SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                              --------------------

                           For the Fiscal Year Ended:
                                December 31, 1998
                             Commission File Number
                                     0-9574


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

                         UNITED SYSTEMS TECHNOLOGY, INC.

        Iowa                                      42-1102759
State of Incorporation)            (I.R.S. Employer Identification Number)

                          1850 Crown Road - Suite 1109
                               Dallas, Texas 75234
                                 (972) 402-8600

          (Address of principal executive offices and telephone number)
                              ---------------------

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.10 per share

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____.

     As of March 22, 1999 the  aggregate  market  value of voting  stock held by
non-affiliates of the Registrant was $2,201,350.

     As of March 22,  1999,  there were  48,178,043  shares of the  Registrant's
Common Stock outstanding.

     DOCUMENTS   INCORPORATED  BY  REFERENCE:   Portions  of  the   Registrant's
definitive  proxy statement  relating to its 1999 annual meeting of shareholders
is incorporated by reference into Part III of this Form 10-KSB.

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the  Registrant's  knowledge,  in the proxy  statement  incorporated  by
reference into Part III of the Form 10-KSB or any amendment hereto. X




<PAGE>
                                     PART I

ITEM 1.           BUSINESS

General Development of Business

     United Systems Technology,  Inc. ("USTI"),  was incorporated under the laws
of the State of Iowa on June 5, 1978, and its  wholly-owned  subsidiary,  United
Systems Technology East, Inc. ("USTEI"),  was incorporated under the laws of the
State of Delaware on June 10, 1991 (USTI and USTEI,  collectively,  are referred
to  herein  as the  "Company").  The  Company  is  engaged  in the  business  of
developing,  supporting and marketing  computer  software products to county and
local  governments.  The  software  applications  of the Company  operate on IBM
mid-range  computers,  and on various network  computer  systems both in DOS and
Windows  environments.  The  products  are offered to  customers in five product
application  groups.  These product  application  groups,  consisting of over 30
separate software titles, are Financial,  Public Works,  General  Administration
and Public Safety.

     On November 15, 1995, United Systems  Technology,  Inc. ("USTI")  purchased
substantially  all  of  the  assets  and  assumed  certain  liabilities  of  QDS
Acquisitions,  Inc. (QDS") from Dralvar Capital Corp. ("Dralvar").  These assets
were previously acquired by certain Dralvar  shareholders through foreclosure on
their  security  interests in such assets  granted by QDS.  The  purchase  price
consisted of the issuance of 4,326,600 shares of USTI Common Stock. In addition,
USTI  assumed  certain  obligations  of Dralvar.  The assets  purchased  by USTI
consisted  of (a) all  operating  assets of QDS  including  its Utility  Billing
System  ("UBS")  and  its  Law  Enforcement   Automated  Data  Retrieval  System
("LEADRS")  software,(b)  the  non-exclusive  right to sell and provide software
maintenance and services for the Quest Fund Accounting  ("QFA") software product
line from the closing date through  February 28,  1997,  (c)  substantially  all
hardware, equipment,  supplies,  furniture,  furnishings and other fixed assets,
(d) all software used for product development, (e) trade secrets and proprietary
information  including the name QuestTM and any other  trademarks,  (f) business
records of Dralvar,  including customer lists and related contracts and contract
rights and (g) certain  accounts  receivable of Dralvar  totaling  approximately
$61,131.  USTI  assumed  certain  obligations  of  Dralvar  which  consisted  of
obligations  to customers in the amount of $187,645 and accrued  expenses in the
amount of $36,774.

     On October 17, 1994, USTI acquired  substantially all of the assets of Noll
Computer Systems,  Inc. ("NCS"), a Texas  Corporation.  On February 21, 1997 NCS
exercised its option to reacquire  certain  assets,  including  the  InterFundTM
products and customer relationships existing in 1994. In addition, NCS purchased
the  InterFundTM  products  developed at USTI and customer  relationships  added
since October  1994,  including,  but not limited to, the following  contractual
obligations:  License  Agreements,  Customer  Support  Agreements,  and  certain
contractual  obligations  related to ongoing  Service  Requests.  USTI's initial
decision  to  infuse  the  company  with the new  technology,  specifically  the
Progress and UNIX based InterFundTM product family, was based on the belief that
USTI needed a new  technology  direction to provide an alternative to the AS/400
based Legacy product family that had come under increasing competition from more
"Open"  systems.  Sales of this product family did not reach the required levels
in the 1994  agreement with NCS. The Company made the decision not to prepay the
stipulated  minimum  royalty  amounts as provided for in the agreement to retain
the InterFundTM product line. According to the 1994 agreement, in the event that
royalty payments, based on sales or prepayment, did not equal certain stipulated
minimum annual amounts,  NCS had the right to reacquire the InterFundTM  product
line.



                                        2
<PAGE>

Narrative Description of Business

Products

     The software applications offered by the Company consist of a comprehensive
line of management information systems which were developed to specifically meet
the  unique   requirements  of  local   governmental   entities.   The  software
applications  of the  Company  are offered  through  its  LegacyTM,  QuestTM and
asystTM product lines.  The LegacyTM  product line operates on the IBM mid-range
computer systems, including the AS/400 and the Advanced/36.  The QuestTM product
line operates in a single user or small network PC DOS environment.  The asystTM
product  line  operates  in a single  user or network  Windows  environment.  An
initial software sale typically averages between $1,500 and $40,000. The cost of
the related hardware varies  depending on the type of machine  purchased as well
as the amount of memory  capacity,  peripheral  equipment and optional  features
obtained on the machine.

         The Company markets its software packages in the following four product
application groups.

    Financial Systems

     This group  includes  software  modules in the areas of general  ledger and
budgetary accounting,  budget preparation,  accounts payable,  payroll, accounts
receivable,   centralized  cash  receipts,  purchase  orders  and  comprehensive
financial report writer.

    Public Works

     This group includes  software  modules in the areas of utility  billing and
collections, hand held meter reading and bank drafting.

    General Administration

     This group  includes  software  modules in the areas of building  licenses,
animal licenses, business licenses and code enforcement.

    Public Safety

     This  group  includes  software  modules  in the  areas of  computer  aided
dispatch, law enforcement records management, jail management, emergency medical
services billing, court administration and alarm billing.

     The Company has completed the development of several new software  products
which significantly  enhance the  competitiveness of its comprehensive  software
offering.  These  products  are  marketed  under the asystTM  brand  name,  were
developed as Windows  applications to "look and work like Microsoft Office", and
include a Fund Accounting  system,  a Utility Billing system and a Public Safety
system.  The Fund  accounting  system includes  General  Ledger,  Budget XLence,
Report XLence,  Accounts Payable,  Accounts  Receivable,  Purchase Orders,  Cash
Receipts  and  Payroll  module.  The Utility  Billing  system  includes  Utility
Billing,  Meter Reader  Interface,  Bank Drafts and Budget Billing modules.  The
initial Public Safety system modules,  released during 1998, includes Mater Name
index, Calls for Service,  Offense Reports and UCR Reports modules.  The Company
is currently  developing  additional  modules for the asystTM General Government
product line,  including  Business and Animal  Licenses,  Code  Enforcement  and
Building  Permits  modules,  to add to its  existing  Fund  Accounting,  Utility
Billing and Public  Safety  offerings  in the Windows  environment.  The Company
anticipates  that the  initial  packages  will be released in the 2nd quarter of
1999.  The Company  derives its revenue  principally  from (i)  licensing of its
software  packages,  (ii)  installation,  training and customer  support,  (iii)
maintenance agreements, and (iv) equipment and supplies sales.

                                        3
<PAGE>

    Software Packages

     The Company licenses its software  packages under a perpetual  nonexclusive
and nontransferable license agreement.


    Installation, Training and Customer Support

     The Company provides services related to the training and implementation of
the software  packages to its  customers.  These  services are  delivered at the
customer site, conducted in a classroom setting at the company's headquarters or
as "remote"  training through  interactive  computer-to-computer  hookup. In the
event that the customer requests additional functions from the product which are
not standard in the software  packages,  the Company provides custom programming
services for these modifications.

    Maintenance Agreements

     The Company offers maintenance agreements in conjunction with the licensing
of its software packages.  These agreements provide telephone support,  software
product  enhancements,  error  corrections,   upgrades  and  remote  diagnostics
support.

    Equipment and Supplies Sales

     The Company sells PC's and hand-held  computers as well as certain computer
forms that are used in conjunction with the Company's products.

