<PAGE>   1

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10QSB


[X]    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
       OF 1934
       
       For the quarterly period ended June 30, 1998.


Commission file number: 33-89384-LA


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


           Arizona                                             86-0498857
(State or other jurisdiction                                (I.R.S. Employer   
of incorporation or organization)                          Identification No.)  
                                                  

2030 East Speedway Blvd., Tucson, Arizona                        85719
(Address of principal executive offices)                       (Zip Code)

                    Issuer's telephone number (520) 320-1000.


Securities registered under Section 12(g) of the Exchange Act:

               Common Stock and Warrants to Purchase Common Stock


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


Number of shares of common stock outstanding on June 30, 1998 was 4,508,724.


Transitional Small Business Disclosure Format:
                                                 Yes [ ]; No [X].

<PAGE>   2



                        Prologic Management Systems, Inc.
                                      Index


                                                                            Page

Part I. FINANCIAL INFORMATION                                                 3

Item 1. Condensed Consolidated Financial Statements

        Condensed Consolidated Balance Sheets at June 30, 1998
        and March 31, 1998                                                    3

        Condensed Consolidated Statements of Operations
        for the Three Months Ended June 30, 1998 and June 30, 1997            4

        Condensed Consolidated Statements of Cash Flows
        for the Three Months Ended June 30, 1998 and June 30, 1997            5

        Notes to Condensed Consolidated Financial Statements                  6

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


Part II.OTHER INFORMATION                                                     11

Item 1. Legal Proceedings                                                     11

Item 2. Changes in Securities                                                 12

Item 3. Defaults upon Senior Securities                                       12

Item 4. Submission of Matters to a Vote by Security Holders                   12

Item 5. Other Information                                                     12

Item 6. Exhibits and Reports on Form 8-K                                      12
        Exhibit 11.1                                                          14
        Exhibit 27

SIGNATURES                                                                    13


                                                                               2
<PAGE>   3



PART I.  FINANCIAL INFORMATION

ITEM  1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
                    CONDENSED AND CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              June 30, 1998       March 31, 1998
                                                                              -------------       --------------
                 ASSETS                                                        (unaudited)
<S>                                                                            <C>                <C>        
    Cash                                                                       $    20,882        $   175,110
    Restricted Cash                                                                300,000            300,000
    Accounts receivable, less allowance for doubtful accounts                    4,115,043          3,405,603
    of $273,000 at June 30, 1998 and at March 31, 1998
    Inventories                                                                    424,743            220,651
    Prepaid Expenses                                                               151,809             99,592
                                                                               -----------        -----------
                 Current Assets                                                  5,012,478          4,200,956

    Property and equipment - net                                                   529,686            513,067

    Goodwill - Net                                                               1,211,537          1,272,662
    Other Assets                                                                   259,248            233,760
                                                                               -----------        -----------
TOTAL ASSETS                                                                   $ 7,012,949        $ 6,220,445
                                                                               ===========        ===========

                 LIABILITIES AND EQUITY
    Accounts Payable                                                             4,229,128          2,585,792
    Current Portion of Long Term Debt                                              527,204            507,057
    Accrued Expenses                                                               493,986            607,061
    Deferred Revenue                                                               249,983            233,041
                                                                               -----------        -----------
                 Current Liabilities                                             5,500,301          3,932,951

    Long term debt and notes payable, excluding current portion                    159,768            245,768
    Line of credit                                                                 796,634          1,237,863
    Convertible subordinated notes                                                                    720,000

    Shareholders Equity
                 Series A cumulative convertible preferred stock, no
                 par value, 750,000 shares authorized 41,667 shares
                 outstanding                                                       250,000            250,000
                 Series B cumulative convertible preferred stock, no par
                 value, 100,000 shares authorized, 72,000 shares
                 outstanding                                                       720,000
                 Common stock, no par value 10,000,000 shares
                 authorized, 4,508,724 shares outstanding                        8,510,770          8,493,270
                 Warrants                                                          638,530            582,053
                 Stock Dividends                                                    47,934
                 Accumulated deficit                                            (9,610,987)        (9,241,460)
                                                                               -----------        -----------
                                                                                   556,247             83,863
                                                                               -----------        -----------
TOTAL LIABILITIES AND EQUITY                                                   $ 7,012,949        $ 6,220,445
                                                                               ===========        ===========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                                                               3
<PAGE>   4



