U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended September 30, 2002.
Commission file number: 1-13704
PROLOGIC MANAGEMENT SYSTEMS, INC.
(Name of small business issuer in its charter)
Arizona 86-0498857
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3708 E. Columbia Street, #110, Tucson, Arizona 85714
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (520) 747-4100.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No____ .
Number of shares of common stock outstanding on September 30, 2002 was
7,275,048.
Transitional Small Business Disclosure Format:
Yes ______ ; No ___X___ .
1
Prologic Management Systems, Inc.
Index
Page
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Part I. FINANCIAL INFORMATION 3
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2002 (unaudited) and March 31, 2002 3
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended September 30, 2002 (unaudited) and September
30, 2001 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended September 30, 2002 (unaudited) and September 30,
2001 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9
Item 3. Controls and Procedures 15
Part II. OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote by Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Prologic Management Systems, Inc. and Subsidiaries
Condensed and Consolidated Balance Sheets
September 30, 2002 March 31, 2002
---------------------- -------------------
ASSETS (unaudited)
Current assets:
Cash $ 35,791 $ 81,280
Accounts receivable, less allowance for doubtful accounts of
$591,072 at September 30, 2002 and at March 31, 2002 2,358,528 2,572,634
Inventory 253,785 42,589
Prepaid expense 80,400 18,358
---------------------- -------------------
Total current assets 2,728,504 2,714,861
Property and equipment, net 384,691 254,714
Goodwill, net 408,942 408,942
Deferred financing costs, net 136,311 225,828
Other assets 327,028 92,583
---------------------- -------------------
Total assets $ 3,985,476 $ 3,696,928
---------------------- -------------------
Liabilities, Preferred Stock AND Stockholders' Deficit
Current Liabilities
Short term debt and notes payable $ 1,967,163 $ 1,369,449
Accounts payable 2,732,477 2,036,522
Sales tax payable 638,995 684,164
Accrued expenses 454,042 768,540
Deferred maintenance revenue 375,918 104,067
---------------------- -------------------
Total current liabilities 6,168,595 4,962,742
Long term debt and notes payable, excluding current portion 6,848,046 6,410,081
---------------------- -------------------
Total liabilities 13,016,641 11,372,823
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 value,
100,000 shares authorized, 55,850 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,
7,275,048 and 7,014,591 shares issued and outstanding at
September 30, 2002 and March 31, 2002, respectively 10,205,073 10,145,168
Warrants 961,367 961,367
Accumulated deficit (20,924,693) (19,509,518)
---------------------- -------------------
Total stockholders' deficit (9,758,253) (8,402,983)
---------------------- -------------------
Total liabilities and stockholders' deficit $ 3,985,476 $ 3,696,928
---------------------- -------------------
See accompanying notes to condensed consolidated financial statements.
3
Prologic Management Systems, Inc. and Subsidiaries
Condensed and Consolidated Statements of Operations
Three Months Ended Six Months Ended
September 30, September 30,
2002 2001 2002 2001
-------------- ------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Hardware $ 1,955,117 $ 5,137,747 $ 5,673,143 $ 9,264,955
Software licenses 631,520 513,594 1,001,746 2,204,585
Professional services 1,130,198 889,389 2,599,146 2,230,226
-------------- ------------- -------------- --------------
Total revenue 3,716,835 6,540,730 9,274,035 13,699,766
Cost of revenue:
Hardware 1,798,928 4,631,460 5,157,264 8,167,843
Software licenses 548,419 437,221 873,488 1,923,470
Professional services 684,621 266,956 1,661,312 888,670
-------------- ------------- -------------- --------------
Total cost of revenue 3,031,968 5,335,637 7,692,064 10,979,983
-------------- ------------- -------------- --------------
Gross profit 684,867 1,205,093 1,581,971 2,719,783
-------------- ------------- -------------- --------------
Operating expenses:
General and administrative 1,191,003 1,140,621 2,044,102 2,202,472
Selling and marketing 308,256 570,001 586,276 991,750
