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                   SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C. 20549


                              FORM 10-KSB

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

            For the Fiscal year Ended August 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 number  000-21753

SERVICE SYSTEMS INTERNATIONAL, LTD.
Name of Small Business Issuer in Its Charter

NEVADA                                               88-0263701
State of Incorporation                               I.R.S. Employer
                                                     Identification No.

2800 INGLETON AVE.,
BURNABY, B.C., CANADA                                V5C 6G7
Address of Principal Executive Offices               Zip code

604-451-1069
Issuer's Telephone Number

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

NONE

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

COMMON STOCK, PAR VALUE $0.001 PER SHARE
Title of class

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 / /


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Check if there is no disclosure of delinquent filers in response to Item 405 
of Regulation 405 is not contained in this form, and no disclosure will be 
contained, to the best of registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-KSB or any amendments to this Form 10-KSB (X)

The issuer's revenues for its most recent fiscal year were $202,894.

The aggregate market value of the voting and non-voting common equity held by 
non-affiliates of the issuer computed by reference to the price at which the 
common equity was sold, or the average bid and asked price of such common 
equity, on November 20, 1998 was $0.0825. The number of shares outstanding of 
the issuer's only class of Common Stock, $.001 par value, was 12,662,988 on 
November 23, 1998.

Transitional Small Business Disclosure Format (check one): Yes / / No /X/

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE 
COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO. INFORMATION DISCUSSED 
HEREIN MAY INCLUDE FORWARD-LOOKING STATEMENTS REGARDING FUTURE EVENTS OR THE 
FINANCIAL PERFORMANCE OF THE COMPANY, AND IS SUBJECT TO A NUMBER OF RISKS AND 
OTHER FACTORS WHICH COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM 
THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENTS. AMONG SUCH FACTORS ARE: 
GENERAL BUSINESS AND ECONOMIC CONDITIONS; CUSTOMER ACCEPTANCE AND DEMAND FOR 
THE COMPANY'S PRODUCTS; THE COMPANY'S OVERALL ABILITY TO DESIGN, TEST AND 
INTRODUCE NEW PRODUCTS ON A TIMELY BASIS; THE NATURE OF THE MARKETS ADDRESSED 
BY THE COMPANY'S PRODUCTS; AND OTHER RISK FACTORS LISTED FROM TIME TO TIME IN 
DOCUMENTS FILED BY THE COMPANY WITH THE SEC INCLUDING THOSE DISCUSSED UNDER 
"RISK FACTORS" BELOW.


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                                   PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Vancouver-based Service Systems International, Ltd., through its 
majority-held subsidiary UV Systems Technology Inc. ("UVS"), is the 
manufacturer and marketer of state-of-the-art ultraviolet disinfection 
systems for wastewater. We are committed to a legacy of a healthy planet for 
future generations through the development and commercialization of superior, 
cost-effective, environmentally friendly, ultraviolet-based water treatment 
systems. Through UVS, we hold two United States patents and five 
international patents on various components of our ultraviolet disinfection 
system, including the flow reactor chamber and flow-balanced discharge weir.

Our executive offices are located at 2800 Ingleton Avenue, Burnaby, B.C., 
Canada V5C6G7. The telephone number is (604) 451-1069 and the facsimile 
number is (604) 451-1072. References in this document to "we," "us," "our," 
and "the company" include UVS


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unless the context otherwise requires. ULTRA GUARD-TM- and "WAVY LINES & 
DESIGNS" logo are our registered trademarks. Any other trademarks or trade 
names referred to in this document are the property of their respective 
owners. All monetary figures in the document are in United States dollars 
except Canadian dollars which are indicated as "C$."

COMPANY BACKGROUND

Our company, Service Systems International Ltd. was incorporated in Nevada in 
August 1990 and was inactive until it was acquired in July 1995 by eight 
Canadian and European individuals. The investors' intent was to develop the 
company into the United States marketing arm of UV Systems Technology Inc., 
which was incorporated in British Columbia, Canada, in 1993. Our company 
issued 1,600,000 shares of its restricted common stock ("Common Stock") to 
certain individual stockholders and one of our officers, as repayment of cash 
paid to others for expenses related to the acquisition.

In an effort to further advance our marketing objective we entered into an 
oral agreement with UV Systems Technology Inc., for marketing rights for the 
Ultra Guard-TM- system in eight Western states. This oral agreement was 
subsequently supported by a written agreement dated September 21, 1995. In 
July 1996 we entered into a funding agreement with UVS. Under the funding 
agreement, we supplied 50% of UVS' operating funds for a six-month period. 
During this period we structured an agreement with two principals and certain 
minority shareholders and exchanged common stock to acquire 50.69% of UVS. We 
also entered into an agreement with the owners of the balance of the common 
stock (Working Opportunity Fund and MDS Ventures Pacific, Inc., 49.39%) to 
complete the purchase of UVS. Under this agreement we were required to fully 
fund the operations of UVS, and if we were successful in raising C$2.0 
million of operating capital, the remaining common stock of UVS would have 
been purchased. The operating funds advanced by us would be forfeited if the 
agreement was not concluded. This agreement was extended a number of times 
through to July 15, 1998, after which it was allowed to lapse. A subsequent 
agreement (discussed in Management Discussions) converted the funds loaned to 
UVS into Class X shares of UVS.

INDUSTRY BACKGROUND

The treatment of municipal wastewater and drinking water to eliminate 
contaminants injurious to health and the environment is a worldwide concern. 
In 1995, the world spent an estimated $335 billion for the purification of 
drinking water, wastewater treatment and treatment of industrial process 
water and fluids. World spending for drinking water purification and 
municipal wastewater treatment only is estimated to reach $300 billion per 
year (plus another $200 billion for industrial treatment needs) by year 2000. 
A United States Environmental Protection Agency survey in 1984 reported that 
15,378 municipal treatment plants were in


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operation in the United States and projected the number to increase to 
approximately 21,000 by the year 2000. Of the 15,378 plants operating in 
1984, only 107 were using or were being constructed and designed for UV 
treatment. Some of these 15,378 plants had limited or no disinfection. Many 
of the existing plants identified in 1984 will be required to upgrade or be 
replaced to meet new United States environmental standards. This is an 
estimated cost of more than $180 billion. Together with the new treatment 
plants projected to be built, this represents the United States municipal 
wastewater treatment market for the ultraviolet treatment industry.

Treatment of municipal wastewater begins by settling or filtering out solid 
wastes and removing chemicals, minerals, etc. After this treatment the 
effluent must be disinfected before being discharged into a body of water. 
Five major factors are used to decide which method of disinfection will be 
used. The first four are: performance, operating cost, safety of method 
selected, and verification by pilot study. These relate to the disinfection 
process itself. The fifth factor is potential adverse effects of the 
disinfectant on the environment. Currently, the majority of treatment systems 
in the United States use chlorination. Other treatment alternatives include 
ozonation and ultraviolet light.

The chlorination process can raise significant environmental concerns. As 
reported in a 1986 U.S. Environmental Protection Agency study, MUNICIPAL 
WASTEWATER DISINFECTION, even low chlorine residual levels are very difficult 
to control in receiving streams. The waste stream is influenced by factors 
such as temperature, pH, alkalinity, suspended solids, chemical oxygen demand 
and nitrogen-containing compounds. All of these factors influence the 
effectiveness of chlorine disinfection. The environmental impact includes the 
toxicity of residual chlorine to plant and wildlife and the formation of 
potentially toxic halogenated organic compounds. Many treatment plants use 
sulfur dioxide to remove the chlorine from the treated water. This reduces 
the chlorine residual, but probably does not affect halogenated organic 
compounds, and adds its own negative effect in the receiving water. Chlorine 
is extremely volatile, therefore its safe transportation is difficult. Many 
state regulations require that a facility using chlorine treatment train its 
personnel in correct handling and safety procedures.

Ozone, an unstable gas, is very effective as a bactericide and virucide. 
However, in some instances, mutagenic and/or carcinogenic compounds have 
resulted from ozone's use. Ozone treatment can be expensive; ozone must be 
generated on-site in an expensive process. The ozonation process is 
relatively complex to operate and maintain, and the equipment costs are high.

According to a 1996 study, ULTRAVIOLET DISINFECTION IN MUNICIPAL WATER AND 
WASTEWATER, the number of UV disinfection systems in the United States will 
increase from about 1,000 to about 3,000 between 1995 and 2000 and the market 
will increase from $20 million annually to $100 million annually in the same 
time period. By the year 2010, half of municipal disinfection systems are 
expected to use technologies other than chlorine, and use of chlorine will be 
almost eliminated by 2025. About 56% of chlorine alternative


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installations are forecast to be UV systems.

Ultraviolet (UV) light treatment is a non-chemical process, which is very 
effective as a bactericide and virucide. Ultraviolet light radiation at a 
wavelength of 254 nanometers (nm) penetrates the cell wall and is absorbed by 
the bacteria's nucleic acids. This prevents the replication of the cell. 
Because UV is non-chemical, no toxic residues are produced. UV systems are 
simple to operate and maintain, have no known adverse environmental impact, 
and need minimal space. UV is a cost-effective alternative to chlorination 
and ozonation.

Installations of UV disinfection systems has been slowed by a number of 
factors. UV system lamps become fouled and require frequent cleaning. UV 
equipment using low-pressure, low- intensity ultraviolet lamps require a 
large number of lamps when used in large treatment plants. UV lamps need to 
be replaced about once a year. Large numbers of lamps equals: 1) high 
cleaning and replacement labor costs, 2) high power cost, and 3) high lamp 
replacement costs. Reduction in disinfection performance occurs due to 
contaminants such as high suspended solids, color, turbidity, and soluble 
organic matter in the effluent. These contaminants affect the transmittance 
of the fluid and reduce ability of the ultraviolet light to penetrate the 
fluid.

We believe that a UV system as provided by our company deals with these 
issues and will greatly enhance the marketing opportunities for UV systems. 
Our UV system is environmentally friendly, efficient in operation and cost 
effective.

SERVICE SYSTEMS' STRATEGY

Our Company is committed to a legacy of a healthy planet for future 
generations through the development and commercialization of superior, 
cost-effective, environmentally friendly, UV-based water treatment systems. 
Our objective is to become a leading supplier of UV disinfection systems for 
municipal wastewater and, eventually, for industrial process water and 
potable water. We believe that the current widespread use of chlorine as the 
treatment method does not address its environmental effects. There is a need 
for a superior, cost-effective system for water disinfection around the 
world. Our UV system answers these needs. It is state of the art, 
proprietary, environmentally friendly, efficient, and provides numerous 
opportunities for us to expand the scope of our activity beyond municipal 
wastewater.

Key elements of the Company's strategy are:

Technological Superiority

We currently hold patents on UV lamps, the flow control reactor module and 
the flow-balanced weir. These components are used in our treatment system. 
The system also includes several proprietary features which include, 1) 
automatic lamp cleaning to deal with the problem of lamp fouling, 1) 
automatic variability of lamp intensity to match effluent flow


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to reduce power consumption, and 3) automatic variability of lamp intensity 
to treat varied transmission. We intend to continue technological development 
as a response to the changing needs and applications of the water and 
wastewater treatment industry.

Expansion of Product Lines

Our UV technology can be applied to many treatment needs. After successful 
penetration of the wastewater disinfection market and financial success, we 
intend to expand our business into disinfection of industrial process water. 
Other business segments which show growth potential currently and for the 
future are potable water disinfection, other fluids disinfection and air 
disinfection.

Process water disinfection is required in industries such as breweries, soft 
drink producers, pharmaceutical, pulp and paper production, agriculture, 
aquaculture, and marine life systems. Potable water treatment is needed for 
drinking water from a normal municipal supply, bottled water and for disaster 
relief. Disinfection is also needed in bottled and packaged juices and other 
fluids.

Enhancement and Expansion of Marketing Efforts

Our product is marketed through a representatives' network in North America 
and in selected countries of the world. This network needs and continues to 
be expanded so that we have at least one representative in each of the United 
States. This process will continue both in the United States and in other 
selected countries of the world until full customer support is achieved. When 
and if the opportunity arises, we intend to acquire firms serving a similar 
industry.

Expand International Sales

While awareness of the need for water disinfection in North America is high, 
that awareness in other parts of the world is also beginning to increase and 
the market for treatment and disinfection systems is expanding. With the 
compact and adaptable nature of our treatment system, its patented and 
proprietary technology, and the full-size production demonstration units 
(PDU's), we believe we have a good potential to expand into the international 
market. It is our intention to pursue this market aggressively.

OUR COMPANY'S PRODUCT

Our company manufactures and markets its UV disinfection system under its 
registered trademark, Ultra Guard-Registered Trademark-. The Ultra Guard-TM- 
system incorporates,1) patented low-pressure, high-intensity, high-efficiency 
UV lamps, 2) infinitely variable ultraviolet lamp controllers,3) patented 
high-performance reactor module, 4) patented


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flow-balanced weirs, and 5) automatic quartz sheath cleaning system. The new 
mechanical cleaning system has been developed and has been introduced into 
the marketplace by demonstration on our full scale demonstration systems. 
Currently our product is used primarily for municipal wastewater 
disinfection. The UV system has been adapted for treatment of process and 
wastewater from industry, where it is currently being applied in the 
semi-conductor industry. Other applications include treatment of potable 
water, juices and other bottled products, and agriculture and aquaculture 
water treatment.

UV disinfection systems have none of the safety issues with which 
chlorination systems must deal. UV has the advantage of being relatively 
simple to operate and maintain. UV disinfection is a physical, rather than 
chemical process, using UV radiation to permeate bacterial and viral cell 
walls and prevent the cells from replicating.

