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

                                   FORM 10-QSB

(MARK ONE)

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

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


                            OSAGE SYSTEMS GROUP, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                             <C>                                     <C>       
               DELAWARE                                0-22808                              95-4374983
       (State of Incorporation)                 (Commission File No.)                      (IRS Employer
                                                                                        Identification No.)
</TABLE>

                            1661 EAST CAMELBACK ROAD
                                    SUITE 245
                             PHOENIX, ARIZONA 85016
                     (Address of principal executive office)

                                 (602) 274-1299
              (Registrant's telephone number, including area code)

Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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.

         (1)       Yes         X            No               

         (2)       Yes         X            No            


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of the Registrant's sole class of common stock,
as of August 10, 1998 was 8,495,958 shares.

Transitional Small Business Disclosure Format:

                                  Yes      No X
<PAGE>   2
                            OSAGE SYSTEMS GROUP, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                            Page
<S>                                                                                                       <C>
PART I             FINANCIAL INFORMATION*

       Item 1.     Financial Statements
                   Condensed Consolidated Balance Sheets at June 30, 1998 (unaudited) and December 31,
                   1997                                                                                      1

                   Unaudited Condensed Consolidated Statements of Operations for the Three and Six
                   Months ended June 30, 1998 and 1997                                                       2

                   Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended
                   June 30, 1998 and 1997                                                                    3

                   Notes to Unaudited Condensed Consolidated Financial Statements                         4 - 8

       Item 2.     Management's Discussion and Analysis or Plan of Operation                              8 - 18

PART II.           OTHER INFORMATION

       Item 2.     Changes in Securities and Use of Proceeds                                              19 - 23

       Item 4.     Submission of Matters to a Vote of Security Holders                                    23 - 25

       Item 5.     Other Information                                                                         25

       Item 6.     Exhibits and Reports on Form 8-K                                                       25 - 26
</TABLE>

*        The accompanying financial information is not covered by an Independent
         Certified Public Accountant's Report.
<PAGE>   3
PART I.  FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

OSAGE SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      JUNE 30, 1998
                                                                       (UNAUDITED)           DECEMBER 31, 1997
                                                                      ------------           -----------------
<S>                                                                   <C>                      <C>         
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                           $  1,249,070             $  2,576,323
  Accounts receivable - net of allowance for doubtful
    accounts of $52,000 in 1998 and $15,000 in 1997                      9,679,577                1,974,496
  Inventories                                                              578,600                    6,672
  Prepaid expenses and other current assets                                235,833                   25,728
  Deferred income taxes                                                    778,000                  210,000
                                                                      ------------             ------------

     Total current assets                                               12,521,080                4,793,219
                                                                      ------------             ------------

FURNITURE AND EQUIPMENT - net                                              724,649                   86,881

GOODWILL, less accumulated amortization of $120,622                     12,917,738

OTHER ASSETS                                                                54,939
                                                                      ------------             ------------

TOTAL                                                                 $ 26,218,406             $  4,880,100
                                                                      ============             ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Notes payable                                                       $    214,956
  Accounts payable                                                       8,570,893             $  1,948,802
  Accrued expenses                                                       1,646,881                  507,395
  Deferred revenue                                                          14,051
  Income taxes payable                                                      59,175                  262,182
                                                                      ------------             ------------

     Total current liabilities                                          10,505,956                2,718,379
                                                                      ------------             ------------

NOTES PAYABLE                                                              247,388

OTHER                                                                      569,995

STOCKHOLDERS'  EQUITY:
  Series A Preferred, $100 stated value - authorized,
    issued and outstanding, 10 shares in 1998 and 122
    shares in 1997; total liquidation preference, $300,000
    in 1998 and $3,660,000 in 1997                                           1,000                   12,200
  Series B Preferred, $100 stated value - authorized,
    issued and outstanding, 50 shares; total liquidation
    preference, $1,500,000                                                   5,000                    5,000
  Series C Preferred, $50 stated value - authorized,
    issued and outstanding, 75 shares; total liquidation
    preference, $1,125,000                                                   3,750
  Common stock, $.01 par value - authorized, 50,000,000
    shares; issued and outstanding, 8,682,188 shares in
    1998 and 4,820,000 shares in 1997                                       86,821                   48,200
  Additional paid-in-capital                                            16,073,518                2,772,246
  Retained earnings                                                     (1,275,022)                (675,925)
                                                                      ------------             ------------

     Total stockholders' equity                                         14,895,067                2,161,721
                                                                      ------------             ------------

TOTAL
                                                                      $ 26,218,406             $  4,880,100
                                                                      ============             ============
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       1
<PAGE>   4
OSAGE SYSTEMS GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED                        SIX MONTHS ENDED
                                                       ---------------------------------         ----------------------------------
                                                      JUNE 30, 1998         JUNE 30, 1997        JUNE 30, 1998        JUNE 30, 1997
                                                       ------------         ------------         ------------         ------------
<S>                                                    <C>                  <C>                  <C>                  <C>         
NET SALES                                              $ 12,765,671         $  2,688,703         $ 18,407,603         $  4,928,481

COST OF SALES                                            10,566,735            2,117,907           15,146,745            3,863,262
                                                       ------------         ------------         ------------         ------------

  Gross profit                                            2,198,936              570,796            3,260,858            1,065,219
                                                       ------------         ------------         ------------         ------------

OPERATING EXPENSES:
  Selling, general and administrative expenses            2,828,735              434,909            4,022,458              861,571
  Depreciation and amortization                             158,336               12,600              187,601               25,200
                                                       ------------         ------------         ------------         ------------
     Total operating expenses                             2,987,071              447,509            4,210,059              886,771
                                                       ------------         ------------         ------------         ------------

OPERATING (LOSS) INCOME                                    (788,135)             123,287             (949,201)             178,448

INTEREST - net                                               (9,446)                 359               26,104                2,662
                                                       ------------         ------------         ------------         ------------

(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES            (797,581)             123,646             (923,097)             181,110

BENEFIT FOR INCOME TAXES                                   (285,000)                                 (324,000)
                                                       ------------         ------------         ------------         ------------

NET (LOSS) INCOME                                      $   (512,581)        $    123,646         $   (599,097)        $    181,110
                                                       ============         ============         ============         ============

(LOSS) INCOME PER COMMON SHARE -
  BASIC AND DILUTED                                    $      (0.07)        $       0.02         $      (0.10)        $       0.03
                                                       ============         ============         ============         ============

WEIGHTED AVERAGE SHARES OUTSTANDING                       6,907,509            6,907,509            6,050,352            6,050,352
                                                       ============         ============         ============         ============
</TABLE>

See notes to unaudited condensed consolidated financial statements.


                                       2
<PAGE>   5
OSAGE SYSTEMS GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                              SIX MONTHS ENDED
                                                                                      -------------------------------
                                                                                      JUNE 30, 1998      JUNE 30, 1997
                                                                                      -----------         -----------
<S>                                                                                   <C>                 <C>        
OPERATING ACTIVITIES:
  Net (loss) income                                                                   $  (599,097)        $   181,110
  Adjustments to reconcile net (loss) income to net cash (used in) provided by
    operating activities:
     Depreciation and amortization                                                        187,601              25,200
     Stock-based compensation                                                             150,000
     Loss on disposal of assets                                                             1,500
     Deferred income taxes                                                               (176,231)            (55,000)
  Changes in operating assets and liabilities:
    Accounts receivable                                                                (3,470,907)           (328,378)
    Inventories                                                                           (41,585)            (66,409)
    Prepaid expenses and other assets                                                     (57,401)             30,642
    Accounts payable                                                                    3,053,642             342,583
    Accrued expenses                                                                      514,666             120,815
    Deferred revenue                                                                      (11,080)
    Income taxes payable                                                                 (203,007)
                                                                                      -----------         -----------
       Net cash (used in) provided by operating activities                               (651,899)            250,563
                                                                                      -----------         -----------

INVESTING ACTIVITIES:
    Capital expenditures                                                                 (209,853)               (559)
    Acquisition costs, net of cash received of $185,227                                (5,246,032)
    Investments                                                                                              (100,000)
                                                                                      -----------         -----------
       Net cash used in investing activities                                           (5,455,885)           (100,559)
                                                                                      -----------         -----------

FINANCING ACTIVITIES:
    Net repayments on notes payable                                                    (1,033,868)            (25,451)
    Net proceeds from sale of common stock                                              5,763,884
    Net increase in note receivable                                                        50,515
    Purchase of treasury stock                                                                                (93,692)
                                                                                      -----------         -----------
       Net cash provided by (used in) financing activities                              4,780,531            (119,143)
                                                                                      -----------         -----------

NET (DECREASE) INCREASE IN CASH                                                        (1,327,253)             30,861

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                          2,576,323                 564
                                                                                      -----------         -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                              $ 1,249,070         $    31,425
                                                                                      ===========         ===========
</TABLE>

See notes to unaudited condensed consolidated financial statements.


