DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              ---------------------
                                   FORM 10-QSB
                              ---------------------

     [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                       For the quarter ended July 31, 1998

                                       OR

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                              ---------------------

For the Transition Period from                          to
Commission File Number 1-11034

                         DIGITRAN SYSTEMS, INCORPORATED
                         ------------------------------
             (Exact name of registrant as specified in its charter)

                  Delaware                                    72-0861671       
         -------------------------------                   -------------------
         (State of other jurisdiction of                     (I.R.S. employer
         incorporation or organization)                    identification No.)

            2176 North Main, P.O. Box 6310, North Logan, UT 84341-631
           ----------------------------------------------------------
              (Address of principal executive offices and zip code)

                                 (435) 752-9067
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not applicable
         -------------------------------------------------------------
        (Former name, former address, and former fiscal year, if changed
                               since last report)

   Indicate  by check mark  whether  the  registrant  (1) has filed all  reports
   required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
   1934  during the  preceding  12 months (or for such  shorter  period that the
   registrant  was required to file such  reports),  and (2) has been subject to
   such filing requirements for the past 90 days.
                                Yes     X      No          

   Indicate the number of shares  outstanding of each of the issuer's classes of
   common stock, as of the latest practicable date.

             Class                             Outstanding at July 31, 1998
-----------------------------------------      ----------------------------
   Common stock, $.01 par value                          13,050,629
   Class B Common stock, $.01 par value                   2,000,000

   Transitional Small Business Disclosure Format (Check one)

                                        Yes            No     X    

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                 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

                                TABLE OF CONTENTS



                                                                       PAGE
                                                                       ----

PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements

         Unaudited Condensed Consolidated Balance Sheet
         as of July 31, 1998                                            3

         Unaudited Condensed Consolidated Statements of Operations,
         for the three month periods ended July 31, 1998 and 1997       4

         Unaudited Condensed Consolidated Statements of Cash Flows,
         for the three month periods ended July 31, 1998 and 1997       5

         Notes to Unaudited Condensed Consolidated Interim Financial
         Statements                                                     6

     Item 2. Management's Discussion and Analysis of Financial

         Condition or Plan of Operation                                 9


PART II. OTHER INFORMATION                                             11


SIGNATURES                                                             12

                                       2
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                DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

PART I  FINANCIAL INFORMATION
-----------------------------


     ITEM 1     FINANCIAL STATEMENTS
     ------     --------------------


                 DIGITRAN SYSTEMS, INCORPORATED and SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (Unaudited)

                                  July 31, 1998


                                     ASSETS

CURRENT ASSETS

     Cash and cash equivalents                               $           13,000
     Accounts receivable                                                367,000
     Inventories                                                        759,000
                                                             ------------------
                Total Current Assets                                  1,139,000

Property, Plant, and Equipment (Net)                                    424,000
                                                             ------------------
                                                             $        1,563,000
                                                             ==================
                                                       
                       LIABILITIES AND STOCKHOLDERS EQUITY

CURRENT LIABILITIES
     Accounts Payable and Accrued Expenses                   $        1,622,000
     Short Term Notes Payable                                           743,000
                                                             ------------------
                Total Current Liabilities                             2,365,000
                                                             ------------------
Long Term Notes Payable                                                 921,000
                                                             ------------------
Commitments and Contingencies                                                 -

Shareholder's Deficit
     Preferred Stock                                                      1,000
     Common Stock                                                       136,000
     Class B Common Stock                                                20,000
     Additional Paid-in Capital                                       9,031,000
     Retained Earnings (Deficit)                                    (10,911,000)
                                                             -------------------
                Total Shareholder's Deficit                          (1,723,000)
                                                             ------------------
                                                             $        1,563,000
                                                             ==================

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




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                DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

                 DIGITRAN SYSTEMS, INCORPORATED and SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)


                                                    Three Months Ended July 31,
                                                        ^1998          ^1997
                                                    ----------------------------

NET SALES                                           $  605,000       $  818,000

COST OF GOODS SOLD                                     359,000          475,000
                                                    ----------------------------

GROSS PROFIT OR (LOSS)                              $  246,000       $  343,000

EXPENSES
  Selling, general and administrative expenses         687,000          400,000
  Depreciation and Amortization                         45,000           25,000
                                                    ----------------------------

OPERATING INCOME                                    $ (486,000)      $  (82,000)

