U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 of
incorporation or organization) (I.R.S. Employer 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 December 31, 2002 was 7,275,048.
Transitional Small Business Disclosure Format:
Yes ______ ; No ___X___ .
Prologic Management Systems, Inc.
Index
Page
----
Part I. FINANCIAL INFORMATION 3
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at December 31, 2002 (unaudited) and 3
March 31, 2002
Condensed Consolidated Statements of Operations for the Three and Nine Months 4
Ended December 31, 2002 (unaudited) and December 31, 2001 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended 5
December 31, 2002 (unaudited) and December 31, 2001 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations and 9
Financial Condition
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
Employment Agreement of James M. Heim
Employment Agreement of John W. Olynick
SIGNATURES 17
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2002 March 31, 2002
------------------- ---------------
ASSETS (unaudited)
Current assets:
Cash $ 618,033 $ 81,280
Accounts receivable, less allowance for doubtful accounts
of $844,799 at December 31, 2002 and $591,072 at
March 31, 2002 1,838,993 2,572,634
Inventory 263,502 42,589
Prepaid expense 109,185 18,358
------------------- ---------------
Total current assets 2,829,713 2,714,861
Property and equipment, net 353,633 254,714
Goodwill, net 408,942 408,942
Deferred financing costs, net 114,789 225,828
Other assets 104,664 92,583
------------------- ---------------
TOTAL ASSETS $ 3,811,741 $ 3,696,928
------------------- ---------------
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current Liabilities
Short term debt and notes payable $ 2,226,007 $ 1,369,449
Accounts payable 2,980,630 2,036,522
Sales tax payable 672,182 684,164
Accrued expenses 507,384 768,540
Deferred maintenance revenue 625,529 104,067
------------------- ---------------
Total current liabilities 7,011,732 4,962,742
Long term accrued liabilities 558,178 --
Long term debt and notes payable, excluding current portion 6,369,750 6,410,081
------------------- ---------------
Total liabilities 13,939,660 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 December 31, 2002 and March 31, 2002, respectively 10,205,073 10,145,168
Warrants 967,767 961,367
Accumulated deficit (22,027,846) (19,509,518)
------------------- ---------------
Total stockholders' deficit (10,855,006) (8,402,983)
------------------- ---------------
TOTAL LIABILITIES, PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT $ 3,811,741 $ 3,696,928
------------------- ---------------
See accompanying notes to condensed consolidated financial statements.
3
PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Computer hardware $ 1,872,668 $ 1,172,495 $ 7,545,811 $ 10,437,450
Software licenses 456,328 353,319 1,458,074 2,557,903
Professional services 1,348,142 851,339 3,947,288 3,081,566
------------ ------------ ------------ ------------
Total net revenue 3,677,138 2,377,153 12,951,173 16,076,919
Cost of revenue:
Computer hardware 1,744,419 832,733 6,901,683 9,001,813
Software licenses 409,870 296,024 1,283,358 2,218,257
Professional services 830,616 193,913 2,491,928 1,082,582
------------ ------------ ------------ ------------
Total cost of revenue 2,984,905 1,322,670 10,676,969 12,302,652
------------ ------------ ------------ ------------
Gross profit 692,233 1,054,483 2,274,204 3,774,267
------------ ------------ ------------ ------------
Operating expenses:
General and administrative 1,388,318 999,005 3,434,394 3,201,972
Selling and marketing 213,829 640,780 800,105 1,632,530
Research and development 31,523 33,449 101,194 120,768
------------ ------------ ------------ ------------
Total operating expenses 1,633,670 1,673,234 4,335,693 4,955,270
------------ ------------ ------------ ------------
Operating loss (941,437) (618,751) (2,061,489) (1,181,003)
------------ ------------ ------------ ------------
Interest and other income (expense):
Interest expense (166,321) (220,220) (465,335) (460,111)
Other income (expense) 4,606 -- 8,496 --
------------ ------------ ------------ ------------
Total interest and other income
(expense) (161,715) (220,220) (456,839) (460,111)
------------ ------------ ------------ ------------
Net loss (1,103,152) (838,971) (2,518,328) (1,641,114)
Preferred stock dividend (18,338) (22,465) (55,013) (67,395)
------------ ------------ ------------ ------------
Net loss available to common
stockholders $ (1,121,490)$ (861,436) $ (2,573,341) $ (1,708,509)
------------ ------------ ------------ ------------
Weighted average number of common
shares:
Basic and diluted 7,275,048 7,013,853 7,230,806 6,913,451
------------ ------------ ------------ ------------
Loss per common share:
Basic and diluted $ (0.15)$ (0.12) $ (0.36) $ (0.25)
See accompanying notes to condensed consolidated financial statements.
