<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10QSB


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

    For the quarterly period ended September 30, 1998.


Commission file number: 33-89384-LA


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


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


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

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


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

               Common Stock and Warrants to Purchase Common Stock


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


Number of shares of common stock outstanding on September 30, 1998 was
4,651,349.


Transitional Small Business Disclosure Format:
                             Yes  / /; No  /X/.
<PAGE>   2
                        Prologic Management Systems, Inc.
                                      Index


                                                                            Page

Part I.    FINANCIAL INFORMATION                                              3

Item 1.    Condensed Consolidated Financial Statements

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

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

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

           Notes to Condensed Consolidated Financial Statements               6

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


Part II.   OTHER INFORMATION                                                 12

Item 1.    Legal Proceedings                                                 12

Item 2.    Changes in Securities                                             12

Item 3.    Defaults upon Senior Securities                                   12

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

Item 5.    Other Information                                                 13

Item 6.    Exhibits and Reports on Form 8-K                                  13

           Exhibit 11.1                                                      15

           Exhibit 27                                                      

SIGNATURES                                                                   14


                                                                               2
<PAGE>   3
PART I.  FINANCIAL INFORMATION

ITEM  1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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


<TABLE>
<CAPTION>
                                                                            SEPTEMBER 30, 1998     MARCH 31, 1998
                                                                            ------------------     --------------
                                                                               (UNAUDITED)
<S>                                                                         <C>                    <C>         
         Assets
Cash                                                                          $    110,345         $    175,110
Restricted Cash                                                                    300,000              300,000
Accounts receivable, less allowance for doubtful accounts                        3,815,870            3,405,603
of $273,000 at September 30, 1998 and at March 31, 1998 
Inventories                                                                        961,877              220,651
Prepaid Expenses                                                                    79,947               99,592
                                                                              ------------         ------------
         Current Assets                                                          5,268,039            4,200,956

Fixed Assets                                                                     1,474,310            1,391,210
Accumulated Depreciation                                                          (972,619)            (878,143)
                                                                              ------------         ------------
Property and equipment - net                                                       501,691              513,067

Goodwill - Net                                                                   1,150,412            1,272,662
Other Assets                                                                       249,837              233,760
                                                                              ------------         ------------
                                                                                 7,169,978            6,220,445
                                                                              ============         ============

         Liabilities and Equity
Accounts Payable                                                                 4,425,099            2,585,792
Current Portion of Long Term Debt                                                  559,996              507,057
Accrued Expenses                                                                   587,512              607,061
Deferred Revenue                                                                   238,580              233,041
                                                                              ------------         ------------
         Current Liabilities                                                     5,811,187            3,932,951

Long term debt and notes payable, excluding current portion                        126,499              245,768
Line of credit                                                                   1,313,898            1,237,863
Convertible subordinated notes                                                                          720,000

Shareholders Equity
         Series A cumulative convertible preferred stock,
         no par value, 750,000 shares authorized 16,667
         shares outstanding                                                        100,000              250,000
         Series B cumulative convertible preferred stock,
         no par value, 100,000 shares authorized, 72,000
         shares outstanding                                                        720,000
         Common stock, no par value 10,000,000 shares
         authorized 4,651,349 shares outstanding                                 8,682,939            8,493,270
         Warrants                                                                  663,795              582,053
         Stock Dividends                                                            67,934
         Accumulated deficit                                                   (10,316,274)          (9,241,460)
                                                                              ------------         ------------
                                                                                   (81,606)              83,863
                                                                              ------------         ------------
TOTAL LIABILITIES AND EQUITY                                                     7,169,978            6,220,445
                                                                              ============         ============
</TABLE>

See accompanying notes to condensed consolidated financial statements 


                                                                               3
<PAGE>   4
              PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED                         SIX MONTHS ENDED
                                                      SEPTEMBER 30,                             SEPTEMBER 30,
                                               1998                 1997                 1998                  1997
                                           ------------         ------------         ------------         ------------
                                            (unaudited)          (unaudited)          (unaudited)          (unaudited)
<S>                                        <C>                  <C>                  <C>                  <C>         
Revenues
   Hardware                                $  2,231,817         $  3,114,283         $  5,564,736         $  8,229,127
   Licenses                                     894,644              622,653            1,348,093            1,170,645
   Services                                     582,745              530,123            2,166,820            1,184,044
                                           ------------         ------------         ------------         ------------
          Total Net Revenue                   3,709,207         $  4,267,059         $  9,079,650           10,583,816

