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 March 31, 1997

[ ]  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 Small Business Issuer 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 May 9, 1997 the issuer had outstanding 5,006,359 shares of Common Stock,
$.004 par value.

                                  U-SHIP, INC.

                                   FORM 10-QSB

                      FOR THE QUARTER ENDED MARCH 31, 1997

                                      INDEX

                                                                            Page
PART 1.           FINANCIAL INFORMATION                                       3

ITEM 1.

         a)       Condensed Consolidated Financial Statements

         b)       Condensed Consolidated Balance Sheets - March 31, 1997
                  and June 30, 1996                                           3

         c)       Condensed Consolidated Statements of Operations - Three
                  and Nine months ended March31, 1997 and 1996                4

         d)       Condensed Consolidated Statements of Cash Flows - Nine
                  months ended March 31, 1997 and 1996                        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 2.           Changes in Securities                                      15

ITEM 5.           Amendment #1 to Installation and Marketing Agreement
                  between the Company and OfficeMax, Inc. dated October
                  16, 1996                                                   15

ITEM 6.           Exhibits                                                   15

         10.1     Amendment #1 to Installation and Marketing Agreement
                  between the Company and OfficeMax Inc., dated October
                  16, 1996

         10.2     Form of Subscription Agreement and Letter of Investment
                  Intent by and between the Company and Robertson Stephens
                  & Co.

         27.      Financial Data Schedule

SIGNATURES                                                                   16



PART I. - FINANCIAL INFORMATION

ITEM 1. - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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

<TABLE>
<CAPTION>

                                                                          March 31,            June 30,
                                                                             1997                1996
                                                                         -----------         -----------
                ASSETS                                                   (UNAUDITED)
<S>                                                                      <C>                 <C>        
CURRENT ASSETS:
  Cash and cash equivalents                                              $   371,471         $ 4,822,785
  Accounts receivable                                                        117,529              59,135
  Prepaid expenses                                                            61,903              12,208
  Inventories                                                                934,552             822,393
                                                                         -----------         -----------

             Total current assets                                          1,485,455           5,716,521
                                                                         -----------         -----------

PROPERTY AND EQUIPMENT:
  Shipping centers                                                         1,025,187              87,045
  Furniture, fixtures and equipment                                          515,170             365,003
  Less-Accumulated depreciation                                             (409,529)           (230,704)
                                                                         -----------         -----------

             Total property and equipment,net                              1,130,828             221,344
                                                                         -----------         -----------

Other assets, net                                                            112,251              76,964
                                                                         -----------         -----------


                                                                         $ 2,728,534         $ 6,014,829
                                                                         ===========         ===========

                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current maturities of long-term debt and notes payable                 $    43,705         $    28,173
  Checks issued not yet presented for payment                                    -             1,851,365
  Deferred Revenue                                                           112,581             419,702
  Accounts payable                                                           455,552             194,227
  Accrued liabilities                                                        138,205             250,353
                                                                         -----------         -----------

                          Total current liabilities                          750,043           2,743,820
                                                                         -----------         -----------

Long-term debt, net of current maturities                                    120,266              30,263
                                                                         -----------         -----------

SHAREHOLDERS' EQUITY
  Preferred stock, $.004 par value; 25,000,000 shares authorized;
    none issued and outstanding                                                  -                   -
  Common stock, $.004 par value; 75,000,000 shares authorized;
    4,020,850 and 3,916,564 issued and outstanding                            16,083              15,666
  Additional paid-in capital                                               8,864,046           8,548,875
  Warrants                                                                    19,500              19,500
  Accumulated deficit                                                     (7,041,404)         (5,343,295)
                                                                         -----------         -----------

                          Shareholders' equity                             1,858,225           3,240,746
                                                                         -----------         -----------

                                                                         $ 2,728,534         $ 6,014,829
                                                                         ===========         ===========
</TABLE>

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



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

<TABLE>
<CAPTION>
                                     THREE MONTHS ENDED MARCH 31,            NINE MONTHS ENDED MARCH 31,
                                   -----------------------------------------------------------------------
                                       1997                1996                1997                1996
                                   -----------         -----------         -----------         -----------
<S>                                <C>                 <C>                 <C>                 <C>        
Revenue
  Package shipping revenue         $   170,455         $   155,256         $   492,015         $   405,504
  Machine sales revenue                 22,996              53,367             135,628             163,553
  Other revenue                          3,813                 964              22,216               6,940
                                   -----------         -----------         -----------         -----------
      Net sales                        197,264             209,587             649,859             575,997

Cost of goods sold                     170,372             180,479             545,440             482,669
                                   -----------         -----------         -----------         -----------

