<PAGE>   1
               FORM 10-QSB - Quarterly Report Under Section 13 or
                  15(d) of the Securities Exchange Act of 1934

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB-A

     [X]  Quarterly Report pursuant to Section 13 or 15(d) of the
          Securities Exchange Act of 1934.

                      For the period ended August 31, 1998
                                       or

     [ ]  Transition Report Pursuance to Section 13 or 15(d) of the
          Securities Exchange Act of 1934.

          For the transition period from _____________ to _____________

                         Commission File Number 0-24256

                         ENHANCED SERVICES COMPANY, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                        Colorado                    84-1075908
--------------------------------------------------------------------------------
        (State or other jurisdiction of         (I.R.S. Employer
         incorporation or organization)        Identification No.)

                3415 South Sepulveda Blvd., Suite 500     90034
--------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (310) 397-3003
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

               2361 Rosecrans Ave., Suite 275, El Segundo CA 90245
--------------------------------------------------------------------------------
         (Former name, former address and former fiscal year, if changed
                               since last report.)

        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.

                               [X] Yes     [ ] No

          APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS:

        Indicated by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                               [ ] Yes     [ ] No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

As of September 25, 1998, Registrant had 3,245,118 shares of common stock, $.001
Par Value, outstanding.


<PAGE>   2


                                      INDEX


<TABLE>
<CAPTION>
                                                                                     Page
                                                                                    Number
                                                                                    ------
<S>                                                                                  <C>
Part I.  Financial Information

        Item I.  Financial Statements

                      Consolidated Balance Sheets as of August 31,
                        1996 (Unaudited) and November 30, 1997                        2

                      Consolidated Statements of Operations Three
                        Months Ended August 31, 1998 and
                        August 31, 1997 (Unaudited)                                   3

                      Consolidated Statements of Operations, Nine
                        Months Ended August 31, 1998 and
                        August 31, 1997 (Unaudited)                                   4

                      Consolidated Statement of Changes in Stock-
                        holders' Equity from November 30, 1997
                        through August 31, 1998 (Unaudited)                           5

                      Consolidated Statements of Cash Flows,
                        Three Months Ended August 31, 1998 and
                        August 31, 1997 (Unaudited)                                   6

                      Consolidated Statements of Cash Flows,
                      Nine Months Ended August 31, 1998 and
                        August 31, 1997 (Unaudited)                                   7

                      Notes to Consolidated Financial Statements                      8

        Item 2.  Management's Discussion and Analysis of
                     Financial Conditions and Results of  Operations                  9

Part II.  Other Information                                                          11
</TABLE>





                                       1

<PAGE>   3


           ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY

                                 BALANCE SHEETS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                               August 31       November 30
                                                                                    1998              1997
                                                                             -----------       -----------
<S>                                                                          <C>               <C>        
Current Assets
       Cash in bank                                                          $    63,059       $   262,510
       Inventory                                                                 254,826           499,814
       Accounts receivable, net of allowance
         for doubtful accounts                                                   570,450           624,671
       Accounts Receivable, discontinued operations                               14,728                --
       Other current assets                                                      177,391           145,173
                                                                             -----------       -----------
         Total Current Assets                                                  1,080,454         1,532,168

Accounts Receivable - Zulu-tek                                                 2,333,249                --
Property and equipment, net of accumulated depreciation                          108,661           355,868
Goodwill, net of accumulated amortization                                             --           710,304
Investment in Zulu-tek, Inc.                                                   4,045,000                --
Other assets                                                                      19,708            92,079
                                                                             -----------       -----------

Total Assets                                                                 $ 7,587,072       $ 2,690,419
                                                                             ===========       ===========

                                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
       Accounts payable and accrued expenses                                 $   691,004       $   669,326
       Accounts payable, discontinued operations                                 445,391                --
       Notes payable, current portion                                            900,000           517,261
       Other current liabilities                                                 106,945             7,782
                                                                             -----------       -----------
         Total Current Liabilities                                             2,143,340         1,194,369

