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

                                   FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended March 31, 2002.

Commission file number: 33-89384-LA

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

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

      3708 E. Columbia Street, #110, Tucson, Arizona                  85714
           (Address of principal executive offices)                (Zip Code)

                    Issuer's telephone number (520) 747-4100.


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

               Common Stock and Warrants to Purchase Common Stock

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

Check if disclosure of delinquent filers pursuant to Item 405 of Regulations S-B
is not contained in this form, and no disclosure will be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

Issuer's revenue for its most recent fiscal year: $19,451,541.

As of May 30, 2002, the aggregate market value of 5,393,863 shares of voting
stock held by non-affiliates of the issuer (calculated using the reported
closing sale price of the common stock on the OTC Bulletin Board) was $970,895.
This calculation does not reflect a determination that certain persons are
affiliates of the registrant for any other purposes.

Number of shares of common stock outstanding on March 31, 2002 was 7,014,591.

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

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None

<PAGE>

                                     PART I

RECENT DEVELOPMENTS

Acquisition of Assets from Solid Systems, Inc.

         On June 15, 2002, the Company closed an acquisition effective May 31,
2002 whereby the Company acquired, in a non-cash asset purchase, four (4)
additional offices and associated personnel and equipment, from Solid Systems,
Inc, an information technology service provider. The offices are located in
Dallas, Austin and Houston, Texas, and in New Orleans, Louisiana. The Company
intends to continue the systems integration and maintenance business under the
name of Solid Systems.

         Pursuant to the agreement, Solid Systems Inc. assets were sold and
transferred to the Company in consideration for the assumption of liabilities.
Assets totaling approximately $1,300,000 included: accounts receivable, prepaid
maintenance contracts and prepaid expenses, computer equipment, and office
equipment and furniture. The Company intends to use the equipment and office
space it acquired from Solid Systems to continue the systems integration and
enterprise services business. Liabilities totaling approximately $1,300,000
included: accounts payable, accrued expenses, deferred revenue and sales tax
expense.

         In the transaction, the Company also acquired the rights to the Solid
Systems Inc. mark, the solidsystems.com domain name and Solidstor mark. The
Company assumed lease agreements for its Austin, Dallas and New Orleans
locations. The Austin office leases 2,400 square feet of office space under a
lease that expires in May 2004. The Dallas office leases 2,053 square feet of
office space under a lease that expires in October 2002. The New Orleans office
leases 2,400 square feet of office space under a lease that expires May 2004.
The office lease for the Houston office has expired, and the Company is
currently in the process of securing new office space for this location.

         As it is impracticable for the Company to include audited historical
financial statements within the 15-day period, the Company will file such
financial statements under an extension by August 29, 2002.


ITEM 1. BUSINESS

GENERAL

         Prologic Management Systems, Inc. is an Arizona corporation founded in
1984. The Company is a commercial systems integration, professional services and
software development firm, specializing in high-availability, fully integrated
systems. The Company's BASIS, Inc. subsidiary, headquartered in Emeryville,
California, provides systems integration services, networking services, security
and database software for the commercial market. The Company's Tucson office,
which also serves as its corporate headquarters, provides professional services,
including process improvement consulting services, software development
services, and support services for its clients in the manufacturing industry.

         The Company offers clients a wide range of professional services from
consulting to implementing custom business solutions, including the integration
of web storefronts with back-end e-commerce systems, developing complete
e-business strategies, web design and security. The Company specializes in open
systems integration and related services, primarily utilizing UNIX operating
systems

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<PAGE>

to deploy powerful computing solutions. Professional services include
enterprise and workgroup client/server design and optimization, relational
database integration, LAN/WAN and workgroup solutions, and offers consulting and
software development expertise in manufacturing, distribution and resource
tracking for commercial clients.

         The Company's principal executive offices are located at 3708 E.
Columbia Street, Suite 110, Tucson, Arizona 85714 and its telephone number is
(520) 747-4100. The Company's World Wide Web Site can be accessed at
www.prologic.com.

SERVICES AND PRODUCTS

         The Company provides systems integration services and other
professional services, including e-commerce, consulting, and software
development, as well as support services for its customers in the manufacturing
sector that utilize its proprietary software products. The Company's software
development expertise provides an internal resource for development needs in
integration and custom projects.

         The Company provides national and regional product support, as well as
Internet and Intranet application and framework and design, security, encryption
and relational database deployment. The Company provides full-service planning,
design, management, custom programming, systems integration, technical and
consulting services. This includes design and architecture, consulting,
technical support, training and the installation and sale of third-party
computer hardware and software products.

         The Company provides consulting services to its clients, particularly
in the areas of hardware and software selection, logical and physical system
design, programming implementation, process improvement, education and training.
As a systems integrator, the Company assumes overall project management
responsibility. The Company generally bills for project work on a time and
materials basis. The Company's ability to undertake and successfully implement
major systems integration and other projects requires a wide range of technical
skills, such as logical and physical design, implementation and training support
and technical expertise in computer hardware and peripheral equipment,
databases, programming, productivity tools, communications, and system design
and maintenance. The Company's experience has been that a highly trained and
skilled workforce possessing the necessary technical expertise is available in
each of the markets in which the Company currently has offices.

         In an effort to increase its software sales, the Company focused a
limited amount of development resources to address supply chain management for
its clients adopting an e-commerce strategy in business-to-business ("B2B")
operations and to enhance and improve its traditional application software
products, which use an open architecture with the capability of accessing data
from multiple industry-standard database architectures.

         The Company's proprietary products include manufacturing and
distribution software for commercial clients, as well as e-commerce supply chain
offerings. The Company's principal software products are described below.

         Prologic Manufacturing. Prologic Manufacturing is a comprehensive
21-module software application suite that includes management tools, which help
manage the day-to-day operations of a manufacturing environment. The
Manufacturing modules range from general accounting to the tracking and movement
of products through the plant, to increased visibility of labor efficiencies.
Prologic Manufacturing integrates all aspects of the manufacturing process.
Prologic Manufacturing can be used

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<PAGE>

in conjunction with Prologic Electronic Data Interchange software as well as
Prologic Data Collection software.

         Prologic Distribution. The Prologic Distribution application software
suite includes software tools to assist in the management of product
distribution, business forecasting and planning for product fulfillment and
distribution. Prologic Distribution was designed to help customers reduce
inventory carrying costs and improve customer service. Inventory forecasts
provide management with complete reporting tools including seasonality and
multi-warehouse reporting for reducing warehousing and distribution costs. In
addition, a full history by location is maintained on-line to enable management
to track product demand by location and to further facilitate customer service.
Prologic Distribution can be used in conjunction with Prologic Electronic Data
Interchange software and Prologic Data Collection software.

         Since 1996, the vast majority of the Company's operating revenues in
each fiscal year have been generated by the Company's BASIS, Inc. subsidiary
from the sale of systems integration hardware products and sales of related
software products, integration services and other professional services. The
Company's other activities, including sales of e-commerce solutions and sales of
its proprietary software products and related services, contribute substantially
less to overall operating revenues. The Company continues to focus on increasing
sales of its systems integration services, which have a higher margin than sales
of computer hardware.

         Sales of the Company's professional services have represented an
increasingly important percentage of gross margins. During the Company's fiscal
year ended March 31, 2002, 55.88% of the Company's total gross margin was
generated by professional services and 9.84% by sales of related third-party
software licenses. During the same fiscal year, 34.28% of the Company's gross
margin was generated by hardware sales, which have materially lower margins than
sales of professional services, systems integration services or proprietary
software.


MARKETING AND DISTRIBUTION

         The Company's strategic marketing efforts are directed by its corporate
office in Tucson in conjunction with the Company's BASIS, Inc. subsidiary that
provides direct sales and marketing management. The Company's primary objective
is to emphasize its commercial systems integration expertise and promote the
sale of professional services to increase the Company's overall margins and
competitive advantage. To achieve this goal, the Company attempts to market its
high quality, higher margin services to its existing customer base, develop new
corporate accounts in targeted geographical areas and expand and develop
strategic relationships with various companies that sell products within the
systems integration market. The Company has joint marketing relationships with
leading industry vendors and will continue to offer its systems integration
expertise. The Company currently resells products from or has marketing
agreements with Advanced Digital Information Corporation, GE Access, Check Point
Software Technologies Ltd., Cisco Systems, Inc., Oracle Corporation, Protegrity,
Resonate, Inc., SJ Technologies, Sun Microsystems, Inc., and VERITAS Software
Corporation.

         During fiscal 2001, the Company's BASIS subsidiary initiated a
marketing campaign designed to enhance its presence in the Silicon Valley
through the use of cooperative marketing funds provided by multiple vendors.
Although the Company significantly reduced marketing expenditures in fiscal
2002, it continues to execute its marketing strategies to enhance its regional
presence and increase sales.

                                       4
<PAGE>

         The Company has established sales and/or integration offices in Tucson,
Arizona (Prologic), Scottsdale, Arizona (BASIS), Emeryville, California (BASIS),
and Portland, Oregon (BASIS) to offer proximity to its customer and vendor base.
The Company also has sales and integration offices in Dallas, Austin, and
Houston, Texas, and in New Orleans, Louisiana (See Part I, Recent Developments,
Acquisition of Assets from Solid Systems, Inc.). The Company believes that there
are sufficient numbers of qualified potential employees in all areas where the
Company has offices to support the expansion of the Company's services and its
customer base in accordance with the Company's long-range business plan.


GROWTH STRATEGY

         The Company's strategy is to grow its revenue both by increasing its
systems integration services within its customer base at existing Company
locations, and by expanding its sales force on a regional basis into new
customer relationships that can be served initially by the technical resources
located at existing locations.

         As new customers are secured, the Company's focus will turn to
developing higher gross margins. This will be accomplished primarily through the
sale of systems integration and professional consulting services. Management
believes that higher margins, if achieved, will enable the Company to internally
fund the growth of the operations to take advantage of the significant growth
opportunities that exist in the market.

         The Company believes that an internal growth strategy is the most
cost-effective avenue of growth for the Company. However, due to limited working
capital, growth of the Company's operations will, for the foreseeable future,
depend principally upon the Company's ability to generate growth internally
while expanding, or at least maintaining, its operating margins.


COMPETITION

         The systems integration and computer software industries are highly
competitive, include participants from a variety of market segments, are subject
to rapid change and have low barriers to entry. The competition in systems
integration services includes mid-level and regional systems integrators,
international, national and regional accounting firms, the service groups of
computer equipment companies, contract programming companies, facilities
management companies and general management consulting firms. Among the more
recognizable participants in the market are Accenture, Cambridge Technology
Partners, Computer Sciences Corporation, PricewaterhouseCoopers, Electronic Data
Systems Corporation, IBM Global Services, and Technology Solutions Corporation.
The Company believes it competes favorably with these systems integrators in the
areas and level of responsiveness, regional and national vendor contacts, and
its dedication to maintaining up-to-date certification standards to provide its
clients with a higher standard of customer service.

         Many participants in the software development and systems integration
businesses have significantly greater financial, technical, and marketing
resources than does the Company. The Company expects that competition in the
services industry could increase in the future, partly due to low barriers of
entry. Increased competition has and could continue to result in price
reductions, reduced margins, or loss of market share for the Company and greater
competition for qualified technical personnel. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors. If the Company is unable to compete effectively, or if competition
among information

                                       5
<PAGE>

technology services companies results in a deterioration of market
conditions for information technology services companies, there could be a
material adverse effect on the Company.


DEPENDENCE UPON LIMITED SUPPLY OF SALES, MANAGEMENT AND TECHNICAL PERSONNEL

         The Company believes that its ability to compete successfully depends
in part on a number of factors outside of its control, including the ability of
its competitors to hire, retain and motivate a large number of sales personnel,
technicians and managers, and the development by others of competitive services
and software. The Company's Management believes that one of its principal
long-term challenges is to identify and hire effective sales and project
managers and skilled technical personnel, and to focus its efforts on the
marketing and sales of professional services and proprietary software products,
both through the Company's systems integration subsidiary and through direct
sales. Many participants in the professional services, systems integration and
software development businesses have significantly greater financial, technical,
and marketing resources than does the Company.


SOURCES OF PRODUCTS AND UNDERLYING TECHNOLOGY

         The principal products used in the Company's systems integration
projects include third-party computer hardware and software. As of June 2002,
the Company has not experienced any material difficulties or delays in meeting
customer shipments. While alternate independent suppliers for such products are
available, the Company is reliant upon licensing and marketing agreements with
the product manufacturers.

