U.S. SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549

                                   FORM 10-QSB

                                   (Mark One)

              _X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 1998

             __ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
               For the transition period from _______ to _______.

                           Commission File No. 0-27780


                                  U-SHIP, INC.
             (Exact name of registrant as specified in its charter)


          Utah                                            87-0355929
---------------------------------              ---------------------------------
(State or Other Jurisdiction                   (IRS Employer Identification No.)
of Incorporation or Organization)


                     5583 West 78th Street, Edina, MN 55439
                     --------------------------------------
               (Address of Principal Executive Offices) (Zip Code)


       Registrant's Telephone Number, Including Area Code: (612) 941-4080


Check whether the issuer: (1) 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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                      YES (X)                     NO ( )

As of November 13, 1998, there were 4,979,709 shares of common stock of the
registrant issued and outstanding.

<PAGE>


                                  U-SHIP, INC.

                                   FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                                      INDEX

                                                                            Page
                                                                            ----
PART 1.  FINANCIAL INFORMATION.................................................3

ITEM 1.
         a)    Condensed Consolidated Financial Statements.....................3

         b)    Condensed Consolidated Balance Sheets -
               September 30, 1998 and June 30, 1998............................3

         c)    Condensed Consolidated Statements of
               Operations - Three and Nine months ended
               September 30, 1998 and 1997.....................................4

         d)    Condensed Consolidated Statements of
               Cash Flows - Nine months ended
               September 30, 1998 and 1997.....................................5

         e)    Notes to Condensed Consolidated Financial
               Statements......................................................6


ITEM 2.
         a)    Management's Discussion and Analysis of
               Financial Condition and Results of Operations...................8


PART II. OTHER INFORMATION....................................................15


ITEM 6.        Exhibits ......................................................16

         27    Financial Data Schedule

               SIGNATURES.....................................................17


                                       2

<PAGE>


PART I. - FINANCIAL INFORMATION
ITEM 1. - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                          U-SHIP, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                                      As of

<TABLE>
<CAPTION>
                                                                      September 30,       June 30,
                                                                          1998              1998
                                                                      ------------      ------------
                  ASSETS                                              (UNAUDITED)
<S>                                                                   <C>               <C>         
CURRENT ASSETS
  Cash and cash equivalents                                           $     33,622      $    153,693
  Short-term investments                                                 1,300,000         1,700,000
  Accounts receivable                                                       79,408            83,529
  Inventories                                                              508,673           501,641
                                                                      ------------      ------------

          Total current assets                                           1,921,704         2,438,863
                                                                      ------------      ------------

PROPERTY AND EQUIPMENT
  Shipping centers                                                       1,329,665         1,335,234
  Furniture, fixtures and equipment                                        553,912           537,979
  Less accumulated depreciation                                         (1,044,778)         (934,054)
                                                                      ------------      ------------

          Total property and equipment,net                                 838,799           939,159
                                                                      ------------      ------------

OTHER ASSETS, net                                                          170,942           174,904
                                                                      ------------      ------------


                                                                      $  2,931,445      $  3,552,926
                                                                      ============      ============

                  LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Current maturities of long-term debt                                $     47,680      $     52,881
  Accounts payable                                                         172,140            74,143
  Accrued liabilities                                                       71,319           144,928
  Deferred revenue                                                          11,168            19,225
                                                                      ------------      ------------

                  Total current liabilities                                302,308           291,177
                                                                      ------------      ------------

Long-term debt, net of current maturities                                   33,231            61,004
                                                                      ------------      ------------

SHAREHOLDERS' EQUITY
  Preferred stock, $.004 par value; 25,000,000 shares authorized;
    4,500,000 shares designated series A cumulative convertible
    preferred stock: 4,455,498 issued and outstanding                       17,822            17,822
  Common stock, $.004 par value; 75,000,000 shares authorized;
    4,979,709 issued and outstanding                                        19,919            19,919
  Additional paid-in capital                                            12,935,347        12,935,347
  Accumulated deficit                                                  (10,377,182)       (9,772,343)
                                                                      ------------      ------------

                  Shareholders' equity                                   2,595,906         3,200,745
                                                                      ------------      ------------

                                                                      $  2,931,445      $  3,552,926
                                                                      ============      ============
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       3

<PAGE>


                          U-SHIP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                                   (UNAUDITED)


                                       THREE MONTHS ENDED SEPTEMBER 30,
                                       --------------------------------
                                            1998               1997
                                        ------------      ------------

Revenue                                 $    124,476      $    263,413

Direct shipping and equipment sales          127,418           180,408
General and administrative                   450,559           488,289
Marketing and sales                           35,061            37,361
Research and development                     137,467            60,989
                                        ------------      ------------

Loss from operations                        (626,029)         (503,634)

Other Income (Expense)
Interest income                               24,587             6,642
Interest expense                              (3,397)           (6,620)
                                        ------------      ------------

Net loss                                $   (604,839)     $   (503,612)
                                        ============      ============

Basic & diluted
  net loss per share                    $      (0.12)     $      (0.10)
                                        ------------      ------------

Basic & diluted weighted
  average number of common
  shares outstanding                       4,979,709         4,970,825
                                        ============      ============


    The accompanying notes are an integral part of the financial statements.


