<PAGE>   1
                       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 quarterly period ended December 31, 1998

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

                           Commission File No. 1-10416
                                 --------------

                              OPTICAL SYSTEMS, INC.
                 (Name of small business issuer in its charter)

       Florida                                         65-0755071
   (State of Incorporation)            (I.R.S. Employer Identification Number)

 Raritan Plaza II, Raritan Center, Fieldcrest Avenue, Edison, New Jersey, 08818
                                 (732) 417-0023
          (Address and telephone number of principal executive offices)

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

   Securities registered pursuant to Section 12(b) of the Exchange Act: None.

Securities registered to Section 12(g) of the Exchange Act: Common Stock,
$0.0001 par value.

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 twelve months (or for such
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 [ ]

As of April 15, 1999 there were 6,510,320 shares of Common Stock outstanding.

Transitional Small Business Disclosure format: Yes ____   No [ X ]


<PAGE>   2
                                      INDEX
                                       OF
                              OPTICAL SYSTEMS, INC.

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
                ------------------------------------------------


<TABLE>
<CAPTION>

                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
PART I.  FINANCIAL INFORMATION

      ITEM 1. FINANCIAL STATEMENTS (Unaudited)

              Balance Sheets
               Three Months Ended December 31, 1998 and September 30, 1998..................... 1

              Statements of Operations
               Three Months Ended December 31, 1998 and 1997................................... 2

              Statements of Cash Flows
               Three Months Ended December 31, 1998 and 1997................................... 3

              Notes to Financial Statements...................................................4-5

      ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS............................................5-7


PART II  OTHER INFORMATION

      ITEMS 1-6.................................................................................7


SIGNATURES .....................................................................................8

</TABLE>


<PAGE>   3
PART I:  FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

                              OPTICAL SYSTEMS, INC.
                              ---------------------
                                 BALANCE SHEETS
                                 --------------
<TABLE>
<CAPTION>

                                                                                 December 31,   September 30,
                                                                                 ------------   -------------
                                                                                      1998           1998
                                                                                      ----           ----
                                                                                   Unaudited        Audited
                                                                                   ---------        -------
<S>                                                                               <C>            <C>        
ASSETS
------
Current assets:
   Cash and cash equivalents                                                      $    46,425    $    81,765
   Accounts receivable--trade, net of allowance
     for doubtful accounts of $3,000                                                  219,938        336,083
   Loan receivable--officer                                                            75,139         52,136
   Prepaid expenses and other current assets                                           10,029         19,708
                                                                                  -----------    -----------
     Total current assets                                                         $   351,531    $   489,692
                                                                                  ===========    ===========

Property and equipment:
   Office furniture and equipment                                                 $    37,066    $    36,515
   Computer hardware and software                                                     348,027        343,966
   Leasehold improvements                                                               6,650
   Vehicle                                                                             24,654         24,654
                                                                                  -----------    -----------
   Total cost                                                                     $   416,397    $   405,135
   Accumulated depreciation                                                           242,651        222,401
                                                                                  -----------    -----------
     Total property and equipment                                                 $   173,746    $   182,734
                                                                                  -----------    -----------
Deferred rental expense                                                           $    24,000    $    24,600
                                                                                  -----------    -----------

     Total assets                                                                 $   549,277    $   697,026
                                                                                  ===========    ===========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY 
----------------------------------------
Current liabilities:   
   5% convertible notes payable                                                   $    34,715    $    40,000
   5% demand note payable                                                              35,000         35,000
   Current maturities of long-term debt                                                 6,295          6,295
   Loans payable--shareholders                                                         34,461         34,461
   Accounts payable--trade                                                            652,030        486,120
   Accrued expenses                                                                   109,251         81,437
                                                                                  -----------    -----------
     Total current liabilities                                                    $   871,752    $   683,313
Long-term debt                                                                         56,441         57,997
                                                                                  -----------    -----------
     Total liabilities                                                            $   928,193    $   741,310
                                                                                  ===========    ===========

Stockholders' deficiency:
   Convertible preferred stock--$.0001 par value, authorized 10,000,000 shares;
   issued and outstanding 0 
   Common stock, $0.0001 par value authorized
     50,000,000 shares; issued and outstanding - 6,186,070 and
     4,372,712 shares, respectively                                               $       618    $       517
Additional paid in capital                                                          1,571,363      1,571,363
Accumulated deficit                                                                (1,950,897)    (1,616,265)
                                                                                  -----------    -----------
   Total stockholders' deficiency                                                 $  (378,916)   $   (44,284)
                                                                                  -----------    -----------