Cost of Sales                                 2,752,387            3,304,668            6,710,774            8,481,787

          Gross Margin                          956,820              962,391            2,368,876            2,102,029

Operating Expenses
   Selling and Marketing                        365,362              468,135              703,979              942,893
   General and Administrative                 1,267,358              754,427            2,468,326            1,547,035
   Research and Development                        --                101,398               51,750              196,832
                                           ------------         ------------         ------------         ------------
          Total Operating Expenses            1,632,720            1,323,960            3,224,055            2,686,760

          Operating Income(Loss)               (675,900)            (361,569)            (855,179)            (584,731)

   Interest expense                            (153,316)            (105,647)            (234,161)            (188,279)
   Other income (expense)                       (29,008)              (2,868)              14,526                5,793
                                           ------------         ------------         ------------         ------------

Income (loss) before taxes                     (800,208)            (470,084)          (1,074,814)            (767,217)

Cumulative Preferred Stock Dividend              20,000                                    67,934

Income Taxes                                          0                    0                    0                    0
                                           ------------         ------------         ------------         ------------

Net loss                                   $   (820,208)        $   (470,084)        $ (1,142,748)            (767,217)
                                           ============         ============         ============         ============
Net loss per common share
   Basic                                   $      (0.18)        $      (0.13)        $      (0.24)        $      (0.21)
   Diluted                                 $      (0.18)        $      (0.13)        $      (0.24)        $      (0.21)

Shares used in computing net loss
    per share                                 4,541,266            3,684,428            4,563,207            3,684,428
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                                                               4
<PAGE>   5
              PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                         SIX MONTHS ENDED SEPTEMBER 30,     
                                                                                           1998                 1997     
                                                                                        -----------         -----------
                                                                                        (unaudited)         (unaudited)

<S>                                                                                     <C>                 <C>         
Cash flows from operating activities:

     Net loss                                                                           $(1,074,814)        $  (767,217)
     Adjustments to reconcile net loss to net cash used in operating activities:
          Depreciation and amortization                                                     216,726             217,639
          Issuance of warrants                                                               81,742
          Common Stock Dividend                                                              67,934
          Changes in:
               Trade accounts receivable                                                   (410,267)            165,474
               Accounts payable and accrued expenses                                      1,819,758          (1,385,200)
               Other assets and liabilities                                                (732,119)            155,749
                                                                                        -----------         -----------
                    Total adjustments                                                     1,043,774            (846,338)
                                                                                        -----------         -----------
                    Net cash from (used in) operating Activities                             31,040          (1,613,555)
                                                                                        -----------         -----------
                    

Cash flows from investing activities

     Purchase of equipment                                                                  (83,099)            (91,433)
                                                                                        -----------         -----------

               Net cash used in investing activities                                        (83,099)            (91,433)

Cash flows from financing activities:
     Issuance of notes payable and debt                                                      76,035           1,064,103
     Issuance of common stock                                                                39,669              19,460
     Issuance of Series B Preferred Stock                                                   720,000
     Issuance of Series A Preferred Stock                                                                       250,000
     Repayment of debt                                                                     (786,330)            (60,293)
                                                                                        -----------         -----------
               Net cash provided by (used in) financing Activities                          (49,374)          1,272,640
               

Net cash increase (decrease) in cash and cash equivalents                                   (64,765)           (432,348)

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

Cash and cash equivalents, end of period                                                $   110,345         $   382,772
                                                                                        ===========         ===========
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                                                               5
<PAGE>   6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.    Interim Periods

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

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

2.    Lines of Credit

         In March 1998, BASIS and GRSI obtained a long-term credit facility in
         an amount that is the lower of $5,000,000 or the sum of 85% of eligible
         accounts receivable, and restricted cash (see Note 2). The line also
         permits equipment loans in the first year (maximum equipment loan is
         $250,000). This line of credit is secured by substantially all of BASIS
         and GRSI assets. As of September 30, 1998, borrowings under this line
         of credit were $1,313,898. At September 30, 1998 the Company had unused
         availability of $204,000 under the line of credit.

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

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

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

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

         The Company had a $1,000,000 revolving line of credit with a bank which
         was subject to renewal in August 1997. The bank agreed to extend the
         line of credit on a month-to-month basis under substantially the same
         terms until September 1997. The interest rate on borrowings under the
         agreement was the prime rate of interest as established by the bank and
         was due monthly. The line of credit was secured by the 


                                                                               6
<PAGE>   7
      Company's $1,000,000 money market account. The line of credit was paid
      off in September 1997 and was not renewed. Borrowings under this line
      of credit were $1,000,000 at Sept 30, 1997.