                                       4

<PAGE>


                          U-SHIP, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Three Months Ended September 30,
                                                               --------------------------------
                                                                     1998             1997
                                                                 -----------      -----------
<S>                                                              <C>              <C>         
OPERATING ACTIVITIES
      Net Loss                                                   $  (604,839)     $  (503,612)
      Adjustments to reconcile net loss to net cash flows
           used for operating activities-
                Depreciation and amortization                        120,661          139,172
      Change in current operating items:
                Accounts receivable                                    4,121            9,393
                Inventories                                           (7,032)          68,695
                Prepaid expenses and other                                --           (9,577)
                Accounts payable                                      97,997           17,876
                Accrued liabilities                                  (73,609)        (138,810)
                Deferred revenue                                      (8,057)          (9,366)
                                                                 -----------      -----------

                          Cash used for operating activities        (470,758)        (426,229)
                                                                 -----------      -----------

INVESTING ACTIVITIES
      Purchases of property and equipment                            (16,338)        (150,680)
      Redemption of short-term investments                           400,000          250,000
                                                                 -----------      -----------

                          Cash provided for investing activities     383,662           99,320
                                                                 -----------      -----------

FINANCING ACTIVITIES
      Payments on notes payable and long-term debt                   (32,974)         (14,244)
      Proceeds from sale of common stock                                  --           20,783
                                                                 -----------      -----------

                     Cash provided (used) by financing activities    (32,974)           6,539
                                                                 -----------      -----------

Net decrease in cash and cash equivalents                           (120,070)        (320,370)

Cash and cash equivalents, beginning of period                       153,693          724,260
                                                                 -----------      -----------

Cash and cash equivalents, end of period                         $    33,623      $   403,890
                                                                 ===========      ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
      Cash paid for interest                                           3,397            6,620
                                                                 ===========      ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                       5

<PAGE>


                          U-SHIP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated financial statements included herein have been
prepared by U-Ship, Inc. which, together with its wholly-owned subsidiaries,
shall be referred to herein as the ("Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The Company's
business is seasonal and, accordingly, interim results are not indicative of
results for a full year. In the opinion of the Company, all adjustments
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company as of September 30, 1998, and the results of
its operations for the three months ended September 30, 1998 and 1997, have been
included. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements for the year ended June 30, 1998, and the footnotes thereto, included
in the Company's Report on Form 10-KSB, filed with the Securities and Exchange
Commission on September 28, 1998.

1.  Basis of Presentation:
Principles of consolidation - The consolidated financial statements include the
accounts of U-Ship, Inc. and its wholly owned subsidiaries. All inter-Company
balances and transactions have been eliminated in the consolidation.

2.  Basic and Diluted Net Loss Per Share:
In the second quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings per Share" which is effective for interim periods ending after
December 15, 1997. As a result, all prior period earnings per share data has
been restated. The adoption of SFAS No. 128 did not have a significant impact on
previously reported earnings per share. Basic earnings per common share was
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Dilutive earnings per common share
was computed similar to the computation of basic earnings per share, except that
the denominator is increased for the assumed exercise of dilutive options and
other dilutive securities using the treasury stock method. No options or other
dilutive securities were included in diluted earnings per share as they would be
antidilutive. Total options and warrants outstanding for the periods ended
September 30, 1998 and 1997 were 4,418,576 and 1,435,696, respectively.

3.  Inventories:
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market. Inventories consist of shipping systems in various stages of completion,
including component parts. The components of inventory are:

                                            September 30,       June 30,
                                                1998              1998
                                                ----              ----

      Raw materials and work components      $ 474,964         $ 467,932
      Finished goods                            33,709            33,709
                                             ---------         ---------
                                             $ 508,673         $ 501,641
                                             =========         =========

4.  Revenue Recognition:
The Company has historically generated revenue from: The per-package shipping
revenue generated from ongoing shipping volume at its Intelligent Shipping
Kiosks (ISKs), the sale of ISKs and custom built intelligent kiosks, and to a
lesser extent, from the sale of shipping supplies and maintenance contracts.

Package shipping revenue is recognized when the package is shipped. Revenue from
maintenance contracts is deferred and recognized over the period of the related
agreement.

Historically, ISKs placed in service by the Company have been leased by
retailers from third party leasing companies. The Company placed in service
approximately one-sixth of its ISK through such arrangements. During 1996 and
1997, however, the Company's deployment strategy has been to emphasize the
placement of Company-owned and operated ISK in retail locations. The lessor has
certain recourse to the Company in case of customer default or return of the


                                       6

<PAGE>


automated shipping center, primarily to re-market the automated shipping center
on a best effort basis. The Company has reserved the estimated cost of
fulfilling such recourse arrangements.

