<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 26, 1999

[ ]      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>
<CAPTION>
<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 5, 1999 was 9,648,680 shares.

Transitional Small Business Disclosure Format:

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

                                      INDEX

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

        Item 1.     Financial Statements

                    Condensed Consolidated Balance Sheets as of June 26, 1999 (unaudited)
                    and December 31, 1998                                                                      1

                    Unaudited Condensed Consolidated Statements of Operations for the Three and Six
                    Months ended June 26, 1999 and June 30, 1998                                               2

                    Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended
                    June 26, 1999 and June 30, 1998                                                            3

                    Notes to Unaudited Condensed Consolidated Financial Statements                           4 - 7

        Item 2.     Management's Discussion and Analysis or Plan of Operation                                8 - 21

PART II.            OTHER INFORMATION

        Item 4.     Submission of Matters to a Vote of Security Holders                                        22

        Item 5.     Other Information                                                                          23

        Item 6.     Exhibits and Reports on Form 8-K                                                           23
</TABLE>

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

ITEM 1.           FINANCIAL STATEMENTS

OSAGE SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                              JUNE 26, 1999
                                                                                               (UNAUDITED)       DECEMBER 31, 1998
<S>                                                                                           <C>                <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                                    $  2,705,507         $  3,151,572
  Accounts receivable - net of allowance for doubtful
    accounts of $125,000 in 1999 and $132,000 in 1998                                            18,927,907           14,077,862
  Inventories                                                                                       849,808              332,272
  Prepaid expenses and other current assets                                                         514,847              556,972
  Deferred income taxes                                                                             508,000              508,000
                                                                                               ------------         ------------

     Total current assets                                                                        23,506,069           18,626,678
                                                                                               ------------         ------------

FURNITURE AND EQUIPMENT - net                                                                     1,893,353            1,475,284

GOODWILL, less accumulated amortization of $896,146 in 1999 and $475,471
   in 1998                                                                                       16,847,350           15,462,427

DEFERRED INCOME TAXES                                                                             1,657,000            1,392,000

OTHER ASSETS                                                                                         60,007              204,876
                                                                                               ------------         ------------

TOTAL                                                                                          $ 43,963,779         $ 37,161,265
                                                                                               ============         ============


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Line of credit                                                                                                    $    750,000
  Current portion of long-term debt                                                            $    763,678            1,914,078
  Accounts payable                                                                               22,334,611           15,857,172
  Accrued expenses                                                                                2,270,617            2,141,795
  Deferred revenue                                                                                  228,250            1,185,382
  Income taxes payable                                                                                                    70,485
                                                                                               ------------         ------------

     Total current liabilities                                                                   25,597,156           21,918,912
                                                                                               ------------         ------------

LONG-TERM DEBT                                                                                      638,696              645,104

SERIES D CONVERTIBLE PREFERRED STOCK, ISSUED AND OUTSTANDING, 1,000
    SHARES IN 1999 AND 1998; TOTAL LIQUIDATION PREFERENCE, $1,000,000                               765,586              765,586

SERIES E CONVERTIBLE PREFERRED STOCK, ISSUED AND OUTSTANDING, 2,000
    SHARES IN 1999; TOTAL LIQUIDATION PREFERENCE, $2,000,000                                      1,709,174

STOCKHOLDERS'  EQUITY:
  Series A Preferred, $100 stated value - authorized, issued and outstanding, 10 shares
    in 1999 and 1998; total liquidation preference, $300,000                                          1,000                1,000
  Series C Preferred, $50 stated value - authorized, issued and outstanding, 25 shares
    in 1998; total liquidation preference, $375,000                                                                        1,250
  Common stock, $.01 par value - authorized, 50,000,000 shares; issued and outstanding,
    9,494,621 shares in 1999 and 9,511,058 in 1998                                                   94,946               95,111
  Additional paid-in-capital                                                                     19,691,608           17,434,279
  Retained earnings (deficit)                                                                    (4,534,387)          (3,699,977)
                                                                                               ------------         ------------

     Total stockholders' equity                                                                  15,253,167           13,831,663
                                                                                               ------------         ------------

TOTAL                                                                                          $ 43,963,779         $ 37,161,265
                                                                                               ============         ============
</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 26, 1999        JUNE 30, 1998        JUNE 26, 1999         JUNE 30, 1998
                                                     -------------        -------------        -------------         -------------
<S>                                                  <C>                  <C>                  <C>                  <C>
NET SALES                                             $ 26,619,766         $ 12,765,671         $ 53,711,839         $ 18,407,603

COST OF SALES                                           20,514,789           10,566,735           41,927,219           15,146,745
                                                      ------------         ------------         ------------         ------------

  Gross profit                                           6,104,977            2,198,936           11,784,620            3,260,858
                                                      ------------         ------------         ------------         ------------

OPERATING EXPENSES:
  Selling, general and administrative expenses           6,178,357            2,828,735           11,665,769            4,022,458
  Depreciation and amortization                            374,432              158,336              729,529              187,601
                                                      ------------         ------------         ------------         ------------
     Total operating expenses                            6,552,789            2,987,071           12,395,298            4,210,059
                                                      ------------         ------------         ------------         ------------

OPERATING LOSS                                            (447,812)            (788,135)            (610,678)            (949,201)

INTEREST - net                                            (218,530)              (9,446)            (382,065)              26,104
                                                      ------------         ------------         ------------         ------------

LOSS BEFORE BENEFIT FOR INCOME TAXES                      (666,342)            (797,581)            (992,743)            (923,097)