         The Company's primary supplier, GE Access, is a master distributor for
Sun Microsystems and numerous other hardware and software manufacturers. GE
Access-distributed products accounted for approximately 89.6% of the Company's
fiscal 2002 product purchases and 87.7% of product purchases in fiscal 2001. In
fiscal 2000, the Company extended its distribution agreement with GE Access an
additional three (3) years. GE Access currently allows the Company to purchase
goods on open credit under a program that allows the Company to assign client
proceeds from sales of products directly to GE Access. At March 31, 2002, the
Company had assigned $2,496,126 in receivables to the lender, and was liable for
$278,857 under the agreement. The credit with this supplier is based on the
credit worthiness of our clients under the AOP program.

         In December 2000, the Company signed a $5 million note, converting
approximately $5 million in accounts payable to a key lender into installment
debt. The note was renegotiated in fiscal 2002 and included warrants to purchase
an aggregate of 700,000 shares of common stock at $0.75 per share, expiring in
fiscal 2007. The new note, due April 14, 2003, bears interest at 6%, and
requires the Company to make monthly payments of 40% of its available net cash
flow each month. The note further requires that the Company direct 50% of any
future sums received by, committed to, or invested in the Company as an
additional equity capital infusion, towards repayment of the unpaid balance of
the note. At March 31, 2002, the balance of the new promissory note was
approximately $6,385,000, and accrued interest was approximately $265,800.

         The Company has numerous underlying agreements with third-party
hardware and software companies concerning the distribution and support of their
products. There are a limited number of companies that have comparable products.
Furthermore, the loss of any license agreement with a

                                       6
<PAGE>

significant supplier or manufacturer could interrupt the sales of the
Company's products and services and have a material adverse impact on the
Company.


DEPENDENCE UPON LIMITED NUMBER OF CUSTOMERS

         The Company's five largest clients in the fiscal year ended March 31,
2002 accounted in the aggregate for 51.10% of total revenues (and individually
accounted for 28.18%, 7.85%, 6.74%, 4.38% and 3.95% of total revenues,
respectively) and in fiscal 2001, the five largest clients accounted in the
aggregate for 53.15% of total revenues (and individually accounted for 17.41%,
12.907%, 11.24%, 6.07% and 5.54% of total revenues, respectively). Based upon
the significant capital expenditure usually associated with the initial purchase
of the systems which the Company integrates for its customers, and because these
systems purchases generally are not recurring expenses by the same customer, it
is unlikely that the revenue from any individual customer that has accounted for
significant revenues in past periods will continue to represent a significant
portion of future period revenues. As a result, the Company's business,
operating results and financial condition could be materially adversely affected
by the failure of anticipated orders to materialize and by deferrals or
cancellations of systems integration orders received.

         From time to time, the Company, in the ordinary course of its systems
integration business, enters into agreements to provide professional services to
customers in connection with the development of certain product features and
enhancements. Such agreements provide for payment of specified fees as services
are provided and payments as development milestones are attained. Other than
with respect to such agreements, none of the Company's customers are
contractually obligated to license or purchase additional products or services
from the Company.

         Furthermore, the Company's customers are generally concentrated in
specific geographic areas, particularly the Western States. The Company's future
success depends upon the capital spending patterns of its customers and the
continued demand by such customers for the Company's products and services. The
Company's operating results may in the future be subject to substantial
period-to-period fluctuations as a consequence of customer concentration and
factors affecting capital spending in the areas in which the Company conducts
its business.


PRODUCT DEVELOPMENT

         The market for computer products and related services is characterized
by rapid technological developments and changes in customer requirements. As a
result, the Company's success will depend in part on its ability to continue to
evaluate third party products and to introduce in a timely manner new products
that keep pace with technological advances and respond to rapidly changing
customer requirements. The life cycle of a product is dependent in part on
timely updates to keep pace with technological advances and the needs of its
customers. The Company seeks to evaluate all of the products it markets,
typically on an annual basis, but there can be no assurance that any
enhancements or new products will adequately address the changing needs or gain
the acceptance of the marketplace.

                                       7
<PAGE>

EMPLOYEES

         As of March 31, 2002, the Company had approximately 38 full-time
employees, including 15 in technical services, 13 in sales and marketing and 10
in finance and administration. The Company's Tucson office employed 14 full-time
employees, and the Company's BASIS, Inc. subsidiary had 24 full-time employees
and 1 part-time employee. The Company's employees are not represented by any
collective bargaining organization, and the Company has never experienced a work
stoppage. The Company believes that its relations with its employees are
satisfactory.

                                       8
<PAGE>


ITEM 2. PROPERTIES

         The Company's headquarters are located in Tucson, Arizona in a leased
office consisting of approximately 12,178 square feet. The lease expires
September 2004.

         BASIS leases 10,700 square feet of office space in Emeryville,
California, under a month-to-month lease. BASIS' Portland, Oregon site leased
2,672 square feet of office space under an extended lease that expired March
2002. BASIS also leases 132 square feet of office space in Scottsdale, Arizona,
under a short-term lease that expired May 31, 2002.

         If the Company were to require 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.


ITEM 3. LEGAL PROCEEDINGS

         As previously reported, 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). In the complaint, Plaintiffs allege that
certain conditions affecting the Series B Preferred Stock conversion rate were
not timely met, or not met at all, resulting in rights to convert Series B
Preferred shares into a substantially greater number of shares of the Company's
common stock than originally specified. Although the exact number of shares of
common stock is unspecified, the Company believes that judgment in favor of the
Plaintiffs might result in conversion rights involving up to 5,837,049 shares of
common stock. The Plaintiffs also request a judgment declaring whether the
Company's Series C Convertible Preferred Stock (which has conversion rights and
conversion rates identical to those of the Series B Preferred Stock) was validly
issued. The Company maintains, as previously reported, that the conditions were
met by December 31, 1999, and has filed a counterclaim against the Plaintiffs,
petitioning the court to, amongst other things, affirm the Company's position
and deny the Plaintiffs' claims.

         On February 21, 2001, these Series B Convertible Preferred Stockholders
requested that Prologic convert their shares of Series B Convertible Preferred
Stock into common stock. The Company converted the preferred stock to common
stock at a conversion rate of $2.25 per share for a total of 277,782 shares of
common stock. The Plaintiffs contend that the conversion should have resulted in
the issuance of approximately 4.6 million shares and both the original complaint
and counterclaim remain pending.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SHAREHOLDERS

         No matters were submitted to a vote of security holders during the
quarter ended March 31, 2002.

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<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company completed its initial public offering on March 15, 1996 at
a price of $5.00 per share of Common Stock and $0.125 per Warrant (each warrant
entitling the holder to purchase one share of common stock at an exercise price
of $6.00). The Company's common stock warrants expired unexercised in the fiscal
year ended March 31, 1999. The Company's securities were delisted from trading
on the NASDAQ Small Cap Market and the Boston Stock Exchange in August 1998,
following which trading of the Company's common stock has continued to be
conducted on the non-NASDAQ over-the-counter ("OTC") market, under the symbol
PRLO. Trading of the Company's common stock in the OTC market has been sporadic
and generally at very low reported daily volumes. Until recently when the
Company's stock began trading on the OTC Bulletin Board, there had been no
active market for the Company's common stock since it was delisted from the
NASDAQ Small Cap Market in August 1998.

         The table below represents the high and low bid prices for the
Company's common stock, as reported by the National Quotation Bureau, from June
30, 2000 through March 31, 2002. The quotations shown represent inter-dealer
prices without adjustment for retail mark-ups, mark downs or commissions, and
may not necessarily reflect actual transactions.
<TABLE>
<CAPTION>

                                                                   Common Stock
         Quarter Ended                                        High              Low
         -------------                                      ---------         --------
<S>           <C> <C>                                         <C>               <C>
         June 30, 2000                                        $0.80             $0.30
         September 30, 2000                                   $0.51             $0.31
         December 31, 2000                                    $0.45             $0.12
         March 31, 2001                                       $0.40             $0.13
         June 30, 2001                                        $0.65             $0.20
         September 30, 2001                                   $0.65             $0.36
         December 31, 2001                                    $0.36             $0.21
         March 31, 2002                                       $0.21             $0.11
</TABLE>


         As of April 30, 2002, there were 200 shareholders of record of the
Company's common stock. The Company has neither declared nor paid cash dividends
on its common stock in the past, and currently intends to retain any earnings
for use in the business and does not anticipate paying any cash dividends on its
common stock in the foreseeable future. During the fiscal year ended March 31,
2002, dividends totaling 56,535 shares of common stock valued, in the aggregate,
at $32,675 were paid to holders of the Company's Series B Preferred Stock and
Series C Preferred Stock. In the prior fiscal year, the Company issued dividends
totaling 100,671 shares of common stock valued, in the aggregate, at $100,113 to
holders of the Company's Series B Preferred Stock and Series C Preferred Stock.

                                       10
<PAGE>


Recent Sales of Unregistered Securities

Fiscal Year Ended March 31, 2002

1.   During the fiscal year ended March 31, 2002, the Company issued dividends
     totaling 56,535 shares of common stock to holders of the Company's Series B
     and Series C Preferred Stock in a transaction exempt from registration.

2.   During the fiscal year ended March 31, 2002, the Company issued 100,000
     shares of common stock as consideration for consulting services rendered by
     an individual in a transaction exempt from registration under Section 4(2)
     of the Securities Act of 1933.

3.   During the fiscal year ended March 31, 2002, the Company issued warrants to
     purchase an aggregate of 700,000 shares of common stock to a key lender as
     consideration in connection with the renegotiation of its $5 million note
     in a transaction exempt from registration under Section 4(2) of the
     Securities Act of 1933. The exercise price is $0.75 per share of common
     stock, and the warrants expire in fiscal 2007.

                                       11

<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION & ANALYSIS

Introduction

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

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

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

                                       12
<PAGE>


CRITICAL ACCOUNTING POLICIES

Revenue Recognition

         The Company recognizes revenue from the sale of third-party hardware
and software products upon shipment from the vendor to the end user, or when
shipped from the Company, whichever is appropriate Title transfers FOB shipping
point. Revenue is recognized on sales of third-party maintenance agreements upon
receipt of the billing invoice from the vendor at which time the Company retains
no further obligation to the customer or vendor. Revenue from professional
services is recognized upon completion of the work and notification from the
customer of their acceptance. Revenue from software licensing is recognized in
accordance with Statement of Position 97-2, Software Revenue Recognition.
Revenue from software licensing is recognized when delivery of the software has
occurred, a signed non-cancelable license agreement has been received from the
customer and any remaining obligations under the license agreement are
insignificant. Revenue associated with agreements to provide product support
services is recognized as related services are provided. Revenue from annual or
other renewals of maintenance contracts is deferred and recognized on a
straight-line basis over the term of the contracts.

Impairment of Long Lived Assets

         In assessing the recoverability of long lived assets, including
goodwill, we must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, we may be required
to record impairment charges for these assets not previously recorded.


RESULTS OF OPERATIONS

COMPARISON OF FISCAL 2002 TO FISCAL 2001

         Revenues. Total revenue decreased by 48.5% for the fiscal year ended
March 31, 2002 to $19,451,541 from $37,756,351 for the previous fiscal year.
Sales of third party hardware decreased by 52.7% to $11,740,946 from $24,842,295
for the fiscal year ended March 31, 2001; sales of third party software licenses
decreased by 63.4% to $3,140,390 from $8,581,053 for the fiscal year ended March
31, 2001; and sales of professional services increased by 5.5% to $4,570,205
from $4,333,003 for the prior fiscal year. The sales decrease was due primarily
to the continuing economic downturn that caused clients to reduce and/or defer
hardware and software purchases during the year, and was further aggravated in
response to the terrorist attacks and threats on the United States which began
in September 2001. The Company continues to concentrate on sales of services,
which carry higher margins than hardware and third party software sales.

         Historically, the Company's revenues vary significantly from period to
period. This is due to the high revenues associated with the initial stages of a
typical system implementation in contrast to the relatively lower revenues
associated with services and products which may be furnished by the Company to
the customer after completion of the initial installation. Accordingly, the
Company's revenues may vary significantly from period to period for a variety of
reasons, including but not limited to the timing of customer orders for products
and services, deferrals and cancellations of orders, and capital spending
patterns of customers and prospective customers in the specific industries and
areas in which the Company's customers have historically been concentrated.

                                       13
<PAGE>

         Cost of Sales. Cost of sales decreased 51.3% to $15,065,476, or 77.5%
of total revenue, for the fiscal year ended March 31, 2002, from $30,939,608, or
81.9% of total revenue, for the fiscal year ended March 31, 2001. The overall
decreased cost of sales was primarily the result of the decline in sales. The
decrease as a percentage of total revenue was due to the change in sales mix to
a higher percentage of professional services, which carry a higher margin than
hardware sales. The cost of hardware sales as a percentage of hardware sales
decreased to 87.2%, or $10,237,315, from 88.8%, or $22,060,121, for the fiscal
year ended March 31, 2001. The cost of professional services, software and third
party licenses decreased to $4,828,161 for the fiscal year ended March 31, 2002,
from $8,879,487 for the fiscal year ended March 31, 2001. Professional services
costs were 46.4% of service revenue in fiscal 2002 as compared to 84.7% of
service revenue in fiscal 2001. The cost of sales for software licenses was
86.3% of license revenue in fiscal 2002 as compared to 84.7% in fiscal 2001.

