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, 2000
                                       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 $771,476.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  as of March 16, 2001 based upon the average bid and asked  prices of
such stock on that date was $589,640.

The number of shares of the  registrant's  Common Stock  outstanding as of March
16, 2001 was 19,646,652.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


<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.

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  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 COBOL and released in 1997 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>


Products (Cont'd.)

In  addition  to  offering  versions  of  its  language  products  that  allowed
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. 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.
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.

New Products

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 and in the second  Quarter of 2000,  Egan
received  a  contract  to web  enable one of  customers  programs  by  employing
cgiCOBOL.

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 it's market is based. This product was released in the 3rd
quarter of 2000.

Of major  interest  to our  customers,  and  released  in Beta format in the 4th
Quarter of 2000, a new IDE (Integrated  Development  Environment) was introduced
for use with ICOBOL 3. Based on the Company's  existing compiler  technology and
incorporating  aspects  of the G-2K tool suit as well as an in- house  developed
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 2000,  sales to two customers  comprised  approximately  30% 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
opportunity  but are small  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.


                                       4
<PAGE>

Research and Development Expenditures

For the years  ended  December  31,  2000 and  1999,  research  and  development
expenditures   amounted  to  approximately   $620,000  and  $712,000,  of  which
approximately  $374,000 and $420,000 was capitalized as of December 31, 2000 and
1999, respectively.

Employees

At the end of 2000,  Egan  Systems  has 6 full  time  employees,  5 of which are
engaged  in  software  development  or  support  and 1  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 $750 and expires on October 31, 2001.
The Company also occupies 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  December 31, 2001, and requires  future minimum
payments of approximately $50,000.  During the year ended December 31, 2000, the
Company paid approximately $54,000 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.



Calendar Years                                Bid Prices

    2000                            High                      Low
    ----                            ----                      ---
First Quarter                       $0.47                     $0.10
Second Quarter                      $0.47                     $0.12
Third Quarter                       $0.30                     $0.10
Fourth Quarter                      $0.12                     $0.05

    1999
    ----
First Quarter                       $0.75                     $0.21
Second Quarter                      $0.40                     $0.18
Third Quarter                       $0.26                     $0.10
Fourth Quarter                      $0.13                     $0.08

On March 6, 2000,  the high bid and asked  quotations  for the Company's  Common
Stock were $0.030 and $0.031 per share, respectively.

The Company  believes that on December 31, 2000,  there were  approximately  850
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 2. MANAGEMENTS'  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - YEARS ENDED DECEMBER 31, 2000 AND 1999:


NET SALES:

For the years ended  December  31,  2000 and 1999,  total  revenue  approximated
$771,000 and $1,781,000,  respectively.  Revenue has declined for the year ended
December 31, 2000 versus the same period in the prior year due to the decline in
2000 of  custom  service  work  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  and less sales of the
Company's core products.

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.


COST AND EXPENSES:

Cost of  goods  sold  for the  year  ended  December  31,  2000  and  1999  were
approximately  $42,000 and $231,000 and gross profit percents were approximately
95% and 87%,  respectively.  The  increase  in the gross  profit  margin in 2000
versus  1999  resulted  from  the  combination  of a  higher  percentage  of the
Company's 2000 revenue derived from sources (net products sales) with high gross
margins as compared to 1999 where a lower  percentage of the  Company's  revenue
were derived from sources with high gross margins.

Research and development costs were approximately  $246,000 and $292,000 for the
year ended December 31, 2000 and 1999, respectively. The reduction is due to the
Company  reducing the number of employees and  expenditures  related to research
and  development  in 2000 in  conjunction  with the  reduction in revenues.  The
Company  continues to expend  significant  amounts of its funds  developing  new
software and to remain competitive in its specific field of expertise.

Selling,  shipping and general and  administrative  expenses (SG&A) for the year
ended  December 31, 2000 and 1999 were  approximately  $872,000 and  $1,020,000,
respectively.  The capitalization of computer software development costs for the
year ended  December 31, 2000 and 1999 reduced  SG&A  expenses by  approximately
$374,000  and  $420,000,  respectively.  The  decrease in  capitalized  computer
software  development  costs  was  attributed  primarily  to  the  reduction  in
employees and  expenditures in the Company's  software  development  facility in
conjunction with the reduction in revenues.


