Exhibit 99.1


                        PROLOGIC MANAGEMENT SYSTEMS, INC.
                                 AND SUBSIDIARY


                        CONSOLIDATED FINANCIAL STATEMENTS


                       YEARS ENDED MARCH 31, 2005 and 2004

<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                                    CONTENTS




Report of Independent Registered Public Accounting Firm                   F-3

Consolidated Financial Statements
     Consolidated Balance Sheet                                           F-4
     Consolidated Statements of Operations                                F-5
     Consolidated Statements of Changes in Stockholders' Deficit          F-6
     Consolidated Statements of Cash Flows                                F-7

Notes to Consolidated Financial Statements                                F-8

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------


To the Board of Directors and Stockholders
Prologic Management Systems, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of Prologic
Management Systems, Inc. and subsidiary (the "Company") as of March 31, 2005,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for each of the two years in the period then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). These standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Prologic Management
Systems, Inc. and subsidiary as of March 31, 2005, and the results of their
operations and their cash flows for each of the two years in the period then
ended in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has negative working capital and a stockholders' deficit.
The Company has also had all of its operating assets foreclosed upon and no
longer has any continuing operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.




/s/EPSTEIN, WEBER & CONOVER, PLC
   Scottsdale, Arizona
   July 21, 2005

<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET


ASSETS

 Cash                                                             $         341
                                                                  --------------

TOTAL ASSETS                                                      $         341
                                                                  ==============
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
 Due to Shareholders                                              $      39,622
 Accounts payable                                                       174,753
 Notes payable (Note 4)                                                 408,846
 Accrued expenses                                                       482,443
 Accrued dividends                                                      252,050
                                                                  --------------

TOTAL LIABILITIES                                                     1,357,714
                                                                  --------------

Commitments and contingencies (Note 10)

Manditorily Redeemable Preferred stock (Note 6):
 Series A cumulative convertible preferred stock, no par value,
  16,667 shares authorized, 16,667 shares issued and outstanding,
  aggregate liquidation preference of $100,002                          100,000
 Series B cumulative convertible preferred stock, no par value,
  100,000 shares authorized, 9,500 shares issued and outstanding,
  aggregate liquidation preference of $95,000                            68,588
 Series C cumulative convertible preferred stock, no par value,
  100,000 shares authorized, 55,850 shares issued and outstanding,
  aggregate liquidation preference of $558,500                          558,500

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

Total Redeemable Preferred Stock                                        727,088
                                                                  --------------

 Stockholders' Deficit:

 Common stock, no par value, 50,000,000 shares authorized,
  7,275,048 shares issued and outstanding at March 31, 2005          10,205,073
 Additional paid in capital                                             970,766
 Accumulated deficit                                                (13,260,300)
                                                                  --------------

TOTAL STOCKHOLDERS' DEFICIT                                          (2,084,461)
                                                                  --------------

TOTAL LIABILITIES, PREFERRED STOCK AND
 STOCKHOLDERS' DEFICIT                                            $         341
                                                                  ==============


          See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                        Years ended March 31,
                                                     ---------------------------
                                                         2005           2004
                                                     ============   ============

REVENUE                                              $         -    $         -
                                                     ------------   ------------

OPERATING EXPENSES:
 General and administrative                              173,012        111,283
                                                     ------------   ------------

    Total operating expenses                             173,012        111,283
                                                     ------------   ------------

OPERATING LOSS                                          (173,012)      (111,283)
                                                     ------------   ------------

OTHER (INCOME) EXPENSE:
 Interest expense                                              -        547,030
 Other (income)                                                -         (2,433)
                                                     ------------   ------------
    Total other expense                                        -        544,597
                                                     ------------   ------------

LOSS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS    (173,012)      (655,880)
                                                     ------------   ------------

INCOME TAX (BENEFIT) PROVISION                                 -              -
                                                     ------------   ------------

LOSS FROM CONTINUING OPERATIONS                         (173,012)      (655,879)
                                                     ------------   ------------

DISCONTINUED OPERATIONS
 Loss from operations of discontinued segments, no
  income tax effect                                            -     (1,031,134)
 Gain from disposal of assets in discontinued
  business segments, no income tax effect              2,757,617      8,705,832
                                                     ------------   ------------
    Total gain from discontinued operations            2,757,617      7,674,698
                                                     ------------   ------------

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

NET INCOME                                           $ 2,584,605    $ 7,018,818
                                                     ============   ============


Weighted average number of common shares:
 Basic and diluted                                     7,275,048      7,275,048
                                                     ============   ============

Basic and Diluted Income (Loss) per common share:
 Continuing operations                               $     (0.03)   $     (0.10)
 Discontinued operations                                    0.37           1.05
                                                     ------------   ------------
 Net income per share                                $      0.34    $      0.95
                                                     ============   ============


          See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>


<TABLE>
<CAPTION>
<S>     <C>                              <C>       <C>        <C>       <C>       <C>        <C>         <C>          <C>
PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY

STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED MARCH 31, 2005 AND 2004
--------------------------------------------------------------------------------------------------------------------------------

                                                              Mandatorily Redeemable Convertible Preferred Stock
                                         ---------------------------------------------------------------------------------------
                                                                                                        Subscription
                                          Shares     Amount    Shares     Amount   Shares      Amount    Receivable     Total
--------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2003                   16,667   $ 100,000    9,500   $ 68,588    75,000   $ 750,000   $ (191,500)  $ 727,088

Dividend accrual

Warrants issued for services performed

Cancellation of subscription receivable                                            (19,150)   (191,500)     191,500           -

Net income

                                         ---------------------------------------------------------------------------------------
Balance, March 31, 2004                   16,667   $ 100,000    9,500   $ 68,588    55,850   $ 558,500   $        -   $ 727,088
                                         =======================================================================================

Dividend accrual

Warrants issued for services performed

Cancellation of subscription receivable                                                  -           -            -           -