                                       3
<PAGE>   6
                            OSAGE SYSTEMS GROUP, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       Basis of Presentation.

         In the opinion of the Company, the accompanying unaudited condensed
         consolidated financial statements contain all adjustments (consisting
         of normal recurring accruals) necessary to present fairly the financial
         position of the Company and the results of its operations and its cash
         flows for the periods reported. The results of operations for interim
         periods are not necessarily indicative of the results to be expected
         for the entire year. 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 as of 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.

         The consolidated financial statements include the accounts of Osage
         Systems Group, Inc. ("Osage") and its wholly-owned subsidiaries, Osage
         Computer Group, Inc. ("Osage"), Solsource Computers, Inc.
         ("Solsource"), H.V. Jones, Inc. ("HV Jones"), Open System Technologies,
         Inc. ("OST") and Open Business Systems, Inc. ("OBS"), (collectively,
         the "Company"). All significant intercompany balances and transactions
         have been eliminated in consolidation. Certain reclassifications have
         been made to the prior financial statements to conform to the current
         classifications.

         The information presented within the accompanying unaudited
         consolidated financial statements should be read in conjunction with
         the Company's audited Financial Statements for the fiscal years ended
         December 31, 1997 and 1996 and "Management's Discussion and Analysis or
         Plan of Operation" from the 1997 Annual Report on Form 10-KSB.

2.       Recent Acquisitions During Period.

         On March 17, 1998, Osage acquired Solsource pursuant to the terms of an
         Agreement and Plan of Merger. Upon closing, through a wholly-owned
         subsidiary, Osage acquired 100% of the outstanding capital stock of
         Solsource for merger consideration of $1.1 million; consisting of
         $200,000 in cash and $900,000 in newly issued common shares priced at
         $6.00 per share. In addition, the merger consideration included
         earn-out incentive shares to be issued if Solsource achieves certain
         performance targets.

                                       4
<PAGE>   7
         On March 17, 1998, Osage also completed the acquisition of HV Jones
         pursuant to the terms of an Agreement and Plan of Merger dated February
         27, 1998. Upon closing, through a wholly-owned subsidiary, Osage
         acquired 100% of the outstanding capital stock of HV Jones for merger
         consideration of $1,975,000; consisting of $395,000 in cash and $1.58
         million (105.3 shares) in Series C Convertible Preferred Stock ("Series
         C Shares") which convert into common stock during the four quarters
         following the closing (commencing June 17, 1998) at a conversion rate
         equal to the lower of $6.87 or a 33% premium over the average closing
         price of the Company's common stock for the ten trading days prior to
         each date of conversion. In addition, the merger consideration included
         earn-out incentive shares to be issued if HV Jones achieves certain
         performance targets.

         On April 24, 1998, Osage completed the acquisition of 100% of the
         outstanding capital stock of OST for merger consideration of
         $5,000,000; consisting of $2,500,000 in cash, $2,000,000 in newly
         issued common shares priced at $6.00 per share and $500,000 in a key
         employee retention program.

         On June 22, 1998, Osage completed the acquisition of 100% of the
         outstanding capital stock of OBS for merger consideration of
         $4,000,000; consisting of $2,000,000 in cash and $2,000,000 in newly
         issued common shares priced at $5.52 per share. In addition, the merger
         consideration included earn-out incentive shares to be issued if OBS
         achieves certain performance targets.

         The Solsource, HV Jones, OST and OBS acquisitions were accounted for
         using the purchase method of accounting for business combinations. The
         excess of assets acquired over liabilities assumed has been allocated
         to goodwill and is being amortized over 20 years. Results of operations
         of Solsource, HV Jones, OST and OBS have been included in the Company's
         statement of operations from their respective acquisition dates.

3.       Pro Forma Information.

         The following pro forma summary presents the consolidated results of
         operations of the Company as if the acquisitions completed during the
         period had occurred as of January 1, 1998 and 1997, and do not purport
         to be indicative of what would have occurred had the acquisitions been
         made as of those dates or of results which may occur in the future. The
         pro forma summary data for the six months ended June 30, 1998 and 1997
         combines historical financial information of Osage, Solsource, HV
         Jones, OST and OBS for the six months ended June 30, 1998 and 1997.


                                       5
<PAGE>   8
      PRO FORMA INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997

<TABLE>
<CAPTION>
                                                 1998                 1997
<S>                                          <C>                  <C>         
         Net Sales                           $ 29,348,481         $ 20,732,434

         Net (loss) income                   $ (1,667,737)        $    462,035

         Net (loss) income per share:
            basic and diluted                $      (0.28)        $       0.08
</TABLE>

4.       Earnings Per Share.

         In March 1997, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
         per Share ("SFAS 128"), which is effective for financial statements for
         both interim and annual periods ending after December 15, 1997. The
         Company has implemented this statement and, as required, has restated
         earnings per share ("EPS") for all periods presented. This new standard
         requires dual presentation of "basic" and "diluted" EPS on the face of
         the statement of operations. Basic earnings per common share is
         computed on the weighted average number of shares of common stock
         outstanding during each period. Diluted earnings per common share is
         computed on the weighted average number of shares of common stock
         outstanding plus additional shares that would have been outstanding if
         all dilutive potential common shares had been issued.

         Net income (loss) per common share is computed by dividing net income
         (loss) by the weighted average number of common shares outstanding
         during the period after giving effect to stock options and the
         conversion of preferred shares considered to be dilutive. Because the
         Company incurred a loss for the three and six month periods ended June
         30, 1998, the effects of the potential dilutive securities are not
         included in the calculations.

5.       New Accounting Pronouncements.


         In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
         Income ("SFAS 130"), which is effective for financial statements for
         periods beginning after December 15, 1997 and establishes standards for
         reporting and display of comprehensive income and its components
         (revenues, expenses, gains and losses) in a full set of general-purpose
         financial statements. The adoption of this statement on January 1, 1998
         had no impact on the Company's financial statement presentation or
         related disclosures.

         In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments
         of an Enterprise and Related Information ("SFAS 131"), which is
         effective for fiscal years

                                       6
<PAGE>   9
         beginning after December 15, 1997 and establishes standards for the way
         that public business enterprises report information about operating
         segments in annual financial statements and requires that those
         enterprises report selected information about operating segments in
         interim financial reports issued to stockholders. It also establishes
         standards for related disclosures about products and services,
         geographic areas, and major customers. The Company operates in one
         business segment and does not believe that SFAS 131 will require
         additional disclosures when adopted.

         In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
         Instruments and Hedging Activities ("SFAS 133"), which is effective for
         the Company in 2000. SFAS 133 requires that an entity recognize all
         derivatives as either assets or liabilities in the balance sheet and
         measure those instruments at fair value. The standard also provides
         specific guidance for accounting for derivatives designated as hedging
         instruments. The Company is currently evaluating what impact this
         standard will have on its financial statements.