         The increase in the cost of software was the result of competition as
the Company's BASIS subsidiary pursued expanding its client base; initial sales
contain a lower component of services and are therefore more susceptible to
pricing pressures in the database software market. The Company expects this
general industry trend to continue. However, as the Company increases sales of
professional services to these newer clients following the initial installation
phase, the impact of competitive pressures associated with computer hardware and
software sales should diminish. The Company anticipates that its overall margin
will improve as sales of professional services become a larger percentage of
total revenue.

         Gross Profits. Gross profit decreased 35.7% to $4,386,065 for the
fiscal year ended March 31, 2002, from $6,816,743 for the fiscal year ended
March 31, 2001. Gross margin increased to 22.5% in the fiscal year ended March
31, 2002 from 18.1% for the fiscal year ended March 31, 2001, due principally to
an increase in sales of services in fiscal 2002, which carry higher margins than
hardware sales.

         The Company believes that it will continue to see gross profit erode in
the systems integration market for hardware sales. Accordingly, the Company's
strategy is to continue to increase the sales of professional services and
software products and associated services. If the Company is successful in
increasing sales of professional services and software increase in relation to
the sales of hardware, the Company expects to see favorable changes in its
results of operations in future periods.

         General and Administrative. General and administrative expenses were
$4,412,855, or 22.7% of total revenue, for the fiscal year ended March 31, 2002,
as compared to $5,375,680, or 14.2% of total revenue, for the same period of the
prior fiscal year. The decrease in these expenses is attributable to the
Company's reduction in operating expenses in the second half of fiscal 2002 in
response to uncertain economic conditions. The increase, as a percentage of net
sales, was primarily the result of the decrease in sales. The Company normally
expects general and administrative expenses to generally reflect long-range
sales trends rather than short-term sales cycles.

         Selling and Marketing. Selling and marketing expenses were $1,679,735,
or 8.6% of total revenue, for the fiscal year ended March 31, 2002, as compared
to $2,514,968, or 6.7% of total revenue, for the same period of the prior fiscal
year. The decrease in the amount of expenses is primarily the result of reduced
commission expense related to the decrease in sales. The increase, as a
percentage of net sales, over the prior period was primarily the result of a
decrease in overall sales and the Company's efforts to increase sales by
allocating more funds to marketing activities to stimulate sales in fiscal 2002.

         Research and Development. For the fiscal year ended March 31, 2002, the
Company incurred approximately $149,924 of research and development expense,
compared to $194,797 for the fiscal year ended March 31, 2001. Research and
development expense included development expenses related to

                                       14
<PAGE>

enhancing the Company's application software products and providing clients
with e-commerce capabilities in business-to-business operations.

         Operating Loss. The Company's loss from operations was $1,856,449, or a
loss of 9.5% of total revenue, for the fiscal year ended March 31, 2002, as
compared to a loss of $1,268,702, or a loss of 3.4% of total revenue, for the
same period of the prior fiscal year. The operating loss resulted from the
continuing economic downturn that caused clients to reduce and/or defer hardware
and software purchases.

         The Company expects that operating results will fluctuate as a result
of a number of factors, including but not limited to: the availability to the
Company of capital adequate to support it's current and anticipated levels of
sales; the ability to attract and retain highly skilled technical, managerial
and sales and marketing personnel; the timing of new product and service
introductions by the Company, by vendors whose products the Company resells to
its customers, as well as by its competitors; changes in the Company's level of
operating expenses, including the Company's marketing and promotional programs;
the size and timing of customer orders for its products or services,
development, production or quality problems on the part of the Company or its
suppliers; the payment of support and maintenance fees; competition in the
computer software market; and the general state of the global and national
economies. The market demand for the Company's products and services can be
significantly affected by uncertain economic cycles. Many of the factors that
may affect the Company's operating results and demand for products and services
based on its technologies cannot be predicted, may not exhibit a consistent
trend, or are substantially beyond the Company's control. Fluctuations in
operating results can also be expected to result in volatility in the price of
the Company's common stock.

         Interest Expense. The Company incurred $661,358 in interest expense
during the fiscal year ended March 31, 2002 as compared to $652,625 for the same
period of the prior fiscal year. Interest expense is on both long-term and
short-term debt.

         Income Taxes. The Company had no income tax expense for the years ended
March 31, 2002 and 2001. As of March 31, 2002, the Company had federal net
operating loss carryforwards of approximately $16,230,000 (see Note 7 of the
Consolidated Financial Statements for a further discussion of the loss
carryforwards). The utilization of net operating loss carryforwards may be
significantly limited as determined pursuant to applicable provisions of the
Internal Revenue Code and U.S. Treasury regulations thereunder.

         Net Loss for Continuing Operations. The Company had a net loss of
$2,517,807, or $0.37 per share, for the fiscal year ended March 31, 2002, as
compared to a loss of $1,897,901, or $0.25 per share, for the same period of the
prior fiscal year.

         Net Loss from Discontinued Operations. During the fiscal year ended
March 31, 2000, the Company discontinued operations of its Great River Systems,
Inc subsidiary. The loss related to the discontinuance of the subsidiary was $0
in the fiscal year ended March 31, 2002 as compared to $15,070 for same period
of the prior fiscal year.

         Net Loss including Discontinued Operations. Including charges related
to the discontinuance of the Great River Systems subsidiary, the Company had a
net loss of $2,517,807, or $0.37 per share, for the fiscal year ended March 31,
2002, as compared to a net loss of $1,912,971, or $0.25 per share, for the same
period of the prior fiscal year.

                                       15
<PAGE>

Liquidity and Capital Resources

         At March 31, 2002, the Company had a working capital deficit of
approximately $1,982,000 versus a deficit of approximately $1,876,000 at March
31, 2001. The cash balance at March 31, 2002 was $81,280. As a result of the
working capital deficit and recurring losses, the Company's independent
certified public accountants have expressed substantial doubt about the
Company's ability to continue as a going concern.

         Cash provided by operations for the fiscal year ended March 31, 2002
was approximately $477,000 compared to cash provided by operations of
approximately $4,309,000 in fiscal 2001. The decrease in fiscal 2002 was
primarily due to an increased operating loss during fiscal 2002 and increased
collections on accounts receivable during fiscal 2001. Cash used in investing
activities was approximately $28,000 for the fiscal year ended March 31, 2002
versus approximately $76,000 for the fiscal year ended March 31, 2001. The
decrease was due to reduced capital expenditures during fiscal 2002. Cash used
in financing activities for the fiscal year ended March 31, 2002 was
approximately $679,000, compared to approximately $4,370,000 for the fiscal year
ended March 31, 2001. The decrease resulted primarily from cash provided under
an assignment of proceeds agreement and reductions in payments on the Company's
line of credit during fiscal 2002.

         Historically the Company has been unable to generate sufficient
internal cash flows to support operations, and has been dependent upon capital
reserves and outside capital sources to supplement cash flow. New equity
investments, lines of credit and other borrowings, and credit granted by its
suppliers have enabled the Company to sustain operations over the past several
years. In August 1998, the Company had failed to meet the "continued listing
criteria" established by NASDAQ and the Company's securities were delisted from
the NASDAQ Small Cap Market. The subsequent lack of liquidity in the Company's
securities has materially adversely affected the Company's ability to attract
equity capital. Additionally, the lack of capital resources has precluded the
Company from effectively executing its strategic business plan. The ability to
raise capital and maintain credit sources is critical to the continued viability
of the Company.

         During fiscal year 2000, the Company authorized a class of securities
designated Series C 10% Cumulative Convertible Preferred Stock, consisting of
100,000 shares with a Stated Value of $10.00 per share, a dividend rate of 10%
and an Applicable Conversion Value of $2.25. On December 30, 1999, the Company
authorized the sale of 75,000 shares of the Series C Preferred, including 37,500
shares to a related party and 37,500 shares to an entity in which officers of
the Company have a minority interest, for an aggregate of $750,000, pursuant to
two subscription agreements. Of the $750,000 in proceeds, $220,780 represented
conversion of current debt from a related party, and $529,220 was subscribed to
in cash. Including the conversion of debt, and $337,720 in cash payments, the
Company has received $558,500, representing 55,850 shares of the Series C
Preferred stock, and has extended the due date for the remaining $191,500.

         During fiscal 2002, the Company signed a $3,000,000 financing agreement
with KBK Financial, Inc. for a line of credit to finance accounts receivable.
This credit facility replaced a $5,000,000 credit facility with Coast Business
Credit, which matured at March 31, 2001. The financing agreement with KBK
Financial was to provide working capital to support the Company's systems
integration operations. The Company terminated the financing agreement effective
March 31, 2002, at which time there was no outstanding balance or activity under
the facility.

         During fiscal 2002, the Company entered into a financing agreement with
a key lender. Under this assignment of proceeds ("AOP") agreement, the Company
receives an immediate partial advance on

                                       16
<PAGE>

all sales and immediately assigns the proceeds to the lender. The proceeds
are assigned with recourse and advances over 90 days  outstanding  bear interest
at a rate of 10% per  annum.  At  March  31,  2002,  the  Company  had  assigned
$2,496,126 in receivables  to the lender,  and was liable for $278,857 under the
agreement.

         During fiscal 2000, the Company and one of its primary vendors agreed
to convert $1,212,000 of the Company's trade payables to the vendor into a
promissory note. The promissory note included interest at 11% and was payable in
monthly installments of $37,500 through September 2000, and $50,000 through
November 2000. The remaining principal balance of approximately $575,000 was due
in full on December 31, 2000. At March 31, 2002, the outstanding principal
balance was approximately $723,000. As of March 31, 2002, this note is past due
and the Company is currently negotiating new terms on the outstanding balance.

         During fiscal 2001, the Company signed a settlement agreement with
Sunburst Acquisitions IV, Inc. The settlement agreement resulted in the
cancellation of 1,959,972 of the Company's common shares, and $100,000 in
settlement expense cost reimbursement to Sunburst, of which, $25,000 was paid in
cash and the Company executed a short-term promissory note for the remaining
$75,000, bearing interest at 10% per annum. As of March 31, 2002, the principal
balance of $75,000 is past due.

         In December 2000, the Company signed a $5 million note, converting
approximately $5 million in accounts payable to a key lender into installment
debt. The note was renegotiated in fiscal 2002 and included warrants to purchase
an aggregate of 700,000 shares of common stock at $0.75 per share, expiring in
fiscal 2007. The new note, due April 14, 2003, bears interest at 6%, and
requires the Company to make monthly payments of 40% of its available net cash
flow each month. The note further requires that the Company direct 50% of any
future sums received by, committed to, or invested in the Company as an
additional equity capital infusion, towards repayment of the unpaid balance of
the note. At March 31, 2002, the balance of the new promissory note was
approximately $6,385,000, and accrued interest was approximately $266,000.

         In fiscal 1997, the Company borrowed $100,000 with an interest rate of
8% and a scheduled maturity date of June 30, 1997. Subsequently, the maturity
date was extended with a revised interest rate of 2% per month plus 10,000
shares per month of restricted common stock. During fiscal 2000, the Company
issued 120,000 shares of common stock as interest towards the note. In March
2000, the Company renegotiated the terms of the note and eliminated the common
stock interest component. The replacement note is unsecured, in the amount of
$164,500, which includes interest and expenses previously accrued, and bears
interest at 3% per month. As of March 31, 2002, the remaining balance of this
note, including principal and interest, was $25,127.

         During fiscal 1998 and 1997, the Company borrowed $365,000 in
short-term notes collateralized by its computer equipment and office
furnishings. Subsequently, $170,000 of these notes was exchanged for 288,000
shares of common stock and $65,000 in principal was repaid. The interest rate on
the notes is 2% per month. As of March 31, 2002, the remaining principal balance
on these notes, which are currently due, was $108,000.

         At March 31, 2002, the Company had current debt obligations, or debt
that will become due within twelve months, of $1,369,449. It is unlikely that
the Company will be able to service this debt from funds generated by operations
alone. As a result, the Company will require additional equity or debt financing
to maintain current operations, service current debt, and assure its ability to
achieve its plans for current and future expansion. The Company continues to
review its strategic alternatives, including raising capital through debt or
equity financing.