Research and development 35,751 43,248 69,672 87,319
-------------- ------------- -------------- --------------
Total operating expenses 1,535,010 1,753,870 2,700,050 3,281,541
-------------- ------------- -------------- --------------
Operating loss (850,143) (548,777) (1,118,079) (561,758)
-------------- ------------- -------------- --------------
Interest and other income (expense):
Interest expense (152,814) (54,836) (299,014) (239,891)
Other income (expense) 1,800 -- 3,890 --
-------------- ------------- -------------- --------------
Total other income (expense) (151,014) (54,836) (295,124) (239,891)
-------------- ------------- -------------- --------------
Net loss (1,001,157) (603,613) (1,413,203) (801,649)
Preferred stock dividend (18,338) (22,465) (36,676) (44,930)
-------------- ------------- -------------- --------------
Net loss available to common
Stockholders $ (1,019,495) $ (626,078) $ (1,449,879) $ (846,579)
-------------- ------------- -------------- --------------
Weighted average number of common shares:
Basic and diluted 7,275,048 6,867,841 7,230,806 6,863,003
-------------- ------------- -------------- --------------
Loss per common share:
Basic and diluted $ (0.14) $ (0.09) $ (0.20) $ (0.12)
See accompanying notes to condensed consolidated financial statements.
4
Prologic Management Systems, Inc. and Subsidiaries
Condensed and Consolidated Statements of Cash Flows
Six months ended September 30,
INCREASE (DECREASE) IN CASH 2002 2001
------------------ ---------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (1,413,203) $ (765,949)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 114,226 74,307
Changes in assets and liabilities, net of business acquired:
Restricted cash -- 300,000
Accounts receivable 263,399 1,158,540
Inventory 15,558 61,820
Prepaid expenses (38,559) (18,066)
Other assets (95,499) (50,539)
Accounts payable 798,141 (1,827,269)
Accrued expenses (389,229) 168,621
Deferred maintenance revenue 116,074 (26,880)
------------------ ---------------
Total adjustments 784,112 (159,466)
------------------ ---------------
Net cash provided by (used in) operating activities (629,091) (925,415)
Cash flows from investing activities:
Purchase of equipment (141,159) (37,013)
------------------ ---------------
Net cash provided by (used in) investing activities (141,159) (37,013)
------------------ ---------------
Cash flows from financing activities:
Net change in line of credit 579,356 (275,049)
Issuance of new debt 192,605 1,059,686
Repayment of debt (47,199) (62,101)
------------------ ---------------
Net cash provided by (used in) financing activities 724,761 722,536
------------------ ---------------
Net increase (decrease) in cash (45,489) (239,892)
Cash, beginning of period 81,280 310,305
------------------ ---------------
Cash, end of period $ 35,791 $ 70,413
------------------ ---------------
Supplemental statement of cash flow information:
Cash paid during the period for interest $ 31,074 $ 52,759
Cash paid during the period for taxes -- --
Non-cash financing and investing activities:
Preferred stock dividends paid in common stock 13,458 --
Acquisition of Solid Systems:
Assets acquired 1,309,829 --
Liabilities assumed 1,309,829 --
Issuance of common stock for services rendered -- 35,700
Warrants issued as deferred financing cost $ -- $ 210,000
See accompanying notes to condensed consolidated financial statements.
5
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, 2002. The results of operations for the three and
six-month periods ended September 30, 2002 are not necessarily
indicative of the results to be expected for the full fiscal year.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
previously reported, the Company has suffered recurring losses from
operations and has negative working capital and a stockholders'
deficit. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
2. Acquisition of Assets from Solid Systems, Inc.
On June 15, 2002, the Company closed an acquisition effective May 31,
2002 whereby the Company acquired, in a non-cash asset purchase, four
(4) additional offices and associated personnel and equipment, from
Solid Systems, Inc, an information technology service provider. The
offices are located in Dallas, Austin and Houston, Texas, and in New
Orleans, Louisiana. The Company intends to continue the systems
integration and maintenance business under the name of Solid Systems.