     For the year ended December 31, 1998, the Company  generated  approximately
26% of its revenue from the sale of software, 6% from installation, training and
customer  support,  53% from software  maintenance,  and 15% from  equipment and
supplies sales.

Marketing

     The  Company  markets its  products on a  nationwide  basis.  Marketing  is
conducted  through its  full-time  sales  staff in Dallas,  Texas as well as the
Company's full-time sales representative located in Minneapolis, Minnesota.

     The  Company's   customers  are  primarily   municipal   governments   with
populations between 1,000 and 100,000,  county governments,  police departments,
emergency  medical services  providers and municipal court systems.  The Company
currently  has  approximately  1,600  customer  installations  nationwide.  USTI
proposes to sell computer equipment when selling its software,  but the customer
may obtain their computer  equipment from a hardware  manufacturer or dealer and
then purchase one or more software modules from the Company.

     The typical  purchaser's  representative is a City Manager,  Administrative
Manager,  Controller or Director of Finance. Customer leads are established from
customer  referrals,  direct mail  campaigns  and  attendance  at  national  and
regional  trade  shows.  In  addition,  the names and  addresses  of target city
governments are readily available from directory sources. The Company also holds
an annual  users'  meeting in Dallas,  Texas.  The two-day  meeting is typically
attended by  approximately  100 current and prospective  users. In the past, new
business has been generated from current  customers who have upgraded systems by
purchasing new modules.


                                        4
<PAGE>

     Approximately  32% of the  Company's  customers  are  located  in Texas and
Minnesota, and the remaining customers are located in various states nationwide.

Competition

     The Company is aware of sizable,  nationally prominent  competitors,  which
market  products  that  are  similar  to those of the  Company.  Numerous  other
competitors  are  small,   local  vendors  who  often  do  not  market  standard
application  packages.  Management believes that the comprehensive nature of its
product offering,  including the uniqueness of the new asystTM product line, has
a positive impact on its competitive status.

Employees

     The Company presently has 16 full-time  employees,  including its executive
officers.  In addition,  from time to time, the Company  engages the services of
consultants and part-time employees.

Research and Development

     During 1998, the Company  incurred  approximately  $100,000 in research and
development costs related to the development of its asystTM product line.

Patents, Copyrights, Trademarks and Royalties

     The Company  does not believe that its  products  are  patentable,  and, to
date, has not registered any copyright with respect to its products. The Company
believes that all of its products are of a proprietary  nature and the Company's
licensing  arrangements  prohibit  disclosure  of the  program by the  customer.
However,  there can be no assurance that the Company's  software is incapable of
being  duplicated  or that the Company  will be  successful  in  discovering  or
preventing any such duplication.

     The Company  entered into royalty  agreements as part of the sale of assets
to NCS on February  21,  1997.  In  addition,  the Company is a party to certain
royalty agreements, which, individually, and in the aggregate, have not required
the payment of material  amounts.  Under  these  agreements,  the Company is the
licensee of certain  software  systems,  which it markets as part of its product
line.

                                        5
<PAGE>

ITEM 2.           PROPERTIES

     The Company leases its 5,033 square foot facility at 1850 Crown Road, Suite
1109,  Dallas,  Texas,  75234.  The lease for this  facility was entered into on
September  30, 1997 for a sixty-two  month lease term  commencing on November 1,
1997 and expiring on December 31, 2002.

ITEM 3.           LEGAL PROCEEDINGS


The Company is involved in the following legal proceedings:

     On December 10, 1993,  Plaintiff  County of Essex filed suit against  USTI,
USTEI, New Jersey Municipal Data Management ("MDM") and MDM's surety in Superior
Court of New Jersey. The suit is based on allegations that MDM failed to perform
its  obligations  related to software  and related  services  sold by MDM to the
County of Essex,  that USTI and USTEI succeeded to the obligations of MDM by the
acquisition  of the assets of MDM,  and that there was a failure to comply  with
the New Jersey bulk sales act in USTEI's  acquisition of the assets of MDM. USTI
and USTEI did not assume any  obligations  or liabilities of MDM with respect to
the County of Essex in the acquisition transaction. USTEI did agree to pay up to
$50,000  in defense  costs of MDM with  respect  to such  claim.  USTI and USTEI
answered each of such lawsuits,  denying all material  allegations  therein, and
intend to vigorously defend such  allegations.  On March 20, 1996, the County of
Essex's  claim  that  USTI and USTEI  succeeded  to the  obligations  of MDM was
dismissed with prejudice. Subsequently, the Court found that the New Jersey bulk
sales  act was not  complied  with  but has made no  finding  on the  amount  of
damages,  if any,  with  respect  thereto.  The  Company  has filed  third party
complaints against counsel representing the parties to the transaction for their
failure to have caused the bulk sales act to be complied with. Additionally,  on
April 10,  1997,  the  County of Essex  obtained  a  judgement  against  MDM for
approximately  $600,000  on its  claim for  failure  of  performance  by MDM and
recovered  $248,277  from the surety and the surety  succeeded  to the County of
Essex's  claim  against MDM,  USTI and USTEI in such amount.  The  litigation is
still in the discovery  phase.  As stated above,  USTI and USTEI have denied all
material allegations of the County of Essex and intend to vigorously defend such
litigation and pursue its third party claims.

     Occasionally the Company is also a defendant in various legal actions which
arise out of the normal  course of its business.  In the opinion of  management,
none of these actions are expected to have a material effect on the consolidated
results of operations or financial position of the Company.


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

         No matters were submitted to a vote of the Company's  security  holders
during the fourth quarter of 1998.


                                        6
<PAGE>

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
        SHAREHOLDER MATTERS

     The  Company's  common  stock is traded  over-the-counter  on the  National
Association of Securities Dealers, Inc.  Over-The-Counter Bulletin Board System.
The quotations shown below represent prices among the dealers and do not include
retail mark-ups,  mark-downs,  or commissions,  and do not necessarily represent
actual transactions.
<TABLE>
<S>               <C>                    <C>                <C>

                                           High                Low
                  Quarter Ended          Bid Price          Bid Price

                  March 31, 1997           $0.03              $0.03
                  June 30, 1997            $0.03              $0.03
                  September 30, 1997       $0.03              $0.02
                  December 31, 1997        $0.02              $0.01
                  March 31, 1998           $0.01              $0.01
                  June 30, 1998            $0.11              $0.01
                  September 30, 1998       $0.06              $0.02
                  December 31, 1998        $0.03              $0.02

</TABLE>

     As of March 22, 1999,  the Company had 487  shareholders  of record and its
common  stock had a closing  bid price of $0.075  per share and a closing  asked
price of $0.10 per share


     Holders  of the  Company's  common  stock  are  entitled  to  receive  such
dividends as may be declared by the Company's  Board of Directors.  However,  no
dividends  on common  stock  have ever  been paid by the  Company,  nor does the
Company  anticipate  that dividends will be paid in the foreseeable  future.  In
addition,  payment of  dividends  to holders of the  Company's  common stock are
restricted pursuant to the terms of outstanding shares of preferred stock.


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

Results of Operations

     The  Company  derives  its  revenue  from  the  licensing  of its  software
packages,  installation,   training  and  customer  modifications,   maintenance
agreements  and sale of equipment and supplies.  Results of operations  for 1998
include  revenues of $1,856,973  resulting in net income of $309,288 as compared
to revenues of $1,641,370 and a net loss of $270,554 in 1997.

     During  1998,  the  Company  continued  to  adjust  its  expenses  based on
anticipated  levels of revenue  resulting  in  decreased  expenses  and improved
results of  operations  as  compared  to 1997.  The  Company is  continuing  the
development  of additional  modules for its asystTM  product line.  The asyst TM
product line currently  includes a Fund  Accounting  system,  a Utility  Billing
system and a Public Safety system.  The Fund Accounting  system includes General
Ledger,  Budget XLence,  Report XLence,  Accounts Payable,  Accounts Receivable,
Purchase Orders,  Cash Receipts and Payroll modules.  The Utility Billing system
includes Utility Billing, Meter Reader Interface, Bank Drafts and Budget Billing
modules.  The initial  Public  Safety  system  modules,  released  during  1998,
includes Mater Name Index,  Calls for Service,  Offense  Reports and UCR Reports
modules. The Company is currently developing  additional modules for the asystTM
General  Government product line,  including Business and Animal Licenses,  Code
Enforcement  and  Building  Permits  modules,   to  add  to  its  existing  Fund
Accounting,   Utility  Billing  and  Public  Safety  offerings  in  the  Windows
environment.

