<PAGE>   1
                                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, 1996
                                     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 $854,791.

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997 based upon the average bid and asked prices
of such stock on that date was $13,825,800.

The number of shares of the registrant's Common Stock outstanding as of
February 28, 1997 was 10,765,000.


                      DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE





                                       1
<PAGE>   2
                                     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.  Under terms of this agreement, Data
General will, in return for a commission, market Egan's VX product and
migration skills to a portion of D.G.'s customer base.  While no contracts have
been awarded under this agreement yet, there are already bids outstanding
valued in the hundreds of thousands of dollars.

NEW PRODUCTS

In 1996 the Company introduced new feature enhanced versions of its Interactive
COBOL (ICOBOL) product, an open Data Base Convention (ODBC), a new Terminal
Emulation Product (ICDGTERM) and a support product called Watch.  ODBC allows
PC products like Crystal Reports and Microsoft ACCESS to read and extract data
contained in ICOBOL's ISAM data files, for the purpose of creating ad hoc
reports etc.  ICDGTERM inexpensively allows a PC to emulate a variety of
proprietary terminals.  WATCH allows supervisory or support individuals to view
and even take control of a terminal operated distantly from the viewer for the
purpose of instruction or correction.  The Company believes that continual
product improvement coupled with appropriate accessory products are necessary
to retain existing customers and gain new ones.

In June of 1996 the Company announced and provided preliminary specification
for versions of ICOBOL created to run in native mode on Windows '95 and Windows
NT.  In addition the Company announced that with the acquisition and
incorporation of technology from Flexus International Corp. of Bangor, PA users
of traditionally character based ICOBOL will be able to create Graphical User
Interface (GUI) screens not unlike those common to PC based Windows programs
for existing ICOBOL programs.  Egan Systems will pay royalties to Flexus for
all Flexus screen development and runtime licenses the Company sells.   These
new products have been available for evaluation by





                                       2
<PAGE>   3
NEW PRODUCTS (CONT'D.)

prospective customers since December of 1996 and are expected to be released
for sale and delivery in late March of 1997.

The Company has posted a web site at www.icobol.com where existing customers
can usefully obtain the latest release of all products for which they are
licensed and others interested in the Company can obtain product and pricing
information.

OPPORTUNITY AND INVESTMENT

As previously mentioned, the Company has for the last ten years engaged in
development activity related to the COBOL computer language.  The advent of the
year 2000 or millennium poses a very substantial problem for users of computer
systems employing COBOL programs and a potentially mammoth opportunity for Egan
Systems, Inc.

In response to a 1959 request of the Department of Defense for a common
business computer language, in April of 1960 initial specification for a new
programming language called COBOL (Common Business Oriented Language) was
released and is referred to as COBOL-60.  In January of 1963, the American
National Standards Institute met to create COBOL standard and in 1968 released
ANSI COBOL-68.  Subsequently, ANSI-74 and ANSI-85 standards were released.

COBOL was and is the computer language of business and government.  It is
employed world wide by hundreds of thousands of organizations.  According to
International Data Corp. there are some 180 billion lines of COBOL code in use.
In 1994, 56% of all new multiuser programs were written in COBOL and virtually
every mainframe computer in the world employs it. And, on New Years Day, the
year 2000, it may all well crash.

The problem occurs because of COBOL's long history.  In the 1960's, 70's and
80's, computer memory and disk storage were very expensive and limited.
Efforts were made therefore to minimize the size of computer code wherever
possible. One common mechanism employed was to truncate a date descriptor to
six characters (mmddyy) instead of the full eight (mmddyyyy).  This saved two
characters and really was worthwhile, given the frequency with which the date
occurs in programs and data of all types.  The computer simply assumed the
preface 19 in all year descriptions.

Now move forward to January 1, 2000.  The computer's internal clock registers
the date change and the computer's software starts another days work in the
year 00.  That is, 1900 and therein lies the problem.

In truth, no one really knows what will happen, but in the opinion of virtually
all, it will, if left uncorrected, be very unpleasant for civilization as we
know it.





                                       3
<PAGE>   4
OPPORTUNITY AND INVESTMENT (CONT'D.)

Correcting the problem is superficially simple and straight forward.  Locate
and change every deficient date descriptor in every line of source code in
every COBOL program an organization's computer system(s) employ.  Find every
instance where a recognized date descriptor modifies or is modified by an
unknown date descriptor.  Make the changes without damaging the program.  Be
sure to find and correct every one, because if one is overlooked, the
consequences might be very serious.  An organizations' source code may contain
only one or two million lines of code or, as is reported for Square D, 150
million lines of code.