                                       17
<PAGE>

         At March 31, 2002, the Company owed approximately $588,000 in prior
sales tax. The Company has negotiated monthly payments on this outstanding
balance and is making payments according to the schedule. The Company is
remitting sales taxes on a timely basis on current sales and is current on all
other tax obligations.

         During fiscal 2002, the Company purchased $27,579 in capital equipment
and software.


Plan of Operations

         The Company's improved performance in fiscal 2001 lost momentum in
fiscal 2002 with the general economic downturn, and was further aggravated by
the terrorist attacks and threats that began in September 2001. In response, the
Company's management implemented more aggressive plans in fiscal 2002 to reduce
operating costs, increase service sales, and other strategies to minimize the
impact on revenues as clients took an increasingly conservative position on
hardware and software spending. The Company will continue to reduce expenses
wherever practicable and focus on securing service revenues, which have not been
as susceptible to market conditions as the demand for computer hardware and
software.

         In addition to the Company's expansion into Texas and Louisiana (See
Part I, Recent Developments, Acquisition of Assets from Solid Systems, Inc.),
the Company is considering the acquisition of one or more systems
integration/high technology service companies in other regions of the United
States to increase its market coverage, sales and profitability. In conjunction
with any acquisition(s), the Company would need to raise equity capital to
provide additional working capital for the consolidated entity. The Company has
no commitments at this time from third parties for any such acquisition(s) or
financing.


The Company May Face Interruption Of Production And Services Due To Increased
Security Measures In Response To Terrorism

         Our business depends on the free flow of products and services through
the channels of commerce. Recently, in response to terrorists' activities and
threats aimed at the United States, transportation, mail, financial and other
services have been slowed or stopped altogether. Further delays or stoppages in
transportation, mail, financial or other services could have a material adverse
effect on our business, results of operations and financial condition.
Furthermore, we may experience an increase in operating costs, such as costs for
transportation, insurance and security as a result of the activities and
potential activities. We may also experience delays in receiving payments from
payers that have been affected by the terrorist activities and potential
activities. The U.S. economy in general is being adversely affected by the
terrorist activities and potential activities and any economic downturn could
adversely impact our results of operations, impair our ability to raise capital
or otherwise adversely affect our ability to grow our business.

                                       18
<PAGE>


Recently Adopted Accounting Pronouncements

         In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.


         SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142.

         On April 1, 2001, the Company elected to adopt SFAS 141 and SFAS 142.
The Company's previous business combination was accounted for using the purchase
method. As of March 31, 2002, the net carrying amount of goodwill was $408,942
and there were no other intangible assets acquired in connection with the
business combination. Pursuant to the terms of SFAS 142, the Company ceased
amortizing goodwill effective April 1, 2001 and recorded no amortization expense
during the year ending March 31, 2002. The Company has completed its
transitional goodwill impairment test pursuant to the provisions of SFAS 142 as
of April 1, 2001, and determined that there was no impairment of the asset.


         In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that these
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. SFAS 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001 and, generally, are to be applied
prospectively. The Company believes the adoption of this statement will have no
material impact on its financial statements.


"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995

         Management's discussion and analysis should be read in conjunction with
the audited Consolidated Financial Statements contained elsewhere in this annual
report on Form 10-KSB for the fiscal year ended March 31, 2002. Except for the
historical information contained herein, the matters discussed in this report on
Form 10-KSB are forward-looking statements that involve a number of risks and
uncertainties. There are numerous important factors and risks, including the
rapid change in hardware and software technology, market conditions, the
anticipation of growth of certain market segments and the positioning of the
Company's products and services in those segments, seasonality in the buying
cycles of certain of the Company's customers, the timing of product
announcements, the release of new or enhanced products, the introduction of
competitive products and services by existing or

                                       19
<PAGE>

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



ITEM 7. FINANCIAL STATEMENTS

         The financial statements attached to this Report on Form 10-KSB as
pages F-2 to F-21 are incorporated herein by reference.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

         Not applicable.

                                       20
<PAGE>

                                    PART III.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

         Information concerning the names, ages, terms and positions with the
members of the Company's Board of Directors and its executive officers and their
respective business experience is set forth below. Each director has served
continuously with the Company since his election as indicated below.
<TABLE>
<CAPTION>

         Name                      Age      Position                           Director Since
         ----                      ---      --------                           --------------
<S>      <C>                        <C>     <C>                                       <C>
         James M. Heim (1)          50      Chief Executive Officer and Director     1984
         John W. Olynick            54      President and Director                   2001
         Richard E. Metz (2)        55      Director                                 1984
         Mark S. Biestman           44      Director                                 1997
         Herbert F. Day (1) (2)     63      Director                                 2001
         Edwin G. Hubert (1) (2)    60      Director                                 2001
         Bruce Carlsmith            46      Director                                 2001
</TABLE>

(1)   Member of Audit Committee
(2)   Member of Compensation Committee

     JAMES M. HEIM, Chief Executive Officer,  Principal Financial and Accounting
Officer and Director.  Mr. Heim,  50, is a co-founder of Prologic and has served
as a Director  since its  inception  in 1984.  In  addition,  Mr. Heim served as
Prologic's  President from 1984 to 1999 and as its Chief Financial  Officer from
1984 to 1995. Mr. Heim has over 20 years of business  management  experience and
is  responsible  for  capital  raising,  mergers  and  acquisitions,  and  other
corporate  activities.  Mr. Heim holds both a Juris Doctor  degree and a B.S. in
Business Administration from the University of Arizona.

     JOHN W. OLYNICK,  President and Director.  Mr.  Olynick,  54, is Prologic's
President  and has served as a Director  since  2001.  Mr.  Olynick,  who joined
Prologic in September  1999 and also serves as President  of  Prologic's  BASIS,
Inc. subsidiary, is responsible for strategic business development.  Mr. Olynick
has had over 25 years of national  sales,  business  development  and management
experience in the technology industry.  During his 20 years at Digital Equipment
Corporation ("DEC"), Mr. Olynick was responsible for successfully  restructuring
and increasing sales, and developing  business and sales growth strategies.  Mr.
Olynick  had served as DEC's  North  American  Sales  Manager of its OEM Storage
Group,  which was  acquired by Quantum  Corporation  in 1994,  at which time Mr.
Olynick became  Quantum's  Corporate  Distribution  Sales  Manager.  Mr. Olynick
attended the New York  University  School of  Engineering  and Harvard  Business
School Professional Development Program.

     RICHARD E. METZ,  Director.  Mr. Metz,  55, is a co-founder of Prologic and
has served as a Director  since its  inception in 1984.  He served as Prologic's
President  from December 1999 to April 2001, and as Executive Vice President and
Secretary from 1995 to December 1999 and again from April 2001 to December 2001.
Mr. Metz has over 30 years of business  management  and  investment  experience,
including 10 years in the computer  hardware and software  industry prior to his
affiliation  with Prologic.  Since 1982, Mr. Metz has owned and managed The Metz
Group, a business  consulting  and investment  firm. Mr. Metz is a member of the
American Arbitration  Association and is an Associate member of the American Bar
Association, Dispute Resolution and Intellectual Property Law Sections.

     MARK S. BIESTMAN,  Director. Mr. Biestman, 44, who has served as a Director
since 1997, has worked in the  information  technology  field for over 25 years,
with  extensive  management   experience

                                       21
<PAGE>

in both domestic and international operations, sales, business development,
professional services and field marketing. As President and Chief Executive
Officer of SEVEN Networks, Inc. Mr. Biestman drives strategic business
direction, mobile data access adoption and wireless innovation. Mr. Biestman was
previously the Senior Vice President of Worldwide Sales at CommerceOne, Inc.,
responsible for worldwide field operations and all aspects of global revenue.
Prior to CommerceOne, Mr. Biestman served as Vice President of Commercial
Applications & Business Development at Actra Business Systems, a strategic
venture between Netscape Communications Corporation and General Electric
Information Services focused on Internet-based cross-commerce solutions. Mr.
Biestman had also served as Netscape Communications' Vice President of Sales -
Western Region, Vice President of Telecommunications Sales at Oracle
Corporation, and has held various sales and management positions at Tandem
Computers and IBM Corporation. Mr. Biestman holds a B.S. in Economics from the
University of California at Berkeley and has attended the Stanford Business
School Executive program.

     HERBERT F. DAY,  Director.  Mr. Day, 63, who has served as a Director since
2001,  previously  served as Director of the Company from 1995 to 1998, at which
time he  resigned  for  personal  reasons.  Mr.  Day has  over  thirty  years of
experience  in  the  computer  industry  with  IBM  Corporation.   He  has  held
professional and management  positions in sales,  marketing,  product management
and product and  business  planning.  Mr. Day  received  his B.S. in  Electrical
Engineering from the University of Maryland.

     EDWIN G. HUBERT,  Director.  Mr.  Hubert,  60, who has served as a Director
since 2001,  has over 30 years  financial  management  and business  development
experience.  Mr. Hubert is both a licensed CPA and a practicing attorney serving
corporate clients. He is also active in real estate development and, since 1993,
has served as Managing  Partner of H30  Partners.  Mr.  Hubert has over 10 years
experience  with IBM, and has held  positions  with  companies such as Coopers &
Lybrand and Touche Ross & Co. (which subsequently merged internationally to form
Deloitte Touche  Tohmatsu  International).  Mr. Hubert was also  responsible for
negotiating  sales of companies to McDonnell Douglas Data Services and Bank One.
Mr. Hubert holds a Juris Doctor degree from the  University of Arizona,  as well
as Bachelor and Masters degrees from the University of Michigan.

         BRUCE CARLSMITH, Director. Mr. Carlsmith, 46, who has served as a
Director since 2001, has worked in the information technology field for over 20
years in various capacities, including as an industry consultant, an analyst,
and as executive management. Mr. Carlsmith was most recently the Chief Operating
Officer at MagNetPoint, a private company based in Novato, California, where he
was responsible for sales, business development, strategic partnerships and
business operations. A former MagNetPoint board member, Mr. Carlsmith brings a
strong technical background and years of management experience over a broad
range of disciplines. Before joining MagNetPoint, Mr. Carlsmith was CEO and a
member of the board of directors for Registry Magic where he reshaped and
redirected the NASDAQ-listed supplier of voice-recognition auto-attendant
products. Prior to that he was a telecommunications analyst with Montgomery
Securities, and prior to that he was with Pacific Telesis and the Boston
Consulting Group. Mr. Carlsmith has a B.S. in Mechanical Engineering from
Stanford and an MBA from Harvard.

                                       22
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

     Information  below  sets  forth  certain  information   regarding  business
experience  and  compensation  paid or awarded by the Company  during the fiscal
year ended March 31, 2002 to the  following  Executive  Officers:  Mr.  James M.
Heim,  the Company's  Chief  Executive  Officer,  and Mr. John W.  Olynick,  the
Company's President. No other officer made more than $100,000 in Fiscal 2002.

<TABLE>
<CAPTION>
Summary Compensation Table

                                         Annual Compensation                       Long-Term Compensation
Name and Other Principal                                                                             All Other
Position                        Year     Salary           Bonus         Stock Options/SARs(#)        Compensation
--------                        ----     ------           -----         ---------------------        ------------
<S>                             <C>      <C>              <C>                     <C>                        <C>
James M. Heim,                  2002     $112,500         $0                      0                          0
Chief Executive Officer         2001     $120,000         $0                      0                          0
                                2000     $153,666         $68,694           250,000 (1)                      0

John W. Olynick,                2002     $187,500         $0                      0                     $8,400(2)
President                       2001     $200,000         $27,189                 0                    $49,011(3)
                                2000     $165,000         $94,926           250,000(4)                  $4,200 (5)
</TABLE>


(1) During the fiscal year ended March 31, 2000, a total of 250,000 nonqualified
stock options were granted to Mr. Heim pursuant to his Employment Agreement with
the Company as its President. In December 1999, all 250,000 stock options were
canceled in connection with the termination of Mr. Heim's Employment Agreement.

(2) During the fiscal year ended March 31, 2002, Mr. Olynick received an $8,400
car allowance.

(3) During the fiscal year ended March 31, 2001, Mr. Olynick received an $8,400
car allowance and a $40,611 housing allowance.

(4) During the fiscal year ended March 31, 2000, a total of 250,000 stock
options were granted to Mr. Olynick pursuant to his Employment Agreement with
the Company. These options are exercisable at $0.50 per share. 83,334 options
vested in the second quarter of fiscal 2000, 83,333 optioned shares vested in
the second quarter of fiscal 2001, and 83,333 optioned shares vested in the
second quarter of fiscal 2002.

(5) During the fiscal year ended March 31, 2000, Mr. Olynick received a $4,200
car allowance.