                                       7
<PAGE>


     The Company  anticipates  that the initial packages will be released in the
2nd quarter of 1999. The Company  believes that its asystTM  product line offers
its current and prospective customers an attractive software solution, both from
a financial and functionality standpoint and follows the trend of clients moving
to Windows based PC networks. This trend resulted in a decrease in the volume of
licensing  activity of the  Company's DOS (QuestTM)  products  during 1998.  The
Company is  offering a Year 2000  compliant  version of certain  modules and has
obtained commitments for this version of the system. The Company shipped certain
modules of the Year 2000 version of the LegacyTM  products in the 4th quarter of
1998 and will ship the balance of the Year 2000 version of the LegacyTM products
in the first half of 1999.

     The  following  table sets forth,  for the period  indicated,  the relative
percentage which certain items in the  Consolidated  Statements of Operations of
the Company  bear as a percent of total  revenues and the  percentage  change in
those items from period to period.
<TABLE>
<S>                                       <C>          <C>


                                        Percentage of Revenues
                                        Year Ended December 31,
                                          1998        1997            
                                          ----        ----

Revenue
Software Packages                          26%         15%
Installation, training and
  customer support                          6%          6%
Maintenance                                53%         66%
Equipment and other                        15%         13%
                                          ----        ----
                                          100%        100%
Costs and expenses
Salaries                                   47%         58%
Other general administrative
  and selling expense                      23%         29%     
Depreciation and amortization               7%         21%     
Commissions                                 3%          2%
Cost of equipment sold                      8%          6%
                                          ----        ----
Total costs and expenses                   87%        116%

Operating income (loss)                    13%        (16%)

Non-operating income (expense)              1%          -    

Income(loss) before 
  extraordinary items                      14%        (16%)

Extraordinary item                          3%          -

Net income (loss)                          17%        (16%)

</TABLE>

                                       8
<PAGE>


1998 vs 1997

     The Company's  total revenue  increased 13% for the year ended December 31,
1998 from  $1,641,370  in 1997 to  $1,856,973  in 1998.  Software  license  fees
increased  93% in 1998 due,  in part,  to an increase  in the  licensing  of the
Company's  asystTM products and the Year 2000 compliant  version of its LegacyTM
products.  The  Company  continues  to market its  products  toward  prospective
customers  which it  believes  are best suited for its  products.  Installation,
training and customer support revenue  increased 12% in 1998 due to an increased
demand from customers for these types of services. Maintenance revenue decreased
8% in 1998,  due, in part, to a decrease in the number of the Company's  QuestTM
and LegacyTM  customers that elected to select maintenance  coverage.  Equipment
sales and  supplies  increased  25% as a result of an  increase in the volume of
computer equipment sold in conjunction with its software products.

     Total costs and expenses decreased 16% for the year ended December 31, 1998
from  $1,908,681 in 1997 to $1,608,003 in 1998.  Salary expense  decreased 9% in
1998 as a result of continued efforts to align staffing with anticipated  levels
of revenue.  Other general,  administrative and selling expense decreased 12% in
1998  as  a  result  of  continued  efforts  to  control  and  reduce  expenses.
Depreciation  and  amortization  expense  decreased  18% in 1998  from 1997 as a
result  of  many  previously   purchased  assets  becoming  fully   depreciated.
Commission expenses increased 61% in 1998 as a result of the increased licensing
of the Company's software products in 1998. Cost of equipment sold increased 43%
in 1998 as a result of increased sales of computer equipment in 1998


Liquidity and Capital Resources

     The Company  had net cash  provided by  operating  activities  of $ 294,909
during  1998 as compared to  $188,890  provided in 1997.  This  increase in cash
provided  was  primarily  the  result  of  the  improvement  in the  results  of
operations  in 1998 as compared to 1997.  Net cash of $21,  925 was  utilized in
1998 for the  purchase of equipment  necessary  for the sales,  development  and
support of the new asystTM product line

     Management believes that the effect of its continued focus on adjusting the
Company's  expenses  to the level of  revenue,  has  resulted  in a  significant
increase in the Company's  current cash balances and these cash balances will be
adequate to meet its working capital  requirements in the near future.  However,
if the Company is not able to continue  to generate  positive  cash flows in the
future by  achieving a level of sales  adequate to support  the  Company's  cost
structure,  additional  financing  may be  required,  of which  there  can be no
assurance.

     The Company had a $50,000 note payable to Ventana Growth Fund  ("Ventana"),
a related  party.  The maturity date of the note was extended from September 30,
1996 to  September  30, 1998.  When these notes became due in 1998,  the Company
offered the note holders the option of extending each note for an additional two
year period or receiving a partial  payment of the balance due in full and final
settlement of the  principal and interest due to each note holder.  Certain note
holders  opted to  receive  a  partial  payment  totaling  $5,500 in lieu of the
balance due of $22,917 on the note and $36,296 of accrued interest  resulting in
a gain on debt  forgiveness  of $53,713 in 1998. As of December 31, 1998,  there
was  $27,083  due  to  the  remaining  note  holders  and  $43,457  of  interest
outstanding on these notes.

     The Company is  currently in arrears in the payment of dividends to holders
of its preferred  stock.  As of December 31, 1998,  dividends were in arrears on
the  Series B  preferred  stock  in the  amount  of  $358,800,  on the  Series D
preferred stock in the amount of $310,685 and on Series E preferred stock in the
amount of $158,735.

                                        9
<PAGE>

Year 2000

     Until just a few years ago, most  computer  programs were written to define
an applicable  year by using two digits for the year instead of four. The effect
on a computer program that was written in such a way is to define a year that is
entered  with the two digits "00" as 1900  rather than 2000.  When the Year 2000
arrives,  any computer programs that are written in this manner will either have
to be modified to accept a date in the 21st century or the programs will have to
be  replaced.  This issue not only  effects  the  Company's  internal  automated
information  systems but also has an effect on the software products the Company
develops,  supports and markets to its customers.  The Company has evaluated the
computer  programs that is utilizes  internally for its information  systems and
has  determined  that  substantially  all of its systems are currently Year 2000
compliant.  The  Company's  asystTM  product  line is Year 2000  compliant.  The
Company's  customers that are utilizing its LegacyTM,  and QuestTM product lines
are being offered a Year 2000 compliant version of certain packages within these
product lines or are being encouraged to migrate to the Company's  products that
are Year 2000 compliant.  Based on currently available information,  the Company
does not  anticipate  that the costs to address  the issues  related to the Year
2000 will have a material adverse impact on the Company's  financial  condition,
results of operations or liquidity.

Forward-Looking Statements

     This report  contains  forward-looking  statements,  other than  historical
facts,  which  reflect the view of Company's  management  with respect to future
events.  Such  forward-looking  statements are based on assumptions  made by and
information currently available to the Company's management. Although management
believes that the expectations reflected in such forward-looking  statements are
reasonable,  it can give no assurance that such  expectations will prove to have
been  correct.  Important  factors  that could  cause  actual  results to differ
materially from such expectations  include,  without limitation,  the ability of
the Company i) to generate  levels of revenue and  adequate  cash flows from its
operations to support and maintain its current cost structure and ii) to develop
and deliver products that are  competitive,  accepted by its markets and are not
rendered  obsolete  by  changing  technology.   The  forward-looking  statements
contained  herein  reflect the current  views of the Company's  management  with
respect to future  events  and are  subject to these  factors  and other  risks,
uncertainties and assumptions relating to the operations,  results of operations
and  financial  position of the Company.  The Company  assumes no  obligation to
update the  forward-looking  statements or to update the reasons  actual results
could differ from those contemplated by such forward-looking statements.


                                       10

ITEM 7.           CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                 United Systems Technology, Inc. and Subsidiary
                   Index to Consolidated Financial Statements
                           And Supplementary Schedules

                                                                Pages

Report of Independent Certified Public Accountants              F-1

Consolidated Financial Statements

  Balance sheets as of December 31, 1998 and 1997               F-2
  Statements of operations for the years
   ended December 31, 1998 and 1997                             F-3
  Statements of stockholders' equity for the years
   ended December 31, 1998 and 1997                             F-4
  Statements of cash flows for the years
   ended December 31, 1998 and 1997                             F-5
  Notes to Consolidated Financial Statements                    F-6 to F-17



                                       11

<PAGE>

               Report of Independent Certified Public Accountants



Board of  Directors and Stockholders
United Systems Technology, Inc.