OTHER INCOME (EXPENSE)
  Interest                                            (130,000)         (81,000)
  Litigation Settlement Cost & Inventory Write Down                    (142,000)
  Gain on Sale of Real Estate                          416,000                -
  Other                                                      -           11,000
                                                    ----------------------------

INCOME (LOSS) BEFORE INCOME TAXES                   $ (200,000)      $ (294,000)

INCOME TAXES                                                 -                -
                                                    ----------------------------

NET INCOME (LOSS)                                   $ (200,000)      $ (294,000)

LESS CURRENT UNPAID DIVIDENDS ON PREFERRED STOCK             -                -
                                                    ----------------------------

NET LOSS APPLICABLE TO COMMON SHARES                $ (200,000)      $ (294,000)
                                                    ============================

LOSS PER SHARE APPLICABLE TO COMMON STOCK                (0.02)           (0.03)
                                                    ============================



WEIGHTED AVERAGE COMMON STOCK AND
     COMMON STOCK EQUIVALENTS OUTSTANDING           12,932,849       10,784,000
                                                    ============================



     The accompanying notes are an integral part of these financial statements



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                DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

                 DIGITRAN SYSTEMS, INCORPORATED and SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)







                                                    Three Months Ended July 31,
                                                        ^1998           ^1997
                                                    ----------------------------
                                                                        

Cash Flows From Operating Activities
  Net Loss                                          $ (200,000)      $ (294,000)
  Adjustments to reconcile net loss to net cash
   Provided by (used in) operating activities:
     Depreciation and Amortization                      45,000           25,000
     Issuance of common stock for services
      and litigation settlement                                         163,000
     (Increase) Decrease in:
      Accounts Receivable                              (72,000)        (178,000)
      Inventory                                        (63,000)         236,000 
      Costs & Earning in excess of billings                            (135,000)
      Other current assets 
     Increase (Decrease) in:
      Accounts Payable and other Current liabilities    98,000          142,000
      Billing in excess of costs                                       (266,000)
                                                    ----------------------------

  Net Cash Used in Operating Activities             $ (192,000)      $ (307,000)

Cash Flows From Investing Activities
  Purchase of property and equipment                         0           (4,000)
                                                    ----------------------------

  Net Cash Used in Investing Activities                      0           (4,000)

Cash Flows From Financing Activities
  Proceeds from Stock Offering                         220,000
  Proceeds from short term borrowing                   397,000          392,000
  Payments on short term borrowing                    (753,000)         (32,000)
  Proceeds from long term borrowing                    631,000
  Payments on long term borrowing                     (764,000)         (22,000)
  Net Proceeds from sale of buildings                  409,000
                                                    ----------------------------
  Net Cash Provided by Financing Activities         $  140,000       $  338,000

Net Increase (Decrease) in Cash                        (52,000)          27,000

Cash Beginning of Period                                65,000           39,000
                                                    ----------------------------

Cash End of Period                                  $   13,000       $   66,000
                                                    ============================

     The accompanying notes are an integral part of these financial statements


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                 DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

     The  accompanying  financial  statements  have been prepared by the Company
     without  audit.  In the opinion of  management,  all  material  adjustments
     (which  include  only normal  recurring  adjustments)  necessary to present
     fairly  the  financial  position  at July  31,  1998,  and the  results  of
     operations  and cash flows for the three month  periods ended July 31, 1998
     and 1997 have been made.

     Certain information and footnote disclosures normally included in financial
     statements  prepared  in  accordance  with  generally  accepted  accounting
     principles  have been  condensed  or omitted.  It is  suggested  that these
     condensed  financial  statements be read in conjunction  with the financial
     statements  and notes  thereto  included  in the  Company's  April 30, 1998
     audited  financial  statements.  The results of operations  for the periods
     ended  July  31,  1998  and  1997  are not  necessarily  indicative  of the
     operating results for the respective full years.

     The  simulator  products  which are  marketed by the Company sell at a very
     high price in  comparison  to the total annual  sales of the Company.  This
     relationship  leads to individual sales having a  disproportionately  large
     effect on total sales. Therefore, sales within a quarter can lead to highly
     volatile  results of operations  for individual  quarters.  The results for
     individual quarters may not be indicative of annual results.  All quarterly
     information  should be  considered in light of the last fiscal year and the
     current year to date  operations  of the Company.  Furthermore,  due to the
     fixed nature of certain costs of revenues,  the gross margins on relatively
     low revenue volumes will be lower than otherwise expected.