BENEFIT FOR INCOME TAXES                                  (205,000)            (285,000)            (265,000)            (324,000)
                                                      ------------         ------------         ------------         ------------

NET LOSS                                              $   (461,342)        $   (512,581)        $   (727,743)        $   (599,097)
                                                      ============         ============         ============         ============

LOSS PER COMMON SHARE -
  BASIC AND DILUTED                                   $      (0.05)        $      (0.07)        $      (0.08)        $      (0.10)
                                                      ============         ============         ============         ============

WEIGHTED AVERAGE SHARES OUTSTANDING                      9,488,406            6,907,509            9,493,697            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 26, 1999      JUNE 30, 1998
                                                                                      -------------      -------------
<S>                                                                                   <C>                <C>
OPERATING ACTIVITIES:
  Net loss                                                                            $  (727,743)        $  (599,097)
  Adjustments to reconcile net (loss) income to net cash (used in) provided by
    operating activities:
     Depreciation and amortization                                                        729,529             187,601
     Deferred income taxes                                                               (265,000)           (176,231)
     Noncash interest                                                                      32,877
     Stock-based compensation                                                                                 150,000
     Loss on disposal of assets                                                               470               1,500
  Changes in operating assets and liabilities:
    Accounts receivable                                                                (4,850,045)         (3,470,907)
    Inventories                                                                          (517,536)            (41,585)
    Prepaid expenses and other assets                                                      92,976             (57,401)
    Accounts payable                                                                    6,477,439           3,053,642
    Accrued expenses                                                                      322,155             514,666
    Deferred revenue                                                                     (957,132)            (11,080)
    Income taxes payable                                                                  (70,485)           (203,007)
                                                                                      -----------         -----------
       Net cash provided by (used in) operating activities                                267,505            (651,899)
                                                                                      -----------         -----------

INVESTING ACTIVITIES:
    Capital expenditures                                                                 (635,889)           (209,853)
    Acquisition costs, net of cash received of $185,227 in 1998                           (55,598)         (5,246,032)
                                                                                      -----------         -----------
       Net cash used in investing activities                                             (691,487)         (5,455,885)
                                                                                      -----------         -----------

FINANCING ACTIVITIES:
    Payments under line of credit agreement                                              (750,000)
    Payments on executive officers notes payable                                         (609,711)
    Principal payments on notes payable                                                  (579,977)         (1,033,868)
    Net proceeds from sale of common stock and preferred shares                         1,915,088           5,763,884
    Net increase in note receivable                                                         2,517              50,515
                                                                                      -----------         -----------
       Net cash (used in) provided by financing activities                                (22,083)          4,780,531
                                                                                      -----------         -----------

NET INCREASE (DECREASE) IN CASH                                                          (446,065)         (1,327,253)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                          3,151,572           2,576,323
                                                                                      -----------         -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                              $ 2,705,507         $ 1,249,070
                                                                                      ===========         ===========
</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 Computer"), Solsource Computers, Inc.
         ("Solsource"), H.V. Jones, Inc. ("HV Jones"), Open System Technologies,
         Inc. ("OST"), Open Business Systems, Inc. ("OBS"), Osage Systems Group
         Minnesota, Inc. and Osage Support Center, Inc. (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 condensed
         consolidated financial statements should be read in conjunction with
         the Company's audited Financial Statements for the fiscal years ended
         December 31, 1998 and 1997 and "Management's Discussion and Analysis or
         Plan of Operation" from the 1998 Annual Report on Form 10-KSB.

2.       Acquisitions.

         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.

                                       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 converted into 229,985 shares of common stock during
         the four quarters following the closing (commencing June 17, 1998) at a
         conversion rate of $6.87. In addition, the merger consideration
         included earn-out incentive shares to be issued if HV Jones achieves
         certain performance targets, of which 144,535 shares valued at
         $1,000,000 were issued in July 1999.

         On April 24, 1998, Osage completed the acquisition of 100% of the
         outstanding capital stock of OST for merger consideration of $5.26
         million; consisting of $2.76 million in cash, $2.0 million 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, of which $500,000 was earned
         subsequent to June 26, 1999.

         On October 8, 1998, Osage acquired Electronic Commerce Network
         Solutions Corporation ("E-Comm") pursuant to the terms of an Agreement
         and Plan of Merger. Upon closing, through a wholly-owned subsidiary,
         Osage acquired 100% of the outstanding stock of E-Comm for merger
         consideration of $1,250,000; consisting of $232,500 in cash, $930,000
         in newly issued common shares priced at $6.21 per share and $87,500 in
         a key employee retention program. In addition, the merger consideration
         included earn-out incentive shares to be issued if E-Comm achieves
         certain performance targets, of which $250,000 was earned
         subsequent to June 26, 1999.

         On October 15, 1998, Osage completed the acquisition of the systems
         integration business of IntraNet Solutions, Inc. ("IntraNet") for
         merger consideration of $1,600,000; consisting of $715,000 in cash,
         $785,000 in the form of a promissory note and $100,000 in a key
         employee retention program. As of June 26, 1999, the $785,000
         promissory note has been paid. In addition, the merger consideration
         included earn-out incentive shares to be issued based upon
         predetermined financial criteria.