                                       23

<PAGE>

Option Exercises and Holdings

The following table sets forth information concerning each exercise of a stock
option during the fiscal year ended March 31, 2002 by each of the Named
Executive Officers and the number and value of unexercised options at March 31,
2002.
<TABLE>
<CAPTION>

                                                                                        Value of Unexercised
                  Number of                          Number of Shares Underlying           In-the-Money Options
                  Shares                             Unexercised Options at 03/31/02    at 03/31/02
Name              on Exercise       Value Realized   Exercisable/Unexercisable          Exercisable/Unexercisable

<S>               <C>               <C>              <C>                                <C>
James M. Heim     0                 $0               0 / 0                              $0 / $0

John W. Olynick   0                 $0               250,000 / 0                        $0 / $0
</TABLE>


No Director or executive officer exercised any options during the fiscal year
ended March 31, 2002.


Option Exercises

During the fiscal year, none of the executive officers identified in the Summary
Compensation Table exercised any stock options, and, as of March 31, 2002, none
held any in-the-money options.


Board Compensation

The Company compensates its outside directors for attendance at board meetings
at the rate of $500 per meeting and $150 per hour for committee participation.
Additionally, directors receive 10,000 options to purchase common stock at a
price not less than 100% of the current market price per share at the time of
grant, exercisable upon completion of their elected term. In fiscal 2001, the
Company granted a total of 25,000 options to purchase common stock to Director,
Mark S. Biestman, as compensation for service from 1998 to 2000. The options are
exercisable at the price determined by the board at the time of grant and expire
5 years from the date of issuance. Directors who are also employees of the
Company receive no additional compensation for serving as a Director. The
Company reimburses its Directors for travel and out-of-pocket expenses in
connection with their attendance at meetings of the Board of Directors.

                                       24

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL SHAREHOLDERS AND SHAREHOLDINGS OF MANAGEMENT

         The following table sets forth information, as of March 31, 2002,
concerning the Common Stock beneficially owned by (i) each director of the
Company (ii) the Company's Chief Executive Officer and its other executive
officers, (iii) each person known to the Company to own beneficially more than
5% of the outstanding Common Stock, and (iv) all of the Company's directors and
executive officers as a group.

         Except as otherwise noted, the named individual beneficial owner has
sole investment and voting power.
<TABLE>
<CAPTION>

                                                                                   Shares
                                                          Title of Class         Beneficially          Percent
Name of Beneficial Owner                                     of Stock             Owned (1)            of Class
------------------------                                     --------             ---------            --------
<S>                                                           <C>                 <C>                    <C>
James M. Heim & Marlene Heim (2)                              Common              1,383,517              19.72%
Richard E. Metz (3)                                           Common               225,711                3.22%
Mark S. Biestman (4)                                          Common                35,000                *
Bruce Carlsmith                                               Common                  0                   *
Herbert F. Day (5)                                            Common                20,000                *
Edwin G. Hubert                                               Common                  0                   *
John W. Olynick (6)                                           Common               294,000                4.19%
HFG Properties Ltd. (7)                                       Common               787,011               11.22%
All directors and executive
      Officers as a group (7 persons) (8)                     Common              1,958,228              27.92%
</TABLE>

*      Less than 1%

(1)    The inclusion herein of any shares of common stock does not constitute an
       admission of beneficial ownership of such shares, but are included in
       accordance with rules of the Securities and Exchange Commission ("SEC").
       The shareholdings include, pursuant to rules of the SEC, shares of common
       stock subject to options or warrants which are presently exercisable or
       which may become exercisable within 60 days following March 31, 2001
       ("exercisable options").

(2)    Includes  787,011 shares owned by HFG Properties  Ltd., an Arizona
       limited  partnership of which Mr. Heim is a general  partner, and 13,066
       shares owned by Sonoita  Resources,  an Arizona  limited  liability
       company of which Mr. Heim is a member.  James M. Heim and Marlene Heim
       directly own an aggregate of 583,440 shares of common stock.

(3)    Comprised of 184,500 shares, 8,711 shares owned by Sonoita Resources, an
       Arizona limited liability company of which Mr. Metz is a member, and
       32,500 shares subject to exercisable options.

(4)    Comprised of 35,000 shares subject to exercisable options.

(5)    Comprised of 20,000 shares subject to exercisable options.

(6)    Comprised of 44,000 shares and 250,000 shares subject to exercisable
       options.

                                       25
<PAGE>

(7)    HFG Properties Ltd. is an Arizona limited partnership of which Mr. James
       M. Heim is a general partner.

(8)    Comprised of 1,620,728 shares and 337,500 shares subject to exercisable
       options.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The board of directors has adopted a policy that all transactions
and/or loans between Prologic and its officers, directors and/or 5% shareholders
will be on terms no less favorable than could be obtained from independent third
parties, and will be approved by a majority of the independent disinterested
directors.

         On December 30, 1999, the Company authorized the sale of 75,000 shares
of the Series C Preferred Stock, including 37,500 shares to HFG Properties,
Ltd., an Arizona limited partnership of which Mr. Heim is a general partner, and
37,500 shares to Sonoita Resources, an Arizona limited liability company of
which Mr. Heim and Mr. Metz are members, for an aggregate of $750,000, pursuant
to two subscription agreements. As of March 31, 2002, there remains one
outstanding subscription agreement in the amount of $191,500.

         During the first  quarter of fiscal  2002,  the  Company  borrowed
$35,000  from HFG  Properties,  Ltd.,  an Arizona  limited partnership  of
which Mr. Heim is a general partner.  The $35,000 was repaid to HFG Properties,
Ltd. in the fourth quarter of fiscal 2002.


             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, requires the
Company's officers and directors, and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and change in ownership with the Securities and Exchange
Commission. Such reports are filed on Form 3, Form 4, and Form 5 under the
Exchange Act. Officers, directors and greater than ten-percent shareholders are
required by Exchange Act regulations to furnish the Company with copies of all
Section 16(a) forms they file.

         Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 3, 4, or
5 were required for those persons, the Company believes that all officers,
directors, and greater than ten-percent beneficial owners complied with the
applicable Section 16(a) filing requirements.

                                       26
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

A.       Documents filed as part of this report:

         1.  Financial Statements.  The following financial statements filed as
part of this report are listed on pages F-2 to F-21 and herein by reference:
<TABLE>
<CAPTION>

         Financial Statement                                                                     Page
         -------------------                                                                     ----
<S>                                                                                                <C>
         Report of Independent Public Accountants                                                F-3
         Consolidated Balance Sheets                                                             F-4
         Consolidated Statements of Operations                                                   F-5
         Consolidated Statements of Changes in Stockholders' Equity (Deficit)                    F-6
         Consolidated Statements of Cash Flows                                                   F-7
         Notes to Consolidated Financial Statements                                              F-8
</TABLE>



<TABLE>
<CAPTION>
         2.   Exhibit:

<S>     <C>                         <C>                                                         <C>
         Exhibit Number             Document                                                    Page
         --------------             --------                                                    ----
         3.1                        Articles of Incorporation by the Company*
         3.1.1                      Specimen of Series A 8% Cumulative Convertible
                                    Preferred Stock******
         3.1.2                      Specimen of Series B 10% Cumulative Convertible
                                    Preferred Stock*******
         3.1.3                      Specimen of Series C 10% Cumulative Convertible
                                    Preferred Stock*****
         3.2                        Bylaws of the Company*
         4.2                        Specimen of Common Stock Certificate*
         4.4                        [Form of] Representative's Warrant*
         10.15                      1994 Stock Option Plan, Form of Incentive Agreement*
         10.17                      Employment Agreement of John W. Olynick********
         10.19                      Form of Lock-Up Agreement of Shareholders*
         10.20                      Form of Stock Purchase Agreement, Promissory
                                    Note and Escrow Agreement for July 31, 1994
                                    Issuance of Common Stock*
         21                         Subsidiaries***
</TABLE>

* Incorporated by reference to the corresponding exhibit number in the Company's
Registration Statement on Form SB-2 (Commission file no. 33-89384-LA).

** Incorporated by reference to the corresponding exhibit number in the
Company's Form 8-K filed on August 23, 1996.

*** Incorporated by reference to the corresponding exhibit number in the
Company's Form 10-KSB filed on July 14, 1999.

**** Incorporated by reference to the corresponding exhibit number in the
Company's Form 8-K filed on August 19, 1999.

***** Incorporated by reference to exhibit number 3.1 in the Company's
Form 10-QSB filed on February 22, 2000.

****** Incorporated by reference to exhibit number 3.1(a) in the Company's Form
10-KSB filed on July 14, 2000.

******* Incorporated by reference to exhibit number 3.1(b) in the Company's
Form 10-KSB filed on July 14, 2000.

******** Incorporated by reference to the corresponding exhibit number on the
Company's Form 10-KSB filed on July 14, 2000.

                                       27
<PAGE>

B.       Report on Form 8-K.

         No reports on Form 8-K were filed during the fourth quarter ended March
31, 2002.

                                       28
<PAGE>

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

                                            PROLOGIC MANAGEMENT SYSTEMS, INC.

DATED: June 20, 2002                        By: /s/  James M. Heim
       --------------                           ----------------------------
                                                     James M. Heim
                                                     Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints James M. Heim and John W. Olynick, or either of them,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this annual report on
Form 10-KSB and any documents related to this report and filed pursuant to the
Securities and Exchange Act of 1934, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


Signature                  Capacity                             Date
---------                  --------                             ----
/s/  James M. Heim         James M. Heim,                       June 20, 2002
------------------         Chief Executive Officer (Principal
                           Executive, Financial and Accounting
                           Officer) and Director

/s/  John W. Olynick       John W. Olynick                      June 20, 2002
--------------------       President and Director

/s/  Richard E. Metz       Richard E. Metz,                     June 20, 2002
--------------------       Director

/s/  Mark S. Biestman      Mark S. Biestman,                    June 20, 2002
----------------------     Director

/s/  Herbert F. Day        Herbert F. Day,                      June 20, 2002
-------------------------  Director

/s/  Edwin G. Hubert       Edwin G. Hubert,                     June 20, 2002
-----------------------    Director

/s/  Bruce Carlsmith       Bruce Carlsmith                      June 20, 2002
------------------------   Director
<PAGE>

               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES


                        CONSOLIDATED FINANCIAL STATEMENTS


                       YEARS ENDED MARCH 31, 2002 AND 2001

<PAGE>


               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
                                    CONTENTS


<TABLE>
<CAPTION>
<S>                                                                                                               <C>
Report of Independent Certified Public Accountants                                                              F-3

Consolidated Financial Statements
     Consolidated Balance Sheets                                                                                F-4
     Consolidated Statements of Operations                                                                      F-5
     Consolidated Statements of Changes in Stockholders' Equity (Deficit)                                       F-6
     Consolidated Statements of Cash Flows                                                                      F-7

Notes to Consolidated Financial Statements                                                                      F-8
</TABLE>

                                       F-2

<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



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

We have audited the accompanying consolidated balance sheets of Prologic
Management Systems, Inc. and subsidiaries (the "Company") as of March 31, 2002
and 2001, and the related consolidated statements of operations, changes in
stockholders' deficit, and cash flows for the years 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide 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 subsidiaries as of March 31, 2002 and 2001, and the results of
their operations and their cash flows for the years 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.
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.






