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:                Commission File Number
          December 31, 1997                            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 23, 1998 the aggregate market value of voting stock held by
non-affiliates of the Registrant was $405,277.

         As of March 23, 1998, there were 43,178,043  shares of the Registrant's
Common Stock outstanding.

     DOCUMENTS   INCORPORATED  BY  REFERENCE:   Portions  of  the   Registrant's
definitive  proxy statement  relating to its 1998 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,
Public Safety and Civil Processing.

         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 five 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,  tax billing and
     collection,  purchase orders and comprehensive financial report writer.

    Public Works

     This group includes  software  modules in the areas of building  permits
     and inspections,   utility  billing  and  collections,   hand  held  meter
     reading, assessment billing and project accounting.

    General Administration

     This group includes  software modules in the areas of information
     indexing, perpetual inventory, vehicle and equipment maintenance, fixed
     asset records, and business licenses.

    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.

    Civil Processing

     This group includes software modules in the areas of summonses and
     complaint docketing,   process  server  activity,   writ  and  foreclosure
     docketing  and garnishments  and is designed  exclusively  for the County
     Sheriff Civil Process function..

         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 new Fund  Accounting  system  including  General  Ledger,  Budget
XLence, Report XLence, Accounts Payable,  Accounts Receivable,  Purchase Orders,
Cash Receipts,  Payroll and Utility Billing. The Company is currently developing
its asystTM  Public Safety  product line to add to its existing Fund  Accounting
offering in the Windows  environment.  The Company  anticipates that the initial
packages  will be released in the 2nd quarter of 1998.  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,  1997,   the  Company   generated
approximately   15%  of  its  revenue  from  the  sale  of  software,   6%  from
installation,  training and customer support, 66% from software maintenance, and
13% 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 representatives located in Minneapolis,  Minnesota and
Lexington, Kentucky.

         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  1,500  customer  installations  nationwide.  USTI
proposes  computer  equipment  when selling its  software,  but the customer may
obtain their computer equipment from a hardware  manufacturer or dealer and then
purchases 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 19 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 1997, the Company incurred approximately $75,000 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  maintains  its  offices at 1850 Crown  Road,  Suite 1109,
Dallas,  Texas, 75234. The lease for this facility was entered into on September
30, 1997 to include approximately 5,033 square feet with a sixty-two month lease
term  commencing  on November 1, 1997 and  expiring on December  31,  2002.  The
Company  leases this space from a  nonaffiliate  for a monthly  rental of $4,089
with the first two monthly payments on the lease abated.

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,  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.  USTI and USTEI  have  denied all
material allegations of the County of Essex and intend to vigorously defend such
litigation and pursue their third party claims.

         On August 11, 1993,  Plaintiff City of Sinton, Texas filed suit against
USTI  alleging  defects in software and services  sold to the city in 1990.  The
suit  failed to  specify  a  measure  of  damages  which the City of Sinton  was
seeking;  USTI answered the lawsuit by denying all material allegations therein.
In April 1997,  a jury ruled in favor of USTI in this suit,  finding  that there
was no breach of  warranty  by USTI with  respect to the  software  or  services
provided.  The jury  further  found  that the City of Sinton  had  breached  the
software  contracts by asserting  rights and duties which were not  specified in
the  contracts.  The City of Sinton  paid  USTI  $10,000  for a  portion  of its
attorney's fees awarded as part of the judgement.

     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.


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 1997.

                                        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, 1996                  $0.03              $0.01
         June 30, 1996                   $0.01              $0.01
         September 30, 1996              $0.05              $0.04
         December 31, 1996               $0.03              $0.03
         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
</TABLE>

         As of March 23, 1998,  the Company had 493  shareholders  of record and
its common stock had a closing bid price of $0.01 per share and a closing  asked
price of $0.02 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 1997
include  revenues of $1,641,370  resulting in a net loss of $270,554 as compared
to revenues of $2,004,747 and a net loss of $634,625 in 1996.

