UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                                   FORM 10-KSB
                          ANNUAL OR TRANSITIONAL REPORT

            (Mark One)
             (X)   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999
                                       OR
             ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER 2-95836-NY

                               EGAN SYSTEMS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            Delaware                                      13-3250816
            --------                                      ----------
    (State or other jurisdiction of            (IRS Employer Identification No.)
     incorporation or organization)

   1501 Lincoln Avenue, Holbrook, NY                      11741
   ---------------------------------                      -----
(Address of principal executive offices)               (Zip Code)

        Registrant's telephone number,including area code: (516) 588-8000

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

       SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE

       SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT: NONE

CHECK WHETHER THE ISSUER(1)FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13
OR 15(d) OF THE SECURITIES AND 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_

CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB (X)

Revenues for the most recent fiscal year were $1,781,470.

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 24, 2000 based upon the average bid and asked prices of
such stock on that date was $6,545,861.

The number of shares of the registrant's Common Stock outstanding as of April
24, 2000 was 19,646,652.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE


                                        1
<PAGE>


                                     PART I

ITEM 1-BUSINESS

GENERAL

Egan Systems, Inc. (the Company) was incorporated under the laws of the state
of Delaware in 1987.

The Company is engaged in the business of developing, selling and supporting
computer software products, particularly products related to the COBOL computer
language. The company's main business has been and continues to be the creation
and sale of COBOL language dialects that permit programs written in heretofore
proprietary versions of COBOL to move (migrate) to inexpensive high performance
systems available from a variety of suppliers without the need to rewrite the
programs.

Much of the Company's existing business is with firms who at one time or another
enjoyed a relationship with Data General Corp. and employed one or more versions
of Data General's COBOL products. In providing an alternative to D.G.'s
proprietary products the Company was able to gain customers that had been Data
General's but also, by the quality of Egan's product offerings, to make D.G.
both a distributor of one of the Company's products, Interactive COBOL, and in
December of 1996 to become an Accredited Service Provider to D.G. for the
Company's VX COBOL product. In 1998, the Company derived over $350,000 in
revenue from a single contract with Data General to migrate and rewrite COBOL
programs for a major railroad. The Company expects to receive additional revenue
from this ongoing relationship.

NEW PRODUCTS

In 1998, the Company introduced upgraded Year 2000 compliant versions of its
existing COBOL languages which are available and necessary for users of these
dialects worldwide. Many existing customers, with current licenses, have
received these upgrades at no charge but other, first time customers, have had
to purchase them. The growth in new customers is increased in 1999.
Additionally, support for the increasingly popular Linux operating system was
added.

The Company's ODBC, which provides access to data stored in the ICOBOL ISAM
files to programs written in languages other than CO97 has proven quite
successful. Originally providing read only access to the data, at the request of
several large customers it was enhanced to offer read/write access. The success
of this product and the growing use of character based as well as GUI (Graphical
User Interface) versions of the Company's Windows/NT products was anticipated
and is consistent with the Company's efforts to offer versions of its languages
that allow its customers the ability to remain fully current in a market that is
increasingly Client/Server oriented.


                                        2
<PAGE>


NEW PRODUCTS (CONT'D)

In addition to offering versions of its language products that allow compliance
with the Year 2000 situation and releasing a production version of G-2K, the
Company's suite of tools permitting a customer to address the Y-2K problem in
house, in 1998 the Company began offering to perform the necessary source code
analysis and remediation (repair) itself. Unlike the sales of the tool suite,
which in 1998 did not live up to the Company's expectation, sales of the
services were strong through the first half of 1999 and then inexplicably fell
off. Several opportunities to bid Y-2k or Migration contracts appeared but none
were awarded to Egan or any other firm. The flow of referral business from Data
General was interrupted when EMC announced their intention to purchase Data
General and then proceeded to do so in the 4th Quarter of 1999. The anticipated
restructuring appears to have de-focused elements of the D.G. Sales force with
whom Egan enjoyed a co-operative arrangement. The are signs that this
relationship is being reestablished.

The Company introduced its cgiCOBOL product in the first quarter of 2000. This
COBOL language product allows both the Company's existing customers and users of
certain other COBOL dialects to create Internet web server solutions using
existing COBOL software and permits the estimated 3 million COBOL programmers
worldwide to create web sights without the need to learn a new, web specific
language. cgiCOBOL is available for Linux and Windows NT servers as well as
other popular Unix operating systems.

At the Company's October 1999 Developers Conference, the specifications for the
long awaited ICOBOL 3 were released to the attendees. This next generation
product offers substantially more features than ICOBOL 2 as well as vastly
larger program sizes. Developer interest was immediate and widespread. Sales are
expected initially to consist of upgrades and new licenses to existing customers
but ICOBOL 3 is the underlying language on which the Company's attempt to
substantially broaden is market is based. This product is scheduled for general
release in the 2nd quarter of 2000.

Of major interest to our customers, a new IDE ( Integrated Development
Environment ) is introduced with ICOBOL 3. Based on the Company's existing
compiler technology and incorporating aspects of the G-2K tool suit as well as a
third party editor, developers who chose ICOBOL 3 will experience a substantial
productivity gain in a user friendly graphical environment.

JOINT VENTURE

The Joint Venture entered into with Shenzhen China based Intermost Corp.
resulted in no Year 2000 related business, nor in any business at all. The
Company has written off and/or expensed all investments in the venture.


                                        3
<PAGE>


ANALYSIS OF CUSTOMERS

The Company has always focused its sales on current or prior users of Data
General hardware and software and most particularly on a category of customer
known as a reseller or VAR. Resellers create programs which are sold, modified,
improved and sold again.

In general they purchase multiple copies of COBOL every year and require a level
of ongoing support that decreases with time, a consideration of some importance
given the need to devote valuable programmer skills to new products and
features. The Company deals directly with approximately 100 resellers and
indirectly through distribution with another 80.