Gross profit                            26,892              29,108             104,419              93,328

General and administrative             607,254             238,149           1,295,642             637,450
Marketing and sales                    166,059              86,414             429,157             204,827
Research and development                 7,438             109,935             145,437             202,039
                                   -----------         -----------         -----------         -----------
Loss from operations                  (753,859)           (405,390)         (1,765,817)           (950,988)

Interest income                        (13,046)            (15,426)            (79,715)            (16,469)
Interest expense                         6,171             150,154              12,007             237,576
                                   -----------         -----------         -----------         -----------

Net loss                           $  (746,984)        $  (540,118)        $(1,698,109)        $(1,172,095)
                                   ===========         ===========         ===========         ===========

Net loss per share                 $     (0.19)        $     (0.27)        $     (0.42)        $     (0.65)
                                   -----------         -----------         -----------         -----------
Weighted average number of
  common shares outstanding          4,017,906           2,009,103           4,016,281           1,804,397
                                   ===========         ===========         ===========         ===========

</TABLE>

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

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

<TABLE>
<CAPTION>

                                                                       Nine Months Ended March 31,
                                                                      ----------------------------
                                                                          1997            1996
                                                                      -----------      -----------
<S>                                                                   <C>              <C>         
OPERATING ACTIVITIES:
     Net Loss                                                         $(1,698,109)     $(1,172,095)
     Adjustments to reconcile net loss to net cash flows used for
         operating activities-
            Depreciation and amortization                                 198,152          174,482
            Reserve for doubtful accounts                                  (2,440)             -
            Reserve for inventory                                         (22,000)             -
            Debt issuance costs                                               -           (141,327)
            (Gain)/Loss on retirement of equipment                          4,312              -
     Change in current operating items:
            Checks held, not yet presented for payment                 (1,851,365)             -
            Accounts receivable                                           (55,954)         (52,084)
            Inventories                                                   (90,159)        (297,858)
            Prepaid expenses and other                                    (49,695)         (68,497)
            Accounts payable                                              261,325         (266,267)
            Accrued liabilities and deferred revenue                     (419,269)         244,704
                                                                      -----------      -----------

                    Cash used for operating activities                 (3,725,202)      (1,578,942)
                                                                      -----------      -----------

INVESTING ACTIVITIES:
     Purchases of property and equipment                               (1,132,235)         (81,896)
                                                                      -----------      -----------

                    Cash used for investing activities                 (1,132,235)         (81,896)
                                                                      -----------      -----------

FINANCING ACTIVITIES:
     Proceeds from notes payable and long-term debt                       151,294        2,248,000
     Payments on notes payable and long-term debt                         (45,759)        (128,310)
     Sale of common stock                                                 300,588          103,000
     Cancellation of shares                                                   -                  5
                                                                      -----------      -----------

                Cash provided by financing activities                     406,123        2,222,695
                                                                      -----------      -----------

Net decrease in cash and cash equivalents                              (4,451,314)         561,857

Cash and cash equivalents, beginning of period                          4,822,785           41,853
                                                                      -----------      -----------

Cash and cash equivalents, end of period                              $   371,471      $   603,710
                                                                      ===========      ===========

NONCASH TRANSACTIONS:
     Conversion of debt to common stock                                       -          1,095,001
     Conversion of payables to common stock                                   -            164,670
     Common stock issued in exchange for patent                            15,000              -

</TABLE>

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


                          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 March 31, 1997, and the results of its
operations for the three and nine months ended March 31, 1997 and 1996, 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, 1996, and the footnotes thereto, included
in the Company's Report on Form 10-KSB, filed with the Securities and Exchange
Commission on September 26, 1996.

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.   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:
                                                March 31,           June 30,
                                                  1997                1996
                                               ---------           ---------

         Raw materials and work components     $ 775,048           $ 490,342
         Finished goods                          159,504             332,051
                                               ---------           ---------
                                               $ 934,552           $ 822,393
                                               =========           =========
3.   Revenue Recognition:
The Company has historically generated revenue from two primary sources: The
per-package shipping revenue generated from ongoing shipping volume and the sale
of automated shipping centers. Revenues are also derived, 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.

The Company generally recognizes revenue from sales of shipping systems upon
delivery and installation. Certain sales agreements allow the customer to return
the shipping system under certain circumstances within the first 12 months. Such
revenue and related costs are deferred until the return rights lapse and certain
other conditions are met.