         During 1997,  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 1996.  The  Company is  continuing  the
development  of additional  modules for its asystTM  product line.  The asyst TM
product line currently  includes  General  Ledger,  Accounts  Payable,  Accounts
Receivable,  Cash Receipts,  Purchase Orders,  Budgeting,  Reporting and Utility
Billing  modules and has been installed at over 100 locations  since its initial
release in 1996.  The Company is currently  developing its initial Public Safety
modules for its asystTM product line, which it anticipates,  will be released in
the 2nd quarter of 1998.  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) and mid-range
(LegacyTM)  products  during 1997. The Company is offering a Year 2000 compliant
version of certain modules and has obtained  commitments for this version of the
system.  The  Company  expects to begin  shipping  the Year 2000  version of the
LegacyTM products in the 4th quarter of 1998.
                                        7
<PAGE>

         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.

         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>              <C>

                                 Percentage of Revenues
                                 Year Ended December 31,    Percentage Change
                                  1997        1996           1997 vs 1996
Revenue
    Software Packages               15%         15%              (17%)
    Installation, training and
      customer support               6%         12%              (60%)
    Maintenance                     66%         60%              (10%)
    Equipment and other             13%         13%              (16%)
                                   ---         ---
                                   100%        100%              (18%)

Costs and expenses
    Salaries                        58%         58%              (17%)
    Other general administrative
      and selling expense           29%         28%              (17%)
    Depreciation and amortization   21%         37%              (53%)
    Commissions                      2%          2%              (12%)
    Cost of equipment sold           6%          6%              (22%)
                                   ---         ---
Total costs and expenses           116%        131%              (27%)

Operating loss                     (16%)       (31%)              57%

Non-operating (expense) income       -        (  1%)              76%

Loss before income taxes and
  extraordinary items              (16%)       (32%)              57%

</TABLE>

                                        8

<PAGE>


1997 vs 1996

         The Company's  total revenue  decreased 18% for the year ended December
31, 1997 from  $2,004,747 in 1996 to $1,641,370 in 1997.  Software  license fees
decreased  17% in 1997 due,  in part,  to a  decrease  in the  licensing  of the
Company's  older product  lines,  while the volume of licensing of the Company's
newer  asystTM  products did not increase at a level  sufficient  to offset this
decrease.  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  decreased 60% in 1997 due to the decrease
in licensing  of the  Company's  minicomputer  products  which  require a higher
amount of these types of services.  Maintenance  revenue  decreased 10% in 1997,
due,  in part,  to a decrease  in the number of  customers  using the  Company's
LegacyTM products that elected to select maintenance  coverage.  Equipment sales
and supplies  decreased 16% as a result of decreased sales of computer equipment
sold with its software products.

         Total costs and expenses  decreased 27% for the year ended December 31,
1997 from $2,625,646 in 1996 to $1,908,681 in 1997.  Salaries and other general,
administrative  and selling  expense costs  decreased 17% in 1997 as a result of
continued  efforts to align staffing with anticipated  levels of revenue.  Other
general, administrative and selling expense decreased 17% in 1997 as a result of
continued efforts to control and reduce expenses.  Depreciation and amortization
expense  decreased  53% in 1997 from 1996 due to a  reduction  in  software  and
goodwill  amortization  expense.  Commission  expenses  decreased  12%  in  1997
resulting  from a decrease in the level of licensing of the  Company's  software
products by sales agents in 1997.  Cost of equipment  sold decreased 22% in 1997
as a result of decreased computer equipment sold with its software products.


Liquidity and Capital Resources

         The Company had net cash  provided by operating  activities of $188,890
during  1997 as  compared  to $4,088  provided  in 1996.  This  increase in cash
provided  was  primarily  the  result  of  the  improvement  in the  results  of
operations in 1997 as compared to 1996 and an increase in deferred revenue.  Net
cash of $43,065 was utilized in 1997 for the purchase of equipment necessary for
the sales,  development and support of the new asystTM product line. Net cash of
$8,270 was utilized during 1997 for the reduction of capital lease obligations.