In 1999, sales to two customers comprised approximately 25% of the Company's
sales. One of these customers accounted for approximately 11% of sales and
functions as a distributor for the Company.

The Company's software is in use in North and South America, Europe, Africa,
Asia and Australia.

INVENTORY, SUPPLIES AND MANUFACTURING

The Company maintains sufficient quantities of material on hand to satisfy
normal shipping requirements. The Company is not forced to rely on any single
vendor or group of vendors to satisfy its materials requirement.

COMPETITION

The computer software industry is very highly competitive and populated by many
large and medium size companies and subject to rather rapid technological
advance. There is no assurance that the Company will continue to grow or even to
maintain a competitive position. The Company will continue to seek to develop
successful products that address market niches that provide appropriate enough
to avoid determined penetration by larger, better funded competitors.

INTELLECTUAL PROPERTY

All of the Company's products and source codes are protected by copyright.
Furthermore, all delivered executable code for MS-DOS, Novell and the various
Unix versions that execute on systems employing Unix is protected from illicit
duplication by the requirement for the presence of a unique mechanical security
device available only from the Company.

RESEARCH AND DEVELOPMENT EXPENDITURES

For the years ended December 31, 1999 and 1998, research and development
expenditures amounted to approximately $712,000 and $695,000, of which
approximately $420,000 and $401,000 was capitalized as of December 31, 1999
and December 31, 1998, respectively.


                                       4
<PAGE>


EMPLOYEES

At the end of 1999, Egan Systems had 16 full time employees, 14 of which are
engaged in software development or support and 2 are involved in sales and
administration.

ITEM 2-PROPERTIES

Egan Systems leases part of a building at 1501 Lincoln Avenue, Holbrook, New
York containing approximately 1,250 square feet, of which approximately 800
square feet are used for executive and clerical offices and production and the
remaining 450 square feet is used for warehousing, shipping and receiving. The
lease requires monthly rent payments of $695 and expires on October 31, 2000.
The Company also occupies two parts of a building at 4904 Waters Edge Drive,
Raleigh, North Carolina containing 3,500 square feet used for research and
product development. The leases expire through August 31, 2000, and acquire
future minimum payment of approximately $29,000. During the year ended December
31, 1999, the Company paid approximately $63,000 for the rental of properties.

ITEM 3-LEGAL PROCEEDINGS

No material legal proceedings are pending by or against the Company, or to the
knowledge of the Company, are contemplated against the Company.

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

    None


                                       5
<PAGE>


                                     PART II

ITEM 5-MARKET FOR COMMON EQUITY AND RELATED MATTERS

The table below sets forth the high and low closing bid prices of the Company's
Common Stock for the last two calendar years. Since the shares are not listed on
NASDAQ, but on the Eastern Regional "Pink Sheets" and on the NASDAQ Electronic
Bulletin Board (Symbol EGNS), the Company can only supply a general estimate of
the price range of its shares on a quarterly basis.
<TABLE>
<CAPTION>
CALENDAR YEARS                                BID PRICES

         1999                       HIGH                      LOW
         ----                       ----                      ---
<S>                                 <C>                       <C>
First Quarter                       $0.75                     $0.21
Second Quarter                      $0.40                     $0.18
Third Quarter                       $0.26                     $0.10
Fourth Quarter                      $0.13                     $0.08

         1998
         ----
First Quarter                       $1.81                     $0.97
Second Quarter                      $2.84                     $1.41
Third Quarter                       $1.84                     $0.88
Fourth Quarter                      $0.97                     $0.50
</TABLE>

On March 15, 2000, the high bid and asked quotations for the Company's Common
Stock were $0.45 and $0.56 per share, respectively.

The Company believes that on December 31, 1999, there were approximately 930
shareholders of record of the Company's stock.

The Company has not paid any dividends on its Common Stock and has determined,
for the foreseeable future, to retain earnings, if any, to fund additional
development and to take advantage of any opportunities that might become
apparent.

ITEM 7-FINANCIAL STATEMENTS

The financial statements are presented on F1 through F14.

ITEM 8-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:  None


                                       6
<PAGE>


ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - YEARS ENDED DECEMBER 31, 1999 AND 1998:

NET SALES

For the years ended December 31, 1999 and 1998, total revenue approximated
$1,781,000 and $1,803,000, respectively. Net product revenues have declined to
approximately $1,339,000 from $1,477,000 or 9% due to a non-recurring $250,000
one time sale in 1998 to one customer of unique licenses. After adjusting for
this one time sale in 1998, sales in 1999 have increased by 9% versus 1998 due
to new revenue sources derived from the exposure of the Company's new internet
web page and sales of the Company's upgraded Year 2000 compliant versions of its
existing COBOL programs. Custom service revenue has increased in 1999 to
approximately $442,000 from $325,000 or 22% and is derived from services
performed such as client software migration, Year 2000 assessment and
remediation, consulting and custom software generation work performed on behalf
of new and some existing customers. In the 2nd quarter of 2000, the Company will
release a new upgraded product called Interactive Cobol 3. The Company feels
that this new enhanced featured product will convince existing customers to
purchase an upgrade of the product and also attract new customers to purchase
the new product thereby increasing sales further in 2000.

Management is optimistic that the Company will remain profitable in 2000. As of
December 31, 1999, the Company's efforts in China regarding its joint venture
with Intermost called Tech 2020 has not resulted in any executed contract or
revenue. The company is continually evaluating new opportunities that management
hopes will substantially contribute to revenue. However, the Company is quite
small and remains subject to technological obsolescence and competitive market
conditions.