The components of deferred revenue are as follows:

                                                March 31,           June 30,
                                                  1997                1996
                                               ---------           ---------

         Machine sales                           $59,724           $ 313,496
         Maintenance contracts                    52,857             106,206
                                               ---------           ---------
                                               $ 112,581           $ 419,702
                                               =========           =========

Most of the automated shipping center sales are financed by third-party
equipment lessors. The lessor has certain recourse to the Company in the event
of customer default or return of the automated shipping center, primarily to
re-market the automated shipping center on a best efforts basis. The Company has
reserved the estimated cost of fulfilling such recourse arrangements.

4.     Subsequent Event - Private Placement:
The Company completed a private placement in April 1997 raising approximately
$1.7 million. The Company sold approximately 985,500 shares of its par value
$.004 common stock at $1.725 per share. The shares were sold to certain existing
institutional shareholders, certain directors and officers of the Company. Under
terms of the financing, the Company agreed to retroactively reduce the per share
price of shares to investors in the private placement if an offering of its
common stock before July 29, 1997 was consummated at a price lower than the
private placement price of $1.725. The price reduction would effectively require
the Company to issue additional shares to the investors to match the per share
price being offered in the new offering.

5.    New Pronouncement:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," (SFAS 128) which
changes the way companies calculate their earnings per share (EPS). SFAS 128
replaces primary EPS with basic EPS. Basic EPS is computed by dividing reported
earnings by weighted average shares outstanding, excluding potentially dilutive
securities. Fully diluted EPS, termed diluted EPS under SFAS 128, is also to be
disclosed. The Company is required to adopt SFAS 128 in the second quarter of
fiscal 1998, at which time all prior period EPS are to be restated in accordance
with SFAS 128.


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

                       U-SHIP, INC. AND SUBSIDIARIES

THE FOLLOWING DISCUSSION CONTAINS VARIOUS FORWARD-LOOKING STATEMENTS AS DEFINED
IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH MAY BE IDENTIFIED
BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "GOAL," "CONTINUE," OR OTHER COMPARABLE TERMINOLOGY. SUCH STATEMENTS
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES RELATING TO THE COMPANY'S FUTURE
PERFORMANCE. ACTUAL RESULTS OR EVENTS MAY MATERIALLY DIFFER FROM THOSE INDICATED
IN SUCH FORWARD-LOOKING STATEMENTS. IN EVALUATING SUCH STATEMENTS, SHAREHOLDERS
AND PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS AND ARE SPECIFICALLY DIRECTED TO REVIEW THE VARIOUS
FACTORS IDENTIFIED UNDER THE CAPTION "CAUTIONARY FACTORS" WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH FORWARD-LOOKING
STATEMENTS.


GENERAL
         As of March 31, 1997, the Company had 270 Automated Shipping
Centers(TM) ("ASCs") located in 35 states and 4 Canadian provinces. The first
ASC was placed in service in November 1994. The Company has evolved from a
product and technology company selling a shipping product into a company
offering automated shipping equipment, shipping products and quality shipping
services through the use of technology. In the last three fiscal quarters, the
Company's sales efforts have emphasized the placement of ASCs in strategic
retail locations at the Company's expense and operating them to maximize the
Company's revenue. Under this plan, the Company continues to pay a percentage of
package shipping revenue to the retail location where the ASC is placed, but the
Company retains a greater share of the shipping revenue.

         A key part of the Company's strategy is to select targeted locations
for its ASCs. The Company is concentrating on placing ASCs in locations that
have already established a shipping service or are trying to aggressively
establish these services. By concentrating on such shipping sites, the Company
believes that it can better reach its target market, the small office and home
office market and the occasional shipper, both segments currently under-served
by existing shipping service providers. The occasional shipper usually ships
under ten packages a year. These shippers usually go to the United States Post
Office or try to locate a United Parcel Service ("UPS") shipping center.
Throughout the country a large number of grocery, hardware and similar stores
offer shipping services through UPS. Such locations are already processing a
high volume of packages and benefit from the automation that U-Ship provides.
The small business and home office shippers frequently use outsourced business
services and these service providers are eager to provide additional services to
these customers to provide a one-stop shop. In addition, the Company believes
that small business and home office shippers are frequent business shippers, and
are more likely to use premium shipping services, such as next day delivery,
which provide a higher profit margin to the Company. The Company had expected
that by placing its ASCs at locations where individuals owning small businesses
or individuals working out of a home office frequent for business services, it
would be able to capture significant shipping volume without incurring the
significant expense of a consumer marketing program. However, the Company's
experience to date has not borne out this expectation and the Company is
currently developing marketing programs which the Company believes will lead to
increased usage of its ASCs at its various locations. The Company expects that
the implementation of marketing programs will increase the overall operating
costs of the Company, and no assurance can be given that these marketing
activities will result in any significant increase in package shipping volume at
these ASC locations.