         Management believes that the effect of its continued focus on adjusting
the Company's  expenses to the level of revenue,  which  management  anticipates
achieving,  and the Company's  current cash balance 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.  The original  maturity date of this
note was October 17, 1987. Ventana distributed this note to the limited partners
in its fund in 1998.  Ventana asked the Company to reissue notes, under the same
terms and conditions,  to the limited  partners.  As of December 31, 1997, there
was $76,111 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, 1997,  dividends were in arrears on
the  Series B  preferred  stock  in the  amount  of  $323,800,  on the  Series D
preferred stock in the amount of $275,685 and on Series E preferred stock in the
amount of $137,735.

                                        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  affects  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 it 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
<PAGE>

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


                                                                Pages

Reports of Independent Accountants                               F-1

Consolidated Financial Statements

   Balance sheets as of December 31, 1997 and 1996               F-2
   Statements of operations for the years
    ended December 31, 1997 and 1996                             F-3
   Statements of stockholders' equity for the years
    ended December 31, 1997 and 1996                             F-4
   Statements of cash flows for the years
    ended December 31, 1997 and 1996                             F-5
   Notes to Consolidated Financial Statements                    F-6 to F-17



                                       11

<PAGE>

               Report of Independent Certified Public Accountants





Board of  Directors and Shareholders
United Systems Technology, Inc.


We have audited the accompanying  consolidated  balance sheets of United Systems
Technology,  Inc.  and  subsidiary  as of December  31,  1997 and 1996,  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,  1997 and 1996,  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 13, 1998

                                       F-1

<PAGE>

                 United Systems Technology, Inc. and Subsidiary
                           Consolidated Balance Sheets
                           December 31, 1997 and 1996

<TABLE>

<S>                                                   <C>            <C>
                                                      1997           1996
                                                      ====           ====
   Assets
Current Assets
  Cash and cash equivalents                       $  204,807    $   67,252
  Trade accounts receivable, less allowance for
   doubtful accounts of $40,000 in 1997 and 1996     216,693       253,692
  Prepaid expenses and other                           6,165           279
                                                    --------      --------
 Total current assets                                427,665       321,223
                                                    --------      --------

Property and equipment at cost, net                   85,940       115,738
Goodwill, net                                        481,605       741,744
Purchased software, net                               53,056        71,833
Deposits and other                                     4,999        27,942
                                                   ---------     ---------
                                                     625,600       957,257
                                                   ---------     ---------

   Total Assets                                   $1,053,265    $1,278,480
                                                   =========     =========

   Liabilities and Stockholders' Equity

Current Liabilities
  Notes payable - related party                   $   50,000    $     -
  Current portion of capital lease obligations         4,484         8,271
  Trade accounts payable                             177,316       230,039
  Accrued payroll                                     24,485        20,432
  Accrued interest - related party                    76,111        72,020
  Other accrued expenses                              98,868       115,368
  Deferred revenue                                   779,485       664,797
                                                   ---------     ---------
 Total current liabilities                         1,210,749     1,110,927

Notes payable - related party                           -           50,000
Capital lease obligations, net of current portion      2,247         6,730
                                                   ---------     ---------

   Total liabilities                              $1,212,996    $1,167,657
                                                   =========     =========

Commitments and contingencies                           -             -

   Stockholders' Equity
Preferred stock, convertible, 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       205,000
Common stock, par value $.10 per share; authorized
 100,000,000 shares; issued and outstanding
 43,178,043 and 37,969,765 shares in 1997
 and 1996, respectively                            4,317,803     3,796,975
Additional paid-in capital                         3,768,562     4,214,390
Accumulated deficit                               (8,376,096)   (8,105,542)
                                                   ---------     ---------
Total stockholders' equity                          (159,731)      110,823
                                                   ---------     ---------