The results of operations of Solid Systems have been included in the
Company's consolidated results of operations from May 31, 2002,
acquisition date, through the end of this period.
Pursuant to the agreement, Solid Systems, Inc. assets were sold and
transferred to the Company in consideration for the assumption of
liabilities. The transaction was accounted for using the purchase
method. Assets totaling approximately $1,309,000 included: accounts
receivable ($907,000), prepaid maintenance contracts and prepaid
expenses ($90,000), inventories ($227,000), trade names ($25,000) and
computer equipment and furniture ($60,000). The Company intends to use
the equipment and office space it acquired from Solid Systems to
continue the systems integration and enterprise services business.
Liabilities totaling approximately $1,309,000 included: accounts
payable ($445,000), accrued expenses ($380,000) and deferred revenue
($484,000).
In the transaction, the Company also acquired the rights to the Solid
Systems Inc. mark, the solidsystems.com domain name and Solidstor mark.
The Company assumed lease agreements for its Dallas and New Orleans
locations. The Dallas office leases 2,053 square feet of office space
under a lease that expired in October 2002. The New Orleans office
leases 2,400 square feet of office space under a lease that expires May
2004.
The unaudited proforma combined historical results of operations, as if
Solid Systems had been acquired at the beginning of the period, are
estimated to be:
Year ended Six months ended
March 31, 2002 September 30, 2002
----------------------
Revenue $ 36,068 $ 10,057
Net loss available to common shareholders $ (7,522) $ (1,827)
Basic and diluted loss per share $ (1.08) $ (0.25)
6
The foregoing unaudited historical results of operations are presented
for informational purposes only and do not purport to be indicative of
the results that would have been obtained had the acquisition occurred
as of an earlier date or of any future results which may be obtained.
3. Line of Credit
During the quarter ended June 30, 2001, the Company entered into a
financing agreement with a key lender. This agreement provides the
Company with an immediate partial advance on all sales and requires the
Company to immediately assign the related receivables to the lender.
Upon collection of the related receivables, the lender pays the
remaining balance, if any, to the Company. The receivables are assigned
with recourse and advances over 90 days outstanding bear interest at a
rate of 10% per annum. At March 31, 2002 and September 30, 2002, the
Company was liable for $278,857 and $858,213, respectively, under this
agreement, which is included in short-term debt and notes payable.
4. Property and Equipment
Property and equipment consists of the following:
September 30, 2002 March 31, 2002
------------------ ----------------
Furniture and leasehold improvements $ 273,481 $ 253,481
Equipment and software 1,119,603 938,443
Total property and equipment 1,393,083 1,191,924
Less accumulated depreciation (1,008,392) (937,210)
Net property and equipment $ 384,691 $ 254,714
=============== ================
5. Inventory
Inventory consists primarily of parts associated with servicing
maintenance contracts and, to a lesser degree, 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.
6. Long Term Debt
In December 2000, the Company signed a $5 million note, converting
approximately $5 million of its accounts payable, with 10% interest and
a due date of April 2, 2002. The note is secured by a pledge to the
note holder of substantially all of the Company's assets. In August
2002, the Company renegotiated the terms of the note. The current note
bears interest at 6% and is due in April 2004, with the option to
extend the maturity date to April 2005. The balance of the current
promissory note at September 30, 2002 is $6,375,686 with approximately
$458,396 accrued interest at September 30, 2002. The current note
requires the Company to make monthly payments of 40% of its available
operating profits each month. The note further requires that the
Company direct 50% of any future sums received by, committed to, or
invested in the Company as an additional equity capital infusion,
towards repayment of the unpaid balance of the note. In August 2002,
the Company further amended the note to add weekly payments of $1,000.
7. 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. For the
three and six months ended September 30, 2002 and 2001, potential
common stock, consisting of stock options, warrants and convertible
preferred stock are excluded from the computation of diluted earnings
per share because they are antidilutive.
8. Commitments
The Company has employment contracts with key executives which extend
to 2005. The contracts provide for annual salary and also for severance
payments of up to 12 to 24 months salary in certain circumstances.