                                       7
<PAGE>


Item 2. MANAGEMENTS'  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - YEARS ENDED DECEMBER 31, 2000 AND 1999 (Cont'd.):

INTEREST INCOME:

Interest income for the year ended December 31, 2000 and 1999, was approximately
$12,000  and  $29,000,  respectively,  and is  related to cash  invested  by the
Company in short-term financial instruments.

DEPRECIATION AND AMORTIZATION:

Depreciation and  amortization  expense for the year ended December 31, 2000 and
1999 was approximately $689,000 and $387,000, respectively. The increase in 2000
is attributed to increased  amortization of capitalized  computer software costs
resulting from management  decreasing the amortization  period from three to two
years.

LIQUIDITY:

As of  December  31,  2000,  the  Company's  net  cash  used in  operations  was
approximately  ($56,000)  and  is  substantially  comprised  of a  net  loss  of
($856,000),  a reduction  of  accounts  receivable  of  $34,000,  an increase in
accrued expenses of $71,000 and depreciation and amortization of $689,000.  This
compares to the year ended  December 31, 1999 where net cash used in  operations
was  approximately  ($86,000)  and was  substantially  comprised  of net loss of
($998,000),  depreciation  and  amortization of $387,000,  a decline in accounts
receivable of $288,000 and an increase in accounts payable of $176,000.

Net cash used in investing  activities  during the years ended December 31, 2000
and 1999 was  approximately  ($380,000) and ($501,000),  respectively.  This was
attributed to purchases of new computer  hardware and software of  approximately
($7,000) and ($92,000) to support the Company's ongoing research and development
activities and to the  capitalization of computer software  development costs of
($374,000)  and  ($420,000)  for the year  ended  December  31,  2000 and  1999,
respectively.

Management  believes that the Company has sufficient  cash resources to meet its
expected  needs in the  present  fiscal  year.  Management  does not  anticipate
additional  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.


                                       8
<PAGE>


                                    PART III


ITEM 9-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

Name                       Age          Position
----                       ---          --------

Edward J. Egan             61           Chairman, Chief Executive Officer
                                        Treasurer and President, Director

Ralph Jordan               47           Secretary of Egan Systems, Inc.,
                                        President of Envyr Corp. Subsidiary,
                                        Director

Jack Laskin                72           Director


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 hold office until the next annual meeting of shareholders.


                                       9
<PAGE>


                                    PART III

ITEM 10-EXECUTIVE COMPENSATION

Compensation  of Edward J. Egan for the year ended December 31, 2000 amounted to
approximately $96,000.


ITEM 11-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Class            Name                          Number of            Percent
of Shares        of Beneficial Owner           Shares Owned         Of Class
---------        -------------------           ------------         --------

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

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          3,382,000           18.1%

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.


                                       10
<PAGE>


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
         21       List of subsidiaries of the registrant
         27       Financial data schedule

(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.


                                       11
<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.

                                        2000           1999            1998
                                        ----           ----            ----
Loss available to
 common stockholders used
 in basic EPS                      $   (856,215)   $   (997,784)   $ (1,114,521)

Interest expense -
 convertible note payable                  --              --               625
                                   ------------    ------------    ------------

Loss available to common
 stockholders after
 assumed conversions of
 dilutive securities               $   (856,215)   $   (997,784)   $ (1,113,896)
                                   ============    ============    ============

Weighted average number
 of Common shares used in
 basic EPS                           19,396,652      18,646,652      17,002,134

Effect of dilutive
 securities Stock
 Options/warrants                       225,000       3,764,593       3,986,392
 Convertible notes
 payable                                   --              --           102,192
                                   ------------    ------------    ------------

Weighted average number
 of common shares and
 dilutive potential
 common stock used in
 diluted EPS                         19,621,652      22,411,245      21,090,718
                                   ============    ============    ============

Net loss per common share:

  Basic                            $      (0.04)   $      (0.05)   $      (0.07)
                                   ============    ============    ============

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

For 2000,  1999 and 1998,  fully  diluted  earnings  per share  amounts  are not
presented because they are anti-dilutive.


                                       12
<PAGE>


PART III, ITEM 13, EXHIBIT 21


                               EGAN SYSTEMS, INC.
                     LIST OF SUBSIDIARIES OF THE REGISTRANT



Envyr Corp. (incorporated in North Carolina)


                                       13
<PAGE>


              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 Holtsville,  New York on the 24th
day of March, 2001.