May 29, 2002

                                      F-3
<PAGE>

<TABLE>
<CAPTION>

               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                                                               March 31,
                                                                                    --------------------------------
                                                                                         2002             2001
                                                                                    ---------------   --------------
ASSETS (Note 4)

Current assets:
<S>                                                                               <C>               <C>
   Cash                                                                           $         81,280  $       310,305
   Restricted cash (Notes 2 and 4)                                                               -          300,000
   Accounts receivable, less allowance for doubtful accounts of $591,072 and
     $426,156.  Receivables include $2,496,126 and $2,106,083 of accounts under
     an assignment of proceeds agreement (Notes 1 and 4)                                 2,572,634        3,375,590
   Inventory                                                                                42,589          369,241
   Prepaid expenses                                                                         18,358           72,543
                                                                                    ---------------   --------------

Total current assets                                                                     2,714,861        4,427,679

Property and equipment, net (Note 3)                                                       254,714          343,214
Goodwill, net                                                                              408,942          408,942
Deferred financing costs, net                                                              225,828                -
Other assets                                                                                92,583          201,631
                                                                                    ---------------   --------------

                                                                                  $      3,696,928  $     5,381,466
                                                                                    ---------------   --------------

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

 Current liabilities:
   Line of credit (Note 4)                                                        $              -  $       699,150
   Current portion of long-term debt and notes payable (Note 6)                          1,369,449        1,753,377
   Accounts payable (Note 1)                                                             2,036,522        2,800,003
   Sales taxes payable                                                                     684,164          326,089
   Accrued expenses                                                                        768,540          583,997
   Deferred maintenance revenue                                                            104,067          141,516
                                                                                    ---------------   --------------

Total current liabilities                                                                4,962,742        6,304,132

Long-term debt, less current portion (Note 6)                                            6,410,081        4,506,855
                                                                                    ---------------   --------------

Total liabilities                                                                       11,372,823       10,810,987
                                                                                    ---------------   --------------

Commitments and contingencies (Notes 1, 4, 8, 9, 11 and 13)

Preferred stock (Note 8):
   Series A cumulative convertible preferred stock, no par value, 16,667 shares
     authorized, 16,667 shares issued and outstanding, liquidation value of
     $6.00 per share plus accrued dividends                                                100,000          100,000
   Series B cumulative convertible preferred stock, no par value, 100,000
     shares authorized, 9,500 shares issued and outstanding, liquidation value
     of $10 per share plus accrued dividends                                                68,588           68,588
   Series C cumulative convertible preferred stock, no par, 100,000 shares
     authorized, 55,850 shares issued and outstanding, liquidation value of $10
     per share plus accrued dividends                                                      750,000          750,000
   Series C cumulative convertible preferred stock subscription receivable                (191,500 )       (191,500 )
                                                                                    ---------------   --------------

                                                                                           727,088          727,088
                                                                                    ---------------   --------------
   Stockholders' deficit (Notes 5, 6, 8, and 9):
   Common stock, no par value, 50,000,000 shares authorized, 7,014,591 and
     6,858,058 shares issued and outstanding at March 31, 2002 and 2001 (Note
     14)                                                                                10,145,169       10,077,220
   Warrants                                                                                961,366          741,366
   Accumulated deficit                                                                 (19,509,518 )    (16,975,195 )
                                                                                    ---------------   --------------

Total stockholders' deficit                                                             (8,402,983 )     (6,156,609 )
                                                                                    ---------------   --------------

Total liabilities, preferred stock and stockholders' deficit                      $      3,696,928  $     5,381,466
                                                                                    ---------------   --------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>


<TABLE>
<CAPTION>
               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                                            Years ended March 31,
                                                                                       --------------------------------
                                                                                           2002               2001
                                                                                       -------------      -------------

Revenue (Note 10):
<S>                                                                                  <C>                <C>
   Hardware                                                                          $   11,740,946     $   24,842,295
   Professional services                                                                  4,570,205          4,333,003
   Software license                                                                       3,140,390          8,581,053
                                                                                       -------------      -------------

Total revenue                                                                            19,451,541         37,756,351
                                                                                       -------------      -------------

Cost of revenue:
   Hardware                                                                              10,237,315         22,060,121
   Professional services                                                                  2,119,417          1,607,608
   Software license                                                                       2,708,744          7,271,879
                                                                                       -------------      -------------

Total cost of revenue                                                                    15,065,476         30,939,608
                                                                                       -------------      -------------

Gross profit                                                                              4,386,065          6,816,743
                                                                                       -------------      -------------

Operating expenses:
   General and administrative                                                             4,412,855          5,375,680
   Selling and marketing                                                                  1,679,735          2,514,968
   Research and development                                                                 149,924            194,797
                                                                                       -------------      -------------

Total operating expenses                                                                  6,242,514          8,085,445
                                                                                       -------------      -------------

Operating loss                                                                           (1,856,449 )       (1,268,702 )
                                                                                       -------------      -------------

Other (income) expense:
   Interest expense                                                                         661,358            652,625
   Other (income)                                                                                 -            (23,426 )
                                                                                       -------------      -------------

Total other expense                                                                         661,358            629,199
                                                                                       -------------      -------------

Loss from continuing operations                                                          (2,517,807 )       (1,897,901 )
Loss from discontinued operations (Note 2)                                                        -            (15,070 )
                                                                                       -------------      -------------

Net loss                                                                                 (2,517,807 )       (1,912,971 )
Preferred stock dividend                                                                    (70,709 )         (155,000 )
                                                                                       -------------      -------------


Net loss applicable to common stockholders                                           $   (2,588,516 )   $   (2,067,971 )
                                                                                       -------------      -------------

Weighted average number of common shares:
   Basic and diluted                                                                      6,938,576          8,261,151
                                                                                       -------------      -------------

Loss per common share:

   Basic and diluted from continuing operations                                      $         (.37)    $         (.25 )
   Basic and diluted from discontinued operations                                                 -                  -
                                                                                       -------------      -------------
   Basic and diluted net loss                                                        $         (.37 )   $         (.25 )
                                                                                       -------------      -------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                       Years Ended March 31, 2001 and 2000
<TABLE>
<CAPTION>


                                                                                                               Total
                                                                                                             Stockholders'
                                                               Common Stock                    Accumulated     Equity
                                                            --------------------
                                                             Shares     Amount     Warrants     Deficit      (Deficit)
                                                            ---------  ---------   ---------   -----------   -----------

<S>                                                         <C>       <C>        <C>         <C>            <C>
Balance, March 31, 2000                                     8,429,577 $9,620,812 $  728,770  $ (14,907,224) $(4,557,642 )

   Conversion of preferred stock to common stock             277,782    451,295           -             -       451,295
   Common stock cancelled                                   (1,959,97) (100,000 )         -             -      (100,000 )
   Issuance of stock dividend                                100,671    100,113           -             -       100,113
   Issuance of common stock through exercise of stock
     option                                                   10,000      5,000           -             -         5,000
   Issuance of warrants in connection with services
     performed                                                     -          -      12,596             -        12,596
   Dividends                                                       -          -                  (155,000 )    (155,000 )
   Net loss                                                        -          -           -    (1,912,971 )  (1,912,971 )
                                                            ---------  ---------   ---------   -----------   -----------

Balance, March 31, 2001                                     6,858,058  10,077,220   741,366    (16,975,195)  (6,156,609 )

   Issuance of stock dividend                                 56,535     32,249           -             -        32,249
   Issuance of common stock in connection with
     services performed                                      100,000     35,700           -             -        35,700
   Issuance of warrants in connection with services
     performed                                                     -          -     220,000             -       220,000
   Dividends                                                       -          -           -       (16,516 )     (16,516 )
   Net loss                                                        -          -           -    (2,517,807 )  (2,517,807 )
                                                            ---------  ---------   ---------   -----------   -----------


Balance, March 31, 2002                                     7,014,591$ 10,145,169$  961,366  $ (19,509,518) $(8,402,983 )
                                                            ---------  ---------   ---------   -----------   -----------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>

               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


Increase (Decrease) in Cash                                                                    Years ended March 31,
                                                                                           -------------------------------
                                                                                               2002              2001
                                                                                           -------------     -------------

Cash flows from operating activities:

<S>                                                                                      <C>             <C>
   Net loss                                                                              $   (2,517,807) $     (1,912,971 )
   Adjustments to reconcile net loss to net cash provided by
     operating activities:
     Depreciation and amortization                                                              156,724           346,710
     Bad debt expense                                                                            53,211                 -
     Issuance of common stock for services                                                       35,700                 -
     Issuance of warrants for services and interest incurred                                          -            12,596
     Change in assets and liabilities:
       Restricted cash                                                                          300,000                 -
       Accounts receivable                                                                      802,956         4,197,636
       Inventory                                                                                326,652          (165,778 )
       Prepaid expenses                                                                         (45,499 )         (49,078 )
       Other assets                                                                             109,048           120,711
       Accounts payable                                                                         513,008         1,985,898
       Accrued expenses                                                                         780,563           148,294
       Deferred maintenance revenue                                                             (37,449 )        (361,420 )
                                                                                           -------------     -------------

   Total adjustments                                                                          2,994,914         6,235,569
                                                                                           -------------     -------------

Net cash provided by continuing operating activities                                            477,107         4,322,598

Net cash used in discontinued operations (Note 2)                                                     -           (14,061 )
                                                                                           -------------     -------------

Net cash provided by operating activities                                                       477,107         4,308,537

Cash flows from investing activities:
   Purchase of equipment                                                                        (27,579 )         (76,185 )
                                                                                           -------------     -------------

Net cash used in investing activities                                                           (27,579 )         (76,185 )
                                                                                           -------------     -------------

Cash flows from financing activities:
   Net change in line of credit                                                                (699,150 )      (3,948,156 )
   Issuance of long-term debt and notes payable                                                 359,399                 -
   Issuance of common stock                                                                           -             5,000
   Repayment of debt                                                                           (338,802 )        (401,801 )
   Stock cancellation expenses                                                                        -           (25,000 )
                                                                                           -------------     -------------

Net cash used in financing activities                                                          (678,553 )      (4,369,957 )
                                                                                           -------------     -------------

Net increase (decrease) in cash                                                                (229,025 )        (137,605 )

Cash, beginning of year                                                                         310,305           447,910
                                                                                           -------------     -------------

Cash, end of year                                                                        $       81,280    $      310,305
                                                                                           -------------     -------------

Supplemental statement of cash flow information:
   Cash paid during the year for interest                                                $       93,692    $      486,628
                                                                                           -------------     -------------

Non-cash financing and investing activities:
   Warrants issued as deferred financing cost                                                   220,000                 -
   Conversion of Series B Preferred Stock                                                             -          (451,295 )
   Conversion of accounts payable and accrued expenses to long-term note                      1,809,619         5,000,000
   Preferred stock dividends paid in common stock                                                32,249           100,113
   Note issued for stock cancellation expenses                                                        -            75,000
                                                                                           -------------     -------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-7

<PAGE>



               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1--THE COMPANY AND ITS OPERATIONS

Nature of Business and Summary Operations

Prologic Management Systems, Inc., an Arizona corporation, and its wholly-owned
subsidiaries, BASIS, Inc. ("BASIS") and Great River Systems, Inc. ("GRSI"),
(collectively, the "Company") is a commercial systems integration, professional
services and software development firm, specializing in high-availability, fully
integrated systems. The Company's BASIS, Inc. subsidiary, headquartered in
Emeryville, California, provides systems integration services, networking
services, security and database software for the commercial market. The
Company's Tucson office, which also serves as its corporate headquarters,
provides professional services, including process improvement consulting
services, software development services, and support services for its clients in
the manufacturing industry.

The Company's GRSI subsidiary was dissolved in Fiscal 2000.

The Company generates the majority of its sales revenue from the resale of
hardware and software products produced by third parties, primarily Sun
Microsystems, Inc. (Sun). BASIS's reseller agreement with Sun can be canceled by
either party upon 30 days notice. The Company anticipates that the reseller
agreement will continue indefinitely. The Company is contractually required to
purchase all Sun products from a designated distributor (supplier) of Sun
products. The Company's supplier offers credit terms and financing arrangements
whereby accounts receivable from the sales of certain Sun products are assigned
to the supplier. At March 31, 2002 and 2001, the Company owed approximately
$8,004,664 and $7,367,035 to its supplier and has assigned $2,496,126 and
$2,106,083 of accounts receivable to its supplier.

As of March 31, 1998, the Company's common stock and warrants were listed on the
Nasdaq SmallCap Market. On June 8, 1998, the Company was informed by Nasdaq that
it failed to meet the minimum net tangible assets requirement and the minimum
bid price criteria for continued listing on the Nasdaq SmallCap Market and
therefore, its securities would be delisted. On August 7, 1998, the Company
notified Nasdaq that it would not pursue its right to appeal the decision by
Nasdaq to delist the Company's securities. The Company's securities were
delisted from the Nasdaq stock market effective with the close of business on
August 7, 1998, and trading of the Company's common stock has continued to be
conducted on the non-NASDAQ over-the-counter ("OTC") market, under the symbol
PRLO. Until recently when the Company's stock began trading on the OTC Bulletin
Board, there had been no active market for the Company's common stock since it
was delisted from the NASDAQ Small Cap Market in August 1998. The delisting of
the Company's securities could significantly impair the Company's ability to
obtain additional financing.

Basis of Presentation

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. The
Company has suffered recurring operating losses and has negative cash flow from
operations and a stockholders' deficit. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The Company's plans
with regard to these matters are described below. In addition, the Company's
ability to obtain additional financing may be impaired due to the delisting of
its securities from the Nasdaq SmallCap Market. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                                      F-8
<PAGE>


NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Managements Plans

The Company's improved performance in fiscal 2001 lost momentum in fiscal 2002
with the general economic downturn, and was further aggravated by the terrorist
attacks and threats that began in September 2001. In response, the Company's
management implemented more aggressive plans in fiscal 2002 to reduce operating
costs, increase service sales, and other strategies to minimize the impact on
revenues as clients took an increasingly conservative position on hardware and
software spending. The Company will continue to reduce expenses wherever
practicable and focus on securing service revenues, which have not been as
susceptible to market conditions as the demand for computer hardware and
software.

