the Company in District
Court, Dallas County, Texas, seeking payment for unpaid fees relating to the
Company's trade accounts payable in the amount of $55,650, plus attorney fees,
costs of suit and interest. On May 12, 1997, the Company filed its response
generally denying each and every material allegation and demanding strict proof
of the allegations. At present, the Company is awaiting a response from Ciber
while continuing to negotiate a settlement.


On April 28, 1997, Interactive Software, Inc., filed suit against the Company
in District Court, Dallas County, Texas, seeking payment for unpaid fees
relating to the Company's trade accounts payable in the amount of $71,000, plus
attorney fees, court costs and interest. The case is presently in negotiations.
The expected outcome is settlement of the suit for approximately $50,000, 50%
of which would be payable upon settlement with the remainder to be paid out
over time.


On May 19, 1997, Innova Solutions, Inc., filed suit against the Company in
District Court, Dallas County, Texas, seeking payment for unpaid fees relating
to the Company's trade accounts payable in the amount of $100,227, plus
attorney fees, court costs and interest. The case is presently in negotiations.
The expected outcome is settlement of the suit for approximately $70,000, 50%
of which would be payable upon settlement with the remainder to be paid out
over time.


Of the seven immediately aforementioned lawsuits (six of which are for unpaid
trade accounts payable and one is for unpaid amounts relating to an agreement
for services), $398,881 of the total $436,943 relates to amounts included in
the Company's outstanding accounts payable balances at December 31, 1996. The
$38,062 remaining is for services rendered in 1997, and is therefore
appropriately recorded by the Company in 1997.


From January 17, 1997, to March 14, 1997, the Company failed to pay earned but
unused vacation pay to terminated employees (both layoffs and resignations)
totaling $46,284 that was due and payable at the dates of termination. Due to a
lack of funds, the Company did not timely pay these amounts, and, to date,
these amounts remain unpaid. If any former employees file against the Company
for these unpaid wages, the Company's failure to timely pay earned but unused
vacation pay to its former employees could result in fines being imposed by the
Texas Workforce Commission. The liability for the unpaid wages is recorded in
the accompanying



                                      F-25





<PAGE>   52



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 11.  COMMITMENTS AND CONTINGENCIES (CONTINUED)


financial statements as part of accrued liabilities (to the extent such wages
were earned during 1996).


Currently, the Company is late in filing both its Form 10-KSB for the year
ended December 31, 1996, and its Form 10-QSB for the quarter ended March 31,
1997.


NOTE 12.  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 $113,432 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, 1996, approximately 57% of the Company's gross
revenues were earned from three customers, each of whom separately contributed
31%, 13% and 13% to the Company's total gross revenues for the year then ended.


For the year ended December 31, 1995, approximately 85% of the Company's
revenues and earnings resulted from an exclusive licensing agreement with IBM
Corporation. The Company allowed the licensing agreement to expire on December
31, 1995.


Subsequent to year end, upon learning of the financial difficulties of One Up,
two customers canceled contracts in progress and all work ceased in late
January 1997. The remaining value of these contracts totaled $191,680 in
revenues yet to be earned (all of which would have been recognized within the
first quarter of 1997) of which $166,400 remained to have been billed and
collected. Of the $112,300 in revenues actually earned on the two contracts,
$137,600 has been billed and collected. In a related matter, although all work
had been completed on another contract and final billings sent as of January 9,
1997, the customer now refuses to pay $149,000 (of which $105,710 is included
in unbilled accounts receivable at December 31, 1996) due to cancellation of
the subsequent contract, collection of which is doubtful. Any loss would be
incurred in the year ended December 31, 1997, and will be recorded by the
Company accordingly.


                                      F-26





<PAGE>   53



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 13.  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, advance payment receivables, accounts payable,
accrued liabilities and deposits and other liabilities are carried at amounts
that reasonably approximate their fair values.


<TABLE>
<CAPTION>
                                             December 31, 1996
                                        ---------------------------
                                         Carrying            Fair
                                          amount            value
                                        ----------       ----------
<S>                                     <C>              <C>
Fixed rate debt                         $  570,303       $  570,303
                                        ==========       ==========
</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.


NOTE 14.  STOCK OPTIONS AND WARRANTS


Pursuant to various note agreements and in accordance with employee agreements
for key employees, the Company has issued certain stock options and warrants.
The options are all considered compensatory.