         The Solsource, HV Jones, OST, OBS, E-Comm and the systems integration
         business of IntraNet 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, OBS, E-Comm and the systems integration business of

                                       5
<PAGE>   8
         IntraNet have been included in the Company's statements 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 1998
         had occurred as of January 1, 1998, and do not purport to represent the
         results of operations that would have actually resulted had the
         purchases occurred on the indicated dates, nor should it be taken as
         indicative of future results of operations. The pro forma summary data
         for the six months ended June 26, 1999 and June 30, 1998 combines
         historical financial information of Osage, Osage Computer, Solsource,
         HV Jones, OST, OBS, E-Comm and the systems integration business of
         IntraNet for the six months ended June 26, 1999 and June 30, 1998.

                      INFORMATION FOR THE SIX MONTHS ENDED

<TABLE>
<CAPTION>
                                                  JUNE 26,                  JUNE 30,
                                                    1999                      1998
                                                (AS REPORTED)              (PRO FORMA)
<S>                                             <C>                        <C>
         Net Sales                              $ 53,711,839               $ 36,066,470
         Net loss                               $   (727,743)              $ (1,096,481)
         Net (loss) per share:
            basic and diluted                   $      (0.08)              $      (0.12)
</TABLE>

4.       Earnings Per Share.

         The Company has adopted Statement of Financial Accounting Standards
         ("SFAS") No. 128, Earnings per Share.

         Net income (loss) per common share is computed by dividing net income
         (loss) by the weighted average number of common shares outstanding
         during the year 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 months ended June 26, 1999 and
         June 30, 1998, the effects of the potential dilutive securities are not
         included in the calculations.

5.       New Accounting Pronouncements.

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
         SFAS No. 133, Accounting for Derivative Instruments and Hedging
         Activities, effective for transactions entered into in fiscal quarters
         of fiscal years that begin after June 15, 1999. This statement
         establishes standards for the accounting and reporting for derivative
         instruments and for hedging activities. In June 1999, the effective
         date of SFAS 133 was

                                       6
<PAGE>   9
         deferred until June 15, 2000 by the FASB. The future effect on the
         Company's financial position and the results of operations has not been
         determined.

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 26, 1999 is comprised of the
         following:

<TABLE>
<CAPTION>
<S>                                                                     <C>
         Use of cash basis of accounting for income tax purposes        $    51,000
         Allowance for doubtful accounts                                     51,000
         Compensation                                                       350,000
         Other                                                               56,000
                                                                        -----------

         Net current asset                                              $   508,000
                                                                        ===========


         Net operating loss carryforwards                               $ 2,071,000
         Goodwill                                                           (41,000)
         Property                                                           (10,000)
         Valuation allowance on net loss carryforwards                     (363,000)
                                                                        -----------

         Net noncurrent asset                                           $ 1,657,000
                                                                        ===========
</TABLE>

                                       7
<PAGE>   10
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) 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; (iv) 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; (v) 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; (vi) the Company's
dependence on certain large customers and suppliers; (vii) the Company's
dependence on certain key personnel; (viii) the competitive market for technical
personnel; and (ix) 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.

OVERVIEW

Osage Systems Group, Inc. (the "Company") is a multi-regional provider of
network computing solutions through its twelve (12) offices located in nine (9)
states. The Company provides these solutions by deploying a life-cycle
methodology which addresses all phases of a customer's information technology
needs. This includes business needs analysis, systems architecture design,
systems implementation and ongoing systems management support. Solutions are
developed and delivered by the Company's technical consultants, who are skilled
in specialized practice areas such as enterprise infrastructure, enterprise
resource planning, electronic commerce, java application development, web
solutions, electronic publishing and network support services. The Company's
solutions integrate products that feature state of the art

                                       8
<PAGE>   11
technology from industry-leading vendors of information technology products,
such as Sun Microsystems, Inc., Cisco Systems, Inc., Oracle Corporation,
Netscape Communications Corporation, Hewlett Packard Company, Microsoft, Fore
Systems, Inc., Lawson Software, Check Point Software Technologies, Ltd., Inktomi
Corporation and Veritas Software Corporation.

The Company's objective is to be recognized as one of the leading solution
providers of networking and internet computing needs. It intends to fulfill this
objective by, among other things, continuing its growth strategy and shifting
the focus of its product and service offerings to the development of specialized
practice areas.

The Company was originally incorporated as "Pacific Rim Entertainment, Inc."
under the laws of Delaware in 1992. From 1992 through 1996, the Company had been
engaged principally in the animated film production business. After several
years of losses following its initial public offering in 1993, the Company
suspended its business operations in 1996 and remained inactive while it sought
to identify a strategic business combination with a private operating company.
The Company acquired, and thereafter, assumed the historic business of Osage
Computer Group, Inc. in a merger transaction (the "Merger") that became
effective on December 22, 1997. Osage Computer Group, Inc. had been a provider
of network computing solutions since 1989.

                                       9
<PAGE>   12
RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 26, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

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

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED
                                                                JUNE 26, 1999                       JUNE 30, 1998
                                                                              % OF                                 % OF
                                                         AMOUNT            NET SALES          AMOUNT             NET SALES
                                                         ------            ---------          ------             ---------
<S>                                                   <C>                  <C>              <C>                  <C>
NET SALES                                             $ 26,619,766           100.0%         $ 12,765,671           100.0%
COST OF SALES                                           20,514,789            77.1%           10,566,735            82.8%
                                                      ------------           -----          ------------           -----
   Gross profit                                          6,104,977            22.9%            2,198,936            17.2%
                                                      ------------           -----          ------------           -----

OPERATING EXPENSES:
  Selling, general and administrative expenses           6,178,357            23.2%            2,828,735            22.2%
  Depreciation and amortization                            374,432             1.4%              158,336             1.2%
                                                      ------------           -----          ------------           -----
    Total operating expenses                             6,552,789            24.6%            2,987,071            23.4%
                                                      ------------           -----          ------------           -----