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


                                       7

<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

                          U-SHIP, INC. AND SUBSIDIARIES

         IN ACCORDANCE WITH THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY NOTES THAT CERTAIN
STATEMENTS IN THIS FORM 10-QSB AND ELSEWHERE WHICH ARE FORWARD-LOOKING AND WHICH
PROVIDE OTHER THAN HISTORICAL INFORMATION, INVOLVE RISKS AND UNCERTAINTIES THAT
MAY IMPACT THE COMPANY'S RESULTS OF OPERATIONS. THESE FORWARD-LOOKING STATEMENTS
INCLUDE, AMONG OTHERS, STATEMENTS CONCERNING THE COMPANY'S GENERAL BUSINESS
STRATEGIES, FINANCING DECISIONS, AND EXPECTATIONS FOR FUNDING CAPITAL
EXPENDITURES AND OPERATIONS IN THE FUTURE. WHEN USED HEREIN, THE WORDS
"BELIEVE," "PLAN," "CONTINUE," "HOPE," "ESTIMATE," "PROJECT," "INTEND,"
"EXPECT," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THE EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, NO STATEMENTS
CONTAINED IN THIS FORM 10-QSB SHOULD BE RELIED UPON AS PREDICTIONS OF FUTURE
EVENTS. SUCH STATEMENTS ARE NECESSARILY DEPENDENT ON ASSUMPTIONS, DATA OR
METHODS THAT MAY BE INCORRECT OR IMPRECISE AND MAY BE INCAPABLE OF BEING
REALIZED. THE RISKS AND UNCERTAINTIES INHERENT IN THESE FORWARD-LOOKING
STATEMENTS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED
IN OR IMPLIED BY THESE STATEMENTS.

         READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE
HEREOF. THE INFORMATION CONTAINED IN THIS FORM 10-QSB IS BELIEVED BY THE COMPANY
TO BE ACCURATE AS OF THE DATE HEREOF. CHANGES MAY OCCUR AFTER THAT DATE, AND THE
COMPANY WILL NOT UPDATE THAT INFORMATION EXCEPT AS REQUIRED BY LAW IN THE NORMAL
COURSE OF ITS PUBLIC DISCLOSURE PRACTICES. REFERENCE IS MADE TO THE CAUTIONARY
LANGUAGE UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS" IN
THE COMPANY'S 10-KSB FOR FISCAL YEAR END JUNE 30, 1998, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1998.

         IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE EXPECTATIONS REFLECTED IN ANY FORWARD-LOOKING STATEMENT HEREIN
INCLUDED, AMONG OTHER THINGS, (1) THE ABILITY OF THE COMPANY TO LEVERAGE AND
MARKET ITS ISK TECHNOLOGY (AS DEFINED BELOW) TO MAJOR SHIPPERS AND CARRIERS AND
OPERATE A BRAND IDENTITY RELATING THERETO; (2) THE ABILITY OF THE COMPANY TO
SUCCESSFULLY REDEPLOY EXISTING COMPANY-OWNED ISKS TO HIGHER VOLUME LOCATIONS;
(3) THE ABILITY OF THE COMPANY TO INCREASE ITS ORIGINAL EQUIPMENT MANUFACTURING
BUSINESS FOR KIOSKS AND THE GROWTH IN KIOSKS AS TOOLS FOR PROVIDING INFORMATION,
MARKETING AND VENDING SERVICES AND PRODUCTS; (4) THE UNCERTAINTIES SURROUNDING
TECHNOLOGICAL CHANGES AND THE COMPANY'S DEPENDENCE UPON COMPUTER SYSTEMS AND
THIRD PARTIES WHO MANUFACTURE AND MARKET THE SAME; (5) THE ABILITY OF THE
COMPANY TO SUCCESSFULLY DEVELOP AND IMPLEMENT AN ACQUISITION STRATEGY; (6) THE
ABILITY OF THE COMPANY TO ACCESS PUBLIC AND PRIVATE EQUITY MARKETS; AND (7) THE
ABILITY OF THE COMPANY TO STEM OPERATING LOSSES AND POSITION THE COMPANY TO
ACHIEVE POSITIVE CASH FLOW.


GENERAL

         In 1991, U-Ship, Inc. (the "Company" or "U-Ship") began the initial
development of self-service automated shipping systems designed to be installed
at the shipping hubs of major package carriers such as United Parcel Service
("UPS") and Federal Express Corporation ("FedEx"), thereby allowing small
business and individuals expanded access to shipping services. The original
shipping kiosks developed by the Company were large and relatively slow,
reflecting the state of the computer industry of that day. Since that time,
rapid advances in computer software and hardware have allowed the Company to
reduce the size of the systems, build in higher levels of intelligence with
greater speed, and to make the kiosks more consumer friendly.