In addition to the Company's expansion into Texas and Louisiana, the Company is
considering the acquisition of one or more systems integration/high technology
service companies in other regions of the United States to increase its market
coverage, sales and profitability. In conjunction with any acquisition(s), the
Company would need to raise equity capital to provide additional working capital
for the consolidated entity. The Company has no commitments at this time from
third parties for any such acquisition(s) or financing.

Principles of Consolidation

The consolidated financial statements include the accounts of Prologic and its
subsidiaries GRSI and BASIS. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Discontinued Operations

Great River Systems, Inc. has been accounted for as a discontinued
operations pursuant to Management's formal adoption on March 31, 2000 of a plan
to dissolve the business unit. GRSI was dissolved in 2000. Net liabilities were
completely disposed of at March 31, 2002 and 2001.

Operating results of this discontinued operation for the years ended March 31,
2002 and 2001 are shown separately in the accompanying statement of operations.
The operating results of this discontinued operation for the years ended March
31, 2002 and 2001 consist of:
<TABLE>
<CAPTION>

                                                                                            March 31,
                                                                                 --------------------------------
                                                                                     2002               2001
                                                                                 --------------     -------------

<S>                                                                            <C>                <C>
 Net sales                                                                     $             -    $            -
 Loss from operations                                                          $             -    $      (15,070 )
</TABLE>

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles 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.

                                      F-9

<PAGE>


NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 judgement 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 receivable, 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.

Revenue Recognition

The Company recognizes revenue from the sale of third-party hardware and
software products upon shipment from the vendor to the end user, or when shipped
from the Company, whichever is appropriate Title transfers FOB shipping point.
Revenue is recognized on sales of third-party maintenance agreements upon
receipt of the billing invoice from the vendor at which time the Company retains
no further obligation to the customer or vendor. Revenue from professional
services is recognized upon completion of the work and notification from the
customer of their acceptance. Revenue from software licensing is recognized in
accordance with Statement of Position 97-2, Software Revenue Recognition.
Revenue from software licensing is recognized when delivery of the software has
occurred, a signed non-cancelable license agreement has been received from the
customer and any remaining obligations under the license agreement are
insignificant. Revenue associated with agreements to provide product support
services is recognized as related services are provided. Revenue from annual or
other renewals of maintenance contracts is deferred and recognized on a
straight-line basis over the term of the contracts.

Restricted Cash

Restricted cash consisted of a certificate of deposit that secured the Company's
revolving line of credit, which earned interest at prime minus 3.0%. The Company
terminated that line of credit in April 2001 and the related restricted cash
account.

Inventory

Inventory consists primarily of third-party computer hardware and third-party
software products, which are typically awaiting transfer to a customer, and is
stated at the lower of cost (first-in, first-out) or market.

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the respective assets, which is
generally five years.

Impairment of Long-Lived Assets

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of any asset may not be recoverable.

                                      F-10
<PAGE>

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company assesses the recoverability of long-lived assets by determining
whether the amortization of the balances over their remaining lives can be
recovered through undiscounted future operating cash flows. The amount of
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of long-lived assets will be impacted if
estimated future operating cash flows are not achieved.

Goodwill

In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142.

On April 1, 2001, the Company elected to adopt SFAS 141 and SFAS 142. The
Company's previous business combination was accounted for using the purchase
method. As of March 31, 2002, the net carrying amount of goodwill was $408,942
and there were no other intangible assets acquired in connection with the
business combination. Pursuant to the terms of SFAS 142, the Company ceased
amortizing goodwill effective April 1, 2001 and recorded no amortization expense
during the year ending March 31, 2002. The Company has completed its
transitional goodwill impairment test pursuant to the provisions of SFAS 142 as
of April 1, 2001, and determined that there was no impairment of the asset.

If the Company had accounted for its goodwill according to SFAS 142 for all
income statement periods presented, the Company's net loss and loss per common
share and common share equivalent would have been as follows:
<TABLE>
<CAPTION>

                                                                                 For the Year Ended March 31,
                                                                              -----------------------------------
                                                                                   2002                2001
                                                                              ----------------     --------------


<S>                                                                         <C>                <C>
 Reported net loss                                                          $      (2,517,807) $      (1,912,971 )
 Add back:  Goodwill amortization                                                           -            210,303
                                                                              ----------------     --------------


 Adjusted net loss                                                          $      (2,517,807) $      (1,702,668 )
                                                                              ----------------     --------------

 Basic and diluted loss per share:

   Reported net loss                                                        $           (0.37) $           (0.25 )
   Goodwill amortization                                                                    -               0.03
                                                                              ----------------     --------------


   Adjusted net loss                                                        $           (0.37) $           (0.22 )
                                                                              ----------------     --------------
</TABLE>

                                      F-11

<PAGE>



NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Concentrations of Credit Risk

Financial instruments, which potentially expose the Company to concentrations of
credit risk, as defined by SFAS No. 105, consist primarily of accounts
receivable. The Company does not require collateral upon delivery of its
products or services.

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 more likely that
the net deferred tax asset will be realized.

Research and Development Expenses

The Company expenses research and development costs as incurred in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 2, "Accounting for
Research and Development Costs". Research and development expenses are costs
associated with products or processes for which technological feasibility has
not been proven and future benefits are uncertain.

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 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 the new measurement
criteria.

The Company currently uses the disclosure standards of SFAS 123 but accounts for
stock based compensation using APB 25.

Earnings 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 reflects the potential
dilution of securities that could share in the earnings of the entity. At March
31, 2002 and 2001, potential common stock, consisting of stock options, warrants
and convertible preferred stock totaling 2,713,723 and 2,470,512, respectively,
are excluded from the computation of diluted earnings per share because they are
anti-dilutive.

                                      F-12

<PAGE>

NOTE 3--PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
Property and equipment consists of the following:

                                                                                       Years ended March 31,
                                                                                    -----------------------------
                                                                                       2002             2001
                                                                                    ------------     ------------

<S>                                                                               <C>              <C>
 Furniture and leasehold improvements                                             $     253,481    $     253,481
 Equipment and software                                                                 938,443          910,864
                                                                                    ------------     ------------

                                                                                      1,191,924        1,164,345

 Less accumulated depreciation                                                          937,210          821,131
                                                                                    ------------     ------------

 Net property and equipment                                                       $     254,714    $     343,214
                                                                                    ------------     ------------
</TABLE>

NOTE 4--LINE OF CREDIT

In March 1998, BASIS and GRSI obtained a line of credit in an amount that was
the lower of $5,000,000 or the sum of 85% of eligible accounts receivable,
restricted cash (see Note 2) and equipment loans in the first year (maximum
equipment loan is $250,000). This line of credit was secured by substantially
all of BASIS and GRSI's assets. As of March 31, 2001, borrowing under this line
of credit was $699,150. The line matured on March 31, 2001, and was fully paid
on April 6, 2001.

On April 6, 2001, the Company signed a $3,000,000 financing agreement with KBK
Financial, Inc. for a line of credit to finance accounts receivable. This credit
facility replaced a $5,000,000 credit facility described above. This new
facility provided working capital to support the Company's systems integration
operations. The Company terminated the financing agreement effective March 31,
2002. As of March 31, 2002, there was no outstanding balance under this
facility.

NOTE 5--CONVERTIBLE SUBORDINATED NOTES

In November 1996, the Company borrowed $820,000 in a private offering of 10%
convertible subordinated notes. On September 29, 1997, the Company renegotiated
the conversion terms with the holders of $720,000 of the notes. The revised
terms assign a fixed conversion price of $3.75 per share, which was $2.63 in
excess of the market price of the Company's common stock on the date of the
revision. In addition, the noteholders were granted warrants to purchase a total
of 252,000 shares of the Company's common stock at a price of $2.00 per share.
The warrants were valued at approximately $257,000 ($1.02 per share) and have
been recorded in the accompanying financial statements as additional debt
issuance costs (other assets) and are amortized over the remaining term of the
notes. The warrants expired unexercised December 31, 2001.

During December 1997, $100,000 of notes were converted into 160,000 shares of
the Company's common stock based on the fair market value of the stock on the
date of the conversion. During the year ended March 31, 1999, the remaining
noteholders converted $720,000 of notes into 72,000 shares of Series B
convertible preferred stock and warrants to purchase a total of 72,000 shares of
the Company's common stock which are exercisable at $1.00 per share, which was
the fair market value of the stock at the date of their issuance. The warrants
expired unexercised on March 31, 2001.

                                      F-13
<PAGE>


NOTE 6--LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt and notes payable are as follows:
<TABLE>
<CAPTION>

                                                                                             March 31,
                                                                                    -----------------------------
                                                                                       2002             2001
                                                                                    ------------     ------------

 Notes payable, interest at 2% per month, secured by various equipment,
   originally due on March 31, 1998, since extended and is currently payable
<S>                                                                               <C>              <C>
   and collateralized by common stock.                                            $     108,000    $     110,000

 Software purchase agreement for minimum royalties of $250,000, secured by
   purchased software, originally due on December 31, 2001, since renegotiated
   with a $13,000 payment due May 2002, and monthly installments
   of $4,000 thereafter through February 2004.                                          101,000           76,859

 Note payable, interest at 8.5%, unsecured, principal and interest of $2,100
   due monthly through March 31, 2004.                                                   60,186           66,572

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

 Note payable, interest at prime less 3.0%, due on the earlier of the
   termination of the line of credit or March 28, 2001, secured by restricted
   cash (Note 4).                                                                             -          300,000

 Note payable, interest at 11% per annum on the outstanding principal, monthly
   payments of $50,000 through June 30, 2000 with a balloon payment
   of the remaining balance.  Note is past due.                                         722,910          722,910

 Note payable and asset agreement, interest at 10% principal of $20,000 plus
   interest due bi-weekly through April 2, 2002.                                              -        4,860,000

 Note payable, mandatory monthly payments based on operating profits with 6%
   interest accruing on unpaid balances, due April 14, 2003.                          6,384,686                -

 Financing agreement, interest at 10% per annum, payable upon collection of
   assigned receivables.                                                                278,857                -

 Other                                                                                   48,891           48,891
                                                                                    ------------     ------------

 Total short-term debt and long-term debt                                             7,779,530        6,260,232

 Less current portion of long-term debt and notes payable                             1,369,449        1,753,377
                                                                                    ------------     ------------

 Long-term debt and notes payable, excluding current portion                      $   6,410,081    $   4,506,855
                                                                                    ------------     ------------
</TABLE>

                                      F-14
<PAGE>

NOTE 6--SHORT-TERM DEBT AND NOTES PAYABLE (Continued)

A summary of long-term debt and notes payable installments after March 31, 2002
is as follows:

<TABLE>
<CAPTION>
                                                                                                       Amount
                                                                                                     ------------

<S>   <C>                                                                                          <C>
      2003                                                                                         $   1,369,449
      2004                                                                                             6,410,081
                                                                                                     ------------

                                                                                                   $   7,779,530
                                                                                                     ------------
</TABLE>

During fiscal 2002, the Company entered into a financing agreement with a key
lender. This agreement provides the Company with an immediate partial advance on
all sales and requires the Company to immediately assign the related receivables
to the lender. Upon collection of the related receivables, the lender pays the
remaining balance to the Company. The receivables are assigned with recourse and
advances over 90 days outstanding bear interest at a rate of 10% per annum. At
March 31, 2002, the Company was liable for $278,857 under this agreement.

In December 2000, the Company signed a $5 million note and asset agreement,
converting approximately $5 million of its accounts payable, with 10% interest
and a due date of April 2, 2002. During fiscal 2002, the Company renegotiated
the balance of the note. The new note bears interest at 6% and is due in April
2003. The balance of the new promissory note at March 31, 2002 is $6,384,686
with approximately $266,000 of accrued interest. The new note requires the
Company to make monthly payments of 40% of its available operating profits each
month. The note further requires that the Company direct 50% of any future sums
received by, committed to, or invested in the Company as an additional equity
capital infusion, towards repayment of the unpaid balance of the note.

NOTE 7--INCOME TAXES

The Company has a net operating loss carryforward approximating $15 million for
federal income tax purposes, which expires in varying amounts from 2002 through
2021. Utilization of the net operating loss carryforward may be significantly
limited or eliminated as a result of change in ownership as defined in Section
382 of the internal revenue code.

