<PAGE>
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q

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

(Mark One)

[x]  Quarterly report pursuant to section 13 of 15(d) of the Securities
     Exchange Act of 1934 for the quarterly period ended September 30, 1998

[ ]  Transition report pursuant to section 13 of 15(d) of the Securities
     Exchange Act of 1934 for the transition period from ____________ to 
     ________________


                           Commission File No. 0-21038


                                Network Six, Inc.
             (Exact name of registrant as specified in its charter)



    Rhode Island                                     05-0366090
(State or other jurisdiction of          (I.R.S. Employer Identification No.)
 incorporation or organization)


                475 Kilvert Street, Warwick, Rhode Island 02886
         (Address of principal executive offices, including zip code)

                                 (401) 732-9000
              (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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     .
                                       ----     ----

As of September 30, 1998, there were 763,913 shares of the registrant's Common
Stock, $.10 par value, outstanding.




                                       1
<PAGE>


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

                         PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

                                Network Six, Inc.
                            Condensed Balance Sheets

<TABLE>
<CAPTION>

Assets                                                   Sept. 30, 1998   Dec. 31, 1997
------                                                   --------------   -------------
                                                           (unaudited)
<S>                                                      <C>              <C>       
Current assets:                                                          
     Cash                                                   $1,454,386     $1,291,924
     Contract receivables, less allowance for doubtful                   
          accounts of $50,000 at September 30, 1998 and                  
          December 31, 1997                                  1,520,127      2,011,379
     Costs and estimated earnings in excess of billings                  
          on contracts                                       1,458,809      1,388,515
     Other assets                                              119,896        244,257
                                                            ----------     ----------
                                                                         
          Total current assets                               4,553,218      4,936,075
                                                            ----------     ----------

Property and equipment                                                   
     Computers and equipment                                   533,397        506,484
     Furniture and fixtures                                    156,833        167,558
     Leasehold improvements                                     20,191         20,191
                                                            ----------     ----------
                                                                         
                                                               710,421        694,233
Accumulated depreciation and amortization                      596,722        627,146
                                                            ----------     ----------
          Net property and equipment                           113,699         67,087
                                                                         
Deferred taxes                                                 391,475        391,475
                                                                         
Contract receivables and costs in excess of billings                     
     on Hawaii contract                                      3,459,382      3,459,382
Other assets                                                   347,141        438,084
                                                            ----------     ----------
                                                                         
                                                            $8,864,915     $9,292,103
                                                            ----------     ----------
                                                            ----------     ----------
                                                                     
</TABLE>


                                       2
<PAGE>


<TABLE>
<CAPTION>
                                                                            Sept. 30, 1998   Dec. 31, 1997
                                                                            --------------   -------------
                                                                              (unaudited)
<S>                                                                         <C>              <C>        
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
     Notes payable to bank                                                     $      --      $ 1,160,000
     Current installment of obligations under capital leases                        88,932         82,690
     Accounts payable                                                              106,557        188,377
     Accrued salaries and benefits                                                 540,207        449,133
     Accrued subcontractor expense                                                 180,102      1,352,393
     Note payable - short term                                                     191,015        163,871
     Other accrued expenses                                                        456,482        342,465
     Billings in excess of costs and estimated earnings on contracts               124,474        155,754
     Income taxes payable                                                          538,578         13,338
     Deferred taxes                                                                545,869        545,869
     Preferred stock dividends payable                                             712,499        460,068
                                                                               -----------    -----------
          Total current liabilities                                              3,484,715      4,913,958
                                                                               -----------    -----------

Obligations under capital leases, excluding current installments                    54,023        104,003
Note payable - long term                                                         1,171,224        742,239
Hawaii Payable                                                                     576,483        576,483
                                                                               -----------    -----------
          Total Liabilities                                                      5,286,445      6,336,683
                                                                               -----------    -----------
Stockholders' equity:
     Series A convertible preferred stock, $3.50 par value. Authorized
          857,142.85 shares; issued and outstanding 714,285.71 shares at
          September 30, 1998 and December 31, 1997; liquidation of $3.50 per
          share plus unpaid and accumulated
          dividends                                                              2,235,674      2,235,674