         In 1996 the Company introduced a third generation of intelligent
shipping kiosks ("ISKs") (formerly known as the self-service automated shipping
center or "ASC"). Since that time, the primary business of the Company has been
the manufacture, marketing and operation of self-service, automated shipping
systems for use by consumers and small businesses who ship packages and priority
letters through major carriers in the air express and package delivery market.
Historically, ISKs placed in service by the Company were leased by retailers
from third party leasing companies or were Company-owned. Beginning in 1996, the
Company's consumer testing and deployment strategy began to emphasize the
placement of Company-owned and operated ISKs in retail locations. ISKs have been
placed in office services and copy centers, including Kinko's and OfficeMax, and
in other retail locations such as


                                       8

<PAGE>


grocery and general merchandise stores. As of September 30, 1998, the Company
had installed a total of 302 ISKs in test sites in 40 states and Canada. Of
these, 72 ISKs were located in Kinko's Copy Centers and 113 ISKs were located in
various OfficeMax stores.

         Beginning in fiscal 1997, the Company began the production of custom
built computerized kiosks for a third party in the employment information
business. The Company currently derives revenue primarily from package shipping
transactions and, to a lesser extent, from the sale of ISKs and custom built
computerized kiosks.

         The Company holds eight patents and has one allowed patent application
related to hardware and software utilized in its ISKs and is not aware of any
other comparable self-service, automated shipping system currently marketed or
available to consumers and small business package shippers. Each location in the
Company's network of ISKs is centrally controlled and serviced through an
electronic connection to the Company's computer network system located at its
headquarters. The Company believes that its ISK technology is among the most
advanced self-service automated air express and package shipping systems
available for consumers and small businesses.

REVISED BUSINESS STRATEGY

         In late 1997, as a result of lower than anticipated revenues from ISKs
placed in the field, the Company began an extensive evaluation of its strategies
and results from its test sites. Based upon information gathered from the
operation of over 300 ISKs in various retail locations such as Kinko's and
OfficeMax, the Company has substantially revised its historical business
strategy of installing Company-owned ISK systems in major office supply and
instant printing outlets, business centers and office parks.

         The Company has concluded that these placements were not sufficiently
concentrated to allow for economies of scale in marketing and advertising, which
the Company believes is crucial to customer awareness and acceptance of the ISK.
Accordingly, the Company is in the process of consolidating these units to the
Minneapolis and St. Paul markets to take advantage of economies of scale in both
maintenance and advertising. The Company has been actively working with key
customers such as Kinko's and OfficeMax to remove these units as quickly as
possible and relocate them to what the Company believes will be more profitable
locations. On September 15, 1998, the Company entered into an agreement with
OfficeMax to redeploy all of its 113 ISKs located in OfficeMax stores over a 90
day period. Negotiations with Kinko's continue.

         The Company has also determined that existing ISKs were unable to offer
customers the range of shipping choices needed to provide true convenience of
package delivery (such as the ability to select one of several package delivery
and/or carrier options, and the enhancement of speed of delivery and ease of
use). To address these needs the Company has concluded that it needs to have the
in-house capability to provide its own pick up and redelivery of packages from
its ISKs to the major carriers. Market research by the Company's consultants has
also indicated such services may offer a lucrative opportunity if the Company
combines this pick up service with a courier business.

         As a result, the Company sees an opportunity to integrate the package
collection and courier markets and provide increased service options to its
customers by utilizing the Company's technology both for traditional package and
letter delivery as well as acting as a computerized depository for courier
services, thus making it feasible for the Company to pursue a courier "roll up"
strategy with a unique technological advantage. The courier business is highly
fragmented, with no dominant brands and extremely low technological innovation.
The Company believes that the "intraday" courier business segments are currently
not being served by the major carriers but may be a future target for
acquisitions. The Company believes its technology combined with a courier
service can provide consumers and end users with significant value and will
allow the Company to participate in a window of opportunity. The Company's
existing ISK units, once repositioned to the Minneapolis/St. Paul area, may be
utilized pursuant to the Company's courier roll up strategy.

         To achieve this goal the Company has formed a new subsidiary, Advanced
Courier Services, Inc. This subsidiary is actively seeking acquisitions with the
intent of establishing first a regional and then a national position in the
intraday courier business. The subsidiary is also negotiating a license of an
established brand name for its courier services, or it may create its own brand,
to achieve market differentiation. If the Company is successful in establishing
several key markets, it then plans to expand the concept by a franchise or
similar program to further


                                       9

<PAGE>


leverage the brand name, generate additional revenues and further explore
advances in the Company's technologies to create greater customer intimacy.

         The Company has also determined it must make continued investments in
its technology to remain competitive and to create a barrier to entry from the
competition. Company research indicates shipping technology is subject to the
same changes as other computer technologies and will require the Company to
continually enhance its products. The Company has a core competency in the
development of intelligent kiosks and shipping management systems. The Company
will leverage these assets to spread the development overhead needed for the
pursuit of its revised business strategy by offering its kiosk designs, software
or other properties to the marketplace as an original equipment manufacturer
("OEM") or in other capacities.