      The Company also maintained a $2,200,000 line of credit facility for the
      financing of accounts receivable and inventory with a financial
      institution for its BASIS subsidiary. This financing facility was subject
      to a twelve-month renewal in August 1997. The bank agreed to extend the
      line of credit through February 1998. The interest rate was at the prime
      rate plus 1%. Interest was due monthly. The credit facility was
      collateralized by a $300,000 irrevocable letter of credit from the
      Company's bank and all accounts receivable at BASIS and GRSI. The line of
      credit was paid off in March 1998 and was not renewed. Borrowings under
      this agreement were $895,697 at Sept 30, 1997.

3.    Goodwill
      Cost in excess of net assets acquired (goodwill) is being amortized on a
      straight-line basis over seven years. Amortization expense for the quarter
      ended September 30, 1998 totaled $61,125. Accumulated amortization totaled
      $547,950 at September 30, 1998.

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

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

4.    Property and Equipment

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

<TABLE>
<CAPTION>
                                          September 30, 1998   March 31, 1998
                                          ------------------   --------------
<S>                                       <C>                  <C>        
Furniture and leasehold improvements        $   350,027         $   338,131
Equipment and software                        1,124,283           1,053,079
                                            -----------         -----------
                                              1,474,310           1,391,210
Less accumulated depreciation                  (972,619)           (878,143)
                                            -----------         -----------
Net property and equipment                  $   501,691         $   513,067
                                            ===========         ===========
</TABLE>


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

      The following discussion should be read in conjunction with the audited
Consolidated Financial Statements as filed in the Company's annual report Form
10-KSB. Except for the historical information contained herein, the matters
discussed in this 10-QSB are forward-looking statements that involve a number of
risks and uncertainties. There are certain important factors and risks,
including the rapid change in hardware and software technology, market
conditions, the anticipation of growth of certain market segments and the
positioning of the Company's products and services in those segments,
seasonality in the buying cycles of certain of the Company's customers, the
timing of product announcements, the release of new or enhanced products, the
introduction of competitive products and services by existing or new competitors
and the significant risks associated with the acquisition of new products,
product rights, technologies, businesses, the management of growth, the
Company's ability to attract and retain highly skilled technical, managerial and
sales and marketing personnel, and the other risks detailed from time to time in
the Company's SEC reports, including reports on Form 10-KSB and Form 10-QSB,
that could cause results 


                                                                               7
<PAGE>   8
to differ materially from those anticipated by the statements made herein.
Therefore, historical results and percentage relationships will not necessarily
be indicative of the operating results of any future period.

INTRODUCTION

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

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

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


RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

   Net Sales. Net sales for the second quarter of fiscal 1999 were $3,709,207
compared to the second quarter of the previous fiscal year when sales were
$4,267,059. Sales of licenses and services increased, with the most significant
growth coming from the sale of proprietary and third party software where sales
increased by 


                                                                               8
<PAGE>   9
approximately $271,991 or 43.7% from the same period of the previous fiscal
year. Sales of services, which were predominantly integration projects, amounted
to $582,745 compared to sales of the previous year's second quarter when sales
were $530,123. Sales of third party hardware decreased during the quarter to
$2,231,817 versus hardware sales of the same period last year which were
$3,114,283. The decreased hardware sales were in part a result of late shipments
from the company's vendors delaying some shipments and causing the increased
inventory at the end of the period. Approximately 50% of the inventory was
shipped during the first two weeks of the next quarter.

   Cost of Sales. Cost of sales was $2,752,387 for the current quarter versus
$3,304,668 for the same quarter of the previous fiscal year. Cost of sales as a
percentage of sales decreased from approximately 77% of total net sales to 75%
of total net sales during the quarter just ended. The decreased rate is a result
in the change in sales mix to higher margin license and service sales. The
Company's strategy is to increase the sale of integration services through its
subsidiaries and to begin to increase sales of its proprietary software. As
sales of services and software increase in relation to the sale of hardware the
Company expects to see more favorable changes in its gross profit.

   Selling and Marketing. Selling and marketing expenses were $365,362, or 9.9%
of net sales, for the three month period ended September 30, 1998, compared to
$468,135, or 11% of net sales for the same period of the previous fiscal year.
The decrease in selling and marketing expenses is, in part, due to consolidation
efforts implemented to make the sales force more effective.