In competing UV systems, after solid materials are removed, the effluent is 
directed through banks of low-pressure, low-intensity or medium-pressure, 
high-intensity UV light producing mercury vapor arc lamps. In order to 
disinfect a liquid, the UV energy within the 240 - 280 nm wave band must be 
directed into the liquid at a minimum intensity level. As the lamp emits 
radiation and the fluid distance from the lamp increases, the intensity is 
reduced. Traditionally, maximum exposure has been obtained by utilizing a 
very large number of low-pressure, low- intensity lamps through which fluid 
passes. Murkier fluids require more lamps and closer placement of the lamps 
in proximity to one another. Like competing UV systems, our Ultra Guard-TM- 
system also exposes fluid to UV light for a time sufficient to damage the 
reproductive ability of the microorganisms. However, in the Ultra Guard 
disinfection process, fluid to be disinfected, 1) passes through a diffuser 
plate to even the flow, 2) passes through our patented flow reactor module 
which surrounds the UV lamp, and 3) leaves the disinfection channel through 
our patented flow-balanced discharge weir.

As effluent enters the disinfection channel, uneven fluid pressure creates 
variances in the flow rate among the top, middle and bottom layers of 
effluent. As a result of uneven fluid pressure, flow velocity varies. The 
result is varying rates of disinfection as these uneven flows pass the UV 
lamps. In our UV system, the diffuser plate (a perforated plate) intercepts 
the incoming fluid and mixes the varying velocity layers. This ensures 
uniform column flow before the fluid enters the patented flow reaction 
chamber and permits the lamp intensity to be set for a consistent, 
predictable fluid flow rate.

After passing through the diffuser screen, the fluid enters our Ultra Guard 
patented flow reactor module. The Company's competitors' straight-through 
systems require repeated and continuous exposure to multiple banks of UV 
lights. In our UV system, the fluid oscillates as it moves through the 
reactor module. This ensures that all influent receives maximum exposure to 
the UV light from a single lamp. The reactor module provides an additional 
benefit. In other UV systems, slow fluid flow velocity through the lamps and 
higher temperatures permit buildup of sedimentary deposit which reduces the 
efficiency of their systems. Our reactor module is designed to cause the 
fluid to pass closer to the UV light at high velocities, reducing


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sedimentary deposit (fouling) on the quartz sleeve which houses the UV lamp. 
The reduction of fouling permits the lamps to continue to operate at peak 
efficiency for longer periods of time. When fouling does occur, our 
mechanical cleaner, incorporated into the reactor module, automatically 
cleans the quartz sleeve. The combination of reduced sedimentation and 
resultant fouling, and the automatic cleaning system, directly addresses one 
of the major concerns about the use of UV disinfection systems. We believe 
that our advanced method of fouling reduction will contribute to our UV 
systems' acceptance.

As the effluent leaves the reactor module, it discharges from the disinfection 
channel through the patented flow-balanced weir. Most other UV systems use 
conventional counterbalanced flap gates to control flow through the 
disinfection channel. Counterbalanced weirs which are incorrectly adjusted 
can cause the fluid to surge, exposing the UV lamp to air and reducing system 
efficiency. The Ultra Guard-TM- patented flow-balanced weir is based on the 
principle of atmospheric pressure equalization. It will maintain correct 
channel depth without moving gates, valves, special sensors or other methods 
requiring operator involvement. Our UV lamp remains fully submerged even 
during periods when there is zero flow at the wastewater plant.

The flow volume into the disinfection system is measured by a flow meter 
mounted in the effluent channel, in front of the disinfection system. A UV 
transmission monitor calculates the transmission of the effluent and provides 
continuous readings of the effluent transmission quality. These readings are 
fed to our system microprocessor control where they are used to select 
appropriate power intensity settings for UV lamps. In multichannel 
installations, we can provide powered channel gates to direct the flow, 
control the number of modules in operation, or take a channel off-line for 
routine maintenance or lamp replacement during periods of low flow. Using 
data from the system-mounted UV monitors reading each UV lamp intensity, UV 
output for each lamp can be increased to compensate for unusual quartz sheath 
fouling and lamp aging.

In our UV system we use our patented low-pressure, high-intensity, 
high-efficiency UV lamps. These lamps emit high-intensity light to penetrate 
murky effluent and reduce fecal coliform or other pathogen counts to design 
specification levels. These lamps operate at 40-60% of the electrical power 
consumed in low-pressure, low-intensity lamps and 12 to 20% of the electrical 
power used in medium-pressure lamps. Our Ultra Guard-TM- system also requires 
up to 90% fewer lamps than most other low-pressure, low-intensity lamp 
systems. Medium-pressure lamp systems take 3 - 5 medium-pressure lamps to 
equal one of our lamps. Replacement downtime for lamps is minimized because 
the lamps can be replaced quickly from above while the lamp module remains in 
the channel.

Our UV disinfection system has a compact size. Increasing the capacity can be 
easily accomplished by adding channels and lamps in parallel or in series. In 
applications of more- turbid-than-normal effluent or where more stringent 
effluent discharge regulations must be met, a second lamp module immediately 
behind the first may be installed. We have designed the UV system to 
disinfect wastewater treatment plant flows up to any size. Systems can be 


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customized to suit specific site conditions and discharge requirements. Our 
single lamp systems cost between $8,000 and $15,000; the cost of systems 
requiring more lamps is a multiple of that, with volume discounts available 
for larger sales. Typically a system requires one lamp for every 0.5 million 
gallons of wastewater disinfected.

CUSTOMERS

Our customers to date have been municipal wastewater treatment facilities, 
and semi-conductor plants sold to/through our Japanese agent. Ultra Guard-TM- 
systems have been installed at two wastewater treatment facilities. The first 
system was commissioned in February 1995 in Paraparaumu, New Zealand, and has 
been in operation since that time. This municipal wastewater treatment system 
is a 12-lamp system, designed to treat a 580-cubic-meters-per- hour peak 
flow. The system initially experienced premature lamp burnout due to an 
incorrectly wired lamp controller. This problem has been corrected. The 
second Ultra Guard-TM-system was supplied in August 1995 for Chilliwack, 
British Columbia, Canada, and is a 12-lamp system designed to disinfect an 
effluent flow of 4.5 million gallons per day (MGD). Due to excessive flows at 
the plant, up to 8.6 MGD being delivered to the UV system, we were unable to 
treat the flow with the size of the UV system installed. We have mutually 
agreed to cancel and reverse the sale and have an agreement with the customer 
to continue using the site as a facility to test new equipment and 
components. As of August 31, 1998, we had delivered 20 one-lamp systems to 
our Japanese distributor for applications in the semi-conductor industry.

We completed delivery and test of our PDU at a wastewater treatment plant, 
testing for the cities of Rosemere and Lorraine, Quebec, in October 1997. In 
December 1997, we were preselected as the supplier for the disinfection 
system at that location. The purchase order for this project was received in 
June 1998, and work on the UV equipment is in process. The project is 
scheduled for completion in May 1999.

In February 1998 an order was received for a 6-lamp UV system for Hamilton, 
Alabama. We have scheduled this system to be delivered in early December 1998.

We are actively bidding on many sites in the United States, Canada and 
internationally, and have responded to project inquiries which are valued in 
excess of $140.0 million. Our experience shows us that PDU testing is a means 
of advertising and proving the capabilities of our UV system, by showing it 
in a real situation. When a PDU test is requested, we verify that the 
location has had budget approval to install a UV system. At sites where we 
have demonstrated our PDU, we have had a high rate of success, both from PDU 
performance and from sales potential.

PDU testing was conducted and completed at Peterborough, Ontario, in 
September 1998. Excellent results were obtained. A request for proposal for a 
UV system for that City is expected to be issued in early 1999. Assuming that 
a proposal from us we expect to submit is accepted, we expect that UV system 
to comprise 40 lamps at a

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value of about C$900,000. Testing for the County of Los Angeles, California, 
is scheduled to start November 1998. The test is to provide verification of 
our UV system's capability to comply with State of California Title 22 
Guidelines. Approval to these Guidelines is a prerequisite in California to 
acceptance of a UV system in water reclamation/reuse.


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SALES AND MARKETING

Our Ultra GuardTM UV system is marketed both domestically and internationally by
two marketing employees with specialized training in wastewater disinfection,
and through a network of distributors and representatives. As of August 31,
1998, UVS had 34 distributors and representatives, 25 in North America and 9
internationally. Distributors purchase systems and components for resale in a
designated territory on an exclusive basis and provide full service to
customers. Some agreements require a distributor to purchase a minimum amount of
product each year. Distributorship agreements are performance related and
usually have a term of one year. Sales representatives act as agents for our
Ultra GuardTM UV system and sell these systems in designated territories.
Representatives are paid a commission for sales made within their territories.
The usual contract is for a period of one year. The Company, through UVS, is
continuing to recruit distributors and representatives throughout the world
while in attendance at international exhibitions. In March 1998, we exhibited at
Globe Foundation Exhibition held in Vancouver, Canada. As well, we exhibited at
the Water Environment Federation, Disinfection 98 held in April 1998 in
Baltimore, Maryland, and at WEFTEC '98 in Orlando, Florida, in October 1998.

We expect that our sales will be to diverse wastewater treatment plants, 
primarily in the United States and Canada, and world-wide, and therefore, 
other than for initial sales, no one customer is likely to account for more 
than 10% of its sales, averaged over a five-year period. Because of the size 
of each project, one project may be expected to represent more than 10% of 
sales in any given year. Our UV product target sales are to communities of 
all population sizes. As part of our sales effort, we have in production 
seven production demonstration units. Of these, two are complete and we use 
them for demonstration at wastewater plants. Of the other five units,2 on 
which deposits have been received, will be sent to agents for pilot 
demonstration purposes. The other three will be held in their current level 
of completion until needed by other agents or distributors or by us for 
demonstrations. PDU's are fully functional Ultra GuardTM systems with all of 
the patented components, and are available for in situ testing at wastewater 
plants. They are compact in size and designed for placement next to an 
existing outflow channel. PDU's can accommodate flow rates from 100 to 800 
U.S. gallons per minute, about 8% of the average wastewater treatment plant 
flow. An inflow pump draws fluid from the existing system discharge at the 
flow rate required for testing so that the PDU operates, in effect, as part 
of the treatment system. The testing period generally runs from two to three 
weeks in duration and is operated by our technicians. If necessary, the staff 
of the treatment site or the site design engineer's staff operates the PDU.

Our company accesses marketing opportunities through, 1) published articles in
trade publications which are directed to wastewater treatment, 2) the marketing
efforts of our distributors and representatives, 3) presentation of technical
papers at industry meetings, and 4) meetings with design engineers and others
involved in treatment plant design. Videotapes and brochures are available for
potential customers and for use by distributors and representatives. Sales
opportunities for our UV wastewater treatment systems are made available through
requests for proposal received from public entities, and contractor and
engineering firms acting for public entities. These opportunities are for
systems designed in response to specific wastewater plant criteria. We actively
respond to requests for proposal in the United States and throughout the world
and normally will provide two to four quotations per week. As of August 31,
1998, we had four requests awaiting response.

COMPETITION

Our company competes with other producers of UV equipment and other water
treatment technologies, many of which are more established and have
significantly greater resources. Other major technologies currently in use
include chlorination, chlorination with dechlorination using sulfur dioxide,
sodium hypochlorite, and ozonation. Competitive factors include system
effectiveness, safety regulation costs, operational cost, practicality of
application, pilot study requirements and potential adverse environmental
effects.

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Of all of the disinfection technologies in use, including UV, the most prevalent
is chlorination (or chlorination with de-chlorination using sulfur dioxide). The
most predominant treatment modality in municipal wastewater and industrial
process water systems in the United States and world-wide, is the chlorine-based
system. However, because of environmental concerns, and more recently safety
concerns, we expect the use of chlorine to decrease significantly over the next
three decades. Section 112(r) of the EPA Clean Air Act has recently been revised
to address safety issues of citizens in the surrounding area of wastewater
plants using hazardous chemicals, including chlorine. A risk-management plan
must be in place by June 21, 1999. Some states already require a state-level
equivalent of the plan, and the Occupational Safety and Health Administration
also requires a process safety management program. An industry survey has
forecast that over half of chlorine alternative installations will be UV by
2010. See "INDUSTRY BACKGROUND."

Competition with our company's primary business of wastewater and process water
treatment is primarily with producers using chlorination disinfection systems
and with other UV system manufacturers. While we also compete with ozonation
systems, ozonation is more commonly used for drinking water purification.

Our UV competitors and their estimated respective share of the North American 
market in wastewater and process water are, 1) Trojan Technologies Inc., 60%, 
2) PCI-Wedeco, 8%, 3) IDI Industries, Inc. 10%, 4) Aquionics, Inc. 6%, 5) 
Capital Controls. Inc, 6%, and 6) Others,10%. Trojan Technologies Inc. 
focuses on UV applications for use in the sewage wastewater industry. They 
are the largest producer of a product (the medium-pressure lamp UV4000) which 
directly competes with the Ultra GuardTM UV system. Trojan has projected its 
sales for its 1998 fiscal year to be about C$65.0 million. We believe, 
however, that our systems are technologically superior to Trojan's. Aquionics 
competes primarily in the potable water and process industrial water sector. 
IDI, PCI-Wedeco and Capital Controls sell UV systems of the low-pressure, 
low-intensity type. PCI-Wedeco has recently introduced medium

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pressure lamp systems comparable to the Trojan UV4000. As compared to 
competing systems, our systems are more compact and use less land area, 
consume 40 to 60% less electrical power than used in low-pressure, 
low-intensity systems and 80 to 90% less electrical power than used in 
Trojan's UV4000. These factors equal lower life-cycle operating costs. Our 
systems can treat very poor quality effluents, have better hydraulic 
performance, have automated lamp cleaning and can be demonstrated using a 
full-scale, single-lamp unit (our production demonstration unit). Combining 
all these factors, we believe we can provide a substantially better quality 
effluent discharge in terms of total faecal coliform or E. COLI 
concentrations at a reduced capital and operating cost.