         In order to best manage this process the Company has formed a
subsidiary called Intelligent Kiosk Company ("IQK"). Currently IQK is working
with a major shipper to test the Company's ISK systems, which could fully
automate the carrier's regional shipping hubs. IQK will also act as a OEM
supplier and developer to Advanced Courier Services, Inc. It is also working
with a variety of non shipping customers to build intelligent kiosks for
selected non shipping purposes, such as information exchange, selling,
promotions and training. The kiosk business is growing rapidly as a result of
consumer familiarity with the Internet, and the Company believes it is in a
position to utilize its experience to penetrate these emerging markets. The
Company also intends that IQK will explore synergistic acquisitions and
strategic alliances to support the development of new technologies for the
Company.

         In addition, the Company has developed a new generation of intelligent
kiosk systems, which are expected to be launched in the fall of 1998. These new
ISKs, designated as the Company's Performance Series, are based on the Company's
models 3100 and 4100. The Model 3100 has become the ET 300, and the Model 4100
has become the ET 400. In addition, the Company has designed a new model,
tentatively designated the ET 200, which will be a Model 4100 with a
wall-mounted drop box feature to be used in locations calling for a
large-capacity, secure package intake capability. These new systems are believed
by the Company to be among the most advanced in the marketplace.

         ADVANCED COURIER SERVICES, INC.

         As part of its revised business strategy, the Company has been seeking
to identify and evaluate acquisition opportunities with businesses that
complement its current field of business. The Company has initially targeted the
courier and transportation industries as areas for potential acquisitions. The
Company believes that purchases of local courier and transportation businesses,
in addition to creating independent revenue streams, may enable the Company to
utilize its ISKs as intelligent "drop boxes" from which the Company can provide
same-day courier and package freight forwarding services.

         While the courier industry is very large (estimated at over $23 billion
in 1995), the Company's informal market surveys indicate that it has become
highly fragmented as a result of deregulation and low entry barriers. Based upon
this and information from the Company's consultants, the Company believes that
consolidation of this industry will provide a basis for brand building,
increased customer service, new customer service programs, and achievement of
operating synergies (e.g., office infrastructure, network effectiveness,
dispatch, and management).

         To pursue these opportunities, the Company formed a new subsidiary,
Advanced Courier Services, Inc. ("ACS"), which was incorporated in Minnesota in
September 1998. ACS was formed to implement the Company's vision of becoming a
leading provider of courier services through acquisition and technology. The
basic strategic initiatives include an acquisition strategy to consolidate the
highly fragmented courier industry, the application of technology to better
serve customers and lower operating costs, and the adoption of a major brand
through licensing.

         In September 1998, the Company signed a letter of intent to purchase
certain assets of JEL Trucking, a Minneapolis based trucking company engaged in
dock truck and courier shipments, for a combination of cash and stock. In
October 1998, the Company signed a letter of intent to purchase all of the stock
of another Minneapolis based company engaged in general courier services, with
billings of $1.8 million and 50 drivers, for a combination of cash and stock. In
addition, the Company continues its acquisition negotiations with several other
courier and


                                       10

<PAGE>


transportation services. There can be no assurance that the Company will be able
to successfully complete any acquisition or, if completed, that any acquisition
will be successful.

         As part of its marketing efforts for ACS, the Company has also
undertaken efforts to license and test a nationally recognizable brand name, to
be utilized in connection with personal and small business shipping and courier
services. The Company believes this will build brand value and increase leverage
with carriers, licensees, joint ventures and franchisees, which the Company
expects can result in more efficient use of advertising dollars and improved
future profitability for the Company. The Company is currently negotiating the
licensing of nationally recognized name brands from a third party, however, no
assurance can be given that the Company will be successful in these
negotiations.

         INTELLIGENT KIOSK COMPANY

         The Intelligent Kiosk Company ("IQK") was incorporated in Minnesota in
August 1998. The purpose of IQK is to consolidate the Company's core competency
in the development and manufacture of interactive kiosks for both the shipping
and non-shipping industry, as well as related software systems. The Company
plans that all technological development for the Company's ISKs and interactive
kiosks will be performed by IQK.

         During fiscal 1997, the Company began manufacturing and marketing
intelligent kiosks on an original equipment manufacturer ("OEM") basis for a
business that provides information on employment opportunities to prospective
job applicants. This kiosk allows electronic job searches and applications to be
processed and transmitted electronically. The Company has identified the kiosk
market as potentially providing the opportunity for growth based on the
Company's existing technology and manufacturing expertise. Market data, as well
as ongoing requests from other businesses for quotations on the manufacture of
intelligent kiosk systems, have led the Company to conclude that a substantial
market for such products may exist. The Company intends to position itself as an
OEM producer of advanced computerized kiosk systems for a multitude of
applications. The Company's believes that its current ISK design is readily
adaptable to use as computerized kiosks, with little modification, thereby
reducing developmental costs.