The problem is one of magnitude, compounded by the fact that by definition
many, even most, of the programs with the Year2K problem were written years
ago.  Their authors have departed and un- or under-documented code was viewed
as job security.

Egan Systems, Inc. has been providing an analysis tool with every copy of its
compiler technology shipped since 1991.  The Company believes that this tool,
in substantially modified form, can provide the user with a mechanism to
accurately identify, locate and characterize every deficient date descriptor in
a set of source code, regardless of size.  With this information, additional
tools can be created to facilitate appropriate modification of the sources on a
manual basis and in some cases on an automated basis.  Additionally, it is
possible that certain utilities already possessed by the Company may provide
one method to address the need to modify any data fields that require
correction.

Because the Company is skilled in COBOL and possesses certain technology that
the Company believes will be useful in addressing this very substantial
opportunity and lacking sufficient resources to aggressively pursue this line
of development, the Company attempted to raise additional funding from certain
of its existing investors in late 1996.  By early January 1997, with the funds
in hand, the Company acknowledged its ongoing development efforts to produce a
suite of software tools intended to address the issue of year 2000 compliance.
As of this date, the Company has made no estimate of actual product release but
is targeting very late Spring, 1997.

Various entities report that there are at least 200 companies world wide
addressing at least some aspect of the Year2K opportunity, of which most are
larger than Egan Systems, Inc.  Far fewer however, are engaged in the
development and support of the COBOL language.

The widely quoted Gartner Group estimate of the cost to correct the Year2K
problem is $600 billion world wide.





                                       4
<PAGE>   5
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 import given the need to devote valuable
programmer skills to new products and features.  The Company deals directly
with approximately 90 resellers and indirectly through distribution with
another 70.

The Company enjoyed 28% of its sales total in 1996 to and through one company
that 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 requirements.

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
opportunity but are small enough to avoid determined penetration by larger,
better funded competitors.

INTELLECTUAL PROPERTY

All of the Company's products and source code is protected by copyright.
Furthermore all delivered executable code for MS-DOS, Novell and the various
Unix versions that execute on systems employing Intel or Intel cloned
processors is protected from illicit duplication by the requirement for the
presence of a unique mechanical security device available only from the
Company.  This type of protection has been extended to all categories of Unix
systems with the introduction of Interactive COBOL in April, 1994.

RESEARCH AND DEVELOPMENT EXPENDITURES

For the years ended December 31, 1996 and 1995, research and development
expenditures amounted to approximately $587,000 and $622,000, of which
approximately $240,000 and $201,000 was capitalized as of December 31, 1996 and
December 31, 1995, respectively.

EMPLOYEES

Egan Systems has 7 full time employees, 5 of which are engaged in software
development and 2 involved in sales and administration.





                                       5
<PAGE>   6
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 an production and the
remaining 450 square feet is used for warehousing, shipping and receiving.  The
lease requires monthly rent payments of $580 and expires on October 31, 1997.
The Company also occupies a part of a building at 4904 Waters Edge Drive,
Raleigh, North Carolina containing 2,000 square feet used for research and
product development.  The lease expires on January 31, 2000, and requires
annual payments of approximately $35,000.  During the year ended December 31,
1996, the Company paid approximately $41,000 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

There were no matters submitted to a vote of Security Holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1996.


                                    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

<S>                       <C>              <C>
    1996                  High             Low
    ----                  ----             ---
First Quarter             $.44             $.16
Second Quarter            $.38             $.25
Third Quarter             $.38             $.28
Fourth Quarter            $.47             $.25

    1995
    ----
First Quarter             $.31             $.06
Second Quarter            $.22             $.06
Third Quarter             $.25             $.03
Fourth Quarter            $.17             $.03
</TABLE>

On February 28, 1997, the high bid and asked quotations for the Company's
Common Stock were $1.75 and $1.4375 per share, respectively.





                                       6
<PAGE>   7
The Company believes that on December 31, 1996, there were 82 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 F12


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





                                       7
<PAGE>   8
PART II, ITEM 6.  MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OPERATIONS - YEARS ENDED DECEMBER 31, 1996 AND 1995:

NET SALES

For the years ended December 31, 1996 and 1995, revenue totaled approximately
$855,000 and $770,000, respectively. Sales have increased approximately 11% as
a result of the sales increase related to the release of the Companys' updated
COBOL 2.1 software.