PATENTS AND TRADEMARKS

Key components of the Ultra GuardTM systems are patent protected in the 
United States and International Patent Protection Treaty Countries. Patents 
cover the UV sterilizer system reactor module and the flow-balanced weir, as 
well as patents on the UV lamp technology in the United States and Canada. 
Patents on the lamps expire before the year 2000, but due to the technology 
and cost involved in manufacturing the lamp and the compatible electronics 
needed to operate the lamps, we believe that the expiration of the patents 
should not materially affect the Company's business. With the patents we hold 
on other key components in the Ultra Guard system, we think that competing 
systems, even if they use the Company's lamps, would operate at about 50% of 
the capability of our system. The patents on the other patented key 
components were recently issued in the United States and will extend into the 
year 2018.

We also hold registered trademarks on "ULTRA GUARD" and on its "wavy lines and
design" logo in the United States and Canada.

REGULATORY MATTERS

Our business and manufacturing are conducted from British Columbia, Canada. 
We are not subject to any special regulatory requirements above those which 
are applicable to manufacturing businesses in general in Canada and the 
United States. Environmental regulations that apply to the sewage industry 
are specific to the effluent being delivered to the receiving waters. These 
regulations must be complied with by the wastewater treatment plant. In the 
United States, wastewater and process water treatment plants must comply with 
clean water standards set by the Environmental Protection Agency under the 
authority of the Clean Water Act and standards set by states and local 
communities. Through the request for proposal (bidding process) any 
regulations are passed on to our company in the system design requirements. 
These requests for proposal detail the specifications for the system, 
including the effectiveness required to meet any regulatory requirements. 
Compliance with microbiological discharge standards is determined by 
subsequent operation of the wastewater treatment plant and is generally the 
responsibility of the plant, unless our treatment system failed to comply 
with specifications for some reason (a problem that we take great effort to 
avoid). It is possible that through the inaccuracy or inadequacy of request 
for proposal specifications and if, our 

                                      14


<PAGE>

potential liability has not been indemnified, we could become liable to third 
parties for environmental problems.  We could be required to comply with 
future direct regulation by future laws or regulations (including 
environmental laws).  In these cases, our business and operations could be 
materially and/or adversely affected.

We are not aware of any regulations which would adversely affect our ability to
market our system. The effectiveness of the Ultra GuardTM UV system enhances our
ability to respond to and comply with the applicable sections of the stringent
regulatory clean water standards included within requests for proposal.

In many jurisdictions, including the United States, because wastewater treatment
systems require permits from environmental regulatory agencies, delays in
permitting could cause delays in construction or usage of the our systems by a
customer. This, in turn, could have a material adverse impact on our business.
In addition, many of our customers will rely on municipal financing for the
purchase of our UV systems. Sales to these customers may be adversely affected
by delays in obtaining, or the unavailability of, such funds, caused by
budgetary constraints or the bureaucratic process.

MANUFACTURING

The Ultra GuardTM systems are assembled at our Burnaby facility. Components for
the systems are manufactured by a variety of Canadian, United States and
international suppliers. We obtain our UV lamps and controllers for the systems
from a sole supplier for each. To ensure against any interruption of supply
should one of these suppliers be unable or unwilling to provide the parts as
required, we are continuing the process of identifying and arranging for
alternative sources for these components.

RESEARCH AND DEVELOPMENT

Research and development is considered to be a key component of our business 
strategy. As of August 31, 1998, we had 7 employees collaborating on product 
manufacturing and development activities, with a combined 85 years of related 
experience. We also used lamp design and computer software consultants to 
assist in product development decisions. During the current period, our focus 
has been on the design and implementation of our previous research and 
development efforts. Development of alternative sheath cleaning technology, 
including the use of ultrasonic methods, continues, with increased emphasis 
on systems automation. Future efforts will focus on expanding and developing 
technology and equipment for applications, such as industrial process water 
treatment units, in addition to sewage effluent disinfection.

EMPLOYEES

As of August 31, 1998, Service Systems had three part-time employees, and UV
Systems Technology Inc. had 9 full-time employees and 2 part-time employees. The
Service Systems 

                                      15


<PAGE>

employees were engaged in management. The UV Systems employees were engaged 
in office services, production, design, and manufacturing of the Ultra 
GuardTM systems. Any consultants/employees for Service Systems or UV Systems 
Technology are paid by the company receiving the service.

RISK FACTORS

AN INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND IS SPECULATIVE 
IN NATURE. IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT, PROSPECTIVE 
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN EVALUATING 
AN INVESTMENT IN THE COMPANY AND BEFORE PURCHASING ANY SHARES OF THE COMMON 
STOCK. THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND 
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE 
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE 
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW.

Operating Company Status

Service Systems International, Ltd. has, during this reporting period, the 
twelve months ended August 31, 1998, moved for accounting purposes from a 
category described as a development stage company into the category described 
as an operating company. However, at this early transition we are still 
subject to the risks, expenses, problems and difficulties frequently 
encountered in the establishment of a manufacturing business, especially in 
the continually evolving, intensely competitive wastewater and water 
treatment industry.  The Company is not profitable and may not become 
profitable at any time in the foreseeable future.

Competition

Service Systems competes with well-established water treatment companies, 
many of which have financial, technological and marketing resources 
significantly greater than those we have available. They may have established 
relationships with customers or potential customers that afford them a 
competitive advantage. Some of these competitors in the United States market 
include Trojan Technologies, Inc., PCI-Wedeco, IDI, Inc., and Aquionics, Inc. 
Although we believe that our Ultra GuardTM systems can provide us a 
competitive technological advantage, that has yet to be proven. Moreover, 
there can be no assurance that our current UV technology may not be rendered 
less effective or obsolete by UV and other water treatment technologies 
developed by our competitors. We cannot assure that we will be able to 
compete effectively in the current or future markets or that competitive 
pressures will not adversely affect our business, financial condition or 
results of operations.

                                       16


<PAGE>

Cash Flow; Fluctuation in Operating Results; Need for Additional Financing

The nature of our business may be expected to include a normal lag time between
the incurring of operating expenses and the collection of contract receivables,
which may be expected to be due largely from governments, if and when sales are
made. In addition, we are dependent on sales both to licensees, who are
obligated to purchase agreed-upon system components we provide, and on awards of
water treatment system contracts for non-recurring projects. Many of our
contracts may be expected to include provision for holdback, entitling the other
party to the contract to withhold a specified portion of the payment for a given
period of time until after completion of a project. For these and other reasons,
we may experience periods of limited working capital and may be expected to
require financing for working capital during those periods.

Our sales of Ultra Guard TM systems to governmental entities may be expected 
to occur on an intermittent rather than consistent basis as requests for 
proposal ("RFP") are issued and awards made. Sales on both an annual and 
quarterly basis are subject to fluctuations which are often beyond our 
control. In addition, we will require financing over and above our current 
resources to sustain our operations and expand our marketing efforts. We 
cannot assure that the additional financing can be obtained on a timely 
basis, on terms which are acceptable, or if at all.

Risk of Long-Term, Fixed Price Contracts

In connection with the sale of our wastewater treatment systems, we expect to
enter into performance contracts which can extend for more than a year.
Initially, we are required to bid most of these as fixed-price contracts
incorporating all labor, materials, and other costs which we may incur in
performing the contract. To the extent that we underestimate those costs, or if
the cost of procuring a particular category of materials or services rises
substantially during the course of performance of a large contract, we could
experience reduced profitability or losses.

Governmental Regulation

Our business and manufacturing are conducted from British Columbia, Canada. 
We are not subject to any special regulatory requirements above those which 
are applicable to manufacturing businesses in general in Canada and the 
United States. Environmental regulations that apply to the sewage industry 
are specific to the effluent being delivered to the receiving waters. These 
regulations must be complied with by the wastewater treatment plant. In the 
United States, wastewater and process water treatment plants must comply with 
clean water standards set by the Environmental Protection Agency under the 
authority of the Clean Water Act and standards set by states and local 
communities. Through the request for proposal (bidding process), any 
regulations are passed on to our company in the system design requirements. 
These requests for proposal detail the specifications for the system, 
including the 

                                      17
<PAGE>

effectiveness required to meet any regulatory requirements. Compliance with 
microbiological discharge standards is determined by subsequent operation of 
the wastewater treatment plant and is generally the responsibility of the 
plant, unless our treatment system failed to comply with specifications for 
some reason (a problem that we take great effort to avoid). It is possible 
that through the inaccuracy or inadequacy of request-for-proposal 
specifications and if our potential liability is not indemnified, we could 
become liable to third parties for environmental problems.  We could be 
required to comply with future direct regulation by future laws or 
regulations (including environmental laws).  In these cases, our business and 
operations could be materially and/or adversely affected.

We are not aware of any regulations which would adversely affect our ability to
market our product. The effectiveness of the Ultra GuardTM UV system enhances
our ability to respond to and comply with the applicable sections of the
stringent regulatory clean water standards included within requests for
proposal.

In many jurisdictions, including the United States, because wastewater 
treatment systems require permits from environmental regulatory agencies, 
delays in permitting could cause delays in construction or usage of the our 
systems by a customer. This, in turn, could have a material adverse impact on 
our business. In addition, many of our customers will rely on municipal 
financing for the purchase of our UV systems. Sales to these customers may be 
adversely affected by delays in obtaining, or the unavailability of, funds, 
caused by budgetary constraints or the bureaucratic process.

Cost of Installation

We anticipate that Ultra GuardTM systems may be installed as replacement systems
for existing disinfection systems, especially chlorinated systems, which our
company believes will be phased out because of their adverse environmental
impact. This potential business is dependent upon the availability of funding
for municipalities to replace or retrofit existing systems, which cannot be
predicted with any certainty.

Availability of Component Materials

Our systems contain state-of-the-art components. We are dependent upon third
parties for the continuing supply of these components. Two of these components,
the lamps and the controllers, are obtained from sole suppliers. We are in the
process of identifying alternative suppliers for these components; however,
alternate sources with the quality, efficiency and at a price we require may be
difficult to locate. Moreover, suppliers may discontinue or upgrade some of the
components incorporated into our systems. This could require that we redesign a
system to incorporate newer or alternative technology. Although we believe that
we have arranged for an adequate supply of components to meet our short term
requirements, we do not have contracts which would assure availability and
price. Lack of timely availability of components could cause delays in
installation of the Ultra GuardTM system and affect our revenues during certain
periods. As well, this could lead to customer dissatisfaction. Limited

                                      18
<PAGE>

availability of components could also require premium payments for parts to 
make installation deadlines, and thus adversely affect our profit margin, or 
cause us to increase our inventory of scarce parts and thus adversely affect 
our cash flow. There can be no assurance that we will continue to be able to 
obtain all of the components we require, or that the price of certain 
components in short supply will not materially and adversely affect our 
business, financial condition or results of operations.

Dependence on Key Employees

The success of our business is largely dependent upon the President, Ken
Fielding, and the Chief Financial Officer, Secretary and Treasurer, John Gaetz.
No employment agreements are in place with any of these employees, nor do we
carry key man insurance with respect to them. Our continued growth and
prosperity, and our ability to maintain our competitive position and to attract
and service new business, depend to a large extent upon the ability to retain
key employees and to attract additional qualified personnel. Loss of the
services of these employees could have a material adverse effect on our
business. There can be no assurance that we will be able to continue to retain
or attract qualified personnel.

Products Designed for Existing and Anticipated Standards and Guidelines

Our products are developed to meet certain existing and anticipated 
environmental, performance and operational standards and guidelines. These 
standards and guidelines are continuing to develop and are subject to change. 
They have developed and changed primarily in the past 10 years with respect 
to acceptable microbiological discharge levels. The Ultra GuardTM wastewater 
disinfection technology is state of the art, and the research and development 
program will be necessary to continually enhance its capabilities. System 
adjustment to new microbial standards is uncomplicated and efficient and can 
be accomplished by the addition of UV lamps to a system. Nevertheless, the 
possibility exists that an unanticipated change which management does not now 
foresee in the standards and guidelines could materially adversely affect the 
design, manufacture and sale of our systems.

Product Liability

The Ultra GuardTM systems may be subject to product liability or commercial
warranty claims. Our company does not have product liability insurance. While we
have never been the subject of any such claims, considering the use of our
systems in large-scale municipal and industrial water treatment systems, as well
as the propensity of claimants initially to pursue all possible contributors in
a legal action, the lack or insufficiency of product liability insurance could
materially adversely affect our financial condition and ability to do business.
There can be no assurance that we will be able to obtain coverage, at acceptable
premiums, that will be adequate to protect us from liability.

                                      19
<PAGE>

Intellectual Property Rights

Through UVS, we own patents on our ultraviolet lamp technology, flow reactor 
chamber, and discharge weir, and we manufacture and market our products under 
those patents. We cannot assure that the issued patents will not be infringed 
or that additional patents that we have applied for will be issued. The costs 
of prosecuting an infringement suit can be very significant. If an 
infringement occurs, we cannot assure that our exclusive rights to the 
patented technology can be preserved or that the rights will be protected. 
This could have a material adverse effect on our business. It is possible 
that we may infringe on patents, trademarks, or copyrights owned by others, 
for which licences may not be available. The expenses of defending claims 
through the prosecution of infringement actions vary and can be substantial. 
Some of our patented technology, such as the flow reaction chamber, was 
developed as "work for hire," and as such, can be subject to claim by the 
individual(s) who developed it. The developer of the flow reaction chamber 
has advised us that he believes that the U.S. patent has reverted to him 
under the terms of his assignment. We vigorously deny this assertion and 
believe that it is unfounded. Such claims could impede our ability to 
configure and sell our UV System.