COSTS AND EXPENSES

Cost of goods sold for the years ended December 31, 1999 and 1998 were
approximately $231,000 and $161,000, and gross profit percent was approximately
87% and 91%, respectively. The lower gross profit margin in 1999 results from
the combination of higher gross margins achieved on sales of the Company's
regular software products and lower gross margins achieved on a portion of the
new custom services income. In 1999 and 1998, the Company purchased rights to
software for use with the new Year 2000 Assend custom service line of business
that the Company has undertaken. As of December 31, 1999, due to various market
conditions and other circumstances, the Company either did not take delivery of
the software products or was unable to resell the products. Accordingly, as of
December 31, 1999, the Company has written-off $1,106,550 of the remaining
unused costs of these software rights. However, the Company and the software
vendor are currently negotiating to apply these costs to other software with
application to the Company's future products and services. The Company believes
it will be successful in its negotiations and that software vendor will
ultimately allow these costs to be applied to other software for future use by
the Company. If the Company is successful in its negotiations and is able to
apply the costs to new software, the Company will recognize income in the future
period to the extent of the applicable credits.

Research and development costs were approximately $292,000 and $294,000 for the
years ended December 31, 1999 and 1998, respectively. The Company continues to
expend significant amounts of its funds developing new software and to remain
competitive in its specific field of expertise.


                                       7
<PAGE>


PART II, ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D):

Selling, shipping and general and administrative expenses (SG&A) for the years
ended December 31, 1999 and 1998 were approximately $1,020,000 and $980,000,
respectively. The capitalization of computer software development costs for the
years ended December 31, 1999 and 1998 reduced SG&A expenses by approximately
$420,000 and $401,000, respectively. The increase in capitalized computer
software development costs were attributed primarily to an increase in employees
in the Company's software development facility.

ADVERTISING AND PROMOTION EXPENSE

For the years ended December 31, 1999 and 1998, advertising and promotion
expense was approximately $28,000 and $209,000, respectively, and was directly
related to the Company's efforts to market its new Year 2000 Impact Assessment
and Remediation Tools and Services product as well as to expand the company's
overall visibility. In early 1999, the Company ended its relationship with its
public relations firm and as of December 31, 1999, the Company is reevaluating
its promotion and advertising campaign.

INTEREST INCOME

Interest in December 31, 1999 and 1998, was approximately $29,000 and $36,000,
respectively, and was related to cash invested by the Company in short-term
financial instruments.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense for the years ended December 31, 1999 and
1998 was approximately $387,000 and $300,000, respectively. The increase in 1999
is attributed to increased amortization of capitalized computer software costs.

LIQUIDITY

As of December 31, 1999, the Company's net cash used in operations was
approximately ($86,000) and is comprised of a net loss of ($997,784), a
reduction of accounts receivable of $288,000, depreciation and amortization of
$387,000, and an increase in accounts payable of $176,000. The increase in
accounts payable is related to the Company's purchase of rights to software for
use with the new Year 2000 Assend custom service line of business. The Company
and the software vendor are renegotiating the terms of their original agreement,
as explained in the costs and expenses section, including the outstanding
liability. This compares to the year ended December 31, 1998 where net cash
provided by operations was approximately $109,000 and was substantially
comprised of net loss of ($1,115,000), depreciation and amortization of
$300,000, an increase in accounts receivable of ($274,000) and $1,275,000 in
consulting expense accounted for as a non-monetary transaction.


                                       8
<PAGE>


PART II, ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D):

LIQUIDITY (CONT'D)

Net cash used in investing activities during the years ended December 31, 1999
and 1998 was approximately $501,000 and $494,000, respectively. This was
attributed to the purchase of new computer hardware and software of
approximately $81,000 and $92,000 to support the Company's ongoing research and
development activities and to the capitalization of computer software
development costs of $420,000 and $401,000, for the years ended December 31,
1999 and 1998, respectively.

Net cash provided by financing activities for the years ended December 31, 1999
and 1998 was approximately $-0- and $541,000, respectively. This was attributed
to the exercise of common stocks warrants and/or options in 1998.

Management believes that the Company has obtained sufficient cash resources to
meet its expected needs in the present fiscal year. Management does not
anticipate large capital expenditures in the current year except as discussed
above. At present the Company does not maintain a line of credit facility with a
lending institution.

INFLATION AND SEASONALITY

The Company does not anticipate inflation will significantly impact its
business. The Company does not believe its business is subject to fluctuations
due to seasonality.


                                       9
<PAGE>


                                    PART III

ITEM 9-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME                    AGE                POSITION
<S>                     <C>     <C>
Edward J. Egan          59      Chairman, Chief Executive Officer
                                Treasurer and President, Director

Ralph Jordan            46      Secretary of Egan Systems, Inc.,
                                President of Envyr Corp. Subsidiary,
                                Director

Jack Laskin             71      Director
</TABLE>

Edward J. Egan has been Chairman of the Board, President, Treasurer and Chief
Executive Officer of the Company since March 10, 1987. From 1983 through
December 1986, Mr. Egan had been Executive Vice President of Diplomat Systems
Corp. Prior to that, Mr. Egan had been Sales and Marketing Manager for Computer
Products at Schweber Electronics Corp., Westbury, New York.

Ralph Jordan became a Director of the Company when the Company acquired Envyr
Corp., of which Mr. Jordan was President, in December of 1987.  Mr. Jordan
left Data General Corp. where he had headed the Languages Department, in
November of 1986 to found Envyr Corp.  Mr. Jordan is still President of the
Company's Envyr subsidiary.

Jack Laskin has been a Director of the Company since its inception in March of
1987. Prior to his retirement in 1986, Mr. Laskin was President of Diplomat
Electronics Corp. from 1983 through 1986 and Vice President for Marketing at
Schweber Electronics until 1983.

Each director is elected by the shareholders at the annual meeting of
shareholders and holds office until the next annual meeting of shareholders.


                                       10
<PAGE>


ITEM 10-EXECUTIVE COMPENSATION

Compensation of Edward J. Egan for the year ended December 31, 1999 amounted to
approximately $109,000.

ITEM 11-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
Class           Name                         Number of       Percent
of Shares       of Beneficial Owner          Shares Owned    Of Class
---------       -------------------          ------------    --------
<S>               <C>                           <C>            <C>

Common            Edward J. Egan                1,542,000       8.3%

Common            Networth Partners               950,000       5.1%

Common            Ralph Jordan                    500,000       2.7%

Common            Jack Laskin                   1,340,000       7.2%

Common            All beneficial owners,
                  executives and
                  directors as a group          4,332,000      23.2%
</TABLE>

Unless otherwise noted, the addresses of all persons listed above are in care of
the Company.

ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.


                                       11
<PAGE>


ITEM-13 EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits required by Item 601 of Regulation S-B
<TABLE>
         <S>      <C>
         3A       Articles of Incorporation (1)

         3B       ByLaws of Registrant (1)

         11       Computation of per share earnings

         21       List of subsidiaries of the registrant

         27       Financial data schedule
</TABLE>

(b)      Reports on Form 8-K:None


---------------------------------------
(1)   Filed as an exhibit to the Registration Statement on Form S-18 (File No.
2-95836-NY) of the Registrant and incorporated by reference herein.


                                       12
<PAGE>


PART III, ITEM 13, EXHIBIT 11.

Computation of per share earnings:

The following data show the amounts used in computing earnings per share and the
effect on loss and the weighted average number of shares of dilutive potential
common stock.

<TABLE>
<CAPTION>
                                            1999          1998         1997
                                            ----          ----         ----
<S>                                   <C>            <C>             <C>
Loss available to common
 stockholders used in
 basic EPS                            $   (997,784)  $ (1,114,521)   $    (82,082)

Interest expense-convertible
 note payable                                 --              625           5,000
                                      ------------   ------------    ------------

Loss available to common
 stockholders after
 assumed conversions of
 dilutive securities                  $   (997,784)  $ (1,113,896)   $    (77,082)
                                      ============   ============    ============

Weighted average number of
 common shares used in
 basic EPS                              18,646,652     17,002,134      12,265,383

Effect of dilutive securities
  Stock options/warrants                 3,764,593      3,986,392       6,221,675
  Convertible notes payable                   --          102,192         404,822
                                      ------------   ------------    ------------

Weighted average number of
 common shares and dilutive
 potential common stock used
 in diluted EPS                         22,411,245     21,090,718      18,891,990
                                      ============   ============    ============

Net loss per common share:

  Basic                               $       (.05)  $       (.07)   $       (.01)
                                      ============   ============    ============

  Fully diluted                       $       --     $       --      $       --
                                      ============   ============    ============
</TABLE>


For 1999, 1998 and 1997, fully diluted earnings per share amounts are not
presented because they are anti-dilutive.


                                       13
<PAGE>


PART III, ITEM 13, EXHIBIT 21

                               EGAN SYSTEMS, INC.
                     LIST OF SUBSIDIARIES OF THE REGISTRANT



Envyr Corp. (incorporated in Delaware)


                                       14
<PAGE>


               SUPPLEMENTAL I ORMATION TO B FURNISHED WITH REPORTS
               FILED PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT
                             BY NON-REPORTING ISSUES

No Proxy material or annual report has been sent to security-holders. Proxy
material to be furnished to security-holders subsequent to the filing of this
form shall be furnished to the Commission when it is sent to security-holders.

                                   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, duly authorized at Hauppauge, New York on the 15th
day of March, 2000.

                               EGAN SYSTEMS, INC.


                               By /s/Edward J. Egan
                               -------------------------------------
                               Edward J. Egan, President
                               Chairman and Chief Executive Officer

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

<TABLE>
<CAPTION>
          SIGNATURE             TITLE                                    DATE
<S>                             <C>                                      <C>
/s/Edward J. Egan               Chairman, President, Chief               April 24, 2000
-----------------------         Executive Officer, Treasurer
Edward J. Egan                  (Principal Executive, Financial
                                and Accounting Officer)

/s/Jack Laskin                  Director                                 April 24, 2000
-----------------------
Jack Laskin

/s/Ralph Jordan                 Secretary/Director                       April 24, 2000
-----------------------
 Ralph Jordan
</TABLE>

                                       15
<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997







<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                                DECEMBER 31, 1999

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                   Page No.

<S>                                                                     <C>
REPORT OF INDEPENDENT AUDITORS                                        F-2

FINANCIAL STATEMENTS:

  Consolidated balance sheets at December 31, 1999 and 1998           F-3

  Consolidated statements of operations, years ended
   December 31, 1999, 1998 and 1997                                   F-4

  Consolidated statements of changes in stockholders' equity,
   years ended December 31, 1999, 1998 and 1997                       F-5

  Consolidated statements of cash flows, years ended
   December 31, 1999, 1998 and 1997                                   F-6

  Notes to consolidated financial statements,
   December 31, 1999, 1998 and 1997                               F-7 - F-15

</TABLE>


                                     F-1


<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
EGAN SYSTEMS, INC. AND SUBSIDIARY

We have audited the accompanying consolidated balance sheets of Egan Systems,
Inc. and Subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. 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 that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Egan Systems, Inc.
and Subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years ended December 31,
1999, 1998 and 1997 in conformity with generally accepted accounting principles.

New York, New York
March 10, 2000

                                      F-2


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998



<TABLE>
<CAPTION>

<S>                                                                  <C>            <C>
ASSETS                                                               1999           1998
                                                              -----------    -----------

Current Assets
  Cash (Note 2)                                               $   449,990    $ 1,036,429
  Accounts receivable                                             111,837        399,855
  Inventory (Note 2)                                                8,910         18,020
  Acquired technology (Note 5)                                       --           40,000
  Prepaid expenses and other current assets                         8,764         26,525
                                                              -----------    -----------

      Total Current Assets                                        579,501      1,520,829
                                                              -----------    -----------

Property and Equipment (Notes 2 and 3)                            189,302        165,337
                                                              -----------    -----------

Other Assets
  Computer software development costs - net (Notes 2 and 4)       803,030        713,060
  Security deposits                                                 3,126          3,126
                                                              -----------    -----------

      Total Other Assets                                          806,156        716,186
                                                              -----------    -----------