     We have  audited the  accompanying  consolidated  balance  sheets of United
Systems  Technology,  Inc. and  subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity 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  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  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the consolidated financial position of United Systems
Technology,  Inc.  and  subsidiary  as of December  31,  1998 and 1997,  and the
consolidated  results of their operations and their  consolidated cash flows for
the  years  then  ended,  in  conformity  with  generally  accepted   accounting
principles.


/s/ GRANT THORNTON LLP

Dallas, Texas
March 16, 1999


                                       F-1
<PAGE>

                 United Systems Technology, Inc. and Subsidiary
                           Consolidated Balance Sheets
                           December 31, 1998 and 1997
<TABLE>
<S>                                                     <C>          <C>

  Assets                                                 1998         1997
                                                         ====         ====
Current Assets
 Cash and cash equivalents                           $  478,008   $  204,807
 Trade accounts receivable, less allowance
  for doubtful accounts of $25,000 in 1998
  and $40,000 in 1997                                   329,708      216,693
 Prepaid expenses and other                                -           6,165 
                                                      ---------    ---------
Total current assets                                    807,716      427,665
                                                      ---------    ---------

Property and equipment at cost, net                      65,329       85,940
Goodwill, net                                           413,653      481,605
Purchased software, net                                  33,301       53,056
Deposits and other                                        5,139        4,999
                                                      ---------    ---------
                                                        517,422      625,600
                                                      ---------    ---------

     Total Assets                                    $1,325,138   $1,053,265
                                                      =========    =========

  Liabilities and Stockholders' Equity
Current Liabilities
 Notes payable - related party                       $     -      $   50,000
 Current portion of capital lease obligations             2,448        4,484 
 Trade accounts payable, including $113,200
  payable to a related party in 1998 and 1997           182,366      177,316
 Accrued payroll                                        110,806       24,485
 Accrued interest - related party                        43,457       76,111 
 Other accrued expenses                                  83,241       98,868
 Deferred revenue                                       701,180      779,485
                                                      ---------    ---------
 Total current liabilities                            1,123,498    1,210,749

Notes payable - related party                            27,083         -
Capital lease obligations, net of current portion          -           2,247
                                                      ---------    ---------

     Total liabilities                               $1,150,581   $1,212,996
                                                      ---------    ---------

Commitments and contingencies                              -            -

  Stockholders' Equity
Preferred stock, convertible, voting, cumulative,
 par value $.10 per share; authorized 5,000,000
 shares; issued and outstanding, 500,000 shares
 of Series B, 500,000 shares of Series D,and
 300,000 shares of Series E, aggregate liquidating
 preference of $1,300,000 ($1.00 per share)             130,000      130,000
Common stock, par value $.10 per share;
 authorized 100,000,000 shares; issued and
 outstanding 48,178,043 and 43,178,043 shares
 in 1998 and 1997, respectively                       4,817,804    4,317,804
Additional paid-in capital                            3,333,561    3,768,561
Accumulated deficit                                  (8,066,808)  (8,376,096)
                                                      ---------    ---------
                                                        214,557     (159,731)
Less stock purchase note receivable                      40,000         -
                                                      ---------    ---------
     Total stockholders' equity (deficit)               174,557     (159,731)
                                                      ---------    ---------
     Total liabilities and stockholders' equity      $1,325,138   $1,053,265
                                                      =========    =========
</TABLE>

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


                                       F-2
<PAGE>

                 United Systems Technology, Inc. and Subsidiary
                      Consolidated Statements of Operations
                        For The Years Ended December 31,
<TABLE>
<S>                                                     <C>         <C>

                                                         1998         1997
                                                         ====         ====
Revenue
 Software packages                                   $  482,922   $  250,524
 Installation, training and customer support            109,527       97,633
 Maintenance                                            992,005    1,080,084
 Equipment sales and supplies                           260,139      208,677
 Other                                                   12,380        4,452
                                                      ---------    ---------
                                                      1,856,973    1,641,370
                                                      ---------    ---------
Costs and expenses
 Salaries                                               870,539      959,416
 Other general, administrative and selling expense      363,777      415,085
 Depreciation and amortization                          130,243      159,579
 Rent                                                    54,878       54,523
 Commissions                                             48,971       30,323
 Cost of equipment sold                                 139,595       97,555
 Impairment of goodwill                                    -         192,200
                                                      ---------    ---------
                                                      1,608,003    1,908,681
                                                      ---------    ---------
   Operating income (loss)                              248,970     (267,311)
                                                      ---------    ---------
Nonoperating (expense) income
 Interest expense                                        (4,057)      (5,342)
 Interest income                                         10,662        2,099
                                                      ---------    ---------
                                                          6,605       (3,243)
                                                      ---------    ---------

  Net income (loss) before extraordinary item           255,575     (270,554)

Extraordinary gain on settlement of debt                 53,713         -
                                                      ---------    ---------

  Net income (loss)                                     309,288     (270,554)

Preferred stock dividend requirement                    (91,000)     (91,000)
                                                      ---------    ---------

Income (loss) allocable to common shareholders       $  218,288   $ (361,554)
                                                      =========    =========

Net income (loss) per common share before
 extraordinary item                                  $      NIL   $    (0.01)
Extraordinary gain on settlement of debt                    NIL          - 
                                                      ---------    ---------
Net income (loss) per common share after
 extraordinary item                                  $      NIL   $    (0.01)
                                                      =========    =========

Weighted average number of common 
 shares outstanding                                  44,630,098   43,213,935
                                                     ==========   ==========
</TABLE>
 
    The accompanying notes are an integral part of the financial statements.

                                       F-3
<PAGE>

                 United Systems Technology, Inc. and Subsidiary
                 Consolidated Statements of Stockholders' Equity
                        For the Years Ended December 31,
<TABLE>
<S>             <C>       <C>         <C>        <C>          <C>        <C>

                                                               Stock
                                     Additional               Purchase
              Capital Stock Issued    Paid-In   Accumulated     Note 
              Preferred    Common     Capital     Deficit    Receivable  Total
              =========   ========   =========   =========   ==========  =====
Balance Jan 1,
 1997         $ 205,000  $3,796,976 $4,214,389 $(8,105,542) $     -   $ 110,823

Conversion of
 Series C
 preferred
 stock to 
 common stock   (75,000)    530,828   (455,828)                            -
Acquisition and
 retirement of
 of 100,000 
 shares of
 common stock 
 held as
 collateral for
 note receivable            (10,000)    10,000                             -
Net loss                                          (270,554)            (270,554)
               --------   ---------  ---------  ----------   --------  --------
Balance,
 December 31,
 1997         $ 130,000  $4,317,804 $3,768,561 $(8,376,096) $     -   $(159,731)

Sale of
 5,000,000 
 shares of
 common stock               500,000   (450,000)              (40,000)    10,000
Recognition of
 deferred
 compensation on 
 sale of stock                          15,000                           15,000
Net income                                         309,288              309,288
               --------   ---------  ---------  ----------   --------  --------
Balance, 
 December 31,
 1998         $ 130,000  $4,817,804 $3,333,561 $(8,066,808) $(40,000) $ 174,557
               ========   =========  =========  ==========   ========  ========
</TABLE>

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

                                       F-4
<PAGE>

                 United Systems Technology, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
                        For the Years Ended December 31,
<TABLE>
<S>                                                    <C>          <C>


                                                        1998         1997
                                                        ====         ====
Cash flows in operating activities:

 Net income (loss)                                   $ 309,288    $(270,554)
 Adjustments to reconcile net loss to net
  cash provided by operating activities:
   Depreciation and amortization                       130,243      159,579
   Recognition of deferred compensation costs on
    employee stock purchase                             15,000         -    
   Impairment of goodwill                                 -         192,200 
   Extraordinary gain on settlement of debt            (53,713)        -

   Change in operating assets and liabilities:
    Trade accounts receivable                         (113,015)      36,999
    Prepaid expenses                                     6,165       (5,886) 
    Deposits and other                                    (140)      22,943 
    Trade accounts payable                               5,050      (44,579) 
    Accrued expenses                                    74,336      (16,500) 
    Deferred revenue                                   (78,305)     114,688
                                                      ---------    ---------
Net cash provided by operating activities            $ 294,909    $ 188,890
                                                      ---------    ---------

Cash flows from investing activities:
 Property and equipment additions                      (21,925)     (43,065)
                                                      --------     --------

Cash flows from financing activities:
 Sale of common stock                                   10,000         - 
 Payment of notes payable                               (5,500)        - 
 Payments on capital lease obligations                  (4,283)      (8,270)
                                                      --------     --------
Net cash provided by (used in) financing activities        217       (8,270)
                                                      --------     --------

Increase in cash and cash equivalents                  273,201      137,555
Cash and cash equivalents, beginning of year           204,807       67,252
                                                      --------     --------

Cash and cash equivalents, end of year               $ 478,008    $ 204,807
                                                      ========     ========
</TABLE>

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

                                       F-5
<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1997 and 1996


1.       Summary of Significant Accounting Policies:

         Nature of Operations

     The  Company is engaged  in the  business  of  developing,  supporting  and
marketing  computer software  products to county and local  governments  located
throughout the United States.