4
PROLOGIC MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended December 31,
INCREASE (DECREASE) IN CASH 2002 2001
--------------- ---------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (2,518,328) $ (1,641,114)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 178,742 129,989
Warrants issued pursuant to contract 6,400 --
Bad debt expense 253,727 --
Changes in assets and liabilities, net of
business acquired:
Restricted cash -- 300,000
Accounts receivable 1,298,678 1,249,672
Inventory 5,841 172,651
Prepaid expenses (32,286) (15,730)
Other assets 180,162 55,077
Accounts payable 543,558 (1,103,147)
Accrued expenses (35,350) 128,426
Deferred maintenance revenue 37,602 (20,207)
--------------- ---------------
Total adjustments 2,437,074 896,731
--------------- ---------------
Net cash provided by (used in) operating activities (81,254) (744,383)
--------------- ---------------
Cash flows from investing activities:
Purchase of equipment (153,095) (38,160)
--------------- ---------------
Net cash provided by (used in) investing activities (153,095) (38,160)
--------------- ---------------
Cash flows from financing activities:
Net change in line of credit 848,281 (699,150)
Issuance of new debt -- 1,598,240
Repayment of debt (77,180) (395,783)
--------------- ---------------
Net cash provided by (used in) financing activities 771,101 503,307
--------------- ---------------
Net increase (decrease) in cash 536,753 (279,236)
Cash, beginning of period 81,280 310,305
--------------- ---------------
Cash, end of period $ 618,033 $ 31,069
--------------- ---------------
Supplemental statement of cash flow information:
Cash paid during the period for interest $ 66,934 $ 14,426
Cash paid during the period for taxes -- --
Non-cash financing and investing activities:
Preferred stock dividends paid in common stock 13,458 32,249
Transfer of accounts payable to short-term debt 45,126 --
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 unaudited 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 nine-month periods ended December 31, 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)
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 New Orleans, Louisiana. The Company, since
June 1, 2002, has continued the systems integration and ESS maintenance
business as the Solid Systems Division of Basis, Inc. ("Solid Systems").
The results of operations of Solid Systems have been included in the
Company's consolidated results of operations from May 31, 2002, the
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). The details of the transaction
were disclosed in the Form 10-QSB filed for the period ended September 30,
2002.
In the transaction, the Company also acquired the rights to the "Solid
Systems" mark, the "solidsystems.com" domain name and "Solidstor" mark.
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 Nine months ended
March 31, 2002 December 31, 2002
----------------- -------------------
Revenue $ 36,068 $ 15,614
Net loss available to common shareholders $ (7,522) $ (2,257)
Basic and diluted loss per share $ (1.08) $ (0.31)
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.
6
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 December 31, 2002, the Company was liable for $278,857 and
$1,127,138, 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:
December 31, 2002 March 31, 2002
Furniture and leasehold improvements $ 273,481 $ 253,481
Equipment and software 1,131,538 938,443
-------------- --------------------
Total property and equipment 1,405,019 1,191,924
Less accumulated depreciation (1,051,386) (937,210)
-------------- --------------------
Net property and equipment $ 353,633 $ 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 an
initial 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 of the maker to
extend the maturity date to April 2005. The balance of the current
promissory note at December 31, 2002 is $6,361,686 with approximately
$558,000 accrued interest at December 31, 2002. The current note requires
the Company to make monthly payments of 40% of its available operating
profits each month. This 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 this 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 Standards 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 nine
months ended December 31, 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. Possible Goodwill Impairment
The Company will conduct its annual test for goodwill impairment in the
fourth quarter. Based on the Company's net losses and negative cash flows
from operations through the third quarter, it is possible that some, if not
all, of the goodwill may be impaired and an impairment charge may be made
in the fourth quarter.
9. Commitments
The Company, on July 1, 2002, entered into employment contracts with two
key executives that extend to 2005. The contracts, attached hereto as
Exhibits 10.16 and 10.17, provide for annual salary and bonuses based upon
growth and also for severance payments of up to 12 to 24 months salary in
certain circumstances.