               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
               CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED JUNE 30,
                                                      1998               1997
                                                      ----               ----
                                                  (unaudited)        (unaudited)
<S>                                               <C>                <C>        
                   Net Sales
Hardware                                          $ 3,332,919        $ 5,114,844
Licenses                                              453,449            547,993
Services                                            1,584,075            653,920
                                                  -----------        -----------
                                                    5,370,443          6,316,757


Cost of Sales                                       3,958,387          5,177,119

                   Gross Profit                     1,412,055          1,139,638
Operating Expenses
       Selling and marketing                          338,617            474,758
       General and administrative                   1,200,968            792,608
       Research and development                        51,750             95,434
                                                  -----------        -----------
                   Total Operating Expenses         1,591,336          1,362,800

                   Operating Loss                    (179,280)          (223,162)

Interest Expense                                      (80,845)           (82,632)
Other income (expense)                                (14,482)             2,925
                                                  -----------        -----------

Net loss                                             (274,608)          (302,869)

Cumulative Preferred Stock Dividend                    47,934
                                                  -----------        -----------
Net loss                                          $  (322,542)       $  (302,869)
                                                  ===========        ===========

Loss per common share
       Basic                                            (0.07)             (0.08)
       Diluted                                          (0.07)             (0.08)

Weighted average shares of common stock
       Basic                                        4,492,024          3,675,375
       Diluted                                      4,492,024          3,675,375
</TABLE>


See accompanying notes to condensed consolidated financial statements.

                                                                               4

<PAGE>   5



               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
               CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED JUNE 30,
                                                                         1998                1997
                                                                         ----                ----
                                                                     (unaudited)         (unaudited)
<S>                                                                  <C>                <C>         
Cash flows from operating activities:
       Net loss                                                      $  (274,608)       $  (302,869)
       Adjustments to reconcile net loss to net cash used in
       operating activities:
               Depreciation and amortization                             111,594            116,330
               Issuance of warrants                                       56,477
               Common Stock Dividend                                     (47,934)
               Changes in:
                      Trade accounts receivable                         (709,440)        (1,745,156)
                      Accounts payable and accrued expenses            1,531,210            897,920
                      Other assets and liabilities                      (264,855)           108,138
                                                                     -----------        -----------
                             Total adjustments                           677,051           (622,768)
                                                                     -----------        -----------
                             Net cash from (used in) operating                                      
                             activities                                  402,443           (925,637)
                                                                     -----------        -----------
Cash flows from investing activities

       Purchase of equipment                                             (67,087)           (51,045)
                                                                     -----------        -----------

                      Net cash used in investing activities              (67,087)           (51,045)

Cash flows from financing activities:
       Issuance of notes payable and debt                                                   851,631
       Issuance of common stock                                           17,500
       Repayment of debt                                                (507,083)           (29,511)
                                                                     -----------        -----------
                      Net cash provided by (used in) financing                                     
                      activities                                        (489,583)           822,120
Net cash increase (decrease) in cash and cash equivalents               (154,227)          (154,562)

Cash and cash equivalents, beginning of period                           175,110            815,120
                                                                     -----------        -----------

Cash and cash equivalents, end of period                             $    20,883        $   660,558
                                                                     ===========        ===========
</TABLE>


See accompanying notes to condensed consolidated financial statements.

                                                                               5

<PAGE>   6



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       Interim Periods
 
         The accompanying condensed consolidated financial statements include
         the accounts of Prologic Management Systems, Inc. (the "Company") and
         its wholly-owned subsidiaries, Great River Systems, Inc. ("GRSI"), and
         BASIS, Inc ("BASIS"). All significant inter-company balances and
         transactions have been eliminated in consolidation.