     Common stock, $.10 par value. Authorized
          4,000,000 shares; issued 763,913 shares at
          September 30, 1998 and 734,294 at
          December 31, 1997
                                                                                    76,391         73,429
Additional paid-in capital                                                       1,795,059      1,670,939
Retained earnings (accumulated deficit)                                           (528,654)    (1,024,622)
                                                                               -----------    -----------
          Total stockholders' equity                                             3,578,470      2,955,420
                                                                               -----------    -----------
          Total Liabilities & Stockholders' Equity                             $ 8,864,915    $ 9,292,103
                                                                               -----------    -----------
                                                                               -----------    -----------
</TABLE>





                                       3
<PAGE>





                                Network Six, Inc.
                         Condensed Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                   Three months      Three months      Nine months       Nine months
                                                   ended 9/30/98     ended 9/30/97     ended 9/30/98    ended 9/30/97
                                                   -------------     -------------     -------------    -------------
<S>                                                <C>               <C>               <C>              <C>        

Contract revenue earned                             $ 2,662,603       $ 3,572,313       $ 8,137,916       $ 8,418,333
Cost of revenue earned                                1,535,388         2,765,551         5,140,572         6,332,039
                                                    -----------       -----------       -----------       -----------
     Gross profit                                     1,127,215           806,762         2,997,344         2,086,294

Selling, general & administrative expenses              617,290           558,555         1,737,581         1,557,873
                                                    -----------       -----------       -----------       -----------
     Income from operations                             509,925           248,207         1,259,763           528,421

Other deductions (income)
     Interest expense                                    14,573            76,775            54,289           189,412
     Interest earned                                    (10,336)           (2,130)          (63,377)          (10,684)
                                                    -----------       -----------       -----------       -----------
          Income before income taxes                    505,688           173,562         1,268,851           349,693

Income taxes                                            207,552            56,872           520,452           122,393
                                                    -----------       -----------       -----------       -----------

Net income                                          $   298,136       $   116,690       $   748,399       $   227,300
                                                    -----------       -----------       -----------       -----------
                                                    -----------       -----------       -----------       -----------

Net income per share:
Basic                                               $      0.28       $      0.09       $      0.66       $      0.12
                                                    -----------       -----------       -----------       -----------
                                                    -----------       -----------       -----------       -----------
Diluted                                             $      0.28       $      0.09       $      0.66       $      0.12
                                                    -----------       -----------       -----------       -----------
                                                    -----------       -----------       -----------       -----------


Shares used in computing net income per share:
Basic                                                   763,880           734,294           756,519           728,471
                                                    -----------       -----------       -----------       -----------
                                                    -----------       -----------       -----------       -----------
Diluted                                               1,065,520           734,294         1,036,411           728,471
                                                    -----------       -----------       -----------       -----------
                                                    -----------       -----------       -----------       -----------

Preferred dividends declared                        $    85,068       $    47,260       $   252,431       $   140,240
                                                    -----------       -----------       -----------       -----------
                                                    -----------       -----------       -----------       -----------
</TABLE>


                                       4
<PAGE>





                                Network Six, Inc.
                        Condensed Statements of Cash Flow
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                               Nine months        Nine months
                                                                 ended              ended
                                                                9/30/98            9/30/97
                                                               -----------       ------------
<S>                                                          <C>               <C>        

Net Income                                                   $   748,399       $   227,300
Adjustment to reconcile net income to net cash
       provided by operating activities:
          Depreciation and amortization                           31,774            64,212
          Provision for doubtful accounts                            --            (47,856)
          Loss on sale/disposal of fixed assets                    6,518            11,248
          Changes in operating assets and liabilities:
          Contract receivables                                   491,252           (79,201)
          Cost and estimated earnings
               in  excess of billings on contracts               (70,294)          687,206
          Income taxes receivable                                    --            516,046
          Other current assets                                   124,361            84,580
          Long term amounts due from Hawaii                          --            112,443
          Other assets                                            90,943          (512,656)
          Accounts payable                                       (81,820)         (159,587)
          Accrued salaries and benefits                           91,074          (214,595)
          Accrued subcontractor exp.                          (1,172,291)          993,778
          Other accrued expenses                                 114,017            12,055
          Accrued restructuring                                      --             (5,383)
          Billings in excess of costs
            and estimated earnings on contracts                  (31,280)          110,197
          Deferred tax liability                                     --           (156,508)
          Income taxes payable                                   525,240           365,640
                                                             -----------       -----------
              Net cash provided by operating activities          867,893         2,008,919
                                                             -----------       -----------