7
10. Recently Issued Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board 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. The Company 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.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation -- Transition
and Disclosure" ("FAS 148"), which amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
FAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, FAS 148 amends the disclosure requirements of
FAS 123 to require more prominent and more frequent disclosures in
financial statements of the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of FAS 148 are
effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing
condensed financial statements for interim periods beginning after December
15, 2002. The adoption of FAS 148 is not expected to have a material impact
on the Company's consolidated balance sheet or results of operations. The
Company will provide the interim disclosures required by FAS 148 beginning
in the first quarter of fiscal 2004.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The Company provides systems integration services, software development,
hardware and software maintenance, 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,
hardware and software maintenance, 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 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)
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 New Orleans, Louisiana. The Company, since June
1, 2002, 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, 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.
Possible Goodwill Impairment
The Company will conduct its annual test for goodwill impairment in the
fourth quarter. Based on the Company's net losses and negative cash flows from
operations through the third quarter, it is possible that some, if not all, of
the goodwill may be impaired and an impairment charge may be made in the fourth
quarter.
Results of Operations
Three Months Ended December 31, 2002 and 2001
- ---------------------------------------------
Net Revenue. Net revenue for the third quarter of fiscal 2003 was
$3,677,138 compared to $2,377,153 for the same period of the prior fiscal year,
an increase of $1,299,985, or approximately 54.7%. The revenue increase was due
primarily to an increase in service sales and sales of related hardware during
the quarter. Revenue from sales of third party hardware for the quarter ended
December 31, 2002 was $1,872,668, an increase of approximately 59.7% over sales
from the same period of the previous fiscal year of $1,172,495. Revenue from
sales of software licenses, which included third party licenses as well as
proprietary software, was $456,328 for the quarter ended December 31, 2002, an
increase of approximately 29.2% over sales of $353,319 from the same period of
the previous fiscal year. Revenue from service sales for the quarter ended
December 31, 2002, which were comprised predominately of ESS maintenance,
integration and support services, was $1,348,142 compared to $851,339 for the
same period of the previous fiscal year, an increase of approximately 58.4%. 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 Revenue. Cost of revenue for the quarter ended December 31, 2002
was $2,984,905, or 81.2% of total net revenue, compared to $1,322,670, or 55.6%
of net revenue, for the same period of the previous fiscal year. The overall
increased cost of revenue was primarily the result of the increase in sales. The
Company does not expect to see improved margins on sales of third party hardware
products in the near term, as the national and regional economic difficulties
continues to drive competition and pricing pressure in the computer hardware
market. The Company is attempting to offset the increasing cost of third party
products by increasing sales of higher-margin related services.
10
General and Administrative. General and administrative expenses for the
quarter ended December 31, 2002 were $1,388,318, or 37.8% of net sales, compared
to $999,005, or 42.0% of net sales, for the same period of the previous fiscal
year. The increase was primarily the result of the acquisition of Solid Systems
personnel and related costs of the four new offices. 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
December 31, 2002 were $213,829, or 5.8% of net revenue, compared to $640,780,
or 27.0% of net sales, for the same period of the previous fiscal year. The
decrease in the amount of expenses is primarily the result of reduced marketing
expense as a result of the reduction of personnel in sales support roles. 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 quarter
ended December 31, 2002 were $31,523, or 0.9% of net sales, compared to $33,449,
or 1.4% 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 third quarter of fiscal
2003 was $941,437 or a loss of 25.6% of net sales, compared to a loss of
$618,751, or a loss of 26.0% of net sales, for the same period of the previous
fiscal year. The operating loss resulted from a reduction in overall sales due,
in large part, to the continuing national and regional economic difficulties
that caused customers and potential customers to reduce and/or defer purchases
of computer hardware, software and related services.
Interest Expense and Other Income (expense). Interest expense and other
expense for the third quarter of fiscal 2003 was $161,715, compared to $220,220
for the same period of the previous fiscal year, composed primarily of interest
incurred on the $7 million note due April 2004, extendable by the maker until
April 2005, and interest paid on the current lines of credit and short term
borrowings.