6.       Income Taxes.

         The Company accounts for income taxes using the asset and liability
         approach, which can result in recording tax provisions or benefits in
         periods different than the periods in which such taxes are paid or
         benefits realized. Deferred income taxes are recorded for the
         difference between the book and tax basis of various assets and
         liabilities which can provide for current recognition of expected tax
         benefits from temporary differences that will result in deductible
         amounts in future years.

         The deferred income tax asset at June 30, 1998 is comprised of the
following:

<TABLE>
<S>                                                                                      <C>         
           Net operating loss carryforward                                               $    464,000
           Use of cash basis of accounting for income tax purposes                            (51,000)
           Allowance for doubtful accounts                                                     21,000
           Deferred compensation                                                              320,000
           Other                                                                               24,000
                                                                                           ----------

           Net current asset                                                               $  778,000
                                                                                           ==========
</TABLE>

7.       Stock Options.

         As part of the Company's original acquisition of Osage on December 22,
         1997, options were granted to the former Osage stockholders at an
         exercise price of $3.00, however, vesting was contingent upon the
         future earnings of the Company and the Holders' continued employment by
         the Company. Because these options were "performance-based", the
         Company previously reported that it would have to record compensation

                                       7
<PAGE>   10
         expense in the future if the earnings of the Company achieved agreed
         upon levels and other events occurred that would lead management to
         believe that vesting of the options was a probable occurrence. The
         expense, when recorded, could have had an adverse effect on the
         Company's income for financial accounting purposes, as it would have
         approximated the difference between the exercise price of the options
         and the fair market value of the Company's Common Stock at that time.
         In recognition of the potential charge upon the Company's earnings, and
         for other consideration, during June 1998, the Company restructured the
         options so as to increase the number of options granted, increase the
         exercise price to $4.50 (fair market value when granted) and eliminate
         any vesting conditions. As restructured, management does not believe
         that the Company will record compensation expense in the future based
         upon the grant of these options.

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

                      CAUTIONARY STATEMENT FOR PURPOSES OF
                       THE "SAFE HARBOR" PROVISIONS OF THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

When used in this Report on Form 10-QSB, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "intend," and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 regarding events, conditions and financial trends which may affect the
Company's future plans of operations, business strategy, operating results and
financial position. Such statements are not guarantees of future performance and
are subject to risks and uncertainties and actual results may differ materially
from those included within the forward-looking statements as a result of various
factors. Such factors include, among others: (i) risks related to the Company's
acquisition strategy; (ii) the Company's ability to secure adequate financing to
implement its acquisition strategy; (iii) the Company's ability to acquire
profitable target companies; (iv) uncertainty as to whether the Company can
achieve integration of target companies in a manner intended to take advantage
of overall corporate synergies and result in an accretion to consolidated
earnings; (v) the uncertainty of future trading prices for the Company's Common
Stock and the impact such trading prices may have upon the Company's ability to
utilize its Common Stock to facilitate its acquisition strategy; (vi) the
uncertain effect of the additional dilution associated with the future issuance
of outstanding convertible securities, as well as, the dilution associated with
the Company's acquisition strategy; (vii) the Company's dependence on certain
large customers and suppliers; (viii) the Company's dependence on certain key
personnel; (ix) the competitive market for technical personnel and; (x) the
Company's ability to adapt to certain Year 2000 issues. Additional factors are
described in the Company's other public reports and filings with the Securities
and Exchange Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date made. The
Company undertakes no obligation to publicly release the result of any revision
of these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events.

                                       8
<PAGE>   11
OVERVIEW

         Osage Systems Group, Inc. (the "Company") was originally incorporated
as "Pacific Rim Entertainment, Inc." ("Pacific Rim") under the laws of Delaware
in 1992. From 1992 through 1996, Pacific Rim had been engaged principally in the
animated film production business. After several years of losses following its
initial public offering in 1993, Pacific Rim suspended its business operations
in 1996 and remained inactive while it sought to identify a strategic business
combination with a private operating company. In December 1997, Pacific Rim
acquired Osage Computer Group, Inc. ("Osage"), an Arizona corporation, which had
operated a computer systems integration business since 1989. The acquisition was
completed through a merger of Osage with and into a wholly-owned subsidiary of
Pacific Rim which became effective on December 22, 1997 (the "Merger").
Thereafter, Pacific Rim assumed the historic operations of Osage and on March
10, 1998, changed its name to Osage Systems Group, Inc. Since, as a result of
the Merger, the former stockholders of Osage acquired a controlling interest in
Pacific Rim, the Merger has been accounted for as a "reverse acquisition."
Accordingly, for financial statement presentation purposes, Osage is viewed as
the continuing entity and the related business combination is viewed as a
recapitalization of Osage, rather than an acquisition by Pacific Rim.

         Through its operating subsidiaries, the Company markets a broad range
of information technology products and services intended to transform discrete
hardware and software components into an integrated system. The Company's
ability to deliver integrated solutions is principally attributable to its
technical expertise and its value-added reseller agreements with
industry-leading vendors of information technology products such as Sun
Microsystems, Oracle, Netscape, Cisco Systems, Hewlett Packard and Microsoft.
The Company has also established relationships with leading aggregators of
computer hardware and software products. These agreements enable the Company to
provide its clients with competitive product pricing, ready product availability
and services. To date, most of its net sales have been derived from the resale
of products from these vendors, however, the Company anticipates that as it
continues to increase the technical expertise of its service personnel and
broaden the geographic base of its marketing coverage, an increasing percentage
of its net sales in the future will be derived from the services and support
component of its business.

         The Company's objective is to provide clients with comprehensive
information technology products, services and support. Management plans to
achieve this goal through a combination of external growth through acquisitions
as well as internal growth through expansion of operations. The Company is
currently pursuing an aggressive acquisition strategy to enhance its position in
its current markets and acquire operations in new markets. The focus of this
strategy is on acquiring candidates who management believes are likely to
benefit from the Company's long-term growth strategy and status as a public
company. Through its acquisition parameters, the Company is seeking to identify
target companies who have a proven record of delivering high-quality technical
services, a customer base of large and mid-sized companies and operations that
offer synergies with existing or anticipated segments of the

                                       9
<PAGE>   12
Company's business.


RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997

         The following table sets forth for the periods indicated certain
financial data as a percentage of net sales:

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED JUNE 30,
                                                      ----------------------------- -------------------------------------
                                                                  1998                                  1997
                                                      ----------------------------- -------------------------------------
                                                                           % OF                                 % OF
                                                        AMOUNT           NET SALES            AMOUNT          NET SALES
                                                      ------------     ------------         ------------     ------------
<S>                                                   <C>              <C>                  <C>              <C>   
NET SALES                                             $ 12,765,671           100.0%         $  2,688,703          100.0%
COST OF SALES                                           10,566,735            82.8             2,117,907           78.8
                                                      ------------     ------------         ------------     ------------

     Gross profit                                        2,198,936            17.2               570,796           21.2
                                                      ------------     ------------         ------------     ------------
OPERATING EXPENSES:
  Selling, general and administrative expenses           2,828,735            22.2               434,909           16.2
  Depreciation and amortization                            158,336             1.2                12,600             .4
                                                      ------------     ------------         ------------     ------------
    Total operating expenses
                                                         2,987,071            23.4               447,509           16.6
                                                      ------------     ------------         ------------     ------------

(LOSS) INCOME FROM OPERATIONS                             (788,135)           (6.2)              123,287            4.6
INTEREST - NET                                              (9,446)            (.1)                  359             -- 
                                                      ------------     ------------         ------------     ------------

(LOSS) INCOME BEFORE PROVISION FOR INCOME
 TAXES                                                    (797,581)           (6.3)              123,646            4.6

BENEFIT FOR INCOME TAXES                                  (285,000)           (2.3)
                                                      ------------     ------------         ------------     ------------