</TABLE>



                                       5
<PAGE>


<TABLE>
<CAPTION>

                                                                                      ended              ended
                                                                                     9/30/98            9/30/97
                                                                                  -----------       -----------
<S>                                                                               <C>               <C>        
Cash flows from investing activities:
     Cash Proceeds from Sale/Disposal of Capital Assets                                  --               1,947
     Capital expenditures                                                             (84,904)          (18,390)
                                                                                  -----------       -----------
                Net cash provided by (used in) investing  activities                  (84,904)          (16,443)
                                                                                  -----------       -----------

Cash flows from financing activities:
     Principal payments on capital lease obligations                                  (43,738)          (42,985)
     Net payments on note payable to bank                                          (1,160,000)             --
     Net proceeds (payments) on other notes payable                                   456,129          (106,025)
     Proceeds from the sale of treasury stock                                            --               6,047
     Proceeds from issuance of common stock                                           127,082            18,953
                                                                                  -----------       -----------
          Net cash used in financing activities                                      (620,527)         (124,010)
                                                                                  -----------       -----------
    Net increase (decrease) in cash                                                   162,462         1,868,466
    Cash at beginning of period                                                     1,291,924           127,581
                                                                                  -----------       -----------
    Cash at end of period                                                         $ 1,454,386       $ 1,996,047
                                                                                  ===========       ===========

  Supplemental cash flow information:
          Cash (received) paid during the period for:
                Income taxes                                                      $    (4,788)      $  (545,781)
                Interest                                                               54,289           158,326

</TABLE>


                                       6
<PAGE>





                                Network Six, Inc.
                          Notes to Financial Statements
                               September 30, 1998
                                   (unaudited)


(1)  Basis of Presentation

     The interim financial statements have been prepared without audit, pursuant
     to the rules and regulations of the Securities and Exchange Commission
     (SEC). Certain information and footnote disclosures, normally included in
     financial statements prepared in accordance with generally accepted
     accounting principles, have been condensed or omitted pursuant to SEC rules
     and regulations; nevertheless, management believes that the disclosures
     herein are adequate to make the information presented not misleading. These
     financial statements should be read in conjunction with the financial
     statements and notes thereto included in the Form 10K and Proxy Statement.
     In the opinion of management, all adjustments, consisting only of normal
     recurring adjustments, necessary to present fairly the financial position
     of the Company as of September 30, 1998, and the statements of income and
     cash flows for the three month and nine month periods ended September 30,
     1998 and 1997, have been included herein. The results of operations for the
     interim periods are not necessarily indicative of the results for the full
     years.

(2)  The 1997 earnings per share figures were reclassified to comply with the
     Company's December 1997 adoption of SFAS No. 128. Under the new
     requirements for calculating basic earnings per share, the dilutive effect
     of stock options and warrants are excluded.





                                       7
<PAGE>






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

Cautionary Statement Regarding Forward-Looking Statements

     This report contains forward-looking statements reflecting the Company's
expectations or beliefs concerning future events that could materially affect
Company performance in the future. All forward-looking statements are subject to
the risks and uncertainties inherent with predictions and forecasts. They are
necessarily speculative statements, and unforeseen factors, such as competitive
pressures, litigation results and regulatory and state funding changes could
cause results to differ materially from any that may be expected. In particular,
adverse decisions in on-going material litigation could have a material adverse
effect on the Company's financial condition and operating results. Actual
results and events may therefore differ significantly from those discussed in
forward-looking statements. Moreover, forward-looking statements are made in the
context of information available as of the date stated, and the Company
undertakes no obligation to update or revise such statements to reflect new
circumstances or unanticipated events as they occur.

General

     Effective February 23, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq")
announced new listing requirements for continued inclusion on the Nasdaq
National Market. Nasdaq has provided notice to the Company that the Company does
not meet the new continued listing requirements with respect to the Company's
net tangible assets and the market value of the Company's listed Common Stock.
The Company submitted a plan to Nasdaq to achieve compliance with the new
listing requirements. The Nasdaq did not grant the Company an exception to these
new listing requirements. On October 29, 1998 the Company's common stock was
moved to The Nasdaq SmallCap Market.