                                           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:

          Signature          Title                               Date

/s/Edward J. Egan            Chairman, President, Chief          March 24, 2001
-----------------------
Edward J. Egan               Executive Officer, Treasurer
                             (Principal Executive, Financial
                              and Accounting Officer)

/s/Jack Laskin               Director                            March 24, 2001
-----------------------
Jack Laskin

/s/Ralph Jordan              Secretary/Director                  March 24, 2001
-----------------------
Ralph Jordan


                                       14


<PAGE>
                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998


<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                                DECEMBER 31, 2000


                                TABLE OF CONTENTS


                                                                     Page No.

REPORT OF INDEPENDENT AUDITORS                                          F-2


FINANCIAL STATEMENTS:

  Consolidated balance sheets at December 31, 2000 and 1999             F-3

  Consolidated statements of operations, years ended
   December 31, 2000, 1999 and 1998                                     F-4

  Consolidated statements of changes in stockholders' equity,
   years ended December 31, 2000, 1999 and 1998                         F-5

  Consolidated statements of cash flows, years ended
   December 31, 2000, 1999 and 1998                                     F-6

  Notes to consolidated financial statements,
   December 31, 2000, 1999 and 1998                                 F-7 - F-14



                                      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,  2000  and  1999,  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, 2000.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
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 consolidated 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,  2000 and 1999,  and the  results of their
operations  and their cash flows for each of the three years ended  December 31,
2000, 1999 and 1998 in conformity with accounting  principles generally accepted
in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 6 to the
consolidated financial statements, the company has suffered recurring losses and
has  experienced  negative cash flows from  operations  and current  liabilities
exceed  current  assets,  which raise  substantial  doubt about their ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 6. The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.



New York, New York
March 16, 2001


                                      F-2
<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
ASSETS                                                           2000           1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
Current Assets
  Cash (Note 2)                                               $    12,688    $   449,990
  Accounts receivable                                              77,937        111,837
  Inventory (Note 2)                                                6,415          8,910
  Prepaid expenses and other current assets                         5,543          8,764
                                                              -----------    -----------

      Total Current Assets                                        102,583        579,501
                                                              -----------    -----------

Property and Equipment (Notes 2 and 3)                            137,969        189,302
                                                              -----------    -----------

Other Assets
  Computer software development costs - net (Notes 2 and 4)       545,863        803,030
  Security deposits                                                 3,126          3,126
                                                              -----------    -----------

      Total Other Assets                                          548,989        806,156
                                                              -----------    -----------

      Total Assets                                            $   789,541    $ 1,574,959
                                                              ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts payable                                            $   175,917    $   175,917
  Accrued expenses and other current liabilities                  121,341         50,544
                                                              -----------    -----------

      Total Current Liabilities                                   297,258        226,461
                                                              -----------    -----------

Commitments and Contingencies (Note 6)

Stockholders' Equity
  Common stock - $0.05 par value; shares authorized -
   30,000,000,  shares issued and outstanding -
   19,646,652 in 2000 and 18,646,642 in 1999                      982,333        932,333
  Additional paid-in capital                                    4,827,201      4,877,201
  Deficit                                                      (4,954,751)    (4,098,536)
                                                              -----------    -----------
                                                                  834,783      1,710,998
  Notes receivable - stock purchase (Note 8)                     (362,500)      (362,500)
                                                              -----------    -----------

      Total Stockholders' Equity                                  492,283      1,348,498
                                                              -----------    -----------

      Total Liabilities and Stockholders' Equity              $   789,541    $ 1,574,959
                                                              ===========    ===========
</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, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                             2000           1999           1998
                                         -----------    -----------    -----------
<S>                                      <C>            <C>            <C>
Net product sales                        $   638,759    $ 1,339,440    $ 1,477,438
Custom services                              132,717        442,030        325,200
                                         -----------    -----------    -----------

                                             771,476      1,781,470      1,802,638
                                         -----------    -----------    -----------

Cost and expenses:

  Cost of goods sold                          41,618        230,651        161,069
  Selling, shipping, general and
   administrative expenses                   872,957      1,020,384        980,264
  Interest income                            (12,271)       (28,672)       (36,485)
  Royalty expense                             29,966         34,153         23,882
  Advertising and promotion expense            3,940         27,711        209,438
  Interest expense                              --              338            647
  Depreciation and amortization              689,434        386,810        299,663
  Acquired technology (Note 5)                  --        1,106,550           --
  Consulting expense (Note 10)                  --             --        1,275,000
                                         -----------    -----------    -----------