Total liabilities and stockholders's equity       $1,053,265    $1,278,480
                                                   =========     =========
</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>
                                                      1997          1996
                                                      ====          ====
Revenue
  Software packages                               $  250,524    $  302,305
  Installation, training and customer support         97,633       246,014
  Maintenance                                      1,080,084     1,203,724
  Equipment sales and supplies                       208,677       241,871
  Other                                                4,452        10,833
                                                   ---------     ---------
                                                   1,641,370     2,004,747
                                                   ---------     ---------
Costs and expenses
  Salaries                                           959,416     1,156,355
  Other general, administrative and selling
   expense                                           415,085       488,819
  Depreciation and amortization                      159,579       336,621
  Rent                                                54,523        74,466
  Commissions                                         30,323        34,271
  Cost of equipment sold                              97,555       124,574
  Impairment of software development costs              -           74,915
  Impairment of goodwill                             192,200       335,625
                                                   ---------     ---------
                                                   1,908,681     2,625,646
                                                   ---------     ---------
Operating loss                                      (267,311)     (620,899)
                                                   ---------     ---------
Nonoperating (expense) income
  Interest expense                                    (5,342)       (8,608)
  Loss on sale of assets                                -           (8,205)
  Interest income                                      2,099         3,087
                                                   ---------     ---------
                                                      (3,243)      (13,726)
                                                   ---------     ---------
Net loss                                          $ (270,554)   $ (634,625)
                                                   =========     =========

Preferred stock dividend requirement                 (91,000)     (104,500)
                                                   ---------     ---------

Loss allocable to common shareholders             $ (361,554)   $ (739,125)
                                                   =========     =========

Net loss per common share                         $    (0.01)   $    (0.02)
                                                   =========     =========
Weighted average number of common
 shares outstanding                               43,213,935    38,325,837
                                                  ==========    ==========
</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>


                                               Additional
                        Capital Stock Issued    Paid-In    Accumulated
                         Preferred  Common      Capital      Deficit    Total
                         ---------  ------      -------      -------    -----
Balance January 1,1996     205,000  3,864,315   4,157,151  (7,470,917) 755,549

Repurchase and retirement
 of previously issued
 shares for a business
 acquisition                          (67,340)     57,239              (10,101)
Net loss                                                     (634,625)(634,625)
                         ---------  ---------   ---------   --------- --------

Balance, December 31,1996  205,000  3,796,975   4,214,390  (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  4,317,803   3,768,562  (8,376,096)(159,731)
                         =========  =========   =========   ========= ========
</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>
                                                      1997          1996
                                                      ====          ====
Cash flows in operating activities:

 Net loss                                         $ (270,554)   $ (634,625)

 Adjustments to reconcile net loss to
  net cash provided by operating activities:
   Depreciation and amortization                     159,579       336,621
   Impairment of software development costs             -           74,915
   Impairment of goodwill                            192,200       335,625
   Loss on sale of assets                               -            8,205

 Change in operating assets and liabilities:
   Trade accounts receivable                          36,999        99,700
   Prepaid expenses                                   (5,886)        8,035
   Deposits and other                                 22,943           599
   Accounts payable                                  (44,579)      (67,459)
   Accrued expenses                                  (16,500)       (2,418)
   Deferred revenue                                  114,688      (155,110)
                                                   ---------     ---------

                                                  $  459,444    $  638,713
                                                   ---------     ---------

Net cash provided by operating activities         $  188,890    $    4,088
                                                   ---------     ---------

Cash flows from investing activities:
  Property and equipment additions                $  (43,065)   $  (33,321)
                                                   ---------     ---------

Cash flows from financing activities:
  Payments on capital lease obligations           $   (8,270)   $  (42,749)
                                                   ---------     ---------

Increase(decrease) in cash and cash equivalents   $  137,555    $  (71,982)
Cash and cash equivalents, beginning of year          67,252       139,234
                                                   ---------     ---------
Cash and cash equivalents, end of year            $  204,807    $   67,252
                                                   =========     =========

Supplemental disclosures of cash flow information:

 Cash paid for interest during the period         $    1,535    $    6,356
                                                   =========     =========
</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, 1997 and 1996
         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.  Amortization and impairment of developed  software costs
         was $136,713 for the year ended December 31, 1996.