   Total liabilities and stockholders' deficiency                                 $   549,276    $   697,026
                                                                                  ===========    ===========
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       1
<PAGE>   4
                              OPTICAL SYSTEMS, INC.
                              ---------------------

                            STATEMENTS OF OPERATIONS
                            ------------------------
<TABLE>
<CAPTION>

                                                                                       3 Months Ended
                                                                                          December 31,     
                                                                                  ------------------------
                                                                                      1998            1997
                                                                                      ----            ----
                                                                                           (Unaudited)
<S>                                                                               <C>            <C>    

Gross revenue                                                                     $   268,590    $   274,085
Cost of revenue                                                                        86,467        144,790
                                                                                  -----------    -----------

Gross profit                                                                      $   182,123    $   129,295
                                                                                  ===========    ===========

Operating expenses:
   Payroll and related fringe costs                                               $   210,961    $   127,481
   Selling and marketing                                                              145,961         38,884
   Administrative                                                                     133,832         82,445
   Depreciation                                                                        20,250          6,500
                                                                                  -----------    -----------
     Total operating expenses                                                     $   511,044    $   255,310
                                                                                  ===========    ===========

Loss from operations                                                              $  (328,881)   $  (126,015)
                                                                                  ===========    ===========

Other income (expense):
   Interest expense                                                               $    (3,161)   $    (3,497)
   Interest income                                                                        417              3
   Miscellaneous expense                                                               (3,006)        (2,827)
                                                                                  -----------    -----------
     Total other income (expense)                                                 $    (5,750)   $    (6,321)
                                                                                  ===========    ===========

Net loss                                                                          $  (334,631)   $  (132,336)
                                                                                  ===========    ===========

Net loss per share                                                                $     (.059)   $     (.026)
                                                                                  ===========    ===========

Weighted average common shares outstanding                                          5,641,409      5,174,557
                                                                                  ===========    ===========
</TABLE>




                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                       2
<PAGE>   5
                              OPTICAL SYSTEMS, INC.
                              ---------------------

                            STATEMENTS OF CASH FLOWS
                            ------------------------

<TABLE>
<CAPTION>

                                                                                       3 Months Ended
                                                                                          December 31,     
                                                                                  ------------------------
                                                                                      1998            1997
                                                                                      ----            ----
                                                                                           (Unaudited)
<S>                                                                               <C>            <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                       $(334,632)   $(132,336)
                                                                                  ---------    ---------
   Adjustments to reconcile net loss to net cash
     used in operating activities:
   Depreciation                                                                   $  20,250    $   6,500
   Financial and legal services
   Interest expense
   Increase (decrease) in cash resulting from changes in current operating
     assets and liabilities:
   Accounts receivable                                                              116,145      (19,176)
   Loan receivable--officer                                                         (23,003)      (1,943)
   Prepaid expenses                                                                   9,679       (1,075)
   Deferred lease payments                                                              600
   Accounts payable--trade                                                          165,910       43,124
   Accrued expenses                                                                  27,814       28,698
                                                                                  ---------    ---------
     Total adjustments                                                            $ 317,395    $  56,128
     Net cash provided by (used in)
       operating activities                                                       $ (17,237)   $ (76,208)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to property and equipment                                            $ (11,262)   $ (22,488)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Repayment of 5% convertible notes payable                                      $  (5,205)   $ (28,500)
   Proceeds from loan from shareholder                                                             1,000
   (Repayment) Proceeds of long-term debt                                            (1,556)      12,363
   Issuances of common stock                                                                      60,632
                                                                                  ---------    ---------
     Net cash provided by financing activities                                    $  (6,838)   $  45,495
                                                                                  ---------    ---------

DECREASES IN CASH AND
   CASH EQUIVALENTS                                                               $ (35,340)   $ (53,201)
   Cash and cash equivalents, beginning of period                                    81,765       85,927
                                                                                  ---------    ---------
   Cash and cash equivalents, end of period                                       $  46,425    $  32,726
                                                                                  =========    =========


Supplementary cash flow data:
   Interest paid                                                                  $     122    $     268
   Income taxes paid                                                                    -0-          -0-
Non cash financing transaction:
   Conversion of preferred stock into common stock                                      101

</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                       3


<PAGE>   6
                              OPTICAL SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMETS

NOTE A - BASIS OF PRESENTATION

     The accompanying unaudited financial statements have been prepared in
     accordance with generally accepted accounting principles for interim
     financial information and with the instructions to Form 10-QSB and Item
     310(b) of Regulation S-B. Accordingly, they do not include all of the
     information and footnotes required by generally accepted accounting
     principles for complete financial statements. In the opinion of management,
     all adjustments (consisting of normal recurring accruals) considered
     necessary for a fair presentation have been included. Operating results for
     the three-month period ended December 31, 1998, are not necessarily
     indicative of the results for the year ending September 30, 1999. For
     further information, refer to the consolidated financial statements and
     footnotes thereto included in the Company's annual report on Form 10-KSB
     for the year ended September 30, 1998.


NOTE B - SIGNIFICANT ACCOUNTING POLICIES

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 and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

PROPERTY AND EQUIPMENT
----------------------

     Property and equipment are recorded at cost. Depreciation is computed using
     both straight-line and accelerated methods over the estimated service lives
     which range from 5 to 7 years. Expenditures for maintenance and repairs are
     charged to operations. Given the rapid technology changes and obsolescence
     that is occurring with computer hardware and software, it is reasonably
     possible that the Company's estimate that it will recover the carrying
     amount of this equipment from future operations will change in the near
     term.

     With respect to costs incurred to develop software for its information
     processing services, the Company's policy is to capitalize such costs only
     after technological feasibility has been established. No software
     development costs have been capitalized in the accompanying financial
     statements.

REVENUE RECOGNITION
-------------------

     Information processing services are reported as earned when services are
     performed. Sales of information processing hardware and turnkey systems are
     reported as earned when systems have been delivered and accepted by the
     customer.

     Income from the joint venture is recognized after the services are rendered
     and billed and related expenses incurred by the joint venture.

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

     Provision for income taxes is based on income reported in the accompanying
     financial statements.


 
                                        4


<PAGE>   7

LOSS PER SHARE
--------------

     Loss per share is based on the weighted average of common shares
     outstanding during the reporting periods. Shares issuable upon the
     conversion of preferred stock and notes payable, exercise of warrants have
     not been included since their effect would be anti-dilutive.

CASH AND CASH EQUIVALENTS
-------------------------

     For cash flow reporting purposes, cash and cash equivalents include money
     market fund investments with an initial maturity of three months or less.



ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
             RESULTS OF OPERATIONS

OVERVIEW
--------

     OSI was formed in 1992 and the founders are the senior management today.
     OSI was incorporated in the state of New Jersey in 1992 and was the
     successor in a reverse merger transaction effective June 30, 1997. OSI is a
     reporting company trading on OTC Bulletin Board system using the symbol
     OPSY.

     At the outset, OSI was conceived to market document management services
     that would create the "paperless office" by substituting electronic/optical
     media and directories for hard copy reports. The name Optical Systems was
     chosen to communicate this marketing emphasis. Six years later, the Company
     has evolved into a marketer of a broad range of IT Solutions: document
     management, imaging and network support, C.O.L.D. (Computer Output to Laser
     Disk), SafeCD(TM)--a data migration product, e-Commerce applications,
     Internet/Intranet services, CD-ROM Service Bureau, and Year 2000 solutions.

GROSS REVENUES
--------------

     The Company is an Information Technology Solutions Provider marketing
     products and services in the areas of document management, service bureau
     operations, custom programming, consulting or network, Internet and
     Intranet environments and identifying and remediating "Year 2000" (Y2K)
     program code. The revenues from these businesses for the three months ended
     December 31, 1998 were 98% for the same period ended December 31, 1997.

     In September 1997 the Company made a strategic decision to allocate
     resources to market products and services dedicated to the "Year 2000
     Solutions". These efforts in the first quarter created revenues of
     $210,000. During the same period there was a reduction in revenues from the
     general consulting business of $215,000 as the result of the reallocation
     of resources.

COST OF REVENUES
----------------

     For the first quarter ended December 31, 1998, expenses associated with the
     Y2K work were about $67,000 with no comparable expenditures in 1997. The
     general consulting business expenses decreased about $126,000 for having
     the decrease in revenues

PAYROLL COSTS
-------------

     Payroll expenses for the first quarter of fiscal 1999 increased about
     $83,000 above 1997. The increase reflects the cost of additional technical
     people to complete Y2K projects with no comparable assignments in 1997.