9. Recently Issued Accounting Pronouncements
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that
these long-lived assets be measured at the lower of carrying amount or
fair value less cost to sell, whether reported in continuing operations
or in discontinued operations. Therefore, discontinued operations will
no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. SFAS 144 is effective for
7
financial statements issued for fiscal years beginning after December
15, 2001 and, generally, are to be applied prospectively. The Company
believes the adoption of this statement had no material impact on its
financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, which rescinds FASB Statement No. 4, Reporting
Gains and Losses from Extinguishment of Debt, and an amendment of that
Statement, FASB Statement No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. This Statement amends FASB Statement
No. 13, Accounting for Leases, to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The Company
believes the adoption of this Statement will have no material impact on
its financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses accounting
for restructuring and similar costs. SFAS No. 146 supersedes previous
accounting guidance, principally Emerging Issues Task Force (EITF)
Issue No. 94-3. PGE NEG will adopt the provisions of SFAS No. 146 for
restructuring activities initiated after December 31, 2002. SFAS No.
146 requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred. Under
EITF No. 94-3, a liability for an exit cost was recognized at the date
of a company's commitment to an exit plan. SFAS No. 146 also
establishes that the liability should initially be measured and
recorded at fair value.
8
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 subsidiary, see the Consolidated Financial Statements of the
Company and Notes thereto, which are set forth in the Company's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 2002. The discussion herein
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 continue to be
conducted on the OTC 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 is 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.
Acquisition of Assets from Solid Systems, Inc.
As previously reported in its Report on Form 10-QSB for the quarter ended
June 30, 2002, on June 15, 2002, the Company closed an acquisition effective May
31, 2002 whereby the Company acquired, in a non-cash asset purchase, four (4)
additional offices and associated personnel and equipment, from Solid Systems,
Inc, an information technology service provider. The offices are located in
Dallas, Austin and Houston, Texas, and in New Orleans, Louisiana. The Company
has continued the systems integration and maintenance business under the name of
Solid Systems, operating as a division of the Company's BASIS, Inc. subsidiary.
(See Note 2 to the Condensed Consolidated Financial Statements)
9
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue from the sale of third-party hardware and
software products upon shipment from the vendor to the end user, or when shipped
from the Company, whichever is appropriate. Title transfers FOB shipping point.
Revenue from professional services is recognized upon completion of the work and
notification from the customer of their acceptance. Revenue from software
licensing is recognized in accordance with Statement of Position 97-2, Software
Revenue Recognition. Revenue from software licensing is recognized when delivery
of the software has occurred and a signed non-cancelable license agreement has
been received from the customer; any remaining obligations under the license
agreement are insignificant. Revenue associated with agreements to provide
product support services is recognized as related services are provided. Revenue
from annual or other renewals of maintenance contracts is deferred and
recognized on a straight-line basis over the term of the contracts.
Impairment of Long Lived Assets
In assessing the recoverability of long lived assets, including goodwill,
we must make assumptions regarding estimated future cash flows and other factors
to determine the fair value of the respective assets. If these estimates or
their related assumptions change in the future, we may be required to record
impairment charges for these assets not previously recorded.
Results of Operations
Three Months Ended September 30, 2002 and 2001
Net Revenue. Net revenue for the second quarter of fiscal 2003 was
$3,716,835 compared to $6,540,730 for the same period of the prior fiscal year,
a decrease of $2,823,895, or approximately 43.2%. The revenue decrease was due
primarily to the continuing economic downturn that caused clients to reduce
and/or defer hardware purchases during the quarter. Revenue from sales of third
party hardware for the quarter ended September 30, 2002 was $1,955,117, a
decrease of approximately 62.0% over sales from the same period of the previous
fiscal year of $5,137,747. Revenue from sales of software licenses, which
included third party licenses as well as proprietary software, was $631,520 for
the quarter ended September 30, 2002, an increase of approximately 18.7% over
sales of $513,594 from the same period of the previous fiscal year. Revenue from
service sales for the quarter ended September 30, 2002, which were comprised
predominately of integration and support services, was $1,130,198 compared to
$889,389 for the same period of the previous fiscal year, an increase of
approximately 21.3%. The increases in software license and service sales reflect
the Company's efforts to increase sales of higher margin software and services,
which have been less susceptible to market conditions than the demand for
computer hardware.