                                       F-6
<PAGE>

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

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, New Jersey Municipal Data
         Management,  Inc. ("MDM") acquired in 1991, and QDS Acquisitions,  Inc.
         ("QDS")  acquired in 1995. The goodwill  resulting from the MSC and MDM
         acquisitions is and 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

         In the fourth  quarter of 1997,  the Company  adopted the provisions of
         Statement of Financial  Accounting  Standards  No. 128,  "Earnings  per
         Share"  (SFAS  128).  In  accordance  with SFAS No.  128,  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 1996  and  1997  all  potential  common  shares  were
         anti-dilutive.  Accordingly,  the adoption of SFAS 128 had no effect on
         1997 and 1998 earnings per share amounts.

         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, 1997 and 1996

         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, 1997 and 1996  consisted of the
         following:
<TABLE>
<S>                                             <C>              <C>
                                                1997             1996
                                                ----             ----

         Leasehold improvements             $  63,772        $  58,702
         Furniture and fixtures                39,248           38,330
         Equipment                            904,323          869,292
                                            ---------        ---------
                                            1,007,343          966,324
         Less accumulated depreciation
         and amortization                    (921,403)        (850,586)
                                            ---------        ---------
                                            $  85,940        $ 115,738
                                            =========        =========
</TABLE>

3.       Other Assets:

         Other assets at December 31, 1997 and 1996 consisted of the following:

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

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

         1996
         ----
         Goodwill               $1,692,128     $ (950,384)      $ 741,744
         Purchased software        590,654       (518,821)         71,833

</TABLE>

                                       F-8
<PAGE>

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


4.       Capital Lease Obligations:

         The Company  leases certain  assets under capital  leases.  The leases
         include  interest  at rates  ranging  from  10.75% to 11.9%  and expire
         at various dates through 1999.  The leases are  collateralized  by the
         related asset and most of the leases  include  options to purchase the
         equipment at the end of the lease term.

         Included in property  and  equipment  as of December  31, 1997 are the
         following assets held under capital leases:
<TABLE>

<S>                                                    <C>
         Office furniture and equipment                $443,683
         Accumulated amortization                      (437,733)
                                                        -------
         Assets under capital lease, net               $  5,950
                                                        =======

</TABLE>


         Future  minimum lease  payments under capital leases as of December 31,
         1997 are as follows:
<TABLE>
<S>                                                       <C>

                  1998                                 $  4,914
                  1999                                    2,376
                                                        -------
         Total minimum lease payments                     7,290

         Less amount representing interest              (   559)
                                                        -------
         Present value of capital lease obligations       6,731

         Less current portion                            (4,484)
                                                        -------
                                                       $  2,247
                                                        =======

</TABLE>

         Amortization  expense associated with these assets amounted to $31,981,
         and $40,058 for the years ended December 31, 1997, and 1996,
         respectively.

5.       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 is due September 30, 1998.
         The prime rate of interest  was 8.50% at December 31, 1997 and 8.25% in
         1996. The related party  distributed  this note to the limited partners
         in its fund,  under the same terms and conditions,  in 1997.  There was
         $76,111  and $72,020  accrued  interest  outstanding  on these notes at
         December 31, 1997 and 1996, respectively.  Interest expense incurred on
         these notes was $4,091 and $4,147 for the years ended December 31, 1997
         and 1996, respectively.

                                       F-9
<PAGE>

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


6.       Capital Stock:

         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,  1997 the  500,000  outstanding
         shares of Series B preferred  stock were entitled to be converted  into
         4,118,995  shares of common stock and were entitled to 4,118,995  votes
         on all matters  submitted to a vote of stockholders of the Company.  At
         December 31, 1997 cumulative  dividends of approximately  $323,800 were
         in arrears.