         Basis of Presentation

     The financial statements for the years ended December 31, 1998 and 1997 are
consolidated  and  include  the  accounts  of United  Systems  Technology,  Inc.
("USTI") and its wholly-owned  subsidiary,  United Systems Technology East, Inc.
("USTEI").  All  material  intercompany  transactions  and  balances  have  been
eliminated.

         Cash Equivalents

     The Company  considers  short-term  investments  purchased  with an initial
maturity of three months or less to be cash equivalents.

         Property and Equipment

     Property and equipment are recorded at cost.  Depreciation  of property and
equipment is computed using the  straight-line  method over the estimated useful
lives of such  property  and  equipment,  which  range from three to five years.
Gains and losses on the disposal of such assets are recognized as incurred.

         Software Development Costs

     The Company has  implemented and accounted for certain costs related to the
development of its computer  software  products in accordance  with Statement of
Financial  Accounting  Standards  No.  86,  "Accounting  for  Costs of  Computer
Software to be Sold,  Leased or Otherwise  Marketed" ("SFAS 86"). Under SFAS 86,
all costs  incurred to establish  the  technological  feasibility  of a computer
software  product are charged to  operations  as incurred.  After  technological
feasibility is established, costs of producing the computer software product are
capitalized until the product is available for general release to customers. The
capitalized  cost  of  internally  developed  software  is  amortized  over  its
estimated useful life,  generally five years, using the straight-line  method or
the ratio of current  revenues to current  and  anticipated  revenues  from such
software, whichever provides the greater amortization.


                                       F-6
<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

1.       Summary of Significant Accounting Policies (Cont'd.):

         Other Assets

     Goodwill  represents the excess of the total acquisition cost over the fair
value  of the net  assets  acquired  of  Municipal  Software  Consultants,  Inc.
("MSC"),  acquired in 1986 and QDS Acquisitions,  Inc. ("QDS") acquired in 1995.
The goodwill  resulting from the MSC  acquisition is being  amortized  using the
straight-line  method  over 20 years  from  date of  acquisition.  The  goodwill
resulting from the QDS acquisition is being  amortized  using the  straight-line
method  over 10 years from date of  acquisition.  Purchased  software  represent
assets acquired in the MDM and QDS  acquisitions,  and are being amortized using
the straight-line method over a five-year period.

         Revenue Recognition

     The  Company  recognizes  revenue  from the initial  license  for  computer
software  product  sales upon  delivery  of a  software  package.  Revenue  from
installation, training and customer support is recognized in the period in which
the  services  are  provided.  Revenue  from  contracts to maintain its computer
software products is recognized over the term of the contracts.

         Impairment of Long-Lived Assets

     The  Company  reviews  its  long-lived  assets  and  certain   identifiable
intangibles for impairment when events or changes in circumstances indicate that
the  carrying  amount  of the  assets  may  not  be  recoverable.  In  reviewing
recoverability,  the Company  estimates the future cash flows expected to result
from  using the  assets  and  eventually  disposing  of them.  If the sum of the
expected future cash flows  (undiscounted  and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.

         Earnings (Loss) Per Common Share

     The Company  computes basic  earnings  (loss) per common share based on the
weighted-average number of common shares outstanding. Diluted earnings per share
are computed based on the  weighted-average  number of common shares outstanding
plus the number of additional  common shares that would have been outstanding if
dilutive potential common shares had been issued. In 1997 and 1998 all potential
common shares were not dilutive..

         Financial Instruments

     The fair value of the Company's financial  instruments,  consisting of cash
and cash equivalents and debt, approximate their carrying values.

                                       F-7
<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

1.       Summary of Significant Accounting Policies (Cont'd.):

         Stock-Based Compensation

     Statement  of  Financial  Accounting  Standards  No.  123  "Accounting  for
Stock-Based Compensation" (SFAS 123) encourages, but does not require, companies
to record costs for stock-based  employee  compensation plans at fair value. The
Company has chosen to account for stock-based  compensation  using the intrinsic
value  method  prescribed  in  Accounting   Principles  Board  Opinions  No.  25
"Accounting for Stock Issued to Employees" and related  interpretations,  and to
provide the pro forma  disclosures as if the  requirements  of SFAS 123 had been
adopted.

         Use of Estimates

     In preparing  financial  statements in conformity  with generally  accepted
accounting principles,  management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent  asset and  liabilities  at the date of the financial  statements and
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

2.       Property and Equipment:

     Property  and  equipment  at December  31, 1998 and 1997  consisted  of the
following:
<TABLE>
<S>                                            <C>             <C>

                                                   1998           1997
                                                   ----           ----

         Leasehold improvements                $  64,772      $  63,772
         Furniture and fixtures                   40,655         39,248
         Equipment                               923,841        904,323
                                               ---------      ---------
                                               1,029,268      1,007,343
         Less accumulated depreciation
         and amortization                       (963,939)      (921,403)
                                               ---------      ---------
                                               $  65,329      $  85,940
                                               =========      =========
</TABLE>

3.       Other Assets:

     Other assets at December 31, 1998 and 1997 consisted of the following:

<TABLE>
<S>                             <C>              <C>               <C>

                                                Accumulated
                                   Cost         Amortization        Net
                                   ----         ------------        ---
         1998
         ----
         Goodwill             $ 1,692,128      $(1,278,475)     $  413,653
         Purchased software       592,700         (559,399)         33,301

         1997
         ----
         Goodwill              $1,692,128      $(1,210,523)     $  481,605
         Purchased software       592,700         (539,644)         53,056

</TABLE>


                                       F-8
<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

4.       Notes Payable:

     The Company had a note payable to a related  party in the amount of $50,000
at December 31, 1996.  This note  payable,  which is not  collateralized,  bears
interest at prime and was due September 30, 1998. The prime rate of interest was
7.75% at December 31, 1998 and 8.50% in 1997. The related party distributed this
note to the limited  partners in its fund,  under the same terms and conditions,
in 1997.  When these  notes  became due in 1998,  the  Company  offered the note
holders the option of extending  each note for an additional  two year period or
receive a partial payment of the balance due in full and final settlement of the
principal  and interest due to each note holder.  Certain note holders  opted to
receive a partial payment  totaling $5,500 in lieu of the balance due of $22,917
on the  note  and  $36,296  of  accrued  interest  resulting  in a gain  on debt
forgiveness  of  $53,713  in  1998.   There  was  $27,083  and  $50,000  balance
outstanding  on these notes at December 31, 1998 and 1997,  respectively.  There
was  $43,457  and  $76,111 of accrued  interest  outstanding  on these  notes at
December 31, 1998 and 1997,  respectively.  Interest  expense  incurred on these
notes was  $3,642 and $4,091 for the years  ended  December  31,  1998 and 1997,
respectively.


5.       Capital Stock:

         Common Stock

     In September  1998,  the Company sold  5,000,000  shares of common stock to
four members of management  at a price of $.01 per share.  The fair market value
of the common stock on the date of the transaction was $.022 per share.

         Preferred Stock

     The Company's  amended articles of incorporation  authorize the issuance of
5,000,000  shares of  preferred  stock with a par value of $.10 per  share.  The
preferred stock may be issued in series from time to time with such designation,
rights,  preferences  and limitations as the Board of Directors may determine by
resolution.  The Company has established four series of preferred stock:  Series
B, Series C, Series D and Series E.


