##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10QSB



|(X BOX) |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|------- |  | ---------------------------------------------------------------------------------
|        |  | For the quarterly period ended June 30, 2001.                                    

Commission file number: 1-13704

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

|                                                                                        |  |                                                
|--------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Arizona
(State or other jurisdiction of incorporation or organization)                  |  | 86-0498857
(I.R.S. Employer Identification No.)
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        |  |                                                
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|3708 E. Columbia Street, #110, Tucson, Arizona
(Address of principal executive offices) |  | 85714
(Zip Code)                               

Issuers telephone number (520) 747-4100

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

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 BOX)     No (BOX) .

Number of shares of common stock outstanding on June 30, 2001 was 6,858,058.

Transitional Small Business Disclosure Format:

Yes  (BOX);    
 No  (X BOX) .



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TABLE OF CONTENTS



|                                                                                              |                                                      |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                
|Item 1. Condensed Consolidated Financial Statements                                          
|                                                                                              | CONDENSED AND CONSOLIDATED BALANCE SHEETS           
|                                                                                              | CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS 
|                                                                                              | CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS 
|                                                                                              | Notes to Condensed Consolidated Financial Statements
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II. OTHER INFORMATION                                                                   
|Item 1. Legal Proceedings                                                                    
|Item 2. Changes in Securities                                                                
|Item 3. Defaults upon Senior Securities                                                      
|Item 4. Submission of Matters to a Vote by Security Holders                                  
|Item 5. Other Information                                                                    
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   



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##### Table of Contents



Prologic Management Systems, Inc.
Index

|           |  |                                                                                                            |  |      |    | 
|---------- |  | ---------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|           |  |                                                                                                            |  | Page
|           |  |                                                                                                            |  |     
|Part I     |  | FINANCIAL INFORMATION                                                                                      |  |      | 3  | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|Item 1.    |  | Condensed Consolidated Financial Statements                                                                |  |      |    | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|           |  | Condensed Consolidated Balance Sheets at June 30, 2001 and March 31, 2001                                  |  |      | 3  | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|           |  | Condensed Consolidated Statements of Operations for the Three Months Ended
June 30, 2001 and June 30, 2000 |  |      | 4  | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|           |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2001 and June 30, 2000 |  |      | 5  | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|           |  | Notes to Condensed Consolidated Financial Statements                                                       |  |      | 6  | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|Item 2.    |  | Managements Discussion and Analysis of Results of Operations and
Financial Condition                      |  |      | 9  | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|Part II    |  | OTHER INFORMATION                                                                                          |  |      | 13 | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|Item 1.    |  | Legal Proceedings                                                                                          |  |      | 13 | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|Item 2.    |  | Changes in Securities                                                                                      |  |      | 13 | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|Item 3.    |  | Defaults upon Senior Securities                                                                            |  |      | 13 | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|Item 4.    |  | Submission of Matters to a Vote by Security Holders                                                        |  |      | 13 | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|Item 5.    |  | Other Information                                                                                          |  |      | 13 | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                           |  |      | 13 | 
|          
|          
|          
|          
|           |  |                                                                                                            |  |      |    | 
|          
|          
|          
|          
|SIGNATURES |  |                                                                                                            |  |      | 14 | 

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Condensed Consolidated Financial Statements




