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 December 31, 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 February 8, 1999, there were 5,079,709 shares of common stock of the
registrant issued and outstanding.


Transitional Small Business Disclosure.

                             YES [ ]         NO [X]


<PAGE>


                                  U-SHIP, INC.

                                   FORM 10-QSB

                     FOR THE QUARTER ENDED DECEMBER 31, 1998

                                      INDEX

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION................................................3

ITEM 1.  a)       Condensed Consolidated Financial Statement (UNAUDITED)

         b)       Condensed Consolidated Balance Sheets -
                  December 31, 1998 and June 30, 1998.........................3

         c)       Condensed Consolidated Statements of
                  Operations - Three and Six months ended
                  December 31, 1998 and 1997..................................4

         d)       Condensed Consolidated Statements of
                  Cash Flows - Six months ended
                  December 31, 1998 and 1997..................................5

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


ITEM 2.           Management's Discussion and Analysis of
                  Financial Condition and Results of Operations...............7


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

ITEM 2.           Changes in Securities and Use of Proceeds..................15


ITEM 6.           Exhibits and Reports on Form 8-K...........................15


SIGNATURES...................................................................16


EXHIBIT INDEX................................................................17


                                       2

<PAGE>


                          U-SHIP, INC. AND SUBSIDIARIES
                    Condensed and Consolidated Balance Sheets
                                      As of
<TABLE>
<CAPTION>
                                                                       December 31,         June 30,
                                                                           1998               1998
                                                                       ------------       ------------
                            ASSETS                                      (UNAUDITED)
<S>                                                                    <C>                <C>         
CURRENT ASSETS
  Cash and cash equivalents                                            $    281,521       $    153,693
  Short-term investments                                                         --          1,700,000
  Accounts receivable                                                       140,235             83,529
  Inventories                                                             1,046,194            501,641
  Prepaid expenses and other                                                204,192                 --
                                                                       ------------       ------------

              Total current assets                                        1,672,142          2,438,863
                                                                       ------------       ------------

PROPERTY AND EQUIPMENT
  Shipping centers                                                          687,133          1,335,234
  Furniture, fixtures and equipment                                         851,104            537,979
  Less accumulated depreciation                                            (844,796)          (934,054)
                                                                       ------------       ------------

              Total property and equipment,net                              693,441            939,159
                                                                       ------------       ------------

OTHER ASSETS, net                                                           185,517            174,904
                                                                       ------------       ------------


                                                                       $  2,551,100       $  3,552,926
                                                                       ============       ============

              LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Current maturities of long-term debt                                 $     45,445       $     52,881
  Accounts payable                                                          385,099             74,143
  Accrued liabilities                                                        86,905            144,928
  Deferred revenue                                                            2,167             19,225
                                                                       ------------       ------------

              Total current liabilities                                     519,617            291,177
                                                                       ------------       ------------

LONG-TERM DEBT, NET OF CURRENT MATURITIES                                    31,126             61,004
                                                                       ------------       ------------

SHAREHOLDERS' EQUITY
  Preferred stock, $.004 par value; 25,000,000 shares authorized;
    4,500,000 shares designated series A cumulative convertible;
    4,455,498 issued and outstanding                                         17,822             17,822
  Common stock, $.004 par value; 75,000,000 shares authorized;
    5,079,709 and 4,979,709 issued and outstanding                           20,319             19,919
  Additional paid-in capital                                             12,994,947         12,935,347
  Accumulated deficit                                                   (11,032,730)        (9,772,343)
                                                                       ------------       ------------

              Shareholders' equity                                        2,000,358          3,200,745
                                                                       ------------       ------------

                                                                       $  2,551,100       $  3,552,926
                                                                       ============       ============
</TABLE>

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


                                       3
<PAGE>


                          U-SHIP, INC. AND SUBSIDIARIES
               Condensed and Consolidated Statements of Operations
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED DECEMBER 31,      SIX MONTHS ENDED DECEMBER 31,
                                           -----------------------------       -----------------------------
                                              1998              1997              1998              1997
                                           -----------       -----------       -----------       -----------
<S>                                        <C>               <C>               <C>               <C>        
REVENUE                                    $   147,610       $   289,201       $   272,086       $   552,614

EXPENSES
  Direct shipping and equipment sales          119,321           255,413           246,739           435,822
  General and administrative                   498,929           400,918           949,449           888,502
  Marketing and sales                          130,630            30,106           165,691            67,467
  Research and development                      68,363            37,733           205,830            98,721
                                           -----------       -----------       -----------       -----------
                                               817,243           724,170         1,567,709         1,490,512