NOTE 2 - COMMITMENTS AND CONTINGENCIES


     Shareholder Litigation

     On April 1, 1993,  the  Securities  and  Exchange  Commission  initiated an
     investigation  of the  company.  This in turn  precipitated  litigation  by
     certain  shareholders.  The full and complete details of these actions have
     been previously  reported in prior 10-KSB and 10-QSB  filings.  On July 21,
     1998, the Company made the final payment  towards the  settlement  with the
     shareholders.  This will be the last quarter in which this  litigation will
     be addressed.

     In the normal course of business,  there may be various other legal actions
     and  proceedings  pending  which seek damages  against the Company.  In the
     opinion of  management  the ultimate  resolution  of these matters will not
     have a material adverse impact upon the Company, its business or property.


     Going Concern

     The  accompanying  financial  statements  have  been  presented  on a going
     concern  basis  which  contemplates  the  realization  of  assets  and  the
     satisfaction  of liabilities in the normal course of business.  The Company
     has incurred recurring  operating losses, has a deficit in working capital,
     and has an accumulated earnings deficit.

     The Company has been  unable to qualify  for  traditional  lines of credit.
     However,  the Company  has been able to obtain  short term  borrowings  and



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                DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

     lines of credit from related  parties,  a local  government  agency,  and a
     financial   institution   which  have  been   backed  by  certain   Company
     receivables.

     The Company's continued existence is dependent upon its ability to focus on
     operational  considerations  in  order  to  maintain  the  growth  in sales
     opportunities  and  continue  bringing  to  fruition  a number of the sales
     proposals currently outstanding to potential customers. Management plans to
     continue   focusing  its  time,   attention  and  financial   resources  on
     operational considerations.

     In August 1997, the Company initiated a $3,000,000  private offering of its
     common  stock.  The offering  consisted of 1,500,000  units,  each of which
     consisted  of two  shares of common  stock and one  warrant  entitling  the
     holder to  acquire  one  additional  share of common  stock for $1.50 on or
     before  February  28,  1999.  Each  unit  sold  for  $2.00  cash.   Certain
     broker-dealers  were  entitled to a  commission  of 10% to 13%. The Company
     closed the  offering on August 15, 1998 after having sold  1,163,731  units
     for $1,163,731.


     Other Items

     In the normal course of business,  there may be various other legal actions
     and  proceedings  pending  which seek damages  against the Company.  In the
     opinion of management the ultimate resolution of these routine matters will
     not  have  a  material  adverse  impact  upon  the  Company's  consolidated
     financial statements.


NOTE 3 - CONCENTRATIONS OF CREDIT RISK

     Most of the  Company's  business  activity  is  with  oil  companies,  port
     authorities,  training  institutions  and  various  other  entities,  often
     outside  the  United  States.  Normally,  the  Company  attempts  to secure
     shipments  outside  the United  States  through  letters  of credit  and/or
     progress payments.

     In cases for which shipments are made on open accounts, the Company retains
     title  or  ownership  claims  to the  equipment  shipped  by  terms  of its
     contracts or agreements until significant payment has been secured.


NOTE 4 - CAPITAL STOCK

     The Company's capital stock consists of common stock, Class B common stock,
     and preferred stock.  The common stock provides for a  noncumulative,  $.05
     per share annual dividend and a $.01 per share liquidation  preference over
     Class B common. In addition, the Company must pay the holders of the common
     stock a  dividend  per  share at least  equal to any  dividend  paid to the
     holders  of Class B common.  Holders of the common  stock are  entitled  to
     one-tenth of a vote for each share held.

     Class B common may not  receive a dividend  until an annual  dividend of at
     least $.05 is paid on the  common  stock.  Holders  of Class B common  have
     preemptive  rights with respect to the Class B common stock and may convert
     each  share of Class B common  into one  share of the  common  stock at any
     time. Holders of Class B common are entitled to one vote per share held.


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                DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

     The Series 1 Class A 8% Cumulative  Convertible  Preferred  Stock has a par
     value of $.01 per share.  As of July 31,  1998 there  were  143,767  shares
     outstanding.