     The Company received comments on January 30, 1998 from the Securities and
Exchange Commission regarding the timing of revenue recognition with regard to
the Company's contract with the State of Hawaii during 1996 and whether an
allowance should be taken by the Company against the contract receivable
relating to that contract ($3,459,382 at September 30, 1998). The Company
believes that, although the outcome of the Company's litigation with the State
of Hawaii is uncertain, it is likely to prevail in the Hawaii litigation and
therefore the Company is not required to take an allowance against that
receivable.

     In September 1998, the Company announced it had entered into a $500,000
term loan with the Business Development Corporation of Rhode Island and the
Small Business Loan Fund Corporation, a subsidiary of the Rhode Island Economic
Development Corporation. See Liquidity and Capital Resources.

     The Company has conducted a comprehensive review of its internal computer
systems to identify the systems that could be affected by the "Year 2000" issue
and is developing an implementation plan to resolve the issue. The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
that the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and converting to new software, the Year 2000 problem will not
pose significant operational problems for the Company's computer systems as so
modified and converted. However, if such modifications and conversions are not
completed timely, the Year 2000 may have a material impact on the operations of
the Company.


                                       8
<PAGE>


Results of Operations - Nine Months Ended September 30, 1998 Compared to 1997

     Contract revenue decreased $280,417 or 3.3% from $8,418,333 in the nine
months ended September 30, 1997 to $8,137,916 in the nine months ended September
30, 1998 primarily due to the completion of the Idaho Child Support Enforcement
project in March 1997, and the substantial completion of the Rhode Island
Immunization tracking system (Kidsnet) and the Maine Automated Child Welfare
Information System (MACWIS) projects. This decrease was offset by increased work
on the Rhode Island Department of Human Services contract due to welfare reform,
expansion of the MIM Corporation project, and increased business for the
Company's Network Services Division.

     Cost of revenue earned, consisting of direct employee labor, direct
contract expense and subcontracting expense, decreased $1,191,467 or 18.8% from
$6,332,039 in the nine months ended September 30, 1997 to $5,140,572 in the nine
months ended September 30, 1998 due primarily to a lower reliance on
subcontractor labor which is generally at a higher cost than the Company's
internal staff.

     Gross profit increased $911,050 or 43.7% from $2,086,294 for the nine
months ended September 30, 1997 to $2,997,344 for the nine months ended
September 30, 1998. Gross profit as a percentage of contract revenue increased
from 24.8% for the nine months ended September 30, 1997 to 36.8% for the nine
months ended September 30, 1998. The increase in gross profit percentage is
primarily due to higher margins on new projects.

     Selling, general and administrative (SG&A) expenses increased $179,708 or
11.5% from $1,557,873 in the nine months ended September 30, 1997 to $1,737,581
in the nine months ended September 30, 1998 due to an increase in marketing and
related expenses. On a percentage of contract revenue basis, SG&A expenses
increased from 18.5% to 21.4%.

     Interest expense decreased $135,123 to $54,289, or 71.3%, from $189,412 due
to a lower level of borrowing.

     As a result, income before income taxes increased $919,158, or 262.9%, from
$349,693 for the nine months ended September 30, 1997 to $1,268,851 for the nine
months ended September 30, 1998.

     Net income increased $521,099, or 229.3%, from $227,300 for the nine months
ended September 30, 1997 to $748,399 for the nine months ended September 30,
1998. As a percentage of contract revenue, net income increased from 2.7% to
9.2%.


Results of Operations - Three Months Ended September 30, 1998 Compared to 1997

     Contract revenue decreased $909,710, or 25.5%, from $3,572,313 in the three
months ended September 30, 1997 to $2,662,603 in the three months ended
September 30, 1998 primarily due to less work performed on the Maine Automated
Child Welfare Information System (MACWIS). This was offset by increased work on
the Rhode Island Department of Human Services contract due to welfare reform,
expansion of the MIM Corporation project and increased business for the
Company's Network Services Division.

     Cost of revenue earned, consisting of direct employee labor, direct
contract expense and subcontracting expense, decreased $1,230,163, or 44.5%,
from $2,765,551 in the three months ended 


                                       9
<PAGE>

September 30, 1997 to $1,535,388 in the three months ended September 30, 1998
due to the decreased effort to support the reduced level of business and a
reduced reliance on higher priced subcontractor labor.