Potential Dilutive Effect of Outstanding Warrants and Options

In connection with the acquisition of a majority interest in UV Systems 
Technology Inc. in December of 1996, we issued 1,474,918 warrants for Common 
Stock to the UVS shareholders, exercisable at C$2.00 per share over a period 
of four years, as to 1.2 million warrants and $1.50 for two years as to 
274,918 warrants. In April of 1996, pursuant to Regulation S ("Regulation S") 
under the Securities Act of 1933 ("Securities Act"), we sold 38,000 shares of 
Common Stock and 38,000 each of B and C warrants, exercisable at $1.34 and 
$2.00 per share, respectively, for a period of two years. In addition, from 
July 1996 through February 1997, pursuant to Regulation S, we sold a total of 
596,420 shares of Common Stock and 596,420 warrants to purchase Common Stock 
(exercisable over a period of two years at an exercise price of $1.25). In 
June 1996, we sold in a private placement 60,000 shares of restricted Common 
Stock and 60,000 warrants to purchase Common Stock (exercisable over a period 
of four years at a price of $2.00 per share). In October 1997 we approved and 
registered under the Securities Act an employee and consultant Stock Option 
Plan pursuant to which options for up to 1,588,000 shares of the Company's 
Common Stock could be issued. As of August 31, 1998, 1,588,000 of the options 
have been issued under the Plan; 1,247,000 exercisable at $1.00 and 341,000 
exercisable at $0.15. In January 1998 and April 1998, we sold (pursuant to 
Section 4(2) of the Securities Act) 1,784,482 shares of Common Stock and 
1,784,482 E Warrants to four individuals, exercisable at $0.40. In March 1998 
and April 1998 we sold, pursuant to Regulation S, 1,446,281 shares of Common 
Stock and 1,446,281 E Warrants exercisable at $0.40. These outstanding 
warrants and options could negatively influence our ability to raise 
additional equity capital in the future. To the extent that these warrants 
and options to purchase Common Stock are exercised, there will be additional 
dilution in excess of that resulting from use of common shares in earnings 
calculations.

                                     20
<PAGE>

As of August 31, 1998, the Company had 7,026,101 vested warrants and options 
outstanding.


                                     21
<PAGE>

Limited Public Float; Trading; Volatility of Stock Price

Our company's Common Stock is traded on the Bulletin Board, on the over the 
counter market. While a public market currently exists for our Common Stock, 
trading of relatively small blocks of stock can have a significant impact on 
the price at which the stock is traded. In addition, the over-the-counter 
market has experienced, and is likely to experience in the future, 
significant price and volume fluctuations which could adversely affect the 
market price of the Common Stock without regard to our company's operating 
performance. We believe factors such as quarterly fluctuations in financial 
results, announcements of new technologies impacting our systems, 
announcements by competitors or changes in securities analysts' 
recommendations may cause the market price to fluctuate, perhaps 
substantially. These fluctuations, as well as general economic conditions, 
such as recessions or high interest rates, may adversely affect the market 
price of our Stock.

Shares Eligible for Future Sale

Future sales by existing shareholders could adversely affect the prevailing 
market price of the Common Stock. We have 12,662,988 shares of Common Stock 
outstanding. Of these shares, approximately 10,278,506 are now eligible for 
sale in the public market without restriction pursuant to Rule 144(k) or
Regulation S under the Securities Act.

Absence of Dividends

Since its inception, we have not paid cash dividends on our Common Stock. It 
is our intention to retain future earnings, if any, to provide funds for 
business operations. Accordingly, we do not anticipate paying any cash 
dividends on our Common Stock in the foreseeable future.


                                     22
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

Service Systems' executive offices were moved in July 1997 from White Rock, 
British Columbia, Canada, into the UV Systems premises at 2800 Ingleton 
Avenue, Burnaby, British Columbia. The UV Systems leased premises have 2,537 
square feet of executive offices and 9,088 square feet of manufacturing 
facilities. The lease term is for a period of five years, expiring September 
2000, with an option to renew for an additional five-year term. We anticipate 
that these facilities will be adequate for five years, with a need for 
additional storage space in year three. Insurance policies covering all of 
our facilities and contents are in place, as well as general liability 
insurance in an amount considered adequate in the industry (although no 
assurance can be given that the amount will, in fact, be sufficient should a 
claim arise).

ITEM 3.  LEGAL PROCEEDINGS

We know of no legal proceedings either pending or threatened against our 
company or its property.

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

The Company did not submit any matter to a vote of security holders during 
the fiscal year covered by this report.


                                     23
<PAGE>

                                   PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Service Systems' Common Stock is traded in the over-the-counter market and is 
listed on the Bulletin Board under the symbol "SVSY". The following table 
sets forth for the periods indicated the high and low bid prices of our 
Common Stock as reported by the Bulletin Board. The quotations reflect 
inter-dealer prices, without retail mark-up, mark-down or commission, and may 
not represent actual transactions. We commenced trading Common Stock on the 
over-the-counter market in September 1995. Before that date there was no 
market for our securities.

<TABLE>
<CAPTION>
                                         High     Low
                                         ------   -------
<S>                                      <C>      <C>
FISCAL YEAR 1995
  Quarter ended November 30, 1994        --       --
  Quarter ended February 28, 1995        --       --
  Quarter ended May 31, 1995             --       --
  Quarter ended August 31, 1995          --       --

FISCAL YEAR 1996
  Quarter ended November 30, 1995        2.00     0.075
  Quarter ended February 28, 1996        3.50     1.25
  Quarter ended May 31, 1996             3.20     1.6875
  Quarter ended August 31, 1996          2.125    1.1875

FISCAL YEAR 1997
  Quarter ended November 30, 1996        3.00     1.25
  Quarter ended February 28, 1997        2.0625   0.19375
  Quarter ended May 31, 1997             3.00     1.125
  Quarter ended August 31, 1997          2.060    1.00

FISCAL YEAR 1998
  Quarter ended November 30, 1997        1.562    0.625
  Quarter ended February 28, 1998        0.687    0.281
  Quarter ended May 31, 1998             0.375    0.170
  Quarter ended August 31, 1998          0.187    0.10
</TABLE>

As of August 31, 1998, there were approximately 71 holders of record of the 
Common Stock.

Service Systems has never had profits and has never paid cash dividends on 
its Common


                                     24
<PAGE>

Stock. We intend to retain future earnings, if any, to provide funds for 
business operations and, accordingly, we do not anticipate paying any cash 
dividends on our Common Stock in the foreseeable future.

OTHER SALES

                                     25
<PAGE>

During the 1998 fiscal year, Service Systems made the following cash sales, 
conversion of debentures and settlement of debt in offshore transactions 
pursuant to the exemption afforded by Regulation S.

<TABLE>
<CAPTION>
----------------------------------------------------------------
Name                   Date   Units               Price per unit
----                   ----   -----               --------------
<S>                    <C>    <C>                 <C>
M Revaj                9/97   34,485 shares       $0.8368
M Revaj                9/97   40,821 shares       $0.935
M Revaj                10/97  31,959 shares       $1.005
A Morishita            12/97  180,699 shares      $0.179
Kerrington Corp        12/97  788,792 shares      $0.179
Bruno Udenio           12/97  100,287 shares      $0.2026
Bruno Udenio           12/97  90,626 shares       $0.2559
M Revaj                1/98   80,511 shares       $0.2697
M Revaj                1/98   80,602 shares       $0.259
Primecap Mgmt Ltd.     4/98   261,715 shares      $0.1269
M Revaj                4/98   188,464 shares      $0.1271
Zooley Services Ltd.   1/98   626,875 shares      $0.2039
Primecap Mgmt Ltd.     4/98   781,250 shares      $0.1272
Bank August Roth       1/98   143,173 shares      $0.1782
Bruno Udenio           4/98   80,771 shares       $0.2591
Zooley Services Ltd.   4/98   523,320 shares      $0.1266
G Rodrigues            1/98   100,000 shares      $0.23
R Nimrod               1/98   100,000 shares      $0.23
P Colak                3/98   8,000 shares        $0.18
Elco Bank              4/98   618,800 shares      $0.20
                              618,800 warrants
D K Smith              4/98   53,919 shares       $0.20
Guy Holeksa            4/98   21,402 shares       $0.20
Carmel International   4/98   280,481 shares      $0.12
                              280,481 warrants
Kerrington Corp        4/98   92,000 shares       $0.30
                              92,000 warrants
Collingham             4/98   455,000 shares      $0.12
</TABLE>


                                     26
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------
Name                 Date   Units               Price per unit
----                 ----   -----               --------------
<S>                  <C>    <C>                 <C>
                            455,000 warrants
J Fletcher           4/98   35,216 shares       $0.20
</TABLE>

During the 1998 fiscal year, Service Systems made the following sales in 
settlement of debt, in Canada. These shares were issued under the exemption 
provided by Section 4(2) of the 1933 Act with representations from the 
purchasers as to their investment intent, their access to information and 
their sophistication.

<TABLE>
<CAPTION>
--------------------------------------------------------------
Name                 Date   Units               Price per unit
----                 ----   -----               --------------
<S>                  <C>    <C>                 <C>
K Fielding           4/98   1,243,445 shares    $0.20
                            1,243,445 warrants
J R Gaetz            4/98   341,037 shares      $0.20
                            341,037 warrants
</TABLE>


                                     27
<PAGE>

SERVICE SYSTEMS INTERNATIONAL, LTD.

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

The following discussion and analysis should be read in conjunction with our 
Financial Statements and the Notes attached. Information discussed in this 
report may include forward-looking statements regarding events or our 
financial performance and is subject to a number of risks and other factors 
which could cause the actual results to differ materially from those 
contained in the forward-looking statements. Among such factors are, 1) 
general business and economic conditions, 2) customer acceptance and demand 
for our products, 3) our overall ability to design, test and introduce new 
products on a timely basis, 4) the nature of the markets addressed by our 
products, and, 5) other risk factors listed from time to time in documents 
filed by our company with the SEC.  See "PART I. Item 1. DESCRIPTION OF 
BUSINESS -- RISK FACTORS" above.

BASIS OF PRESENTATION

The financial statements include accounts of Service Systems International 
Ltd. and its 50.7% owned subsidiary, UVS. As UVS was acquired on Dec 1, 1996, 
results of fiscal 1997 operations include only the period from December 1, 
1996 to August 31, 1997. Therefore, comparative figures presented represent 
the 12-months ended August 31, 1998 and the 9-month period ended December 1, 
1996 to August 31, 1997.

MANAGEMENT'S DISCUSSION

During the fiscal period ended August 31, 1998, Service Systems International 
Ltd. moved from being designated for accounting purposes as a development 
stage company to designation as a full operating company.

Our company was incorporated in the State of Nevada in August 1990, and 
remained inactive until September 1995. The initiation of the current 
business was accompanied by a change of ownership (see "Company Background"). 
Through UVS, Service Systems manufactures and markets its Ultra Guard-TM- 
ultra violet-based patented water treatment system. These products are sold 
primarily for municipal wastewater disinfection; however, the system can also 
be adapted for treatment of process and industrial wastewater, where it is 
currently being applied by our Japanese agent and for potable water, bottled 
products, and agriculture and aquaculture water treatment.

In September 1995 Service Systems initiated a marketing distribution 
agreement with UV Systems Technology Inc., a manufacturer of equipment using 
proprietary ultraviolet light technology for the microbiological disinfection 
of industrial and municipal wastewater. In July 1996 Service Systems entered 
into a funding agreement with UV Systems Technology Inc., (UVS) whereby 
Service Systems provided 50% of UVS' operating cash needs for a


                                     28
<PAGE>

six-month period. On December 1, 1996, Service Systems acquired 50.7% of the 
common stock of UVS from two principals and the minority stockholders. On 
December 6, 1996, Service Systems entered into an agreement with the 
remaining two minority stockholders, Working Opportunity Fund (EVCC) Ltd. 
(WOF) and MDS Ventures Pacific Inc. (MDS), to acquire the remaining 49.3% 
common stock and their preferred stock (Purchase Agreement). Any funds 
advanced under this agreement would be forfeit should Service Systems be 
unsuccessful in raising C$2.0 million. In June 1998, this agreement was not 
renewed as Service Systems was unable to raise the C$2.0 million required to 
complete the transaction. WOF agreed to loan UVS additional funds (see details 
following) and agreed to allow conversion of the funds advanced under the 
Purchase Agreement.

In June 1998, UVS entered an interim agreement with WOF (Agreement) to 
provide C$900,000 of additional funding and to reduce debt by requiring MDS 
and Service Systems to convert their loans receivable into Class "X" 
non-voting UVS Preferred shares, retractable by the holder only if there is a 
sale or IPO which values the equity of UVS, including the Class "A" preferred 
shares, but excluding the Class "X" Preferred shares at C$20.0 million. If 
not retracted within 4 years from the closing date of this Agreement, the 
Class "X" Preferred shares will be redeemable by UVS for C$1.00.

The effect of this Agreement, with regard to Service Systems, is to 1) 
forgive $155,322 accrued interest on its existing current loans receivable, 
and 2) convert its existing 20% per annum loan receivable of US$820,771 into 
Class "X" Preferred shares.

The effect of this Agreement, with regard to MDS, is to 1) forgive $87,422 
accrued interest on its existing current loans receivable, 2) reduce its 
common shares percentage from 24.7 % to 12.32%, 3) reduce its Class "A" 
Preferred shares from C$1,000,000 to $0 by transfer of C$500,000 to WOF and 
by converting C$500,000 to Class "X" Preferred shares, and 4) to convert its 
existing 20% per annum loan receivable, $174,752 into a long-term loan, with 
a term of 5 years, interest at 10% per annum, compounded annually, with 
interest accruing for 18 months and payable monthly thereafter.

The effect of this agreement, with regard to WOF, is to 1) forgive $110,826 
accrued interest on its existing current loan receivable, 2) provide a new 
five (5) year long-term loan to UVS in the amount of C$0.9 million, interest 
at 10 % per annum, compounded annually, interest payable monthly, 3) increase 
its Class "A" preferred shares from C$1,000,000 to C$1,500,000 due to the 
C$500,000 transfer received from MDS, and 4) convert its existing 20% per 
annum loans receivable of $227,669 into a long-term loan, with a term of 5 
years, interest at 10% per annum, compounded annually, with interest accrued 
for 18 months, and payable monthly thereafter.

During the period from December 1, 1996 to September 30, 1997 ("First 
Business Period"), Service Systems continued with UVS' system development and 
testing programs. These programs included the development of both a 
mechanical and electronic automatic quartz sheath cleaning system, to

                                     29
<PAGE>

remove the fouling build-up due to suspended solids and chemical prevalent in 
wastewater. The program of development on the mechanical cleaner determined 
that the method chosen was viable and performs the function desired. 