     The overwhelming  majority of Preferred  shareholders  have converted their
     Preferred shares into Common shares. This is because it appears likely that
     the Common  stock share  price will  appreciate  faster than the  Company's
     ability  to  overcome  its   accumulated   deficit.   There  are  currently
     insufficient  preferred  shares  remaining for them to trade publicly.  The
     Preferred share's characteristics are described below:

     Holders of preferred shares are entitled to cumulative  dividends of 8% per
     annum on the stated value of the stock, designated as $7 per share. Holders
     of  Preferred  Stock are  entitled to receive  cumulative  dividends at the
     annual rate of $.56 per share,  payable  semi-annually  on September 15 and
     March 15. The Company paid  dividends of $27,362 for September 15, 1992 and
     $136,682  for March 15, 1993.  No dividends  have been paid since March 15,
     1993  resulting  in  dividends in arrears of  approximately  $402,548.  The
     future  payment of  dividends on the  Preferred  Stock is dependent on cash
     flow from operations and potential  reduction in dividend liability through
     conversion  of  preferred  shares  for  common  shares.  There may be legal
     restrictions  on the payment of  dividends  for periods in which losses are
     incurred and/or the Company has an accumulated  deficit.  Dividends are not
     payable on any other class of stock ranking  junior to the preferred  stock
     until the full cumulative dividend requirements of the preferred stock have
     been satisfied.  The preferred stock carries a liquidation preference equal
     to  its  stated  value  plus  any  unpaid  dividends.  Subject  to  certain
     registration requirements, convertibility of any preferred stock issued may
     be  exercised  at the option of the holder  thereof at two shares of common
     stock for each preferred  share  converted.  Holders of the preferred stock
     are entitled to one tenth of a vote for each share of preferred stock held.
     The  Company  may,  at its  option,  redeem  at any time all  shares of the
     preferred stock or some of them on notice to each holder of preferred stock
     at a per share price equal to the stated value ($7.00) plus all accrued and
     unpaid  dividends  thereon  (whether or not declared) to the date fixed for
     redemption, subject to certain other provisions and requirements.



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                DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

PART I FINANCIAL INFORMATION
----------------------------

ITEM 2 Management's  Discussion  and Analysis of Financial  Condition or Plan of
--------------------------------------------------------------------------------
Operations.
-----------

Reporting  Note.  Due to the late date of this  filing,  management  chooses  to
report  its plans as of the date of  filing,  which  would  include  information
subsequent to the ending date of the period being reported.  Management believes
that reporting the most current information is more meaningful.

Management's Future Plans
-------------------------

Financing
---------

To allow the Company to move  forward,  grow and have  sufficient  liquidity for
future  operations,  the  Company is  seeking to  restructure  its  finances  as
follows.  In the  absence of this or a similar  refinancing,  the  Company  will
experience  cash flow problems on a chronic basis until  operations can generate
positive cash flow:

  (1)  Equity Financing                                   $3,000,000   minimum
       Senior Debt                                         1,500,000
       Line of Credit                                        500,000
            Total                                         $5,000,000
                                                          ===========

     (1) The  Company  is seeking to sell  common  stock in a Private  Placement
     Offering.  However,  other potential equity  instruments such as a separate
     class of Preferred Shares is also possible.



The Use of Proceeds from the financing are described as follows:

       Commissions                                        $  300,000
       Payments for Short Term Debt                          500,000
       Overdue Payables - Key Vendors                        500,000
       Payment for Long Term Debt                            350,000
       Product Development                                   150,000
       Increased Marketing Efforts                           150,000
       Increased Engineering Personnel                       150,000
       Stock Market Relations                                 50,000
       Working Capital and General Corporate
          Purposes to Finance Growth                       2,500,000
                                                          ----------  

            Total                                         $5,000,000
                                                          ==========  




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                DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

New Product Development
-----------------------

The Company is developing  variations to its larger scale products.  As computer
components become  increasingly more capable and less expensive,  development of
smaller,   personal  computer-based  simulators  becomes  more  feasible.  Also,
mid-sized  simulators are being developed for those customers who need simulated
training,  but can't afford or don't need, all the features available on current
models.  These variations are being developed  primarily for the Crane and Truck
product lines.

Key Executives
--------------

During this fiscal year, the Company  bolstered its  management  team with three
experienced executives (Sales, Marketing and Accounting).  The Company continues
to develop and enhance its  commitment  to quality and to reversing  the current
condition of Digitran.  The additional sales personnel are already  accelerating
the  completion of existing  projects,  as well as identifying  other  potential
customers.