         In September 1996, the Company entered into an agreement with Kinko's,
Inc. ("Kinko's") to install up to 250 ASCs by the end of December 1997 (the
"Kinko's Agreement"). Pursuant to the Kinko's Agreement, each installation shall
remain in operation for a period of three years from the date of installation.
Under the Kinko's Agreement, the Company will retain ownership of the ASCs
installed at the Kinko's sites, and package shipping revenue generated at each
site will be shared between the Company and Kinko's.

         In October 1996, the Company entered into an agreement with OfficeMax,
Inc. ("OfficeMax") to install 73 ASCs by the end of January 1997. In March 1997
the Company expanded this contract to install a total of 140 ASCs by the end of
January 1998. The OfficeMax agreement provides that each installation shall
remain in operation for a minimum period of three years from the date of
installation. The Company will retain ownership of the ASCs installed at the
OfficeMax sites, and package shipping revenue generated at each site will be
shared between the Company and OfficeMax.

         The Company is also exploring the possibility of sales of its ASCs to
existing shipping oriented businesses and to mail centers located within
corporate settings. The Company believes that its automation technology for UPS
shipping can reduce costs, help in extending service hours through the use of
unattended ASCs and improve service to the shipping consumer. If the Company's
initial investigations provide evidence that a need for ASCs exist in these
market niches, the Company anticipates that it will pursue sales of its ASCs to
this market segment by entering into distribution agreements with current
distributors serving this market.

RESULTS OF OPERATIONS
         Package shipping revenue for the three months ended March 31, 1997,
increased $15,199 or 10% to $170,455 from $155,256 for the same period in 1996.
Net sales for the three months ended March 31, 1997, decreased $12,323 or 6% to
$197,264 from $209,587 for the same period in 1996. The increase in package
shipping revenue is the result of the higher number of ASC locations offset by a
short term loss of package volume resulting from returns of some old leased
equipment. New ASC units take a number of months to reach their expected
on-going volume. As a result, the increase in package volume does not reflect
the expected full impact of the increase in number of ASC locations from 157
active units as of March 31, 1996 to 270 active units at the end of March 31,
1997. The Company has placed 188 ASCs at retail locations during the last twelve
months and taken back 75 old leased units. Of the increase in the number of ASCs
between the two periods, 77 units were placed in service during the quarter
ended March 31, 1997. The Company's expectations of package volume at new ASC
locations have not been met to date. The Company has initiated a number of
marketing initiatives which are intended to increase the volume of package
shipping at its ASCs. The results of these initiatives are not yet known and
there can be no assurance that the Company will be successful in increasing
package shipping volumes substantially at its existing ASC locations.

         Package shipping revenue for the nine-month period ended March 31,
1997, increased $86,511 or 21% to $492,015 from $405,504 for the same period in
1996. Net sales for the nine-month period ended March 31, 1997, increased
$73,862 or 13% to $649,859 from $575,997 for the same period in 1996. These
increases are due primarily to the Company's increasing number of ASC locations
and building recurring revenue through increased package shipping revenue. The
Company emphasized placement of owned ASCs during the first three quarters of
this fiscal year. As a result, revenues from machine sales is lower for this
period. Package shipping revenues will continue to be the emphasis for growth in
future periods, although the Company is currently evaluating if sales of ASCs
provide an attractive market segment to exploit in certain circumstances.

         Gross margins decreased by $2,216 or 8% to $26,892 for the three months
period ended March 31, 1997, from $29,108 for the same period in 1996. For the
nine months ended March 31, 1997, gross margins increased by $11,091 or 12% to
$104,419 from $93,328 for the corresponding nine-month period from the prior
year. Gross margins as a percent of sales decreased in the third quarter to 14%
compared to 20% in the second quarter of fiscal 1997, primarily due to higher
costs associated with certain production problems which have since been
corrected. The Company expects gross margins as a percent of sales to increase
as a greater proportion of its revenues are derived from package shipping.

         General and administrative expenses for the three months ended March
31, 1997, increased $369,105 or 155% to $607,254 from $238,149. Personnel
expenses accounted for $52,941 of the increase and additional increases in
general and administrative expenses, particularly ASC depreciation and an
increase in maintenance costs associated with a field upgrade completed in
February 1997, accounted for the remaining increase. For the nine month period
ended March 31, 1997, general and administrative expenses increased $658,192 or
103% to $1,295,642 from $637,450 for the same period in 1996. Personnel expenses
accounted for $135,436 of the increase, and additional increases in ASC
depreciation, increased maintenance costs associated with a field upgrade and
expenses associated with being a publicly held company accounted for the
remaining increase. In April 1997, the Company implemented cost-cutting measures
through the reduction of staff and deferral of certain expenditures. The impact
of these reductions, which amount to approximately $150,000 annually, will be
experienced in the quarter ending June 30 , 1997.