  Loss from operations                        (669,633)         (434,969)       (1,295,623)         (937,898)
                                           -----------       -----------       -----------       -----------

OTHER INCOME (EXPENSE)
  Interest income                               16,984             8,262            41,570            14,904
  Interest expense                              (2,937)           (5,854)           (6,334)          (13,179)
                                           -----------       -----------       -----------       -----------

Net Loss                                      (655,586)         (432,561)       (1,260,387)         (936,173)
                                           ===========       ===========       ===========       ===========


Basic & diluted net loss per share:        $     (0.13)      $     (0.09)      $     (0.25)      $     (0.19)
                                           ===========       ===========       ===========       ===========

Basic & diluted weighted
  average number of common
  shares outstanding                         5,001,448         4,979,709         4,990,579         4,975,271
                                           ===========       ===========       ===========       ===========
</TABLE>

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


                                       4
<PAGE>


                          U-SHIP, INC. AND SUBSIDIARIES
               Condensed and Consolidated Statement of Cash Flows
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                  Six Months Ended December 31,
                                                                  -----------------------------
                                                                     1998              1997
                                                                  -----------       -----------
<S>                                                               <C>               <C>         
OPERATING ACTIVITIES
     Net Loss                                                     $(1,260,387)      $  (936,173)
     Adjustments to reconcile net loss to net cash flows
         used for operating activities-
             Depreciation and amortization                            201,215           271,727
     Change in operating assets and liabilities:
             Accounts receivable                                      (56,706)           27,175
             Inventories                                             (164,544)          117,332
             Prepaid expenses and other                              (204,192)           16,423
             Accounts payable                                         310,956           111,574
             Accrued liabilities                                      (58,023)         (201,939)
             Deferred revenue                                         (17,058)          (17,775)
                                                                  -----------       -----------

                Cash used by operating activities                  (1,248,739)         (611,656)
                                                                  -----------       -----------

INVESTING ACTIVITIES
     Purchases of property and equipment                             (196,119)         (237,978)
     Cash paid for acquisition                                        (90,000)               --
     Redemption of short-term investments                           1,700,000           250,000
                                                                  -----------       -----------

                Cash provided by investing activities               1,413,881            12,022
                                                                  -----------       -----------

FINANCING ACTIVITIES
     Payments on notes payable and long-term debt                     (37,314)          (23,756)
     Proceeds from sale of common stock                                    --            20,783
                                                                  -----------       -----------

                Cash provided (used) by financing activities          (37,314)           (2,973)
                                                                  -----------       -----------

Net increase (decrease) in cash and cash equivalents                  127,828          (602,607)

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

Cash and cash equivalents, end of period                          $   281,521       $   121,653
                                                                  ===========       ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     Cash paid for interest                                       $     6,334       $    13,179
                                                                  ===========       ===========

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

     Property and equipment returned to inventory                 $   379,509                --

     Assets acquired in connection with the acquisition of Gel Trucking, Inc. were as follows:

         Allocation of cost based on fair value of assets acquired:
             Current assets                                       $       500                --
             Property and equipment                                    61,710                --
             Intangible assets                                         87,790                --
                                                                  -----------       -----------
                                                                      150,000                --
         Less fair market value of common stock issued                 60,000                --
         Net cash paid for acquisition                            $    90,000                --
                                                                  ===========       ===========
</TABLE>

The accompanying notes are an integral part of the condensed and consolidated
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 December 31, 1998, and the results of
its operations for the three and six months ended December 31, 1998 and 1997,
and its cashflows for the six months ended December 31, 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. These consolidated financial
statements should 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.

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.   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.

3.   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
December 31, 1998 and 1997 were 4,662,870 and 1,509,446, respectively.


                                       6
<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, INCLUDING
THE ABILITY TO SUCCESSFULLY INTEGRATE AND MANAGE ACQUIRED COMPANIES; (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, to 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 manufacturing, 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


                                       7
<PAGE>


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. In the past, ISKs have been
placed in office services and copy centers, including Kinko's Copy Centers and
CopyMax, and in other retail locations such as grocery and general merchandise
stores. As of December 31, 1998, the Company had installed a total of 190 ISKs
currently placed in test sites in 31 states and Canada. Of these, 72 ISKs were
located in Kinko's Copy Centers. In September, 1998 the Company terminated its
relationship with CopyMax and removed 113 ISKs located in CopyMax stores. The
Company is currently undertaking efforts to retrofit these units into its new
ET300 series. The Company's revised business strategy is to deploy them into the
Minneapolis/St. Paul metro area.