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

|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|------------------------------------------------------------ | --------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ---------- | --------- | ----------- | --------- | ---------- | --------- | ----------- | -
|                                                             |                                   |                                                                                                                               |            | June 30,  |             | March 31,
|                                                             |                                   |                                                                                                                               |            | 2001      |             | 2001     
|                                                             |                                   |                                                                                                                               |            |           |             |          
|ASSETS                                                       |                                   |                                                                                                                               |            |           |             |           |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|Current assets:                                              |                                   |                                                                                                                               |            |           |             |           |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Cash                                                                                                                          |            | $         | 336,660     |           |            | $         | 310,305     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Restricted cash                                                                                                               |            |           |            |           |            |           | 300,000     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Accounts receivable, less allowance for
doubtful accounts of $426,000 at June 30,
2001 and March 31, 2001                     |            |           | 5,073,866   |           |            |           | 3,375,590   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Inventory                                                                                                                     |            |           | 412,836     |           |            |           | 369,241     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Prepaid expenses                                                                                                              |            |           | 83,763      |           |            |           | 72,543      |  
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|Total current assets                                         |                                   |                                                                                                                               | 5,907,125  |           |             |           | 4,427,679  |          
|                                                            
|                                                            
|                                                            
|                                                            
|Property and equipment, net                                  |                                   |                                                                                                                               | 315,444    |           |             |           | 343,214    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Goodwill, net                                                |                                   |                                                                                                                               | 408,942    |           |             |           | 408,942    |          
|                                                            
|                                                            
|                                                            
|                                                            
|Other assets                                                 |                                   |                                                                                                                               | 323,574    |           |             |           | 201,631    |          
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|TOTAL ASSETS                                                 |                                   | $                                                                                                                             | 6,955,085  |           |             | $         | 5,381,466  |          
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS DEFICIT       |                                   |                                                                                                                               |            |           |             |           |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|Current liabilities:                                         |                                   |                                                                                                                               |            |           |             |           |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Short term debt and notes payable |                                                                                                                               | $          | 1,878,814 |             |           | $          | 1,753,377 |            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Line of credit                                                                                                                |            |           |            |           |            |           | 699,150     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Notes payable related parties                                                                                                |            |           | 35,000      |           |            |           |            |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Accounts payable                                                                                                              |            |           | 4,619,777   |           |            |           | 2,800,003   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Accrued expenses                                                                                                              |            |           | 1,400,204   |           |            |           | 910,086     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Deferred maintenance revenue                                                                                                  |            |           | 169,651     |           |            |           | 141,516     |  
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|Total current liabilities                                    |                                   |                                                                                                                               | 8,103,446  |           |             |           | 6,304,132  |          
|                                                            
|                                                            
|                                                            
|                                                            
|Long-term debt and notes payable, excluding current portion  |                                   |                                                                                                                               | 4,501,659  |           |             |           | 4,506,855  |          
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|Total liabilities                                            |                                   |                                                                                                                               | 12,605,105 |           |             |           | 10,810,987 |          
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|Preferred stock:                                             |                                   |                                                                                                                               |            |           |             |           |            |          
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Series A cumulative convertible preferred stock, no par
value, 16,667 shares authorized, 16,667 shares issued
and outstanding |            |           | 100,000     |           |            |           | 100,000     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Series B cumulative convertible preferred stock, no par
value, 100,000 shares authorized, 9,500 shares issued
and outstanding |            |           | 68,588      |           |            |           | 68,588      |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Series C cumulative convertible preferred stock, no par,
100,000 shares authorized, 75,000 shares issued and
outstanding      |            |           | 750,000     |           |            |           | 750,000     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Stock subscription receivable                                                                                                 |            |           | (191,500    | )         |            |           | (191,500    | )
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|                                                             |                                   |                                                                                                                               | 727,088    |           |             |           | 727,088    |          
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|                                                             |                                   | Stockholders deficit:                                                                                                        |            |           |             |           |            |           |             |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Common stock, no par value, 50,000,000 shares
authorized, 6,858,058 shares issued and outstanding                             |            |           | 10,077,220  |           |            |           | 10,077,220  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Warrants                                                                                                                      |            |           | 741,366     |           |            |           | 741,366     |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                   | Accumulated deficit                                                                                                           |            |           | (17,195,694 | )         |            |           | (16,975,195 | )
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|Total stockholders deficit                                  |                                   |                                                                                                                               | (6,377,108 | )         |             |           | (6,156,609 | )        
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  
|Total liabilities, preferred stock and stockholders deficit |                                   | $                                                                                                                             | 6,955,085  |           |             | $         | 5,381,466  |          
|                                                             |                                   |                                                                                                                               |            |           |             |           |            |           |             |  

See accompanying notes to condensed consolidated financial statements.