         The accompanying unaudited condensed consolidated financial statements
         have been prepared by the Company in accordance with generally accepted
         accounting principals, pursuant to the rules and regulations of the
         Securities and Exchange Commission. In the opinion of management, the
         accompanying condensed consolidated financial statements include all
         adjustments (of a normal recurring nature) which are necessary for a
         fair presentation of the results for the interim periods presented.
         Certain information and footnote disclosures normally included in
         financial statements have been condensed or omitted pursuant to such
         rules and regulations. Although the Company believes that the
         disclosures are adequate to make the information presented not
         misleading, these financial statements should be read in conjunction
         with the consolidated financial statements and the notes thereto
         included in the Company's Report on Form 10-KSB for the fiscal year
         ended March 31, 1998. The results of operations for the three months
         ended June 30, 1998 are not necessarily indicative of the results to be
         expected for the full year.

2.       Lines of Credit

         In March 1998, BASIS and GRSI obtained a long-term credit facility in
         an amount that is the lower of $5,000,000 or the sum of 85% of eligible
         accounts receivable, and restricted cash (see Note 2). The line also
         permits equipment loans in the first year (maximum equipment loan is
         $250,000). This line of credit is secured by substantially all of BASIS
         and GRSI's assets. As of June 30, 1998, borrowings under this line of
         credit were $796,634. At June 30, 1998 the Company had unused
         availability of $182,000 under the line of credit.

         The line of credit bears interest at the highest prime rate in effect
         during each month (8.5% during June 1998) plus 1.75% per annum for the
         portion of the loan related to accounts receivable and prime plus 2.25%
         per annum for the portion related to equipment purchases subject to a
         minimum charge in any month of not less than 9% per annum, and is
         payable monthly. Interest is based on a minimum daily loan balance of
         $1,000,000. The line matures on March 31, 2001.

         The Company is required to pay a monthly minimum fee of $1,500 under
         the line of credit. The Company paid a loan facility fee of $50,000 in
         March 1998, and annual loan facility fees of .25% of the maximum dollar
         amount of the facility ($5,000,000) are due annually thereafter. The
         facility is renewable upon payment of a fee of .5% of the maximum
         dollar amount of the facility if no default is outstanding at the end
         of the term.

         If the Company terminates this agreement prior to the maturity date, it
         must pay a penalty equal to the greater of all interest due during the
         prior six months or the minimum monthly interest multiplied by the
         number of partial or full months from the effective termination to the
         maturity date.

         The line of credit agreement originally required that BASIS and GRSI
         maintain a combined minimum net worth of $1,000,000. At March 31, 1998,
         BASIS and GRSI were not in compliance with this covenant. BASIS and
         GRSI obtained a waiver for this covenant from the bank through July 22,
         1998, and subsequently obtained a modification of the agreement for the
         period effective July 23, 1998 through maturity which requires BASIS
         and GRSI to maintain a combined net worth of $750,000. At June 30, 1998
         the combined net worth was in compliance with the modified covenant.

         The Company had a $1,000,000 revolving line of credit with a bank which
         was subject to renewal in August 1997. The bank agreed to extend the
         line of credit on a month-to-month basis under substantially 

                                                                               6

<PAGE>   7

         the same terms until September 1997. The interest rate on borrowings
         under the agreement was the prime rate of interest as established by
         the bank and was due monthly. The line of credit was secured by the
         Company's $1,000,000 money market account. The line of credit was paid
         off in September 1997 and was not renewed. Borrowings under this line
         of credit were $-0- at June 30, 1998 and $1,000,000 at June 30, 1997.

         The Company also maintained a $2,200,000 line of credit facility for
         the financing of accounts receivable and inventory with a financial
         institution for its BASIS subsidiary. This financing facility was
         subject to a twelve-month renewal in August 1997. The bank agreed to
         extend the line of credit through February 1998. The interest rate was
         at the prime rate plus 1%. Interest was due monthly. The credit
         facility was collateralized by a $300,000 irrevocable letter of credit
         from the Company's bank and all accounts receivable at BASIS and GRSI.
         The line of credit was paid off in March 1998 and was not renewed.
         Borrowings under this agreement were $-0- at June 30, 1998 and $708,194
         at June 30, 1997.

3.       Goodwill

         Cost in excess of net assets acquired (goodwill) is being amortized on
         a straight-line basis over seven years. Amortization expense for the
         quarter ended June 30, 1998 totaled $61,125. Accumulated amortization
         totaled $486,825 at June 30, 1998.