Following is a summary of warrant and option activity:


<TABLE>
<CAPTION>
                                                                                    Warrant/Option Price
                                    Compensatory                                   -----------------------
                                       Options       Warrants      Total           Per Share       Total
----------------------------------------------------------------------------------------------------------
 <S>                                   <C>                <C>               <C>               <C>
Outstanding at December 31, 1994            --           --           --           $   --       $      --
     Granted                           2,267,486         --      2,267,486          0.0295          67,000
     Exercised                              --           --           --               --              --
                                      --------------------------------------------------------------------
Outstanding at December 31, 1995       2,267,486         --      2,267,486          0.0295          67,000
     Granted                             887,551    1,254,878    2,142,429          1.6149       3,459,750
     Canceled                            119,449      400,000      519,449          2.5267       1,312,500
     Exercised                         2,283,236      400,000    2,683,236          0.2417         648,500
                                      --------------------------------------------------------------------
Outstanding at December 31, 1996         752,352      454,878    1,207,230         $1.2970      $1,565,750
                                      ====================================================================
</TABLE>





                                      F-27

<PAGE>   54



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 14.  STOCK OPTIONS AND WARRANTS (CONTINUED)


The outstanding stock options and warrants expire from March 1, 1998, through
June 20, 1998.


The following summarizes information about compensatory options outstanding at
December 31, 1996:

<TABLE>
<CAPTION>
                       Outstanding Options                                        Options Exercisable
----------------------------------------------------------------------       -------------------------------
                                        Weighted Avg.
     Range of            Number           Remaining       Weighted Avg.         Number         Weighted Avg.
  Exercise Prices     Outstanding        Contractual     Exercise Price      Exercisable        Exercisable
                                            Life                                                   Price
------------------------------------------------------------------------------------------------------------
     <S>                <C>              <C>                 <C>                 <C>               <C>
$1.00 to $4.0375       752,352           1.27 Years          $1.68               -                 n/a
</TABLE>



The options granted in 1996 and 1995 have exercise prices which approximate
fair value at the date of grant and accordingly, no compensation cost has been
recognized for compensatory stock options in the accompanying consolidated
financial statements. Had compensation cost for the Company's stock options
been determined consistent with SFAS 123, the Company's net income (loss) and
net income (loss) per share would have been adjusted to the pro forma amounts 
indicated below:


<TABLE>
<CAPTION>
                                                            Years ended December 31,
                                                               1996             1995
                                                               ----             ----
<S>                               <C>                      <C>              <C>
Net income (loss)                 As reported              $(3,717,152)     $ 1,984,914
                                                           ===========      ===========
                                  Pro forma                $(4,154,309)     $ 1,979,698
                                                           ===========      ===========


Income (loss) per common share    As reported              $    (0.231)     $     0.175
                                                           ===========      ===========
                                  Pro forma                $    (0.258)     $     0.175
                                                           ===========      ===========
</TABLE>


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes method option-pricing model with the following assumptions used
for grants in both 1996 and 1995, divided yield of 0%, all options issued prior
to beginning trading as a public company have an assumed volatility of 0%.
Volatility subsequent to the Company going public and trading its stock was
159%, risk free interest rates ranging from 5.125% to 6.125% over a two year
period with an expected life of 2 to 3 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-28





<PAGE>   55



                       ONE UP CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                           December 31, 1996 and 1995



NOTE 15.  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, 1996 and 1995. During 1995, $93,508 in discretionary
employer contributions were made for the year ended December 31, 1994.
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 16.  SUBSEQUENT EVENTS


During the first quarter of 1997, pursuant to the Employee Stock Purchase Plan,
employees purchased 13,367 shares of the Company's common stock valued at
$5,097 based on the March 31, 1997, closing bid price of $0.38 per share. 5,499
shares of common stock (representing the Company's 50% match due to
participants who, to date, remain employed by the Company) will be issued
effective July 1, 1997, subject to vesting requirements as described in the
Plan documents.


Effective May 1, 1997, the Company granted stock options to 20 existing
employees to purchase 344,000 shares of the Company's common stock at $0.35 per
share. The options are vested 25% at the option date, and will vest an
additional 25% each succeeding year. The options are exercisable upon vesting
and expire one year after 100% vested.


During May 1997, the Company granted stock options to three new employees to
purchase 9,000 shares of the Company's common stock at an exercise price equal
to that of the closing bid price per share 90 days after their date of hire.
The options vest 25% after each six month period beginning at the date of hire
and may be exercised upon vesting. Any unexercised options will expire one year
after 100% vested.





                                      F-29





<PAGE>   56


                                    EXHIBIT INDEX
                                    -------------  
<TABLE>
<CAPTION>
EXHIBIT       
NUMBER              DESCRIPTION
------              -----------
<S>           <C>
  27          Financial Data Schedule

</TABLE>