     In June 1988, the Company established and issued 500,000 shares of Series B
preferred  stock.  The terms of the Series B preferred  stock provide for, among
other  things:  (i) a cumulative  dividend of $.07 per share per annum,  payable
quarterly,  which accrues day to day and which must be paid prior to the payment
of a dividend  to holders of the  Company's  common  stock;  (ii) a  liquidation
preference  of $1.00 per share plus accrued but unpaid  dividends  paid prior to
any distribution to holders of common stock and Series C preferred stock;  (iii)
the right to convert  each share plus accrued but unpaid  dividends  into common
stock; (iv) the right to vote on all matters submitted to a vote of stockholders
of the Company; and (v) redemption at the Company's option at a redemption price
of $1.00 per share plus all accrued  and unpaid  dividends.  As of December  31,
1998 the 500,000 outstanding shares of Series B preferred stock were entitled to
be  converted  into  4,293,995  shares of  common  stock  and were  entitled  to
4,293,995  votes  on all  matters  submitted  to a vote of  stockholders  of the
Company.  At December 31, 1998 cumulative  dividends of  approximately  $358,800
were in arrears.

                                       F-9
<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

Capital Stock (Cont'd.):


     In June 1988, the Company established and issued 750,000 shares of Series C
preferred  stock.  The terms of the Series C preferred  stock provide for, among
other  things:  (i) a  cumulative  dividend  of $0.018 per share per annum which
accrues  from  day to day and  which  must be paid  prior  to the  payment  of a
dividend to holders of the Company's common stock; (ii) a dividend equal to that
paid any other holders of common stock;  (iii) a liquidation  preference of $.20
per share plus accrued but unpaid  dividends paid prior to any  distribution  to
holders of common  stock;  (iv) the right to convert each share plus accrued but
unpaid  dividends  into  common  stock;  (v) the  right  to vote on all  matters
submitted  to a vote of  stockholders  of the  Company;  and (vi)  the  right to
approve any issuance of Series A preferred  stock prior to its issuance.  During
the first  quarter 1997,  Ventana  Growth Fund elected its option to convert its
750,000  shares of the  Company's  Series C  preferred  stock into shares of the
Company's  common  stock.  There  were  dividends  in  arrears  on the  Series C
preferred  stock in the  amount  of  $115,415,  which  were also  elected  to be
converted into common stock. A total of 5,308,280 shares of the Company's common
stock were issued as a result of this conversion.

     In February  1990,  the Company  established  and issued  500,000 shares of
Series D preferred stock. The terms of the Series D preferred stock provide for,
among  other  things:  (i) a  cumulative  dividend  of $.07 per share per annum,
payable quarterly,  which accrues day to day and which must be paid prior to the
payment  of a  dividend  to  holders  of  the  Company's  common  stock;  (ii) a
liquidation preference of $1.00 per share plus accrued but unpaid dividends paid
prior to any  distribution  to  holders of common  stock and Series C  preferred
stock;  (iii) the right to convert each share plus accrued but unpaid  dividends
into common stock;  (iv) the right to vote on all matters submitted to a vote of
stockholders  of the Company;  and (v)  redemption at the Company's  option at a
redemption price of $1.00 per share plus all accrued and unpaid dividends. As of
December  31, 1998 the 500,000  outstanding  shares of Series D preferred  stock
were  entitled to be converted  into  2,316,245  shares of common stock and were
entitled to 2,316,245  votes on all matters  submitted to a vote of stockholders
of the Company.  At December  31, 1998  cumulative  dividends  of  approximately
$310,685 were in arrears.

     In June 1991, the Company established and issued 300,000 shares of Series E
preferred  stock.  The terms of the Series E preferred  stock provide for, among
other  things:  (i) a cumulative  dividend of $.07 per share per annum,  payable
quarterly,  which accrues day to day and which must be paid prior to the payment
of the dividend to holders of the  Company's  common  stock;  (ii) a liquidation
preference  of $1.00 per share plus accrued but unpaid  dividends  paid prior to
any distribution to holders of common stock and Series C preferred stock;  (iii)
the right to convert  each share plus accrued but unpaid  dividends  into common
stock; (iv) the right to vote on all matters submitted to a vote of stockholders
of the Company; and (v) redemption at the Company's option at a redemption price
of $1.00 per share plus all accrued  and unpaid  dividends.  As of December  31,
1998 the 300,000 outstanding shares of Series E preferred stock were entitled to
be  converted  into  2,293,685  shares of  common  stock  and were  entitled  to
2,293,685  votes  on all  matters  submitted  to a vote of  stockholders  of the
Company. At December 31, 1998,  cumulative  dividends of approximately  $158,735
were in arrears.

                                      F-10

<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

6.       Commitments and Contingencies:

         Operating Leases

     The Company leases certain office  facilities under a non-cancelable  lease
agreement  which  expires  December 31, 2002.  The future  minimum  annual lease
payments  under this lease are $49,070 from 1999 through 2002.  Rent expense was
$54,878 and $54,445 in 1998 and 1997, respectively.

         Legal Proceedings

         The Company is involved in the following legal proceedings:

     On December 10, 1993,  Plaintiff  County of Essex filed suit against  USTI,
USTEI, New Jersey Municipal Data Management ("MDM") and MDM's surety in Superior
Court of New Jersey. The suit is based on allegations that MDM failed to perform
its  obligations  related to software  and related  services  sold by MDM to the
County of Essex,  that USTI and USTEI succeeded to the obligations of MDM by the
acquisition  of the assets of MDM,  and that there was a failure to comply  with
the New Jersey bulk sales act in USTEI's  acquisition of the assets of MDM. USTI
and USTEI did not assume any  obligations  or liabilities of MDM with respect to
the County of Essex in the acquisition transaction. USTEI did agree to pay up to
$50,000  in defense  costs of MDM with  respect  to such  claim.  USTI and USTEI
answered each of such lawsuits,  denying all material  allegations  therein, and
intend to vigorously defend such  allegations.  On March 20, 1996, the County of
Essex's  claim  that  USTI and USTEI  succeeded  to the  obligations  of MDM was
dismissed with prejudice. Subsequently, the Court found that the New Jersey bulk
sales  act was not  complied  with  but has made no  finding  on the  amount  of
damages,  if any,  with  respect  thereto.  The  Company  has filed  third party
complaints against counsel representing the parties to the transaction for their
failure to have caused the bulk sales act to be complied with. Additionally,  on
April 10,  1997,  the  County of Essex  obtained  a  judgement  against  MDM for
approximately  $600,000  on its  claim for  failure  of  performance  by MDM and
recovered  $248,277  from the surety and the surety  succeeded  to the County of
Essex's  claim  against MDM,  USTI and USTEI in such amount.  The  litigation is
still in the discovery  phase.  As stated above,  USTI and USTEI have denied all
material allegations of the County of Essex and intend to vigorously defend such
litigation and pursue its third party claims.

     The Company is also a defendant in various legal  actions,  which arose out
of the normal  course of its  business.  In the opinion of  management,  none of
these actions are expected to have a material effect on the consolidated results
of operations or financial position of the Company.


                                      F-11
<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

7.       Common Stock Options and Warrants:

         Stock Options

     In September 1986, the Board of Directors  approved the adoption of a stock
option plan (the "Plan"),  whereby  12,000,000  shares of the  Company's  common
stock are reserved for options to be granted to employees  and  directors at the
discretion of the Board of Directors.  The exercise  price shall be at a minimum
of 100% of the fair market value of the stock at the time the option is granted.
Unless otherwise specified,  the Plan allows for the options to expire ten years
from the date of grant and may not be  exercised  during  the  initial  one-year
period from date of grant.

     Compensation  costs for stock  options  granted to employees is measured as
the excess,  if any, of the quoted  market price of the  Company's  stock at the
date of grant over the amount an employee must pay to acquire the stock.  If the
Company recognized  compensation  expense based upon the fair value at the grant
date for options under the Plan, the Company's 1998 and 1997 net income and loss
and net income and loss per common  share would have  increased to the pro forma
amounts indicated as follows:
<TABLE>
<S>                                                 <C>           <C>

                                                     1998           1997
                                                     ----           ----
 Net income (loss) allocable to common shareholders

                        As reported              $  218,288     $(361,554)
                        Pro forma                $  159,476     $(411,929)

 Net income (loss) per common share

                        As reported              $      NIL     $   (0.01)
                        Pro forma                $      NIL     $   (0.01)

</TABLE>


     The fair value of these  options was  estimated  at the date of grant using
the  Black-Scholes  option  pricing  model with the  following  weighted-average
assumptions,  expected  volatility  of 415% in 1997;  risk free interest rate of
6.32% in 1997; no dividend yield; and expected lives of 5 years.

     The pro forma amounts presented are not  representative of the amounts that
will be disclosed  in the future  because they do not take into effect pro forma
expenses related to grants before 1996.