NET (LOSS) INCOME                                     $   (512,581)           (4.0%)        $    123,646            4.6%
                                                      ============     ============         ============     ============

NET INCOME (LOSS) PER SHARE:
 Basic and Diluted                                    $       (.07)                         $        .02
                                                      ============                           ============
</TABLE>

         Revenues. Net sales increased by 375%, or $10.1 million to $12.8
million, for the three months ended June 30, 1998 as compared to $2.7 million
for the same prior year period. This increase in net sales was principally
attributable to the acquisitions of Solsource, HV Jones, OST and OBS during the
current period and increased product sales to new and existing customers as the
Company experienced favorable market acceptance of new products introduced by
the Company's major vendors combined with increased market penetration in the
Company's expanding territories. Net sales resulting from the acquisitions of
Solsource, HV Jones, OST and OBS amounted to $8.6 million for the three months
ended June 30, 1998. Consulting revenues increased by 810%, or $607,700, to
$682,700, for the three months ended June 30, 1998 as compared to $75,000 for
the same prior year period. This increase was primarily attributable to demand
for the Company's consulting services and technical support resulting from the
Company's increased focus on the service component of its revenue base coupled
with the acquisitions made during the year. Management expects that net sales
will continue to increase as

                                       10
<PAGE>   13
the Company further implements its acquisition strategy and more fully
recognizes the revenue contribution from its recently acquired companies (See
"Acquisition Strategy").

         Gross Profit. The Company's cost of sales include primarily, in the
case of product sales, the cost to the Company of products acquired for resale,
and in the case of services and support revenue, salaries and related costs. The
Company's gross profit increased by 285% or $1.6 million to $2.2 million for the
three months ended June 30, 1998 as compared to $.6 million for the same prior
year period. Gross profit margin, however, decreased to 17.2% during the three
months ended June 30, 1998, as compared to 21.2% experienced during the same
prior year period. During the second half of 1997 and the first half of 1998,
the Company experienced an overall decrease in its gross profit margin. This
decrease was primarily due to cost reductions passed on to the Company's
customers from its major vendors as a result of an increase in demand for the
Company's products which occurred as certain customers increased their volume of
purchases. Management believes that in the long term it will be able to sustain
or improve its profit margin as a result of its focus on providing a broad
spectrum of products, services and support packages, and through a greater
emphasis on consulting and support services, which typically have a higher
profit margin.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of salaries, commissions, employee
benefits, travel, promotion and related marketing costs. Selling, general and
administrative expenses increased by 550% or $2.4 million to $2.8 million for
the three months ended June 30, 1998 as compared to $.4 million for the same
prior year period. Also, during the three months ended June 30, 1998, as a
percent of net sales, selling, general and administrative expenses increased to
22.2%, from 16.2% experienced during the same prior year period. This increase
in expenses is primarily attributable to the expansion of the Company's
infrastructure as it became publicly held during the fourth quarter of 1997 and
implemented an aggressive growth strategy during 1998. This resulted in a
significant increase in the Company's administrative personnel and travel and
promotion expenses. Corresponding increases in legal and accounting fees were
also incurred by the Company in connection with its financing and acquisition
activities and for historical audits performed on assorted acquisition targets.
During the three months ended June 30, 1998, selling, general and administrative
expenses also included a non-cash charge of $75,000 associated with stock based
compensation to the Company's Executive Vice President.

Depreciation and Amortization. Depreciation and amortization increased 1,157%,
or $145,700, for the three months ended June 30, 1998 as compared to the same
prior year period. This increase was primarily due to the amortization of
goodwill and depreciation of assets acquired in connection with the acquisitions
that occurred during the year.

         Net Income (Loss). During the three months ended June 30, 1998, the
Company incurred a net loss of $512,600 as compared to net income of $123,600
for the same prior year period. The net loss for the current period, however,
includes $233,300 of non-cash charges relating to depreciation and amortization
and stock based compensation. Such charges have resulted by virtue of the
Company's acquisition program and growth of its corporate infrastructure.

                                       11
<PAGE>   14
Additional factors contributing to the Company's net loss consisted of
significant increases in the Company's overhead expenses as corporate
infrastructure was established in anticipation of future growth through the
Company's acquisition program. Management believes that as net sales continue to
increase, overhead costs associated with corporate infrastructure will be more
fully absorbed.

         As part of the Company's original acquisition of Osage on December 22,
1997, options were granted to the former Osage stockholders at an exercise price
of $3.00, however, vesting was contingent upon the future earnings of the
Company and the Holders' continued employment by the Company. Because these
options were "performance-based", the Company previously reported that it would
have to record compensation expense in the future if the earnings of the Company
achieved agreed upon levels and other events occurred that would lead management
to believe that vesting of the options was a probable occurrence. The expense,
when recorded, could have had an adverse effect on the Company's income for
financial accounting purposes, as it would have approximated the difference
between the exercise price of the options and the fair market value of the
Company's Common Stock at that time. In recognition of the potential charge upon
the Company's earnings, and for other consideration, during June 1998, the
Company restructured the options so as to increase the number of options
granted, increase the exercise price to $4.50 (fair market value when granted)
and eliminate any vesting conditions. As restructured, management does not
believe that the Company will record compensation expense in the future based
upon the grant of these options.


                                       12
<PAGE>   15
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

         The following table sets forth for the periods indicated certain
financial data as a percentage of net sales:
<TABLE>
<CAPTION>
                                                                   SIX MONTHS ENDED JUNE 30,
                                                  ---------------------------------------------------------
                                                             1998                           1997
                                                  ----------------------------- ---------------------------
                                                                     % OF                            % OF
                                                    AMOUNT        NET SALES        AMOUNT         NET SALES
<S>                                                <C>               <C>         <C>              <C>   
NET SALES                                          $ 18,407,603      100.0%      $  4,928,481     100.0%
COST OF SALES                                        15,146,745       82.3          3,863,262      78.4
                                                   ------------      -----       ------------     -----
     Gross profit                                     3,260,858       17.7          1,065,219      21.6
                                                   ------------      -----       ------------     -----
OPERATING EXPENSES:
Selling, general and administrative expenses          4,022,458       21.9            861,571      17.5
Depreciation and amortization                           187,601        1.0             25,200        .5
                                                   ------------      -----       ------------     -----
   Total operating expenses                           4,210,059       22.9            886,771      18.0
                                                   ------------      -----       ------------     -----
(LOSS) INCOME FROM OPERATIONS                          (949,201)      (5.2)           178,448       3.6
INTEREST INCOME - NET                                    26,104         .2              2,662        .1
                                                   ------------      -----       ------------     -----
(LOSS) INCOME BEFORE PROVISION FOR INCOME
   TAXES                                               (923,097)      (5.0)           181,110       3.7

BENEFIT FOR INCOME TAXES                               (324,000)      (1.7)                           
                                                   ------------      -----       ------------     -----
NET (LOSS) INCOME                                  $   (599,097)      (3.3%)     $    181,110       3.7%
                                                   ============      =====       ============     =====
NET (LOSS)  INCOME PER SHARE:
 Basic and Diluted                                 $       (.10)                 $        .03         
                                                   ============                  ============             
</TABLE>



         Revenues. Net sales increased by 273%, or $13.5 million to $18.4
million, for the six months ended June 30, 1998 as compared to $4.9 million for
the same prior year period. This increase in net sales was principally
attributable to the acquisitions of Solsource, HV Jones, OST and OBS during the
period and increased product sales to new and existing customers as the Company
experienced favorable market acceptance of new products introduced by the
Company's major vendors combined with increased market penetration in the
Company's expanding territories. Net sales resulting from the acquisitions of
Solsource, HV Jones, OST and OBS amounted to $9.0 for the six months ended June
30, 1998. Consulting revenues increased by 316%, or $605,600, to $797,100, for
the six months ended June 30, 1998 as compared to $191,500 for the same prior
year period. This increase was primarily attributable to demand for the
Company's consulting services and technical support resulting from the Company's
increased focus on the service component of its revenue base coupled with the
acquisitions made during the year. Management expects that net sales will
continue to increase as the Company further implements its acquisition strategy
and more fully recognizes the revenue contribution from its recently acquired
companies (See "Acquisition Strategy").