                                           1,625,644      2,777,925      2,913,478
                                         -----------    -----------    -----------

Loss before provision for income taxes      (854,168)      (996,455)    (1,110,840)

Provision for income taxes
 (Notes 2 and 12)                              2,047          1,329          3,681
                                         -----------    -----------    -----------

Net loss                                 $  (856,215)   $  (997,784)   $(1,114,521)
                                         ===========    ===========    ===========


Net loss per common share (Note 2)

 Basic                                   $     (0.04)   $     (0.05)   $     (0.07)
                                         ===========    ===========    ===========

 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, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                               Common Stock                                 Notes
                                               ------------  Additional                   Receivable
                                                  Shares       Amount   Paid In Capital     Deficit    Stock Purchase      Total
                                                ----------    --------    -----------       -------    --------------      -----
<S>                                             <C>           <C>         <C>             <C>             <C>           <C>
Balance December 31, 1997                       15,559,652    $777,983    $ 3,158,551     $(1,996,231)    $(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 for 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

Stock issued to director                         1,000,000      50,000        (50,000)           --            --              --

Net loss for 2000                                     --          --             --          (856,215)         --          (856,215)
                                                ----------    --------    -----------     -----------     ---------     -----------

Balance December 31, 2000                       19,646,652    $982,333    $ 4,827,201     $(4,954,751)    $(362,500)    $   492,283
                                                ==========    ========    ===========     ===========     =========     ===========
</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, 2000, 1999 AND 1998

                           INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>
                                                     2000         1999           1998
                                                  ---------    -----------    -----------
<S>                                               <C>          <C>            <C>
Cash flows from operating activities:
  Net loss                                        $(856,215)   $  (997,784)   $(1,114,521)
  Adjustments to reconcile net loss to net cash
   (used in) provided by operating activities:
    Consulting expense                                 --             --        1,275,000
    Depreciation and amortization                   689,434        386,810        299,665
    Accounts receivable                              33,900        288,018       (274,172)
    Inventory                                         2,495          9,110         (1,430)
    Acquired technology                                --           40,000        (40,000)
    Prepaid expenses and other current assets         3,222         17,762        (24,785)
    Accounts payable                                   --          175,916        (17,335)
    Accrued expenses and other
     current liabilities                             70,797         (5,526)         6,582
                                                  ---------    -----------    -----------

      Net cash (used in) provided by  operating
       activities                                   (56,367)       (85,694)       109,002
                                                  ---------    -----------    -----------


Cash flows from investing activities:
  Purchase of property and equipment                 (6,987)       (81,197)       (92,253)
  Computer software development costs              (373,948)      (419,548)      (401,258)
                                                  ---------    -----------    -----------


      Net cash used in investing activities        (380,935)      (500,745)      (493,511)
                                                  ---------    -----------    -----------

Cash flows from financing activities:
  Proceeds from exercise of stock
   warrants/options                                    --             --          540,500
                                                  ---------    -----------    -----------


      Net cash provided by financing activities        --             --          540,500
                                                  ---------    -----------    -----------

Net (decrease) increase in cash                    (437,302)      (586,439)       155,991

Cash - beginning of year                            449,990      1,036,429        880,438
                                                  ---------    -----------    -----------


Cash - end of year                                $  12,688    $   449,990    $ 1,036,429
                                                  =========    ===========    ===========
</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, 2000, 1999 and 1998

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 2000 and
1999,  sales  to  two  customers  comprised  approximately  30%  and  25% of the
Company's  sales  and  approximately  13%  and  9%  of  the  Company's  accounts
receivable at December 31, 2000 and 1999, 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 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.

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." The effective date of this SOP has
been amended by SOP 98-4 and SOP 98-9 to apply to fiscal  years  beginning on or
after March 15, 1999. The Company's adoption of this SOP did not have a material
effect  on  the  Company's   consolidated   financial  position  or  results  of
operations.