Field testing of the mechanical wiper cleaning system was concluded during 
October and November, 1997, a PDU test site at Ville de Repentigny near 
Montreal, Quebec. The test results concluded that the cleaning system did 
perform above anticipated levels, and it has now been incorporated into 
current products sold. The temperature control system for the UVS System was 
also tested at the Ville de Repentigny test site during temperatures ranging 
down to minus 8 degrees celsius and up to plus 8 degrees celsius. The test 
showed that with temperature control, infinitely variable lamp UV output 
intensity was stable and controllable. This feature is now included on all 
product sales. The benefits of the temperature control are instant response 
to changes in power settings, consistent UV output, infinite controllability 
through a full range of UV settings and expected longer lamp-in-service life. 
To our knowledge, no other UV equipment supplier can offer this degree of 
control of a UV lamp. Development of the electronic ultrasonic cleaning 
system has been placed in abeyance pending availability of additional 
development funds.

During the last quarter of the 1998 fiscal year, an extendable one year 
agreement was reached between UVS and the City of Chilliwack for continued 
use of the site as a demonstration site with costs of use being an annual 
rental fee of C$500 and incremental power use costs.

Negotiations continue on finalizing a project delivered to New Zealand in 
1995 by UVS and release of hold back funds.  During the 1998 fiscal year, we 
made provisions for a 25% loss of the receivable, reducing the receivable 
from C$83,142 to C$62,342.

Marketing activity has increased with the engagement of a new Vice President 
- Sales and Marketing in October, 1997. With the increased effort, we received 
orders during the 1998 fiscal year for three projects, 1) Hamilton, Alabama 
valued at US$127,000, 2) Rosemere-Lorraine valued at C$390,809, and 3) Nissho 
Iwai valued at US$135,314. Shipment and billing of US$202,894 of these sales 
are included in the Income Statement for August 31, 1998. The balance will be 
billed in fiscal 1999.

In June 1998, UVS received a letter of intent for a UV system valued at 
C$605,000 for a project in Eastern Canada. The issuing of a purchase order 
for and subsequent delivery of this system is subject to a number of 
conditions including the provision that the purchaser receives an order from 
the General Contractor for this phase of the project.

In September and October 1998, after the end of the 1998 fiscal year, our 
Production Demonstration Unit performed testing at a municipal wastewater 
plant in Eastern Canada. Testing was successful and a report which is in 
final printing is recommending an Ultra Guard-TM- UV system valued at about 
C$900,000 for the site. Additional PDU testing was performed at the City of 
Toronto, Humber waste water treatment plant to determine the efficacy of UV 
to disinfect wastewater containing levels of iron (Fe) at ranges of 0.3 to 
4.0 mg/l. This testing was equally successful and discussions on further 
action continue. We think both sales are likely to be made, but we cannot 
assure that they will be.  In November 1998 a PDU is being shipped to the 
County Sanitation Districts of Los Angeles County (the County). The testing 
program, which is conducted and

                                     30
<PAGE>

paid for by the County, will test the Ultra Guard-TM- UV system's ability to 
disinfect wastewater to Title 22 Guidelines; a stringent test protocol 
required as a precursor use of a company's UV product in reuse of wastewater 
for agriculture purposes. Additional tests are scheduled for Virginia (2), 
North Carolina and Colorado.

RESULTS OF OPERATIONS

GENERAL NOTE: When comparing the year ended August 31, 1998 to the year ended 
August 31, 1997, the reader must be aware that the year ending August 31, 
1997 includes 12 months of SVSY operations and 9 months of UVS operations for 
the period from acquisition, December 1, 1996 to August 31, 1997.

With the volume of sales received during the twelve-month period ended August 
31, 1998, we moved from a development stage company to an operating company 
for accounting purposes. In this period we had revenues of $202,894. Direct 
Project Costs of $98,326 were reported, plus Manufacturing Costs Not Applied 
(under-recovery of plant overheads) of $82,577 resulting in a Gross Profit 
Margin of $21,991.

During the twelve-month period ended August 31, 1998, operational expenses of 
$1,307,547 consisting of 1) selling expense of $225,893, 2) general and 
administrative expense of $668,594, 3) research and development expense of 
$264,282, 4) amortization of goodwill of $485,081, 5) interest of 90,812, net 
of interest income and interest waived, and 6) foreign exchange translation 
gain of $245,491, brought the Total Expenses for the year to $1,307,547 as 
compared to $1,347,218 in the 1997 fiscal period. The Net Loss in fiscal 1998 
totalled $1,285,556 compared to $1,398,425 in fiscal 1997, a decrease in loss 
of $112,869.

Selling expenses in 1998 increased by $69,976 to $225,893 from $155,917 for 
fiscal 1997 as a result of our hiring a Vice-President, Sales and Marketing. 
General and administrative expense in fiscal period ended 1998 increased by 
$223,614 to $668,594 from $444,980 for the period ended 1997. The increase is 
due primarily to an increase in consulting fees amounting to $158,148 and 
$47,400 commission expense on debentures issued. Research and development 
expenses in 1998 decreased by $48,159 to $264,282 from $312,441 for fiscal 
1997 as a result of our having completed development of the UV system to a 
market ready product. A write down of amortization of goodwill in 1998 
increased by $121,270 to $485,081 from $363,811 in 1997. Interest, net of 
interest income and interest waived, resulted in an income of $90,812 or an 
increase of $151,598 from an expense of $60,786 in 1997. Foreign exchange 
translation gain increased by $258,978 to $249,695 from a loss of $9,283 due 
to the drop in the value of the Canadian dollar.

LIQUIDITY

The nature of our business may be expected to include a normal lag time 
between the incurring of operating expenses and the collection of contract 
receivables, which may be expected to be


                                     31
<PAGE>

due largely from governments, if and when sales are made. In addition, we are 
dependent on sales both to licensees which are obligated to purchase agreed 
upon system components we provide and on awards of water treatment system 
contracts for non-recurring projects. Many of our contracts may be expected 
to include provision for hold back, entitling the other party to the contract 
to withhold a specified portion of the payment for a given period of time 
until after completion of a project. For these and other reasons, we may 
experience periods of limited working capital and may be expected to require 
financing for working capital during those periods.

Our sales of Ultra Guard-TM- systems to governmental entities may be expected to
occur on an intermittent rather than consistent basis as requests for proposal
("RFP") are issued and awards made. Sales on both an annual and quarterly basis
are subject to fluctuations which are often beyond our control.

In addition, we will require financing over and above our current resources to
sustain our operations and expand our marketing efforts. There can be no
assurance that the additional financing can be obtained on a timely basis, on
terms which are acceptable or if at all.

During the twelve months ended August 31, 1998, our liquidity improved as a
result of actions taken by management. Accrued interest payable on loans from
related parties and minority shareholders in the amount of $198,248 were waived
by the debt holders. The remaining principal balances of those loans were
transferred from Current Liabilities to Long- term debt. Amounts owing to
related parties were reduced by $265,111, net, and Loans payable - others, were
reduced by $21,206, by converting the debt into Common Stock. These actions
increased and greatly improved the working capital ratio.

We financed our operations during this period, in part, from proceeds of 
sales of restricted common stock, loans from related parties and minority 
shareholders of UVS, and sale of 12% convertible debentures. Sale of 
restricted common stock amounted to $46,000. Sales of 12% convertible 
debentures, all of which were converted to Common Stock, amounted to 
$725,285. These 12% convertible debentures were as a result of an agreement 
signed with London Select Enterprises, Ltd. as Broker, in June 1997. This 
agreement was an offering conducted in compliance with Regulation S, 
promulgated under the Securities Act of 1933, to place up to $750,000 face 
amount, 12% one year convertible debentures due July 31, 1998 if not earlier 
redeemed. Each debenture was sold at 80% of face value and was convertible 
into Service Systems Common Stock, at a conversion price of 20% below the 
closing bid price of the Common Stock immediately preceding the date of 
conversion or 20% below the 5-day average closing bid price of the Common 
Stock immediately preceding the closing date.

We expect that during fiscal 1999, as and if our sales increase, we will 
continue to depend on receipt of additional funds through public or private 
equity or debt sales or other lender financing to fund the manufacturing of 
products sold, and general operational and sales expenses. Except as 
previously indicated, no arrangements are currently in place to raise 

                                       32
<PAGE>

funds, although we actively continue to seek sources. Failure to receive 
these funds may be expected to have a material adverse effect on our company.

YEAR 2000 ISSUE

DESCRIPTION OF THE ISSUE. The Y2K issue refers to the inability of certain date-
sensitive computer chips, software, and systems to recognize a two-digit date
field as belonging to the 21st century. Mistaking "00" for 1900 or any other
incorrect year could result in a system failure or miscalculations causing
disruptions to operations, including manufacturing, a temporary inability to
process transactions, or send invoices, or engage in other normal business
activities. This is a significant issue for most, if not all companies, with far
reaching implications, some of which cannot be anticipated or predicted with any
degree of certainty. The Y2K issue may create unforeseen risks to our company
from its internal computer systems as well as from computer systems of third
parties with which it deals. Failures of our and/or third parties' computer
systems could have a material adverse impact on our ability to conduct its
business.

YEAR 2000 TASK FORCE. We have set up an internal task force comprised of our 
Directors of Manufacturing and Engineering to review our products, business 
and engineering applications and suppliers and develop contingency plans for 
Y2K readiness. This task is to be completed by the end of calendar 1999. The 
goal of the task force is to minimize the effect that Y2K issues will have on 
the Company and its customers. The Director of Manufacturing will update the 
CEO of the Company on its Y2K readiness.

INTERNAL BUSINESS AND ENGINEERING SYSTEMS. The task force has completed a review
of internal computer and is currently reviewing all internal business and
engineering computer systems to ensure that such systems either will be Y2K
ready, or will be modified or replaced by Y2K ready systems. We have already
been assured that our accounting information system installed in 1995 is Y2K
ready as long as we adhere to the supplier's Y2K readiness guidelines. We plan
to simulate and to have tested, in a Y2K environment, our engineering and
business information systems, internal telephone equipment, local networks,
security and sprinkler systems to verify its Y2K readiness by the middle of
fiscal 1999.

SUPPLIERS. Our major suppliers are component parts distributors and contract
manufacturers. Often the Company sources its products and manufacturing services
from multiple, competing vendors. We are conducting a review of these key
suppliers to ensure Y2K readiness of as many vendors as possible and will
initiate communication with all of our key suppliers to determine to what extent
we may be vulnerable due to their failure to be Y2K ready. This communication,
including site visits by our personnel, will be ongoing throughout fiscal 1999.
There can be no assurance that the systems of other companies on which we rely
will be Y2K ready on a timely basis and will not have an adverse effect on our
operations. In instances where we are unable to determine that our vendors have
taken appropriate steps to


                                       33
<PAGE>

minimize disruption due to non-Y2K readiness, we will consider contingency 
plans, including moving to identified alternate sources, or developing new 
alternate sources.

PRODUCTS. The task force will also assess outside-sourced, computer-based 
control systems used within our products to determine if they have the 
capability of dealing with the year 2000. Certain of our computer processor 
board level products and integrated computer systems utilize computer chips 
that include built in operating systems ("BIOS") allowing the computer to 
initialize and load software. All current built for delivery computer systems 
will be assessed for readiness prior to purchase.

COSTS. We expect the cost of our Y2K assessment, including both incremental
spending and redeployed resources, will not be material. The current assessment
does not include potential costs related to any customer or other claims or the
cost of internal software and hardware replaced in the normal course of
business. This assessment is subject to change. Since there is no uniform
definition of "Y2K readiness" and since all customer situations cannot be
anticipated, particularly those involving third party products, we may see
claims as a result of the Y2K transition. Such claims, if successful, could have
a material adverse impact on future results.

CUSTOMERS. Since our customers all purchase built-to-order systems and our
computer based control systems will be manufactured to be compliant, we believe
that Y2K will not affect customers' decisions to purchase our Ultra Guard-TM- UV
system.  However, we cannot predict the impact on us of our customers' lack 
of Y2K compliance and any disruptions caused to treatment systems we have 
installed because of their non-compliance. Costs and damages related to or 
arising from non-compliance could materially adversely affect our revenues or 
our business, even though we believe our systems themselves to be compliant.

COST ESTIMATES. We have not been required to incur costs for Y2K remedial 
work and have not set aside any contingency fund to deal with any 
contingencies which may arise. The costs for Y2K compliance are based on our 
best estimates, which were derived from numerous assumptions about future 
events, including third-party modification plans and other factors. However, 
we cannot guarantee that those estimates will be accurate and actual results 
could differ materially from those plans. Specific factors that might cause 
material differences include, but are not limited to, the availability and 
cost of personnel trained in this area and the ability to identify and 
correct all relevent computer codes.


                                       34
<PAGE>

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Independent Auditor's Report..................................................25

Consolidated Balance Sheets as of August 31, 1998 and 1997....................26

Consolidated Statements of Operations for the years ended 
     August 31, 1998 and 1997.................................................27

Consolidated Statements of Cash Flows for the years ended 
     August 31, 1998 and 1997.................................................28

Notes to the Consolidated Financial Statements................................29


                                       35
<PAGE>



                          INDEPENDENT AUDITOR'S REPORT


To:    Board of Directors and Stockholders
       Service Systems International, Ltd.


We have audited the accompanying consolidated balance sheets of Service Systems
International, Ltd. as of August 31, 1998 and 1997, and the related consolidated
statements of operations and deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Service Systems
International, Ltd. as of August 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with U.S.
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not generated significant revenues or
profitable operations since inception. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also discussed in Note 1. These financial
statements do not include any adjustments which might result from the outcome of
this uncertainty.