         Recently, the Company has been engaged in the marketing of its
automated shipping (ISK) technology to major carriers for the purpose of
automating their package intake hubs. The Company believes that the use of its
ISKs by major carriers for use in their hubs will allow for more efficient
package intake and use of existing personnel in servicing customers. In November
of 1998, the Company entered into a pilot test program with one of the world's
largest carriers. The test calls for the Company to install its ISKs in one of
the carrier's hubs for use at its commercial package shipping counter. It is
intended that customers will use the ISKs to ship packages, rather than using
traditional counter personnel to do the job, thereby allowing the carrier a more
efficient package intake operation and allowing the customer easier payment for
shipping services via the Company's built-in credit card swipe.

         The Company expects to continue leveraging its existing technology,
know-how and patent position to create strategic relationships with major
carriers through licensing the technology or selling ISK units/systems as an OEM
manufacturer. The Company believes that the use of the Company's ISKs can enable
these carriers to expand their market coverage to more efficiently and
profitably service the small business or consumer shipping transaction without
increasing prices or overhead.

         In addition to the foregoing, the Company believes that its unique
kiosk and information management technology will allow for the integration of
the ISK with courier and in-house delivery services and, ultimately, will
provide a base for a "rollup" of courier and other related services on a
regional or national scale. To this end, the Company plans to utilize its ISKs
as an "electronic drop box" for courier services provided through its
subsidiary, Advanced Courier Services. Because the ISKs are linked
electronically to the Company's central computers, they will allow for immediate
notification of a courier that a pickup is needed at a particular site; the
Company's information technology will allow for the management and coordination
of dispatching and other "back room" functions to provide support services more
efficiently and, the Company believes, more cost-effectively.

         There can be no assurance that any of the aforementioned strategies
will be implemented, or, if implemented, that any of such strategies will be
successful. If implemented, the Company expects overall revenues from the use of
its ISKs to drop significantly in the short term. Because the Company is
growth-focused, it intends that any earnings it


                                       11

<PAGE>


realizes will be utilized for the continued development of its technologies and
the expansion of its business. Accordingly, the Company believes that it will
require substantial financing to implement its revised business plan. The
Company currently does not have any arrangements for such financing, and there
can be no assurance that the Company will be successful in raising the required
funds to implement the plans outlined above.

         In order to highlight the adoption by the Company of the revised
business strategies outlined above, the Company has recently applied for the use
of "United Shipping and Technology" as an assumed business name in the State of
Minnesota. The Company plans to seek shareholder approval for the change of its
name to "United Shipping and Technology, Inc." at its next meeting of
shareholders.

RESULTS OF OPERATIONS
         Revenue for the three months ended September 30, 1998, decreased
$138,937 or 53% to $124,476 from $263,413 for the same period in 1997. The
decrease in revenue is a result of the redeployment strategy which has in effect
taken certain ISKs out of revenue production while being refurbished and
redeployed.

         In September 1998, the Company reached an agreement to remove ISKs
deployed with one multiple location retailer, and is currently negotiating with
another retailer to remove ISKs, in order to implement the new ISK placement
strategy. In addition, revenues for the three month period ended September 30,
1997 included a one-time revenue related to the development of a prototype ISK
for a major carrier.

         Direct shipping and equipment sales expenses decreased $52,990 or 29%
to $127,418 from $180,408 for the corresponding period in 1997. The decrease is
a result of lower package shipments as the Company begins its redeployment
strategy.

         General and administrative expenses for the three months ended
September 30, 1998, decreased $37,760 or 8% to $450,559 from $488,289 for the
same period in 1997. Personnel expenses attributed to the majority of the
decrease. In April 1997, the Company implemented cost-cutting measures through
the reduction of staff and the deferral of certain expenditures. Additional
staff reductions and operating expense reductions were implemented during
December 1997 and the results of these reductions were realized throughout
fiscal 1998 and the first quarter of 1999.

         Marketing and sales expenses for the three months ended September 30,
1998 decreased $2,300 or 6% to $35,061 from $37,361 for the same period in 1997.
The decrease is due to reductions in staff.

         Research and development expenses for the three months ended September
30, 1998, increased $76,478 or 125% to $137,467 from $60,989 for the
corresponding period in fiscal 1997. The increase in research and development
expense is attributed to the development of new software tools for the ISKs and
the development of a new operation of intelligent systems which are expected to
be launched in the fall of 1998.

         Interest income increased to $24,587 for the three months ended
September 30, 1998 compared to $6,642 for the same period in 1997 resulting from
the investment of cash surpluses generated from the Company's private offerings
in May and June 1996. Interest expense decreased from $6,620 for the three month
period ended September 30, 1997 to $3,397 for the same period in 1998,
attributed to the retirement of a portion of long-term debt.

         Net loss for the three months ended September 30, 1998, increased
$101,227 to $604,839 from $503,612 for the same period in the prior year. The
Company expects to incur additional losses while it begins implementation of the
revised business strategy.