         Gross Profit. The Company's cost of sales include primarily, in the
case of product sales, the cost to the Company of products acquired for resale,
and in the case of services and support revenue, salaries and related costs. The
Company's gross profit increased by 206% or $2.2 


                                       13
<PAGE>   16
million to $3.3 million for the six months ended June 30, 1998 as compared to
$1.1 million for the same prior year period. Gross profit margin, however,
decreased to 17.7% during the six months ended June 30, 1998, as compared to
21.6% experienced during the same prior year period. During the second half of
1997 and the first half of 1998, the Company experienced an overall decrease in
its gross profit margin. This decrease was primarily due to cost reductions
passed on to the Company's customers from its major vendors as a result of an
increase in demand for the Company's products which occurred as certain
customers increased their volume of purchases. Management believes that in the
long term it will be able to sustain or improve its profit margin as a result of
its focus on providing a broad spectrum of products, services and support
packages, and through a greater emphasis on consulting and support services,
which typically have a higher profit margin.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of salaries, commissions, employee
benefits, travel, promotion and related marketing costs. Selling, general and
administrative expenses increased by 367% or $3.1 million to $4.0 million for
the six months ended June 30, 1998 as compared to $.9 million for the same prior
year period. Also, during the six months ended June 30, 1998, as a percent of
net sales, selling, general and administrative expenses increased to 21.9%, from
17.5% experienced during the same prior year period. This increase in expenses
is primarily attributable to the expansion of the Company's infrastructure as it
became publicly held during the fourth quarter of 1997 and implemented an
aggressive growth strategy during 1998. This resulted in a significant increase
in the Company's administrative personnel and travel and promotion expenses.
Corresponding increases in legal and accounting fees were also incurred by the
Company in connection with its financing and acquisition activities and for
historical audits performed on assorted acquisition targets. During the six
months ended June 30, 1998, selling, general and administrative expenses also
included a non-cash charge of $150,000 associated with stock based compensation
to the Company's Executive Vice President.

         Depreciation and Amortization. Depreciation and amortization increased
644%, or $162,400, for the six months ended June 30, 1998 as compared to the
same prior year period. This increase was primarily due to the amortization of
goodwill and depreciation of assets acquired in connection with the acquisitions
that occurred during the year.

         Net Income (Loss). During the six months ended June 30, 1998, the
Company incurred a net loss of $599,100 as compared to net income of $181,100
for the same prior year period. The net loss for the current period, however,
includes $337,600 of non-cash charges relating to depreciation and amortization
and stock based compensation. Such charges have resulted by virtue of the
Company's acquisition program and growth of its corporate infrastructure.
Additional factors contributing to the Company's net loss consisted of
significant increases in the Company's overhead expenses as corporate
infrastructure was established in anticipation of future growth through the
Company's acquisition program. Management believes that as net sales continue to
increase, overhead costs associated with corporate infrastructure will be more
fully absorbed.


                                       14
<PAGE>   17
ACQUISITION STRATEGY

         The Company's objective is to be one of the leading providers of
systems integration and related services throughout the United States. The
Company has developed an interrelated growth and operating strategy to achieve
this objective. A key element of the Company's growth strategy is an acquisition
program which is intended to take advantage of the highly fragmented composition
of the marketplace.

         Since the beginning of 1998, the Company has executed upon its
acquisition strategy through the acquisition of Solsource (March 17, 1998), HV
Jones (March 17, 1998), OST (April 24, 1998) and OBS (June 22, 1998). These
acquisitions were accounted for under the purchase method of accounting for
business combinations. Accordingly, the Company's results of operations include
only the operations of each of these companies from the date of acquisition
through the end of the period reported. During the year ended December 31, 1997,
Solsource, HV Jones, OST and OBS realized net sales $7.3 million, $5.6 million,
$11.9 million and $9.2 million, respectively. On a proforma basis, the Company
would have realized net sales of approximately $48.2 million during the year
ended December 31, 1997 had all of these acquisitions occurred as of January 1,
1997.

         The Company's net sales are expected to continue to increase during
1998 as the Company continues to execute upon its acquisition strategy. The
Company's acquisition strategy, however, relies primarily upon identifying
target companies that fit within its acquisition criteria and having sufficient
financing available to complete its acquisitions. Although the Company has
sufficient financing available to complete acquisitions that are presently being
considered, there can be no assurances that sufficient financing will be
available so as to facilitate the continuation of the Company's acquisition
program on a longer-term basis. The Company's inability to remain in compliance
with certain financial covenants under one of its line of credit facilities may
adversely effect the Company's ability to draw upon such financing. See
"Liquidity and Capital Resources".

         Due to the early stages of the Company's acquisition program, there can
be no assurances as to the long-term impact of the Company's acquisition
strategy on the gross profits or net income of the Company. Through the second
quarter of 1998, the acquisition strategy may have contributed towards the net
loss of the Company in several respects. First, certain of the acquired
companies have continued to incur losses from operations, or have required
significant cash advances from the Company, which, in turn, has adversely
effected the Company's results of operations. Second, the acquisition strategy
has caused the Company to significantly increase its selling, general and
administrative expenses which have also contributed negatively toward the
Company's results of operations. As net sales continue to increase, however, the
Company's overhead will be spread over a larger revenue base which is expected
to have a positive impact on the Company's results of operations.

                                       15
<PAGE>   18
VARIABLE OPERATING RESULTS

         The Company's historical operating results have varied from quarter to
quarter, and the Company expects that they will continue to do so. Due to the
relatively fixed nature of certain of the Company's costs, including personnel
and facilities costs, a decline in revenue in any fiscal quarter would result in
lower profitability or increase the loss in that quarter. A variety of factors,
many of which are not within the Company's control, influence the Company's
quarterly revenues, including seasonal patterns of hardware and software capital
spending by customers, information technology outsourcing trends, the timing,
size and stage of projects, new service introductions by the Company or its
competitors, levels of market acceptance for the Company's products or services
or the hiring of additional staff. Operating results also may be impacted by the
timing of revenues and changes in the Company's utilization rates. The Company
believes, therefore, that past operating results and period-to-period
comparisons should not be relied upon as an indication of future performance.
The Company anticipates that its business will continue to be subject to such
seasonal variations.

BACKLOG

         The Company normally ships systems promptly after receiving an order
and therefore does not customarily have a significant backlog.

LIQUIDITY AND CAPITAL RESOURCES

         Historically, the Company has funded its operations primarily from cash
generated by operations and, to a lesser extent, with funds from borrowings
under the Company's revolving line of credit. For the six months ended June 30,
1998, cash used in operating activities was ($651,900), compared to $250,600 of
cash provided by operating activities for the same prior year period. The
Company's cash flow from operations has been negatively affected primarily by
the increase in accounts receivable and significant costs invested in building
the Company's corporate infrastructure, offset by an increase in the level of
accounts payable and accrued expenses.

         The Company's working capital was $2,015,100 at June 30, 1998, as
compared to $2,074,800 at December 31, 1997. The decrease in the Company's
working capital during the period is principally attributable to the Company
using the net proceeds received from assorted private placement transactions to
close the acquisitions of Solsource, HV Jones, OST and OBS. An additional
$1,700,000 was applied by the Company to support the operations and pay-off
short-term debt of Solsource, HV Jones and OST.