      Total Assets                                            $ 1,574,959    $ 2,402,352
                                                              ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts payable                                            $   175,917    $      --
  Accrued expenses and other current liabilities                   50,544         56,070
                                                              -----------    -----------

      Total Current Liabilities                                   226,461         56,070
                                                              -----------    -----------

Commitment and Contingencies (Note 6)
Stockholders' Equity
  Common stock - $0.05 par value; shares authorized -
  30,000,000, shares issued and outstanding -
   18,646,652 in 1999 and 1998                                    932,333        932,333
  Additional paid-in capital                                    4,877,201      4,877,201
  Deficit                                                      (4,098,536)    (3,100,752)
                                                              -----------    -----------


                                                                1,710,998      2,708,782
  Notes receivable - stock purchase (Note 8)                     (362,500)      (362,500)
                                                              -----------    -----------

      Total Stockholders' Equity                                1,348,498      2,346,282
                                                              -----------    -----------

      Total Liabilities and Stockholders' Equity              $ 1,574,959    $ 2,402,352
                                                              ===========    ===========


</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-3


<PAGE>



                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>


                                                  1999           1998           1997
                                              -----------    -----------    -----------


<S>                                           <C>            <C>            <C>
Net product sales                             $ 1,339,440    $ 1,477,438    $   944,354
Custom services income                            442,030        325,200           --
                                              -----------    -----------    -----------

                                                1,781,470      1,802,638        944,354
                                              -----------    -----------    -----------

Cost and expenses:

  Cost of goods sold                              230,651        161,069         76,214
  Selling, shipping, general and
   administrative expenses                      1,020,384        980,264        635,940
  Interest income                                 (28,672)       (36,485)       (20,585)
  Royalty expense                                  34,153         23,882         10,818
  Advertising and promotion expense                27,711        209,438         78,337
  Interest expense                                    338            647          9,195
  Depreciation and amortization                   386,810        299,663        237,733
  Acquired technology (Note 6)                  1,106,550           --             --
  Consulting expense (Note 10)                       --        1,275,000           --
                                              -----------    -----------    -----------

                                                2,777,925      2,913,478      1,027,652
                                              -----------    -----------    -----------

Loss before provision for income taxes           (996,455)    (1,110,840)       (83,298)

Provision (benefit) for income taxes
 (Notes 2 and 12)                                   1,329          3,681         (1,216)
                                              -----------    -----------    -----------

Net loss                                      $  (997,784)   $(1,114,521)   $   (82,082)
                                              ===========    ===========    ===========



Net loss per common share (Note 2)

 Basic                                        $      (.05)   $      (.07)   $      (.01)
                                              ===========    ===========    ===========

 Fully diluted                                $      --      $      --      $      --
                                              ===========    ===========    ===========

 Cash dividends per common share                   None           None           None
                                              ===========    ===========    ===========


</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                       F-4


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>


                                            COMMON STOCK
                                           --------------            ADDITIONAL                NOTES RECEIVABLE
                                       SHARES         AMOUNT      PAID IN CAPITAL   DEFICIT     STOCK PURCHASE      TOTAL
                                      -------       ---------     ---------------  ---------   ----------------    --------

<S>                                      <C>          <C>           <C>            <C>            <C>            <C>
Balance December 31, 1996               10,185,000   $   509,250   $ 1,912,814    $(1,904,149)   $      --      $   517,915

Sale of stock                              580,000        29,000       116,000           --             --          145,000

Conversion of notes payable                662,652        33,133       132,530           --         (355,000)       165,663

Stock options/warrants exercised         4,132,000       206,600     1,061,400           --             --          913,000

stock prospectus cost                         --            --         (64,193)          --             --          (64,193)

Net loss for 1997                             --            --            --          (82,082)          --          (82,082)
                                       -----------   -----------   -----------    -----------    -----------    -----------

Balance December 31, 1997               15,559,652       777,983     3,158,551     (1,986,231)      (355,000)     1,595,303

Conversion of notes payable                200,000        10,000        40,000           --             --           50,000

Stock options/warrants exercised         1,612,000        80,600       467,400           --           (7,500)       540,500

Stock issued for consulting services     1,275,000        63,750     1,211,250           --             --        1,275,000

Net loss for 1998                             --            --            --       (1,114,521)          --       (1,114,521)
                                       -----------   -----------   -----------    -----------    -----------    -----------

Balance December 31, 1998               18,646,652       932,333     4,877,201     (3,100,752)      (362,500)     2,346,282

Net loss or 1999                              --            --            --         (997,784)          --         (997,784)
                                       -----------   -----------   -----------    -----------    -----------    -----------

Balance December 31, 1999               18,646,652   $   932,333   $ 4,877,201    $(4,098,536)   $  (362,500)   $ 1,348,498
                                       ===========   ===========   ===========    ===========    ===========    ===========



</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                                               F-5


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                           INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>


                                                           1999           1998           1997
                                                           ----           ----           ----


<S>                                                   <C>            <C>             <C>
Cash flows from operating activities:
  Net loss                                            $  (997,784)   $(1,114,521)   $   (82,082)
  Adjustments to reconcile net loss to net
   cash (used in) provided by operating activities:
    Consulting expense                                       --        1,275,000           --
    Depreciation and amortization                         386,810        299,663        237,733
    Accounts receivable                                   288,018       (274,172)       (40,325)
    Inventory                                               9,110         (1,430)        (3,734)
    Acquired technology                                    40,000        (40,000)          --
    Prepaid expenses and other current assets              17,762        (24,785)        13,138
    Accounts payable                                      175,916        (17,335)          --
    Accrued expenses and other
     current liabilities                                   (5,526)         6,582         27,098
                                                      -----------    -----------    -----------

      Net cash (used in) provided by operating
       activities                                         (85,694)       109,002        151,828
                                                      -----------    -----------    -----------

Cash flows from investing activities:
  Purchase of property and equipment                      (81,197)       (92,253)       (77,403)
  Computer software development costs                    (419,548)      (401,258)      (347,936)
                                                      -----------    -----------    -----------