3



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##### Table of Contents






PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                    |                              |   |                    |           |      |   |            |           |  
|--------------------------------------------------- | ---------------------------- | - | ------------------ | --------- | ---- | - | ---------- | --------- | -
|                                                    |                              |   | Three Months Ended
|                                                    |                              |   | June 30,          
|                                                    |                              |   |                   
|                                                    |                              |   | 2001               |           | 2000
|                                                    |                              |   |                    |           |     
|Revenue:                                            |                              |   |                    |           |      |   |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Hardware                     |   | $                  | 4,127,208 |      |   | $          | 8,354,331 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Software licenses            |   |                    | 1,690,991 |      |   |            | 5,179,875 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Professional services        |   |                    | 1,340,837 |      |   |            | 901,217   |  
|                                                    |                              |   |                    |           |      |   |            |           |  
|Total revenue                                       |                              |   | 7,159,036          |           |      |   | 14,435,423 |          
|                                                   
|                                                   
|                                                   
|                                                   
|Cost of revenue:                                    |                              |   |                    |           |      |   |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Hardware                     |   |                    | 3,536,381 |      |   |            | 7,341,417 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Software licenses            |   |                    | 1,486,248 |      |   |            | 4,344,016 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Professional services        |   |                    | 621,715   |      |   |            | 301,737   |  
|                                                    |                              |   |                    |           |      |   |            |           |  
|Total cost of revenue                               |                              |   | 5,644,344          |           |      |   | 11,987,170 |          
|                                                    |                              |   |                    |           |      |   |            |           |  
|Gross profit                                        |                              |   | 1,514,692          |           |      |   | 2,448,253  |          
|                                                    |                              |   |                    |           |      |   |            |           |  
|Operating expenses:                                 |                              |   |                    |           |      |   |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | General and administrative   |   |                    | 1,061,852 |      |   |            | 1,259,662 |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Selling and marketing        |   |                    | 421,748   |      |   |            | 746,551   |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Research and development     |   |                    | 44,071    |      |   |            | 53,243    |  
|                                                    |                              |   |                    |           |      |   |            |           |  
|Total operating expenses                            |                              |   | 1,527,671          |           |      |   | 2,059,456  |          
|                                                    |                              |   |                    |           |      |   |            |           |  
|Operating (loss) income                             |                              |   | (12,979            | )         |      |   | 388,797    |          
|                                                    |                              |   |                    |           |      |   |            |           |  
|Other income (expense):                             |                              |   |                    |           |      |   |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Interest expense             |   |                    | (185,055  | )    |   |            | (196,428  | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Other income (expense)       |   |                    |          |      |   |            | 8,717     |  
|                                                    |                              |   |                    |           |      |   |            |           |  
|Total other income (expense)                        |                              |   | (185,055           | )         |      |   | (187,711   | )        
|                                                    |                              |   |                    |           |      |   |            |           |  
|(Loss) income from continuing operations            |                              |   | (198,034           | )         |      |   | 201,086    |          
|                                                   
|                                                   
|                                                   
|                                                   
|(Loss) income from discontinued operations          |                              |   |                   |           |      |   | (1,208     | )        
|                                                    |                              |   |                    |           |      |   |            |           |  
|Net (loss) income                                   |                              |   | (198,034           | )         |      |   | 199,878    |          
|                                                   
|                                                   
|                                                   
|                                                   
|Preferred stock dividend                            |                              |   | (22,465            | )         |      |   | (38,750    | )        
|                                                    |                              |   |                    |           |      |   |            |           |  
|Net (loss) income applicable to common stockholders |                              | $ | (220,499           | )         |      | $ | 161,128    |          
|                                                    |                              |   |                    |           |      |   |            |           |  
|Weighted average number of common shares:           |                              |   |                    |           |      |   |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Basic and diluted            |   |                    | 6,858,058 |      |   |            | 8,439,577 |  
|                                                    |                              |   |                    |           |      |   |            |           |  
|Loss per common share:                              |                              |   |                    |           |      |   |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|Basic and diluted (loss) earnings per common share, |                              |   |                    |           |      |   |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | from continuing operations   |   | $                  | (.03      | )    |   | $          | 0.02      |  
|                                                   
|                                                   
|                                                   
|                                                   
|Basic and diluted (loss) earnings per common share, |                              |   |                    |           |      |   |            |          
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | from discontinued operations |   | $                  |          |      |   | $          |          |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net (loss) earnings                                 |                              | $ | (.03               | )         |      | $ | 0.02       |          