                                       5

<PAGE>   8

SELLING & MARKETING
-------------------

     Selling and marketing expenses for the three months ended December 31,
     1998, increased $107,000 primarily attributable to Y2K business
     development. Marketing services costs increased $31,000. Sales and
     marketing salaries accounted for the balance of $76,000 period-to-period
     increase.

GENERAL & ADMINISTRATION
------------------------

     General and administration expenses for first fiscal quarter 1999 increased
     $50,000 over 1998. Of this increase $30,000 was for professional
     fees--accountants, lawyers, etc.,--associated with obtaining financing and
     complying with reporting requirements for public companies. The balance of
     the increase $20,000 is spread over 29 classifications of expense.

DEPRECIATION
------------

     For the quarter ended December 1998, the increase in depreciation expense
     reflects the investment in fixed assets made in fiscal year 1998 of
     $100,000 or +33%. The Company then purchased new computer equipment to
     build "factory sites" to process Y2K conversions. Depreciation expense for
     the first quarter ending December 1998 versus December 1997 increased
     $13,750, reflection of this investment.

INTEREST EXPENSE
----------------

     For the quarter ended December 31, 1998, interest basically equals the
     amount at December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     The Company is seeking to raise additional capital through the sale of
     common stock in the private investor market of approximately $3,000,000.
     There can be no assurance that these efforts will succeed. The Company is
     projecting a substantial acceleration of the Y2K business and the newly
     added revenues will reduce if not eliminate the working capital deficiency.
     Should the revenue growth not occur, the Company has a plan to downsize
     payroll and operating costs in line with income. Consequently, the Company
     believes it will have sufficient cash flow to sustain operations over the
     next twelve months.

     The Company's liquidity requirements include working capital needs,
     interest payments and capital investments. The company intends to finance
     its current operating activities with cash from operations and to finance
     its capital investments with the proceeds of any private placements of its
     securities.

     The Company has experienced late vendor payments and is currently looking
     to extend terms.

     Additionally, a minority shareholder of the Company has committed to
     provide financing to the Company.

     The short-term and long-term liquidity of the Company is dependent upon
     several factors, including availability of capital, competitive end market
     forces, capital expenditures and general economic conditions. In addition,
     because of the Company's current financial position, its financial
     flexibility is limited.

     Although the Company believes the anticipated cash for future operations
     will provide sufficient liquidity for future operations, there can be no
     assurance this or other possible sources will be adequate.



                                       6


<PAGE>   9
     The Company expects to continue to recognize losses during 1999 due to its
     operating performance. The Company is aggressively working to expand its
     customer base and services. Should the Company incur greater than
     anticipated losses during 1999, the Company would have to consider
     financial alternatives to enable it to adequately fund its operations and
     meet all of its obligations. Such alternatives would include reorganization
     or bankruptcy protection.

     There can be no assurances that the Company will be able to satisfactorily
     resolve all of these concerns in the near term. No assurances can be given
     that the Company will not continue to experience operational difficulties,
     will increase sales to its customers or that financing will be available if
     required or if available, whether such financing will be on terms
     satisfactory to the Company.

FORWARD-LOOKING STATEMENT CONTAINED IN THIS FORM 10-QSB RELATING TO THE ADEQUACY
OF WORKING CAPITAL ARE BASED ON CURRENT EXPECTATIONS THAT INVOLVE UNCERTAINTIES
AND RISK INCLUDING, BUT NOT LIMITED TO, MARKET CONDITIONS, THE INTRODUCTION OF
COMPETITIVE PRODUCTS, ECONOMIC CONDITIONS, AND THE TIMING OF ORDERS FOR
PRODUCTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM CURRENT
EXPECTATIONS. READERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON FORWARD-LOOKING
STATEMENTS. THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE PUBLICLY
THESE FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.


PART II.            OTHER INFORMATION

ITEM 6              EXHIBITS AND REPORTS ON FORM 8 - K

(a) EXHIBITS

      EXHIBIT NO.                        DOCUMENT

      27.2                               Financial Data Schedule

(b) REPORTS ON FORM 8 - K.

    No reports on Form 8-K were filed during the three month period ended
    December 31, 1998.



                                       7
<PAGE>   10


                                   SIGNATURES

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


                                           OPTICAL SYSTEMS, INC.



Date:  April __, 1999                      BY: 
                                               --------------------------------
                                                 Warren R. Zimmerman
                                                 President/CEO


Date:  April __, 1999                      BY:       
                                               --------------------------------
                                                 John F. Carlson
                                                 Vice President/CFO


                                       8