<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB
                        QUARTERLY OR TRANSITIONAL REPORT

|X|              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For The Quarterly Period Ended June 30, 1998

|_|         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

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                     (I.R.S. Employer
 incorporation or organization)                      Identification No.

1501 Lincoln Ave., Holbrook, New York                        11741
-------------------------------------                        -----
(Address of principal executive offices)

(516) 588 - 8000
--------------------------------------------------------------------------------
Registrant's telephone number

--------------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 |_|.

The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date is as follows:

Date                             Class                        Shares Outstanding
----                             -----                        ------------------

08/06/98                       Common Stock                       16,941,652
<PAGE>   2

                        EGAN SYSTEMS, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS

                                                                        Page No.

PART I. FINANCIAL INFORMATION

  Item 1. Financial statements

  Condensed consolidated balance sheets as of
  June 30, 1998 (unaudited) and December 31, 1997                          1

  Condensed consolidated statements of operations (unaudited) for the
  six months ended June 30, 1998 and 1997                                  2

  Condensed consolidated statements of cash flows (unaudited) for the
  six months ended June 30, 1998 and 1997                                  3

  Notes to condensed consolidated financial statements (unaudited)       4 - 5

  Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                           6 - 7

PART II - OTHER INFORMATION

  Item 6.  Exhibits and reports on Form 8-K                                8

SIGNATURES                                                                 9

EXHIBITS                                                                  10
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                     June 30,     December 31,
ASSETS                                                 1998           1997
                                                   -----------    -----------
                                                   (Unaudited)
<S>                                                <C>            <C>    
Current Assets
  Cash                                             $   850,706    $   880,438
  Accounts receivable                                  246,448        125,683
  Inventory                                             17,008         16,590
  Other current assets                                     145          1,739
                                                   -----------    -----------
    Total Current Assets                             1,114,307      1,024,450
                                                   -----------    -----------
Property and Equipment - net                           137,064        110,059
                                                   -----------    -----------
Other Assets
  Computer software development costs - net            618,540        574,490
  Security deposits                                      3,126          3,126
                                                   -----------    -----------
    Total Other Assets                                 621,666        577,616
                                                   -----------    -----------
    Total Assets                                   $ 1,873,037    $ 1,712,125
                                                   ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Accounts payable                                 $     5,656    $    17,335
  Accrued expenses and other current liabilities        33,128         49,487
                                                   -----------    -----------
    Total Current Liabilities                           38,784         66,822

Long-term debt                                          25,000         50,000
                                                   -----------    -----------
    Total Liabilities                                   63,784        116,822
                                                   -----------    -----------
Stockholders' Equity
  Common stock - $.05 par value, 
    shares authorized - 30,000,000 shares, issued
    and outstanding, 16,941,652 and
    15,559,652 in 1998 and 1997                        847,083        777,983
  Additional paid-in capital                         3,686,201      3,158,551
  Deficit                                           (2,369,031)    (1,986,231)
                                                   -----------    -----------
                                                     2,164,253      1,950,303
  Notes receivable - stock purchase                   (355,000)      (355,000)
                                                   -----------    -----------
    Total Stockholders' Equity                       1,809,253      1,595,303
                                                   -----------    -----------
    Total Liabilities and Stockholders' Equity     $ 1,873,037    $ 1,712,125
                                                   ===========    ===========
</TABLE>


The condensed consolidated balance sheet at December 31, 1997 has been derived
from the audited financial statements at that date.

See notes to condensed consolidated financial statements.


                                       1
<PAGE>   4

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                           Three Months Ended         Six Months Ended
                                                June 30,                   June 30,
                                            1998         1997        1998          1997
                                         ---------    ---------    ---------    ---------
<S>                                      <C>          <C>          <C>          <C> 
Net sales                                $ 349,193    $ 217,348    $ 591,254    $ 476,692
                                         ---------    ---------    ---------    ---------
Cost and expenses:
  Cost of goods sold                         9,052        9,709       29,594       31,885
  Research and development costs            81,783       53,975      160,804      149,601
  Selling, shipping,
   general and administrative              163,737       88,552      316,930      122,790
  Interest income                           (9,896)      (4,750)     (18,845)      (4,750)
  Royalties                                  3,656           --        5,353        5,333
  Promotion and advertising                 67,376           --      130,839           --
  Interest expense                              --        2,885          625        7,060
  Depreciation and amortization             74,377       56,230      148,754      131,684
  Consulting                               200,000           --      200,000           --
                                         ---------    ---------    ---------    ---------
                                           590,085      206,601      974,054      443,603
                                         ---------    ---------    ---------    ---------
Net (loss) income                        $(240,892)   $  10,747    $(382,800)   $  33,089
                                         =========    =========    =========    =========
Net (loss) per common share:
  Primary                                $   (0.01)   $    0.00    $   (0.02)   $    0.00
                                         =========    =========    =========    =========
  Fully diluted                          $   (0.01)   $    0.00    $   (0.02)   $    0.00
                                         =========    =========    =========    =========
  Cash dividends per common share             None         None         None         None
</TABLE>