         In September 1995, the Company completed the acquisition of GRSI, a
         systems integration company based in St. Paul, Minnesota. All of the
         outstanding common stock of GRSI was acquired for 100,000 shares of
         common stock of the Company valued at $40,000, the issuance of a
         promissory note in the amount of $150,000 and $100,000 of cash. The
         acquisition was accounted for as a purchase and accordingly, the
         aggregate purchase of $290,000 was allocated to the assets acquired and
         liabilities assumed based on their estimated fair values at the date of
         acquisition. Cost in excess of net assets acquired of $259,746 was
         recorded as goodwill in connection with the acquisition.

         In August 1996, the Company completed the acquisition of BASIS, a
         systems integration company located in the San Francisco Bay Area. All
         of the outstanding stock of BASIS was acquired for 337,325 shares of
         common stock of the Company valued at $1,400,000 and $500,000 in cash.
         The acquisition was accounted for as a purchase and accordingly the
         aggregate purchase price of $2,231,533 was allocated to the assets
         acquired and the liabilities assumed based on their estimated fair
         values at the date of the acquisition. Cost in excess of net assets
         acquired of $1,459,661 was recorded as goodwill in connection with the
         acquisition.

4.       Property and Equipment

         Property and equipment as of June 30, 1998, consists of the following:

<TABLE>
<CAPTION>
                                          June 30, 1998      March 31, 1998
<S>                                       <C>                <C>        
Furniture and leasehold improvements       $   350,027        $   338,131
Equipment and software                       1,108,270          1,053,079
                                           -----------        -----------
                                             1,458,297          1,391,210
Less accumulated depreciation                 (928,611)          (878,143)
                                           -----------        -----------
Net property and equipment                 $   529,686        $   513,067
                                           ===========        ===========
</TABLE>


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

         The following discussion should be read in conjunction with the audited
Consolidated Financial Statements as filed in the Company's annual report Form
10-KSB. Except for the historical information contained herein, the matters
discussed in this 10-QSB are forward-looking statements that involve a number of
risks and uncertainties. There are certain important factors and risks,
including the rapid change in hardware and software technology, market
conditions, the anticipation of growth of certain market segments and the
positioning of the Company's products and services in those segments,
seasonality in the buying cycles of certain of the Company's 

                                                                               7

<PAGE>   8

customers, the timing of product announcements, the release of new or enhanced
products, the introduction of competitive products and services by existing or
new competitors and the significant risks associated with the acquisition of new
products, product rights, technologies, businesses, the management of growth,
the Company's ability to attract and retain highly skilled technical, managerial
and sales and marketing personnel, and the other risks detailed from time to
time in the Company's SEC reports, including reports on Form 10-KSB and Form
10-QSB, that could cause results to differ materially from those anticipated by
the statements made herein. Therefore, historical results and percentage
relationships will not necessarily be indicative of the operating results of any
future period.

INTRODUCTION

         The Company provides systems integration services, software
development, proprietary software products and related services. The majority of
the Company's revenues are generated from systems integration and related
product sales. The Company's services include systems integration, and national
and regional support in Internet and intranet application and framework design,
enterprise and workgroup client/server design and optimization, relational
database development, LAN/WAN and workgroup solutions, Internet/intranet design
and connectivity, and graphic design services for the World Wide Web. The
Company's software development expertise provides an internal resource for
development needs in integration and custom projects. The Company's proprietary
products include manufacturing, distribution, and resource tracking software for
commercial clients, as well as its intranet-based sales tracking and reporting
system and intranet-based document management, warehousing and retrieval system.
The Company's products are not directed to the retail consumer market. For
additional information on the combined operating results of the Company and its
subsidiaries, see the Consolidated Financial Statements of the Company and Notes
thereto. The discussion should be read in conjunction with and is qualified in
its entirety by the Consolidated Financial Statements of the Company and Notes
thereto.

         As previously reported in the Company's Report on Form 10-KSB for the
fiscal year ended March 31, 1998, the Company's securities were delisted from
both the Nasdaq Stock Market and the Boston Stock Exchange in August 1998.
Delisting resulted from the Company's failure to maintain the minimum net
tangible asset requirement of the Nasdaq Stock Market. Trading of the Company's
securities may continue to be conducted on the OTC Electronic Bulletin Board or
in the non-Nasdaq over-the-counter market. As a result, a holder of the
Company's securities may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's securities. In
addition, purchases and sales of the Company's securities may be subject to Rule
15g-9 (the "Rule") promulgated by the Securities and Exchange Commission (the
"SEC"). The Rule imposes various sales practice requirements on broker-dealers
who sell securities governed by the Rule to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5 million or individuals with a net worth in excess of $1 million or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the Rule, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the Rule may
have an adverse effect on the ability of broker-dealers to sell the Company's
securities and may affect the salability of the Company's securities in the
secondary market.

