<PAGE>   1




                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   Form 10-QSB


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


                For the quarterly period ended December 31, 1998
                                               -----------------

                         Commission file number 0-16011
                                                -------

                            USTMAN Technologies, Inc.
        (Exact name of small business issuer as specified in its charter)


                                   California
                                   ----------
                         (State or other jurisdiction of
                         incorporation or organization)

                                   95-2873757
                                   ----------
                      (I.R.S. Employer Identification No.)

                            12265 W. Bayaud Ave #110
                            ------------------------
                                  Lakewood, CO
                                  ------------
                    (Address of principal executive offices)

                                      80228
                                      -----
                                   (Zip Code)

                                 (303) 986-8011
                                 --------------
                           (Issuer's telephone number)

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. [X] Yes  [ ] No

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: 19,879,243 shares of Common Stock as of
February 5, 1999.

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




<PAGE>   2



PART I -- FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                            USTMAN TECHNOLOGIES, INC.
                                AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
                                                                      December
                                                                       31,1998               June 30,
                                                                     (unaudited)               1998
                                                                    ------------         ------------
<S>                                                                 <C>                  <C>         
 ASSETS
        CURRENT ASSETS
             Cash and equivalents                                   $     24,000         $    366,000
             Accounts receivable, net                                  1,193,000              826,000
             Inventory                                                   166,000              112,000
             Prepaid expenses and other current assets                   125,000               70,000
                                                                    ------------         ------------
                                                                       1,508,000            1,374,000

       PROPERTY AND EQUIPMENT, NET                                       506,000              544,000
       INTANGIBLES AND GOODWILL                                        7,902,000            9,699,000
                                                                    ------------         ------------
                                                                       9,916,000           11,617,000
                                                                    ============         ============

LIABILITIES AND SHAREHOLDERS' EQUITY
       CURRENT LIABILITIES
             Accounts payable, accrued expenses
                      and other liabilities                            1,235,000            1,135,000
             Current portion of long-term debt                         1,000,000              875,000
                                                                    ------------         ------------
                                                                       2,235,000            2,010,000

       LONG-TERM DEBT AND OTHER LIABILITIES                            2,250,000            9,784,000
       DEFERRED EMPLOYEE BENEFITS                                        434,000              435,000

SHAREHOLDERS' EQUITY
       Preferred Stock                                                 8,676,000                 --
       Common stock                                                   12,826,000           12,810,000
       Additional paid-in capital                                        875,000            2,517,000
       Accumulated deficit                                           (17,380,000)         (15,939,000)
                                                                    ------------         ------------
                                                                       4,997,000             (612,000)

                                                                    ------------         ------------
                                                                    $  9,916,000         $ 11,617,000
                                                                    ============         ============
</TABLE>



                                       2

<PAGE>   3




                            USTMAN TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                 Condensed Consolidated Statements of Operations
                  Three Months Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                             1998                1997
                                                                         (unaudited)         (unaudited)
                                                                         -----------         -----------
<S>                                                                      <C>                 <C>        
Sales                                                                    $ 1,651,000         $ 1,521,000

Cost of sales                                                                613,000             707,000
                                                                         -----------         -----------
       Gross profit                                                        1,038,000             772,000

Selling, general and administrative expenses                                 639,000             716,000

Depreciation and amortization                                                320,000             261,000

Interest expense, net of interest income                                     117,000             335,000
                                                                         -----------         -----------
     Loss from operations before benefit for income taxes                    (38,000)           (498,000)

Benefit for income taxes                                                        --                  --
                                                                         -----------         -----------
     Net loss                                                            $   (38,000)        $  (498,000)
                                                                         ===========         ===========

     Basic and diluted, net loss, per share                              $     (0.00)        $     (0.03)
                                                                         ===========         ===========
</TABLE>



                                       3

<PAGE>   4



                            USTMAN TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                 Condensed Consolidated Statements of Operations
                   Six Months Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                              1998               1997
                                                                         (unaudited)         (unaudited)
                                                                         -----------         -----------
<S>                                                                      <C>                 <C>        
Sales                                                                    $ 3,174,000         $ 3,081,000