Notes payable, net of current portion                                          2,266,249                --
                                                                             -----------       -----------
         Total Liabilities                                                     4,409,589         1,194,369
                                                                             -----------       -----------

Stockholders' Equity:
       Preferred stock - $.001 par value
         5,000,000 shares authorized, 8,000 issued and outstanding
         8.6% cumulative preferred  (Liquidation preference of $800,000)               8                --
       Preferred stock - $3.00 par value                                       3,000,000                --
       Common stock - $.001 par value,  15,000,000 shares authorized;
         1,123,174 shares issued and outstanding                                   3,208             1,103
       Additional paid-in capital                                              5,170,806         3,229,957
       Retained earnings                                                      (4,996,539)       (1,735,041)
                                                                             -----------       -----------
         Total Stockholders' Equity                                            3,177,483         1,496,050
                                                                             -----------       -----------
Total Liabilities and Stockholders' Equity                                   $ 7,587,072       $ 2,690,419
                                                                             ===========       ===========
</TABLE>


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





                                       2
<PAGE>   4

           ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                 Three Months      Three Months
                                                        Ended             Ended
                                                    August 31         August 31
                                                         1998              1997
                                                  -----------       -----------
<S>                                               <C>               <C>        
Revenue:
     Sales                                        $   563,314       $ 1,171,363
     Cost of sales (exclusive
       of depreciation and salaries
       shown separately below)                        134,010           714,126
                                                  -----------       -----------
        Gross Profit                                  429,304           457,237
                                                  -----------       -----------

Operating Expenses
     Salaries                                         242,207           374,185
     Advertising and promotion                          5,156            79,901
     Contract services                                 45,044            96,739
     Rent                                             131,114            74,719
     Travel and entertainment                          17,730            30,734
     Depreciation/amortization                         21,300            15,000
     Other operating expenses                         384,173           234,690
                                                  -----------       -----------
       Total Operating Expenses                       846,724           905,968

Net Operating (Loss)                                 (417,420)         (448,731)

Interest Expense                                      (14,311)          (13,890)
Gain from disposition of property                          --           881,984
Other Expense                                        (400,000)               --
Other Income                                           19,233             5,641
                                                  -----------       -----------

Net income (loss) from continuing operations      $  (812,498)      $   425,004

Loss from discontinued operations                    (238,558)         (393,625)
                                                  -----------       -----------

Net income (Loss)                                 $(1,051,056)      $    31,379

Provision for preferred dividends                      17,200            17,201
                                                  -----------       -----------

Net Income (Loss) to Common
 Shareholders                                     $(1,068,256)      $    14,178
                                                  ===========       ===========

Net Income (Loss) per Common Share                $      (.34)      $       .01
                                                  ===========       ===========

Weighted Average Shares Outstanding                 3,096,408         2,233,014
                                                  ===========       ===========
</TABLE>


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





                                       3
<PAGE>   5

           ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                 Nine Months       Nine Months
                                                       Ended             Ended
                                                   August 31         August 31
                                                        1998              1997
                                                 -----------       -----------
<S>                                              <C>               <C>        
Revenue:
     Sales                                       $ 2,369,305       $ 3,598,980
     Cost of sales (exclusive
       of depreciation and salaries
       shown separately below)                     1,009,944         1,833,787
                                                 -----------       -----------
        Gross Profit                               1,359,361         1,765,193
                                                 -----------       -----------

Operating Expenses
     Salaries                                      1,083,720         1,082,784
     Advertising and promotion                        22,280           176,719
     Contract services                               259,649           158,457
     Rent                                            317,508           239,675
     Travel and entertainment                         48,849            67,827
     Depreciation/amortization                       113,216            43,945
     Other operating expenses                        843,709           742,263
                                                 -----------       -----------
       Total Operating Expenses                    2,688,931         2,511,670
                                                 -----------       -----------

Net Operating (Loss)                              (1,329,570)         (746,471)

Interest Expense                                     (28,121)          (31,228)
Gain from disposition of property                         --           881,311
Other Expense                                       (429,316)               --
Other Income                                          31,542            87,737
                                                 -----------       -----------