         The SEC has also adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price less than $5.00 per share, other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system. With the Company's securities delisted from the Nasdaq SmallCap Market,
they may come within the definition of penny stocks because the trading price of
the Company's common stock in currently below the $5.00 per share threshold. The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not exempt from the rules, to deliver a standardized document prepared by
the SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer must also provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information must be given to the customer prior to
effecting the transaction. These disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for a stock that
becomes subject to the penny stock rules.

                                                                               8

<PAGE>   9


RESULTS OF OPERATIONS

         Net Sales. Net sales for the first quarter of fiscal 1999 were
$5,370,443 compared to the first quarter of the previous fiscal year when sales
were $6,316,757. The sales decrease was the result of a last minute cancellation
of one order, the result of a change in the customer's business, which would
have added approximately $2,600,000 to the sales for the first quarter of 1999
(approximately $2,500,000 in hardware and $100,000 in services). Although the
order was cancelled, the customer believes that additional services will be
required of the Company to help support the customers downsizing. Sales of
hardware decreased by approximately $1,782,000 as a result of the cancelled
order. Sales of services, which were predominantly integration projects,
increased substantially from $653,920 in the first quarter of fiscal 1998 to
$1,584,075 for the first quarter of fiscal 1999. Sales of services made up 29%
of the net sales of the current quarter versus service sales of the same period
last year which were 10% of total net sales for the quarter. The increase in
high margin service sales accounted for the increased overall profit margins of
$1,412,055 for the current quarter from $1,139,638 for the same period last
year.

         Cost of Sales. Cost of sales was approximately $3,958,387 for the
period ended June 30, 1998 versus approximately $ 5,177,757 for the same period
of the previous year. Cost of sales as a percentage of sales decreased from 82%
of sales to 74% for the quarter ended June 30, 1998 as the sales mix changed to
higher margin service sales. The Company's strategy is to continue to increase
the sale of integration services through its subsidiaries and to begin to
increase sales of its proprietary software products. As sales of services and
software increase in relation to the sale of hardware the Company expects to see
more favorable changes in its gross profit as demonstrated by the 24% increase
on gross profits for the quarter as compared to the same period last year.

         Selling and Marketing. Selling and marketing expenses were $338,617 or
6.3% of sales ,for the three month period ended June 30, 1998, compared to
$474,758, or 7.5% of net sales, for the same period of the previous fiscal year.
The decrease in selling and marketing expenses is, in part, due to consolidation
efforts implimented to make the sales force more effective.

         General and Administrative. General and administrative expenses
increased from $792,608, or 12.5% of net sales, for the first quarter of the
previous fiscal year to $1,200,968, or 22.4% of net sales, for the first quarter
of the current fiscal year. The increase was in part the result of increases in
staff to support increased services and in corporate staff related to current
efforts to consolidate the accounting and administrative functions. The Company
expects to reduce administrative expense as the planned consolidations continue.

         Research and Development. Total research and development expense was
$51,750, or 1.0% of sales, in the quarter ended June 30, 1998. This compares to
research and development expenses of $95,434 , or 1.5% of sales, for the same
period last year. Research and development is primarily concerned with upgrading
current proprietary software modules. The Company does not expect to incur any
significant additional research and development expense during the remainder of
the fiscal year.

         Operating Loss. The operating loss for the period was $179,280 compared
to an operating loss of $223,162 for the prior year's first quarter. The
operating loss improvement was the result of the favorable change in the sales
mix to more higher margin service sales which offset the increase of 16.7% in
operating expenses.

         Interest and Other Income. Interest expense for the quarter was $80,845
which was paid on the current lines of credit, short term and long term
borrowings. The Company incurred approximately $83,000 in interest expenses
during the first quarter of the previous fiscal year.