     Gross profit increased $320,454, or 39.7%, from $806,762 for the three
months ended September 30, 1997 to $1,127,215 for the three months ended
September 30, 1998. Gross profit as a percentage of contract revenue increased
from 22.6% for the three months ended September 30, 1997 to 42.3% for the three
months ended September 30, 1998. The increase in gross profit percentage is due
to higher margins on new projects.

     Selling, general and administrative (SG&A) expenses increased $58,735, or
10.5%, from $558,555 in the three months ended September 30, 1997 to $617,290 in
the three months ended September 30, 1998 due to an increase in marketing and
related expenses. On a percentage of contract revenue basis, SG&A expenses
increased to 23.2% from 15.6%.

     Interest expense decreased $62,202 to $14,573, or 81.0%, from $76,775 due
to a lower level of borrowing.

     As a result, income before income taxes increased $332,126, or 191.4%, from
$173,562 for the three months ended September 30, 1997 to $505,688 for the three
months ended September 30, 1998.

     Net income increased $181,446 from $116,690, or 155.5%, for the three
months ended September 30, 1997 to $298,136 for the three months ended September
30, 1998. As a percent of revenues, net income increased from 3.3% to 11.2%.


Liquidity and Capital Resources

     In order to finance bid preparation costs and to obtain sufficient
collateral to support performance bonds required by some customers, the Company
has, in the past, entered into joint ventures with other firms with greater
financial resources when bidding for contracts. The Company expects to continue
and expand this practice prospectively as well as to pursue more time and
material contracts than it has historically pursued. Time and materials
contracts generally do not require performance bonds and almost always involve
less risk to deliver what the customer requires.

     The Company has historically not received its first contract progress
payments until approximately three to six months after contract award, which
itself was as much as 12 months after proposal preparation commences. The
Company was therefore required to fund substantial costs well before the receipt
of related income, including marketing and proposal costs and the cost of a
performance bond. Prospectively, the Company expects to continue to tighten up
this timetable, thereby reducing the requirement for additional working capital.

     The Company has funded its operations through cash flows from operations,
bank borrowings, borrowings from venture partners, and private placements of
equity securities. Net cash provided by operating activities was $867,893 and
$2,008,919 in the nine months ended September 30, 1998 and 1997, respectively.
Fluctuations in net cash provided by operating activities are primarily the
result of changes in net income, accounts receivable and income tax payable,
accounts payable and costs and estimated earnings in excess of billings on
contracts due to differences in contract milestones and payment dates.

     On December 31, 1997 the Company signed a one year$1.5 million line of
credit with a commercial 


                                       10
<PAGE>


lender (the "Line of Credit"). Accounts receivable from four of the Company's
contracts secure the new Line of Credit. The Company can borrow up to 80% of the
aggregate invoice amounts and is required to repay any borrowings within 90
days. As of September 30, 1998 the borrowing availability on the line of credit
was $635,095. The interest rate is prime plus five percent on balances below $1
million and prime plus one and one half percent on balances over $1 million. The
Line of Credit also carries a six- percent annual service fee on borrowed
balances. At September 30, 1998 the Line of Credit had an outstanding balance of
zero.

     On September 21, 1998 the Company entered into two five-year term loans.
Each for $250,000. One lender was the Small Business Loan Fund Corporation,
("SBLFC"), a subsidiary of the Rhode Island Economic Development Corporation.
The other lender was the Business Development Corporation of Rhode Island
("BDC"). The SBLFC loan carries an annual interest rate of 9.5% and must be
repaid over five years. The BDC loan carries an annual interest rate of 10.25%,
and an annual deferred fee of $5,000, and must be paid back over five years.
Both term loans are secured by substantially all the assets of the Company. The
BDC was also issued a five-year warrant to purchase 11,000 shares of the
Company's common stock with a strike price of $4.50 per share. The warrant
expires on September 20, 2003.

     The Company believes that cash flow generated by operations will be
sufficient to fund continuing operations through the end of 1998. This assumes,
however, that there are no materially adverse decisions rendered in the ongoing
litigation with Hawaii, MAXIMUS and CBSI. See Part II Item 1 - Legal
Proceedings.