LOSS FROM OPERATIONS                                      (447,812)          -1.7%              (788,135)          -6.2%

INTEREST - NET                                            (218,530)          -0.8%                (9,446)            0.0%
                                                      ------------           -----          ------------           -----

LOSS BEFORE BENEFIT FOR INCOME TAXES                      (666,342)          -2.5%              (797,581)          -6.2%

BENEFIT FOR INCOME TAXES                                  (205,000)          -0.8%              (285,000)          -2.2%
                                                      ------------           -----          ------------           -----

NET LOSS                                              $   (461,342)          -1.7%          $   (512,581)          -4.0%
                                                      ============         =======          ============           =====

NET LOSS PER SHARE:
 Basic and Diluted                                    $      (0.05)                         $      (0.07)
                                                      ============                          ============
</TABLE>

Revenues. Net sales increased by 109%, or $13.8 million, to $26.6 million for
the three months ended June 26, 1999 as compared to $12.8 million for the same
prior year period. This increase in net sales was principally attributable to
increased product, service and consulting revenues delivered to new customers,
leveraging existing customer alliances by undertaking additional projects for
existing customers, as well as cross-selling the Company's skill set across the
United States. This was due, in large part, to the Company's aggressive
acquisition and growth strategy implemented during 1998 coupled with the strong
demand for information technology products and services in the marketplace.
During 1998, the Company completed the acquisitions of Solsource, HV Jones, OST,
OBS, E-Comm and the systems integration business of IntraNet and

                                       10
<PAGE>   13
opened branch offices in San Antonio, Texas, Washington D.C. and New York, New
York. During the first quarter of 1999, the Company opened a branch office in
Tucson, Arizona.

Consulting revenues increased 481% to $4.0 million for the three months ended
June 26, 1999, as compared to $682,700 for the 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 and through its aggressive growth strategy. In
addition, the Company is in the process of packaging many of its solutions
and focusing on several e-business initiatives which should have a favorable
impact on its consulting revenues.

Gross Profit. The Company's cost of sales consists primarily of the cost to the
Company of products acquired for resale. The Company's gross profit increased by
178% or $3.9 million to $6.1 million for the three months ended June 26, 1999 as
compared to $2.2 million for the prior year period. Gross profit margin
increased to approximately 22.9% during the three months ended June 26, 1999, as
compared to approximately 17.2% experienced during the prior year period. During
early 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. During the latter half of 1998 and continuing into 1999,
the Company experienced increased gross profit margins as a result of increased
margins from certain acquisitions made during 1998, the delivery of packaged
services which generally generate higher margins and the ability of the Company
to deliver complete information technology solutions to a wider range of
customers. Management believes that in the long term it will be able to sustain
its profit margin as a result of its focus on providing a broad spectrum of
products, services and support packages, through a greater emphasis on
professional consulting and support services and through several e-business
initiatives which typically have a higher profit margin.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of salaries, sales person
compensation, employee benefits, travel, promotion and related marketing costs.
Selling, general and administrative expenses increased by 118%, or $3.4 million,
to $6.2 million for the three months ended June 26, 1999 as compared to $2.8
million for the prior year. This increase in expenses is primarily attributable
to the expansion of the Company's infrastructure as it became publicly-held by
virtue of the Merger transaction during the fourth quarter of 1997, including
increased administrative personnel and increased travel and promotion expenses
associated with the growth of the business. The Company has incurred significant
costs to automate its internal processes including computer hardware and
software to support the Company's expanding operations and for an internal
financial application system, sales force automation and quoting tool for the
purpose of improving operating efficiencies and integrating the companies
acquired during 1998.

                                       11
<PAGE>   14
In addition, competition for personnel with information technology skills is
intense and the Company expects compensation to continue to increase. During
1998, the Company encountered significant recruiting costs to support the
Company's continued growth and geographic expansion and expects such costs to
continue into the latter half of 1999 and into 2000. Corresponding increases in
legal and accounting fees were also incurred by the Company in connection with
its financing and acquisition activities. This increase is likely to be offset
in the near-term as the Company's revenues increase and the Company continues
its acquisition and growth strategy. As a percent of net sales, selling, general
and administrative expenses during the three months ended June 26, 1999
increased from 22.2% experienced during the same prior year period to 23.2%.

Depreciation and Amortization. Depreciation and amortization of $374,400 for the
three months ended June 26, 1999 reflected an increase of 136%, or $216,100, 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 1998. At present levels, amortization
expense of approximately $890,000 is expected for each of the next 20 years.

Income Taxes. The Company's effective tax rate benefit for the three months
ended June 26, 1999 was 30.8% which is primarily attributable to the net
operating loss carryforward generated during the year offset by nondeductible
goodwill.

Net Income (Loss). During the three months ended June 26, 1999, the Company
incurred a net loss of $666,300 as compared to a net loss of $512,600 for the
same prior year period. The net loss for the current period, however, includes
$374,400 of non-cash charges relating to depreciation and amortization resulting
from the Company's acquisition program. 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 and the expansion of the
Company's business through the opening of branch offices in New York, New York
and Tucson, Arizona. Management anticipates that as greater operating
efficiencies are achieved and these other non-recurring factors are addressed,
the Company's operating losses will be reduced. Management expects that future
profitability is likely to depend upon a combination of several factors. First,
the continued growth of its business through acquisitions. Second, the
management of this growth through the integration of the businesses acquired.
Third, the continued expansion of the Company's higher margin service business
and the implementation of several e-business initiatives.