Net Income(loss) from continuing operations      $(1,755,465)      $  (419,998)

(Loss) from discontinued operations              $(1,433,651       $  (611,341)
                                                 -----------       -----------

Net Income(Loss)                                 $(3,189,116)      $  (419,998)
                                                 ===========       ===========

Provision for preferred dividends                     51,600            45,867
                                                 -----------       -----------

Net (Loss) to Common Shareholders                $(3,240,716)      $  (465,865)
                                                 ===========       ===========

Net Income (Loss) per Common Share               $     (1.05)      $      (.21)
                                                 ===========       ===========

Weighted Average Shares Outstanding                3,096,408         2,233,014
                                                 ===========       ===========
</TABLE>


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





                                       4
<PAGE>   6

          ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                   From November 30, 1997 through Aug 31, 1998
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                       Common Stock        Additional
                                         Preferred        Stock  ------------------------     Paid-in     Accumulated
                                        No./Shares       Amount   No./Shares       Amount     Capital       (Deficit)        Total
                                         ---------  -----------  -----------  -----------  -----------   -----------   -----------
<S>                                      <C>        <C>            <C>        <C>          <C>           <C>           <C>        
Balance at November 30, 1997                 8,000  $         8    1,125,489  $     1,126  $ 3,229,957   $(1,755,823)  $ 1,475,268

Securities issued on acquisition of
Zulu-tek Interest:
     Common Stock                                                    220,000          220    1,044,779                   1,044,779

     Preferred shares, $3.00 par value   1,000,000    3,000,000

Common stock issued for:

     a)  Exercise of ESOP                                              6,670            7       29,382                      29,389
     b)  Exercise of warrants                                        139,500          140      540,365                     540,505

1:1 stock dividend at May 22, 1998                                 1,492,580        1,493       (1,493)

Common stock issued for:
     a)  Exercise of warrants                                        168,750          168      273,205                     273,373
     b)  Consulting services                                          54,667           55       54,611                      54,666

Preferred stock dividends                                                                                    (51,601)      (51,601)

Net (loss) for the nine months ended
Aug 31, 1998                                                                                              (3,189,116)   (3,189,116)
                                         ---------  -----------    ---------  -----------  -----------   -----------   -----------
Balance                                  1,008,000  $ 3,000,008    3,207,656  $     3,209  $ 5,170,806   $(4,996,540)  $ 3,177,483
                                         =========  ===========    =========  ===========  ===========   ===========   ===========
</TABLE>


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





                                       5
<PAGE>   7


           ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                Three Months       Three Months
                                                       Ended              Ended
                                                   August 31          August 31
                                                        1998               1997
                                                 -----------        -----------
<S>                                              <C>                <C>        
Cash Flows from Operating Activities:
     Net income (loss)                           $(1,068,256)       $    14,178
     Adjustments to reconcile net
      income to net cash used
      in operating activities
     Depreciation and amortization                    21,300             94,840
        (Decrease) in accounts payable
         and accrued expenses                        314,156           (133,949)
        (Increase) decrease in
         accounts receivable                      (1,487,406)           (11,844)
        (Increase) decrease in
         inventory                                    10,993             70,925
        Other, net                                    62,325           (124,271)
                                                 -----------        -----------
Net Cash (Used in) Operating
      Activities                                  (2,146,888)           (90,121)
                                                 -----------        -----------
Cash Flows from Investing Activities:
     (Purchases) of property and
      equipment                                        4,309                 --
     Disposition of property                              --            814,603
                                                 -----------        -----------
     Net Cash Provided by (Used in)
      Investing Activities                             4,309            814,603
                                                 -----------        -----------
Cash Flows from Financing Activities:
     (Repayment) from notes and
      mortgages payable                                   --           (606,678)
     Proceeds from notes payable                   1,724,693                 --
     Common stock issued                             365,140                 --
                                                 -----------        -----------
     Net Cash Provided by (Used in)
      Financing Activities                         2,089,833           (606,678)
                                                 -----------        -----------
Increase (Decrease) in cash                           52,746            117,804