         Marketing and sales expenses for the three months ended March 31, 1997
increased $79,645 or 92% to $166,059 from $86,414 for the same period in 1996.
Personnel expenses represented $35,110 of the increase, and the remaining
increase reflects the increased marketing and sales activity being undertaken by
the Company to increase the placements of the ASC units and to increase volume
at existing ASC sites. Marketing and sales expenses for the nine months ended
March 31, 1997 increased $224,330 or 110% to $429,157 from $204,827 for the same
period in the prior year. Personnel expenses represented $116,920 of the
increase between the two periods. The Company is currently implementing
marketing programs intended to improve package shipping volume at certain
locations. Additional marketing programs are being developed and will be
implemented during the three to six months. As a result, marketing expenses are
expected to increase over this period. Depending on the results of the marketing
programs, the Company may elect to continue these or similar programs to improve
package shipping volumes in the future. No assurance can be given that package
volumes will increase with the implementation of these marketing programs.

         Research and development expenses for the three months ended March 31,
1997, decreased $102,497 or 93% to $7,438 from $109,935 for the corresponding
period in the prior fiscal period. The reduction is primarily due to the
completion of significant development work on the 3100 model ASC in earlier
periods with no new development activities currently underway. For the
nine-month period ended March 31, 1997, research and development expenses
decreased by $56,602 or 28% to $145,437 compared to $202,039 for the
corresponding period in the prior fiscal period. Research and development
expenses relate primarily to the development of new software tools for the ASCs
and costs associated with the development of new experimental models of the ASC.

         Interest income decreased to $13,046 for the three months ended March
31,1997, compared to $15,426 for the corresponding three month period of the
prior year, primarily as a result of lower investments as cash balances were
reduced due to the funding of operating deficits. Interest income was higher in
the prior period due to higher cash balances resulting from proceeds of a bridge
loan prior to the Company's public offering completed in May 1996. Interest
expense decreased from $150,154 for the three month period ended March 31, 1996
to $6,171 for the same period in 1997. The decrease is the result of a reduction
in debt of $1,178,400 between the two periods. For the nine month period ended
March 31, 1997, interest income increased by $63,246 to $79,715 and interest
expense decreased by $225,569 to $12,007 as a result of the cash generated from
the Company's public offering in May 1996 which allowed the Company to pay down
its outstanding debt and invest the surplus.

         Net loss for the three months ended March 31, 1997, increased $206,866
to $746,984 from $540,118 for the same period in the prior fiscal year. Net loss
for the nine months ended March 31, 1997 increased $526,014 to $1,698,109 from
$1,172,095 for the comparable period in the prior year. The Company expects to
have increases in its revenues as it invests in expanding its network of ASCs.
However, the Company expects to incur additional losses until its ASC's generate
sufficient volume to offset its investment and operating expenses. There can be
no assurance that the shipping volume will increase sufficiently or the Company
will be able to expand its network of ASCs sufficiently to generate profitable
revenues.

LIQUIDITY AND CAPITAL RESOURCES
         The Company completed a public offering in May 1996, which raised
approximately $5.1 million. During the first quarter of the current fiscal year,
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. In April 1997, the Company completed a private placement of its
common stock raising approximately $1.7 million. The Company is currently
operating at a loss and depends on cash generated through its equity offerings
to fund its operating deficit. 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 nine-month period ended March 31, 1997 was
$1,698,109. Although the Company expects revenue levels to continue to increase
as additional ASC units are placed at retail locations, the Company expects to
incur losses for the foreseeable future due to the ongoing activities of the
Company to expand its ASC network and the costs incurred in expanding its
organization to support the expected increase in this network. As noted earlier,
the Company has initiated marketing programs to influence the volume of package
shipping at its shipping centers. The Company believes that these programs will
result in greater package shipping revenues per shipping center, although no
assurance can be given that volumes will increase appreciably as a result of
these initiatives in the near future, if at all.

         During September 1996, the Company entered into an agreement with
Kinko's to install up to 250 ASCs in Kinko's Copy Centers by December 1997. In
October 1996, the Company entered into a similar agreement with OfficeMax to
install 73 ASCs in OfficeMax locations by the end of January 1997, which
agreement was further expanded, in March 1997, to include a total of 140 ASCs.
The total cost of installing these units will be approximately $2 million.
Through March 31, 1997, the Company has installed 134 units at an approximate
cost of $737,000. To date, the Company has utilized funds generated from its May
1996 public offering to fund the installation of these units and expects to rely
on this, the private placement proceeds and internally generated funds to
continue financing the installations in the short term. It is likely that the
Company will need additional commercial financing for a portion of the remaining
installations. There can be no assurance that such financing will be available
to the Company on terms satisfactory to it.