         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 nine patents and has one allowed patent application
related to hardware and software utilized in its ISKs. The Company is not aware
of any other comparable self-service, automated shipping system currently
marketed or available to consumers and small business package shippers. Each ISK
location is centrally controlled and serviced through an electronic connection
to the Company's computer network system. 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 Copy
Centers and CopyMax, 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. On September 15, 1998, the Company entered into an agreement with
CopyMax to remove all of the ISKs located at CopyMax stores. The Company is
currently undertaking efforts to retrofit those units into its new ET300 series
and to redeploy them into the Minneapolis/St. Paul metro area.

         The Company 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 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
also indicated that 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 attract these consumers and end users as customers. 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.


                                       8
<PAGE>


         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 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 formed a subsidiary
called Intelligent Kiosk Company ("IQK"). IQK is the technology arm of the
Company. This subsidiary's primary activities include the management and
development of shipping and delivery systems, the design and production of
shipping and information kiosks, and the development of information management
software for the kiosk and shipping industries. 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.

         The Company also developed a new generation of intelligent kiosk
systems, designated as the Company's Performance Series, which are based on the
Company's models 3100 and 4100. The Model 3100 has become the ET300, and the
Model 4100 has become the ET400. In addition, the Company has designed a new
model, designated the ET200, 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. The Company is currently
retrofitting the ISKs recalled from the CopyMax locations and is redeploying
them in the Minneapolis/St. Paul metropolitan area.


         ADVANCED COURIER SERVICES, INC.

         As part of its revised business strategy, the Company is seeking to
identify and evaluate acquisition opportunities with businesses that complement
its current field of business. The Company initially targeted the courier and
transportation industries as areas for potential acquisitions, having identified
that couriers were not being supported by supplemental collection systems or
advanced shipping and operating technologies.

         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).

         On December 11, 1998, the Company, through ACS, purchased substantially
all of the assets of JEL Trucking, a Minneapolis based trucking company engaged
in dock truck and courier shipments, for a combination of cash and the Company's
stock. Additionally, on January 13, 1999, the Company acquired, through ACS,
Twin City Transportation, Inc., a Minneapolis based courier with revenue of
approximately $1.8 million and 50 drivers, for a combination of cash and the
Company's common stock. In addition, the Company continues to evaluate potential
acquisitions of other courier and transportation services. There can be no
assurance that the Company will be able to successfully complete any additional
acquisitions.


                                       9
<PAGE>


         As part of its marketing efforts for ACS, the Company is seeking 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 potential franchisees, which the Company
expects can result in more efficient use of advertising dollars and improved
future profitability for the Company. There can be no assurance that the Company
will be successful in its efforts to acquire and utilize a nationally recognized
brand.

         INTELLIGENT KIOSK COMPANY

         The Intelligent Kiosk Company ("IQK") was incorporated as a subsidiary
of the Company 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, as well as supportive technologies for
the courier business, 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 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 believes that its current ISK design is readily
adaptable to use as computerized kiosks, with little modification, thereby
reducing developmental costs.

         The Company is also 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 "roll up" 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, ACS. Because the ISKs are linked electronically to the Company's
central computers, they will allow for immediate notification to 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 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.


                                       10
<PAGE>


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 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 December 31, 1998 decreased $141,591
or 49% to $147,610 from $289,201 for the same period in 1997. Revenue for the
six months ended December 31, 1998 decreased $280,528 or 51% to $272,086 from
$552,614 for the corresponding period in 1997. For both periods, the decrease in
revenue is a result of the redeployment strategy which has resulted in a
decrease in the number of ISKs in operation from 309 to 190, a 39% decrease. In
September 1998, the Company reached an agreement to remove ISKs deployed with
one multiple location retailer, in order to implement the new ISK placement
strategy. In addition, revenue for the six months period ended December 31, 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 $136,092 or 53%
to $119,321 from $255,413 for the corresponding period in 1997. For the six
month period ended December 31, 1998, direct shipping and equipment sales
expenses decreased $189,083 or 43% to $246,739 from $435,822 for the same period
in 1997. The decrease for both periods is the result of lower package shipments
as the Company begins its redeployment strategy.

         General and administrative expenses for the three months ended December
31, 1998, increased $98,011 or 24% to $498,929 from $400,918 for the same period
in 1997. General and administrative expenses for the six months ended December
31, 1998 increased $60,947 or 7% to $949,449 from $888,502 for the same period
in 1997. Personnel expenses attributed to the majority of the increases for both
periods. In April 1997, the Company implemented cost-cutting measures through
the reduction of staff and the deferral of certain expenditures. Significant
staff reductions and operating expense reductions were implemented during 1997.
As a result of the Company's revised strategy, significant efforts have been
undertaken to develop acquisition activities and to rebuild an experienced
management team to implement the strategy.