Cash, Beginning of Period                             10,313            307,858
                                                 -----------        -----------

Cash, End of Period                              $    63,059        $   425,662
                                                 ===========        ===========

Interest Paid                                    $    14,311        $    28,391
                                                 ===========        ===========

Income Taxes Paid                                $        --        $        --
                                                 ===========        ===========
</TABLE>


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





                                       6
<PAGE>   8

           ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                  Nine Months       Nine Months
                                                        Ended             Ended
                                                    August 31         August 31
                                                         1998              1997
                                                  -----------       -----------
<S>                                               <C>               <C>         
Cash Flows from Operating Activities:
     Net (loss)                                   $(3,240,716)      $  (465,865)
     Adjustments to reconcile net
      income to net cash used
      in operating activities
         Write down of goodwill                       710,304
        Depreciation and amortization                (181,821)          282,307
        Increase (decrease) in accounts
         payable and accrued expenses                 458,569          (196,714)
        (Increase) decrease in accounts
         receivable                                (2,293,756)          215,077
        (Increase) in inventory                       244,988          (152,393)
         Other, net                                   (66,945)         (153,926)
                                                  -----------       -----------
Net Cash (Used in) Operating
 Activities                                        (4,369,377)         (471,514)
                                                  -----------       -----------
Cash Flows from Investing Activities:
         Investment in Zulu-tek, Inc.              (4,045,000)
     Purchases of property and equipment
     and other disposition of property                613,381           684,455
                                                  -----------       -----------
     Net Cash Provided by (Used in)
      Investing Activities                         (3,431,619)          684,455
                                                  -----------       -----------
Cash Flows from Financing Activities:
     (Repayment) of notes payable                      (8,761)         (771,257)
     Preferred stock issued                         3,000,000           767,546
     Proceeds from notes and mortgage
      payables                                      2,666,249                --
     Common stock issued                            1,944,057            60,000
                                                  -----------       -----------
     Net Cash Provided by Financing
      Activities                                    7,601,545            56,289
                                                  -----------       -----------
Increase (decrease) in cash                          (199,451)          269,230

Cash, Beginning of Period                             262,510           156,432
                                                  -----------       -----------

Cash, End of Period                               $    63,059       $   425,662
                                                  ===========       ===========

Interest Paid                                     $    41,144       $    66,925
                                                  ===========       ===========

Income Taxes Paid                                 $        --       $        --
                                                  ===========       ===========
</TABLE>


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





                                       7
<PAGE>   9

         ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            August 31, 1998 and 1997


(1)     Organization

        Enhanced Services Company, Inc. (the Company) a Colorado corporation,
        was incorporated in 1987.

        The Company began, in May 1998, consolidating its facilities in North
        Bergan, New Jersey and Houston, Texas into the Irvine, California
        facility. The move was completed by the end of July 1998. The Company
        closed its NB Engineering, Inc. subsidiary in Crofton, Maryland in May
        1998.

        The Company's administrative offices also were relocated from Houston,
        Texas to El Segundo and subsequently to Los Angeles, California in May
        1998.

        The consolidated financial statements include the accounts of ESC and
        subsidiaries since acquisition or formation. All inter-company accounts
        and transactions have been eliminated.

        Effective May 31, 1998, the Company discontinued the operations of NB
        Engineering, Inc. (NBE). NBE was in the business of providing
        application development and digital video compression services as well
        as Digital Versatile Disk (DVD-ROM) title authoring and development.
        After write down of assets resulting in a loss of approximately
        $1,002,308, the only remaining assets were accounts receivable of
        $14,728. The only remaining liabilities were accounts payable of
        approximately $436,891. Losses from operations of NBE for the nine
        months ended August 31, 1998 and 1997 were $1,433,651 and $611,341. The
        loss from operations of NBE during the three-month period ended August
        31, 1997 was $393,625. There was no loss from operations of NBE during
        the three month ended August 31, 1998 since the operations of NBE were
        discontinued effective May 31, 1998.