         During the second quarter of 1998, the Company secured financing from
Bank of America ("BofA") and Finova Capital Corporation ("Finova") totaling
$12.5 million. The Company received a $5 million line of credit from B of A for
working capital needs along with a $7.5 million inventory financing line from
Finova. As of June 30, 1998, there were no outstanding borrowings under any of
the facilities. As of the date of this Report, the Company had drawn
approximately $750,000 under the line of credit facility. The inventory
financing 



                                       16
<PAGE>   19
allows the Company to procure a greater volume of product while enhancing the
cash flow of the Company due to the extended terms provided by the facility. The
availability of the working capital facility provides additional resources to
expand current operations.

         The Company's line of credit with BofA contains customary financial
covenants requiring the maintenance of certain financial ratios. As of June 30,
1998, the Company was not in compliance with certain of its financial covenants
due primarily to the Company's acquisition strategy which caused it to increase
corporate infrastructure in anticipation of sales growth. As a result of its
growth strategy, management does not believe that the financial covenants are
accurate measures of the Company's financial health. Accordingly, management is
presently in negotiations with BofA in order to seek modifications to the loan
covenants which are more reflective of the Company's growth strategy. While
management is confident that these discussions will result in modified covenants
or appropriate waivers, there can be no assurances to that effect. If the
Company is unable to renegotiate the loan covenants, it may be caused to obtain
replacement financing, the availability of which cannot be assured. A disruption
in the availability of this, or a similar loan facility for more than the short
term, could adversely effect the Company's liquidity. This could have the effect
of reducing the scope of current operations and or delaying the Company's
acquisition program.

         Subject to the foregoing, the Company believes that its current working
capital, available financing and the anticipated cash flow from operations will
be adequate to fund operations for the near term. However, the Company has
commenced an aggressive acquisition strategy which is likely to require
additional financing in the near term. The Company intends to finance these
acquisitions primarily through the use of cash, funds from debt facilities, if
and when available, and shares of its Common Stock or other securities. In the
event that the Company's Common Stock does not attain or maintain a sufficient
market value or potential acquisition candidates are otherwise unwilling to
accept the Company's securities as part of the purchase price for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to continue its acquisition program. If the
Company does not have sufficient cash resources, through either operations or
from debt facilities, its growth could be limited unless it is able to obtain
such additional capital.

YEAR 2000 MATTERS

         The Company is presently attempting to respond to Year 2000 issues.
Year 2000 issues are the result of computer programs being written using two
digits rather than four to define the applicable year associated with the
program or an associated computation. Any of the Company's computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in normal
business activities. Management expects to have substantially all of the systems
application changes completed within the next twelve months and believes that
its level of preparedness is appropriate.

                                       17
<PAGE>   20
         The total cost to the Company of these Year 2000 compliance issues is
not anticipated to be material to its financial position or results of
operations in any given year. These costs and the date on which the Company
plans to complete the Year 2000 modification and testing processes are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
assurances that these estimates will be achieved and actual results could differ
from those plans.

IMPACT OF INFLATION

         The effects of inflation on the Company's operations were not
significant during the periods presented.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income ("SFAS 130"), which is effective for
financial statements for periods beginning after December 15, 1997 and
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. . The adoption of this statement on
January 1, 1998 had no impact on the Company's financial statement presentation
or related disclosures.


         In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosure about Segments of an Enterprise and Related Information ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997 and
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The Company operates in one business segment and does not believe
that SFAS 131 will require additional disclosures when adopted.

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which is effective for the Company in 2000. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The standard also provides specific
guidance for accounting for derivatives designated as hedging instruments. The
Company is currently evaluating what impact this standard will have on its
financial statements.


                                       18
<PAGE>   21
PART II.          OTHER INFORMATION

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS.

MODIFICATION OF INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS OF THE COMPANY'S
COMMON STOCK.

                  On June 12, 1998, the Company held its Annual Meeting of
Stockholders (the "Meeting"). At the Meeting, the Company's stockholders
approved a number of amendments to the Company's Restated Certificate of
Incorporation (the "Certificate") which affected the rights of the holders of
the Company's Common Stock.. The amendments are attached hereto as an exhibit
and the description set forth below is qualified in its entirety by reference to
such exhibit. These amendments consisted of the following:

                  1. Classified Board. The Certificate was amended to provide
for the classification of the Board of Directors of the Company into three
separate classes, each to serve for three-year terms with one class to be
elected at each annual meeting of Stockholders after 1998. The amendment also
provides that directors may only be removed for cause and by the affirmative
vote of two-thirds of the Company's stockholders entitled to vote thereon. Prior
to the adoption of this amendment, the Company's stockholders were entitled to
elect the entire Board of Directors at each annual stockholders' meeting and
could remove a director for any reason upon the affirmative vote of a majority
of the stockholders entitled to vote thereon. This amendment will have the
effect of making it more difficult for stockholders to remove directors from
office and will require two annual meetings in order for stockholders to elect a
majority of the Board of Directors thereby making it more difficult for holders
of the Company's Common Stock to affect the composition of the Company's Board
of Directors in the short term. For these reasons, this amendment could have
certain anti-takeover effects by deterring unsolicited takeover attempts.

                  2. Increase in the Authorized Shares. The Company's
Certificate was amended to increase the number of shares of preferred stock
available for issuance from 1,000 to 10,000,000 and the number of shares of
common stock available for issuance from 10,000,000 to 50,000,000. These
increases in the number of authorized shares could result in substantial
dilution to the Company's existing stockholders and to the extent it provides
the Board of Directors with the flexibility to use authorized but unissued
common and preferred shares to frustrate persons seeking to effect a takeover or
otherwise gain control of the Company, these amendments could have possible
anti-takeover effects.

                                       19
<PAGE>   22
                  3. Supermajority Voting Provision. The Company's Certificate
was also amended to require the affirmative vote of holders of two-thirds of the
Company's outstanding shares of capital stock entitled to vote thereon in order
to approve future amendments to the Company's Certificate unless the proposed
amendment was adopted by the affirmative vote of at least eighty percent (80%)
of the Board of Directors. Prior to this amendment, any and all amendments to
the Company's Certificate required the affirmative vote of a majority of the
outstanding shares of capital stock entitled to vote thereon. This amendment
will have the effect of making it more difficult for holders of the Company's
Common Stock to make further amendments to the Company's Certificate to affect
the management of the Company.

                  At the meeting of directors following the Meeting, the Board
of Directors of the Company adopted Amended and Restated By-laws. The Amended
and Restated Bylaws are attached hereto as an exhibit and the description set
forth below is qualified in its entirety by reference to such exhibit. The
following describes certain of these amendments which will affect the rights of
the holders of the Company's Common Stock:

                  1. Special Meeting of Stockholders. The Company's By-laws were
amended to provide that only the Board of Directors may call a special meeting
of stockholders. Previously, a majority of the stockholders had the right to
call a special stockholder meeting. This will have the effect of making it more
difficult for holders of the Company's Common Stock to affect the management of
the Company.

                  2. Advance Notice Provision. The Amended and Restated By-laws
require advance notice by stockholders with respect to any stockholder nominees
to the Board of Directors and any stockholder proposal to present any business
at any stockholder meeting. These provisions require that in order for
stockholders to present any business at any stockholder meeting or to nominate
any person to serve as a director of the Company, stockholders must deliver
written notice of such intent not less than fifty (50) nor more than
seventy-five (75) days prior to the meeting; provided, however, in the event
that less than sixty (60) days notice or prior public disclosure of the date of
the meeting is given, stockholders would then have ten (10) days from such date
to provide the required notice to the Company. In addition, stockholders must
also provide the Company with certain information regarding any nominees to the
Board including any and all information required to be disclosed in a
solicitation for proxies pursuant to the Securities Exchange Act of 1934, such
as the principal occupation or employment of such nominee and the number of
shares of capital stock of the Company owned by such nominee. This will have the
effect of making it more difficult for holders of the Company's Common Stock to
affect the management of the Company by nominating persons to serve on the
Company's Board of Directors or presenting business at any stockholder meeting.

CONVERSION OF SERIES B SHARES.