The Company has recently signed a new marketing agreement with Data General
Corp. whereby Egan Systems, Inc. has become an Accredited Service Provider.
Under this agreement, Data General Corp. will, for a commission, market certain
Egan Systems, Inc.  products and skills to a portion of the Data General
Corp.'s customer base. The Company is optimistic that this agreement will
provide a substantial new revenue source for at least the next fiscal year.

Management remains optimistic that the Company will remain profitable in 1997.
The Companys' products traditionally offer relatively high gross margins. The
Company has a number of additional promising software products in its
development pipeline which it expects to release in the near future and which
the Company expects to substantially contribute to sales. However, the Company
is quite small and remains subject to technological obsolescence and
competitive market conditions.

COST AND EXPENSES

Cost of goods sold for the years ended December 31, 1996 and 1995 were
approximately $76,000 and $66,000, and gross profit percent was approximately
91%.

Research and development costs were approximately $348,000 and $421,000 for the
year ended December 31, 1996 and 1995, respectively.  The Company continues to
expend significant amounts of its funds developing new software and to remain
competitive in its specific field of expertise. The decline is due to the
Company capitalizing approximately $40,000 more computer software development
costs in 1996 than in 1995 related to new Company products which have achieved
technological feasibility in 1996.

Selling, shipping and general and administrative expenses (SG&A) for the years
ended December 31, 1996 and 1995 were approximately $535,000 and $641,000,
respectively. SG&A costs, net of research and development costs, was
approximately $187,000 and $220,000 for the years ended December 31, 1996 and
1995, respectively. Accordingly, the capitalization of computer software
development costs for the years ended December 31, 1996 and 1995 reduced SG&A
expenses by approximately $348,000 and $421,000, respectively. The decrease in
SG&A costs was attributed primarily to a reduction in payroll in 1996 of
approximately $56,000.





                                       8
<PAGE>   9
PART II, ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT'D.):

INTEREST EXPENSE

Interest expense for the years ended December 31, 1996 and 1995 was
approximately $10,000 and $14,000, respectively.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense for the nine months ended September 30,
1996 and 1995 was approximately $161,000 and $114,000, respectively. The
increase is substantially attributed to the increase in amortization of
capitalized computer software costs of $48,000.

LIQUIDITY

As of December 31, 1996, the Company's net cash provided by operations was
approximately $134,000 and is substantially attributed to the net income of
$16,000, depreciation and amortization of $218,000 and the reduction in payroll
tax liabilities of $(98,000) as compared to the balances at December 31, 1995.
Payroll tax liabilities were reduced by utilizing the proceeds from the sale of
common stock options for $160,000.

Net cash used in investing activities declined during the year ended December
31, 1996 by approximately $265,000. The decrease is attributed to the purchase
of computer software and hardware equipment of approximately $25,000 to support
the Company's ongoing research and development activities and to the
capitalization of computer software development costs of approximately
$240,000.

Net cash provided by financing activities increased by approximately $160,000
as a result of the sale of common stock options.

Management believes that the Company has obtained sufficient cash resources to
meet its expected needs in the present fiscal year.  Management does anticipate
a large capital expenditure in the current year related to the Company's
attempt to development a product for the "Millenium 2000" problem. At present
the Company does not maintain a line of credit facility with a lending
institution.

INFLATION AND SEASONALITY

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





                                       9
<PAGE>   10
                                    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                56      Chairman, Chief Executive Officer
                                      Treasurer and President

Ralph Jordan                  44      President of Envyr Corp. Subsidiary,
                                      Director

Barbara Jean Schultz          45      Secretary and Director

Jack Laskin                   69      Director

Allan J. Fabrick              51      Director

Anthony A. Caputo             55      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.

Barbara Jean Schultz has been Corporate Secretary and a Director of the Company
since March 10, 1987.  Prior to then Ms. Schultz had been office and product
manager for Diplomat Systems from 1983 through 1986 and a product manager and
assistant product manager at Schweber Electronics.

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.

Mr. 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.

Allan J. Fabrick became a director of the Company in April, 1994 as a nominee
of the placement agent in the Company's recent private placement.  Mr. Fabrick
is a nationally recognized environmental scientist.  From 1984 through 1993,
Mr. Fabrick served as Vice President of Odessa Engineering, responsible for the
design and development of the Company's Environmental Aide software products,
international marketing and the management information system used by Odessa.
From 1983 to 1984 M. Fabrick served as Vice President of MEF Environmental, a
company he co-founded.  Mr. Fabrick also had previous affiliations with NUS
Corporation, Radian Corporation, Environmental Research Associates and Science
Applications Inc.  Mr. Fabrick holds a B.S. in Physics and Engineering from the
University of California at





                                       10
<PAGE>   11
Berkeley and an M.A. in Physics from the University of Michigan.