(2)     Unaudited Statements

        The balance sheet as of August 31, 1998, the statements of income for
        the three and nine month periods ended August 31, 1998 and August 31,
        1997 and the statement of cash flow for the three and nine month period
        ended August 31, 1998 and August 31, 1997 have been prepared by the
        Registrant without audit. In the opinion of management, all adjustments
        (which include only normal recurring adjustments) necessary to present
        fairly the financial position, results of operations and cash flows at
        August 31, 1998, and for all periods presented, have been made.





                                       8
<PAGE>   10

(3)     Stock Dividend

        During May 1998 the Company effected a one for one stock dividend/two
        for one stock split. All references to common stock in the financial
        statements have been retroactively adjusted.

(4)     Acquisition Agreement

        Effective March 3, 1998, the Company entered into a securities
        acquisition agreement pursuant to which the Company issued 220,000
        pre-dividend common shares or approximately 19% of its common shares and
        1,000,000 shares of a new class of nonvoting preferred shares, $3.00 par
        value per share, in exchange for stock held by exchanging parties in an
        interactive advertising and marketing corporation (the Zulu-tek
        transaction). The preferred shares of the Company are convertible into
        common shares at the Company's option only after shareholder approval at
        a meeting called for that purpose and have a liquidation preference
        which is junior to the previously issued preferred shares of the
        Company. In connection with the transaction, the holder of the Company's
        $500,000 accounts receivable collateralized loan agreed, subject to the
        consent of the loan participants, to convert the loan into equity.
        Effective July 13, 1998, Mr. Ken Duckman, former CEO of the Company,
        conveyed his 50% participation in the $500,000 loan to Netvest Capital
        Partners, LP. (See note 7) Also effective July 13, 1998, the Company
        executed a promissory note in the amount of $400,000 in exchange for a
        general release of all claims that Mr. Duckman may have had against the
        Company. The note bears interest at 6% annually and is due on June 16,
        1999, except that the Company is required to apply 10% of the gross
        proceeds received by the Company from financing to prepay the Duckman
        note.

(5)     Subsequent Acquisition Agreement

        Effective September 16, 1998, the Company entered into an acquisition
        agreement to acquire the assets and certain liabilities of Zulu-tek,
        Inc., in exchange for convertible preferred stock. The convertible
        preferred stock will, if approved by the shareholders at the shareholder
        meeting convert into 5,200,000 shares of common stock.

 (6)    Consulting Agreement

        On April 1, 1998 the Company entered into an agreement with Kennedy
        Miles Creative Communication, LTD, (KMCC). Pursuant to the agreement,
        KMCC shall provide consulting services to the Company for a term of one
        year. As consideration for services rendered by KMCC, the Company issued
        common stock purchase warrants exercisable to purchase, in the aggregate
        75,000 pre-dividend shares at $2.00 per share. During the second quarter
        of 1998, 75,000 pre-dividend warrants were exercised and the difference
        between the exercise price of the warrants and the market value of the
        shares amounting to $150,000 was expensed.

        On March 15, 1998 the Company entered into an agreement with Richard A.
        Fisher





                                       9
<PAGE>   11

        (RAF). Pursuant to the agreement, RAF shall provide consulting services
        to the Company for a term of one year. AS consideration for services
        rendered by RAF, the Company issued common stock purchase warrants
        exercisable to purchase, in the aggregate 50,000 pre-dividend shares at
        $4.00 per share. During the second quarter of 1998, 50,000 pre-dividend
        warrants were exercised.

(7)     Working Capital Note/Equity

        The Company executed a $2,000,000 subordinated working capital note with
        Netvest [HK], Ltd., the principal amount of which was subsequently
        increased to $3,000,000. The note is due on March 15, 2000 and bears
        interest at 6% per annum. The note proceeds may fund operations of the
        Company and the business combination. Funds advanced under the note to
        the Company at August 31, 1998 were $2,266,249. Netvest [HK], Ltd.
        subsequent to August 31, 1998, has agreed to convert the working capital
        note to equity upon terms and conditions to be determined.