         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.

                                      F-10

<PAGE>

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


         Capital Stock (Cont'd.):

         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,  1997 the  500,000  outstanding
         shares of Series D preferred  stock were entitled to be converted  into
         2,216,245  shares of common stock and were entitled to 2,216,245  votes
         on all matters  submitted to a vote of stockholders of the Company.  At
         December 31, 1997 cumulative  dividends of approximately  $275,685 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,  1997 the  300,000  outstanding
         shares of Series E preferred  stock were entitled to be converted  into
         2,188,685  shares of common stock and were entitled to 2,188,685  votes
         on all matters  submitted to a vote of stockholders of the Company.  At
         December 31, 1997, cumulative dividends of approximately  $137,735 were
         in arrears.


                                      F-11

<PAGE>

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


7.       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 is $49,070 from 1998 through
         2002.  Rent expense was $54,445 and $71,226 in 1997 and 1996,
         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. 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.  USTI and USTEI have denied
         all  material  allegations  of  the  County  of  Essex  and  intend  to
         vigorously defend such litigation and pursue their third party claims.

                  On August 11, 1993, Plaintiff City of Sinton, Texas filed suit
         against USTI alleging defects in software and services sold to the city
         in 1990. The suit failed to specify a measure of damages which the City
         of Sinton was  seeking;  USTI  answered  the  lawsuit  by  denying  all
         material  allegations  therein. In April 1997, a jury ruled in favor of
         USTI in this suit, finding that there was no breach of warranty by USTI
         with  respect to the  software or services  provided.  The jury further
         found that the City of Sinton had breached  the  software  contracts by
         asserting  rights and duties which were not specified in the contracts.
         The City of Sinton paid USTI  $10,000  for a portion of its  attorney's
         fees awarded as part of the judgement.

         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-12

<PAGE>

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


8.       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 options 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  1997 and 1996 net loss and net loss per common  share  would
         have increased to the pro forma amounts indicated as follows:

<TABLE>
<S>                                                    <C>            <C>
                                                       1997           1996
                                                       ----           ----

          Net loss allocable to common shareholders
              As reported                          $ (361,554)    $ (739,125)
              Pro forma                            $ (411,929)    $ (813,306)

          Net loss per common share
              As reported                             $ (0.01)       $ (0.02)
              Pro forma                               $ (0.01)       $ (0.02)

</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 and
         560% in 1996;  risk free  interest  rates of 6.32% in 1997 and 7.05% in
         1996; 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-13
<PAGE>

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

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

         Additional information with respect to options outstanding at December
         31,  1997,  and the  changes  for each of the two years in the period
         then ended was as follows:

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

                                                    ________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  4,063,125        $.04
                                                   ---------         ---

         Weighted average fair value per share
          of options granted during 1997                            $.03
                                                                     ---

                                                    ________1996_________
                                                                 Weighted
                                                                  Average
                                                                 Exercise
                                                    Shares         Price
                                                    ------         -----
         Outstanding at beginning of year          4,810,000        $.04
         Granted                                   1,077,500         .06
         Forfeited                                   (65,000)        .04
                                                   ---------         ---

         Outstanding at end of year                5,822,500        $.04
                                                   ---------         ---

         Options exercisable at December 31, 1996  2,952,500        $.04
                                                   ---------         ---

         Weighted average fair value per share
          of options granted during 1996                            $.06
                                                                     ---
</TABLE>

         Information  about stock options  outstanding  at December 31, 1997 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         6,862,500      3.5 years             $.03
         $.06 to $.10         1,027,500      3.5 years             $.06
                              ---------
                              7,890,000
                              ---------

</TABLE>

                                      F-14

<PAGE>

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

8.       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            3,431,250               $.04
                $.06 to $.10              631,875               $.06
                                       ----------
                                        4,063,125
                                       ----------
</TABLE>