                                       12
<PAGE>   15
SIX MONTHS ENDED JUNE 26, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

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

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS ENDED
                                                                    JUNE 26, 1999                   JUNE 30, 1998
                                                                                 % OF                               % OF
                                                                AMOUNT         NET SALES          AMOUNT          NET SALES
                                                                ------         ---------          ------          ---------
<S>                                                         <C>                <C>             <C>                <C>
NET SALES                                                   $ 53,711,839         100.0%        $ 18,407,603         100.0%
COST OF SALES                                                 41,927,219          78.1%          15,146,745          82.3%
                                                            ------------         -----         ------------         -----
   Gross profit                                               11,784,620          21.9%           3,260,858          17.7%
                                                            ------------         -----         ------------         -----

OPERATING EXPENSES:
  Selling, general and administrative expenses                11,665,769          21.7%           4,022,458          21.9%
  Depreciation and amortization                                  729,529           1.4%             187,601           1.0%
                                                            ------------         -----         ------------         -----
    Total operating expenses                                  12,395,298          23.1%           4,210,059          22.9%
                                                            ------------         -----         ------------         -----

LOSS FROM OPERATIONS                                            (610,678)         -1.2%            (949,201)         -5.2%

INTEREST - NET                                                  (382,065)         -0.7%              26,104           0.1%
                                                            ------------         -----         ------------         -----

LOSS BEFORE BENEFIT FOR INCOME TAXES                            (992,743)         -1.9%            (923,097)         -5.1%

BENEFIT FOR INCOME TAXES                                        (265,000)         -0.5%            (324,000)         -1.8%
                                                            ------------         -----         ------------         -----

NET LOSS                                                    $   (727,743)         -1.4%        $   (599,097)         -3.3%
                                                            ============         =====         ============         =====

NET LOSS PER SHARE:
 Basic and Diluted                                          $      (0.08)                      $      (0.10)
                                                            ============                       ============
</TABLE>

Revenues. Net sales increased by 192%, or $35.3 million, to $53.7 million for
the six months ended June 26, 1999 as compared to $18.4 million for the same
prior year period. This increase in net sales was principally attributable to
increased product, service and consulting revenues delivered to new customers,
leveraging existing customer alliances by undertaking additional projects for
existing customers, as well as cross-selling the Company's skill set across the
United States. This was due, in large part, to the Company's aggressive
acquisition and growth strategy implemented during 1998 coupled with the strong
demand for information technology products and services in the marketplace.
During 1998, the Company completed the acquisitions of Solsource, HV Jones, OST,
OBS, E-Comm and the systems integration business of IntraNet and opened branch
offices in San Antonio, Texas, Washington D.C. and New York, New York. During
the first quarter of 1999, the Company opened a branch office in Tucson,
Arizona.

                                       13
<PAGE>   16
Consulting revenues increased 808% to $7.2 million for the six months ended June
26, 1999, as compared to $797,100 for the 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 and through its aggressive growth strategy. In
addition, the Company is in the process of packaging many of its solutions
and focusing on several e-business initiatives which should have a favorable
impact on its consulting revenues.

The Company's net sales are expected to increase during 1999 and into 2000 as
the Company further implements its acquisition and growth strategy.

The Company's acquisition strategy relies primarily upon identifying target
companies that fit within the Company's acquisition criteria and securing
financing sufficient to complete planned acquisitions. Although the Company
believes sufficient financing will become available to complete proposed
acquisitions, there can be no assurances to this effect. Presently, the
Company's available financing is being utilized primarily in operations.
Financing sufficient to maintain an aggressive acquisition program will likely
not be available until new or increased sources of financing are made available.
Furthermore, 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.

Gross Profit. The Company's cost of sales consists primarily of the cost to the
Company of products acquired for resale. The Company's gross profit increased by
261% or $8.5 million to $11.8 million for the six months ended June 26, 1999 as
compared to $3.3 million for the prior year period. Gross profit margin
increased to approximately 21.9% during the six months ended June 26, 1999, as
compared to approximately 17.7% experienced during the prior year period. During
early 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. During the latter half of 1998 and continuing into 1999,
the Company experienced increased gross profit margins as a result of increased
margins from certain acquisitions made during 1998, the delivery of packaged
services which generally generate higher margins and the ability of the Company
to deliver complete information technology solutions to a wider range of
customers. Management believes that in the long term it will be able to sustain
its profit margin as a result of its focus on providing a broad spectrum of
products, services and support packages, through a greater emphasis on
professional consulting and support services and through several e-business
initiatives which typically have a higher profit margin.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of salaries, sales person
compensation, employee benefits, travel, promotion and related marketing costs.
Selling, general and administrative expenses increased by 190%, or $7.7 million,
to $11.7 million for the six months ended June 26, 1999 as compared to $4.0
million for the prior year. This increase in expenses is primarily attributable
to the expansion of the Company's infrastructure as it became publicly-held by
virtue of the Merger transaction

                                       14
<PAGE>   17
during the fourth quarter of 1997, including increased administrative personnel
and increased travel and promotion expenses associated with the growth of the
business. The Company has incurred significant costs to automate its internal
processes including computer hardware and software to support the Company's
expanding operations and for an internal financial application system, sales
force automation and quoting tool for the purpose of improving operating
efficiencies and integrating the companies acquired during 1998. In addition,
competition for personnel with information technology skills is intense and the
Company expects compensation to continue to increase. During 1998, the Company
incurred significant recruiting costs to support the Company's continued growth
and geographic expansion and expects such costs to continue into the latter half
of 1999 and into 2000. Corresponding increases in legal and accounting fees were
also incurred by the Company in connection with its financing and acquisition
activities. In addition, the Company instituted a cost containment program in
December 1998 whereby synergies of a larger organization were initiated through
the removal of duplication of efforts, consolidation of systems and
administrative functions and the adoption of business processes. This cost
containment program has been offset by costs associated with expanding the
business and other integration issues. As a percent of net sales, selling,
general and administrative expenses during the six months ended June 26, 1999
decreased from 21.9% experienced during the same prior year period to 21.7%.