         Inventory levels increased by approximately $90,000 as of March 31,
1997, compared to June 30, 1996, reflecting the overall increase in purchases
made to fulfill the Kinko's and OfficeMax agreements. Accounts receivables
increased by approximately $56,000 from June 30, 1996 to March 31, 1997 due to
the seasonal increase in shipping volumes in December and January. Accounts
payables increased by approximately $261,000 over the same period due to
increased level of inventory purchases and deferral of payments to reduce
short-term cash outflow. Accrued liabilities and deferred revenue decreased due
to reversals of deferred revenues resulting from the exercise of return rights
and recognition of revenue on a monthly basis on leased units remaining.

         Based on current commitments and on-going working capital needs, the
Company believes that it will require additional debt or equity funds within the
next eight months to ten months to continue to penetrate the market for
automated shipping and to fund its on-going operations. As noted earlier, the
Company is currently implementing marketing programs which it expects to
positively influence the volume of package shipping at its ASCs. The Company's
cash needs and usage may vary based on the outcome of these initiatives. There
can be no assurance that the necessary financing will be available to the
Company or on terms satisfactory to it.


CAUTIONARY FACTORS
         THE COMPANY WISHES TO CAUTION SHAREHOLDERS AND PROSPECTIVE INVESTORS
THAT THE FOLLOWING IMPORTANT FACTORS, AMONG OTHERS, COULD IN THE FUTURE AFFECT
THE COMPANY'S ACTUAL OPERATING RESULTS, AND THAT SUCH RESULTS COULD DIFFER
MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY THE
COMPANY. THE STATEMENTS UNDER THIS CAPTION ARE INTENDED TO SERVE AS CAUTIONARY
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THE FOLLOWING INFORMATION IS NOT INTENDED TO LIMIT IN ANY WAY THE
CHARACTERIZATION OF OTHER STATEMENTS OR INFORMATION UNDER OTHER CAPTIONS AS
CAUTIONARY STATEMENTS FOR SUCH PURPOSE. THE ORDER IN WHICH SUCH FACTORS APPEAR
BELOW SHOULD NOT BE CONSTRUED TO INDICATE THEIR RELATIVE IMPORTANCE OR PRIORITY.

LIMITED OPERATING HISTORY; LOSSES FROM OPERATIONS; GOING CONCERN UNCERTAINTY
         The Company entered its current business in 1992 and has had a limited
operating history. The Company's proposed operations are subject to all the
risks inherent in the establishment of a new business. The Company has never
generated net income, continues to sustain substantial operating losses and
expects to continue to operate at a loss thorough its current fiscal year. For
the fiscal year ended June 30, 1996, the Company incurred net losses of $
2,184,287. For the nine-month period ended March 31, 1997, the Company has
incurred an additional net loss of $1,698,109. As of March 31 1997, the Company
had working capital of $735,412. As of March 31, 1997, the Company had an
accumulated deficit of $7,041,404. The Company will continue to incur these
losses until there is a wide placement of ASCs which generate sufficient
revenues to offset operating costs. The report of the Company's independent
public accountants concerning the Company's financial statements as of June 30,
1995 and 1996 contain explanatory paragraphs relating to the Company's ability
to continue as a going concern. There can be no assurance that the Company will
achieve profitable operations. The Company expects that it will need additional
debt or equity funding in the next eight to ten months to fund on-going
operating costs. There can be no assurance that such funding will be available
to the Company at terms satisfactory to it.

MARKET ACCEPTANCE OF PRODUCTS
         A prerequisite to the Company's success will be to create demand for
self-service, automated shipping services and wide placement of the Company's
ASCs at retail and other business locations. The Company believes this is an
undeveloped market and there can be no assurance that such demand or market
acceptance of its ASCs will develop. To date the Company has had limited success
in creating a demand for automated shipping services. The marketing cost of
creating demand for the Company's services may be significant and beyond the
Company's funding capability. The commercial (non-U.S. Postal Service) package
shipping market is dominated by a relatively small number of established
carriers, which, together with the U.S. Postal Service, process the vast
majority of consumer and small business package shipping transactions. There can
be no assurance that any of such dominant commercial package shippers or the
public will adopt a self-service shipping center concept or that they will
select the Company's ASC in preference to the shipping services offered by its
competitors or potential competitors.