                  The Certificate of Designation of the Company's Series B
Convertible Preferred Stock (the "Series B Shares") provides that the holders of
the Series B Shares (the historic 



                                       20
<PAGE>   23
stockholders of Osage Computer Group, Inc.) are entitled to vote in the election
of directors by casting votes equal to the total number of shares of Common
Stock entitled to vote plus one. Accordingly, holders of the Series B Shares
were permitted to elect a majority of the Board of Directors. The holders of the
Series B Shares agreed to relinquish this right upon adoption of the amendment
to the Company's Certificate to provide for the classification of the Board of
Directors. In order to effectuate this agreement, the holders of the Series B
Shares have agreed to convert all such shares into shares of Common Stock which
has commenced and should be completed within the near future.

RECENT SALES OF UNREGISTERED SECURITIES.

         1. On April 24, 1998, the Company issued 333,334 shares of Common Stock
to Mr. O. Jack Anderson in connection with the acquisition of 100% of the
outstanding capital stock of Open System Technologies, Inc ("OST"). In
conjunction with the acquisition, the Company agreed to issue 50,000 shares of
Common Stock to an investment banking advisor to the Company in consideration
for services provided in identifying OST as a target company and advising the
Company in connection with the acquisition. The issuance of these securities was
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the "Act") and Rule 506 of Regulation D as an issuer transaction not
involving a public offering.

         2. In May 1998, the Company issued 700,000 shares of Common Stock at a
purchase price of $3.50 per share to the accredited investors identified below
in a private placement transaction exempt from registration pursuant to Section
4(2) of the Act and Rule 506 of Regulation D as an issuer transaction not
involving a public offering. In connection with this transaction, the Company
realized gross proceeds of $ 2,450,000 and paid a brokerage fee consisting of a
cash commission of $147,000.
<TABLE>
<CAPTION>
             Name                                   Shares of Common Stock
             ----                                   ----------------------
<S>                                                 <C>    
             Lancer Partners L.P. ..............         200,000
             Lancer Voyager Fund ...............         100,000
             Lancer Offshore Inc. ..............         400,000
                                                         -------
             TOTAL .............................         700,000
</TABLE>

         3. In May 1998, the Company issued 175,000 shares of Common Stock at a
purchase price of $4.25 per share to Will's Wei Corp., an accredited investor in
a private placement transaction exempt from registration pursuant to Section
4(2) of the Act and Rule 506 of Regulation D as an issuer transaction not
involving a public offering. In connection with this transaction, the Company
realized gross proceeds of $743,750 and paid a brokerage fee consisting of a
cash commission of $44,625 and warrants to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $4.25 per share for a term of
three years.

                                       21
<PAGE>   24
         4. In May 1998, the Company issued 235,294 shares of Common Stock and
warrants to purchase 100,000 shares of Common Stock at an exercise price of
$4.25 per share for a term of three years, for an aggregate purchase price of
$1,000,000 to Founders Partners IV LLC, an accredited investor, in a private
placement transaction exempt from registration pursuant to Section 4(2) of the
Act and Rule 506 of Regulation D as an issuer transaction not involving a public
offering. In connection with this transaction, a brokerage fee was paid
consisting of a cash commission of $20,000 and warrants to purchase 50,000
shares of the Company's Common Stock at an exercise price of $4.25 per share for
a term of three years.

         5. On June 12, 1998, the Company issued options to purchase 1,600,000
shares of its Common Stock (the "New Options") to the former shareholders of
Osage Computer Group, Inc. in exchange for the surrender by such shareholders of
options to purchase 800,000 shares of its Common Stock previously granted on
December 22, 1997 in connection with the Company's acquisition of Osage Computer
Group, Inc. The New Options are subject to an exercise price of $4.50 and expire
if not exercised by December 19, 2003. The New Options were not issued under the
Company's 1993 Amended and Restated Stock Option Plan (the "Plan"). The New
Options were granted to the following individuals in the following amounts:
<TABLE>
<CAPTION>
Name                                                        Number of Options
----                                                        -----------------
<S>                                                         <C>    
Jack R. Leadbeater                                               664,000
David S. Olson                                                   664,000
Steve Rigby                                                       80,000
Chris Donohue                                                     80,000
Dale Van deVrede Family Trust                                     80,000
Rick Gunther                                                      32,000
                                                            ------------
                                                               1,600,000
</TABLE>

         On June 12, 1998, the Company issued (also outside of the Plan) options
to purchase 635,000 shares of its Common Stock to the following individuals in
the following amounts:
<TABLE>
<CAPTION>
Name                                                        Number of Options
----                                                        -----------------
<S>                                                         <C>   
John Iorillo                                                      50,000
Phil Carter                                                      510,000
Michael Poncher                                                   75,000
                                                            ------------
                                                                 635,000
</TABLE>


         Mr. Iorillo's options are subject to an exercise price of $4.50 and
expire if not exercised by December 19, 2003. Messrs. Carter and Poncher's
options are subject to an exercise price of $4.50, may only be exercised to the
extent they remain employed by the Company for certain periods and expire if not
exercised by June 10, 2003.

                                       22
<PAGE>   25
         On June 12, 1998, the Company amended an option to purchase 100,000
shares of Common Stock granted to John Iorillo dated January 1, 1998. Pursuant
to the amendment, the option exercise price was reduced from $5.00 to $4.50 and
vesting conditions were eliminated.

         The grants of the various options identified above were exempt from
registration by virtue of Section 4(2) of the Act as an issuer transaction not
involving a public offering.

         6. On June 22, 1998, the Company issued 362,330 shares of Common Stock
in connection with the acquisition of 100% of the outstanding capital stock of
Open Business Systems, Inc. ("OBS"). The Company may have an obligation to issue
additional shares of Common Stock if certain performance criteria are met. In
connection with the acquisition, the Company agreed to issue 70,000 shares to an
investment banking advisor to the Company in consideration for services provided
in identifying OBS as a target company and advising the Company in connection
with the acquisition. The issuance of these securities was exempt from
registration pursuant to Section 4(2) of the Act and Rule 506 of Regulation D as
an issuer transaction not involving a public offering. The shares of the
Company's Common Stock were issued at the closing to the following shareholders
of OBS (the "OBS Shareholders"):

<TABLE>
<CAPTION>
Name                                                 Shares of Common Stock
----                                                 ----------------------
<S>                                                  <C>   
John Udelhofen                                                  45,291
E. Michael Durbin                                               45,291
David R. Durbin                                                 45,291
Brian Wolfe                                                     45,291
In escrow for the benefit of
the OBS Shareholders                                          181,166
                                                         ------------
                                                              362,330
</TABLE>

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

                  On June 12, 1998, the Company held the Meeting. At the
Meeting, Jack R. Leadbeater and David S. Olson were elected as directors of the
Company to serve until the 2001 Annual Meeting of Stockholders, John Iorillo was
elected as a director of the Company to serve until the 2000 Annual Meeting of
Stockholders and Andrew P. Panzo and Michael G. Glynn were elected as directors
of the Company to serve until the 1999 Annual Meeting of Stockholders. Holders
of the Company's Common Stock and Series B Preferred Stock voted together as a
single class with respect to the election of directors. The following table sets
forth the results of these elections:

<TABLE>
<CAPTION>
                            Common and Series B         Common and Series B
Director                      Shares Voted For            Shares Withheld
--------                      ----------------            ---------------
<S>                         <C>                          <C>
Jack R. Leadbeater                  4,143,341.5                  23
David S. Olson                      4,143,341.5                  23
</TABLE>

                                       23
<PAGE>   26
<TABLE>
<S>                         <C>                          <C>
John Iorillo                        4,143,341.5                  23
Andrew P. Panzo                     4,088,339                55,025.5
Michael G. Glynn                    4,066,336.5              77,028
</TABLE>


         At the Meeting, the holders of the Company's Common Stock and Series B
Preferred Stock voted as separate classes to approve each of the following
proposals:

         1. An amendment to the Company's Restated Certificate of Incorporation
to provide for the classification of the Company's Board of Directors into three
separate classes each to serve for three-year terms with one class to be elected
at each annual meeting of stockholders after 1998. At the Meeting, 4,143,075
shares of Common Stock and 47.5 shares of Series B Preferred Stock were voted
for, 221 shares of Common Stock and no shares of Series B Preferred Stock were
voted against and 21 shares of Common Stock and no shares of Series B Preferred
Stock abstained with respect to this proposal.