Depreciation and Amortization. Depreciation and amortization of $729,500 for the
six months ended June 26, 1999 reflected an increase of 289%, or $541,900, 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 1998. At present levels, amortization
expense of approximately $890,000 is expected for each of the next 20 years.

Income Taxes. The Company's effective tax rate benefit for the six months ended
June 26, 1999 was 26.7% which is primarily attributable to the net operating
loss carryforward generated during the year offset by nondeductible goodwill.

Net Income (Loss). During the six months ended June 26, 1999, the Company
incurred a net loss of $932,700 as compared to a net loss of $599,100 for the
same prior year period. The net loss for the current period, however, includes
$729,500 of non-cash charges relating to depreciation and amortization resulting
from the Company's acquisition program. 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 and the expansion of the
Company's business through the opening of branch offices in New York, New York
and Tucson, Arizona. Management anticipates that as greater operating
efficiencies are achieved and these other non-recurring factors are addressed,
the Company's operating losses will be reduced. Management expects that future
profitability is likely to depend upon a combination of several factors. First,
the continued growth of its business through acquisitions. Second, the
management of this growth through the integration of the businesses acquired.
Third, the continued expansion of the Company's higher margin service business
and the implementation of several e-business initiatives.

                                       15
<PAGE>   18
ACQUISITION STRATEGY

The Company believes there are many attractive acquisition candidates in its
industry because of the highly fragmented composition of the marketplace, the
industry participants' need for capital and their owners' desire for liquidity.
The Company is pursuing an aggressive acquisition program to consolidate and
enhance its position in its current market and to acquire operations in new
markets.

Initially, the Company intends to expand its business through selective,
strategic acquisitions of other companies with complementary businesses in a
revenue range of $5 million to $15 million per annum. Management believes that
companies in this range of revenues may be receptive to the Company's
acquisition program as often they are too small to be identified as acquisition
targets of larger public companies or to independently attempt their own public
offerings. In particular, the Company intends to focus its acquisition strategy
on candidates which have a strong relationship with key technology vendors, a
proven record of delivering high-quality network computing solutions and a
customer base of large and mid-sized companies.

The Company believes it can successfully implement its acquisition strategy due
to: (i) the highly fragmented composition of the market; (ii) its strategy for
creating a national company, which should enhance the acquired company's ability
to compete in its local and regional market through an expansion of offered
services and lower operating costs; (iii) the additional capital that management
anticipates will become available for internal growth; (iv) the potential for
increased profitability as a result of the Company's centralization of certain
administrative functions, greater purchasing power, and economies of scale; (v)
the Company's status as a public corporation; (vi) a decentralized management
strategy, which should, in most cases, enable the acquired company's management
to remain involved in the operation of the Company; and (vii) the ability to
utilize its experienced management in identifying acquisition opportunities.

The Company intends, where possible, to make a platform acquisition in a
targeted market by acquiring an established, high quality local company.
Management defines a "platform acquisition" as one that creates a significant
presence for the Company in a new geographic market. The Company will likely
retain the management as well as the operating, sales and technical personnel of
a platform acquisition to maintain continuity of operations and customer
service. The Company will seek to increase an acquired company's revenues and
improve its profitability by implementing the Company's operating strategies for
internal growth.

A "tuck-in" acquisition on the other hand will more likely occur in an existing
market, will be smaller than a platform acquisition and will enable the Company
to offer additional services or expand into secondary markets within the region
already served. When justified by the size and business line of an existing
market acquisition, the Company expects to retain the management, along with the
operating, sales and technical personnel of the acquired company while seeking
to improve that company's profitability by implementing the Company's operating
strategies. The Company also contemplates effecting tuck-in acquisitions of
small companies or individual systems integration operations in existing
markets. In most instances, operations acquired by

                                       16
<PAGE>   19
tuck-in acquisition can be integrated into the Company's existing operations in
that market, resulting in the elimination of duplicate overhead and operating
costs.

Since the beginning of 1998, the Company has executed its acquisition strategy
through the acquisition of Solsource (March 17, 1998), HV Jones (March 17,
1998), OST (April 24, 1998), OBS (June 22, 1998), E-Comm (October 8, 1998) and
the systems integration business of IntraNet (October 15, 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.

Through its internal and acquisition growth, the Company expanded its operations
from Phoenix, Arizona to San Diego, California, Houston, Texas, Austin, Texas,
San Antonio, Texas, Ft. Lauderdale, Florida, Chicago, Illinois, Minneapolis,
Minnesota, Madison, Wisconsin, Washington, D.C., New York, New York and Tucson,
Arizona.

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 credit facility. For the six months ended June 26, 1999,
cash flow from operations was $267,500 as compared to cash used in operating
activities of ($651,900) during the same prior year period. The Company's cash
flow from operations has been positively affected by the extended terms granted
by the Company's major distributor offset by increases in accounts receivable
and inventories and a decrease in deferred revenue.