Net income

                                         ---------------------------------------------------------------------------------------
Balance, March 31, 2005                   16,667   $ 100,000    9,500   $ 68,588    55,850   $ 558,500   $        -   $ 727,088
                                         =======================================================================================
</TABLE>

<TABLE>
<CAPTION>
<S>     <C>                                     <C>          <C>            <C>         <C>             <C>
PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY

STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED MARCH 31, 2005 AND 2004
--------------------------------------------------------------------------------------------------------------------

                                                                            Additional
                                                       Common Stock          Paid-In     Accumulated
                                                  Shares         Amount      Capital       Deficit          Total
---------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2003                          7,275,048   $ 10,205,073   $ 961,366   $ (22,717,023)  $(11,550,584)

Dividend accrual                                                                              (73,350)       (73,350)

Warrants issued for services performed                                          9,400                          9,400

Cancellation of subscription receivable                                                                            -

Net income                                                                                  7,018,818      7,018,818

                                               ----------------------------------------------------------------------
Balance, March 31, 2004                          7,275,048   $ 10,205,073   $ 970,766   $ (15,771,555)  $ (4,595,716)
                                               ======================================================================

Dividend accrual                                                                              (73,350)       (73,350)

Warrants issued for services performed                                              -                              -

Cancellation of subscription receivable                                                                            -

Net income                                                                                  2,584,605      2,584,605

                                               ----------------------------------------------------------------------
Balance, March 31, 2005                          7,275,048   $ 10,205,073   $ 970,766   $ (13,260,300)  $ (2,084,461)
                                               ======================================================================
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            Years ended March 31,
                                                                               2005          2004
                                                                           -------------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                       <C>              <C>
   Net income                                                             $    2,584,605   $ 7,018,818
   Adjustments to reconcile net income to net cash provided by
     operating activities:
  (Gain) from discontinued operations                                         (2,757,617)   (7,674,698)
  Warrants issued for services performed                                            --           9,400
     Change in assets and liabilities (net of discontinued operations):
       Accrued expenses                                                          171,772       229,419
                                                                          --------------   -----------
Net cash (used in) continuing operations                                          (1,240)     (417,061)
Net cash provided by  discontinued operations                                       --          95,942
                                                                          --------------   -----------
Net cash  (used in) operating activities                                          (1,240)     (321,119)
                                                                          --------------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of equipment                                                            --          (3,170)
                                                                          --------------   -----------
Net cash (used in) investing activities                                             --          (3,170)
                                                                          --------------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:

   Issuance of long-term debt and notes payable                                     --         108,966
                                                                          --------------   -----------
Net cash  provided by financing activities                                          --         108,966
                                                                          --------------   -----------
Net (decrease)  in cash                                                           (1,240)     (215,323)

Cash, beginning of year                                                            1,581       216,904
                                                                          --------------   -----------
Cash, end of year                                                         $          341   $     1,581
                                                                          ==============   ===========
SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION:

   Cash paid during the year for interest                                 $         --     $    65,737
                                                                          ==============   ===========
NON-CASH FINANCING AND INVESTING ACTIVITIES:
                                                                          ==============   ===========

                                                                          ==============   ===========

                                                                          ==============   ===========
   Warrants issued for services performed                                 $         --     $     9,400
                                                                          ==============   ===========
   Assets transferred in foreclosure action                               $          545   $ 2,708,421
                                                                          ==============   ===========
   Debt forgiven in foreclosure action                                    $    2,758,162   $ 9,282,928
                                                                          ==============   ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>



                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

NOTE 1--ORGANIZATION AND OPERATIONS

NATURE OF BUSINESS AND SUMMARY OF OPERATIONS

Prologic  Management  Systems,  Inc. (the  "Company") is an Arizona  corporation
founded in 1984.  As reported  for the prior  fiscal  year,  the Company and its
wholly owned  subsidiary,  BASIS,  Inc.,  were subject to foreclosure  action in
February  of 2004.  Prior to the  foreclosure  action,  the  Company,  operating
through its wholly owned subsidiary,  BASIS, Inc.,  provided  commercial systems
integration and professional  services firm,  specializing in high-availability,
fully integrated  systems,  providing systems integration  services,  networking
services,  security and database software for the commercial market. The Company
had sales  and  services  offices  in  California,  Oregon,  Arizona,  Texas and
Louisiana. The assets located at these operating offices were taken by GE Access
under the foreclosure action

Effective March 24, 2005, the Corporate  Charter of BASIS,  Inc., a wholly owned
subsidiary  of the  Company,  was  dissolved  administratively  by  the  Arizona
Corporation  Commission for the failure to file an annual report. At the time of
dissolution BASIS, Inc.  ("BASIS"),  was not conducting any business and had not
conducted any business for over one year.

As of March 31, 2005,  subsequent to the dissolution of BASIS,  the Company will
have remaining approximately  $1,358,000 of liabilities and obligations to third
parties.  The Company continues to negotiate its obligations with the individual
creditors.

As a result of a foreclosure on substantially all of the Company's  assets,  the
Company  ceased  to  have  ongoing  business  operations.  The  Company  has  no
operations  and no sources of  revenue.  The  Company  does not have any current
agreements  or plan to replace  the assets or  business  units  taken  under the
foreclosure action.

Management is analyzing  options  regarding the Company's  solvency and creditor
issues facing the Company as well as seeking  potential  business  opportunities
that may be appropriate for the Company's long-term growth strategy.



MANAGEMENT'S PLANS

In light of the foreclosure  action and subsequent  dissolution of BASIS,  Inc.,
the  management  focus is on trying to  restructure  the  remaining  debt on the
balance sheet with the intent of converting a significant  amount of the debt to
equity.  If this can be accomplished  effectively and in a reasonable  period of
time,  management would then consider the acquisition or merger with one or more
companies, which would be a good candidate for the public entity. Currently, the
board  intends to work with  existing  shareholders  in order to  achieve  these
goals.  However,  it is  likely  that in  conjunction  with  any  such  suitable
acquisition or merger, the Company would likely need to raise capital to provide
the necessary  working capital for the consolidated  entity.  The Company has no
commitments  at this time from third parties for any such  financing  and/or any
acquisitions or mergers.