"Elliott Tulk Pryce Anderson"


                                       36
<PAGE>

Chartered Accountants
Vancouver, British Columbia, Canada
November 10, 1998


                                       37
<PAGE>

Service Systems International, Ltd.
Consolidated Balance Sheets
As at August 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                             1998              1997
                                                                               $                 $
                                                                         -----------        -----------
<S>                                                                      <C>                <C>
         Assets

Current Assets
     Cash and short-term investments                                        207,052                639
     Short-term investments - restricted (Note 3)                           249,317                  -
     Accounts receivable                                                    110,957             63,031
     Inventory                                                              238,281            357,008
     Prepaid expenses                                                        36,175             12,550
     Research credit receivable                                                   -            244,791
                                                                         -----------        -----------
                                                                            841,782            678,019

Capital assets (Note 5)                                                     141,397            173,304
Goodwill - net of amortization (Note 4)                                   1,576,516          2,061,597
Patents and trademarks (Note 6)                                              92,484             36,658
                                                                         -----------        -----------
                                                                          2,652,179          2,949,578
                                                                         -----------        -----------
                                                                         -----------        -----------

         Liabilities and Stockholders' Equity

Current Liabilities
     Cheques issued in excess of funds on deposit                                 -              8,752
     Accounts payable                                                       102,823            181,009
     Accrued liabilities                                                     14,677             32,311
     Vacation pay payable                                                     7,629             10,364
     Customer deposits                                                            -             19,212
     Loan payable - other                                                         -             21,206
     Amounts owing to related parties (Note 7)                               95,442            360,553
     Loans payable - minority stockholders of subsidiary (Note 9)                 -            556,640
                                                                         -----------        -----------
                                                                            220,571          1,190,047

Long-term debt (Note 9)                                                   2,270,525          1,469,660
Convertible Debentures (Note 8)                                                   -             76,268
                                                                         -----------        -----------
                                                                          2,491,096          2,735,975
                                                                         -----------        -----------
Contingencies (Note 1)

Stockholders' Equity

Common stock (Note 10), $.001 par value,
     50,000,000 shares authorized, 12,662,988
     and 5,279,338 issued and outstanding respectively                       12,663              5,279
     Additional paid-in capital                                           3,073,619          1,847,967

Deficit                                                                  (2,925,199)        (1,639,643)
                                                                         -----------        -----------
                                                                         -----------        -----------
</TABLE>


                                       38
<PAGE>

<TABLE>
<S>                                                                      <C>                <C>
                                                                            161,083            213,603
                                                                         -----------        -----------
                                                                          2,652,179          2,949,578
                                                                         -----------        -----------
                                                                         -----------        -----------
</TABLE>




                (See accompanying notes to financial statements)



                                       39
<PAGE>

Service Systems International, Ltd.
Consolidated Statements of Operations and Deficit
For the years ended August 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                                  1998              1997
                                                                                    $                 $
                                                                              -----------        -----------
<S>                                                                           <C>                <C>
Project Revenue                                                                  202,894             24,118
Project Costs                                                                     98,326             40,787
                                                                              -----------        -----------
Gross Profit (Loss)                                                              104,568            (16,669)
Manufacturing Overhead Not Applied                                                82,577             34,538
                                                                              -----------        -----------
                                                                                  21,991            (51,207)
                                                                              -----------        -----------
Expenses
     Selling                                                                     225,893            155,917
     General and administrative                                                  668,594            444,980
     Research and development                                                    264,282            312,441
     Amortization of goodwill                                                    485,081            363,811
     Interest, net of interest income and interest waived (See Note 9)           (90,812)            60,786
     Foreign exchange translation (gain) loss                                   (245,491)             9,283

                                                                               1,307,547          1,347,218
                                                                              -----------        -----------
Net Loss for the year                                                          1,285,556          1,398,425
Deficit - Beginning of year                                                    1,639,643            241,218
                                                                              -----------        -----------
Deficit - End of year                                                          2,925,199          1,639,643
                                                                              -----------        -----------
                                                                              -----------        -----------


                                                                                   $                  $

Net Loss per share                                                                 (0.14)             (0.29)
                                                                              -----------        -----------
                                                                              -----------        -----------

                                                                                   #                  #

Weighted average shares outstanding                                            9,160,048          4,812,170
                                                                              -----------        -----------
                                                                              -----------        -----------
</TABLE>


                                       40
<PAGE>




                (See accompanying notes to financial statements)


                                       41





Service Systems International, Ltd.
Consolidated Statements of Cash Flows
For the years ended August 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                              1998              1997
                                                                                $                 $
                                                                          -----------        -----------
<S>                                                                       <C>                <C>
Cash Flows to Operating Activities
     Net loss                                                             (1,285,556)        (1,398,425)

     Adjustments to reconcile net loss to cash
         Amortization of goodwill                                            485,081            363,811
         Depreciation                                                         49,602             37,176
         Foreign exchange translation (gain) loss                           (245,491)               527
         Convertible debenture interest converted into shares                 25,980                  -
         Common stock issued for expenses                                     42,558                  -

     Change in non-cash working capital items
         (Increase) decrease in accounts receivable                          (47,926)            18,152
         Decrease in inventory                                               118,727             50,010
         (Increase) in prepaid expenses                                      (23,625)              (720)
         Decrease (increase) in research credit receivable                   244,791            (34,221)
         (Decrease) in accounts payable, accrued liabilities,
            vacation pay payable and customer deposits                      (117,767)           (50,676)
                                                                          -----------        -----------
Net Cash Used in Operating Activities                                       (753,626)        (1,014,366)
                                                                          -----------        -----------
Cash Flows (to) from Investing Activities
     Acquisition of a subsidiary                                                   -              1,537
     Acquisition of short-term investment - restricted                      (249,317)                 -
     Additions to patents and trademarks                                     (55,826)            (7,041)
     Capital assets acquired                                                 (17,695)            (8,181)
     Proceeds from held to maturity investments maturing                           -            221,357
     Decrease in loans receivable                                                  -            125,000
                                                                          -----------        -----------
Net Cash (Used in) Provided by Investing Activities                         (322,838)           332,672
                                                                          -----------        -----------
Cash Flows from (to) Financing Activities
     Cheques issued in excess of funds on deposit                             (8,752)             8,752
     Common stock issued for cash                                             46,000            361,365
     Increase in loans payable - other                                        75,030             21,206
     Increase (decrease) in amounts owing to related parties                  51,785            (14,534)
     Increase in borrowings from minority shareholders                       588,885            172,288
     Proceeds from convertible debenture converted to common stock           529,929             76,268
                                                                          -----------        -----------
Net Cash Provided by Financing Activities                                  1,282,877            625,345
                                                                          -----------        -----------
Increase (Decrease) in Cash and Cash Equivalents                             206,413            (56,349)
Cash and Cash Equivalents - Beginning of Year                                    639             56,988
                                                                          -----------        -----------
Cash and Cash Equivalents - End of Year                                      207,052                639
                                                                          -----------        -----------
                                                                          -----------        -----------
Non Cash Financing and Investing Activities
     3,149,300 common shares were issued to settle
</TABLE>


                                       42

<TABLE>
<S>                                                                       <C>                <C>
     debt at prices ranging from $0.12 to $0.30                              580,839                  -
     1,474,918 common shares were issued at $0.75
     per share to acquire a business (Note 4)                                      -          1,106,189
                                                                          -----------        -----------
                                                                             580,839          1,106,189
                                                                          -----------        -----------
                                                                          -----------        -----------
</TABLE>






                (See accompanying notes to financial statements)


                                       43
<PAGE>

Service Systems International, Ltd.
Notes to the Consolidated Financial Statements
For the years ended August 31, 1998 and 1997



1.    Nature of Operations and Continuance of Business

      The Company was incorporated in the State of Nevada in August, 1990 and
      remained inactive until September 1, 1995. The initiation of the Company's
      current business was accompanied by a change of ownership. See Note 4
      regarding acquisition of UV Systems Technology Inc. ("UVST") on December
      1, 1996, a Canadian company. Through UVST, the Company manufactures and
      markets its Ultra Guard-TM- ultra violet based patented water treatment
      system. These products and systems are sold primarily for municipal waste
      disinfection, treatment of process and industrial waste water, and for
      potable water, bottled products and agriculture and aquaculture water
      treatment.

      During fiscal 1998 the Company emerged from a development stage company to
      an operating company. Even though its status has changed to an operating
      company, the operating activities have not yet produced significant
      revenue and the Company has experienced significant losses to date. The
      ability of the Company to continue operations is dependent upon its
      successful efforts to raise additional equity financing in the long term,
      continue developing the market for its products, and/or the attainment of
      profitable operations.

      Uncertainty Due to the Year 2000 Issue:

      The Year 2000 Issue arises because many computerized systems use two
      digits rather than four to identify a year. Date-sensitive systems may
      recognize the year 2000 as 1900 or some other date, resulting in errors
      when information using the year 2000 dates is processed. In addition,
      similar problems may arise in some systems which use certain dates in 1999
      to represent something other than a date. The effects of the Year 2000
      Issue may be experienced before, on, or after January 1, 2000, and, if not
      addressed, the impact on operations and financial reporting may range from
      minor errors to significant systems failure which could affect an entity's
      ability to conduct normal business operations. It is not possible to be
      certain that all aspects of the Year 2000 Issue affecting the Company,
      including those related to the efforts of customers, suppliers, or other
      third parties, will be fully resolved.

2.    Significant Accounting Policies

      Consolidated financial statements

      These financial statements include the accounts of the Company, and its
      50.7% owned Canadian subsidiary, UVST. As UVST was acquired on December 1,
      1996, results of operations of UVST includes the nine months ended August
      31, 1997 and the year ended August 31, 1998.

      Cash and cash equivalents

      Cash and cash equivalents include cash on hand, in banks and all highly
      liquid investments with a maturity of three months or less when purchased.
      Cash equivalents are stated at cost which approximate market.

      Fixed assets

      Fixed assets are recorded at cost. Depreciation is computed utilizing the
      straight-line method using an estimated useful life of five years for all
      asset categories.

      Goodwill

      Goodwill represents the excess of purchase consideration over fair market
      value of net identifiable assets acquired, and is amortized on a
      straight-line basis over five years. Goodwill is evaluated in each
      reporting period to determine if there were events or circumstances which
      would indicate inability to recover the carrying amount. Such evaluation
      is based on various analyses including discounted cash flows and
      profitability projections which necessarily involves management judgement.

                                      44

<PAGE>

      Patents and trademarks

      Patents and trademarks will be amortized to operations over their
      estimated useful lives not exceeding twenty years.

                                      45


<PAGE>

2.    Significant Accounting Policies (continued)

      Revenue recognition

      Product sales will be recognized at the time goods are shipped. System and
      project revenue will be recognized utilizing the percentage of completion
      method which recognizes project revenue and profit during construction
      based on expected total profit and estimated progress towards completion
      during the reporting period. All related costs are recognized in the
      period in which they occur.

      Estimates

      The preparation of the Company's consolidated financial statements
      requires management to make estimates and assumptions that affect the
      amounts reported in the financial statements and accompanying notes.
      Actual results could differ from these estimates.

      Earnings per share

      The earnings per share is computed by dividing the net income (loss) for
      the period by the weighted average number of common shares outstanding for
      the period. Common stock equivalents are excluded from the computation if
      their effect would be anti-dilutive.

      Foreign currency

       i)  Translation of foreign currency transactions and balances

           Revenue, expenses and non-monetary balance sheet items in foreign
           currencies are translated into U.S. dollars at the rate of exchange
           prevailing on the transaction dates. Monetary balance sheet items are
           translated at the rate prevailing at the balance sheet date. The
           resulting exchange gain or loss is included in general and
           administration expenses.

      ii)  Translation of foreign subsidiary balances

           Monetary balance sheet items of UVST are translated into U.S. dollars
           at the rates of exchange on the balance sheet date. Non-monetary
           balance sheet items are translated into U.S. dollars at the rate of
           exchange prevailing on the transaction dates. The foreign
           subsidiary's operating results are translated into U.S. dollars using
           the average exchange rate for the year with any translation gain or
           loss included separately in operations.

      Income taxes

      The Company has adopted the provisions of Financial Accounting Standards
      Board Statement No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109
      requires that deferred taxes reflect the tax consequences on future years
      of differences between the tax bases of assets and liabilities and their
      financial reporting amounts. At the date of adoption of SFAS 109, there
      was no material effect on the Company's financial statements. As of August
      31, 1998 the Company has accumulated net operating losses available to
      offset future taxable income as scheduled below:

<TABLE>
<CAPTION>
                                       Amount
          Fiscal Year of Loss             $             Expiration Date
          -------------------          -------          ---------------
          <S>                          <C>              <C>   
          1996                         240,000               2011
          1997                         202,000               2012
          1998                         650,000               2013
</TABLE>

      Pursuant to SFAS 109 the Company is required to compute tax asset benefits
      for net operating loss carryforwards. Potential benefit of net operating
      losses has not been recognized in the financial statements because the
      Company cannot be assured that it is more likely than not that it will
      utilize the net operating loss carryforwards in future years.


                                       46


<PAGE>

2.    Significant Accounting Policies (continued)

      Income taxes (continued)

      The components of the net deferred tax asset, the statutory tax rate, the
      effective tax rate and the elected amount of the valuation allowance are
      scheduled below:

<TABLE>
<CAPTION>
                                        1998                     1997
                                         $                        $
                                    ------------             -------------
          <S>                       <C>                      <C>
          Net Operating Loss              650,000                  202,000
          Statutory Tax Rate        113,900 + 34%             22,500 + 39%
                                     in excess of             in excess of
                                         $335,000                 $100,000
          Effective Tax Rate                    -                        -
          Deferred Tax Asset              221,000                   62,000
          Valuation Allowance            (221,000)                 (62,000)
                                    -------------             ------------
          Net Deferred Tax Asset                -                        -
                                    -------------             ------------
                                    -------------             ------------
</TABLE>

      The Company's Canadian subsidiary has Canadian tax losses of $1,294,000 to
      offset future Canadian taxable income. These losses expire as follows:

<TABLE>
<CAPTION>
                                             $
                                          -------
          <S>                             <C>
          2002                             82,000
          2003                            463,000
          2004                            558,000
          2005                            191,000
</TABLE>

3.    Restricted Cash

      Pursuant to a letter of credit, required under a long-term project to be
      completed in fiscal 1999, the Company purchased a Cnd$396,000 face value
      Bankers' Acceptance to be held as a bond for the letter of credit.