See accompanying notes to condensed consolidated financial statements.

4



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##### Table of Contents






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

|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |        |            |  
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------- | -------- | ------- | ---------- | --------- | -------- | ------ | ---------- | -
|Increase (Decrease) in Cash                                    |                                                                                           | Three Months Ended June 30,                            
|                                                               |                                                                                           |                                                        
|                                                               |                                                                                           |                                                         |                              |          | 2001    |            | 2000     
|                                                               |                                                                                           |                                                         |                              |          |         |            |          
|Cash flows from operating activities:                          |                                                                                           |                                                         |                              |          |         |            |           |         
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Net income (loss)                                                                         |                                                         | $                            | 198,034  |         |            | $         | 199,878  |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |                                                         |                              |          |         |            |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           | Depreciation and amortization                           |                              |          | 33,353  |            |           |          | 89,169 |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           | Issuance of common stock for interest incurred          |                              |          |        |            |           |          |       |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           | Issuance of warrants for services and interest incurred |                              |          |        |            |           |          | 12,596 |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           | Change in assets and liabilities:                       |                              |          |         |            |           |          |        |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           |                                                         | Restricted Cash              |          | 300,000 |            |           |          |       |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           |                                                         | Accounts receivable          |          |         | (1,698,276 | )         |          |        | (1,491,089 | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           |                                                         | Inventory                    |          |         | (43,595    | )         |          |        | (153,239   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           |                                                         | Prepaid expenses             |          |         | (11,220    | )         |          |        | (51,582    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           |                                                         | Other assets                 |          |         | (121,942   | )         |          |        | 46,307     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           |                                                         | Accounts payable             |          |         | 1,819,774  |           |          |        | 2,510,209  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           |                                                         | Accrued expenses             |          |         | 467,653    |           |          |        | 161,127    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                                           |                                                         | Deferred maintenance revenue |          |         | 28,135     |           |          |        | (320,929   | )
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|                                                               | Total adjustments                                                                         |                                                         |                              | 773,882  |         |            |           | 802,569  |       
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|Net cash provided by (used in) continuing operating activities |                                                                                           |                                                         | 575,848                      |          |         |            | 1,002,447 |         
|                                                              
|                                                              
|                                                              
|                                                              
|Net cash provided by (used in) discontinued operations         |                                                                                           |                                                         |                             |          |         |            | (29,017   | )       
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|Net cash provided by (used in) operating activities            |                                                                                           |                                                         | 575,848                      |          |         |            | 973,430   |         
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|Cash flows from investing activities:                          |                                                                                           |                                                         |                              |          |         |            |           |         
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Purchase of equipment                                                                     |                                                         |                              | (5,584   | )       |            |           | (3,150   | )     
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|Net cash used in investing activities                          |                                                                                           |                                                         | (5,584                       | )        |         |            | (3,150    | )       
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|Cash flows from financing activities:                          |                                                                                           |                                                         |                              |          |         |            |           |         
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Net change in line of credit                                                              |                                                         |                              | (273,713 | )       |            |           | (718,283 | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Issuance of common stock                                                                  |                                                         |                              |         |         |            |           | 5,000    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Issuance
of new debt                                                                      |                                                         |                              | 35,000   |         |            |           |         |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Repayment of debt                                                                         |                                                         |                              | (305,196 | )       |            |           | (130,396 | )     
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|Net cash provided by (used in) financing activities            |                                                                                           |                                                         | (543,909                     | )        |         |            | (843,679  | )       
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|Net increase (decrease) in cash                                |                                                                                           |                                                         | 26,355                       |          |         |            | 126,601   |         
|                                                              
|                                                              
|                                                              
|                                                              
|Cash, beginning of period                                      |                                                                                           |                                                         | 310,305                      |          |         |            | 447,910   |         
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|Cash, end of period                                            |                                                                                           | $                                                       | 336,660                      |          |         |            | 574,511   |         
|                                                               |                                                                                           |                                                         |                              |          |         |            |           |          |       
|Supplemental statement of cash flow information:               |                                                                                           |                                                         |                              |          |         |            |           |         
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash paid during the quarter for interest                                                 |                                                         | $                            | 24,518   |         |            |           | 190,420  |       