Cost of Sales. Cost of sales for the quarter ended September 30, 2002 was
$3,031,968, or 81.6% of total net sales, compared to $5,335,637, or 81.6% of net
sales, for the same period of the previous fiscal year. The overall decreased
cost of sales was primarily the result of the decline in sales. The Company does
not expect to see improved margins on sales of third party products in the near
term, as the economic downturn continues to drive 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.
General and Administrative. General and administrative expenses for the
quarter ended September 30, 2002 were $1,191,003, or 32.0% of net sales,
compared to $1,140,621, or 17.4% of net sales, for the same period of the
previous fiscal year. The increase as a percentage of net sales was primarily
the result of the decrease in sales. The Company normally expects general and
administrative expenses to generally reflect long range sales trends, rather
than short-term sales cycles.
Selling and Marketing. Selling and marketing expenses for the quarter ended
September 30, 2002 were $308,256, or 8.3% of net revenue, compared to $570,001,
or 8.7% 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.
The Company normally expects sales and marketing expenses to generally reflect
long range sales trends, rather than short-term sales cycles.
10
Research and Development. Research and development expenses for the quarter
ended September 30, 2002 were $35,751, or 1.0% of net sales, compared to
$43,248, or 0.7% of net sales, for the same period of the previous fiscal year.
Research and development is generally related to updates of proprietary
software.
Operating Income (loss). Operating loss for the second quarter of fiscal
2003 was $850,143 or a loss of 22.9% of net sales, compared to a loss of
$548,777, or a loss of 8.4% of net sales, for the same period of the previous
fiscal year. The operating loss resulted from the continuing economic downturn
that caused clients to reduce and/or defer hardware purchases.
Interest Expense and Other Income (expense). Interest expense and other
expense for the second quarter of fiscal 2003 was $151,014, compared to $54,836
for the same period of the previous fiscal year, which was mainly interest paid
on the current lines of credit and short term borrowings. The increase was
primarily attributable to interest accrued on the $5 million note due April
2004.
Income Taxes. The Company had no income tax expense for the second quarters
of fiscal 2003 and 2002. As of September 30, 2002, the Company had Federal net
operating loss carry forwards of approximately $14,300,000. 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). The Company had a net loss of $1,001,157, or a loss of
approximately $0.14 per share, for the second quarter of fiscal 2003, as
compared to a loss of $603,613, or a loss of approximately $0.09 per share, for
the same period of the previous 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.
Six Months Ended September 30, 2002 and 2001
Net Revenue. Net revenue for the first six months of fiscal 2003 was
$9,274,035 compared to $13,699,766 for the same period of the previous fiscal
year, a decrease of $4,425,731, or approximately 32.3%. The revenue decrease was
due primarily to the continuing economic downturn that caused clients to reduce
and/or defer hardware and software purchases during the six-month period.
Revenue from sales of third party hardware for the six months ended September
30, 2002 was $5,673,143, a decrease of approximately 38.8% over sales for the
same period of the previous fiscal year of $9,264,955. Revenue from sales of
software licenses, which included third party licenses as well as proprietary
software, was $1,001,746 for the six months ended September 30, 2002, a decrease
of approximately 54.6% over revenue of $2,204,585 for the first six months of
the previous fiscal year. Revenue from service sales for the six months ended
September 30, 2002, which were comprised predominately of integration and
support services, was $2,599,146, compared to $2,230,226 for the same period of
the previous fiscal year, an increase of approximately 14.2%. The increase in
service sales reflects the Company's efforts to increase sales of higher margin
services, which have been less susceptible to market conditions than the demand
for computer hardware.