         Net Loss. The net loss for the quarter ended June 30, 1998 was
approximately $274,608, or $.07 per share, versus a loss for the same period of
the prior fiscal year of approximately $302,869, or $.08 per share. The
improvement in net operating loss was the result of increased service sales
which resulted in a margin of 26.3% of net sales versus the margin of the same
period for the prior year of 18% of net sales.

                                                                               9

<PAGE>   10

         Income Taxes. The Company had no income tax expense for the first
quarter of fiscal 1999 and 1998. As of June 30, 1998, the Company had Federal
net operating loss carryforwards of approximately $9,000,000. The utilization of
net operating loss carryforwards will be limited as determined pursuant to
applicable provisions of the Internal Revenue Code and Treasury regulations
thereunder.

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity and Capital Resources. At June 30, 1998 the Company had a
working capital deficit of approximately $488,000 versus working capital of
approximately $268,000 at March 31, 1998.The cash balance at June 30, 1998 was
approximately $321,000, $300,000 of which was restricted as security for the
Company's line of credit.
          Cash generated by operations during the period ended June 30, 1998 was
approximately $402,000. Cash used in operations during the same three month
period of the previous fiscal year totaled approximately $926,000. Cash used in
investing activities was approximately $61,000 at June 30, 1998 and
approximately $51,000 at June 30, 1997. Cash used in financing activities for
the quarter ended June 30, 1998 totaled approximately $490,000. Cash provided by
financing activities totaled approximately $822,000 for the three months ended
June 30, 1997.

         During fiscal 1998 the Company did not generate sufficient cash flows
from operations to fund its current operations and has had to supplement its
cash outflow with new equity investments, advances on lines of credit, other
short and long term borrowings and credit granted by its suppliers and vendors.
During the quarter an additional $720,000 of debt was converted to Series B
preferred convertible stock. The Company's ability to raise additional capital
and the relationships with these suppliers and vendors are critical to the
viability of the Company.

         Although the Company has not integrated the sale of its proprietary
software into its subsidiaries the Company has begun to increase its
professional service sales as reflected during the quarter ended June 30, 1998
and has increased margins. Management however, believes that it must continue to
rely on outside sources of funds until sales from professional services and
software consistently generate higher margins to offset the cash outflows.

         In the future, the Company will require additional equity, working
capital and/or debt financing to maintain current operations as well as achieve
future plans for expansion. No assurance can be given of the Company's ability
to obtain such financing on favorable terms, if at all. If the Company is unable
to obtain additional financing, its ability to meet current and future plans for
expansion could be materially adversely affected. As the Company's securities
have been delisted by Nasdaq and the Boston Stock Exchange, the Company's
ability to raise capital, particularly by sales of its equity securities, could
be materially and adversely affected.

         During fiscal 1998, the Company signed a financing agreement with Coast
Business Credit for a line of credit in an amount of the lower of $5,000,000 or
the sum of 85% of eligible accounts receivable, restricted cash (see Note 5 of
the Consolidated Financial Statements) and equipment loans (maximum of
$250,000). This credit facility replaced a $2.2 million facility that was in
place at its BASIS subsidiary. This new facility is designed to provide working
capital to support the Company's sales growth for both subsidiaries. Among other
things the agreement required that the Company maintain a combined net worth at
its BASIS and GRSI subsidiaries of at least $1,000,000. The Company received a
waiver for non-compliance with this requirement at March 31, 1998 and modified
the agreement in July 1998 to a combined net worth requirement of $750,000 for
both subsidiaries. The total amount of the line of credit outstanding at March
31, 1998 was $1,238,000 with additional availability of approximately $117,000.
At June 30, 1998 the Company had $797,000 outstanding on the line with
additional availability of $182,000. The line matures on March 31, 2001.

         During fiscal 1997, the Company borrowed approximately $100,000 at a
rate of 8%, which was scheduled to become due on June 30, 1997. During July
1997, the note holder agreed to extend maturity on a month-to-month basis. As a
result of the extension, the Company issues 10,000 restricted common shares per
month to the note holder in consideration for the term of the extension.