Anthony A. Caputo became a director of the Company in April, 1994 as a nominee
of the placement agent in the Company's recent private placement.  Since 1987
Mr. Caputo has served as the Chairman and Chief Executive Officer of
Information Resource Engineering, Inc. a publicly traded company engaged in the
computer network security industry.  In 1982, Mr. Caputo founded another
computer security firm, TACT Technology, as a division of a public company that
managed TACT as a separate company.  Mr. Caputo resigned from TACT Technology
in November, 1986 to join Information Resource Engineering, Inc.  Mr. Caputo
has over 20 years experience in the computer industry, in marketing and
management capacities.  He has served as an officer of several publicly traded
companies including International Mobile Machines, Inc. and Comshare, Inc., as
well as serving as an officer of Value Software, now part of Computer
Associates, Inc.


ITEM 10-EXECUTIVE COMPENSATION

Compensation of Edward J. Egan and Barbara Jean Schultz for the year ended
December 31, 1996 amounted to approximately $90,000 and $41,000 respectively.


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             1,600,000            15.7%

Common           Networth Partners          1,400,000 (1)        24.2%

Common           Barbara Schultz                -     (2)         1.9%

Common           Ralph Jordan                  90,000 (3)         4.6%

Common           Jack Laskin                  400,000 (3)         7.9%

Common           All executives and
                 directors as a group       5,890,000 (4)        43.3%
</TABLE>

(1) Includes options to purchase 1,400,000 shares exercisable within 60 days.
(2) Includes options to purchase 200,000 shares exercisable within 60 days.
(3) Includes options to purchase 400,000 shares exercisable within 60 days.
(4) Includes options to purchase 1,000,000 shares exercisable within 60 days.


ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.





                                       11
<PAGE>   12
ITEM-13 EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits required by Item 601 of Regulation S-B

         3A      Articles of Incorporation (1)
         3B      ByLaws of Registrant (1)
         11      Computation of per share earnings

(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>   13
             SUPPLEMENTAL INFORMATION TO BE 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 20th
day of March, 1997.


                               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         March 20, 1997
-----------------------      Executive Officer, Treasurer
Edward J. Egan               (Principal Executive, Financial
                              and Accounting Officer)

/s/Barbara Jean Schultz      Secretary, Director                March 20, 1997
-----------------------
Barbara Jean Schultz

/s/Jack Laskin               Director                           March 20, 1997
-----------------------
Jack Laskin

/s/Ralph Jordan              Director                           March 20, 1997
-----------------------
Ralph Jordan

/s/Allan J. Fabrick          Director                           March 20, 1997
-----------------------
Allan J. Fabrick

/s/Anthony A. Caputo         Director                           March 20, 1997
-----------------------
Anthony A. Caputo
</TABLE>





                                       13
<PAGE>   14





                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                       CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994
<PAGE>   15
                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                               DECEMBER 31, 1996


                               TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                       Page No.
<S>                                                                   <C>
REPORT OF INDEPENDENT AUDITORS                                           F-2



FINANCIAL STATEMENTS:

  Consolidated balance sheets at December 31, 1996 and 1995              F-3

  Consolidated statements of operations, years ended
   December 31, 1996, 1995 and 1994                                      F-4

  Consolidated statements of changes in stockholders' equity,
   years ended December 31, 1996, 1995 and 1994                          F-5

  Consolidated statements of cash flows, years ended
   December 31, 1996, 1995 and 1994                                      F-6

  Notes to consolidated financial statements,
   December 31, 1996, 1995 and 1994                                   F-7 - F-12
</TABLE>





                                      F-1
<PAGE>   16
                      [PATRUSKY, MINTZ & SEMEL LETTERHEAD]




                         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, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity
(deficiency) and cash flows for each of the three years ended December 31,
1996, 1995 and 1994.  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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years ended December 31,
1996, 1995 and 1994 in conformity with generally accepted accounting
principles.