      Net cash used in investing activities              (500,745)      (493,511)      (425,339)
                                                      -----------    -----------    -----------

Cash flows from financing activities:
  Proceeds from sale of stock options                        --             --           50,000
  Proceeds from sale of common stock                         --             --          145,000
  Proceeds from exercise of stock warrants/options           --          540,500        863,000
  Proceeds from convertible notes payable                    --             --          130,000
  Prospectus issuance costs                                  --             --          (64,193)
  Loans from officer                                         --             --           (7,156)
                                                      -----------    -----------    -----------

      Net cash provided by financing activities              --          540,500      1,116,651
                                                      -----------    -----------    -----------

Net (decease) increase in cash                           (586,439)       155,991        843,140

Cash - beginning of year                                1,036,429        880,438         37,298
                                                      -----------    -----------    -----------

Cash - end of year                                    $   449,990    $ 1,036,429    $   880,438
                                                      ===========    ===========    ===========


</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       F-6


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

NOTE 1.  GENERAL BUSINESS DESCRIPTION/CONCENTRATION OF CREDIT RISK:

The Company develops and markets proprietary computer software to programmers,
resellers and computer users. The Company's sales are made on credit to
customers who are primarily based in the United States of America. In 1999 and
1998, sales to two customers and three customers comprised approximately 25% and
52% of the Company's sales and approximately 9% and 63% of the Company's
accounts receivable at December 31, 1999 and December 31, 1998, respectively.

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include Egan Systems, Inc. ("the Company")
and Envyr Corp., its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.

CASH:

Cash includes all cash balances and highly liquid investments with a maturity of
three months or less. The Company maintains its cash in various bank accounts
and one stock brokerage institution which, at times, may exceed federally
insured limits. The Company has not experienced any losses in such accounts.

INVENTORY:

Inventory, which consists primarily of miscellaneous computer peripherals, is
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.

PROPERTY AND EQUIPMENT:

Property and equipment is stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets, or in the
case of leasehold improvements, over the life of the lease, if shorter.

REVENUE RECOGNITION:

Product revenues are recognized at the time of shipment. Service revenues are
recognized as services are performed.

In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position
(SOP)97-2, "Software Revenue Recognition." This statement is effective for
fiscal years beginning after December 31, 1997. The Company's adoption of this
SOP did not have a material effect on the Company's consolidated financial
position or results of operations.

ADVERTISING:

Advertising costs are charged to operations when incurred. There were no
capitalized advertising costs as of December 31, 1999 and 1998.

                                       F-7


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D):

EARNINGS PER SHARE:

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per share. SFAS No. 128
simplifies the standards for computing earnings per share previously found in
APB Opinion No. 15, Earnings Per Share and is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
Earlier adoption is not permitted. The Company's adoption of SFAS No. 128 did
not have a significant impact on its reported results.

Basic net income per common share is computed based on the weighted average
number of outstanding common shares. The number of shares used in the
computation of basic net income per common share were 18,646,652, 17,002,134 and
12,265,383 in 1999, 1998 and 1997, respectively. Fully diluted net income per
common share is computed based on the weighted average number of outstanding
common shares plus the shares that would be outstanding assuming conversion of
the outstanding options, warrants and convertible note payable. In 1999 and
1998, for purposes of the fully diluted computations, the number of shares that
would be issued from the exercise of stock options has been reduced by the
number of shares that could have been purchased from the proceeds at the average
market price of the Company's stock. The number of shares used in the
computations of fully diluted earnings per share were 22,411,245, 21,090,718 and
18,891,990 in 1999, 1998 and 1997, respectively (Note 13). Fully diluted
earnings per share amounts are not presented for 1999, 1998 and 1997 because it
is anti-dilutive (Note 13).

COMPUTER SOFTWARE DEVELOPMENT COSTS:

Computer software development costs for products are capitalized subsequent to
the establishment of technological feasibility. Capitalization ceases when the
products are available for general release to customers at which time
amortization of the capitalized costs begins on a straight-line basis over the
estimated economic life of the products, which is estimated at three years (Note
4).

It is reasonably possible that the remaining estimated economic life of the
products can be reduced significantly in the near term as a result of many
factors in the marketplace. As a result, the carrying amount of the capitalized
computer software costs may be reduced materially in the near term.

USE OF ESTIMATES:

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses. Actual
results could differ from those estimates.

INCOME TAXES:

The Company complies with Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes," which requires the use of the
liability method of accounting for income taxes. The liability method measures
deferred income taxes by applying enacted statutory rates in effect at the
balance sheet date to the differences between the tax base of assets and
liabilities and their reported amounts in the financial statements. The
resulting deferred tax asset or liability is adjusted to reflect changes in tax
laws as they occur.


                                       F-8


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D):

INCOME TAXES:

Deferred income taxes reflect temporary differences in reporting assets and
liabilities for income tax and financial accounting purposes. These temporary
differences arise from net operating loss carryforwards (Note 10) and the
capitalization of computer software development costs (Note 4).

RECLASSIFICATIONS:

Certain amounts in the 1998 financial statements have been reclassified to
conform to the presentation in 1999.

NOTE 3.  PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

<TABLE>
<CAPTION>


                                   1999     1998
                                   ----     ----

<S>                              <C>        <C>
Office furniture and equipment   $ 54,044   $ 51,007
Computer software                 168,273    125,301
Computer hardware                 217,804    182,616
Leasehold improvements              3,975      3,975
                                 --------   --------
                                  444,096    362,899
Accumulated depreciation          254,794    197,562
                                 --------   --------

                                 $189,302   $165,337
                                 ========   ========


</TABLE>

Depreciation expense charged to operations in each of the years ended December
31, 1999, 1998 and 1997 amounted to $57,232, $36,975 and $28,887, respectively.