(8)     Advances to Zulu-Media

        The Company entered into a working capital agreement with Zulu-Media
        whereby the Company will provide working capital. The agreement provides
        for repayment upon demand by the Company. Funds advanced by the Company
        to Zulu-Media at August 31, 1998 were $2,333,439.

Item 2. Management's Discussion and Analysis of Financial Conditions and
        results of Operations

        Overview

        Enhanced Services Company, Inc. (the "Company") historically, through
it's Laptop Solutions -Texas and California subsidiaries, provided certain
services to the portable computing community. The Company, in a move to
consolidate and eliminate duplicate facilities moved all it's operations to
Irvine, California. Because of the consolidation of Laptop Solutions -Texas and
California, the following discussion has been combined into one presentation and
will not be entirely comparable. The Company plans to concentrate more of its
efforts in the custom engineering products and services. The Company, until May
1998, offered digital video compression and DVD-Video services through it's NB
Digital Solutions subsidiary in Crofton, Maryland. NB Digital sustained
substantial losses since it's acquisition in 1995 and in view of the investment
required to continue its' operation and the uncertainty of achieving
profitability, the Company ceased NB Digital operations in May, 1998 and the
operating results are reflected as "Discontinued" in the following discussions.

        The Company's second fiscal quarter ended August 31, 1998 and the
nine-month comparable period of 1997 are referred to in the discussions below as
1998 and 1997, respectively.

Combined Operations of Laptop Solutions - California & Texas

        Laptop Solutions - Results of operations for nine month period ended
August 31, 1998 and 1997 are summarized and discussed below: The discontinued
operation of NB Digital Solutions,





                                       10
<PAGE>   12

Inc. has been presented as other expense titled "Discontinued operations"

<TABLE>
<CAPTION>
                                                                                     Change
                                                   1998              1997               %
                                            -----------       -----------            ------  
        <S>                                 <C>               <C>                      <C>   
        Sales                               $ 2,369,305       $ 3,598,980               (34)%
        Cost of sales
             exclusive of depreciation
             and salaries)                    1,009,944         1,833,976               (45)%
                                            -----------       -----------

        Gross Profit                          1,359,361         1,765,004               (23)%

        Operating &
             Other Expenses                   3,116,830         2,389,489                30%
                                            -----------       -----------

        Net Operating Income (Loss)          (1,757,469)         (624,485)             (181)%

        Other Income                              2,004            96,717               (97)%
                                            -----------       -----------

        Net Income (Loss)                   $(1,168,288)      $  (680,991)              (72)%
                                            -----------       -----------

        Discontinued Operation              $(1,433,651)      $  (611,338)             (134)%

        Net Loss                            $(3,189,116)      $  (419,998)             (659)%
                                            ===========       ===========
</TABLE>

Sales: Revenue from upgrade and enhancement sales decreased $772,831 from
$1,394,867 in 1997 to $622,036 in 1998, a decrease of 55%, while the per unit
revenue and volume continue to decline as a result of competitive pressure and
technological change. Revenue from Compatibility Plus(TM) sales, the removable
hard disk pak, decreased $205,780 to $71,790 in 1998, from $277,570 in 1997 as
demand for the pak continues to decline. Revenues from repair and contract
maintenance services decreased from $683,296 in 1997 to $496,655 in 1998 from
$1,179,951 in 1997, a decrease of 57%. Management believes the decrease is a
result of certain manufacturers extending the warranty period to three years
from one year and reducing the warranty reimbursement to the service provider.
Also, certain manufacturers have begun to compete with its service provider for
the repair business by opening depot repair facilities. Revenues from engineered
products that began shipping in the first quarter of 1998 amounted to $685.357.
Demand for the product, a wireless modem that was custom designed with Panasonic
Personal Computer Company is expected to remain strong through the third and
fourth quarter of 1998. Revenue from CVAR 2000(TM) decreased $132,250 in 1998 to
$494,467 from $625,717 in 1997 as demand for the anti-reflective film
application declined.