Cost of Sales. Cost of sales for the six months ended September 30, 2002
was $7,692,064, or 82.9% of total net sales, compared to $10,979,983, or 80.1%
of net sales, for the same period of the previous fiscal year. The overall
decreased cost of sales was primarily the result of the decline in sales. The
Company does not expect to see improved margins on sales of third party products
in the near term, as the economic downturn continues to drive 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.
General and Administrative. General and administrative expenses for the six
months ended September 30, 2002 were $2,044,102, or 22.0% of net sales, compared
to $2,202,472, or 16.1% of net sales, for the same period of the previous fiscal
year. The decrease in these expenses is attributable to the Company's 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.
11
Selling and Marketing. Selling and marketing expenses for the six months
ended September 30, 2002 were $586,276, or 6.3% of net sales, compared to
$991,750, or 7.2% 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. The Company normally expects sales and marketing expenses to generally
reflect long range sales trends, rather than short-term sales cycles.
Research and Development. Research and development expenses for the six
months ended September 30, 2002 were $69,672, or 0.8% of net sales, compared to
$87,319, or 0.6% of net sales, for the same period of the previous fiscal year.
Research and development is generally related to updates of proprietary
software.
Operating Income (loss). Operating loss for the six months ended September
30, 2002 was $1,118,079, or a loss of approximately 12.1% of net sales, compared
to a loss of $561,758, or a loss of 4.1% of net sales, for the same period of
the previous fiscal year. The operating loss resulted from the continuing
economic downturn that caused clients to reduce and/or defer hardware and
software purchases.
Interest Expense and Other Income (expense). Interest expense and other
expense for the six months ended September 30, 2002 was $295,124, compared to
$239,891 for the same period of the previous fiscal year, which was mainly
interest paid on the current lines of credit and short term borrowings. The
increase was primarily attributable to interest accrued on the $5 million note
due April 2004.
Income Taxes. The Company had no income tax expense for the first six
months of fiscal 2003 and 2002. As of September 30, 2002, the Company had
Federal net operating loss carry forwards of approximately $13,500,000. 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). The Company had a net loss of $1,413,203, or a loss of
approximately $0.20 per share, for the first six months of fiscal 2003, as
compared to a net loss of $801,649, or a loss of approximately $0.12 per share,
for the same period of the previous 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 six-month period.
Liquidity and Capital Resources
At September 30, 2002, the Company had a working capital deficit of
approximately $3,440,000 versus a deficit of approximately $2,248,000 at March
31, 2002. The increase resulted primarily from the increased operating losses in
the first six months of fiscal 2003. As a result of the working capital deficit
at March 31, 2002 (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
September 30, 2002 was $35,791.
Cash used in operations during the quarter ended September 30, 2002 was
$629,091, compared to cash used in operations of $925,415 for the corresponding
period in fiscal 2002. This was due primarily to decreased operating income
during the quarter. Cash used in investing activities was $141,159 at September
30, 2002 and $37,013 at September 30, 2001. Cash provided by financing
activities for the quarter ended September 30, 2002 was $724,761, compared to
cash provided by financing activities of $722,536 for the corresponding period
in fiscal 2002.
At September 30, 2002, the Company had current debt obligations, or debt
that will become due within twelve months, of $1,967,163. 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, debt financing,
or deferment of debt repayment 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 three months ended September 30, 2002, the Company purchased
approximately $86,000 of capital equipment and software.
12
Historically the Company has been unable to generate sufficient internal
cash flows to support operations, and has been dependent upon 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 shareholder 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 debt from a related party, and $529,220 was subscribed to in cash.
Including the conversion of debt and $337,720 in cash payments, the Company has
received $558,500, representing 55,850 shares of the Series C Preferred Stock,
and has extended the due date for the remaining $191,500.
During the quarter ended June 30, 2001, the Company entered into a
financing agreement with a key lender. The agreement provides the Company with
an immediate partial advance on all sales and requires the Company to
immediately assign the related receivables to the lender. Upon collection of the
related receivables, the lender pays the remaining balance to the Company. The
receivables are assigned with recourse and advances over 90 days outstanding
bear interest at a rate of 10% per annum. . At March 31, 2002 and September 30,
2002, the Company was liable for $278,857 and $858,213, respectively, under this
agreement, which is included in short-term debt and notes payable.