NOTE 4.  COMPUTER SOFTWARE DEVELOPMENT COSTS:

Computer software development costs consist of the following:

<TABLE>
<CAPTION>


                                         1999         1998
                                         ----         ----

<S>                                   <C>          <C>
Computer software development costs   $1,971,028   $1,551,480
Accumulated amortization               1,167,998      838,420
                                      ----------   ----------

                                      $  803,030   $  713,060
                                      ==========   ==========


</TABLE>

Amortization expense charged to operations in 1999, 1998 and 1997 amounted to
$329,578, $262,688 and $208,846, respectively.

                                       F-9


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

NOTE 5.  ACQUIRED TECHNOLOGY:

Acquired technology costs represents amounts paid by the Company for the rights
to use certain software utilized in the Company's year 2000 assessment and
remediation service. The software costs are being charged to cost of goods sold
based on revenues from customers contracting with the Company for the use of the
technology.

The Company periodically assesses the value of this asset by comparing its
carrying cost to its net realizable value. The amounts by which the carrying
cost exceeds the net realizable value is written off. For the year ended
December 31, 1999, $1,106,550 related to these costs have been written off.
However, the Company is currently negotiating with the software vendor to apply
these costs to other software with application to the Company's products and
services. As of the date of this financial statement the outcome of these
negotiations is uncertain. However, the Company believes it will be successful
in its negotiations and that the software vendor will ultimately allow these
costs to be applied to other software for future use by the Company. If the
Company is successful in its negotiations and is able to apply the costs to new
software, the Company will recognize income in the future period to the extent
of the applicable credits.

NOTE 6.  COMMITMENT AND CONTINGENCIES:

OPERATING LEASES:

The Company leases office and warehouse facilities under noncancelable operating
leases expiring through October 2000. Minimum future annual rental payments
under these leases for the year ending December 31, 2000 is approximately
$29,000. Rent expenses charged to operations in the years ended December 31,
1999, 1998 and 1997 amounted to $62,711, $59,833 and $46,863, respectively.

NOTE 7.  RESEARCH AND DEVELOPMENT COSTS:

Research and development costs are charged to operations when incurred and are
included in operating expenses. The amounts charged to operations for the years
ended December 31, 1999, 1998 and 1997 were approximately $292,000, $294,000 and
$343,000, respectively.

NOTE 8.  COMMON STOCK:

COMMON STOCK SALE:

In January 1997, the Company sold 580,000 shares of its $.05 par value common
stock at $.25 per share and granted stock warrants to purchase an additional
800,000 shares of its $.05 par value common stock at $.25 per share, the price
of which was significantly below the market price of the common stock on the
date of sale. The warrants expire in January 2001.

                                      F-10


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

NOTE 8.  COMMON STOCK (CONT'D):

NOTES RECEIVABLE - STOCK PURCHASE:

In October and December 1997 and June 1998, the Company entered into agreements
whereby it issued 20,000, 1,400,000 and 30,000 shares, respectively, of the
Company's $.05 par value common stock to certain employees of the Company for
consideration of $.25 per share or $362,500. Payment for the stock consisted of
the issuance of non-interest bearing notes receivable in the amount of $362,500
payable within 20 days of the sale by the employee of the common stock related
to these notes receivable or immediately upon the employee leaving the
employment of the Company. The notes receivable are secured by the common stock
related to these notes receivable. The transaction has been recorded as a sale
of common stock with the notes receivable reflected as a reduction of
stockholders' equity.

STOCK OPTIONS/WARRANTS:

The following table provides information regarding stock option and warrant
activity for the years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>


                                           EXERCISE PRICE PER SHARE
                                           -------------------------
                        NUMBER OF SHARES    RANGE        WEIGHTED AVERAGE
                        ---------------     -----         ---------------

<S>                           <C>          <C>            <C>
Balance-December 31, 1997    6,543,000   $0.250-0.500     $    0.293

  Granted                       30,000          0.250          0.250
  Exercised                 (1,612,000)   0.250-0.375          0.340
                            ----------    -----------     ----------

Balance-December 31, 1998    4,961,000    0.250-0.500          0.277

  Granted                      100,000          0.360          0.360
  Exercised                       --               --             --
  Expired                   (4,811,000)   0.250-0.500          0.280
                            ----------    -----------     ----------

Balance-December 31, 1999      250,000   $0.250-0.500     $    0.320
                            ==========   ============     ==========

</TABLE>


The status of all options and warrants outstanding at December 31, 1999 is
summarized as follows:

<TABLE>
<CAPTION>


                                           WEIGHTED AVERAGE
Range Of                                       REMAINING          WEIGHTED AVERAGE
EXERCISE PRICES                SHARES       CONTRACTUAL LIFE        EXERCISE PRICE
---------------                ------     ------------------      ---------------
                                              (In Years)

<S>                          <C>                <C>                     <C>
$    0.250                   100,000            1.00                    $  0.250
     0.360                    50,000            1.06                       0.360
     0.375                   100,000            1.36                       0.375
                        ------------            ----                    --------

                             250,000            1.14                    $  0.320
                        ============            ====                    ========

</TABLE>

                                      F-11


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION:

CASH TRANSACTIONS:

During the years ended December 31, 1999, 1998 and 1997, the Company paid cash
in each year for interest expense in the amount of $338, $1,897 and $7,080,
respectively.

During the years ended December 31, 1999, 1998 and 1997, the Company paid cash
for corporate income tax payments in each year in the amount of $2,753, $3,534
and $520, respectively.

NON-CASH TRANSACTIONS:

During the year ended December 31, 1998, the company issued 1,275,000 shares of
its $.05 par value common stock in exchange for consulting services valued at
$1,275,000 (Note 9).

During the years ended December 31, 1998 and 1997, the Company converted $50,000
and $165,663 of its convertible notes payable and accrued interest into 200,000
and 662,652 shares, respectively, of its $.05 par value common stock at $.25 per
share.

During the years ended December 31, 1998 and 1997, the Company issued 30,000 and
1,420,000 shares of its $.05 par value common stock, respectively, in exchange
for notes receivable from certain employees of the Company in conjunction with
the exercising of their stock options at $.25 per share for $362,500 (Note 8).