See notes to condensed consolidated financial statements 


                                       2
<PAGE>   5

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                           INCREASE (DECREASE) IN CASH
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                           Six Months Ended
                                                               June 30,
                                                        ----------------------
                                                           1998         1997  
                                                        ---------    ---------
<S>                                                     <C>          <C>
Net cash (used in) provided by operating activities     $(181,673)   $ 117,681
                                                        ---------    ---------

Cash flows from investing activities:
  Purchase of property and equipment                      (44,415)     (41,884)
  Computer software development costs                    (175,394)    (159,163)
                                                        ---------    ---------
    Net cash used in investing activities                (219,809)    (201,047)
                                                        ---------    ---------
Cash flows from financing activities:
  Proceeds from exercise of common stock - options             --      312,500
  Proceeds from exercise of common stock - warrants            --      127,500
  Proceeds from issuance of convertible notes payable     371,750      130,000
  Proceeds from sale of common stock                           --      145,000
                                                        ---------    ---------
    Net cash provided by financing activities             371,750      715,000
                                                        ---------    ---------
Net (decrease) increase in cash                           (29,732)     631,634

Cash - beginning of period                                880,438       37,298
                                                        ---------    ---------
Cash - end of period                                    $ 850,706    $ 668,932
                                                        =========    =========
Supplemental cash flows information:

Taxes paid                                              $   1,214    $     520
                                                        =========    =========
Interest paid                                           $     625    $   4,580
                                                        =========    =========
Schedule of non-cash financing activity:

Common stock issued for consulting services rendered    $ 200,000    $      --
                                                        =========    =========
</TABLE>

See notes to condensed consolidated financial statements.


                                       3
<PAGE>   6

                         EGAN SYSTEMS, INC. AND SUBSIDIARY
               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (UNAUDITED)

NOTE 1. STATEMENT PRESENTATION:

In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
Egan Systems, Inc. and Subsidiary as of June 30, 1998 and the results of their
operations and cash flows for the six months ended June 30, 1998 and 1997.

Primary 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 were 16,941,652 and 12,005,000 in 1998 and 1997, respectively. Fully
diluted net income per common share is computed based on the weighted average
number of outstanding common shares plus the shares that would be outstanding
assuming conversion of the outstanding options, warrants and convertible note
payable. 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
computation of fully diluted earnings per share were 21,404,952 and 19,698,500
in 1998 and 1997, respectively. Fully diluted earnings per share amounts do not
include the effects of dilutive securities for 1998 because it is anti-dilutive.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
for interim reporting under Form 10-QSB have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1997.

The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the operating results for the full year.

NOTE 2. 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 life of the product, which is estimated at three years. As of and for
the six months ended June 30, 1998 and 1997, accumulated amortization amounted
to approximately $707,076 and $481,000, and amortization of computer software
development costs charged to operations was approximately $131,344 and $114,000,
respectively.

NOTE 3.  INVENTORY:

Inventory, which consists of finished goods, is stated at the lower of cost or
market. Cost is determined by the first-in, first-out method.


                                       4
<PAGE>   7

                        EGAN SYSTEMS, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION:

NON-CASH TRANSACTIONS:

During the six months ended June 30, 1998, the Company converted $25,000 of its
convertible note payable into 100,000 shares of its $.05 par value common stock
at $.25 per share.

NOTE 5.  NON-MONETARY TRANSACTION:

In May 1998, the Company issued 200,000 shares of its $.05 par value common
stock in exchange for consulting services. The transaction was recorded at the
fair market value of the common stock when the shares were issued. The amount
recorded as consulting expense as a result of this transaction for the six
months ended June 30, 1998 was $200,000.

NOTE 6. SUBSEQUENT EVENT:

On August 10, 1998, the Company has been awarded a 51% interest in a joint
venture, the purpose of which is to provide Year 2000 computer systems solution
to government ministries and government owned industries in The People's
Republic of China. As consideration for this interest in the joint venture, the
Company has issued 1,000,000 shares of its $.05 par value common stock.