LIQUIDITY AND CAPITAL RESOURCES

         Historically, the Company has operated at a loss and has funded its
operations from the proceeds of public and private equity offerings. In order to
finance the implementation of the revised business strategy outlined above, the
Company closed on two private placements to raise over $2.6 million equity
capital from private investors during the fiscal year ended June 30, 1998. By
separate closings on June 2, 1998, and June 8, 1998, the Company completed a
private placement in which it sold to accredited investors 2,883,824 shares of
its newly-created Series A


                                       12

<PAGE>


Cumulative Preferred Shares, together with Warrants to purchase 1,441,912 shares
of Common Stock. The Preferred Shares and Warrants were sold in Units, at a
purchase price of $1.20 per Unit. The total consideration received by the
Company for the sale of these Units was $1,477,856, net of interest ($7,080) and
the Agent's commissions and non-accountable expenses and other expenses of the
offering. The Agent purchased for $50.00 a Warrant to purchase up to 288,381
shares of the Company's common stock at an exercise price of $.60 per share.

         In April 1998, certain accredited investors (the "Additional
Investors") purchased directly from the Company, in a private placement
transaction an aggregate of 1,571,674 shares of its Series A Cumulative
Preferred Shares together with Warrants to purchase 785,837 shares of Common
Stock, at a purchase price of $1.20 per Unit, for a total consideration received
by the Company of $943,003. The total net consideration from the sale of the
Units in the two offerings described above was $2,420,859. In April 1997, to
meet working capital requirements, the Company completed a private placement of
its Common Stock raising approximately $1.6 million.

         The Company completed a public offering in May 1996, which raised
approximately $5.1 million. During the first quarter of fiscal 1997, the Company
received an additional $0.3 million as a result of the exercise by the
underwriter of its over-allotment option. The Company used approximately $1.9
million of the public offering proceeds to repay bridge notes and bank debt,
leaving net proceeds of approximately $3.5 million to finance growth and working
capital.

         There can be no assurance that the Company will be able to generate
sufficient revenues to meet its operating cash and growth needs or that any
equity or debt funding will be available or at terms acceptable to the Company
in the future to continue operating in its current form. The Company's loss for
the fiscal year ended June 30, 1998 was $1,901,130. The Company's loss for the
three months ended September 30, 1998 was $ 604,839. The Company expects to
incur losses for the foreseeable future due to the ongoing activities of the
Company to expand its ISK network and the costs incurred in supporting this
network, and in pursuing other aspects of its revised business strategy.

         Inventory increased by approximately $7,032 as of September 30, 1998,
compared to June 30, 1998. The Company has increased its purchase of materials
during the quarter in order to implement the new ISK redeployment strategy.
Accounts receivable decreased by approximately $4,121 as of September 30, 1998,
compared to June 30, 1998. The decrease is due to the decline in revenue and
concentrated collection efforts. Accounts payable increased by approximately
$97,997 over the same period due to the increased level of purchases. Accrued
liabilities and deferred revenue decreased due to reductions in the liability
associated with the possible exercise of return rights on the ISKs, as well as
payments of severance due to officers and the payments of sales and use taxes.

         In fiscal 1999, the Company plans to focus on the various aspects of
its courier rollup strategy - making acquisitions in the intraday courier market
and supporting technology, the acquisition or building of a nationally
recognized brand name to be used in conjunction with such services, and related
advertising - as well as on the continued development of its intelligent kiosk
technology for both the shipping and information retrieval market. The Company
believes that these efforts will require the Company to expend significant
capital. While the Company will seek to acquire courier companies that have
profits or positive cash flow, or that have the potential to generate positive
cash flow in the future, it is likely that any positive cashflow that would
otherwise result will be utilized in connection with the Company's ongoing
consolidation strategy. The Company believes that these revised strategies,
while initially requiring additional cash outlays, will result in greater
revenues from courier operations, sales and licensure of ISK technology and
package shipping revenues, although no assurance can be given that such revenues
will increase appreciably as a result of these initiatives in the near future,
if at all. The Company expects that its current ISK network and other operations
will continue to result in negative cash flow and working capital deficiencies
that will require the Company to continue to obtain additional capital and/or
obtain debt financing.

         Based on current commitments and ongoing working capital needs, the
Company will continue to require substantial additional debt or equity funding
to continue to implement its revised business strategy, including acquisitions.
The Company's cash needs and usage may vary based on the outcome of these
initiatives. At the present time, the Company has no commitments from any person
to provide additional financing to the Company. There can be no assurance that
the necessary financing will be available to the Company or, if available, that
the same will be on terms satisfactory or favorable to it. While the Company is
not now in a position to determine the 


                                       13

<PAGE>


price at which its securities may be issued in any subsequent equity financing,
it is likely that additional equity financing will be highly dilutive to
existing shareholders.


                                       14

<PAGE>


PART II - OTHER INFORMATION

ITEM 1 - Legal Proceedings

         The Company is not a party to any material pending or threatened legal
         proceedings. The Company is subject to legal proceeding in the ordinary
         course of its business, none of which the Company believes is material.