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%. At September 30,
2002, 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
outstanding shares being returned to the Company and 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, bearing interest at 10% per annum. As of September 30, 2002, the
principle balance of this note remains $75,000.
In December 2000, the Company signed a $5 million note, converting
approximately $5 million of its accounts payable, with 10% interest and a due
date of April 2, 2002. The note is secured by a pledge to the note holder of
substantially all of the Company's assets. In the second quarter of fiscal 2002,
the Company renegotiated the terms of the note. The current note bears interest
at 6% and is due in April 2004, with the option to extend the maturity date to
April 2005. The balance of the current promissory note at September 30, 2002 is
$6,375,686 with approximately $458,396 accrued interest at September 30, 2002.
The current note requires the Company to make monthly payments of 40% of its
available operating profits each month. The note further requires that the
Company direct 50% of any future sums received by, committed to, or invested in
the Company as an additional equity capital infusion, towards repayment of the
unpaid balance of the note. In August 2002, the Company further amended the note
to include weekly payments of $1,000.
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 September 30, 2002, the remaining principle balance on these
notes, which is currently due, was $108,000.
13
Plan of Operations
The Company's improved performance in fiscal 2001 was adversely impacted by
the general economic downturn, and further aggravated by the terrorist attacks
and threats that began in September 2001. In fiscal 2002, the Company's
management implemented aggressive measures to reduce operating costs, increase
service sales, and other strategies to minimize the impact on revenues as
clients took an increasingly conservative position on hardware and software
spending. The Company continues to reduce expenses wherever practicable and is
focusing on securing service and software license revenues, which have been less
susceptible to market conditions than the demand for computer hardware.
In addition to the Company's recent expansion into Texas and Louisiana, as
reported in the Company's Report on Form 10-QSB for the quarter ended June 30,
2002, the Company is considering the acquisition of one or more systems
integration/high technology service companies in other regions of the United
States to increase its market coverage, sales and profitability. In conjunction
with any acquisition(s), the Company would need to raise equity capital to
provide additional working capital for the consolidated entity. The Company has
no commitments at this time from third parties for any such acquisition(s) or
financing.
The Company May Face Interruption Of Production And Services Due To Increased
Security Measures In Response To Terrorism
Our business depends on the free flow of products and services through the
channels of commerce. In response to terrorists' activities and threats aimed at
the United States, transportation, mail, financial and other services have been
slowed or stopped altogether. Further delays or stoppages in transportation,
mail, financial or other services could have a material adverse effect on our
business, results of operations and financial condition. Furthermore, we have
experienced an increase in operating costs, such as costs for transportation,
insurance and security as a result of the activities and potential activities.
We may also experience delays in receiving payments from payers that have been
affected by the terrorist activities and potential activities. The U.S. economy
in general is being adversely affected by the terrorist activities and potential
activities and continued economic downturn could adversely impact our results of
operations, impair our ability to raise capital or otherwise adversely affect
our ability to grow our business.
Recently Issued Accounting Pronouncements
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that these
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. SFAS 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001 and, generally, are to be applied
prospectively. The Company believes the adoption of this statement had no
material impact on its financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, which rescinds FASB Statement No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of that Statement, FASB Statement
No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The Company believes
the adoption of this Statement will have no material impact on its financial
statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses accounting for restructuring
and similar costs. SFAS No. 146 supersedes previous accounting guidance,
principally Emerging Issues Task Force (EITF) Issue No. 94-3. PGE NEG will adopt
the provisions of SFAS No. 146 for restructuring activities initiated after
December 31, 2002. SFAS No. 146 requires that the liability for costs associated
with an exit or disposal activity be recognized when the liability is incurred.