                                      F-12

<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

7.       Common Stock Options and Warrants (Cont'd.):

     Additional  information with respect to options outstanding at December 31,
1998,  and the changes for each of the two years in the period then ended was as
follows:
<TABLE>
<S>                                               <C>           <C> 
                                                        1998
                                                        ----
                                                              Weighted
                                                               Average
                                                              Exercise
                                                  Shares       Price
                                                  ------      --------
      Outstanding at beginning of year          7,890,000       $.04
      Granted                                        -            -
      Forfeited                                   (37,500)       .05
                                                ---------        ---
      Outstanding at end of year                7,852,500       $.04
                                                ---------        ---
      
      Options exercisable at December 31, 1998  5,330,625       $.04
                                                ---------        ---
                                             
                                                        1997
                                                        ----      
                                                              Weighted
                                                               Average
                                                              Exercise
                                                  Shares       Price
                                                  ------      --------
      Outstanding at beginning of year          5,822,500       $.04
      Granted                                   2,250,000        .03
      Forfeited                                  (182,500)       .16
                                                ---------        ---
      Outstanding at end of year                7,890,000       $.04
                                                ---------        ---

      Options exercisable at December 31, 1997  2,952,500       $.04
                                                ---------        ---
    

      Weighted average fair value per share of
       options granted during 1997                              $.03
                                                                 ---
</TABLE>

     Information  about  stock  options  outstanding  at  December  31,  1998 is
summarized  as follows: 

<TABLE>
<S>  <C>                       <C>             <C>                <C>

                                          Options  Outstanding
                                          --------------------
                                           Weighted  Average
                                 Number       Remaining       Weighted Average 
 Range of Exercise Prices     Outstanding  Contractual Life    Exercise Price 
 ------------------------     -----------  ----------------   ---------------
       $.01 to $.05            6,847,500       2.5 years            $.03
       $.06 to $.10            1,005,000       2.5 years            $.06
                               ---------
                               7,852,500
                               ---------
</TABLE>

                                      F-13

<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997

7.       Common Stock Options and Warrants (Cont'd.):
<TABLE>
<S>             <C>                          <C>                  <C>

                                          Options Exercisable
                                          -------------------
                                               Number         Weighted Average
         Range of Exercise Prices           Exercisable        Exercise Price
         ------------------------           -----------        --------------
                $.01 to $.05                 4,573,125             $.03
                $.06 to $.10                   757,500             $.06
                                             ---------
                                             5,330,625
                                             ---------
</TABLE>

         Stock Purchase Warrants

     As of December  31, 1998 common  stock  purchase  warrants  had been issued
primarily to officers,  directors and employees  including  warrants to purchase
1,000,000  shares at $.035 per share issued to a director of the Company for the
issuance  of a letter of  credit to  collateralize  debt of the  Company.  As of
December 31, 1998,  none of these  warrants  have been  exercised  and are fully
vested:

<TABLE>
<S>               <C>                   <C>             <C>


                  Expiration                                                              Exercise
                     Date               Price            Shares
                 ------------           -----            ------       
                 Feb 16, 1999           $.080          1,000,000
                 Aug  9, 1999           $.050          1,000,000
                 Aug  9, 2000           $.035          1,000,000
                 Sep 30, 2000           $.050            514,585
                                                       ---------
                                                       3,514,585
                                                       =========
</TABLE>


8.       Income Taxes:

     At December 31, 1998, the Company has net operating loss  carry-forwards of
approximately  $2,920,000.  These carry-forwards expire from period 1999 through
2011.  Additionally,  the Company has  approximately  $71,000 in unused  general
business tax credits  available to directly offset future income tax liabilities
and $624,000 in capital loss  carry-forwards  available to offset future capital
gains.

     For the years ended December 31, 1998 and 1997 the  difference  between the
effective  federal  income tax rate and the amounts  determined  by applying the
statutory  federal income tax rate to income before provision for federal income
tax was as follows:

                                      F-14
<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997


8.       Income Taxes (Cont'd.):
<TABLE>
<S>                                                     <C>          <C>
  
                                                        1998         1997
                                                       Amount       Amount
                                                       ------       ------
    Federal income tax benefit at statutory rate     $ 105,160    $(91,990)
    Amortization of goodwill                            23,100      88,450
    Expiration of net operating loss carryforward         -        323,670
    Other                                                6,440     (13,030)
    Change in valuation allowance                     (134,700)   (307,100)
                                                       -------     -------
                                                     $    -       $   -
                                                       =======     =======
</TABLE>


     Because of losses from operations in recent years, the Company has recorded
a valuation allowance equal to the net deferred tax asset.

     The  components  of the  deferred  tax accounts as of December 31, 1998 and
1997 are as follows:
<TABLE>
<S>                                                     <C>           <C>

                                                        1998          1997
                                                        ----          ----
    Deferred tax assets:
     Net operating losses carried forward           $  992,600    $1,046,600
     Capital losses carried forward                    212,300       212,300
     Deferred revenue                                  238,400       265,000
     Accounts payable and accrued expenses             117,500       126,000
     General business tax credits                       71,000        71,000
                                                     ---------     ---------
         Total deferred tax asset                   $1,631,800    $1,720,900
                                                     ---------     ---------
    Deferred tax liabilities:
     Accounts receivable                               126,000        73,700
     Purchased software, property and equipment         26,900        33,600
                                                     ---------     ---------

         Total deferred tax liability                  152,900       107,300
                                                     ---------     ---------
     Net deferred tax asset before
      valuation allowance                            1,478,900     1,613,600
 
     Less valuation allowance                        1,478,900     1,613,600
                                                     ---------     ---------

     Net deferred tax asset                         $     -       $     -
                                                      ---------     ---------                                                      
</TABLE>

                                      F-15
<PAGE>

                 UNITED SYSTEMS TECHNOLOGY, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997


9.       Employee Benefit Plans:

     Effective  January 16, 1992, the Company  established  the USTI  Employee's
401(k)  Profit  Sharing  Plan  and  Trust  (the  "Plan"),  which  is  a  defined
contribution  plan that covers  substantially  all  full-time  employees  of the
Company  eligible to  participate.  The Plan is subject to the provisions of the
Employee  Retirement  Income  Security  Act of 1974,  as amended  ("ERISA")  and
Section 401(k) of the Internal Revenue Code. The Company made  contributions for
the benefit of the  participants  in the Plan in the amount of $4,095 and $3,665
for the years ended December 31, 1998 and 1997, respectively.

10.      Fourth Quarter Adjustments:

     During the  fourth  quarter  of 1997,  the  Company  charged  earnings  for
impairment to goodwill of approximately $192,200.


                                      F-16

<PAGE>

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

     The Company has had no  disagreements  with its Independent  Accountants on
accounting and financial disclosure matters.


                                    PART III


ITEM 9.           DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  required  by this  item  is set  forth  in the  Company's
definitive  proxy  statement  relating to the Company's  1999 Annual  Meeting of
Shareholders   under  the  captions   "Election  of  Directors"  and  "Executive
Officers." Such information is incorporated herein by reference therefrom.


ITEM 10.          EXECUTIVE COMPENSATION

     The  information  required  by this  item  is set  forth  in the  Company's
definitive  proxy  statement  relating to the Company's  1999 Annual  Meeting of
Shareholders under the caption  "Management  Compensation."  Such information is
incorporated herein by reference therefrom.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required  by this  item  is set  forth  in the  Company's
definitive  proxy  statement  relating to the Company's  1999 Annual  Meeting of
Shareholders under the caption "Security  Ownership of Certain Beneficial Owners
and Management." Such information is incorporated herein by reference therefrom.


ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required  by this  item  is set  forth  in the  Company's
definitive  proxy  statement  relating to the Company's  1999 Annual  Meeting of
Shareholders under the caption "Certain Relationships and Related Transactions."
Such information is incorporated herein by reference therefrom.


                                       12

<PAGE>

                                     PART IV


ITEM 13.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      Documents filed as part of this Report:

         1.       Consolidated Financial Statements

     See  "Index  to  Consolidated   Financial   Statements  and   Supplementary
Schedules" under Item 8 of this Report.

         2.       Consolidated Financial Statements Schedules

     See  "Index  to  Consolidated   Financial   Statements  and   Supplementary
Schedules"  under Item 8 of this Report.  All other schedules have been omitted,
as the required  information is  inapplicable or the information is presented in
the financial statements or the notes thereto.