         Stock Purchase Warrants

                  As of December  31, 1997 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, 1997,  none of
         these warrants have been exercised and are fully vested:

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


                  Expiration                                                             Exercise
                     Date           Price         Shares
                  ----------        -----         ------
                 Sep 30, 1998       $.050        950,000
                 Feb 16, 1999       $.080      1,000,000
                 Aug  9, 1999       $.050      1,000,000
                 Aug  9, 2000       $.035      1,000,000
                                               ---------
                                               3,950,000
                                               ---------
</TABLE>


9.       Income Taxes:

         At  December   31,   1997,   the  Company  has  net   operating   loss
         carry-forwards of approximately  $3,078,000.  These  carry-forwards
         expire from period 1998 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, 1997 and 1996 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-15
<PAGE>

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


9.       Income Taxes (Cont'd.)::

<TABLE>
<S>                                              <C>              <C>
                                                 1997             1996
                                                Amount           Amount
                                                ------           ------
         Federal income tax benefit at
          statutory rate                     $ (91,990)        $(215,770)
         Amortization of goodwill               88,450           145,100
         Expiration of net operating loss
          carryforward                         323,670           186,160
         Other                                 (13,030)            7,410
         Change in valuation allowance        (307,100)         (122,900)
                                               -------           -------
                                             $    -            $    -
                                               =======           =======

</TABLE>

         Because of losses from  operations for the past two 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, 1997 and
         1996 are as follows:
<TABLE>
<S>                                              <C>              <C>
                                                 1997             1996
                                                ------           ------

         Deferred tax assets:
          Net operating losses carried
           forward                           $1,046,600        $1,408,400
          Capital losses carried forward        212,300           212,300
          Deferred revenue                      265,000           226,000
          Accounts payable and accrued
           expenses                             126,000           148,800
          General business tax credits           71,000            71,000
                                              ---------         ---------

         Total deferred tax asset            $1,720,900        $2,066,500
                                              ---------         ---------

         Deferred tax liabilities:
          Accounts receivable                    73,700            86,300
          Purchased software, property
           and equipment                         33,600            59,500
                                              ---------         ---------

         Total deferred tax liability           107,300           145,800
                                              ---------         ---------

         Net deferred tax asset before
          valuation allowance                 1,613,600         1,920,700

         Less valuation allowance             1,613,600         1,920,700
                                              ---------         ---------

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


                                      F-16
<PAGE>

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


10.      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 $3,665 and  $2,623 for the years  ended  December
         31, 1997 and 1996, respectively.


11.      Fourth Quarter Adjustments:

         During the fourth  quarter of 1996, the Company  charged  earnings for
         adjustment  to  software  development  costs of  approximately $74,915
         and impairment to goodwill of approximately $335,625.

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


                                      F-17

<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 1998 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 1998 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 1998 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 1998 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 For 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 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 27, 1998                         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 27, 1998                        By: /s/  Thomas E. Gibbs
                                                 --------------------
                                                 Thomas E. Gibbs,
                                                 Chief Executive Officer and
                                                  Chairman of the Board
                                                 (Principal Executive Officer)

Date: March 27, 1998                         By: /s/  Randall L. McGee
                                                 ---------------------
                                                 Randall L. McGee,
                                                 Secretary and Treasurer
                                                 (Principal Financial &
                                                  Accounting Officer)

Date:  March 27, 1998                        By:  /s/  David Sengpiel
                                                  -------------------
                                                  David Sengpiel, Director


Date:  March 27, 1998                        By:  /s/  Scott Burri
                                                  ----------------
                                                  Scott Burri, Director


Date:  March 27, 1998                        By:  /s/  Jordan Issackedes
                                                  ----------------------
                                                  Jordan Issackedes, Director


Date:  March 27, 1998                        By:  /s/  Earl Cohen
                                                  ---------------
                                                  Earl Cohen, Director

                                       17

<PAGE>