The Company faces many challenges.  There is now no meaningful operating history
to evaluate the Company's prospects for successful  operations.  The Company has
operated in a highly competitive  industry and has incurred operating losses and
negative  operating cash flow.  Future losses are  anticipated and the Company's
plan to restructure its obligations,  even if successful,  may not result in the
Company  being  able to raise  the  capital  needed  to  effect  the  merger  or
acquisition of a suitable business.

                                      F-8
<PAGE>



                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern,  which contemplates the realization of
assets and the  satisfaction  of  liabilities  in the normal course of business.
Management plans include intentions to acquire an operating business. Management
believes  it can  successfully  complete  an  acquisition  and raise  sufficient
capital  that will enable the Company to continue as a going  concern.  However,
there are no assurances that such a transaction  will occur.  The uncertainty of
future funding and the lack of cash flow from operations raise substantial doubt
about the  Company's  ability to  continue  as a going  concern.  The  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of asset carrying  amounts or the amount and  classification  of
liabilities  that might  result  should the  Company be unable to  continue as a
going concern.

All  of the  information  provided  herein  regarding  the  operations  and  the
financial  performance  of the Company are provided for historical and financial
reporting purposes. The operations and the respective performance for the fiscal
year ending March 31, 2005 will provide no basis for any future activities.


NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

Through March 24, 2005,  the  consolidated  financial  statements of the Company
include the accounts of Prologic and its subsidiary, BASIS. Effective, March 24,
2005,  BASIS was dissolved and there were no remaining  assets or liabilities to
consolidate  at March 31,  2005.  The  results  of the  operations  of BASIS are
included in the consolidated  financial  statements through the dissolution date
of March 24, 2005. All significant  intercompany  accounts and transactions have
been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and all highly liquid investments
with maturity of three months or less when purchased.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted  in the United  States of  America  requires  the  Company's
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported  amounts of revenue and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.


FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated  fair value of financial  instruments  has been  determined by the
Company  using  available  market   information  and  valuation   methodologies.
Considerable  judgment is required in estimating fair values.  Accordingly,  the
estimates  may not be  indicative  of the amounts the Company could realize in a
current market exchange.

The carrying amount of accounts  payable and accrued  expenses  approximate fair
value due to the short maturity of these instruments. The terms of notes payable
and other  long-term  obligations  approximate  the terms in the  marketplace at
which  they  could be  replaced.  Therefore,  the fair  value  approximates  the
carrying value of these financial instruments.


                                      F-9

<PAGE>



                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

INCOME TAXES

The  Company  accounts  for  income  taxes  utilizing  the asset  and  liability
approach,  which requires the recognition of deferred tax assets and liabilities
for the expected future tax  consequences of temporary  differences  between the
basis of  assets  and  liabilities  for  financial  reporting  purposes  and tax
purposes.  Deferred tax assets and  liabilities  are measured  using enacted tax
rates expected to apply to taxable income in the years in which those  temporary
differences  are expected to be recovered or settled.  A valuation  allowance is
provided when management  cannot determine  whether or not it is likely that the
net deferred tax asset will be realized.

EARNINGS/LOSS PER SHARE

FASB Statement of Financial  Accounting  Standard No. 128,  "Earnings Per Share"
(SFAS 128) provides for the calculation of Basic and Diluted earnings per share.
Basic earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding  for the period.  Diluted  earnings per share  reflect the potential
dilution of securities that could share in the earnings of the entity.  At March
31, 2005 and 2004, potential common stock, consisting of stock options, warrants
and  convertible  preferred  stock  totaling  1,827,111  and  2,182,211  shares,
respectively,  are excluded from the  computation of diluted  earnings per share
because they are  anti-dilutive.  As the loss from continuing  operations is the
control number for the  determination of whether  securities are dilutive,  such
securities are considered  anti-dilutive  for the years ended March 31, 2005 and
2004.

The following table presents the computation of basic and diluted loss per share
from continuing operations for the fiscal years ended March 31:

<TABLE>
<CAPTION>

                                                                      Weighted Average
                                                     Loss                  shares             Per share
                                              ------------------    -------------------    -----------------
2005
----
<S>                                               <C>                <C>                   <C>
Net income                                        $   2,584,605
Discontinued Operations                              (2,757,617)
Preferred stock dividend                                (73,350)
                                              ------------------
Loss to common stockholders                       $    (246,362)
                                              ==================

Basic loss per share                              $    (246,362)          7,275,048             $   (0.03)
Effect of dilutive securities                               N/A
Diluted loss per share                            $    (246,362)          7,275,048             $   (0.03)


2004
----
Net income                                        $   7,018,818
Discontinued operations                              (7,674,698)
Preferred stock dividend                                (73,350)
                                              ------------------
Loss to common stockholders                       $    (729,230)
                                              ==================

Basic loss per share                              $    (729,230)          7,275,048             $   (0.10)
Effect of dilutive securities                               N/A
Diluted loss per share                            $    (729,230)          7,275,048             $   (0.10)
</TABLE>



                                      F-10
<PAGE>



                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


STOCK-BASED COMPENSATION

The Company accounts for employee stock options or similar equity instruments in
accordance  with  Statement of Financial  Accounting  Standards  (SFAS) No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 defines a
fair-value-based  method of  accounting  for employee  stock  options or similar
equity instruments. This statement gives entities a choice to recognize employee
related compensation expense by adopting the new fair-value method or to measure
compensation using the intrinsic value method under Accounting  Principles Board
(APB)  Opinion No. 25  "Accounting  for Stock Issued to  Employees",  the former
standard.  If the former  standard  for  measurement  is  elected,  SFAS No. 123
requires  supplemental  disclosure  to show  the  effect  of  using  fair  value
measurement  criteria.  The Company  has elected to account for its  stock-based
compensation plans under APB No. 25