   General and Administrative. General and administrative expenses increased
from $754,427, or 17.7% of net sales, for the second quarter of the previous
fiscal year to $1,267,358, or 34.2% of net sales, for the second quarter of the
current fiscal year. The increase was in part the result of increases in staff
to support increased services and in corporate staff related to current efforts
to consolidate the accounting and administrative functions. The Company expects
to reduce administrative expenses as the planned management consolidations
continue.

   Research and Development. The Company did not incur any research and
development expense during the quarter. Research and development is primarily
concerned with upgrading current proprietary software modules. The Company does
not expect to incur any additional research and development expense during the
remainder of the fiscal year.

   Operating Loss. The operating loss for the period was $675,900 or 18.2% of
sales, versus $361,569, or 8.5% of sales, for the same period last year. The
operating loss was the result of the increased operating expenses related to the
consolidation of accounting, administration and management, and the decreased
sales offset somewhat by the sale of higher margin services and third party and
proprietary software sales.

   Interest and Other Income. Interest expense and other expense for the quarter
was $124,308 which was mainly interest paid on the current lines of credit,
short term and long term borrowings. The increase is the result of additional
borrowings required to supplement funds being generated by operations.

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

   Net Loss. The net loss for the quarter ended September 30, 1998 was
approximately $820,208 versus a loss for the same period of the prior fiscal
year of approximately $470,084. The increase in net loss was the result of the
increased operating expense related to the consolidation of accounting,
administration and management, the decreased net sales offset somewhat by the
increased margin as a percentage of sales due to the sale of services and third
party and proprietary software sales.


SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

      Net Sales. Net sales for the six months ended September 30, 1998 were
approximately $9,079,650 versus the net sales for the same period one year ago
of approximately $10,583,816 a decrease of approximately 


                                                                               9
<PAGE>   10
$2,664,391. The sales decrease was the result of a sales cancellation at the
very end of the first quarter, the result of a change in the customer's
business, which would have added approximately $2,600,000 to the sales of the
six month period (approximately $2,500,000 in hardware and $100,000 in
services). Although the order was cancelled the customer believes that
additional services will be required of the Company to help support the
customers downsizing. Sales of third party hardware decreased as a percentage of
total sales, from 78% to 61% during the current period, while sales of higher
margin integration services and third party and proprietary software increased
as a percentage of total sales, from 22% to 39% of total sales during the
current period.

   Cost of Sales. Cost of sales decreased from approximately $8,481,787, or 80%
of sales, to approximately $6,710,774, or 74% of sales. The change, as a percent
of total sales, reflects the sale of higher margin sales of integration services
and proprietary software. The Company's strategy is to increase the sale of high
margin integration services and proprietary software products as rapidly as
resources permit. The Company expects to begin to see increases in its services
and software sales from its operating subsidiaries in the third and fourth
quarter.

   Selling and Marketing. Selling and marketing expenses decreased by
approximately $238,914 from the six month period ended September 30, 1997.
Selling and marketing expenses were approximately $703,979, or 7.8% of net
sales, for the six month period just ended and were approximately $942,893, or
8.9% of net sales, for the same period last year. The decrease in selling and
marketing expenses is, in part, due to consolidation efforts implemented to make
the sales force more effective.

   General and Administrative. General and administrative expenses increased
from approximately $1,547,035 during the six month period last year to
approximately $2,468,326 for the six months ended September 30, 1998. The
increase was in part the result of increases in staff to support increased
services and in corporate staff related to current efforts to consolidate the
accounting, management and administrative functions. The Company expects to
reduce administrative and management expenses as the planned consolidations
continue.

   Research and Development. Research and development was approximately $51,750,
or .6% of net sales for the six months ended September 30, 1998 versus
approximately $196,832, or 1.9%, for the same period last year. The Company did
not incur any research and development expense during the current quarter.
Research and development is primarily concerned with upgrading current
proprietary software modules. The Company does not expect to incur any
additional research and development expense during the remainder of the fiscal
year.

   Operating Loss. The operating loss for the six month period was $855,179, or
9.4% of sales, compared to the operating loss of $584,731, or 5.5% of sales, for
the first six months of the prior year. The operating loss was the result of the
decreased sales and the short term increase in general and administrative
expenses during consolidation offset by the increased margin the result of the
favorable change in sales mix.

   Interest and Other Income. Interest expense and other income for the six
months ended September 30, 1998 was $219,635 compared to $182,486 interest
expense for the first six months of the prior year. The increase is the result
of additional borrowings required to supplement funds being generated by
operations.