         Marketing and sales expenses for the three months ended December 31,
1998 increased $100,524 or 334% to $130,630 from $30,106 for the same period in
1997. For the six month period ended December 31, 1998 marketing and sales
expenses increased $98,224 or 146% to $165,691 from $67,467 for the same period
in 1997. The increase for both periods is the result of staff additions required
to implement the redeployment strategy and to establish marketing programs for
both IQK and ACS.

         Research and development expenses for the three months ended December
31, 1998, increased $30,630 or 81% to $68,363 from $37,733 for the corresponding
period in fiscal 1997. Research and development costs for the six month period
ended December 31, 1998 increased $107,109 or 108% for the corresponding period
in 1997. The increase in research and development expense is attributed to the
development of new software tools for the ISKs.

         Interest income increased to $16,984 for the three months ended
December 31, 1998 compared to $8,262 for the same period in 1997. For the six
month period ended December 31, 1998 interest income increased to $41,570 from
$14,904 for the same period in 1997. For both periods, the increase is a result
from the investment of cash surpluses generated from the Company's private
offerings in May and June 1998. Interest expense decreased from $5,854 for the
three month period ended December 31, 1997 to $2,937 for the same period in
1998. Interest expense for the six month period ended December 31, 1998
decreased to $6,334 from $13,179 for the corresponding period in 1997. For both
periods, the decrease is attributed to the retirement of a portion of long-term
debt.


                                       11
<PAGE>


         Net loss for the three months ended December 31, 1998, increased
$223,025 to $655,586 from $432,561 for the same period in the prior year. The
net loss of the six month period ended December 31, 1998 increased $324,214 to
$1,260,387 from $936,173 for the same period in 1997. 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 completed two private placements raising 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 Cumulative Convertible Preferred Stock, 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
Convertible Preferred Stock, 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 is currently attempting to raise additional cash for
acquisitions and working capital needs through the sale of $16 million of 12%
Unsecured Notes with attached warrants to purchase common stock. These notes are
being marketed on a private placement basis. On December 31, 1998, notes in the
principal amount of $1.10 million, together with warrants to purchase an
aggregate of 29,333 shares of the Company's common stock, were sold pursuant to
subscription agreements. The cash proceeds, however, were received subsequent to
December 31, 1998.

         Inventory increased $544,553 as of December 31, 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. In addition, the
Company removed the ISKs which were recalled from CopyMax from fixed assets and
returned them to inventory as they were being retrofitted to ET300 series and in
anticipation of reselling them into the market. Accounts receivable increased
$56,706 as of December 31, 1998, compared to June 30, 1998. The increase is
primarily due to one time billings for ISK removal. Accounts payable increased
$310,956 over the same period due to the increased level of purchases associated
with the redeployment efforts. Accrued liabilities and deferred revenue
decreased due to reductions in the liabilities 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.

         During the six month period ended December 31, 1998, the Company
incurred $132,465 of costs associated with the development of a new operating
system for the ET series kiosks. These costs are capitalized and included in
Property and Equipment.

         In fiscal 1999, the Company plans to focus on the various aspects of
its courier roll up 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


                                       12
<PAGE>


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.

         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
additional 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 December 31, 1998 was $655,586. 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. 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 price at which its securities may be
issued in any subsequent equity or debt financing, it is likely that additional
equity or debt financing will be highly dilutive to existing shareholders.

THE COMPANY'S YEAR 2000 READINESS

         Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, in less than a year, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements.

         The Company is presently assessing its Year 2000 readiness for
operations, focusing on critical operating and applications systems,
particularly the Year 2000 compliance of: (i) the product lines, (ii) the key
software/hardware vendors, and (iii) the financial accounting systems of the
Company, in light of its recent acquisitions.

         Because the Company's internal computer systems were either developed
or upgraded in the early 1990's, substantial infrastructure concerns inherent in
hardware and software systems developed and placed into service at an earlier
date are not a primary concern. As a result, management does not consider that
the incremental costs directly related to Year 2000 issues will be material.
Costs incurred prior to 1999 were also immaterial. The Company does not expect
to incur significant Year 2000 related costs on its internal computer systems.