Cost of Sales: Cost of sales of upgrade, enhancements, declined $398,090 in 1998
from $733,153 in 1997, a 54% decrease that was primarily the result of declining
demand. Cost of sales for the removable hard disk pak declined $121,794 to
$38,074 in 1998 from $159,868 in 1997, a decline of 76% as the hard disk pak
sales decline. Cost of sales of repair and contract services decreased $348,773
in 1998 to $159,113 from $507,886, a decrease of 69% as a result of declining
demand and competition. Cost of sales of CVAR 2000 decreased $160,586 from
$346,765 in 1997 to





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<PAGE>   13

$186,179 in 1998 as a result of declining sales. All other direct cost of sales,
primarily freight expense, decreased $132,996 to $42,007 in 1998 from $175,003
in 1997, primarily as a result of the decline in the volume of shipments.

Operating and Other Expenses: Salaries and related payroll cost in 1998 amounted
to $839,617 as compared to $1,118,022 in 1997, a decrease of 26%. The decrease
in personnel and related cost was primarily due to consolidating the Houston and
New Jersey facility to Irvine California. Insurance cost in 1998 amounted to
$86,552 as compared to $101,807 in 1997, a decrease of 15%. The decrease was
primarily the result of the facility consolidation. Advertising costs declined
$154,439 from $176,719 in 1997 to $22,280 in 1998, a decrease of 87%, due to
cancellation of ineffective advertising. Computer expense decreased $48,761 in
1998 to $39,945 from $88,706 in 1997 as a result of increasing the computer
network capacity and capabilities in 1997. Laptop Solutions-Texas was charged
rent for its office and warehouse space by the Company of $131,003 for 1997 when
the Company owned the building. The building was sold in August 1997 and Laptop
leased its existing space from the purchasers of the building for the then
market rate of $203,992, an increase of $72,989. The cost of the Houston lease
continued through August 1998. Also, the California facility size was increased
to accommodate the production of engineered products and CVAR 2000, resulting in
additional rent of $49,738 in 1998 to $113,516 from $63,778 in 1997.
Professional fees increased $61,952 to $114,115 in 1998 from $52,163 in 1997,
primarily as a result of increased legal and auditing cost. Consulting fees in
the amount of $150,000 in connection with the exercise of warrant, were expensed
in 1998.

Discontinued Operations: NB Digital Solutions operations were discontinued in
May 1998. Sales declined $628,510 in 1998 to $305,921 from $934,431 in 1997 and
gross profit from such sales declined $604,227 to $202,534 for the period.
Operating expenses amounted to $635,383 in 1998, a decrease of $628,213 from
$1,263,598 in 1997. Goodwill in the amount of $657,688 and loss on disposition
of assets amounted to $143,112. Cost of discontinuing the operation has been
estimated to be $200,000 and such amount has been reserved for that purpose.
Losses from operations of NBE for the nine months ended August 31, 1998 and 1997
were $1,433,651 and $611,341.

Liquidity and Capital Resources

        At August 31, 1998, the Company had stockholders' equity totaling
$3,177,483, as compared to $1,496,050 at November 30, 1997, an increase of
$1,681,433. The increase of $1,1681,433 resulted from additional capital, offset
by operation losses. The capital included the issuance of 220,000 pre-dividend
common shares at the then market price of $4.75, and issuance of 1,000,000
shares of preferred stock, stated value of $3.00 per share for an aggregate of
$4,045,000. In addition, during the quarter: 75,000 pre-dividend common stock
purchase warrants at $2.00 per share were exercised pursuant to a consulting
agreement with Kennedy Miles and Associates resulting in gross proceeds of
$300,000 before a discount of $150,000 charged to current operations; a 50,000
pre-dividend common stock purchase warrants at $4.00 per share were exercised
pursuant to a consulting agreement with Richard A. Fisher resulting in net
proceeds of $200,000; Creative Business Strategies exercised 7,500 pre-dividend
common stock purchase warrants at $2.00 per share and 85,000 post-dividend
common stock purchase warrants at prices from $1.00 to $2.00 per share with net
proceeds of $138,875. Wall Street