A reconciliation of the difference between the provision for income taxes and
the amount that would be computed using statutory federal income tax rates is as
follows:
<TABLE>
<CAPTION>

                                                                                       Years ended March 31,
                                                                                   ------------------------------
                                                                                       2002              2001
                                                                                   -------------      -----------


<S>                                                                              <C>              <C>
 Benefit computed at federal rate of 34%                                         $     (856,000 ) $     (650,000 )
 State income tax benefit, net of federal benefit                                      (150,000 )        (76,000 )
 Increase in valuation allowance                                                         14,000          606,000
 Expiration of unused net operating losses                                              992,000          120,000
                                                                                   -------------      -----------

 Benefit for income taxes                                                        $            -     $          -
                                                                                   -------------      -----------
</TABLE>

                                      F-15
<PAGE>

NOTE 7--INCOME TAXES (Continued)

A detail of the net deferred tax asset is as follows:
<TABLE>
<CAPTION>

                                                                                       Years ended March 31,
                                                                                   ------------------------------
                                                                                       2002             2001
                                                                                   -------------    -------------

 Deferred tax assets:
<S>                                                                              <C>              <C>
   Net operating loss carryforward                                               $    5,982,000   $    6,007,000
   Allowance for doubtful accounts                                                      236,000          170,000
   Deferred maintenance revenue                                                          42,000           57,000
   Goodwill                                                                                   -           40,000
   Other accruals                                                                         5,000            5,000
                                                                                   -------------    -------------

 Total deferred tax assets                                                            6,265,000        6,279,000

 Less valuation allowance                                                            (6,265,000 )     (6,279,000 )
                                                                                   -------------    -------------

 Net deferred tax assets                                                         $            -   $            -
                                                                                   -------------    -------------
</TABLE>

Net deferred tax assets of approximately $5,838,000 have been offset by a
valuation allowance since management cannot determine whether it is more likely
than not such assets will be realized.

NOTE 8--CAPITAL STOCK

Common Stock

In fiscal 2000, the Company issued 120,000 shares of common stock in connection
with month-to-month extensions on a $100,000 bridge note payable. The terms of
the bridge note extension require the Company to issue 10,000 additional shares
of common stock to the lender for each month the note is extended. The fair
value of these shares was charged to interest expense. The note was fully paid
in fiscal 2001.

During fiscal year ending March 31, 2000, the Company entered into a Stock
Purchase and Merger Agreement ("SPMA") with Sunburst Acquisitions IV, Inc., a
Colorado corporation ("Sunburst"). The terms of the SPMA required Sunburst to
purchase up to 6,171,235 shares of the Company's common stock for $5,000,000.
The investment by Sunburst was to be staged in two parts. The first stage
("Tranche 1") was a purchase of 3,459,972 shares at $.289 per share, for a total
of $1,000,000. The second stage ("Tranche 2") was to be a purchase of up to
1,820,791 shares at $1.0984 per share, for a total of $2,000,000 was to take
place by December 31, 1999. At December 31, 1999, Sunburst had not performed any
contractual obligation beyond the initial in August of 1999 and as a result of
Sunburst's default the SPMA was, thereafter, effectively abandoned. The Company
incurred costs of $252,645 in expenses associated with this agreement. On
February 16, 2001, the Company signed a settlement agreement with Sunburst
resulting in the Company canceling 1,959,972 shares of common stock originally
issued to Sunburst. Also, in connection with this settlement the Company
assigned to certain employees of the Company the right to purchase 900,000
shares of the Company's common stock from Sunburst, and such employees purchased
such shares for $300,000.

In fiscal 2002 and 2001, the Company declared Series B and Series C preferred
stock dividends. The dividends were paid by issuing 56,533 and 100,671 shares of
common stock, respectively. The fair values of these shares were $32,249 and
$100,113 on the date of grant.

                                      F-16
<PAGE>

               PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







                                      F-17
<PAGE>

NOTE 8--CAPITAL STOCK (Continued)

The Company issued 10,000 shares of common stock in connection with employee
stock options exercised during fiscal 2001.

In fiscal 2002, the Company issued 100,000 shares of common stock for services
performed. The fair value of the shares was $35,700 on the date of grant.

Common Stock Warrants

In fiscal 2001, the Company issued warrants for the purchase of 66,666 shares of
common stock at $0.75 per share in connection with consulting services that were
rendered during the years. The fair value of these warrants resulted in the
Company recording a $12,596 consulting expense in the accompanying financial
statements.

In fiscal 2002, the Company issued warrants to purchase 700,000 shares of common
stock at $0.75 per share, in conjunction with the renegotiation of a note
payable. The fair value of the warrants was recorded as a debt issuance cost of
$220,000.

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 $32,000 and $24,000 at March 31, 2002 and
2001, 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.

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).

On August 30, 1999, the Company's Board of Directors amended its articles of
incorporation to reduce the number of authorized shares from 750,000 to 16,667.

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 the dividends at a rate of 10% of the issued and
outstanding balance payable semi-annually beginning October 31, 1998, payable in
cash or shares of common stock, subject to provisions in the agreement.
Cumulative unpaid dividends totaled approximately $8,708 and $30,000 at March
31, 2002 and 2001, respectively.

                                      F-18
<PAGE>


NOTE 8--CAPITAL STOCK (Continued)

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 at March 31,
2002 and 2001) by the effective conversion price ($2.25 at March 31, 2002 and
2001).

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. Currently the
Company is in litigation regarding the conversion rate. See Note 13 for further
details.

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.

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 $51,196 and $53,638
at March 31, 2002 and 2001, 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 at March 31,
2002) by the effective conversion price ($2.25 at March 31, 2002), 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 represented
conversion of debt from a related party. The due date of the remaining $191,500
for an additional 19,150 shares has been extended pending settlement of the
Series B litigation.

NOTE 9--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 purchased pursuant
to the Plan is 500,000. During 2001, The Board of Directors and Shareholders
approved an amendment to the Plan to increase the number of shares of common
stock allocated to the Plan to 3,500,000 and also extended the term of the Plan
to 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
to approximate the fair market value of the common stock at the date of grant.

                                      F-19
<PAGE>


NOTE 9--STOCK OPTION PLAN (Continued)

The following table summarizes the activity under the Company's stock option
plan:
<TABLE>
<CAPTION>

                                                                          Years ended March 31,
                                                        ----------------------------------------------------------
                                                                  2002                            2001
                                                        --------------------------     ---------------------------
                                                        Number of       Price           Number of       Price
                                                          Shares        Per Share        Shares         Per Share
                                                        -----------     ----------     ------------     ----------

<S>                                                      <C>          <C>                <C>          <C>
 Options outstanding, beginning of year                  1,525,000    $       .69        1,136,081    $       .73
   Granted                                                       -              -          457,000            .55
   Canceled/expired                                        193,500            .50           58,081            .50
   Exercised                                                     -              -           10,000            .50
                                                        -----------     ----------     ------------     ----------

 Options outstanding, end of year                        1,331,500    $       .71        1,525,000    $       .69
                                                        -----------     ----------     ------------     ----------

 Options exercisable, end of year                        1,029,208    $       .62          834,667    $       .65
                                                        -----------     ----------     ------------     ----------

 Weighted average fair value of options granted                       $         -                     $       .22
                                                                        ----------                      ----------
</TABLE>

Options outstanding and exercisable by price range as of March 31, 2002 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>
$.50                                      1,131,500            2.25       $    .50        829,208       $   .50
$1.00 - $1.38                               200,000            2.63       $   1.14        200,000       $  1.14
$.50 - $1.375                             1,331,500            2.31       $    .62      1,029,208       $   .62
                                       -------------    ------------        -------   ------------        ------
</TABLE>

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 employees 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 2001, using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>

                                                                                                       2001
                                                                                                     Options
                                                                                                   -------------

<S>                                                                                                        <C>
 Risk free interest rate                                                                                   5.01 %
 Expected dividend yield                                                                                      -
 Expected lives                                                                                         5 years
 Expected volatility                                                                                         34 %

No options were granted during the year ended March 31, 2002.
</TABLE>

                                      F-20

<PAGE>



NOTE 9--STOCK OPTION PLAN (Continued)

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

                                                                                      Years ended March 31,
                                                                                  -------------------------------
                                                                                      2002              2001
                                                                                  -------------     -------------

 Net loss:

<S>                                                                             <C>              <C>
   As reported                                                                  $   (2,517,807 ) $    (1,912,971 )
   Pro forma                                                                        (2,546,391 )      (2,067,971 )

 Loss per common share - basic and diluted:
   As reported                                                                            (.37 )            (.25 )
   Pro forma                                                                              (.37 )            (.25 )
</TABLE>

The effects of applying SFAS No. 123 for providing pro forma disclosures for
2002 and 2001 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.

NOTE 10--SIGNIFICANT CUSTOMERS

The Company derives a significant portion of its total revenue from relatively
few customers. The Company's five largest customers accounted for $9,937,795 and
$20,072,463 or 51.09% and 53.16% of total revenue for the years ended March 31,
2002 and 2001, respectively. Revenue from one customer was 28.18% and 17.41% in
the years ending March 31, 2002 and 2001, respectively.

At March 31, 2002 and 2001, receivables from two customers accounted for 15% and
11%, and 24% and 14%, respectively, of total accounts receivable.

The Company anticipates that customers that represent more than 10% of total
revenue will vary from period to period depending on the placement of orders by
a particular customer or customers in any given period.

NOTE 11--401(k) PLAN

The Company has a 401(k) plan for the benefit of its employees. The Company may
also make discretionary contributions to the plan in amounts determined by
management. Participants immediately vest in both their personal contributions
and in the Company's contributions. The Company contributed immaterial amounts
to the plan for the year ended March 31, 2001. In fiscal 2002, the Company did
not contribute to the 401(k) plan.

NOTE 12--RELATED PARTY TRANSACTIONS

During fiscal 2002, the Company borrowed $35,000 from an organization partially
owned by an officer and a shareholder. The $35,000 was repaid in March 2002.

During fiscal 2001, the Company advance approximately $53,000 in bonus payments
to an officer, director and shareholder of the Company. Because there is
substantial uncertainty regarding whether this bonus will be earned or repaid,
this advance has been fully reserved as of March 31, 2002.

                                      F-21
<PAGE>

NOTE 13--COMMITMENTS AND CONTINGENCIES

The Company leases office, manufacturing and storage space, and equipment under
noncancelable operating lease agreements expiring through September 2004. These
leases contain renewal options, and the Company is responsible for certain
executory costs, including insurance and utilities. Rent expense for 2002 and
2001 was $244,256 and $228,476, respectively. Future minimum lease payments
under operating leases that have remaining noncancelable lease terms in excess
of one year at March 31, 2002 are as follows:
<TABLE>
<CAPTION>

 Years ending March 31,                                                                                   Amount
 ----------------------------                                                                        ------------

<S>       <C>                                                                                      <C>
          2003                                                                                     $     233,006
          2004                                                                                            94,599
          2005                                                                                            47,790
                                                                                                     ------------

                                                                                                   $     375,395
                                                                                                     ------------
</TABLE>

On August 1, 2000, certain holders of the Company's Series B Convertible
Preferred Stock filed an action in the Arizona Superior Court alleging that
certain conditions affecting the conversion rate were not timely met, or not met
at all, resulting in rights to convert Series B Preferred shares into a
substantially greater number of shares of the Company's common stock than
originally specified.

The terms of the Company's Series B Cumulative Convertible Preferred Stock
agreement required that if by December 31, 1999 the Series B Cumulative
Convertible Preferred Stock had not been redeemed or that the Company had not
raised at least $1.5 million from the sale of equity securities excluding the
Series B Cumulative Convertible Preferred Stock, the conversion rate would
become fifty percent of the average price of the Company's common stock during
the month of December 1999. Additionally, the Series C Cumulative Convertible
Preferred Stock agreement calls for the conversion price to be adjusted
downwards to match revised conversion prices of other preferred stock series.
Management believes the Company raised the required amount of funding to
maintain the existing conversion rate according to the terms of the Series B
Cumulative Convertible Preferred Stock agreement. If the Company had not raised
the proceeds specified in the Series B Cumulative Convertible Preferred Stock
agreement, then the Company would have recorded a deemed dividend of
approximately $400,000. On February 21, 2001, certain of the Series B Preferred
Stockholders, referred to above, requested that the Company convert their shares
of Series B Preferred Stock to common stock. The Company converted the preferred
stock of those holders at a conversion rate of $2.25 per share for a total of
227,782 shares of common stock. These Series B Preferred Stockholders contend
that the conversion should have resulted in the issuance of approximately 4.6
million shares and both the original complaint and counter claim remain pending.
The case is inactive while the parties determine if settlement is possible.

The Company has committed to grant 60,000 warrants to an outside consultant at
exercise prices ranging from $0.50 to $0.65.

NOTE 14--SUBSEQUENT EVENTS

On June 15, 2002, the Company acquired certain assets and assumed certain
liabilities of Solid Systems, Inc. with an effective date of May 31, 2002. The
value of assets acquired approximated the value of liabilities assumed.
Accordingly, there was no consideration paid by the Company in connection with
the acquisition.

                                      F-22