The Company has elected to account for its stock-based  compensation plans under
APB  No.  25  and  has  therefore  recognized  no  compensation  expense  in the
accompanying  consolidated  financial statements for stock-based employee awards
granted as the option price for all employee  options  grants  exceeded the fair
value of the  Company's  common  stock on the date of grant.  Additionally,  the
Company  has  computed,  for pro  forma  disclosure  purposes,  the value of all
options  granted during 2003 using the  Black-Scholes  option pricing model with
the following weighted average assumptions:




                                                   2005               2004
                                                  Options           Options
                                                ------------      -------------
 Risk free interest rate                               4.12 %           4.85 %
 Expected dividend yield                                  -                  -
 Expected lives                                     5 years           5 years
 Expected volatility                                241.80_ %         156.93 %


If the Company had accounted for its  stock-based  employee  compensation  plans
using a fair value based method of  accounting,  the Company's net income (loss)
and income  (loss) per common  and common  share  equivalent  would have been as
follows:

                                      F-11
<PAGE>

                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

<TABLE>
<CAPTION>
                                                                                   Years ended March 31,
                                                                                --------------------------
                                                                                   2005            2004
                                                                                -----------     ----------
<S>                                                                             <C>             <C>
 Net income (loss)- as reported                                                 $ 2,584,605     $7,018,818
 Less fair value of stock-based employee compensation expense                          (992)       (66,981)
                                                                                -----------     -----------
 Net income (loss)- pro forma                                                   $ 2,585,597     $6,951,837
                                                                                ===========     ===========
 Net income (loss) per share (basic and diluted) - as reported                  $      0.34     $     0.95
                                                                                ===========     ===========
 Net income (loss) per share (basic and diluted) - pro forma                    $      0.34     $     0.95
                                                                                ===========     ===========
</TABLE>


The effects of applying SFAS No. 123 for pro forma disclosures for 2005 and 2004
are not likely to be representative of the effects on reported net loss and loss
per common and common share  equivalent for future years,  because  options vest
over several years and additional awards generally are made each year.



NEW ACCOUNTING PRONOUNCEMENTS


In June  2003 the  FASB  issued  Statement  No.  150,  "Accounting  for  Certain
Financial  Instruments with Characteristics of both Liabilities and Equity" SFAS
No. 150 requires certain instruments,  including mandatorily  redeemable shares,
to be  classified  as  liabilities,  not as  part  of  shareholders'  equity  or
redeemable  equity.  For instruments that are entered into or modified after May
31, 2003, SFAS No. 150 is effective immediately upon entering the transaction or
modifying the terms.  For other  instruments  covered by Statement 150 that were
entered  into  before June 1, 2003,  Statement  150 is  effective  for the first
interim  period  beginning  after June 15, 2003.  The Company has  evaluated the
provisions  of SFAS No. 150. The  redeemable  preferred  stock does not meet the
criteria for  classification  as  liabilities  in accordance  with SFAS No. 150.
Therefore,  all  of  preferred  stock  that  was  previously  presented  between
liabilities  and equity on the balance  sheet  remains  presented  as such.  The
Company anticipates conversion of all its redeemable preferred stock into common
stock by the end of the second quarter of fiscal 2005.

In November 2002, the FASB issued interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees.  Including  indirect  Guarantees of
Indebtedness   of  Others,"  which   disclosures  are  effective  for  financial
statements  for periods  ending after  December 15, 2002.  While the Company has
various  guarantees  included in  contracts  in the normal  course of  business,
primarily  in the form of  indemnities,  these  guarantees  would only result in
immaterial  increases  in  future  costs,  but  do  not  represent   significant
commitments or contingent liabilities of the indebtedness of others.

In January  2003,  the FASB  issued  interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities"  (FIN 46)  which  requires  the  consolidation  of
variable interest  entities,  as defined.  FIN 46 is applicable  immediately for
variable  interest entities created after January 1, 2003. For variable interest
entities  created  prior  to  January  1,  2003,  the  provisions  of FIN 46 are
applicable no later than July 1, 2003.  The Company does not  currently  believe
that any material entities will be consolidated as a result of FIN 46.

In December  2002,  the FASB issued SFAS No.  148,  ACCOUNTING  FOR  STOCK-BASED
COMPENSATION  - TRANSITION  AND  DISCLOSURE - AN AMENDMENT OF FASB STATEMENT NO.
123. SFAS No. 148 amends SFAS No. 123, ACCOUNTING FOR STOCK-BASED  COMPENSATION,
to provide  alternative methods of transition for a voluntary change to the fair
value-based  method of accounting  for  stock-based  employee  compensation.  In
addition,  SFAS No. 148 amends the  disclosure  requirements  of SFAS No. 123 to
require  prominent  disclosures in both interim and annual financial  statements
about the method of accounting for  stock-based  employee  compensation  and the
effect of the method used on reported  results.  SFAS No. 148 is  effective  for
financial statements issued for fiscal years ending after December 15, 2002. The
adoption  of SFAS  No.  148 did not  have a  material  effect  on its  financial
position or results of operations.

                                      F-12
<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

In  December  2004  the  FASB  issued  a  revised  Statement  123  (SFAS  123R),
"ACCOUNTING FOR STOCK-BASED  COMPENSATION"  requiring public entities to measure
the cost of  employee  services  received  in  exchange  for an award of  equity
instruments based on grant date fair value. The cost will be recognized over the
period  during which an employee is required to provide  service in exchange for
the award -- usually the vesting period. The Company is evaluating the impact of
this new  pronouncement  and does not expect the effect of  implementation  will
have a significant impact on the Company's financial statements.


NOTE 3-- DISCONTINUED OPERATIONS

FORECLOSURE ACTION

In the year ended March 31,  2004,  the Company  divested of its only  operating
segment through a foreclosure action with its primary creditor.