/s/ PATRUSKY, MINTZ & SEMEL





New York, New York
January 31, 1997

                                      F-2
<PAGE>   17
                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
ASSETS                                                                        1996                       1995
                                                                              ----                       ----
<S>                                                                     <C>                         <C>
Current Assets
  Cash (Note 2)                                                         $        37,298             $         8,158
  Accounts receivable                                                            85,358                      89,005
  Inventory (Note 2)                                                             12,856                      33,716
  Other current assets                                                            5,894                       5,339
                                                                        ---------------             ---------------

      Total Current Assets                                                      141,406                     136,218
                                                                        ---------------             ---------------

Property and Equipment (Notes 2 and 3)                                           61,543                      66,828
                                                                        ---------------             ---------------

Other Assets
  Computer software development costs - net (Notes 2 and 4)                     435,400                     383,440
  Security deposits                                                               3,126                       3,126
                                                                        ---------------             ---------------

      Total Other Assets                                                        438,527                     386,566
                                                                        ---------------             ---------------

      Total Assets                                                      $       641,476             $       589,612
                                                                        ===============             ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Current maturities of long-term debt (Note 5)                         $        75,750             $          -
  Accounts payable                                                                8,352                       9,496
  Payroll taxes payable                                                           5,013                     102,722
  Accrued expenses and other current liabilities                                 27,290                      52,184
  Due to officer                                                                  7,156                       7,456
                                                                        ---------------             ---------------

      Total Current Liabilities                                                 123,561                     171,858

Long-Term Debt (Note 5)                                                           -                          75,750
                                                                        ---------------             ---------------

     Total Liabilities                                                          123,561                     247,608
                                                                        ---------------             ---------------

Commitments and Contingencies (Note 6)

Stockholders' Equity
  Common stock - $0.05 par value; shares authorized -
   30,000,000, shares issued and outstanding -
   10,185,000 in 1996 and 1995                                                  509,250                     509,250
  Additional paid-in capital                                                  1,912,814                   1,752,814
  Deficit                                                                    (1,904,149)                 (1,920,060)
                                                                        ---------------             ---------------

      Total Stockholders' Equity                                                517,915                     342,004
                                                                        ---------------             ---------------

      Total Liabilities and Stockholders' Equity                        $       641,476             $       589,612
                                                                        ===============             ===============
</TABLE>

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

                                      F-3
<PAGE>   18
                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994




<TABLE>
<CAPTION>
                                                                          1996               1995               1994
                                                                          ----               ----               ----
<S>                                                                 <C>               <C>                  <C>
Net sales (Note 1)                                                  $      854,791     $      770,092      $      888,694
                                                                    --------------     --------------      --------------

Cost and expenses:

  Cost of goods sold                                                        75,974             65,888              74,532
  Selling, shipping, general and
   administrative expenses                                                 534,645            640,745             653,654
  Interest expense                                                           9,976             14,372              13,042
  Depreciation and amortization                                            218,285            151,957              84,673
  Loss on sale of license                                                     -                 4,475                -
                                                                    --------------     --------------      --------------

                                                                           838,880            877,437             825,901
                                                                    --------------     --------------      --------------

Income (loss) before provision for income taxes                             15,911           (107,345)             62,793

Provision for income taxes (Notes 2 and 10)                                   -                  -                  2,735
                                                                    --------------     --------------      --------------

Net income (loss)                                                   $       15,911     $     (107,345)     $       60,058
                                                                    ==============     ==============      ==============

Weighted average number of
 common shares outstanding (Notes 2 and 8)                              10,185,000         10,168,333          10,431,756
                                                                    ==============     ==============      ==============

Net income (loss) per common share (Note 2)

 Primary and fully diluted                                          $          .00     $         (.01)     $          .01
                                                                    ==============     ==============      ==============

 Cash dividends per common share                                          None              None                  None
                                                                    ==============     ==============      ==============
</TABLE>





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

                                      F-4
<PAGE>   19

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994




<TABLE>
                                       Common Stock
                                       ------------            Additional
                                  Shares           Amount    Paid-In Capital      Deficit            Total
                                  ------           ------    ---------------      -------            -----
<S>                            <C>            <C>             <C>              <C>              <C>
Balance
 December 31, 1993               6,295,000     $   314,750     $ 1,161,024      $(1,872,773)     $  (396,999)

Sale of stock                    1,880,000          94,000         317,290             -             411,290

Stock issuance costs               260,000          13,000         (13,000)            -                -

Net income for 1994                   -               -               -              60,058           60,058
                                ----------     -----------     -----------      -----------      -----------


Balance
 December 31, 1994               8,435,000         421,750       1,465,314       (1,812,715)          74,349

Sale of stock                      100,000           5,000          20,000             -              25,000