Results of Operations.     Three months ended July 31, 1998 vs. 1997
---------------------

Sales. Sales were adversely affected throughout the year and during this quarter
by the following:

A.                Lack of cash  resources.  The Company could not take advantage
                  of all  potential  sales  opportunities  due to  the  lack  of
                  available resources at various times throughout the year.

B.                Instability  in the global  economy.  The  Company saw several
                  significant potential projects eliminated or deferred by their
                  customers,  due to uncertainties with the customer's currency,
                  national economy, or other political issues.

C.                Drop  in  Petroleum  Industry  prices.  Softness  in  the  oil
                  industry has also led to the  postponement of several sizeable
                  projects from those customers.

D.                Lack  of  alternative  product  offering.   Consequently,  the
                  Company is developing  smaller and mid-sized products in order
                  to increase its sales and service market.


Cost of Sales.  Cost of sales will appear to be  unusually  high for the current
period  when  compared to the  previous  period.  This is because the  Company's
management  has  chosen  to  report  its  results  from  operations  in  a  very
conservative manner. Cost of sales consists of two major expense categories:

(1)      Cost of Parts and Components (variable by item sold)
(2)      Engineering and Production Labor (fixed by pay period)

Manufacturing  overhead  is  negligible.  Consequently,  gross  margins  will be
adversely  affected  when sales  levels  are below the  breakeven  point.  Gross
margins could  possibly be negative if sales do not exceed the  Company's  fixed
commitment to Engineering and Production  labor.  This change in presentation is
part of a concerted  effort by management to simplify its  accounting  practices
and to eliminate practices that involve or create intangible assets.

Selling,  General and  Administrative.  During this period, the Company invested
heavily in Sales and Marketing efforts:  Trade shows,  advertising and extensive

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                DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES

travel.  Also because of weak cash flow, the Company  incurred  commitment fees,
legal fees and investor  related expenses in excess or normal levels during this
quarter.

Interest.  Interest expense  increased 60% due to the increased  borrowing and a
higher average rate.

Sale Leaseback of Building.  During the quarter, the Company entered into a Sale
- Leaseback  Agreement with a shareholder,  for the two buildings it occupies in
North  Logan.  The sale price was at fair market value and the lease term is for
10 years. A gain was  recognized due to the difference  between market value and
book value.

PART II OTHER INFORMATION
-------------------------

ITEM 1 Legal Proceedings
------------------------

          See "Note 2 - Commitments and Contingencies, Shareholder Litigation".


ITEM 2 Changes in Securities
----------------------------

         During this quarter, 220,000 shares of common stock were issued as part
         of the Private Offering Memorandum. 114,426 shares of common stock were
         issued as part of the  Preferred  Stock  conversion,  and 100 shares of
         common stock was issued to  employees  for  services  rendered.  91,652
         shares of common stock was returned to the company in conjunction  with
         renegotiated settlement agreements.

ITEM 3 Defaults on Senior Securities
------------------------------------

          Holders of Series 1 Class A 8% Cumulative  Convertible Preferred Stock
          are  entitled to receive  cumulative  dividends  at the annual rate of
          $.56 per share,  payable  semi-annually  on September 15 and March 15,
          beginning  September 15, 1992. No preferred  stock dividends have been
          paid since  September  15, 1993  resulting in  aggregate  dividends in
          arrears of $402,548.

ITEM 4 Submission of Matters to a Vote of Security Holders
----------------------------------------------------------

          None

ITEM 5 Other
------------

          None

ITEM 6 Exhibits and Reports on Form 8-K
---------------------------------------

(a)      Exhibits:   None

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                DIGITRAN SYSTEMS, INCORPORATED AND SUBSIDIARIES


                                   SIGNATURES



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






                               Digitran Systems, Incorporated             
                             ---------------------------------------------------
                                       Registrant



Dated March 31, 1999         By: /s/  Loretta Trevers         
      --------------             -----------------------------------------------
                                 By: Loretta Trevers
                                 (President, Chairman & Chief Executive Officer)


Dated  March 31, 1999        By: /s/  S. Emerson Lybbert      
       --------------            -----------------------------------------------
                                 By:  S. Emerson Lybbert
                                 (Chief Financial Officer)




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