     The Company believes that inflation has not had a material impact on its
results of operations to date.


                           PART 11 - OTHER INFORMATION

Item 1.  Legal Proceedings

     In June 1995, the Company began negotiating a significant amendment to its
contract for a child support enforcement ("CSE") system with the State of Hawaii
(the State) when it determined that the total estimated cost to complete the
system would be significantly greater than expected. In March 1996, the Company
received final State and federal government approval for this contract amendment
totaling $4.4 million. As a result of numerous in-depth reviews of this contract
amendment, management determined that remaining contract costs would exceed the
contract value by $440,000, and therefore, accrued this loss in December 1995.

     In June 1996 the Company announced a new subcontract agreement with
Complete Business Solutions, Inc ("CBSI") to expand CBSI's role in the Hawaii
CSE contract. CBSI, at the request of Hawaii, was contracted to lead a detailed
review of the current system under development. Hawaii, in turn, agreed to pay
CBSI $1.2 million from the Company's remaining contract budget when various
milestones were achieved. The Company had a significant role in the detailed
review and had hoped that its results would facilitate the resolution of open
contractual scope issues.

     On September 13, 1996, the State of Hawaii terminated its contract with the
Company, effective September 23, 1996, claiming that the Company had failed to
fulfill its obligations under the contract. In response, the Company also
terminated the contract with the State effective September 23, 1996. The Hawaii
contract, originally estimated to be a $20.7 million contract, was increased to
$25.2 million by the State and the Company in March 1996, and was the Company's
largest contract at the time. Prior to termination, approximately $16.5 million
of costs had been incurred towards completion of the contract, and $11 million


                                       11
<PAGE>

had been billed and substantially paid.

     On November 12, 1996 the State of Hawaii filed a lawsuit in the Circuit
Court of the First Circuit of the State of Hawaii against the Company and Aetna
Casualty and Surety and Federal Insurance Company for damages due to breach of
contract (the "Hawaii litigation"). Aetna Casualty and Surety and Federal
Insurance Company provided the $10.3 million performance bond on the Company's
contract with the State of Hawaii to develop and install the State's child
support enforcement system. The suit alleges the Company failed to meet
contractual deadlines, provided late, incomplete and/or unsuitable deliverables,
materially breached the contract by never completing the design, the application
programming, and the system test and systems implementation. The State is
seeking an unspecified amount for general damages, consequential and special
damages, liquidated damages, attorneys' fees, reimbursement for the cost of the
suit and interest costs that the court deems just and proper.

     The Company vigorously denies the State's allegation and, on January 23,
1997, filed a counter claim against the State alleging that the State has
breached the contract. The Company is seeking $70 million in damages and is
alleging that the State fraudulently induced the Company into designing and
building a system having capabilities and features far beyond the scope of the
Company's contract. The fraudulent inducement was in the form of withholding
payments, improper rejection of work that satisfied the requirements of the
contract and verbal and written abuse of the Company's employees and management.

     In addition, Unisys, a vendor providing equipment under the Company's
Hawaii contract, submitted a $896,000 claim against the $10.3 million
performance bond. In February of 1997, the State released all but $1.1 million
of the performance bond; the remainder is intended to cover amounts payable to
Unisys and other subcontractors. In April of 1997, after a detailed review of
their records and discussions with the Company, Unisys agreed to lower their
claim to $842,239 and Aetna Casualty and Surety paid that claim. Lockheed Martin
IMS (Lockheed), which guaranteed the performance bond, reimbursed Aetna for that
claim. In December 1997, the Company reached an agreement with Lockheed to repay
the $842,239 over a five-year period.

     On December 13, 1996 CBSI filed a lawsuit in the Superior Court of the
State of Rhode Island for $517,503, which the Company had previously accrued,
plus interest, costs and attorney's fees. The Company disputes the $517,503
owned to CBSI and filed a counterclaim against CBSI on January 13, 1997
alleging, among other things, that CBSI failed to complete its duties required
under the subcontract with the Company in a timely manner, improperly engaged in
negotiations with the State of Hawaii to complete the project, hired and
attempted to hire employees of the Company in violation of its subcontract
agreement with the Company and obtained and utilized confidential information
and proprietary intellectual property inappropriately. Also, the Company alleges
that CBSI owes the Company $482,750 as of December 31, 1996 for which the
Company has not established a reserve for uncollectibility.