See accompanying notes to condensed consolidated financial statements.

5



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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 subsidiary, 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 principles, 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, 2001. The
results of operations for the three-month period ended June 30, 2001 are
not necessarily indicative of the results to be expected for the full
fiscal year.

2.     Discontinued Operations



| |  |  | As reported in the Companys Report on Form 10-KSB for the fiscal year
ended March 31, 2000, the Board of Directors authorized the closure of
the Companys Great River Systems, Inc. (GRSI) subsidiary at March 31,
2000, and its subsequent dissolution. As a result, the Company recognized
a one-time restructuring charge, and a nonrecurring asset impairment
charge to goodwill, at fiscal year end March 31, 2000. The nonrecurring
charges, together with GRSI results of operations, were presented in the
Form 10-KSB as Net Income (Loss) from Discontinued Operations,. In this
interim report on Form 10-QSB, income (loss) for the periods ended June
30, 2001 and 2000, contained herein for comparative purposes, also has
been restated to conform to this revised presentation.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3.     Change in Methods of Procurement and Sales



| |  |  | In the quarter ended September 30, 2000, the Company elected to
transition its method of obtaining certain third party vendor product
lines and service contracts, which impact the presentation of the
financial statements. Under this procurement method, the Company records
only its markup on third party products and services, the costs of the
products and the equivalent gross sale prices are not recognized. The
resulting effect is a reduction in net sales and cost of sales. Gross
profit and operating income will remain unaffected. The Company has not
transitioned any other sales to the procurement method and does not
anticipate doing so in the upcoming quarters.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4.     Line of Credit



| |  |  | During the quarter ended June 30, 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 with Coast Business Credit, which matured at March 31,
2001. This new facility provides working capital to support the Companys
systems integration operations. The financing agreement with KBK
Financial, Inc. contains certain operating and other covenants, including
a covenant that requires that the Companys BASIS, Inc. subsidiary
maintain a net worth of at least $400,000. At June 30, 2001, the Company
was in compliance with this and the other covenants under the agreement.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.     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.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6