Cost of sales                                                              1,157,000           1,203,000
                                                                         -----------         -----------

       Gross profit                                                        2,017,000           1,878,000

Selling, general and administrative expenses                               1,242,000           1,745,000

Depreciation and amortization                                                633,000             487,000

Interest expense, net of interest income                                     228,000             692,000

Write off of deferred debt cost                                            1,355,000                --
                                                                         -----------         -----------

     Loss from operations before benefit for income taxes                 (1,441,000)         (1,046,000)

Benefit for income taxes                                                        --                  --

                                                                         -----------         -----------

     Net loss                                                            $(1,441,000)        $(1,046,000)
                                                                         ===========         ===========

     Basic and diluted, net loss, per share                              $     (0.07)        $     (0.05)
                                                                         ===========         ===========
</TABLE>




                                       4


<PAGE>   5



                            USTMAN TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                 Condensed Consolidated Statements of Cash Flows
                   Six Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
                                                                             1998               1997
                                                                         (unaudited)         (unaudited)
                                                                         -----------         -----------
<S>                                                                      <C>                 <C>         
 Operating Activities
        Net loss                                                         $(1,441,000)        $(1,046,000)
        Adjustments to reconcile net loss to net cash
           used in operating activities:
         Depreciation and amortization                                       651,000             659,000
         Write off of deferred debt cost                                   1,355,000
        Interest converted to long-term debt                                    --               358,000
         Net Changes in operating assets and liabilities                    (439,000)           (377,000)
                                                                         -----------         -----------
 Cash flows provided by (used in) operating activities                       126,000            (406,000)

Investing Activities
        Net purchase of Advanced Tank Certification, Inc.                                     (2,190,000)
        Purchase of property and equipment                                   (85,000)            (79,000)
                                                                         -----------         -----------
 Cash flows used in investing activities:                                    (85,000)         (2,269,000)

 Financing Activities
           Increase in deferred debt issuance cost                           (24,000)            (58,000)
           Proceeds from issuance of common stock and options                 16,000              27,000
           Repayments, net of borrowings                                    (375,000)          2,719,000
                                                                         -----------         -----------
 Cash flows provided by financing activities                                (383,000)          2,688,000

 Change in cash                                                             (342,000)             13,000
 Cash and equivalents, beginning of period                                   366,000             799,000
                                                                         -----------         -----------
 Cash and equivalents, end of period                                     $    24,000         $   812,000
                                                                         ===========         ===========
</TABLE>



                                       5


<PAGE>   6



                            USTMAN TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

              Notes to Condensed Consolidated Financial Statements

    1.  The interim financial information furnished herein has not been audited
        by independent accountants; however, in the opinion of management, all
        adjustments (only consisting of normal recurring accruals) necessary for
        a fair presentation of the results of operations for the six month
        period ending December 31, 1998 have been included.

    2.  On May 22, 1997, the Company, then doing business as Watson General
        Corporation (Watson) completed the private placement of $7 million 10%
        Senior Subordinated Notes Due 2002 and 7,304,520 shares of its common
        stock (the Private Placement) with Sagaponack Partners, L.P., and
        Sagaponack International Partners, L.P. (the "Investors"). In connection
        with the valuation of the common stock issued in the transaction, an
        original issue discount of $1,000,000 was recorded. Approximately
        $17,000 of the discount is amortized into interest expense monthly
        during the 1998 fiscal year.

        Interest on the Senior Subordinated Notes is 10% per annum for the first
        year, payable quarterly, and increases by one percent each year during
        the term of the Notes. As of December 31, 1997 the interest rate was
        10%. At the option of the Company, interest payments due can be
        converted to debt under the same terms as the original principal. During
        the six month period ended December 31, 1997, the Company converted
        interest due of $358,000 to long term debt.