DEPENDENCE UPON CARRIERS
         The Company is dependent upon the United Parcel Service ("UPS") to pick
up and transport packages processed via the Company's ASCs. Any interruption in,
or increase in price of, such service, or the failure of the Company to continue
to maintain arrangements with UPS or to develop relationships with other package
carriers, would cause an interruption of service to the Company's customers and
would have a material adverse effect upon its business. The Company has no
control over the nature, cost or availability of services provided by any
carrier and has no long-term contracts with such carriers.

SUBSTANTIAL INVESTMENT IN EQUIPMENT
         As a part of its business strategy, the Company seeks to place ASCs, at
its own expense, in locations that have the potential to generate high package
volume and with businesses that have multiple strategic locations, such as
business centers, grocery stores and other service provider chains. Although the
Company was traditionally able to sell ASCs with financing from third party
lessors, no assurance can be given that similar financing will be available in
the future to finance the Company's plan of placing ASCs in service at its own
expense.

         Although the Company believes that such a strategy will lead to the
generation of high package shipping volume and that such placements of ASCs is
cost-effective, there can be no assurance that this strategy will be successful
or that the Company will be able to recover its investments in the ASCs placed
in service pursuant to this program either through profit margins or higher
volumes of package shipments.

COMPETITION
         The commercial (non-U.S. Postal Service) package shipping market is
dominated by a relatively small number of companies which have more experience
in the industry and have greater financial and technical resources than the
Company. Both FedEx, Inc. and UPS have test marketed automated self-service
shipping terminals, but have, to the best of the Company's knowledge,
discontinued such tests, and neither of them currently operate competing
machines in the market that are comparable to the form and function of the
Company's ASC. In addition, the Company competes with major air express
carriers, all of which deploy large numbers of "drop boxes" which may compete
with the Company's ASCs. According to industry sources, these carriers are
deploying additional drop boxes on an ongoing basis. Many of such boxes have or
will be installed in business centers, office parks and shopping malls, which
could be potential sites for the Company's ASCs. The Company also faces intense
competition from the related service industry providing package collection
services, such as mail and packaging stores. In addition, the Company's
competitors and the dominant package shippers, all of which have greater
resources than the Company, could develop products competitive with the
Company's ASCs.

ABILITY TO FORM STRATEGIC RELATIONSHIPS
         The Company's strategy includes the formation of strategic
relationships with major carriers and retailers. The Company believes that
relationships with carriers will enable it to deploy its proprietary technology
in the market by leveraging a carrier's established service and distribution
channels. The Company has had no success to date in forming a strategic
relationship with a carrier. The Company has also sought to establish
relationships with multi-site retailers. To date, the Company has entered into
contracts with Kinko's and OfficeMax and some other smaller multi-site
retailers. However, there can be no assurance that the Company will be
successful in creating additional multi-site retailer relationships and/or
successfully retain and grow the existing multi-site retailer relationships.

DEPENDENCE ON PROPRIETARY RIGHTS
         The Company's success will depend, in part, upon its ability to protect
its proprietary technology, for which it relies on a combination of patent,
copyright, trademark and trade secret laws. Although the Company has received
patents for its ASC, there can be no assurance that current intellectual
property laws will afford the Company significant protection against competitors
or that other technology will not be developed to functionally compete with the
product. The Company believes that one or more major carriers, all of which have
greater financial, technical and marketing resources than the Company, have
attempted to develop or purchase products or technologies competitive with the
Company's ASCs. There can be no assurance that the Company will be able to
maintain a competitive advantage in the ASC market based upon its proprietary
technology.

TECHNOLOGICAL RISKS
         The Company anticipates that any market which develops for automated
shipping services will be characterized by rapidly changing technology and user
preferences. Such market will likely be heavily influenced by the preferences
and acceptance of such technology by major package and parcel carriers. There
can be no assurance that future products or technology developed by others will
not render obsolete the Company's technology. Failure on the part of the Company
to develop new technology to meet competitive challenges may adversely affect
the Company's prospects.

UNINSURED OBLIGATIONS TO SHIPPING CUSTOMERS
         The Company or a retailer with whom a package is deposited may have
exposure to a customer to the maximum extent of the declared value of the
package in the event of its damage or destruction while in the possession of the
Company or a retailer. The Company limits its liability to the customer to the
amount of the declared value pursuant to the shipping transaction documentation,
and relies upon the carrier to reimburse it or the customer for damage occurring
during shipment. The Company, however, has no insurance which would protect it
against such losses.