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##### Table of Contents





| |  |  | 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 June 30, 2001, 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 three-month period ending
June 30, 2001. 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. Accumulated amortization totaled $975,107 at March 31, 2001.
|
| |  |  | If the Company had accounted for its goodwill according to SFAS 142 for
all income statement periods presented, the Companys net income (loss)
and income (loss) per common share and common share equivalent would have
been as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                             |                            |    |                                     |        |      |   |         |      | 
|-------------------------------------------- | -------------------------- | -- | ----------------------------------- | ------ | ---- | - | ------- | ---- | 
|                                             |                            |    | For the Three Months Ended June 30,
|                                             |                            |    |                                    
|                                             |                            |    | 2001                                |        | 2000
|                                             |                            |    |                                     |        |     
|Reported net income (loss)                   |                            | ($ | 220,499                             | )      |      | $ | 161,128 |     
|                                            
|                                            
|                                            
|                                            
|Add back: Goodwill amortization              |                            |    |                                    |        |      |   | 52,463  |     
|                                             |                            |    |                                     |        |      |   |         |     
|Adjusted net income (loss)                   |                            | ($ | 220,499                             | )      |      | $ | 213,591 |     
|                                             |                            |    |                                     |        |      |   |         |     
|Basic and diluted earnings (loss) per share: |                            |    |                                     |        |      |   |         |     
|                                            
|                                            
|                                            
|                                            
|                                             | Reported net income (loss) |    |                                     | ($0.03 | )    |   | $       | 0.02 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Goodwill amortization      |    |                                     |       |      |   |         | 0.01 | 
|                                             |                            |    |                                     |        |      |   |         |     
|                                             | Adjusted net income (loss) |    |                                     | ($0.03 | )    |   | $       | 0.03 | 
|                                             |                            |    |                                     |        |      |   |         |     

6.     Property and Equipment



| |  |  | Property and equipment as of June 30, 2001, consists of the following:
| |  |  | ----------------------------------------------------------------------

|                                     |                              |   |               |           |                |   |          |           | 
|------------------------------------ | ---------------------------- | - | ------------- | --------- | -------------- | - | -------- | --------- | 
|                                     |                              |   | June 30, 2001 |           | March 31, 2001
|                                     |                              |   |               |           |               
|Furniture and leasehold improvements |                              | $ | 253,481       |           |                | $ | 253,481  |          
|                                    
|                                    
|                                    
|                                    
|Equipment and software               |                              |   | 916,448       |           |                |   | 910,864  |          
|                                     |                              |   |               |           |                |   |          |          
|                                     | Total property and equipment |   |               | 1,169,929 |                |   |          | 1,164,345 | 
|                                    
|                                    
|                                    
|                                    
|Less accumulated depreciation        |                              |   | (854,485      | )         |                |   | (821,131 | )        
|                                     |                              |   |               |           |                |   |          |          
|                                     | Net property and equipment   |   | $             | 315,444   |                |   | $        | 343,214   | 
|                                     |                              |   |               |           |                |   |          |          

7.     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.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8.     Long Term Debt



| |  |  | In December 2000, the Company signed a $5 million note, converting
approximately $5 million in accounts payable. The note requires bi-weekly
payments of $20,000 commencing on January 1, 2001, and provides that the
Company direct 50% of any future sums received by, committed to, or
invested in the Company as
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | an additional equity capital infusion, towards any unpaid balance due on
the note. The interest rate on the note is 10%, and the due date of the
note is April 2, 2002. The note provides for interest at 18% per annum
following any event of default.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9.     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 June 30, 2001 and
2000, potential common stock, consisting of stock options, warrants and
convertible preferred stock totaling 2,470,512 and 2,750,463,
respectively, are excluded from the computation of diluted earnings per
share because they are antidilutive.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10.     Related Party Transactions



| |  |  | During the 3 months ended June 30, 2001, the Company borrowed
$35,000 from an organization partially owned by an officer and
shareholder.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------

8



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

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, which are
set forth in the Companys Annual Report on From 10-KSB for the fiscal year
ended March 31, 2001. The discussion should be read in conjunction with and is
qualified in its entirety by such 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.

Results of Operations

Net Sales. Net sales for the first quarter of fiscal 2002 were
$7,159,036 compared to $14,435,423 for the same period of the prior fiscal
year, a decrease of $7,276,387, or approximately 50.4%. The sales decrease was
due primarily to the economic downturn that caused clients to reduce and/or
defer hardware and software purchases during the quarter. Sales of third party
hardware for the period were $4,127,208, a decrease of approximately 50.6%
compared to third party hardware sales for the same period one year ago of
$8,354,331. Sales of software licenses, which included third party licenses as
well as proprietary software, were $1,690,991 for the period, a decrease of
approximately 67.4% compared to sales of $5,179,875 for the first quarter of
the previous fiscal year. Service sales for the period, which were comprised
predominately of integration services, were $1,340,837 compared to $901,217

9



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##### Table of Contents



for the corresponding period of the previous fiscal year, an increase of
approximately 48.8%. The Company continues to concentrate on sales of hardware
and third party software that normally lead to additional service sales.