        On February 11, 1999 the Investors agreed to convert all of the Private
        Placement and accrued interest totaling $7,296,000 to Series A Preferred
        Stock ("Preferred Stock") effective July 1, 1998. The Preferred Stock
        will have an aggregate allocation amount (the "Allocation Amount") of
        $15,000,000 for the purposes of liquidation priority and dividends. The
        Preferred Stock will bear an annual 8% cumulative dividend if and when
        declared by the Board of Directors. The Allocation Amount will increase
        by the amount of any dividends not declared for payment by the Company.
        The Preferred Stock has no mandatory redemption or voting rights and is
        not convertible into Common Stock. As a result of the conversion, the
        Company recorded an additional loss of $1,355,000 related to the write
        off of the deferred debt cost related to the Private Placement.

        On December 17, 1997, the Company obtained $3.75 million in financing
        from BankBoston and used the proceeds to, among other things, acquire
        all of the outstanding common stock of Advanced Tank Certification, Inc.
        (ATC), pursuant to stock purchase agreements between the Company and all
        of the shareholders of ATC. The ATC acquisition was accounted for using
        the purchase method.

    3.  Inventory consists of tank gauge equipment and is accounted for using
        the weighted average method.

    4.  Included in interest expense on the Statements of Operations is
        amortization of deferred debt costs. These amounts are shown as
        depreciation and amortization on the Statements of Cash Flows.

    5.  Certain amounts for the prior period have been reclassified to conform
        to the current quarter presentation.

    6.  Due to the Company's loss position, diluted net loss per share is the
        same as basic earnings per share as the result would be antidilutive.




                                       6

<PAGE>   7



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

    RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED
    TO THE THREE MONTHS ENDED DECEMBER 31, 1997

    In the second quarter of fiscal 1999 the Company reported a net loss of
    $38,000 as compared to a net loss of $498,000 for the corresponding quarter
    of the preceding year. This decrease in loss is primarily attributable to a
    decrease in interest expense and an increase in sales. Interest expense
    decreased 65% to $117,000 from $335,000. This decrease is a result of the
    conversion of the Private Placement to Preferred Stock effective July 1,
    1998. The conversion resulted in less interest and amortization related to
    intangibles, which was included in interest in the prior year. Sales for the
    quarter were $1,651,000 compared with $1,521,000 in the prior year. Sales
    increased approximately 9% as the December 22 EPA deadline approached. These
    requirements require, among other things, some form of permanent monthly
    monitoring of underground storage tanks. In addition, additional customers
    were added while the Company maintained costs related to analyzing data. The
    Company has also achieved higher sales of its Extreme (TM) and SIRSend (TM)
    software and tank gauges. The software has a very high gross margin as there
    are few costs directly attributable to the installation and implementation.
    These factors resulted in a 63% gross margin, up from 51% in the prior year.

    Selling, general and administrative expenses decreased by 11% due to the
    reduction of expenses incurred in the prior year related to the merger of
    USTMAN Industries, Inc. and Watson General Corporation and the Advanced Tank
    Certification, Inc. acquisition. These expenses consisted primarily of fees
    for relocating offices, severance of terminated employees, exit costs,
    attorneys' fees, and accounting fees. All operations were integrated as of
    June 30, 1998 eliminating duplication of costs and resulting in more
    efficient operations. Management believes the selling, general and
    administrative expenses will continue throughout the fiscal year at the
    lower level.

    RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED 
    TO THE SIX MONTHS ENDED  DECEMBER 31, 1997

    The Company reported a net loss of $1,441,000 or $0.07 per share as compared
    to a net loss of $1,046,000 or $0.05 per share for the corresponding period
    of the prior year. The write off of deferred debt cost related to the
    Private Placement in the amount of $1,355,000 in the first quarter of the
    fiscal year significantly contributed to the year to date loss. The Company
    wrote off certain intangible assets related to the Private Placement when,
    effective July 1, 1998, the Investors agreed to convert the Private
    Placement Notes to Preferred Stock. In addition, interest expense decreased
    as a result of the conversion. Not only did the Company incur less interest,
    amortization of the intangible assets related to the Private Placement which
    in prior year was included in interest expense was eliminated.