QUARTERLY REVENUE FLUCTUATION; SEASONALITY
         The Company expects to experience continued and substantial
fluctuations in revenue due to seasonal changes which affect the volume of
package shipping transactions. Such fluctuations create significant imbalances
in the Company's cash flow. Potential investors and shareholders should not,
therefore, rely on individual quarterly results as being indicative of the
Company's overall performance.

FRANCHISE REGULATION
         The Federal Trade Commission regulates the offer and sale of franchises
under its "Franchise Rule," a regulation which sets forth standards mandating
disclosure of information before the sale of a franchise or business
opportunity. Additionally, several states, including Minnesota, have laws and
rules which regulate various aspects of franchising and the sale of business
opportunities. The Company believes that its programs for the sale, lease or
placement of ASCs do not constitute franchises or business opportunities within
the meaning of the Franchise Rule or such state laws. If the Company should be
required to comply with such laws or rules it would incur substantial costs,
delays and other burdens associated with various franchise registration and
disclosure compliance obligations. In addition, there can be no assurance that
other governmental regulations will not hinder the Company's plans. A finding
that the Company has violated state franchise laws or regulations of the
Franchise Rule could result in administrative, civil or criminal actions against
the Company and could materially and adversely affect its business. In addition,
if the Company is found to have violated franchise laws, certain persons
entitled to the benefit of such laws may have the right to rescind their
purchases or leases of the Company's ASCs, in addition to recovering damages,
interest and attorneys' fees.

PART II - OTHER INFORMATION

ITEM 2 - Changes in Securities

         The Company completed a private placement on April 29, 1997 raising
approximately $1.7 million. The Company sold approximately 985,500 shares of its
common stock, $.004 par value per share, at $1.725 per share. The private
placement was not underwritten and shares were sold by the Company directly to
certain existing institutional shareholders, certain directors and officers of
the Company. The Company relied upon Section 4 (2) of the Securities Act of
1933, as amended, and Rule 565, of the Securities and Exchange Commission under
such act in effecting the private placement of its securities. Although no
formal agreements exist, the Company expects to pay a finder's fee to a broker
for the shares sold to non-director and non-officer shareholders. The amount of
the finder's fee (which is expected to have a cash and a warrant component) has
not yet been finalized and is under negotiation. Under terms of the financing,
the Company agreed to retroactively reduce the per share price of shares to
investors in the private placement if an offering of common stock before July
29, 1997 was consummated at a price lower than the private placement price of
$1.725. The price reduction would effectively require the Company to issue
additional shares to the investors to match the per share price being offered in
the new offering.


ITEM 5 - Amendment # 1 dated March 31, 1997 to Installation and Marketing
         Agreement, dated October 16, 1996, between the Company and OfficeMax,
         Inc.

         On March 31, 1997, the Company amended its Installation and Marketing
Agreement dated October 16, 1996 with OfficeMax, Inc. to expand the number of
ASC units covered by the agreement from 73 to 140 with an expected fulfillment
of the additional units prior to December 31, 1997. All other terms of the
agreement remained unchanged. On October 16, 1996, the Company entered into a 36
month Installation and Marketing Agreement with OfficeMax, Inc.. The terms of
the Agreement requires the Company to install 73 ASCs into various CopyMax
locations by the end of January 1997. Under the terms of the Agreement each ASC
shall remain in service for 36 months following the date of its installation.

ITEM 6 - Exhibits and Reports on Form 8-K

         a.    Exhibits

                  Exhibit 10.1      Amendment #1 dated March 31, 1997 to
                                    Installation and Marketing Agreement, dated
                                    September 30, 1996, between the Company and
                                    OfficeMax, Inc.

                  Exhibit 10.2      Form of Subscription Agreement and 
                                    Letter of Investment Intent by and between 
                                    the Company and Robertson Stephens & Co. and
                                    related funds in the aggregate.

                  Exhibit 27        Financial Data Schedule

         b.    Reports on From 8-K

                  None



                                 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 May 13 , 1997.


                                           U-SHIP, INC.



                                           By: /s/ Bruce H. Senske
                                           Bruce Senske,
                                           President and Chief Executive Officer



                     SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D. C. 20549


                                U-SHIP, INC.
                          EXHIBITS TO FORM 10-QSB


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

Exhibit 10.1            Amendment #1 dated March 31, 1997 to
                        Installation and Marketing Agreement, dated
                        October 16, 1996, between the Company's and
                        OfficeMax, Inc.

Exhibit 10.2            Form of Subscription Agreement and Letter of 
                        Investment Intent by and between the Company 
                        and Robertson Stephens & Co. and related 
                        funds in the aggregate

Exhibit 27              Financial Data Schedule