Cost of Sales. Cost of sales was $5,644,344, or 78.8% of net sales,
for the quarter ended June 30, 2001, versus $11,987,170, or 83.0% of net sales,
for the same period of the previous year. The overall decreased cost of sales
was primarily the result of the decline in sales. The Company expects to see
the margins on sales of third party products continue to decline in the long
term as a result of continued competition and pricing pressure in the computer
market. The Company is attempting to offset the increasing cost of third party
products by increasing sales of higher-margin related services.

Selling and Marketing. Selling and marketing expenses were $421,748,
or 5.9% of net sales, for the three month period ended June 30, 2001, compared
to $746,551, or 5.2% of net sales, for the same period of the previous fiscal
year. The decrease in the amount of expenses is primarily the result of
decreased sales and the improvement of these expenses as a percentage of net
sales is primarily the result of a change in the sales mix. The Company
normally expects sales and marketing expenses to generally reflect long range
sales trends, rather than short-term sales cycles.

General and Administrative. General and administrative expenses for
the first quarter of fiscal 2002 were $1,061,852, or 14.8% of net sales,
compared to $1,259,662, or 8.7% of net sales, for the first quarter of the
previous fiscal year. The decrease in these expenses is attributable to the
Companys aggressive reduction in operating expenses 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.

Research and Development. Research and development expenses were
$44,071, or 0.6% of net sales, for the first quarter of fiscal 2002, as
compared to $53,243, or 0.4% of net sales, for the first quarter of the
previous fiscal year. Research and development is generally related to
improvements of proprietary software.

Operating Income (loss).Operating loss for the period was $12,979, or
0.2% of net sales, versus operating income of $388,797, or 2.7% of net sales,
for the same period last year. The operating loss resulted from the economic
downturn that caused clients to reduce and/or defer hardware and software
purchases during the quarter.

Interest Expense and Other Income. Interest expense and other income
for the quarter was $185,055, compared to $187,711 for the corresponding period
of the prior year, and was comprised mainly of interest paid on the current
lines of credit and short term borrowings. The decrease was primarily the
result of reduced short-term borrowings during the period.

Income Taxes. The Company had no income tax expense for the first
quarters of fiscal 2002 and 2001. As of June 30, 2001, the Company had Federal
net operating loss carry forwards of approximately $13,000,000. The utilization
of net operating loss carry forwards will be limited pursuant to the applicable
provisions of the Internal Revenue Code and Treasury regulations.

Net Income (loss) from Continuing Operations. Net loss from continuing
operations for the quarter ended June 30, 2001 was $198,034, or a loss of
approximately $0.03 per share, versus net income of $201,086, or approximately
$0.02 per share, for the same period of the prior fiscal year. The loss was the
result of the decrease in sales resulting from an economic downturn that caused
clients to delay a significant number of orders during the quarter, offset
somewhat by reduced interest expense.

Net Income (loss) from Discontinued Operations.During the fiscal year
ended March 31, 2000, the Company discontinued operations of Great River
Systems. The loss related to the discontinuance of the subsidiary was $0 for
the first quarter of fiscal 2002 as compared to a loss of $1,208 for the same
period of the prior fiscal year.

Net Income (loss) including Discontinued Operations.Including charges
related to the discontinuance of the Great River Systems subsidiary, the
Company had net loss of $198,034, or a loss of $0.03 per share, for the first
quarter of fiscal 2002, as compared to net income of $199,878, or $0.02 per
share, for the same period of the prior fiscal year.