                                                                              10

<PAGE>   11

         In addition, during fiscal 1997 the Company borrowed $820,000 in a
private offering of 10% Subordinated Convertible Notes due December 31, 1999.
Prior to September 30, 1997, with the exception of one $100,000 note holder, the
Company renegotiated the conversion terms with the note holders of the remaining
$720,000. The revised terms assign a fixed conversion price of $3.75 per share.
In addition, the note holders have been granted warrants to purchase a total of
252,000 shares of the Company's common stock at a price of $2.00 per share. The
warrants will expire on December 31, 2001. During December 1997, one $100,000
note holder exchanged the debt for unregistered common stock of the Company. The
common stock was exchanged at a price of $.625 per share for a total of 160,000
shares. During the quarter ended June 30, 1998, the remainder of the note
holders representing $720,000 converted to 72,000 shares of unregistered
convertible preferred stock at a conversion rate of $3.75 per share and received
warrants to purchase an additional 72,000 shares of unregistered common stock at
a price of $1.00 per share. These warrants expire March 31, 2001.

         During the quarter, the Company purchased approximately $67,087 in
capital equipment and software.

         Also in fiscal 1998, the Company sold $250,000 of its 8% Cumulative
Convertible Preferred Stock pursuant to Regulation S of the Securities Act of
1933. The shares were sold at a price of $6.00 per share, and may be converted
to common stock after June 30, 1998 at $2.00 per share of common stock. The
Company has the right to pay the dividends in cash or in shares of common stock,
and in fiscal 1998, the Company elected to pay cash dividends totaling $12,657
in lieu of stock dividends. Subsequent to June 30, 1998, $150,000 of the 8%
Cumulative Convertible Preferred Stock holders converted to common stock at
$2.00 per share. Pursuant to the terms of the offering's conversion feature, the
holder received 75,000 shares of common stock and warrants to purchase an
additional 75,000 shares of common stock at $2.00 per share. These warrants
expire December 31, 2000.

         Year 2000 Issue. The Company's proprietary manufacturing software
product line was Year 2000 compliant in July 1998 and will be released during
the quarter ending September 30, 1998. The Company's internal development tools
are Year 2000 compliant. The proprietary wholesale distribution software product
line will be Year 2000 compliant by August 1998. Internally, the Company uses
its distribution software accounting package and does not foresee any problems
in converting to the Year 2000 compliant version of its software. The Company
does not foresee any problems in working with third-party companies or clients
because of the Year 2000 issue. Furthermore, the Company does not believe that
clients utilizing its software products will have any problems with their
vendors because of the Year 2000 issue due to the use of the Company's software
products. Costs relating to the development of the Year 2000 issue have been
included in the research and development expenses, the Company does not expect
any additional expenses associated with Year 2000 compliance to be incurred
during the remainder of the current fiscal year.


"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

This form 10QSB may contain forward-looking statements that involve risks and
uncertainties, including, but not limited to, the impact of competitive products
and pricing, product demand and market acceptance risks, the presence of
competitors with greater financial resources, product development and
commercialization risks, costs associated with the integration and
administration of acquired operations, capacity and supply constraints or
difficulties, the results of financing efforts and other risks detailed from
time to time in the Company's Securities and Exchange Commission filings,
including the Company's 1997 Form 10-KSB.

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         As of the date of this filing, neither the Company nor its subsidiaries
are a party to any legal proceedings, the outcome of which, in management's
opinion, would have a material adverse effect on the Company's operations or
financial position. 

                                                                              11

<PAGE>   12

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 10QSB

A.   Exhibits:
     Exhibit Number             Document                                    Page
     --------------             --------                                    ----
        11             Schedule of Computation of Net Loss Per Share         13
        27             Financial Data Schedule

B.     Reports:

No reports on Form 8-K were filed during the quarter ended June 30, 1998.

                                                                              12

<PAGE>   13



In Accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       PROLOGIC MANAGEMENT SYSTEMS, INC.



         DATED: September 17, 1998     By: /s/  James M. Heim
                                           -------------------------------------
                                           James M. Heim
                                           President and Chief Executive Officer



                                       By: /s/  William E. Wallin
                                           -------------------------------------
                                           William E. Wallin,
                                           Vice President, Chief Financial 
                                           Officer, Secretary and Treasurer 
                                           (Principal Financial and Accounting 
                                           Officer)

                                                                              13