Under EITF No. 94-3, a liability for an exit cost was recognized at the date of
a company's commitment to an exit plan. SFAS No. 146 also establishes that the
liability should initially be measured and recorded at fair value. Accordingly,
SFAS No. 146 may affect the timing of recognizing future restructuring costs as
well as the amount recognized.
14
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
Management's discussion and analysis in this Form 10-QSB and the exhibits
included herein 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, 2002. 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.
Item 3. Controls and Procedures
Within the 90 days prior to the filing of this report, we carried out an
evaluation, under the supervision and with the participation of our chief
executive officer ("CEO") and chief financial officer ("CFO"), of the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rule 15d-14(c) under the Securities and Exchange Act of
1934. Based on this evaluation, our CEO and CFO concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed in our reports that we file with or submit to the Securities and
Exchange Commission ("SEC") is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms.
In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
15
PART II. Other Information
Item 1. Legal Proceedings
There have been no material developments in the matter, Pace Investment
Co., Inc., et al. v. Prologic Management Systems, Inc., CV 20003999, previously
reported in the Company's reports on 10-QSB.
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 10-QSB
A. Exhibits filed herewith:
99.1 Certification Pursuant to 18 U.S.C. SECTION 1350 of
James M. Heim, Chief Executive Officer
99.2 Certification Pursuant to 18 U.S.C. SECTION 1350 of
James M. Heim, Chief Financial Officer
B. Reports:
No reports on Form 8-K were filed during the quarter ended
September 30, 2002.
- ----------------------
The following pages include the Signatures page for this Form 10-QSB,
Certifications of our CEO and CFO, and (at Exhibits 99.1 and 99.2 of this
report) a further Certification by our CEO and CFO.
The form of Certification immediately following the Signatures page is
required by Rule 15d-14 under the Securities Exchange Act of 1934 in accord with
Section 302 of the Sarbanes-Oxley Act of 2002 (the "Section 302 Certification").
The Section 302 Certification includes references to an evaluation of the
effectiveness of the design and operation of the Company's "disclosure controls
and procedures" and its "internal controls and procedures for financial
reporting". Item 3 of Part I of this quarterly report presents the conclusions
of the CEO and CFO about the effectiveness of such controls based on and as of
the date of such evaluation (relating to Item 4 of the Section 302
Certification), and contains additional information concerning disclosures to
our audit committee and independent auditors with regard to deficiencies in
internal controls and fraud (Item 5 of the Section 302 Certification) and
related matters (Item 6 of the Section 302 Certification).
The second form of Certification (set forth at Exhibit 99.1 and 99.2) is
required by section 1350 of chapter 63 of title 18 of the United States Code.
16
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROLOGIC MANAGEMENT SYSTEMS, INC.
DATED: November 13, 2002 By: /s/ James M. Heim
--------------------------------
James M. Heim
Chief Executive Officer
Chief Financial Officer
17
CERTIFICATION
I, James M. Heim, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Prologic Management Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's certifying officers are responsible for
establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's certifying officers have disclosed, based on
our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors:
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's certifying officers have indicated in this
quarterly report whether or not there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ James M. Heim
--------------------------
James M. Heim
Chief Executive Officer
18
CERTIFICATION
I, James M. Heim, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Prologic Management Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's certifying officers are responsible for
establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's certifying officers have disclosed, based on
our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors:
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's certifying officers have indicated in this
quarterly report whether or not there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ James M. Heim
--------------------------
James M. Heim
Chief Financial Officer
19
Exhibit 99.1 to 10-QSB
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Prologic Management Systems,
Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2002, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, James M. Heim, Chief Executive Officer of the Company, certify, to
the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ James M. Heim
---------------------------------
James M. Heim
Chief Executive Officer
Prologic Management Systems, Inc.
November 13, 2002
20
Exhibit 99.2 to 10-QSB
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Prologic Management Systems,
Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2002, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, James M. Heim, Chief Financial Officer of the Company, certify, to
the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ James M. Heim
---------------------------------
James M. Heim
Chief Financial Officer
Prologic Management Systems, Inc.
November 13, 2002
21