ITEM 2 - Changes in Securities and Use of Proceeds

         Not Applicable

ITEM 3 - Defaults upon Senior Securities

         Not Applicable

ITEM 4 - Submission of Matters to a Vote of Securities Holders

         Not Applicable

ITEM 5 - Other Information

         The Company's common stock is currently listed on the Nasdaq SmallCap
Market. On August 22, 1997, the Securities and Exchange Commission (the
"Commission") approved a number of proposed changes to the Nasdaq listing
requirements that became effective February 22, 1998. These changes include the
requirement that common and preferred stock must have a minimum bid price of
$1.00. All companies listed on the Nasdaq SmallCap Market must meet specific
corporate governance requirements. A company listed on the Nasdaq SmallCap
Market must also have either net tangible assets of over $2 million, a market
capitalization of $35 million or net income of $500,000, a public float of
500,000 shares, and the market value of such public float must be over $4
million. From approximately July 2, 1998, through and including September 19,
1998, the Company's common stock had a closing bid price below $1.00. On
September 17, 1998, the Company received notification from Nasdaq of it
non-compliance with the minimum bid price continued listing requirement. The
Company was provided ninety (90) calendar days in which to regain compliance
with the minimum bid price requirement. On November 3, 1998, the Company was
notified that its common stock reported a closing bid price of $1.00 or greater
for ten consecutive trading days, and that the Company was in compliance with
Nasdaq's minimum bid price requirement. However, there can be no assurance that
the Company will be able to comply with such minimum bid price requirement in
the future.

         Failure on the Company's part to remain in compliance with the above or
other requirements could result in the Company losing its Nasdaq SmallCap Market
listing. Should the common stock be suspended from trading privileges on such
market as a result of the Company's failure to comply with any of the above, or
other applicable requirements, the Company, prior to re-inclusion, must comply
with the applicable requirements for initial inclusion on the Nasdaq SmallCap
Market which are more stringent than the requirements for continued listing.
Accordingly, there can be no assurance that the common stock will continue to be
listed on the Nasdaq SmallCap Market. Federal regulations promulgated under the
Exchange Act also regulate the trading of so-called "penny stocks" (the "Penny
Stock Rules"), which are generally defined as any security not listed on a
national securities exchange or The Nasdaq Stock Market ("Nasdaq"), priced at
less than $5.00 per share and offered by an issuer with limited net tangible
assets and revenues. In addition, equity securities listed on Nasdaq, which are
priced at less than $5.00 per share are deemed penny stocks for the limited
purpose of Section 15(b)(6) of the Exchange Act. Therefore, if, during the time
in which the common stock is quoted on the Nasdaq SmallCap Market, the common
stock is priced below $5.00 per share, trading of the common stock will be
subject to the provisions of Section 15(b)(6) of the Exchange Act, which make it
unlawful for any broker-dealer to participate in a distribution of any penny
stock without the consent of the Commission if, in the exercise of reasonable
care, the broker-dealer is aware of or should have been aware of the
participation of a previously sanctioned person. In such event, it may be more
difficult for broker-dealers to sell the


                                       15

<PAGE>


common stock and purchasers of shares of common stock may experience difficulty
in selling such shares in the future in secondary trading markets.

         In the event that the common stock is delisted from the Nasdaq SmallCap
Market and the Company fails other relevant criteria, trading, in shares of
common stock would be subject to the full range of the Penny Stock Rules. Under
Exchange Act Rule 15g-8, broker-dealers must take certain steps prior to selling
a penny stock, which steps include: (i) obtaining financial and investment
information from the investor; (ii) obtaining a written suitability
questionnaire and purchase agreement signed by the investor; (iii) providing the
investor a written identification of the shares being offered and in what
quantity; and (iv) delivering to the investor a written statement setting forth
the basis on which the broker or dealer approved the investor's account for the
transaction. If the Penny Stock Rules are not followed by a broker-dealer, the
investor has no obligation to purchase the shares. Accordingly, delisting from
the Nasdaq SmallCap Market and the application of the comprehensive Penny Stock
Rules may make it more difficult for broker-dealers to sell the common stock,
purchasers of shares of common stock may have difficulty in selling such shares
in the future in secondary trading markets and the per share price of such stock
would likely be greatly reduced. The delisting of the Company's common stock
from Nasdaq is also likely to adversely affect the prices for which the Company
would be able to sell its equity securities.


ITEM 6 - Exhibits and Reports on Form 8-K

         a.    Exhibits

         Exhibit 27   Financial Data Schedule

         b.    Current Reports on Form 8-K

         Not Applicable


                                  EXHIBIT INDEX


EXHIBIT NUMBER                                  DESCRIPTION
--------------                                  -----------


Exhibit 27                                      Financial Data Schedule


                                       16

<PAGE>


                                   SIGNATURES


In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned; thereunto duly
authorized, in they City of Minneapolis, State of Minnesota on November 13,
1998.


                                           U-SHIP, INC.



                                           By: /s/ Peter C. Lytle
                                               ------------------
                                           Peter C. Lytle
                                           President and Chief Executive Officer


                                       17