Conversion of note payable       1,400,000          70,000         280,000             -             350,000

Stock issuance costs               250,000          12,500         (12,500)            -                -

Net loss for 1995                     -               -               -            (107,345)        (107,345)
                                ----------     -----------     -----------      -----------      -----------


Balance
 December 31, 1995              10,185,000         509,250       1,752,814       (1,920,060)         342,004

Stock options                         -               -            160,000             -             160,000

Net income for 1996                   -               -               -              15,911           15,911
                                ----------     -----------     -----------      -----------      -----------

Balance December 31, 1996       10,185,000     $   509,250     $ 1,912,814      $(1,904,149)     $   517,915
                                ==========     ===========     ===========      ===========      ===========
</TABLE>



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


                                       F-5

<PAGE>   20
                      EGAN SYSTEMS, INC. AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                         INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>
                                                                          1996              1995               1994
                                                                          ----              ----               ----
<S>                                                                 <C>                <C>               <C>
Cash flows from operating activities:
  Net income (loss)                                                 $       15,911     $    (107,345)     $       60,058
  Adjustments to reconcile net income (loss)
   to net cash provided by operating activities:
    Depreciation and amortization                                          218,285           151,957              84,673
    Loss on sale of license                                                   -                4,475                -
    Accounts receivable                                                      3,647            48,589             (28,106)
    Inventory                                                               20,860            12,793             (36,221)
    Other current assets                                                      (555)            3,874              (5,425)
    Security deposits                                                         -                 -                  2,637
    Accounts payable                                                        (1,144)           (4,764)              5,947
    Payroll taxes payable                                                  (97,709)           16,012              56,073
    Accrued expenses and other
     current liabilities                                                   (24,896)           18,005             (27,764)
                                                                    --------------     -------------      --------------

      Net cash provided by operating
       activities                                                          134,399           143,596             111,872
                                                                    --------------     -------------      --------------

Cash flows from investing activities:
  Purchase of property and equipment                                       (25,419)          (19,710)            (40,882)
  Computer software development costs                                     (239,540)         (200,586)           (204,483)
  Purchase of license                                                         -                 -                (75,044)
  Proceeds from sale of license                                               -              100,000                -
                                                                    --------------     -------------      --------------

      Net cash used in investing activities                               (264,959)         (120,296)           (320,409)
                                                                    --------------     -------------      --------------

Cash flows from financing activities:
  Proceeds from sale of stock options                                      160,000              -                   -
  Proceeds from sale of common stock                                          -               25,000             411,290
  Repayment of long-term debt                                                 -              (42,542)           (195,489)
  Loans from officer                                                          (300)           (2,100)            (12,644)
                                                                    --------------     -------------      --------------

      Net cash provided (used in) by financing
       activities                                                          159,700           (15,442)            203,157
                                                                    --------------     -------------      --------------

Net increase (decrease) in cash                                             29,140             7,858              (5,380)

Cash - beginning of year                                                     8,158               300               5,680
                                                                    --------------     -------------      --------------

Cash - end of year                                                  $       37,298     $       8,158      $          300
                                                                    ==============     =============      ==============
</TABLE>



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

                                      F-6
<PAGE>   21
                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


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 based in the United States of America.  One customer, a
domestic distributor, comprised approximately 28% and 22% of the Company's
sales in 1996 and 1995 and approximately 14% and 21% of the Company's accounts
receivable at December 31, 1996 and December 31, 1995, 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
or three months or less. The Company maintains its cash in various bank
accounts which, at times, may exceed federally insured limits.  The Company has
not experienced any losses in such accounts.

INVENTORY:

Inventory, which consists primarily of finished goods, 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.

NET INCOME PER COMMON SHARE:

Primary and full diluted net income per common share is computed based on the
weighted average number of outstanding common shares and equivalents (stock
options and warrants) plus the shares that would be outstanding assuming
conversion of the convertible notes payable. The number of shares used in the
computations were 10,185,000, 10,168,333 and 10,431,756 in 1996, 1995 and 1994,
respectively.

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).



                                      F-7
<PAGE>   22
                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


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

COMPUTER SOFTWARE DEVELOPMENT COSTS (CONT'D.):

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 adopted 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.

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).

FINANCIAL INSTRUMENTS:

The Company's significant financial instruments include cash, receivables,
payables and short-term debt for which carrying amounts approximate fair value.
It is not practical to estimate the fair value of the Company's long-term debt.