                                       17
<PAGE>   20
The Company's working capital deficit was $2.1 million at June 26, 1999, as
compared to a deficit of $3.3 million at December 31, 1998. The favorable impact
on the Company's working capital deficit is principally attributable to improved
operating results during 1999 as compared to the operating results experienced
during the fourth quarter of 1998, coupled with the receipt of proceeds from the
sale of preferred shares during the first quarter of 1999.

Capital expenditures, which totaled $635,900 during the six month period ended
June 26, 1999, were principally for computer hardware and software to support
the Company's expanding operations and for an internal financial application
system for the purpose of improving operating efficiencies and integrating the
companies acquired during 1998.

Cash flow from financing activities during the six-month period ended June 26,
1999 was favorably impacted by the $1.9 million of net proceeds received from
the sale of preferred shares offset by $1.9 million of debt repayments.

The Company has a $13 million credit facility with Finova Capital Corporation
that consists of both a revolving line of credit and an inventory line.
Borrowings under the revolving line of credit cannot exceed $10.5 million at any
one time and bear interest at prime (7.75% at June 26, 1999) plus three percent.
Amounts outstanding under the inventory line which are paid within sixty days of
invoice date do not bear interest. Interest is payable monthly on amounts
outstanding over sixty days under the inventory line at prime (7.75% at June 26,
1999) plus six percent. There were no outstanding borrowings under the revolving
line of credit at June 26, 1999. Amounts outstanding under the inventory line
were $11,982,748 at June 26, 1999.

As its operations continue to expand, additional financing will be required to
support the continued growth of the Company. The inability to secure such
financing may have an adverse effect on the operations of the Company.
Principally all of the Company's currently available cash from operations and
financing is being utilized to help support the Company's operations. The
Company will need to secure additional financing in the near term in order to
continue the acquisition and growth strategy implemented during 1998. Since its
future profitability is likely dependent upon the continuation of the Company's
acquisition and growth strategy, failure to secure new or increased sources of
financing would not only delay the Company's growth program, but could also have
an adverse effect on the Company's ability to achieve profitable operations.

YEAR 2000 READINESS

The Company has developed a Year 2000 readiness plan to help it identify and
resolve Year 2000 issues associated with the Company's internal systems and the
products and services provided by the Company. The plan includes development of
corporate awareness, assessment, implementation (including remediation and
upgrading of certain systems), validation testing and contingency planning.

The Company has completed the assessment phase of its plan, reviewing internal
non-IT systems (such as building security, voice mail, telephone and other
systems containing embedded

                                       18
<PAGE>   21
microprocessors). As it relates to these systems, the Company is currently in
the process of installing upgrades and patches recommended by the third party
vendors to make such systems and equipment Year 2000 ready.

The Company's material internal IT systems consist principally of financial,
accounting, project management and human resources application software created
by third parties. The Company has also completed the assessment phase of its
plan with respect to these systems. The Company believes that, based on oral
statements made by manufacturers and/or statements published on manufacturers'
web sites, that most of these systems are Year 2000 ready. With respect to the
systems that are not currently Year 2000 ready, at the manufacturers'
recommendations, the Company is installing patches and upgrades. For example,
the Company recently installed patches in its versions of the Windows 95 and
Windows NT operating systems in order for those operating systems to become Year
2000 ready. The manufacturers of the Company's computer hardware platforms,
principally servers, have indicated that the versions currently used by the
Company are Year 2000 ready.

The Company believes that a majority of the costs associated with becoming Year
2000 compliant are not incremental to the Company, but rather represent a
reallocation of existing resources and regularly scheduled system upgrades and
maintenance. In addition, regardless of the Year 2000 problem, the Company is
currently undergoing an internal financial application system upgrade and
implementation for the purpose of improving operating efficiencies and
integrating companies acquired during 1998. The Company estimates that the costs
of its Year 2000 efforts will be approximately $1.5 million. This estimate does
not include potential expenditures related to customers or other claims. The
Company currently anticipates the aforementioned evaluation and remediation of
its systems to be completed by September 1999. The Company anticipates that it
will complete the stage of its Year 2000 program involving installation of
patches and upgrades to its third party software and hardware by September 1999.
However, if compliance efforts are not completed on time, or additional
compliance efforts are required of which the Company is not currently aware, or
the cost of any required updating or modification of our IT systems exceeds the
Company's estimates, the Year 2000 issue could have a material adverse effect on
the Company's business, results of operations and financial condition.

The Company has not yet developed a comprehensive contingency plan to address
the situations that may result if it is unable to achieve Year 2000 readiness of
the Company's major IT and non-IT systems. The Company intends to devise
contingency plans by September 1999 designed to mitigate the effects on the
conduct of the Company's business in the event the Year 2000 issue results in
the unavailability of any material IT or non-IT systems. There can be no
assurance that any contingency plans developed by the Company will prevent any
such service interruption or a material adverse effect on the Company.

In addition to the Company's internal systems, the Company relies on third party
relationships in the conduct of its business. For example, the Company relies on
the services of the landlords of its facilities, telecommunication companies,
banks, utilities, and commercial airlines. The Company is currently attempting
to receive assurances from its landlords and material vendors

                                       19
<PAGE>   22
regarding their Year 2000 readiness, and to the extent such assurances are not
given, the Company intends to devise contingency plans designed to alleviate the
negative effects on the Company in the event the Year 2000 issue results in the
unavailability of these services or systems. There can be no assurance that any
contingency plans developed by the Company will prevent any such service
interruption on the part of one or more of the Company's third party vendors or
suppliers from having a material adverse effect on the Company's business,
results of operations or financial condition. In addition, the failure on the
part of the accounting systems of the Company's clients due to the Year 2000
issue could result in a delay in the payment of invoices issued by the Company
for services and expenses. A failure of the accounting systems of a significant
number of the Company's clients would have a material adverse effect on the
Company's business, results of operations and financial condition.