     On February 3, 1997, the Company filed a third-party complaint ("TPC") as
part of the Hawaii litigation against MAXIMUS Corporation ("MAXIMUS") and CBSI.
MAXIMUS has been the State of Hawaii's contract supervisor and advisor since the
inception of the Hawaii project. The allegations the Company has made against
CBSI in this TPC are substantially similar to the allegations made against CBSI
in the Company's counterclaim to CBSI's December 13, 1996 lawsuit brought
against the Company in Rhode Island. The Company alleged, moreover, that MAXIMUS
is liable to the Company on grounds that: (i) the Company was an intended third
party beneficiary under the contract between the MAXIMUS and Hawaii; (ii)
MAXIMUS tortuously interfered in the contract between the Company and Hawaii;
(iii) MAXIMUS negligently breached duties to the Company and (iv) MAXIMUS aided
and abetted Hawaii in Hawaii's breach of contract. The Company's TPC seeks $60
million in damages.


                                       12
<PAGE>


     Management believes that the Company's claims against the State, MAXIMUS
and CBSI have substantial merit and will vigorously pursue these claims. There
is substantial uncertainty, however, inherent in all litigation. If the Company
were not to prevail in its suit with the State, such a result could have a
material adverse financial effect on the Company and could jeopardize the
Company's ability to continue with its present listing on The Nasdaq National
Market. Management of the Company and its attorneys are unable to predict with
any certainty the ultimate outcome of this litigation, although it is their
belief that a favorable outcome is likely. At September 30, 1998, the Company
had unbilled work-in-process and related receivables from the State and CBSI of
approximately $3.46 million, for which no allowance for uncollectibility has
been recorded. The Company has not accrued for any potential liability to the
State, which may result from this litigation. In addition, the Company has not
accrued for any legal expense to be incurred in connection with this litigation,
which could be significant. Although all parties have filed pretrial statements
with the court a trial date has not yet been established.

     Due to the significant uncertainty created by these events, the Company
ceased recognition of revenue on the Hawaii contract in 1996. An adjustment of
$1.8 million was recorded in the fourth quarter to reverse revenue of $1
million, $400 thousand and $400 thousand previously recognized in the first,
second and third quarters, respectively. In addition, 1996 costs incurred
related to the Hawaii contract of $1.96 million were charged to expense in 1996.



Item 2. Change in Securities

          None

Item 3. Defaults Upon Senior Securities

          None

Item 4. Submission of Matters to a Vote of Security Holders

          None

Item 5. Other Materially Important Events

          Effective February 23, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq")
          announced new listing requirements for continued inclusion on the
          Nasdaq National Market. Nasdaq has provided notice to the Company that
          the Company does not meet the new continued listing requirements with
          respect to the Company's net tangible assets and the market value of
          the Company's listed Common Stock. The Company submitted a plan to
          Nasdaq to achieve compliance with the new listing requirements. The
          Nasdaq did not grant the Company an exception to these new listing
          requirements. On October 29, 1998 the Company's common stock was moved
          to The Nasdaq SmallCap Market.

Item 6. Exhibits and Reports on Form 8K

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<PAGE>





          (a)  None

          (b)  The following reports on Form 8-K have been filed during the
               quarter for which this report is filed.

          A current report on Form 8-K, dated September 29, 1998 was filed by
          the Company and included the press release dated September 23, 1998
          announcing a $500,000 term loan.

          A current report on Form 8-K, dated July 28, 1998 was filed by the
          Company and included the press release dated July 31, 1998, announcing
          the Company's results for the quarter ended June 31, 1998. A Statement
          of Operations (without notes) for the quarters ended June 31, 1998
          and, 1997 was included with the filing. A balance sheet as of June 31,
          1998 and December 31, 1997 was also included with the filing.


                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                Network Six, Inc.




Date: October 30, 1998          By:  /s/ Kenneth C. Kirsch
                                     ---------------------
                                     Kenneth C. Kirsch
                                     Chairman, President and
                                     Chief Executive Officer

                                By:  /s/ Dorothy M. Cipolla
                                     ----------------------
                                     Dorothy M. Cipolla
                                     Chief Financial Officer and Treasurer
                                     (principal financial officer)



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