Substantially  all assets and  liabilities of the  discontinued  operations were
removed form the balance sheet as of March 31, 2005. The following  presents the
status of the discontinued operations at March 31, 2004:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                                                 Revenues for
    Remaining Assets             Remaining Liabilities          the year ended
   At March 31, 2004               At March 31, 2004            March 31, 2004
------------------------- ------------------------------------- --------------
<S>                       <C>                                  <C>
                          Accounts payable and
                          accrued expenses    $1,984,613

NONE                      Notes payable        1,020,100
                                              ----------
                                              $ 3,004,713        $ 14,103,523
                                              ===========
------------------------- ------------------------------------- ---------------
</TABLE>



Through the foreclosure process discussed in Note 1, the Company transferred all
of its cash,  accounts  receivable,  inventories  and  equipment  to its primary
creditor. The creditor assumed the Company's existing maintenance contracts. The
Company  realized  a gain on the  relief of the debt due to this  creditor  as a
result of the foreclosure  action.  The Company estimated that the fair value of
the assets  surrendered in the foreclosure  approximated the carrying value. The
majority  of the asset  value was  comprised  of  current  assets  such as cash,
accounts  receivable  and  inventories.  The  carrying  value  of the  equipment
surrendered in the foreclosure was approximately $193,000. Based on estimates of
comparable used computer equipment,  management believed that the carrying value
approximated  the  fair  value  at the time of the  foreclosure.  The  following
summarizes the foreclosure transaction:

                                      F-13

<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005



Assets surrendered:
  Cash                                $ 1,083,616
  Accounts receivable                   1,120,798
  Inventories                             141,879
  Prepayments and deposits                144,026
  Tradenames                               25,000
  Equipment                               193,102
                                      -----------
   Total assets surrendered             2,708,421
                                      -----------

Liabilities satisfied:
  Deferred revenue                        688,448
  Accounts payable                        471,899
  Line of credit                          610,000
  Notes payable                         8,672,958
  Accrued interest                        970,948
                                      -----------
   Total liabilities satisfied:        11,414,253
                                      -----------
Gain on foreclosure                   $ 8,705,832
                                      ===========


The  creditor  has agreed to waive its  deficiency  claim  against  the  Company
subject to certain  terms and  conditions  placed on the Company.  This includes
compliance  with the conditions of the foreclosure  and  representations  by the
Company as to asset disclosure  through a specific  compliance date of September
30, 2004. Management believes that the Company has complied with these terms and
conditions.

The  Company  has made  accruals  for  approximately  $200,000 at March 31, 2004
related to estimated lease settlements.

DISSOLUTION OF BASIS, INC.

As a result of the  dissolution  action and process  discussed in Note 1, at the
time of dissolution BASIS, Inc.  ("BASIS"),  was not conducting any business and
had not conducted any business for over one year.

All of the  substantive,  tangible  and  intangible  assets  of BASIS  and Solid
Systems,  an operating  division of BASIS, had been seized under the foreclosure
action discussed herein,  leaving  approximately  $3,000,000 of debt having been
incurred by BASIS, Inc. with no assets from which payment could be made.

Under Arizona law, upon the  dissolution  of a corporation  the ownership of any
assets of the  corporation  pass, in trust,  to its  shareholders to be held and
used to pay  creditors of the dissolved  corporation.  Upon the  dissolution  of
BASIS no assets passed to the Company because BASIS had no assets.

The  Company  does  not  otherwise  hold  any  assets  of  BASIS.  Consequently,
management  does not believe  that a creditor of BASIS  would be  successful  in
asserting  that the  Company is to use any assets  held by the  Company to pay a
claim owed a creditor of BASIS.  The Company will contest any assertion  that it
has liability for the debt obligations of BASIS.


                                      F-14

<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


Many of the  recorded  obligations  of BASIS have  exceeded  time  limits  under
statutes  of  limitations.  Management  believes  that  there is no value to the
remaining  obligations  due to the  dissolution  and the legal  basis  discussed
above.  The following  summarizes  the financial  results of the  dissolution of
BASIS:



Accounts Payable                           $ 1,471,258
Sales Tax Payable                              375,936
Accrued Interest                               180,725
Othe Accrued Expenses                            6,788
Notes Payable                                  722,910
                                           -----------

Gain on Dissolution                        $ 2,757,617
                                           ===========


                                      F-15

<PAGE>



                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


NOTE 4 -- NOTES PAYABLE

Notes payable as of March 31, 2005 are as follows:

<TABLE>
<CAPTION>

<S>                                                                          <C>
 Notes payable, interest at 2% per month, previously secured by various
   equipment, originally due on March 31, 1998, note is in default and is
   currently payable and collateralized by common stock.                        $  100,000

 Software purchase agreement for minimum royalties of $250,000, secured by
   purchased software, originally due on December 31, 2001.  Note is in
   default and has since been settled in a legal judgment.                          68,000

 Note payable, interest at 8.5%, unsecured, principal and interest of $2,100
   due monthly through March 31, 2004. Note is in default.                          60,186

 Note payable, interest at 11% per annum on the outstanding principal,
   quarterly payments of $25,000 through October 12, 2001.  Note is in
   default.                                                                         75,000


 Other unsecured notes requiring a total of $25,555 in monthly principal and
   interest payments with interest up to 24% per annum.  The three notes are
   in default and currently due.                                                   105,660
                                                                                ----------

 Total notes payable                                                            $  408,846
                                                                                ==========
</TABLE>



The notes payable are all in default and currently payable. Due to the financial
insolvency of the Company and the ongoing  negotiations  with the creditors,  no
interest was accrued on the above notes during 2005.  The Company is  attempting
to negotiate payment terms with the creditors.


NOTE 5--INCOME TAXES

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.