    Sales increased approximately 3% compared to prior year, this is a result of
    an increase in the customer base as the December 22 EPA deadline approached
    and increases in software and tank gauge sales. The increase in year to date
    sales is not as great as the quarterly results due primarily to the sale of
    Toxguard Fluid Technologies, Inc. ("Toxguard") which was divested as part of
    the Company's strategic plan in January 1998. The Company's strategic plan
    calls for it to reposition itself in pursuit of its most significant market
    opportunity, leak detection/monthly monitoring of underground storage tanks.
    The increase in customers and software and tank gauge sales in the second
    quarter exceeded the prior quarters decrease.

    General and administrative expenses decreased by 29%. This is a result of
    the elimination of expenses related to the merger of USTMAN Industries, Inc.
    and Watson General Corporation and the Advanced Tank Certification, Inc.
    acquisition. These expenses consisted primarily of fees for relocating
    offices, severance of terminated employees, exit costs, attorneys' fees, and
    accounting fees. All operations were integrated as of June 30, 1998
    eliminating duplication of costs and resulting in more efficient operations.




                                       7


<PAGE>   8


    FINANCIAL CONDITION AND LIQUIDITY

    At December 31, 1998 the Company's current liabilities exceeded current
    assets by $727,000 compared to $636,000 at June 30, 1998. This is a result
    of the current portion of long term debt on the BankBoston term loan. The
    Company's business does not require material ongoing capital expenditures.
    The Company's management believes that it has adequate resources for the
    next twelve months of operations.

    The Company is not in compliance with the net tangible assets/market
    capitalization/net income requirement for continued listing on the Nasdaq
    Stock Market. Nasdaq has agreed to a hearing before a Qualifications Panel
    of Nasdaq to consider the Company's status.

    Except for historical information contained herein, the statements in this
    report are forward-looking statements that are made pursuant to the safe
    harbor provisions of the Private Securities Litigation Reform Act of 1995.
    Forward-looking statements involve known and unknown risks and uncertainties
    which may cause the actual results in future periods to differ materially
    from forecasted results. These risks and uncertainties include, among other
    things, product demand, customers' strategies regarding the December 22,
    1998 EPA compliance requirements, and market competition.

    YEAR 2000 ASSESSMENT

    The following disclosure is made pursuant to the Year 2000 Information and
    Readiness Disclosure Act. The following disclosure originated from the
    Company and concerns (1) assessments, projections, or estimates of Year 2000
    processing capabilities; (2) plans, objectives or timetables for
    implementing or verifying Year 2000 processing capabilities; (3) test plans
    dates or results; and/or (4) reviews and comments concerning Year 2000
    processing capabilities as defined by the Act.

    The Company has assessed Year 2000 compliance matters and has determined
    that it has potential for exposure regarding Year 2000 compliance in three
    areas of its internal and external business activities. These areas include
    (1) its own internal hardware and software systems which are utilized to
    process and provide the Company's operations and accounting information, (2)
    the hardware and software systems it has provided to its clients for
    automation of the SIR process and (3) clients' hardware and software systems
    which are utilized to provide data to the Company. The following discusses
    management's assessment of those risks and the steps it is taking to
    minimize them.

    Internal hardware and software

    Over the last three years, the Company has purchased computers, servers and
    other equipment which are certified by the vendor as being Year 2000
    compliant. Because of this, the telephone system, servers and the majority
    of the Company's workstations are Year 2000 compliant. As of September 30,
    1998, the Company has gathered an inventory of current revisions needed on
    older workstations. Those computers which were not compliant will be
    thoroughly tested in the upcoming months and have the needed revisions by
    December 31, 1999.

    The Company's software consists primarily of three distinct areas: network
    operating system, commercial software and proprietary software. The network
    operating system has been certified by the vendor to be Year 2000 compliant
    subsequent to the completion of certain patches which the Company completed
    applying as of September 30, 1998. The commercial software the Company runs
    is very diverse. The Company has identified over thirty types of commercial
    software that are currently used both internally and externally. Over the
    next five months, the Company will contact the manufacturers to determine if
    the software is Year 2000 compliant. For those software packages which will
    not be Year 2000 compliant, the Company will make a determination to either
    replace the software with a different vendor or continue to use the software
    in a "quarantined" environment. Until responses from all vendors are
    received, it is not 