10



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##### Table of Contents



Liquidity and Capital Resources

At June 30, 2001 the Company had a working capital deficit of
approximately $2,196,000 versus a deficit of approximately $1,876,000 at March
31, 2001. The increase resulted primarily from the operating losses and
increased accounts payable partially offset by increased accounts receivable.
As a result of the working capital deficit at March 31, 2001 (the Companys
fiscal year end), the Companys independent certified public accountants have
expressed substantial doubt about the Companys ability to continue as a going
concern. The total cash balance at June 30, 2001 was $336,660.

Cash provided by operations during the quarter ended June 30, 2001 was
$575,848, compared to $973,430 for the corresponding period in fiscal 2000.
This was due primarily to decreased operating income during the quarter. Cash
used in investing activities was $5,584 at June 30, 2001 and $3,150 at June 30,
2000. Cash used in financing activities for the quarter ended June 30, 2001 was
$543,909, compared to $843,679 for the corresponding period in fiscal 2000. The
decrease in cash used in financing activities resulted primarily from increased
borrowings under a long-term debt arrangement partially offset by reduced
borrowings against the Companys line of credit, and the lack of any
significant issuances of equity.

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 an 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.

In fiscal 1998, the Company signed a financing agreement with Coast
Business Credit for a line of credit in the maximum amount of $5,000,000, to
provide working capital to support the Companys systems integration
operations. The credit facility matured at March 31, 2001, and was subsequently
purchased by and replaced with a $3,000,000 financing agreement with KBK
Financial, Inc. (See Note 4 to Condensed Consolidated Financial Statements)

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% in monthly
installments. As of June 30, 2001, the principal balance was approximately
$723,000.

During fiscal 2001, the Company signed a settlement agreement with
Sunburst Acquisitions IV, Inc. The settlement agreement resulted in 1,959,972
of our shares being cancelled, 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. The note is
payable in three quarterly principal payments of $25,000 commencing in April
2001, plus interest at 10%.

In December 2000, the Company signed a $5 million note, converting
approximately $5 million of its accounts payable. The note requires bi-weekly
payments of $20,000 commencing on January 1, 2001, and 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. The interest rate on the note is 10%, with a due
date of April 2, 2002.

11



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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 principle was repaid. The interest rate on the
notes is 2% per month. As of June 30, 2001, the remaining principle balance on
these notes, which are currently due, was $110,000.

At June 30, 2001, the Company had current debt obligations, or debt that
will become due within twelve months, of $1,394,924. 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 and service current debt. The Company
continues to review its strategic alternatives, including raising capital
through debt or equity financing. The Company has no commitments at this time
from third parties for any such financing.

During the first quarter of fiscal 2002, the Company purchased
approximately $5,584 in capital equipment and software.

Recently Issued 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 June 30, 2001, 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 three-month period ending June 30, 2001. The Company has
completed its transitional goodwill impairment test pursuant to the provisions
of SFAS 142 and determined that there was no impairment of the asset.

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

Managements discussion and analysis in this Form 10-QSB should be read in
conjunction with the audited Consolidated Financial Statements as filed in the
Companys annual report on Form 10-KSB for the fiscal year ended March 31,
2001. Except for the historical information contained herein, the matters
discussed in this Form 10-QSB 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 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.

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PART II. OTHER INFORMATION




Item 1. 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.

In fiscal 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 2. Changes in Securities

None.




Item 3. Defaults upon Senior Securities

None.




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

None.




Item 5. Other Information

None.




Item 6. Exhibits and Reports on Form 8-K

A.     Exhibits:



| |  | None.
| |  | -----

B.     Reports:



| |  | No reports on Form 8-K were filed during the quarter ended June 30,
2001.
| |  | -------------------------------------------------------------------------

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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: August 13, 2001 | By:   /s/ James M. Heim              

James M. Heim              Chief
Executive Officer, Principal Financial              and
Accounting Officer
|---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------



| | By:   /s/
Richard E. Metz               Richard

E. Metz               Executive
Vice President
| | -----------------------------------------------------------------------------------------------

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