         3.       Exhibits

     The following  documents are filed as exhibits  herewith,  unless otherwise
specified, and are incorporated herein by this reference:



Exhibit
Number

 3.1   Amended and Restated  Articles of Incorporation of the Company as filed
       on  November  21,  1986  with  the  Secretary  of  State  of the  State
       of Iowa. (Incorporated  by  reference,  Registration  Statement  on Form
       S-1,  File  No.33-9574, Exhibit 3.11)

 3.2   Articles of Merger of Municipal Software Consultants, Inc. into United
       Systems Technology, Inc., as filed on December 31, 1986 with the 
       Secretaries of State of the States of Iowa and Texas.  (Incorporated by 
       reference, Annual Report on Form 10-K for the fiscal year ended December
       31, 1986, Exhibit 3.2)

 3.3   Statement Establishing and Designating Series B Preferred Stock of the
       Company, as filed on June 13, 1988 with the Secretary of State of the
       State of Iowa. (Incorporated by reference, Quarterly Report on For
       10-Q for the quarter ended June 30, 1988, Exhibit 4.1)

 3.4   Statement Establishing and Designating Series C Preferred Stock of the 
       Company, as filed on June 13, 1988 with the Secretary of State of the
       State of Iowa.(Incorporated by reference, Quarterly Report on Form 10-Q 
       for the quarter ended June 30, 1988, Exhibit 4.2)


                                       13
<PAGE>

Exhibit
Number

 3.5   Articles of Amendment to the Articles of Incorporation of the Company,
       as filed on July 15, 1988 with the Secretary of State of the State of
       Iowa.  (Incorporated by reference, Quarterly Report on Form 10-Q for
       the quarter ended June 30, 1988, Exhibit 3.1)

 3.6   By-Laws of the Company, as amended and currently in effect.(Incorporated
       by reference, Registration Statement on Form S-1, File No. 33-9574,
       Exhibit 3.6)

 3.7   Articles of Amendment to the Articles of Incorporation designating the 
       Series D Preferred Stock of the Company, as filed on February 23, 1990
       with the Iowa Secretary of State. (Incorporated by reference, Form 8-K 
       Current Report dated February 15, 1990, Exhibit 3.1)

 3.8   Statement establishing and designating Series E Preferred Stock of the
       Company, as filed on June 26, 1991, with the Secretary of the State of 
       Iowa. (Incorporated by referenced, Annual Report on Form 10-K for the 
       year ended December 31, 1991, Exhibit 3.8)

10.1   1986 Stock Option Plan.(Incorporated by reference, Registration 
       Statement on Form S-1, File No. 33-9574, Exhibit 10.9)

10.2   Agreement Regarding Preferred Stock Purchase, Warrant Purchase and Loan,
       dated October 16, 1986, by and between the Company and Ventana Growth
       Fund.  (Incorporated by reference, Registration Statement on Form S-1,
       File No. 33-9574, Exhibit 10.10)

10.3   Preferred Stock Purchase Agreement, dated October 28, 1986, by and
       between the Company and Ventana Growth Fund. (Incorporated by reference,
       Registration Statement on Form S-1, File No. 33-9574, Exhibit 10.17)

10.4   Promissory Note, dated October 16, 1986, in the amount of $150,000.00,
       from the Company to Ventana Growth Fund.  (Incorporated by reference, 
       Registration Statement on Form S-1, File No. 33-9574, Exhibit 10.19)

10.5   Stock Purchase Agreement, dated June 8, 1988, by and between the Company
       and Farm Bureau Mutual Insurance Company.  (Incorporated by reference,
       Quarterly Report on Form 10-Q for the quarter ended June 30, 1988, 
       Exhibit 19.1)

10.6   Preferred Stock Exchange Agreement, dated June 8, 1988, by and between
       the Company and Ventana Growth Fund.  (Incorporated by reference,
       Quarterly Report on Form 10-Q for the quarter ended June 30, 1988,
       Exhibit 19.2)

10.7   Purchase Agreement, dated February 15, 1990, by and between the Company
       and International Technology Group, Inc. (Incorporated by reference, 
       Form 8-K Current Report dated February 15, 1990, Exhibit 10.1)


                                       14
<PAGE>

Exhibit
Number

10.8   Assignment and Assumption Agreement, dated February 15, 1990, by and
       between the Company and International Technology Group, Inc. assigning
       all relevant rights and interest in a maintenance agreement with Grumman
       Systems Support Corp. to the Company.(Incorporated by reference,
       Form 8-K Current Report dated February 15, 1990, Exhibit 10.2)

10.9   Assignment and Assumption Agreement, dated February 15, 1990, by and 
       between the Company and International Technology Group, Inc. assigning 
       all rights and interest in a Technology Transfer Agreement with AM 
       Computer Corporation  and Microvote Partners, Ltd. to the Company.
      (Incorporated by reference, Form 8-K Current Report dated February 15,
       1990, Exhibit 10.3)

10.10  Assignment and Assumption Agreement, dated February 15, 1990, by and
       between the Company and International Technology Group, Inc. assigning
       all rights and interest in trademark INTEGRITY to the Company.
      (Incorporated by reference, Form 8-K Current Report dated February 15,
       1990, Exhibit 10.4)

10.11  Stock Purchase Agreement, dated February 14, 1990, by and between Farm
       Bureau Mutual Insurance Company and the Company.  (Incorporated by 
       reference, Form 8-K Current Report dated February 15, 1990, Exhibit 10.5)

10.12  Asset Purchase Agreement, dated June 10, 1991, by and between the
       Company and New Jersey Municipal Data Management, Inc. (Incorporated by
       reference Form 8-K Current Report, dated June 10, 1991)

10.13  Asset Purchase Agreement, dated December 22, 1994, by and between the 
       Company and Sequoia Pacific Systems, a division of Smurfit Packaging
       Corporation.  (Incorporated by reference Form 8-K Current Report, dated
       December 22, 1994, Exhibit 10.1)

10.14  Assignment and Assumption Agreement, dated December 22, 1994, by and
       between the Company and Sequoia Pacific Systems, a division of Smurfit
       Packaging Corporation.  (Incorporated by reference Form 8-K Current 
       Report, dated December 22, 1994, Exhibit 10.2)

10.15  Asset Purchase Agreement, dated October 17, 1994, by and between the
       Company and Noll Computer Systems, Inc.("NCS").  (Incorporated by 
       reference, Annual Report on Form 10-KSB for the year ended December 31,
       1994, Exhibit 10.15)

10.16  Asset Purchase Agreement, dated November 15, 1995, by and between the
       Company, Dralvar Capital Corp. ("Dralvar") and Ken Neff.  (Incorporated
       by reference, Form 8-K Current Report, dated November 15, 1995, Exhibit 
       10.1)

10.17  Asset purchase Agreement dated February 21, 1997, by and between the
       Company and Noll Computer Services, Inc. ("NCS").  (Incorporated by
       reference, Annual Report on Form 10-KSB for the year ended December 31,
       1996, Exhibit 10.17)

                                       15
<PAGE>

Exhibit
Number

 (b)    Reports on Form 8-K

        No reports on Form 8-K were filed  during the year for which this 
        report is filed.

 (c)    Exhibits

        The  response to this  portion of Item 14 is submitted as a separate
        section of this report.

 (d)    Financial Statement Schedules

        The  response to this  portion of Item 14 is submitted as a separate
        section of this report.

                                       16

<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        UNITED SYSTEMS TECHNOLOGY, INC.



Date: March 29, 1999                    By:  /s/  Thomas E. Gibbs
                                             --------------------
                                             Thomas E. Gibbs,
                                             Chief Executive Officer and
                                              Chairman of the Board

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


Date:  March 29, 1999                   By: /s/  Thomas E. Gibbs
                                            --------------------
                                            Thomas E. Gibbs,
                                            Chief Executive Officer and
                                             Chairman of the Board
                                            (Principal Executive Officer)

Date:  March 29, 1999                   By: /s/  Randall L. McGee
                                            ---------------------
                                            Randall L. McGee,
                                            Secretary and Treasurer
                                            (Principal Financial &
                                             Accounting Officer)


Date:  March 29, 1999                   By:  /s/  Scott Burri
                                             ----------------
                                             Scott Burri, Director


Date:  March 29, 1999                   By:  /s/  Jordan Issackedes
                                             ----------------------
                                             Jordan Issackedes, Director


Date:  March 29, 1999                   By:  /s/  Earl Cohen                  
                                             ---------------
                                             Earl Cohen, Director


                                       17


<PAGE>