NOTE 3.  PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
Property and equipment consist of the following:
                                                     1996                       1995
                                                     ----                       ----
<S>                                            <C>                        <C>
Office furniture and equipment                 $       82,092             $       78,260
Computer software                                      54,357                     46,183
Computer hardware                                      86,599                     73,186
Leasehold improvements                                  3,975                      3,975
                                               --------------             --------------
                                                      227,023                    201,604
Accumulated depreciation                              165,480                    134,776
                                               ---------------            --------------

                                               $       61,543             $       66,828
                                               ==============             ==============
</TABLE>


Depreciation expense charged to operations in each of the years ended December
31, 1996, 1995 and 1994 amounted to $30,705, $25,580 and $18,579, respectively.

                                      F-8
<PAGE>   23

                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 4.  COMPUTER SOFTWARE DEVELOPMENT COSTS:

Computer software development costs consist of the following:

<TABLE>
<CAPTION>
                                                           1996                       1995
                                                           ----                       ----
<S>                                                  <C>                         <C>
Computer software development costs                  $       802,286             $       562,746
Accumulated amortization                                     366,886                     179,306
                                                     ---------------             ---------------

                                                     $       435,400             $       383,440
                                                     ===============             ===============
</TABLE>

Amortization expense charged to operations in 1996 and 1995 amounted to
$187,580 and $123,477, respectively.


NOTE 5.  LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                         1996                       1995
                                                         ----                       ----
<S>                                                <C>                        <C>
6.5% note - due February 1, 1997 (A)               $       75,750             $       75,750
                                                   --------------             --------------
                                                           75,750                     75,750
Less current maturities                                    75,750                       -
                                                   --------------             --------------

                                                   $         -                $       75,750
                                                   ==============             ==============
</TABLE>

(A) On February 6, 1994, the Company entered into an agreement to amend the
terms of a $499,750 convertible note, which was to mature April 23, 1995.
Pursuant to this amendment, $350,000 of the convertible note was converted into
1,400,000 shares of the Company's .05 par value common stock at $.25 per share,
with the option to purchase an equal number of additional shares at .375 per
share through February 15, 1999.  Additionally, the Company repaid $74,000 of
the note and the balance of the note, $75,750, was modified to a 6.5% interest
bearing note, payable February 1, 1997.

Interest expense charged to operations on the above debt for the years ended
December 31, 1996 and 1995 amounted to $4,924 and $3,758, respectively.





                                      F-9
<PAGE>   24
                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994

NOTE 6.  COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES:

The Company leases office and warehouse facilities under noncancelable
operating leases expiring in February 2000. Minimum future annual rental
payments under these leases as of December 31, 1996, 1997, 1998 and 1999 are
approximately $41,000, $34,000, $36,000 and $6,400 respectively.  Rent expenses
charged to operations in the years ended December 31, 1996, 1995 and 1994
amounted to $40,895, $40,324 and $51,994, respectively.

CONTRACTUAL COMMITMENT:

On July 27, 1992 the Company entered into a software development and licensing
agreement with a computer systems manufacturer.  Pursuant to the agreement, the
Company received revenue for software support services and the development of
an enhanced source code licensed to the Company by the manufacturer.

In consideration of this license and proprietary rights to the Company, the
Company is obligated to discount to the manufacturer up to $740,000 from future
royalty fees, if any, that would be due from the manufacturer out of future
sales of the enhanced software (Note 13).

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, 1996, 1995 and 1994 were approximately $348,000,
$421,000 and $419,000, respectively.

NOTE 8.  STOCK OPTIONS/WARRANTS:

STOCK OPTIONS:

As of December 31, 1996, the Company has granted to the long-term debt note
payable holder options to purchase a total of 1,400,000 shares of the Company's
common stock at $.375 per share (Note 5).  The options expire on February 15,
1999.  As of December 31, 1996, no options have been exercised.

Pursuant to separate stock options, the Company has granted to six employees
and one director, options to purchase a total of 1,820,000 shares of the
Company's common stock at $.25 per share.  Such options expire on December 27,
1999.  As of December 31, 1996, no options have been exercised.

STOCK WARRANTS:

At December 31, 1996, the Company had outstanding stock warrants to four third
parties giving them the rights to purchase 2,445,000 shares of the Company's
common stock at prices ranging from $.375 to $.50 per share.  The warrants
expire at various dates from March 31, 1999 through May 1, 2001.  As of
December 31, 1996, no warrants have been exercised.