                                       5
<PAGE>   8

Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 AND 1997

NET SALES:

For the six months ended June 30, 1998 and 1997, revenue totaled approximately
$591,000 and $477,000, respectively. Sales have increased approximately 24% as a
result of the Company's marketing agreement with Data General Corp. to sell some
of the Company's products and greater exposure to new and existing customers
through the Company's internet page. 

In December 1996, the Company 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 continue to
provide a substantial revenue source for at least the next fiscal year.

The Company's products traditionally offer relatively high gross margins. The
Company is promoting its new software product releases and also has a number of
additional promising software products in its development pipeline which it
expects to release in the near future. The Company expects the products to
substantially contribute to sales in the near future. 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 six months ended June 30, 1998 and 1997 were
approximately $30,000 and $32,000 and gross profit percent was approximately 95%
and 92%, respectively. 

Research and development costs were approximately $161,000 and $150,000 for the
six months ended June 30, 1998 and 1997, 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 increase is substantially
due to the Company expending more computer software development costs in 1998
than in 1997 related to developing new Company products.

Selling, shipping and general and administrative expenses (SG&A) for the six
months ended June 30, 1998 and 1997 were approximately $317,000 and $123,000,
respectively. The capitalization of computer software development costs for the
six months ended June 30, 1998 and 1997 reduced SG&A expenses by approximately
$175,000 and $159,000, respectively. The increase in SG&A costs was attributed
primarily to an increase in payroll and benefits ($100,000) and rent ($9,000) at
the Company's software development and support facility and an increase in
payroll and related costs associated with hiring a new sales manager ($50,000)
and an employment fee related to his hiring ($14,000).

PROMOTION AND ADVERTISING EXPENSE:

For the six months ended June 30, 1998, promotion and advertising expense was
approximately $130,000 and is directly related to the Company's efforts to
market its new Year 2000 Impact Assessment and Remediation Tools and Services
products.


                                       6
<PAGE>   9

Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (Cont'd.):

INTEREST INCOME:

Interest income for the six months ended June 30, 1998 was approximately $19,000
and was related to cash invested in short-term financial instruments.

DEPRECIATION AND AMORTIZATION:

Depreciation and amortization expense for the six months ended June 30, 1998 and
1997 was approximately $149,000 and $132,000, respectively. The increase was due
to higher amortization of computer software development costs.

CONSULTING:

For the six months ended June 30, 1998, the Company recorded a consulting
expense for $200,000 on its condensed consolidated statement of operations
related to its on-going effort to market its products and services. The Company
issued 200,000 shares of its $.05 par value common stock in exchange for these
services which was accounted for as a non-monetary transaction and valued at the
fair market value of the common stock when the shares were issued.

LIQUIDITY:

As of June 30, 1998, the Company's net cash used in operations was approximately
$181,000 and is substantially attributed to the net loss of ($383,000),
depreciation and amortization of $148,000, the increase in accounts receivable
of ($121,000) and the decrease in accounts payable ($12,000) and accrued
expenses ($24,000) and $200,000 in consulting expense accounted for in a
non-monetary transaction.

Net cash used in investing activities during the six months ended June 30, 1998
was approximately $220,000. Cash was used to purchase computer software and
hardware equipment of approximately $44,000 to support the Company's on-going
research and development activities and $175,000 was attributed to the
capitalization of computer software development costs.

For the six months ended June 30, 1998, net cash provided by financing
activities increased by approximately $372,000 as a result of the exercise of
common stock warrants.

Management believes that the Company has sufficient resources to meet its
expected needs in the present fiscal year. Management has directed significant
Company resources in the six months ended June 30, 1998 towards the Company's
attempt to market it's 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.


                                       7
<PAGE>   10

                           PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

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

               (11) Statement regarding computation of per share earnings.

               (27) Financial data schedule

(b) Reports on Form 8-K - The Company filed no reports on Form 8-K during the
    quarter ended June 30, 1998.


                                       8
<PAGE>   11

                               S I G N A T U R E S

In accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf of the undersigned, thereunto duly
authorized.

                                                   EGAN SYSTEMS, INC.
                                                   -----------------------------
                                                   (Registrant)


                                                   /s/ Edward J. Egan
                                                   -----------------------------
                                                   Edward J. Egan (President)
                                                   And Chief Financial Officer)

Date: August 14, 1998


                                       9
<PAGE>   12
                                EXHIBIT INDEX

               (11) Statement regarding computation of per share earnings.

               (27) Financial data schedule