NOTE 10.   NON-MONETARY TRANSACTIONS:

During the year ended December 31, 1998, the Company issued 1,275,000 shares of
its $.05 par value common stock, with an approximate market value of $1,275,000
at the date of issuance, in exchange for certain consulting services which were
recorded as an operating expense on the financial statements. The common stock
was issued for consulting services related to developing business opportunities
in Asia (1,000,000 shares) and for development of other general business
opportunities (275,000 shares).

NOTE 11.  401(K) SAVINGS PLAN:

In March 1999, the Company adopted a 401(k) savings plan that covers all
employees of the Company. The Plan is effective March 1, 1999. Contributions to
the Plan may be made by all eligible employees up to fifteen percent of their
salary. The Company will match twenty-five percent of the employee's
contribution up to four percent of each employees base salary.

For the year ended December 31, 1999, the Company incurred contribution expense
of approximately $7,000 related to this Plan.

                                      F-12


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

NOTE 12.  INCOME TAXES:

The components of the deferred tax asset and liability are as follows:

<TABLE>
<CAPTION>


                                                 1999           1998
                                                -----          -----
                                              NONCURRENT    NONCURRENT

<S>                                          <C>            <C>
Total deferred tax asset (Note 2)            $ 1,287,000    $ 1,270,000
Total deferred tax liability (Note 2)           (297,000)      (285,000)
Valuation allowance                             (990,000)      (985,000)
                                             -----------    -----------

Net deferred tax asset (liability)           $      --      $      --
                                             ===========    ===========

</TABLE>


The provision for income taxes for the years ended December 31, 1999, 1998 and
1997 consists of the following:

<TABLE>
<CAPTION>


                                                1999       1998         1997
                                                ----       ----         ----

<S>                                           <C>         <C>         <C>
Current tax expense                           $   --      $   --      $   --
Deferred tax expense                            12,000      55,000      58,000
Benefit of net operating loss carryforwards    (12,000)    (55,000)    (58,000)
Net change in valuation allowance                 --          --          --
                                              --------    --------    --------

Total                                         $   --      $   --      $   --
                                              ========    ========    ========


</TABLE>

Reconciliations of the differences between income taxes computed at Federal
statutory rates and consolidated provisions for income taxes are as follows:


<TABLE>
<CAPTION>
                                               1999        1998        1997
                                               ----        ----        ----

<S>                                          <C>         <C>        <C>
Income taxes computed at Federal statutory
 tax rate                                    $ 25,669    $   --     $   --
Income tax benefit of capitalized
 costs deducted for tax purposes              (25,669)       --         --
Surtax exemption                                 --          --         --
State tax provisions (benefit)                  1,329       3,681     (1,216)
Benefit of operating loss carryforwards          --          --         --
                                             --------    --------   --------

Provision (benefit) for income taxes         $  1,329    $  3,681   $ (1,216)
                                             ========    ========   ========

</TABLE>


As of December 31, 1999, the Company has a net operating loss carryforward
available for Federal and State income tax purposes in the amount of
approximately $4,500,000, expiring from 2002 through 2014.


                                      F-13


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

NOTE 13. COMPUTATION OF EARNINGS PER SHARE:

The following data show the amounts used in computing earnings per share and the
effect on loss and the weighted average number of shares of dilutive potential
common stock.

<TABLE>
<CAPTION>


                                                   1999           1998           1997
                                                   ----           ----           ----

<S>                                          <C>             <C>             <C>
Loss available to common
 stockholders used in basic EPS               $   (997,784)  $ (1,114,521)   $    (82,082)

Interest expense - convertible note payable           --              625           5,000
                                              ------------   ------------    ------------

Loss available to common
 stockholders after assumed
 conversions of dilutive securities           $   (997,784) $  (1,113,896)   $    (77,082)
                                              ============    ============    ============

Weighted average number of common
 shares used in basic EPS                       18,646,652     17,002,134      12,265,383

Effect of dilutive securities
  Stock options/warrants                         3,764,593      3,986,395       6,221,785
  Convertible notes payable                           --          102,189         404,822
                                              ------------   ------------    ------------

Weighted average number of common
 shares and dilutive potential
 common stock used in diluted EPS               22,411,245     21,090,718      18,891,990
                                              ============   ============    ============


</TABLE>

For 1999, 1998 and 1997, the effect of dilutive securities were not included in
computing fully diluted EPS because their effects are anti-dilutive.

NOTE 14.  JOINT VENTURE:

In August 1998, the Company entered into a joint venture agreement, the purpose
of which was to provide Year 2000 computer solutions to government ministries
and government owned industries in The People's Republic of China. The Company
committed to contribute certain training, technical support and patent rights
and expended cash in the approximate amount of $25,000 related to this joint
venture, in exchange for a 51% interest in the joint venture. For the years
ended December 31, 1999 and 1998, the joint venture had no material
transactions, assets or liabilities and, accordingly, all costs incurred related
to the joint venture have been charged to operations during the year ended
December 31, 1999.

                                      F-14


<PAGE>

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          DECEMBER 31, 1999, 1998, 1997

NOTE 15. SUBSEQUENT EVENTS:

In 1993, in order to assist the Company in raising additional capital by the
sale of the Company's common stock, a director voluntarily surrendered 1,000,000
of his shares of the Company's $.05 par value common stock to the treasury in
order to comply with certain financial requirements imposed on the Company under
the terms of the new stock sale agreement. In March 2000, since the financial
terms and conditions imposed on the Company had expired, the Company reissued
the 1,000,000 shares previously surrendered by the director. The 1,000,000
shares of the Company's $.05 par value common stock issued to this director in
2000 was not previously disclosed in the calculation of fully diluted earnings
per share. The Company has determined that had this disclosure been made it
would have had no material affect upon the calculation of basic and fully
diluted earnings per share.


                                      F-15