                                      F-10
<PAGE>   25
                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      DECEMBER 31, 1996, AND 1995 AND 1994

NOTE 8.  STOCK OPTIONS/WARRANTS (CONT'D):

In 1996, the Company sold stock warrants to certain shareholders for $160,000.
The stock warrants allow the holders to purchase 4,000,000 shares of the
Company's common stock at $.25 per share and expire on September 30, 1999.  As
of December 31, 1996, no warrants have been exercised.

NOTE 9.  SUPPLEMENTAL CASH FLOW INFORMATION:

CASH TRANSACTIONS:

During the three years in the period ended December 31, 1996, the Company paid
cash for interest in the amount of $5,052, $12,614 and $11,042 in 1996, 1995
and 1994, respectively.

During the years ended December 31, 1996, 1995 and 1994, the Company paid cash
for corporate income tax payments in the amount of $-0-, $-0- and $6,656,
respectively.

NON-CASH TRANSACTIONS:

During the year ended December 31, 1995, the Company converted $350,000 of its
convertible notes payable into 1,400,000 shares of its $.05 par value common
stock at $.25 per share (Note 5).

NOTE 10.  INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                  1996               1995
                                                  ----               ----
                                               Noncurrent         Noncurrent
                                               ----------         ----------
<S>                                        <C>                 <C>
Total deferred tax asset (Note 2)          $       498,700     $      606,372
Total deferred tax liability (Note 2)             (118,500)          (114,649)
Valuation allowance                               (380,200)          (491,723)
                                           ----------------    ---------------

Net deferred tax asset (liability)         $          -        $         -
                                           ================    ===============
</TABLE>

The provision for income taxes for the years ended December 31, 1996, 1995 and
1994 consists of the following:

<TABLE>
<CAPTION>
                                                        1996                1995                 1994
                                                        ----                ----                 ----
<S>                                               <C>                 <C>                  <C>
Current tax expense                               $         -         $         -          $        2,735
Deferred tax expense                                       1,050               3,611               16,950
Benefit of net operating loss carryforwards               (1,050)             (3,611)             (16,950)
Net change in valuation allowance                           -                   -                    -
                                                  --------------      --------------       --------------

Total                                             $         -         $         -          $        2,735
                                                  ==============      ==============       ==============
</TABLE>




                                      F-11
<PAGE>   26
                       EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      DECEMBER 31, 1996, AND 1995 AND 1994

NOTE 10.  INCOME TAXES (CONT'D.):

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

<TABLE>
<CAPTION>
                                                        1996                1995                1994
                                                        ----                ----                ----
<S>                                               <C>                 <C>                 <C>
Income taxes computed at Federal statutory
 tax rate                                         $      -            $      -            $      21,350
Surtax exemption                                         -                   -                  (10,650)
State tax provisions                                     -                   -                    2,735
Benefit of operating loss carryforwards                  -                   -                  (10,700)
                                                  --------------      --------------      -------------

Provision for income taxes                        $      -            $      -            $       2,735
                                                  ==============      ==============      =============
</TABLE>


As of December 31, 1996, the Company has a net operating loss carryforward
available for Federal and State income tax purpose in the amount of
approximately $2,013,000, expiring from 2002 through 2011.

NOTE 11.  LICENSE COSTS:

On March 9, 1995, the Company sold the exclusive software license which it
purchased in March 1994.  The license allows the holder to distribute the
software to distributors and end-users.  The Company received $40,000 at
closing and two $30,000 non-interest bearing notes payable due in equal
installments on June 7, 1995 and September 5, 1995, respectively.  Furthermore,
the Company has retained certain rights to sell the software and the purchaser
has agreed to grant additional discounts to the Company amounting up to
approximately $175,000 on purchases of the software by the Company.  The
Company has recognized a loss of approximately $5,000 related to the sale of
the license which includes the write-off of approximately $40,000 in net
capitalized computer software development costs and $65,000 in net license
purchase costs.

NOTE 12.  SUBSEQUENT EVENTS:

CONTRACTUAL COMMITMENT:

On January 9, 1997, the Company amended its software development and licensing
agreement with a computer systems manufacturer (Note 6) whereby the Company has
granted a license to the manufacturer to use and remarket certain programs
developed by the Company.

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.

CONVERTIBLE NOTES PAYABLE:

In January 1997, the Company received $130,000 in exchange for two convertible
notes due January 1, 2002 at 10% interest per annum.  The notes are convertible
from January 1998 through January 2002 into 520,000 shares of the Company's
$.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
exchange.

                                      F-12