   Income Taxes. The Company had no income tax expense for the first six month
period of fiscal 1999 and 1998. As of March 31, 1998, the Company had Federal
net operating loss carryforwards of approximately $9,000,000. The utilization of
net operating loss carryforwards will be limited as determined pursuant to
applicable provisions of the Internal Revenue Code and Treasury regulations
thereunder.

   Net Loss. The net loss for the six months ended September 30, 1998 was
$1,074,814, or 11.8% of sales, versus the net loss for the six month period last
year of approximately $767,217 or 7.2% of sales. The increase in net loss was
the result of the increased administrative expense, the decreased net sales,
offset somewhat by the increased margin as a percentage of sales due to the sale
of services and third party and proprietary software sales.


LIQUIDITY AND CAPITAL RESOURCES

      Liquidity and Capital Resources. At September 30, 1998 the Company had a
working capital deficit of approximately $543,000 versus working capital of
approximately $268,000 at March 31, 1998. The cash balance at 


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<PAGE>   11
September 30, 1998 was approximately $410,000, $300,000 of which was restricted
as security for the Company's line of credit.

       Cash used by operations during the period ended September 30, 1998 was
approximately $31,000. Cash used in operations during the same six month period
of the previous fiscal year totaled approximately $1,614,000. Cash used in
investing activities was approximately $83,000 at September 30, 1998 and
approximately $91,000 at September 30, 1997. Cash used by financing activities
for the six months ended September 30, 1998 totaled approximately $50,000. Cash
provided by financing activities totaled approximately $1,273,000 for the six
months ended September 30, 1997.

      During fiscal 1998 the Company did not generate sufficient cash flows from
operations to fund its current operations and has had to supplement its cash
outflow with new equity investments, advances on lines of credit, other short
and long term borrowings and credit granted by its suppliers and vendors. During
the prior quarter an additional $720,000 of debt was converted to Series B
preferred convertible stock. During this quarter 25,000 shares of Series A
preferred convertible stock were converted to 75,000 common shares. The
Company's ability to raise additional capital and the relationships with these
suppliers and vendors are critical to the viability of the Company.

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

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

      During fiscal 1998, the Company signed a financing agreement with Coast
Business Credit for a line of credit in an amount of the lower of $5,000,000 or
the sum of 85% of eligible accounts receivable, restricted cash (see Note 5 of
the Consolidated Financial Statements) and equipment loans (maximum of
$250,000). This credit facility replaced a $2.2 million facility that was in
place at its BASIS subsidiary. This new facility is designed to provide working
capital to support the Company's sales growth for both subsidiaries. Among other
things the agreement required that the Company maintain a combined net worth at
its BASIS and GRSI subsidiaries of at least $1,000,000. The Company received a
waiver for non-compliance with this requirement at March 31, 1998 and modified
the agreement in July 1998 to a combined net worth requirement of $750,000 for
both subsidiaries. The total amount of the line of credit outstanding at March
31, 1998 was $1,238,000 with additional availability of approximately $117,000.
At September 30, 1998 the Company had $1,313,898 outstanding on the line with
additional availability of $204,000. The line matures on March 31, 2001.

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

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


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<PAGE>   12
share and received warrants to purchase an additional 72,000 shares of
unregistered common stock at a price of $1.00 per share. These warrants expire
March 31, 2001.

      During the six months, the Company purchased approximately $83,000 in
capital equipment and software.

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

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


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

This form 10QSB may contain forward-looking statements that involve risks and
uncertainties, including, but not limited to, the impact of competitive products
and pricing, product demand and market acceptance risks, the presence of
competitors with greater financial resources, product development and
commercialization risks, costs associated with the integration and
administration of acquired operations, capacity and supply constraints or
difficulties, the results of financing efforts and other risks detailed from
time to time in the Company's Securities and Exchange Commission filings,
including the Company's 1998 Form 10-KSB.


PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2.     CHANGES IN SECURITIES

None.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

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

None.


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<PAGE>   13
ITEM 5.     OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 10QSB

A.    Exhibits:
      Exhibit Number     Document                                          Page
      11.1               Schedule of Computation of Net Loss Per Share      15
      27                 Financial Data Schedule                        

B.    Reports:

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


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<PAGE>   14
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: November 14, 1998          By:     /s/  James M. Heim            
                                             -----------------------------------
                                                James M. Heim
                                                President and Chief
                                                Executive Officer



                                        By:     /s/  James M. Heim              
                                             -----------------------------------
                                                James M. Heim
                                                President, (Principal Financial
                                                and Accounting Officer)


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