                                       8

<PAGE>   9


    possible to estimate costs associated with the new software. However it is
    not anticipated that any new software other than that discussed below will
    be a material capital expenditure. All assessments required and the related
    determinations are expected to be made prior to June 30, 1999. The Company
    will contract for the replacement of its accounting and information computer
    software. One criterion in the selection of the new accounting software will
    be a warranty that the software is Year 2000 compliant. Management is
    currently evaluating systems. It is estimated that the system will be
    installed and functional by August 1999. The cost of this system is expected
    to be approximately $50,000 including software, hardware and implementation
    expense. The Company runs internal software developed by the Company's
    software engineers. The Company does not believe that the software code will
    have to be rewritten or recompiled because most of the software is simply a
    front end to well known commercial software which has Year 2000 compliance
    built into the core software.

    In order to ensure that all software and hardware will function properly in
    the Year 2000, the Company has planned to construct a separate testing
    facility. This facility will be dedicated entirely to Year 2000 testing on
    live customer data. This facility will have a server and other hardware to
    mirror the Company's. The Company plans to set the internal date at this
    facility to December 31, 1999 and run analysis for two months to verify that
    no Year 2000 issues occur as the clock approaches, reaches and passes the
    century mark. The equipment has been purchased for this facility and the
    facility is expected to be in use some time after March 1999.

    Hardware and software provided to customers

    Over the past couple of years, the Company has provided to its customers
    Extreme(TM), TankTrax(TM), and SIRSend(TM) software for use by its customers
    in providing data to the Company. The Company has tested and believes the
    Extreme(TM) software is Year 2000 compliant but the TankTrax(TM) and
    SIRSend(TM) software packages are not. The Company believes the TankTrax(TM)
    software can be corrected with few programming changes. The Company is
    currently evaluating the specific changes needed. The Company has obtained,
    but not applied, the programming revision needed for the SIRSend(TM)
    software. These revisions are expected to be complete by June 30, 1999.
    Because the Company's software engineers will do these revisions, the cost
    to the Company is expected to be minimal.

    In addition to software the Company has furnished computer equipment to run
    the above-mentioned software and tank gauges. The Company believes all
    computer equipment sold to current customers is Year 2000 compliant. The
    Company has made provisions with customers so that the Company will not be
    responsible for any Year 2000 issues due to customers moving the proprietary
    software from the machine provided by the Company to other equipment without
    the signed consent of the Company. The Company has obtained a written
    warranty from the manufacturer of its tank gauge that the tank gauge is Year
    2000 compliant.

    Clients' hardware and software

    In order to assess the preparedness of its customers, the Company requested
    that its top two hundred customers complete a Year 2000 survey to determine
    the status of Year 2000 compliance of the customers' software and the data
    provided to the Company. The Company has received several responses and is
    currently evaluating the survey responses. The Company does not believe that
    any data received either electronically or in hard copy which is not Year
    2000 compliant will have a negative affect on the systems, but may affect
    services provided due to additional manual labor required to correct
    problems with the data. The Company will be working closely with its
    customers known to generate data from legacy equipment which is not Year
    2000 compliant to determine what the customers' own Year 2000 compliance
    program encompasses. The Company believes by working together with these
    customers potential problems will be avoided.




                                       9




<PAGE>   10
\


                          PART II -- OTHER INFORMATION

    ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
    (a)  Exhibits

          Exhibit Number                  Description of Document
          --------------                  -----------------------
          Exhibit 27                 Financial Data Schedule



                                   SIGNATURES

    In accordance with the requirements of the Exchange Act, the registrant
    caused this report to be signed on its behalf by the undersigned, thereunto
    duly authorized.

                                        USTMAN TECHNOLOGIES, INC.
                                               (Registrant)




    Date:  2/12/99                      By /s/ DAN R. COOK
         ---------                         -----------------------------------
                                           Dan R. Cook
                                           President and CEO


    Date:  2/12/99                      By /S/ HEATHER MURPHY
         ---------                         -----------------------------------
                                           Heather Murphy
                                           Controller



                                       10




<PAGE>   11






                                  EXHIBIT INDEX
                                  -------------

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