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<PAGE>   14

Financial exercised 8,500 pre-dividend common stock purchase warrants at $3.00
per share and 83,000 post-dividend common stock purchase warrants at prices of
$1.50 to $2.00 per share resulting in net proceeds of $175,000; and, shares were
issued pursuant to the 1992 Stock Option Plan resulting in proceeds of $29,389.
The loss for the nine-month period ended August 31, 1998 amounted to $3,189,116.

        The Company's working capital was $1,270,363 as compared to $337,799 on
November 30, 1997, a decrease of $481,130. The decrease was primarily the result
of a $2,293,756 increase in receivables and a $444,439 reduction in cash and an
increase of $849,805 in accounts payable and short-term notes.

        The Company sought up to $50,000,000 in private placement and equity
during the second and third quarters but the financing was not successful,
primarily because the market did not respond to a placement premised on a
combined business plan by two separate entities. Consequently, as a result of
the incomplete financing and the advances to Zulu-tek, as well as costs of
consolidating the Laptop facilities, during the third quarter, the Company has
deferred certain payables, pending proceeds of additional funding being pursued
by the Company. On September 18, 1998, the Company entered into a letter of
intent for a private placement of up to $20,000,000 in preferred equity, of
which $5,500,000 has been funded. The balance is expected to be funded during
the first and second quarters of 1999, and will be applied, along with operating
funds to the Company's operating obligations and to implement the combined
business plan and other capital needs. In that connection, effective September
14, 1998, the Company announced the acquisition of the assets and certain
liabilities of Zulu-tek, Inc. in exchange for preferred stock to be converted to
5,200,000 shares of common stock, after shareholder approval at a shareholder
meeting currently set for November 20, 1998.

        The Company has historically relied on cash from equity and debt funding
and the exercise of options and warrants to supplement its operating funds.
Management believes that revenue generated from operations, along with funds
generated by financing activities including the proceeds from the current
private placement of equity and debt securities will be sufficient to meet
Company needs and to support the business and strategic plan being undertaken by
the Company and Zulu-tek for at least the next 12 months. However, there can be
no assurance that anticipated operating results will be achieved or that the
current private placement of funds will be completed on favorable terms and at
the levels required. If the current fundings are not completed or are completed
at levels or on terms that do not provide sufficient funding on acceptable
terms, management will be required to modify Company strategy.

Year 2000 Discussion

        The Company began requiring, in the second quarter of 1998, that all
software and hardware being acquired by the Company be Year 2000 compliant and
further that a certificate or statement of compliance be provided by the vendor.
The Company acquires its primary hardware and software from major vendors that
provide assurances and statements that its products are Year 2000 compliant.
However, since a substantial portion of the Company's business involves
activities requiring internet access and communications, the Company is
uncertain of the risk or cost that might arise from disruption of its business
from the possible loss of public utilities, communications or other services
provided by third parties to the general public or to internet





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<PAGE>   15

and communication businesses. The Company is currently reviewing its cost
estimate, survey of risk and contingency plans and intends to complete its
assessment during the first quarter of 1999.


































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<PAGE>   16

                           PART II. OTHER INFORMATION



Item 1. Legal Proceedings

               None.

Item 2. Changes in Securities

               None.

Item 3. Defaults upon Senior Securities

               None.

Item 4. Submission of Matters to a Vote of Security Holders

               None.

Item 5. Other Information

               None.

Item 6. Exhibits and Reports on Form 8-K

               a. Form 8-K filed on March 16, 1998.

               b. Form 8-K filed on September 28, 1998.























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<PAGE>   17


                                    SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.



ENHANCED SERVICES COMPANY, INC.



By  /s/ R. C. Smith                                   Date  10/14/98
   ---------------------------                             -----------
    R. C. Smith Treasurer























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