     Income  taxes for years  ended March 31, 2005 and 2004,  is  summarized  as
follows:

                                                 2005                 2004
                                            -------------          ----------

    Current Provision                       $     974,000          $2,377,671
    Deferred (Benefit) Provision                 (974,000)         (2,377,671)
                                             ------------          ----------
              Net income tax provision      $         -0-          $      -0-
                                             ============          ==========


The Company has net operating loss  carryforwards  approximating  $8,834,000 for
federal income tax purposes,  which expire in varying  amounts from 2010 through
2025.  Utilization of the net operating loss  carryforwards may be significantly
limited or  eliminated  as a result of change in ownership as defined in Section
382  of  the  internal   revenue  code.  The  Company  has  net  operating  loss
carryforwards  approximating  $1,493,000  for state income tax  purposes,  which
expire in varying  amounts from 2006 through 2008.  Since there is no net income
tax effect and all operations are consolidated for income tax purposes, there is
no allocation between continuing and discontinued operations.

                                      F-16
<PAGE>



                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

A  reconciliation  of the difference  between the provision for income taxes and
the amount that would be computed using  statutory  federal and state income tax
rates is as follows for the years ended March 31,:

<TABLE>
<CAPTION>

                                                       2005                      2004
                                                       ----                      ----
<S>                                                <C>             <C>       <C>               <C>
     Federal statutory rates                       $ 879,000       34%       $2,386,000          34%
     State income taxes                              155,000        6%          421,000           6%
     (Utilization)/increase of valuation
           allowance associated with net
           operating loss carryforwards           (1,053,000)     (40)%      (2,825,000)       (40)%
     Other                                            19,000        -%           18,000           -%
                                                 ------------ -------
     Effective rate                                $      -0-       0%       $      -0-           -%
                                                 ============ ========       ==========    ========
</TABLE>

A detail of the net deferred tax asset is as follows:

<TABLE>
<CAPTION>
                                                                                      Years ended March 31,
                                                                                 ------------------------------
                                                                                      2004             2004
                                                                                 --------------   -------------
 Deferred tax assets:
<S>                                                                              <C>              <C>
   Net operating loss carryforward                                               $    3,004,000   $   4,513,000
    Intangible assets                                                                   -                60,000
   Other accruals                                                                        60,000          78,000
                                                                                 --------------   -------------
 Total deferred tax assets                                                            3,064,000       4,651,000
                                                                                 --------------   -------------
 Less valuation allowance                                                            (3,064,000)     (4,651,000)
                                                                                 --------------   -------------
 Net deferred tax assets                                                         $            -   $           -
                                                                                 ---------------  -------------
</TABLE>


Net  deferred  tax assets have been offset by a valuation  allowance  because of
uncertainties that such assets will be realized. During the year ended March 31,
2005,  the valuation  allowance was  decreased by  $1,587,000  representing  the
utilization of the net operating loss  carryforwards of $974,000,  the reduction
in the  deferred  income tax  assets of $78,000  due to  reversal  of  temporary
differences and the expiration on net operating loss  carryforwards of $535,000.
During the year ended March 31, 2004,  the valuation  allowance was decreased by
$2,825,000  representing the utilization of the net operating loss carryforwards
of $2,825,000.


NOTE 6--CAPITAL STOCK

Common Stock

The  Company  issued no common  stock in fiscal  years  ended March 31, 2004 and
March 31, 2005.


                                      F-17

<PAGE>



                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005
Common Stock Warrants

In fiscal 2004, the Company issued warrants to purchase 60,000 and 10,000 shares
of common stock at $0.50 and $0.65 per share  respectively.  These warrants were
granted as consideration for services  rendered.  The fair value of the warrants
was recorded as consulting  expense of $9,400.  As of March 31, 2005, a total of
826,666  shares  of  common  stock  are  exercisable  under  warrants  issued as
consideration for consulting and advisory  services,  as well as warrants issued
as  consideration  in connection with the  renegotiation of a note. The range of
exercise  prices for the  warrants is $0.50 to $2.00 per share of common  stock,
and bear expiration dates ranging from May 2005 through March 2007.


Series A Cumulative Convertible Preferred Stock

The Series A preferred stock agreement provides for dividends at the rate of 8%,
payable  quarterly  in cash or shares of common stock at a stated price of $2.00
per share,  at the  discretion of the Company's  Board of Directors.  Cumulative
unpaid dividends totaled approximately $56,000 and $48,000 at March 31, 2005 and
2004,  respectively.  Holders  of  Series A  preferred  stock  have  liquidation
preference over holders of common stock and receive $6.00 per share plus accrued
dividends,  in the event of liquidation.  The agreement  defines a more than 50%
change in voting power as a liquidation event.

Holders of Series A preferred stock may convert each share of Series A preferred
stock into shares of common stock with a minimum stated value of $2.00 per share
beginning  after June 1998, at a conversion  rate of $6.00 per  preferred  stock
share (each share of Series A  preferred  is  convertible  into three  shares of
common  stock),  subject to  adjustment.  In addition,  for each share of common
stock received through conversion,  holders were entitled to receive one warrant
to purchase one share of common stock at the conversion price ($2.00 per share).
Warrants issued under this agreement expired in December 2000.

Series A preferred stock is subject to conversion  12 months after the issuance,
at the option of the Company, contingent upon an increase in the price of common
stock equal to at least 150% of the conversion  price ($3.00 per share,  subject
to adjustment).

Series B Cumulative Convertible Preferred Stock

In March 1998, the Company  authorized 100,000 shares of 10% Series B Cumulative
Convertible preferred stock (Series B  preferred).  The Series B preferred stock
agreement  provides for dividends at a rate of 10% of the issued and outstanding
balance payable semi-annually  beginning October 31,  1998, in cash or shares of
common  stock,  subject  to  provisions  in  the  agreement.  Cumulative  unpaid
dividends totaled approximately $28,500 and $19,000 at March 31,  2005 and 2004,
respectively.

Series B  Preferred  may be  converted  to  common  stock at the  option  of the
shareholder.  The  conversion  rate (4.44  common  shares to be received per one
preferred  share) is  calculated  by  dividing  the  stated  value  ($10) by the
effective conversion price ($2.25).