         The Company believes that its greatest Year 2000 risk for disruption to
its business may be the potential noncompliance of its systems which are in its
ISKs which are currently in the market. The Company is currently in the process
of assessing and testing such systems in order to determine whether any of
theses machines are not Year 2000 compliant. If such machines are not Year 2000
compliant, the Company intends to replace or upgrade the systems to make them
Year 2000 compliant. The cost of doing this testing and the possible
replacements or upgrading is estimated to be less than $50,000. The testing and,
if necessary, the replacement or upgrading the systems which are in the ISKs is
estimated to be completed by mid-1999.

         The Company has established a team to survey the Year 2000 readiness of
its critical vendors, although management presently has little information
concerning their Year 2000 compliance status. In the event that any such key
vendors do not achieve Year 2000 compliance in a timely manner, or at all, the
Company's business or operations could be adversely affected. The team is also
charged with investigating the Year 2000 readiness of customers, agents and
other third parties which the Company deals with. The Company has identified
critical


                                       13
<PAGE>


suppliers, customers and other third parties and is in the process of surveying
their Year 2000 remediation programs. The Company estimates that risk
assessments and contingency plans, where necessary, will be finalized in the
second quarter of 1999.

         As a part of its Year 2000 assessment, the Company intends to
demonstrate its Year 2000 readiness by simulating the Year 2000 in an
orchestrated manner for its key infrastructure components, critical business
processes and key applications systems. The Company expects that minor Year 2000
compliance issues will be identified as an outcome of the Year 2000 simulation
test and intends to address these compliance issues no later than the second
quarter of calendar 1999.

         The Company recognizes the need for Year 2000 contingency plans in the
event that remediation is not fully successful or that the remediation efforts
of its vendors, suppliers and governmental/regulatory agencies are not timely
completed. The Company intends to address contingency planning during calendar
1999.

         The Company intends to complete its Year 2000 remediation efforts
primarily with in-house resources, but will utilize consultants should the need
arise. The Company believes that the costs of Year 2000 remediation described
above will not be material and can be funded from operations.

         The Company recognizes that issues related to Year 2000, insofar as
they relate to the Company's ISKs which were placed in service prior to 1998
constitute a material known uncertainty. The Company also recognizes the
importance of ensuring its operations will not be adversely affected by Year
2000 issues. The Company's Year 2000 efforts are ongoing and its overall plan,
as well as the consideration of contingency plans, will continue to evolve as
new information becomes available. The Company believes that the processes
described above will be effective to manage the risks associated with the
problem. However, there can be no assurance that the processes can be completed
on the timetable described above or that remediation will be fully effective.
The failure to identify and remediate Year 2000 issues, or the failure of users
of the Company's ISKs, key vendors or other critical third parties who do
business with the Company to timely remediate their Year 2000 issues could cause
system failures or errors, business interruptions and, in a worst case scenario,
the inability to engage in normal business practices for an unknown length of
time. The effect on the Company's operation, income and financial condition
could be materially adverse.


                                       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 proceedings in the
         ordinary course of its business, none of which the Company believes is
         material.

ITEM 2 - Changes in Securities and Use of Proceeds

         On December 31, 1998, the Company sold, in a private placement
         transaction, medium term, unsecured 12% notes (the "Notes") in an
         aggregate principal amount of $1,100,000, together with warrants to
         purchase an aggregate of 29,333 shares of Common Stock, exercisable at
         $1.875 per share. The Warrants expire on January 1, 2004. The Notes,
         due December 31, 2002, can be prepaid by the Company without penalty or
         premium. No underwriter was used in connection with the sale of the
         Notes and no underwriting commissions were paid. The Company intends to
         use the net proceeds from the sale of the Notes for working capital and
         to fund acquisitions. The Notes and Warrants were sold to a limited
         group of accredited investors in a private placement transaction,
         exempt from registration under Section 4(2) of the Securities Act of
         1933, as amended.

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

         Not Applicable

ITEM 6 - Exhibits and Reports on Form 8-K

         a.       Exhibits required by Item 601 of Regulation S-B

                  Exhibit 4.1 Form of 12% Medium Term Note

                  Exhibit 4.2 Form of Warrant issued to purchasers of 12% Medium
                  Term Notes

                  Exhibit 27 Financial Data Schedule

         b.       Current Reports on Form 8-K for the second quarter ended
                  December 31, 1998.

         Not Applicable


                                       15
<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 the City of Edina, State of Minnesota on February 16, 1999.


                                          U-SHIP, INC.



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


                                       16
<PAGE>


                                  EXHIBIT INDEX



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

Exhibit 4.1        Form of 12% Medium Term Note

Exhibit 4.2        Form of Warrant issued to purchasers of 12% Medium Term Notes

Exhibit 27         Financial Data Schedule


                                       17