4.    Business Acquisition

      On December 1, 1996, the Company acquired 50.7% of the issued and
      outstanding common shares of UVST. The acquisition was accounted for using
      the purchase method of accounting for business combinations. The Company
      issued 1,474,918 common shares at a deemed fair market value of $0.75 per
      share ($1,106,189). The Company assumed net liabilities of $1,319,219. The
      excess of the purchase price over the fair market value of net tangible
      liabilities assumed, totalling $2,425,408, was allocated to goodwill.
      Details of liabilities assumed and assets acquired are as follows:

<TABLE>
<CAPTION>
                                                                           $                    $
                                                                        ---------           ---------
      <S>                                                               <C>                 <C>
      (i)       Share consideration
                   Additional paid in capital                           1,104,714
                   Capital stock (1,474,918 at $.001)                       1,475           1,106,189
                                                                        ---------           ---------


      (ii)      Net book value of liabilities assumed
                   Liabilities assumed
                      Current liabilities


                           Accounts payable                               144,036
                           Accrued liabilities                             25,296
                           Vacation pay payable                             6,213
                           Customer deposits                              118,027
                           Loans from directors and officers                              293,446
                           Loans from minority shareholders                               384,352
</TABLE>


                                      47

<PAGE>

<TABLE>
<CAPTION>
                                                                           $                    $
                                                                        ---------           ---------
       <S>                                                              <C>                 <C>

                                                                          971,370
                                                                        ---------

                      Long-term debt
                           Preferred stock of subsidiary                1,469,660            2,441,030
                                                                        ---------            ---------

</TABLE>

                                       48


<PAGE>

4.    Business Acquisition (continued)

<TABLE>
<CAPTION>
                                                                            $                    $     
                                                                         ---------          -----------
       <S>                                                               <C>                <C>
      (ii)      Net book value of liabilities assumed (continued)
                    Assets acquired
                           Held to maturity investment                    (221,357)
                           Accounts receivable                             (81,183)
                           Inventory                                      (407,018)
                           Prepaid expense                                 (11,830)
                           Research tax credit receivable                 (210,570)
                           Capital assets                                 (158,699)
                           Patents and trademarks                          (29,617)          (1,120,274)
                                                                           --------
                    Cash received in the combination                                             (1,537)

                    Net book value of liabilities assumed                                      1,319,219
                                                                                              ----------

      (iii)     Excess of cost over book value                                                2,425,408
                                                                                              ---------
                                                                                              ---------

</TABLE>


      The Company has recognized no minority interest on acquisition as UVST had
      a negative tangible book value and thus had no interest in underlying net
      assets.

      The excess of cost over book values was allocated to goodwill as there
      were no other fair market value adjustments to non-monetary assets.
      Goodwill has been capitalized and is being amortized over its estimated
      useful life of five years. Amortization of $485,081 (1997: $363,811) has
      been charged to operations.


5.    Capital Assets

      Capital assets are stated at cost less accumulated depreciation.

<TABLE>
<CAPTION>
                                                                                             1998           1997
                                                                           Accumulated     Net Book       Net Book
                                                              Cost        Depreciation       Value          Value
                                                                $               $              $              $
                                                             -------         -------          ------        ------
      <S>                                                    <C>              <C>             <C>           <C>
      Computer equipment                                      35,147          13,958          21,189        21,154
      Computer software                                        5,033           1,799           3,234         2,529
      Display equipment                                       31,836          15,918          15,918        22,285
      Office furniture and equipment                          29,157          13,555          15,602        19,870
      Plant jigs, dies, moulds, tools and equipment          128,962          54,643          74,319        90,986
      Leasehold improvements                                  26,724          15,589          11,135        16,480
                                                             -------          ------          ------        ------
                                                             256,859         115,462         141,397       173,304
                                                             =======         =======         =======       =======
</TABLE>

      Depreciation per class of asset:

<TABLE>
<CAPTION>
                                                           1998           1997
                                                             $              $
                                                          ------         ------
      <S>                                                 <C>            <C>
      Computer equipment                                    6,387         4,047
      Computer software                                       851           498
      Display equipment                                     6,367         4,775
      Office furniture and equipment                        5,690         4,047
      Plant jigs, dies, moulds, tools and equipment        24,963        19,801
      Leasehold improvements                                5,345         4,009
                                                           ------        ------
                                                           49,603        37,177
                                                           ------        ------
                                                           ------        ------
</TABLE>

                                      49


<PAGE>

6.    Patents and Trademarks

      Patents and trademarks represent legal costs associated with designing,
      registering and protecting certain patents and trademarks associated with
      the Ultra Guard-TM- System. These costs will be amortized not exceeding
      twenty years starting September 1, 1998. Components of the Ultra Guard-TM-
      System were patented in the United States on April 12, 1996. Applications
      have been made for patent protection under the International Patent
      Protection Treaty covering up to 13 European countries.


7.    Amounts Owing to Related Parties
<TABLE>
<CAPTION>
                                                                    1998           1997
                                                                      $              $
                                                                   ------        -------
      <S>                                                          <C>           <C>
      (a)  Amounts owing to a shareholder, due on demand,
           unsecured and non-interest bearing.                          -        123,760

      (b)  Amounts owing to two directors, due on demand,
           unsecured and non-interest bearing.                     95,442        236,793
                                                                   ------        -------
                                                                   95,442        360,553
                                                                   ------        -------
                                                                   ------        -------
</TABLE>

8.    Convertible Debentures

      During fiscal 1997 and 1998, the Company issued 12% Series "A" Senior
      Subordinated Convertible Redeemable Debentures ("Debentures") due July 31,
      1998 having a face amount of $725,285, bearing interest at 12% per annum,
      payable quarterly. The Company discounted these Debentures by 20% of the
      face amount and received net proceeds of $580,228. A $53,400 commission
      was paid and expensed. Interest of $25,980 was accrued to the date of
      conversion. The Agent will also receive 40,532 warrants exercisable into
      common stock at $1.80 per share.

      These Debentures were converted into common stock during the year. Face
      value of $725,285 plus accrued interest of $25,980 less 20% discount of
      $145,067, totalling $606,198 was converted into 4,034,350 common stock.


9.    Long-term Debt (See Subsequent Events)

      Prior to fiscal 1998, UVST issued 2,000 Class "A" Preferred Shares at
      Cnd$1,000 per share for proceeds of Cnd$2,000,000 (US$1,275,104). The
      holders of these shares also own 49.3% of the common shares of UVST
      ("minority shareholders"). Class "A" Preferred Shares are retractable once
      sales reach Cnd$10,000,000 and net income reaches Cnd$1,000,000 and are to
      be redeemed by June 30, 2000.

      During fiscal 1997, minority shareholders advanced Cnd$631,000 to UVST.
      Interest accrued to June 29, 1998, at 20% per annum, totalled Cnd$280,000.
      Pursuant to an interim refinancing agreement ("the Agreement"), dated June
      29, 1998, all accrued interest was waived. The principal repayment of
      Cnd$631,000 has been deferred to June 29, 2003 and interest at 10% accrues
      until December 29, 2000, after which, is paid monthly. The Company waived
      interest of Cnd$217,000 accrued on its loan to UVST of Cnd$1,287,000.

      Under the Agreement one of the minority shareholders advanced Cnd$909,000
      to UVST. This advance is secured by a subordinated debenture on all of
      UVST's assets, bears interest at 10%, payable monthly, is due in 2003, and
      ranks ahead of the minority shareholder loans and Class "A" Preferred
      Shares.

                                       50


<PAGE>

10.        Common Stock
<TABLE>
<CAPTION>                                                                                                            Additional
                                                                                                          Common      Paid-in
                                                                                       Shares             Stock        Capital
                                                                                          #                 $             $
                                                                                     ----------      ----------      ----------
            <S>                                                                      <C>             <C>             <C>       
            Balance September 1, 1995 (date of inception)                             1,400,000           1,400          (1,400)
                 Issuance of stock for expenses at $0.05 per share                    1,600,000           1,600          78,400
                 Issuance of stock for cash in private sales:
                      $0.50 per share                                                    30,000              30          14,970
                      $0.75 per share                                                   220,000             220         164,780
                      $1.25 per share                                                    60,000              60          74,940
                      $1.33 per share                                                    38,000              38          50,654



            Balance August 31, 1996                                                   3,348,000           3,348         382,344
                                                                                     ----------      ----------      ----------

                 Issuance of stock for acquisition of 50.7%
                      of UV Systems Technology Inc. at a deemed
                      fair market value of $0.75 per share                            1,474,918           1,475       1,104,714

                 Issuance of stock for cash in private sales at $0.75 per share         416,420             416         310,949

                 Issuance of stock for conversion of warrants:
                      Class "A' warrants converted May, 1997 at
                      $1.25 per share                                                    40,000              40          49,960



            Balance August 31, 1997                                                   5,279,338           5,279       1,847,967
                                                                                     ----------      ----------      ----------

                 Issuance of stock for conversion of convertible
                      debentures at prices ranging from $0.13 to $1.00                4,034,350           4,034         602,163

                 Issuance of stock for cash in private sales at $0.23 per share         200,000             200          45,800

                 Issuance of stock to settle debt at prices ranging from
                      $0.12 to $0.30                                                  3,149,300           3,150         577,689



            Balance August 31, 1998                                                  12,662,988          12,663       3,073,619
                                                                                     ----------      ----------      ----------
                                                                                     ----------      ----------      ----------
</TABLE>



         (a)       Warrants outstanding as at August 31, 1998:

<TABLE>
<CAPTION>
                         Exercise
                          Price
          Class             #              $        Expiry Date
          -----         ----------        ----    -----------------
          <S>           <C>               <C>     <C>
          "A"              361,420        1.25    February 25, 1999
          "A"               60,000        2.00    March 18, 2001
          "A"               75,000        1.25    April 9, 1999
          "A"              160,000        1.25    May 13, 1999
                        ----------
                           656,420
          "B"               38,000        1.34    March 24, 1999
          "C"               38,000        2.00    March 24, 1999
          "D"              274,918        1.50    May 2, 1999
          "D"            1,200,000     Cnd2.00    May 2, 2001
          "E"            3,030,763        0.40    April 28, 2000
          "E"              200,000        0.40    December 31, 2000
                        ----------
                         5,438,101
                        ----------
                        ----------

</TABLE>

           The Class "A" warrants are redeemable by the Company at $.001 per
share.

                                       51





<PAGE>

10.  Common Stock (continued)

     (b)  Employee Stock Option Plan

          On August 21, 1997 employees were granted stock options to acquire 
          1,247,000 shares at $1.00 per share expiring August 21, 2000. On 
          April 15, 1998 two directors and an employee were granted stock 
          options to acquire 341,000 shares at $0.15 per share expiring April 
          15, 2001. The quoted price of the Company's common stock on the 
          grant dates approximated the grant prices.

          The common stock underlying the Employee Stock Option Plan was 
          registered with the Securities Exchange Commission on October 6, 
          1997.

          The Company has adopted Financial Accounting Standards Board 
          Statement No. 123 to account for its Employee Stock Option Plan. 
          The fair value, as at the grant dates of August 21, 1997 and April 
          15, 1998, were nil, using existing models to provide a measure of 
          fair market value. The weighted average remaining contractual life 
          of options outstanding is two years at August 31, 1998.

11.  Segmented Information

     The business of the Company is carried on in one industry segment (See 
     Note 1).

     The Company operates in two geographic segments as follows:

     <TABLE>
     <CAPTION>
                                                           1998                                 1997
                                             ---------------------------------    --------------------------------
                                                         United                                United
                                              Canada     States        Total       Canada      States       Total
                                                $           $            $           $            $           $
     <S>                                    <C>        <C>          <C>          <C>        <C>         <C>

     Project Revenue - unaffiliated           202,894           -      202,894     24,118           -       24,118
     --------------------------------------------------------------------------------------------------------------

     Inter-area sales                               -           -            -          -           -            -
     --------------------------------------------------------------------------------------------------------------

     Operating loss                          (578,380)   (707,176)  (1,285,556)  (758,454)   (639,971)  (1,398,425)
     --------------------------------------------------------------------------------------------------------------

     Identifiable assets                      931,575      51,604      983,179    806,357      44,966      851,323
     Goodwill and patents                      92,484   1,576,516    1,669,000     36,658   2,061,597    2,098,255
     --------------------------------------------------------------------------------------------------------------

     Total assets                           1,024,059   1,628,120    2,652,179    843,015   2,106,563    2,949,578
     --------------------------------------------------------------------------------------------------------------
     </TABLE>

     Revenue from projects exported from Canada to other countries amounted 
     to $202,894 (1997: $24,118).

12.  Comparative Figures

     Certain of the prior year's figures have been reclassified to conform 
     with the current year's presentation.

13.  Subsequent Events

     Subsequent to August 31, 1998, the Company's subsidiary, UVST, completed 
     its debt and share restructuring subject to completion of documentation 
     and regulatory approval. Class "X" non-voting Preferred Shares will be a 
     new class of shares added to the authorized capital stock of UVST. 500 
     Class "A" Preferred Shares, representing 50% of the Class "A" preferred 
     shares held by one of UVST's minority shareholders, will be replaced 
     with 500,000 Class "X" non-voting Preferred Shares retractable at 
     Cnd$1.00 per share. The Company's loan to UVST of Cnd$1,287,000 will be 
     transferred into 1,287,379 Class "X" Preferred Shares retractable at 
     Cnd$1.00 per share. These Class "X" Preferred Shares will be retractable 
     by the holders only if there is a sale of UVST or an initial public 
     offering of its securities which values UVST, excluding Class X 
     Preferred Shares, at Cnd$20 million. If not retracted by June 29, 2002 
     the Class X Preferred Shares will be redeemable by UVST for Cnd$1 in 
     total.