In December 1998, the Accounting  Standards  Executive Committee of the American
Institute of Certified  Public  Accountants  issued SOP 98-9  "Software  Revenue
Recognition, with respect to certain transactions".  This statement is effective
for fiscal years beginning after March 15, 1999. The Company's  adoption of this
SOP did not have a  material  effect  on the  Company's  consolidated  financial
position or results of operations.


                                       F-7


<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.):

ADVERTISING:

Advertising  costs are  charged  to  operations  when  incurred.  There  were no
capitalized advertising costs as of December 31, 2000 and 1999.

EARNINGS PER SHARE:

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 19,396,652, 18,646,652 and
17,002,134 in 2000,  1999 and 1998,  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 and  warrants.  In 2000 and 1999,  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 19,621,652,  22,411,245 and 21,090,718 in 2000, 1999 and
1998,  respectively  (Note 13). Fully diluted earnings per share amounts are not
presented for 2000, 1999 and 1998 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 currently  estimated at two
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.


                                      F-8
<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.):

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.

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  12) and the
capitalization of computer software development costs (Note 4).

NOTE 3.  PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

                                                         2000             1999
                                                       --------         --------

Office furniture and equipment                         $ 51,007         $ 54,044
Computer software                                       173,494          168,273
Computer hardware                                       222,606          217,804
Leasehold improvements                                    3,975            3,975
                                                       --------         --------
                                                        451,082          444,096
Accumulated depreciation                                313,113          254,794
                                                       --------         --------

                                                       $137,969         $189,302
                                                       ========         ========

Depreciation  expense  charged to operations in each of the years ended December
31, 2000, 1999 and 1998 amounted to $58,319, $57,232 and $36,975, respectively.

NOTE 4.  COMPUTER SOFTWARE DEVELOPMENT COSTS:

Computer software development costs consist of the following:

                                                        2000             1999
                                                     ----------       ----------

Computer software development costs                  $2,344,976       $1,971,082
Accumulated amortization                              1,799,113        1,168,052
                                                     ----------       ----------

                                                     $  545,863       $  803,030
                                                     ==========       ==========

Amortization  expense  charged to operations in 2000,  1999 and 1998 amounted to
$631,115, $329,578 and $262,688, respectively.

                                       F-9


<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 5. ACQUIRED TECHNOLOGY:

In 1999 and 1998, the company  purchased  rights for the use of certain software
to be utilized in the Company's year 2000 assessment and  remediation  services.
Certain of these  software  costs were charged in 1999 and 1998 to cost of goods
sold based on revenues from customers  contracting  with the company for the use
of the technology.

At December 31, 1999,  the Company wrote off the remaining  costs  approximately
$1,107,000  based on its assessment of the  software's  net realizable  value at
that time.  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. COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES:

The  Company  leases  office  and  warehouse   facilities  under  noncancellable
operating  leases expiring  through  October 2001.  Minimum future annual rental
payments  under  these  leases  for  the  year  ending   December  31,  2000  is
approximately  $50,000.  Rent expenses  charged to operations in the years ended
December  31,  2000,  1999 and 1998  amounted to $54,313,  $62,711 and  $59,833,
respectively.

GOING CONCERN:

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with generally  accepted  accounting  principles,  which contemplates
continuation  of the  Company  as a going  concern.  However,  the  Company  has
sustained substantial operating losses in recent years. In addition, the Company
has used substantial  amounts of working capital in its operations.  Further, as
of December 31, 2000, current liabilities exceed current assets by $205,675.

Management of the Company has taken certain steps to reduce  operating  expenses
and restore the Company to profitability and positive cash flow from operations.
The ability of the Company to continue as a going concern is dependent  upon the
success of these actions.  The consolidated  financial statements do not include
any adjustments  that might be necessary if the Company is unable to continue as
a going concern.

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, 2000, 1999 and 1998 were approximately $246,000, $292,000 and
$948,000, respectively.


                                      F-10
<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 8. COMMON STOCK:

ISSUANCE OF COMMON STOCK:

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.