The Company's business involves designing, developing and implementing mission
critical hardware and software applications for its clients. In addition, the
Company has recommended, implemented and customized various third-party hardware
and software packages for its clients, certain of which may not be Year 2000
ready. Former, present and future clients may assert that certain services
performed or products sold or recommended by the Company are not Year 2000
ready. Because the Company has designed, developed and implemented hardware,
software and systems for a large number of clients since 1991, there can be no
way of assuring that all such software programs and systems will be Year 2000
ready. This uncertainty is magnified by the fact that in many cases the
Company's clients retain the right to maintain, alter and modify the systems
developed and implemented by the Company after the completion of an engagement.
Due to the potential significant impact of the Year 2000 issue on the operations
of the Company's clients, the Company may be faced with claims regardless of
whether the failure relates to services provided by the Company. If asserted,
such claims (and the associated defense costs) could have a material adverse
effect on the Company's business, results of operations and financial condition.

The Company's policy has been to attempt to include provisions in its client
contracts that, among other things, disclaim implied warranties, limit the
duration of express warranties, limit the Company's total dollar liability to an
amount specified in the contract, disclaim consequential or other such damages
and disclaim any liability arising from third-party software that is
implemented, customized or installed by the Company. There can be no assurance
that the Company will be able to obtain these contractual protections in
agreements concerning future projects, or that any contractual provisions
governing current and completed projects will prevent clients from asserting
claims against the Company with respect to the Year 2000 issue. There also can
be no assurance that the contractual protections, if any, obtained by the
Company will effectively operate to protect the Company from, or limit the
amount of, any liability arising from claims asserted against the Company.

The foregoing discussion of the Company's Year 2000 readiness contains forward
looking statements, including estimates of the timeframes and costs for
addressing the known Year 2000 issues confronting the Company, and is based on
management's current estimates, which were derived using numerous assumptions.
There can be no assurance that these estimates will prove accurate and actual
events and results could differ materially from those anticipated. Specific

                                       20
<PAGE>   23
factors that might cause such material differences include, but are not limited
to, the ability of the Company to identify and correct all Year 2000 problems
and the success of third parties with whom the Company does business in
addressing their Year 2000 issues.

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 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for transactions entered into in
fiscal quarters of fiscal years that begin after June 15, 1999. This statement
establishes standards for the accounting and reporting for derivative
instruments and for hedging activities. In June 1999, the effective date of SFAS
133 was deferred until June 15, 2000 by the FASB. The future effect on the
Company's financial position and the results of operations has not been
determined.

                                       21
<PAGE>   24
PART II.          OTHER INFORMATION

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

On June 9, 1999, the Company held its Annual Meeting. At the Annual Meeting,
George Knight and Mark H. Weiss were elected as directors of the Company to
serve until the 2002 Annual Meeting of the Stockholders.

At the Annual Meeting, the holders of the Company's Common Stock voted to
approve each of the following proposals.

         1. An amendment to the Company's Amended and Restated 1993 Stock Option
Plan (the "Plan") to increase the number of shares available for issuance
pursuant to option grants under the Plan from 2,000,000 to 5,000,000.

         2. The adoption of the 1999 Employee Stock Purchase Plan authorizing
the Company to permit eligible employees to purchase up to 1,000,000 shares of
Common Stock at a discounted price.

         3. The ratification of Deloitte & Touche LLP to serve as the Company's
independent auditors for the fiscal year ending December 31, 1999.

                                       22
<PAGE>   25
ITEM 5.           OTHER INFORMATION.

On June 30, 1999, the Company filed an amendment to a registration statement
("Registration Statement") on Form S-3 with the Securities and Exchange
Commission ("SEC") relating to the resale to the public by certain selling
security holders of 4,606,306 shares of common stock, subject to adjustment. The
Registration Statement has not yet become effective.

On May 12, 1999, the Company filed a registration statement on Form S-8 with the
SEC relating to the resale to the public of up to 8,358,900 shares of common
stock issuable upon the exercise of options granted or to be granted under the
Company's 1993 Amended and Restated Stock Option Plan, its 1999 Employee Stock
Purchase Plan or options granted as part of compensatory arrangements not
pursuant to a plan.

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

                  (a)      Exhibits:

<TABLE>
<CAPTION>
EXHIBIT NUMBER
(REFERENCED TO ITEM
601 OF REG. S-B)                           DESCRIPTION                             METHOD OF FILING
----------------                           -----------                             ----------------
<S>                                        <C>                                     <C>
27                                         Financial Data Schedule                 Filed herewith
</TABLE>

                                       23
<PAGE>   26
                                   SIGNATURES

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


OSAGE SYSTEMS GROUP, INC.


By:/s/ Jack R. Leadbeater                         Dated:  August 9, 1999
   ----------------------
     Jack R. Leadbeater
      Chairman of the Board and
      Chief Executive Officer

By:/s/ John Iorillo                               Dated:  August 9, 1999
   ----------------
     John Iorillo
     Chief Financial Officer (Principal
     Financial and Accounting Officer)

                                       24
<PAGE>   27
                                  EXHIBIT INDEX
                                  -------------



Exhibit
  No.           Description
-------         -----------
  27            Financial Data Schedule