                                     52

<PAGE>

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

None

                                  PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The Executive Officers and Directors of the Company are as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Name                    Age   Position
------------------------------------------------------------------------------
<S>                     <C>   <C>
Kenneth E. Fielding     48    Director, President, and President of UV
                              Systems Technology, Inc.
JohnR. Gaetz            58    Director, Secretary-Treasurer and Vice-
                              President of Finance (CFO)
</TABLE>

Kenneth E. Fielding has served as a Director and President of Service Systems 
since June 1995 and as president of UVS since December 1996. He is also, and 
has been since 1976, the president of Alliance Installations Electrical 
Contractors Ltd. an inactive industrial electrical construction contractor 
which until January 1996 provided electrical systems for schools, hospitals, 
institutions, warehouses, restaurants and commercial installations. Mr. 
Fielding is devoting his full time to management and operations of Service 
Systems. In addition to the administrative position with our company, Mr. 
Fielding has overall responsibility for UVS as president. Mr. Fielding holds 
an Electrical Contractor's license with the Province of British Columbia and 
a journeyman electrician designation from the BC Institute of Technology.

John R. Gaetz has served as a Director, Secretary-Treasurer and Chief 
Financial Officer since June 15, 1997, and as a Director, Vice president, and 
Secretary of UVS since August 1995, positions he held in UVS' predecessor, UV 
Waterguard Systems Ltd., since 1990.

BOARD MATTERS

The Board of Directors has no standing committees. The Board of Directors is 
responsible for nominating a proposed slate of Directors for each year to 
stand for election at the annual shareholders meeting. We have no provision 
for recommendation by shareholders of nominees for Director.

Members of the Board of Directors, by virtue of their position, owe a 
fiduciary duty to our company. However, in accordance with Nevada law, the 
Company has provided in Article XI


                                     53
<PAGE>

of its Articles of Incorporation (i) that contracts and acts with another 
corporation are not affected by the fact that a Director has a pecuniary or 
other interest in or is a director or officer of the other corporation and 
(ii) that a Director may be a party to or interested in a contract or 
transaction with our company if the interest has been disclosed to the Board 
or the Board knows of the interest before a vote is taken on the contract or 
transaction. As of August 31, 1998 we had no such contracts or transactions 
with any Director or corporation in which a Director had an interest.

The Executive Officers of the Company are employed full-time by the Company 
or its subsidiary, UVS. See "Executive Compensation."

Based solely upon a review of Forms 3 and 4 and their amendments, furnished 
under Rule 16a-3(a) of the Securities Exchange Act of 1934 during our most 
recent fiscal year and written representations from persons required to file 
those Forms, all Directors and Officers filed all reports required by Section 
16(a) of the Act.

ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth an overview of compensation for the fiscal 
year ended August 31, 1998, to the Chief Executive Officer and each of the 
Company's other Executive Officers whose total compensation exceeded $100,000 
(together, "Named Executive Officers"). Information for fiscal years prior to 
August 31, 1997, have been omitted, the Company having been inactive until 
its acquisition in July 1995 (see "Company Background").

                        SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
(a)                   (b)    (c)          (d)         (e)            (f)           (g)           (h)
                                                                     Restricted    Securities    All
Name and                                              Other Annual   Stock         Underlying    LTIP      Other
Principal                                             Compensation   Award(s)      Options       Payouts   Compensation
Position              Year   Salary ($)   Bonus ($)   ($)            (SARs)        ($)           ($)       ($)
---------             ----   ----------   ---------   ------------   ----------    ----------    -------   ------------
<S>                   <C>    <C>          <C>         <C>            <C>           <C>           <C>       <C>
Kenneth E. Fielding   1996                0           0              0             0             0         0
President, CEO        1997   84,000       0           0              0             200,000       0         0
and President of      1998   49,442       0           0              0             150,500       0         0
UVS Inc.              1998   40,112 accrued

</TABLE>


                                     54
<PAGE>

The following table sets forth information with respect to the individual 
grants of stock options made during the fiscal year ended August 31, 1998, to 
each of our Named Executive Officers:

                      OPTION GRANTS IN LAST FISCAL YEAR
                             (INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                           Number of             Percent of
                           Shares of                Total
                         Common Stock              Options
                          Underlying             Granted to
                            Options               Employees            Exercise of
                            Granted               in Fiscal            Base Price           Expiration
         Name                 (#)                    Year                ($/Sh)                Date
          (A)                 (b)                    (c)                   (d)                  (e)
------------------------------------------------------------------------------------------------------
<S>                      <C>                     <C>                   <C>                  <C>
Kenneth E. Fielding,        150,500                 44.0                  $0.15             4/15/2001
President, CEO and
President of UVS
------------------------------------------------------------------------------------------------------
</TABLE>

These options were granted pursuant to our 1997 Stock Option Plan.

See "Certain Relationships and Related Transactions" for information on 
non-compensatory options granted to persons some of whom are Executive 
Officers.

COMPENSATION OF DIRECTORS

We do not compensate Directors for their service as such, although we do 
reimburse reasonable expenses incurred by them in conducting Company affairs 
and in attending meetings.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL 
ARRANGEMENTS

We have no employment agreements with our Executive Officers, nor do we have 
agreements respecting termination of employment or change-in-control. We 
expect to enter into employment agreements with Executive Officers in the 
foreseeable future, but have not begun negotiation of those agreements. Mr. 
Fielding and Mr. Gaetz are the only Executive Officers receiving 
compensation. Mr. Fielding's compensation was $89,555 in total, of which 
$19,445 was paid and $70,110 was accrued and Mr. Gaetz's compensation was 
$89,555, in total, of which $50,994 was paid and $38,561 was accrued.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

The following table sets forth certain information regarding the beneficial 
ownership of Common Stock, as of August 31, 1998, of (i) each person known to 
own beneficially more than


                                     55
<PAGE>

5% of our Common Stock, (ii) each Director of the Company, (iii) each of the 
Company's Executive Officers, and (iv) all Officers and Directors as a group. 
Except as otherwise noted, the Company believes that the persons listed below 
have sole investment and voting power with respect to the Common Stock owned 
by them.

<TABLE>
<CAPTION>
          NAME AND ADDRESS                   SHARES                    PERCENT OF
            OF BENEFICIAL                 BENEFICIALLY                    CLASS
              OWNER (1)                     OWNED (2)
----------------------------------------------------------------------------------
<S>                                       <C>                          <C>
Kenneth E. Fielding                       2,884,447 (3)                  19.69%

John R. Gaetz                             2,305,354 (4)                  15.74%

Douglas F. Sommerville                    1,235,499 (5)                   8.43%

All officers and directors
as a group                                5,189,980 (3)(4)               35.43%
-----------------------------------------------------------------------------------
</TABLE>

(1)  The address for all shareholders is in care of the company at 2800 
     Ingleton Avenue, Burnaby, British Columbia, Canada V5C 6G7.

(2)  A person is deemed to be the beneficial owner of securities that can be 
     acquired by that person within 60 days from the date of this Annual 
     Report upon exercise of options or warrants. Each beneficial owner's 
     percentage ownership is determined by assuming that options or warrants 
     that are held by that person and that are exercisable within 60 days 
     from the date of this Annual Report have been exercised.

(3)  Includes 1) 7,000 shares which are owned by Mr. Fielding's minor 
     daughter, 2) 200,000 shares at a price of $1.00, and 150,500 shares 
     which Mr. Fielding has the right to acquire at a price of $0.15 under 
     immediately exercisable options, 3) 1,243,445 shares purchased during 
     the fiscal period and, 5) 1,243,445 which Mr. Fielding has the right to 
     acquire at a price of $0.40 under immediately exercisable E Warrants.

(4)  Includes 600,000 shares which Mr. Gaetz has the right to acquire at a 
     price of C$2.00 under immediately exercisable warrants, 20,000 shares 
     which Mr. Gaetz has the right to acquire at a price of $1.25 under 
     immediately exercisable warrants, 200,000 shares which Mr. Gaetz has the 
     right to acquire at a price of $1.00 under immediately exercisable 
     options, 150,500 shares which Mr. Gaetz has the right to acquire at a 
     price of $0.15 under immediately exercisable options, 341,037 shares 
     which Mr Gaetz purchased during the fiscal period, 341,037 shares which 
     Mr Gaetz has the right to acquire at a price of $0.40 under immediately 
     exercisable E Warrants, and 33,770 shares owned by Mr. Gaetz's wife.

(5)  Includes 600,000 shares which Mr. Sommerville has the right to acquire 
     at a price of C$2.00 under immediately exercisable warrants and 45,028 
     shares owned by Mr. Sommerville's wife.


                                     56
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In July 1995, Service Systems was acquired by eight Canadian and European 
individuals. The individuals intended to develop the Company into the United 
States marketing arm for UVS' Ultra Guard-TM- UV system. The Company issued 
1,600,000 shares of restricted common stock to these individual stockholders, 
including one officer as reimbursement of cash advanced by them to others for 
expenses related to the acquisition. See "Company Background." Mr. Fielding 
may be considered to be a promoter of the Company.

In connection with Service Systems acquisition in 1996 of UVS in exchange for 
their UVS shares, our common stock was issued to: Kenneth Fielding (a 
Director and Executive Officer), 11,257 shares; John Gaetz (a Director and 
Executive Officer), 600,000 shares and 600,00 warrants for Common Stock; 
Douglas F. Sommerville (a greater than 5% shareholder), 600,000 shares and 
600,000 warrants for Common Stock. In addition, common stock was issued to 
adult relatives of Mr. Gaetz: his wife, C.A. Gaetz, 33,700 shares; his 
brother, F. Gaetz, 901 shares; his brother, J.G. Gaetz, 4,503 shares; and his 
daughter, L.L. Alentejano, 5,629 shares. Mr. Sommerville's wife, V.N. 
Sommerville, also received 45,028 shares.

Since the acquisition of the Company by the investor group in 1995, the 
following Directors, Executive Officers, and greater than 5% shareholders, 
have made the loans to us for additional working capital up to August 31, 
1998: John R Gaetz, $55,330 and Ken Fielding $40,012. The loans are payable 
on demand.

In July 1996, John Gaetz purchased for cash 20,000 shares of Common Stock and 
20,000 warrants for Common Stock in a private offering at a cost of $0.75 per 
share. In April 1998, John Gaetz purchased for debt settlement 341,037 shares 
of Common Stock and 341,037 warrants for Common Stock in a private offering 
at a cost of $0.20 per share; the market price on that date was $0.18.

In April 1998, Ken Fielding purchased for cash 1,243,445 shares of Common 
stock and 1,243,445 warrants for Common Stock in a private offering at a cost 
of $0.20 per share; the market price on that date was $0.18.

In August 1997, options for 200,000 shares of Common Stock were issued to 
each of Kenneth Fielding and John Gaetz at an option price of $1.00. In April 
1998, options for 150,100 shares of Common Stock were issued to each of 
Kenneth Fielding and John Gaetz at an option price of $0.15, the market price 
on that date. The options, issued under the Company's 1997 Stock Option Plan, 
are immediately exercisable at the prices noted; the market price on August 
1997 was $1.00 and on April 1998 was $0.18.

                                     57
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  List of exhibits

     <TABLE>
     <CAPTION>
     Exhibit Number  Description                                Method of Filing
     --------------  -----------                                ----------------
     <S>             <C>                                        <C>
     (3)(i)          Articles of Incorporation*

     (3)(ii)         Bylaws, as amended**

     (10)(iii)       Agreement between Douglas
                     Sommerville and Company dated
                     12/6/96**

     (10)(iv)        Agreement between John Gaetz
                     And the Company dated 12/6/96**

     (10)(v)         Sample Agreement among minority
                     Shareholders of UV Systems
                     Technology, Inc. And the Company
                     each dated 2/28/97**

     (10)(vi)        Marketing Distribution Agreement
                     Between UV Systems Technology, Inc.
                     and the Company**

     (10)(vii)       Sales Representation Agreement
                     between UV Systems Technology,
                     Inc. and "The Representative"**

     (10)(viii)      Exclusive Distributorship Agreement
                     Between UV Waterguard Systems, Inc.
                     and Chiyoda Kohan Co.,  Ltd., and
                     NIMAC Corporation.**

     (10)(ix)        1997 Stock Option Plan***

     (10)(x)         Interim Funding Agreement                  Filed Herewith
                     between UVS, MDS and WOF                   Electronically

     (11)            Statement Regarding Computation            Filed Herewith
                     of Per Share Earnings                      Electronically

     (21)            Subsidiaries of the Corporation:           Filed Herewith
                     UV Systems Technology Inc.,                Electronically
                     incorporated in British Columbia,
     </TABLE>


                                     58
<PAGE>

     <TABLE>
     <CAPTION>
     Exhibit Number  Description                                Method of Filing
     --------------  -----------                                ----------------
     <S>             <C>                                        <C>
                     Canada

     (23)(i)         Consent of Elliott Tulk,                   Filed Herewith
                     Pryce Anderson                             Electronically

     (27)            Financial Data Schedule                    Filed Herewith
                                                                Electronically
     </TABLE>
--------
 *   Incorporated by reference to the Corporation's Form 10-SB effective 
     January 17, 1997.

**   Incorporated by reference to the Corporation's Form S-8 filed with the
     Commission on October 6, 1997.

***  Incorporation by reference to the Corporation's Form 10K for the fiscal
     Year ended August 31, 1997.

(b)  Reports on Form 8-K

     The Company filed no reports on Form 8-K during the fourth quarter of 
fiscal 1998.

                                 SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 
1934, the registrant caused this registration statement to be signed on its 
behalf by the undersigned, thereunto duly authorized.

              SERVICE SYSTEMS INTERNATIONAL, LTD.



              By: /s/ Kenneth R. Fielding
              --------------------------------
              Kenneth R. Fielding, President



Date: November 30, 1998    By: /s/ Kenneth R. Fielding
                           ---------------------------
                           Ken Fielding, Director


Date: November 30, 1998    By: /s/ John R. Gaetz
                           ---------------------------
                           John R. Gaetz, Director


                                     59