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, 2000 and 1999:

                                            Exercise Price Per Share
                                            ------------------------
                                                                      Weighted
                                  Number Of Shares       Range        Average
                                  ----------------       -----        -------
Balance-December 31, 1998            4,961,000        0.250-0.500       0.277

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

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

  Rescinded                            (50,000)             0.360       0.360
                                    ----------        -----------       -----

Balance-December 31, 2000              200,000        0.250-0.375       0.313
                                    ==========        ===========       =====



                                      F-11


<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 8. COMMON STOCK (Cont'd.):

STOCK OPTIONS/WARRANTS:

The status of all  options and  warrants  outstanding  at  December  31, 2000 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                     0.01                         $  0.250
     0.375                        100,000                     0.36                            0.375
                             ------------                     ----                         --------

                                  200,000                     0.36                         $  0.313
                             ============                     ====                         ========
</TABLE>


NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION:

CASH TRANSACTIONS:

During the years ended  December 31, 2000,  1999 and 1998, the Company paid cash
in each  year for  interest  expense  in the  amount of $-0-,  $338 and  $1,897,
respectively.

During the years ended  December 31, 2000,  1999 and 1998, the Company paid cash
for corporate  income tax payments in each year in the amount of $2,047,  $2,753
and $3,534, 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 10).

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

During the year ended December 31, 1998, in  conjunction  with the exercising of
stock  options at $.25 per share,  the Company  issued 30,000 shares of its $.05
par value common stock to an employee,  in exchange for a note receivable in the
amount of $7,500.


                                      F-12


<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 10. NON-MONETARY TRANSACTIONS:

During the year ended December 31, 1999, 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  2000,  the  Company  adopted a 401(k)  savings  Plan that  covers  all
employees of the Company. The Plan is effective March 1, 2000.  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  years  ended  December  31,  2000  and  1999,  the  Company   incurred
contribution expense of approximately $11,000 and $7,000, respectively,  related
to this Plan.

NOTE 12. INCOME TAXES:

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

                                                         2000           1999
                                                         ----           ----
                                                      Noncurrent     Noncurrent

Total deferred tax asset                             $ 1,344,000    $ 1,287,000
Total deferred tax liability                            (278,000)      (297,000)
Valuation allowance                                   (1,066,000)      (990,000)
                                                     -----------    -----------

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

The provision for income taxes for the years ended  December 31, 2000,  1999 and
1998 consists of the following:

                                                   2000        1999        1998
                                               --------    --------    --------

Current tax expense                            $  2,047    $  1,329    $  3,681
Deferred tax expense                             19,000      12,000      55,000
Benefit of net operating loss carryforwards     (19,000)    (12,000)    (55,000)
Net change in valuation allowance                  --          --          --
                                               --------    --------    --------

Total                                          $  2,047    $  1,329    $  3,681
                                               ========    ========    ========


                                      F-13


<PAGE>


                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 12. 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:

                                                      2000        1999      1999
                                                  --------    --------    ------

Income taxes computed at Federal statutory
 tax rate                                         $ 35,500    $ 25,669    $ --
Income tax benefit of capitalized costs
 deducted for tax purposes                         (35,500)    (25,669)     --
Surtax exemption                                      --          --        --
State tax provisions (benefit)                       2,047       1,329     3,681
Benefit of operating loss carryforwards               --          --        --
                                                  --------    --------    ------

Provision (benefit) for income taxes              $  2,047    $  1,329    $3,681
                                                  ========    ========    ======

As of December  31,  2000,  the Company has a net  operating  loss  carryforward
available   for  Federal  and  State  income  tax  purposes  in  the  amount  of
approximately $4,700,000, expiring from 2002 through 2020.

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>
                                                   2000            1999            1998
                                              ------------    ------------    ------------
<S>                                           <C>             <C>             <C>
Loss available to common
 stockholders used in basic EPS               $   (856,215)   $   (997,784)   $ (1,114,521)

Interest expense - Convertible note payable           --              --               625
                                              ------------    ------------    ------------

Loss available to common
 stockholders after assumed
 conversions of dilutive securities           $   (856,215)   $   (997,784)   $ (1,113,896)
                                              ============    ============    ============

Weighted average number of common
 shares used in basic EPS                       19,396,652      18,646,652      17,002,134

Effect of dilutive securities
  Stock options/warrants                           225,000       3,764,593       3,986,395
  Convertible notes payable                           --              --           102,189
                                              ------------    ------------    ------------

Weighted average number of common
 shares and dilutive potential
 common stock used in diluted EPS               19,621,652      22,411,245      21,090,718
                                              ============    ============    ============
</TABLE>

For 2000, 1999 and 1998, the effect of dilutive  securities were not included in
computing EPS because their effects are anti-dilutive.


                                      F-14