During  February 2001,  certain  holders of Series B preferred  stock  converted
62,500  shares of  preferred  stock  into  277,782  shares of common  stock at a
conversion  rate of 4.44 common shares to one preferred  share.  The Company may
redeem  Series B preferred at the stated value plus  accrued  dividends  with at
least  20  days  notice  to the  shareholders  and may not  reissue  any  shares
repurchased.

                                      F-18
<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

Holders of Series B preferred stock have liquidation  preference over holders of
common stock. In the event of liquidation,  Series B preferred shareholders will
receive $10 per share plus accrued dividends.  The agreement defines a more than
50% change in voting power as a liquidation.

Series C Cumulative Preferred Stock

In  December  1999,  the  Company  authorized  100,000  shares  of 10%  Series C
Cumulative  Convertible  preferred  stock. The Series C preferred stock provides
for dividends at the rate of 10% payable semi-annually beginning April 30, 2000,
to be paid in cash or  shares of  common  stock,  subject  to  provision  in the
agreement.  Cumulative  unpaid  dividends  totaled  approximately  $167,550  and
$111,700 at March 31, 2005 and 2004, respectively.

Series C preferred stock may be converted into common stock at the option of the
shareholder.  The  conversion  rate (4.44  common  shares to be received per one
preferred  share) is  calculated  by  dividing  the  stated  value  ($10) by the
effective conversion price ($2.25), subject to adjustment.

The  Company may redeem the Series C  preferred  stock at the stated  value plus
accrued  dividends with at least 20 days notice to the  shareholders and may not
reissue any shares repurchased.

Holders of Series C preferred stock have liquidation  preference over holders of
common stock and receive $10 per share plus accrued  dividends,  in the event of
liquidation.  The agreement  defines a more than 50% change in voting power as a
liquidation.

In fiscal 2000, the Company issued 55,850 shares of Series C preferred  stock to
two  entities in which  officers of the Company  hold  interests.  Of the 55,850
shares issued,  the Company received $337,720 in cash and $220,780 in conversion
of debt from a related  party.  The due date of the  remaining  $191,500  for an
additional  19,150 shares had been extended  pending  settlement of the Series B
legal  dispute.  The balance of $191,500  and the  associated  shares  under the
subscription have since been cancelled.

During the fiscal  year ended  March 31,  2005 and fiscal  year ended  March 31,
2004,  no  dividends  were paid to holders of the  Company's  Series B Preferred
Stock and Series C Preferred Stock.

                                      F-18
<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

All  series of  preferred  stock do not  embody  unconditional  obligations  for
redemption at a specified date or upon an event certain to occur.  The Company's
preferred stock was previously  presented  between equity and liabilities in the
statement of financial  position.  Under  Statement of Accounting  Standards No.
150, Accounting for Certain Financial  Instruments with  Characteristics of Both
Liabilities and Equity,  the preferred stock does not fall within the definition
of a liability.

NOTE 7--STOCK OPTION PLAN

During 1995,  the  Company's  Board of Directors  approved the 1994 Stock Option
Plan (the "Plan").  The maximum number of shares that may be issued  pursuant to
the Plan, as amended, is 3,500,000, and the Plan expires March 29, 2011. Options
granted under the Plan include  incentive and nonqualified  stock options,  with
vesting  determined  on the  grant  date,  not to  exceed  ten  years,  and  are
exercisable  over a ten-year  maximum period at a price no less than 100% of the
fair market value of the common stock at the date of grant.


The following  table  summarizes the activity  under the Company's  stock option
plan:

<TABLE>
<CAPTION>
                                                                          Years ended March 31,
                                                        ----------------------------------------------------------
                                                                   2005                           2004
                                                        -----------------------------  ---------------------------
                                                        Number of      Weighted Price   Number of       Price
                                                          Shares        Per Share        Shares        Per Share
                                                        -----------     -----------    ------------   ----------
<S>                                                      <C>            <C>             <C>           <C>
 Options outstanding, beginning of year                  1,015,100      $    0.52       1,120,300     $     0.56
   Granted                                                  20,000           0.10         210,300           0.50
   Canceled/expired                                       (375,100)          0.58        (315,500)          0.65
   Exercised                                                     -                              -              -
                                                        ----------      ---------       ---------     ----------

 Options outstanding, end of year                          660,000      $    0.47       1,015,100     $     0.52
                                                        ==========      =========       =========     ==========

 Options exercisable, end of year                          660,000      $    0.47       1,015,100     $     0.52
                                                        ==========      =========       =========     ==========

 Weighted average fair value of options granted                         $   0.049                     $     0.16
                                                                        =========                     ==========
</TABLE>
                                      F-19
<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

There were  2,840,000  options  available  for grant under the plan at March 31,
2005.

Options  outstanding  and exercisable by price range as of March 31, 2005 are as
follows:

<TABLE>
<CAPTION>
                                                            Weighted
                                                            Average        Weighted                      Weighted
                                                           Remaining       Average                       Average
                                          Options          Contractual     Exercise        Options       Exercise
Range of Exercise Prices                Outstanding           Life          Price        Exercisable      Price
                                       -------------      ------------    ---------     -------------   ---------
<C>                                          <C>                  <C>     <C>                  <C>        <C>
$0.50                                        640,000              2.34    $    0.50           640,000    $   0.50
$0.10                                         20,000              4.00    $    0.10            20,000    $   0.10
                                       -------------      ------------    ---------     -------------    --------
$0.10 - $0.50                                660,000              2.39    $    0.47           660,000    $   0.47
                                       =============      ============    =========     =============    ========
</TABLE>


NOTE 8--401(k) PLAN

The Company's  401(k) plan was frozen and terminated in the year ended March 31,
2004.  Participants  have been  notified to withdraw  funds.  In fiscal 2004 and
2003, the Company did not contribute to the 401(k) plan.