         2. An amendment to the Company's Restated Certificate of Incorporation
to require a supermajority vote of stockholders to approve amendments to the
Company's Certificate of Incorporation. At the Meeting, 4,140,694 shares of
Common Stock and 47.5 shares of Series B Preferred Stock were voted for, 2,603
shares of Common Stock and no shares of Series B Preferred Stock were voted
against and 20 shares of Common Stock and no shares of Series B Preferred Stock
abstained with respect to this proposal.

         3. An amendment to the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 10,000,000 to
50,000,000. At the Meeting, 4,142,976 shares of Common Stock and 47.5 shares of
Series B Preferred Stock were voted for, 312 shares of Common Stock and no
shares of Series B Preferred Stock were voted against and 29 shares of Common
Stock and no shares of Series B Preferred Stock abstained with respect to this
proposal.

         4. An amendment to the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of Preferred Stock from 1,000 to
10,000,000. At the Meeting, 4,142,991 shares of Common Stock and 47.5 shares of
Series B Preferred Stock were voted for, 289 shares of Common Stock and no
shares of Series B Preferred Stock were voted against and 37 shares of Common
Stock and no shares of Series B Preferred Stock abstained with respect to this
proposal.

         5. An amendment to the Company's 1993 Stock Option Plan (the "Plan") to
increase the number of shares available for issuance pursuant to option grants
under the Plan from 100,000 to 2,000,000. At the Meeting, 4,142,924 shares of
Common Stock and 47.5 shares of Series B Preferred Stock were voted for, 359
shares of Common Stock and no shares of Series B Preferred Stock were voted
against and 34 shares of Common Stock and no shares of Series B Preferred Stock
abstained with respect to this proposal.

                                       24
<PAGE>   27
         6. The ratification of Deloitte & Touche to serve as the Company's
independent auditors for the fiscal year ending December 31, 1998. At the
Meeting, 4,143,279 shares of Common Stock and 47.5 shares of Series B Preferred
Stock were voted for, 17 shares of Common Stock and no shares of Series B
Preferred Stock were voted against and 21 shares of Common Stock and no shares
of Series B Preferred Stock abstained with respect to this proposal.

ITEM 5.     OTHER INFORMATION.

         On March 31, 1998, the Company filed a registration statement
("Registration Statement") on Form SB-2 with the Securities and Exchange
Commission relating to the resale to the public by certain selling security
holders of 4,351,982 shares, subject to adjustment, of common stock, $.01 par
value per share. On June 10, 1998 the Registration Statement was declared
effective by the Securities and Exchange Commission.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

            (a)      Exhibits:
<TABLE>
<CAPTION>
EXHIBIT 
NUMBER
(REFERENCED TO 
ITEM 601 OF                DESCRIPTION                                           METHOD OF FILING
REG. S-B)


<S>           <C>                                                                <C>
3.9           Certificate of Amendment to the Certificate of                     Filed herewith
              Incorporation of Osage Systems Group, Inc. dated 
              June 12, 1998                         

3.10          Amended and Restated Bylaws dated June 12, 1998                    Filed herewith

9.2           Amendment to Voting Trust Agreement                                Filed herewith

10.1          Amended and Restated 1993 Stock Option Plan                        Filed herewith

10.23         Amendment to Employment Agreement of Jack R.                       Filed herewith
              Leadbeater
10.24         Amendment to Employment Agreement of David S. Olson                Filed herewith

10.25         Termination Benefits Agreement of Jack R.                          Filed herewith
              Leadbeater

10.26         Termination Benefits Agreement of David S. Olson                   Filed herewith
</TABLE>


                                       25
<PAGE>   28
<TABLE>

<S>           <C>                                                                <C>
10.27         Option to purchase 664,000 shares granted to Jack R.               Filed herewith
              Leadbeater dated June 12, 1998

10.28         Option to purchase 664,000 shares granted to David                 Filed herewith
              S. Olson dated June 12, 1998

10.29         Option to purchase 50,000 shares granted to John                   Filed herewith
              Iorillo dated June 12, 1998

10.30         Option to purchase 100,000 shares granted to John                  Filed herewith
              Iorillo dated January 1, 1998

10.31         Amendment to Option to purchase 100,000 shares                     Filed herewith
              granted to John Iorillo dated June 12, 1998

27            Financial Data Schedule                                            Filed herewith
</TABLE>


         (b)      Reports on Form 8-K:

                  (i) An Amendment to Form 8-K (Form 8-K/A) was filed with the
Securities and Exchange Commission on May 22, 1998 amending a previously filed
Form 8-K dated as of March 17, 1998 relative to the Company's acquisition of
Solsource Computers, Inc. and H.V. Jones, Inc. The Amendment contained the
historical "Financial Statements of Acquired Businesses" and "Pro Forma
Financial Information" required under Items 7(a) and 7(b) of Form 8-K.

                  (ii) An Amendment to Form 8-K (Form 8-K/A) was filed with the
Securities and Exchange Commission on June 8, 1998 amending a previously filed
Form 8-K dated as of April 24, 1998 relative to the Company's acquisition of
Open System Technologies, Inc. The Amendment contained the historical "Financial
Statements of Acquired Businesses" and "Pro Forma Financial Information"
required under Items 7(a) and 7(b) of Form 8-K.

                  (iii) A Report on Form 8-K was filed with the Securities and
Exchange Commission on July 7, 1998 relating to the Company's acquisition of
Open Business Systems, Inc. as of June 22, 1998. The Report omitted the
information required under Items 7(a) and 7(b) of Form 8-K which will be
provided by amendment in accordance with applicable Securities and Exchange
Commission rules.


                                       26
<PAGE>   29
                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.


OSAGE SYSTEMS GROUP, INC.


By:/s/ Jack R. Leadbeater                           Dated:  August 14, 1998
   ----------------------
     Jack R. Leadbeater
     Chairman of the Board and
     Chief Executive Officer

By:/s/ John Iorillo                                 Dated:  August 14, 1998
   ----------------
     John Iorillo
     Chief Financial Officer (Principal
     Financial and Accounting Officer)


                                       27
<PAGE>   30
                                  EXHIBIT INDEX


EXHIBIT NUMBER
(REFERENCED TO ITEM                 DESCRIPTION
601 OF REG. S-B)

3.9                  Certificate of Amendment to the Certificate of 
                     Incorporation of Osage Systems Group, Inc. 
                     dated June 12, 1998

3.10                 Amended and Restated Bylaws dated June 12, 1998

9.2                  Amendment to Voting Trust Agreement

10.1                 Amended and Restated 1993 Stock Option Plan

10.23                Amendment to Employment Agreement of Jack R. Leadbeater

10.24                Amendment to Employment Agreement of David S. Olson

10.25                Termination Benefits Agreement of Jack R. Leadbeater

10.26                Termination Benefits Agreement of David S. Olson

10.27                Option to purchase 664,000 shares granted to Jack R.
                     Leadbeater dated June 12, 1998

10.28                Option to purchase 664,000 shares granted to David 
                     S. Olson dated June 12, 1998

10.29                Option to purchase 50,000 shares granted to John 
                     Iorillo dated June 12, 1998

10.30                Option to purchase 100,000 shares granted to John 
                     Iorillo dated January 1, 1998

                                       28
<PAGE>   31
10.31                Amendment to Option to purchase 100,000 shares 
                     granted to John Iorillo dated June 12, 1998

27                   Financial Data Schedule


                                       29