NOTE 9--RELATED PARTY TRANSACTIONS

In  connection  with the April 22, 2003  resignation  of Mr.  James M. Heim,  an
officer of the Company,  and at Mr.  Heim's  request,  as part of the  Company's
separation  agreement  with Mr. Heim the Company  agreed to transfer to Mr. Heim
ownership rights to all of the Company's  proprietary  software products,  which
comprised  1.2% in the fiscal year ended March 31,  2003,  and less than 1.6% of
the  Company's  revenues in each of the  previous 3 fiscal  years.  There was no
carrying value of assets related to these  proprietary  software  products.  Mr.
Heim assumed the balance of the maintenance contracts through a transfer of cash
of  approximately  $39,000  representing  the  carrying  amount  of the  related
obligation on the Company's balance sheet at the time of the transfer.

During the fiscal year ended March 31, 2005, Mr. James M. Heim and Mr. Martin A.
Diamond,  who are  executive  officers of the  Company,  provided  approximately
$40,000 in capital  financing  to the Company in the form of payments of current
operating expenses.  These expenditures were critical to the ongoing operations.
These  expenses  included  accounting,   auditing,  SEC  reporting  and  general
operating and administrative  expenditures related to the efforts to re-organize
the creditors and efforts to secure capital. In addition,  Mr. Heim deferred all
of the $120,000 of  compensation  due under his  employment  agreement  with the
Company  and is  included  in  accrued  expenses  on the  balance  sheet.  These
obligations  which have been incurred since the foreclosure  action in the prior
fiscal year will be treated as priority obligations by the Company.

                                      F-20
<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

NOTE 10--COMMITMENTS AND CONTINGENCIES

The  Company's  administrative  and  accounting  records  are located in Tucson,
Arizona in a storage facility  consisting of approximately 300 square feet under
a month-to-month  lease. If the Company  requires  additional or alternate space
within the next twelve  months,  the Company  believes that space  sufficient to
meet its requirements  will be available on commercially  reasonable terms. Rent
expense under  operating  leases for the years ended March 31, 2005 and 2004 was
$2,509  and  $512,688,  respectively.  There is one  operating  lease that has a
remaining  non-cancelable  lease  term in excess of one year at March 31,  2005.
Minimum annual lease payments under this arrangement are $30,420 and $17,745 for
the years  ended  March 31,  2005 and 2006  respectively.  The lease  expires in
October 2005.  Due to the financial  insolvency of the Company,  no  liabilities
have been recorded for the remaining lease term as of March 31, 2005.

Under its bylaws, the Company has agreed to indemnify its officers and directors
for  certain  events  or  occurrences  arising  as a result  of the  officer  or
director's serving in such capacity.  The term of the indemnification  period is
for the officer's or director's lifetime. The maximum potential amount of future
payments  the  Company  could be  required to make is  unlimited.  However,  the
Company has had no operations  since the  foreclosure and minimal trading in its
stock,  and as a result,  the Company believes the estimated fair value of these
indemnification  agreements is minimal and has no liabilities recorded for these
agreements as of March 31, 2005.

On August  1,  2000,  certain  holders  of the  Company's  Series B  Convertible
Preferred Stock filed an action in the Arizona Superior Court, Pima County (Pace
Investment Co., Inc., et al. v. Prologic Management Systems, Inc., CV 20003999).
The Company filed a counterclaim  against the Plaintiffs,  petitioning the court
to, amongst other things, affirm the Company's position and deny the Plaintiffs'
claims. On April 30, 2003, the parties negotiated a settlement agreement whereby
the Company would issue the plaintiffs  2.63 shares of Prologic common stock for
each dollar ($1.00) of money originally  invested by the plaintiffs,  reduced by
the number of common  shares  that have been  issued to each  current  preferred
stockholder as dividends on the preferred  stock.  The total number of shares of
common stock to be issued to the  plaintiffs  is 1,197,634  shares.  The parties
have agreed to dismiss with  prejudice all claims in this case.  The parties are
in the process of  attempting to reach  agreement on a  settlement,  after which
time the common  shares due  thereunder  will be issued.  The parties  intend to
settle the dispute without the aide of the courts.

On May 19,  2003,  a complaint  was filed by Avnet  against  Prologic to collect
approximately  $150,000  owed by Prologic to Avnet.  (Avnet  Computer  Marketing
Group v. Prologic Management systems, Inc.,  C20032814).  Prologic does not deny
this debt and has agreed to a stipulated judgment for the full debt owed in this
matter.  An Entry of Default was granted on January 13, 2004 for a total  amount
of $150,522, which includes costs and legal fees of $212.

On October 23,  2003,  a complaint  was filed by  Holualoa  against  Prologic to
collect  approximately  $194,000  allegedly  owed by  Prologic  for the lease of
office space in Tucson, Arizona (Holualoa Butterfield Industrial LLC v. Prologic
Management Systems, Inc., C20035918).  The plaintiff requested from the court an
Entry of  Default  and it was  granted on March 11,  2004 for a total  amount of
$190,129, which includes costs and legal fees of $5,898.

                                      F-21
<PAGE>


                PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

On December  23,  2003,  a complaint  was filed by Nextera  against  Prologic to
collect  approximately  $80,000 owed by Prologic under the terms of a promissory
note (Nextera Business  Performance Group, Inc. v. Prologic  Management Systems,
Inc., MICV2003-05209-H).. On April 14, 2004, the plaintiff requested an Entry of
Default.  An Entry of Default was granted on May 28, 2004 for a total  amount of
$85,340, which includes interest of $17,340.

The Company  acknowledges the possibility that creditors and/or former employees
in the future may file  additional  lawsuits.  However,  there have been no such
specific asserted claims that have not been accrued for in the accompany balance
sheet at March 31, 2005. As discussed in Note 3, management  believes that there
is little  legal  basis for  creditors  to make and enforce  claims  against its
dissolved subsidiary.


                                    * * * * *

                                      F-22