Income Taxes. The Company had no income tax expense for the third quarters
of fiscal 2003 and 2002. As of December 31, 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 $1,103,152, or a loss of
approximately $0.15 per share, for the third quarter of fiscal 2003, as compared
to a loss of $838,971, or a loss of approximately $0.12 per share, for the same
period of the previous fiscal year. The increase in the loss was primarily a
result of the decrease in gross profit.
Nine Months Ended December 31, 2002 and 2001
- --------------------------------------------
Net Revenue. Net revenue for the first nine months of fiscal 2003 was
$12,951,173 compared to $16,076,919 for the same period of the previous fiscal
year, a decrease of $3,125,746, or approximately 19.4%. The decrease in net
revenue resulted from a reduction in overall sales due, in large part, to the
continuing national and regional economic difficulties that caused customers and
potential customers to reduce and/or defer purchases of computer hardware,
software and related services. Revenue from sales of third party hardware for
the nine months ended December 31, 2002 was $7,545,811, a decrease of
approximately 27.7% over sales for the same period of the previous fiscal year
of $10,437,450. Revenue from sales of software licenses, consisting almost
exclusively of sales of third party software licenses , was $1,458,074 for the
nine months ended December 31, 2002, a decrease of approximately 43.0% over
revenue of $2,557,903 for the first nine months of the previous fiscal year.
Revenue from service sales for the nine months ended December 31, 2002, which
were comprised predominately of integration, ESS maintenance and support
services, was $3,947,288, compared to $3,081,566 for the same period of the
previous fiscal year, an increase of approximately 28.1%. 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.
11
Cost of Revenue. Cost of revenue for the nine months ended December 31,
2002 was $10,676,969, or 82.4% of total net revenue, compared to $12,302,652, or
76.5% of net revenue, for the same period of the previous fiscal year. The
overall decreased cost of revenue was primarily the result of the decline in
sales. The Company does not expect to see improved margins on sales of third
party hardware products in the near term, as the national and regional economic
difficulties continues to drive competition and pricing pressure in the computer
hardware 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
nine months ended December 31, 2002 were $3,434,394, or 26.5% of net sales,
compared to $3,201,972, or 19.9% 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 acquisition of Solid Systems personnel and related costs of
the four new offices 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 nine months
ended December 31, 2002 were $800,105, or 6.2% of net sales, compared to
$1,632,530, or 10.2% of net sales, for the same period of the previous fiscal
year. The decrease in the amount of expenses is primarily the result of the
reduction in personnel in sales support roles. 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 nine
months ended December 31, 2002 were $101,194, or 0.8% of net sales, compared to
$120,768, or 0.8% 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 nine months ended December
31, 2002 was $2,061,489, or a loss of approximately 15.9% of net sales, compared
to a loss of $1,181,003, or a loss of 7.3% of net sales, for the same period of
the previous fiscal year. The operating loss resulted from the decrease in
revenue.
Interest Expense and Other Income (expense). Interest expense and other
expense for the nine months ended December 31, 2002 was $456,839, compared to
$460,111 for the same period of the previous fiscal year, composed primarily of
interest incurred on the $7 million note due April 2004, extendable by the maker
until April 2005, and interest paid on the current lines of credit and short
term borrowings.
Income Taxes. The Company had no income tax expense for the first nine
months of fiscal 2003 and 2002. As of December 31, 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 $2,518,328, or a loss of
approximately $0.36 per share, for the first nine months of fiscal 2003, as
compared to a net loss of $1,641,114, or a loss of approximately $0.25 per
share, for the same period of the previous fiscal year. The increase in the loss
was primarily a result of the decrease in sales from the same period of the
previous fiscal year
Liquidity and Capital Resources
At December 31, 2002, the Company had a working capital deficit of
approximately $4,182,000 versus a deficit of approximately $2,248,000 at March
31, 2002. The increase resulted primarily from the increased operating losses in
the first nine 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
December 31, 2002 was $618,033.
Cash used in operations during the nine months ended December 31, 2002 was
$81,254, compared to cash used in operations of $744,383 for the corresponding
period in fiscal 2002. This was due primarily to decreased operating income
during the quarter. Cash used in investing activities was $153,095 at December
31, 2002 and $38,160 at December 31, 2001. Cash provided by financing activities
for the nine months ended December 31, 2002 was $771,101, compared to cash
provided by financing activities of $503,307 for the corresponding period in
fiscal 2002.
12
At December 31, 2002, the Company had current debt obligations, or debt
that will become due within twelve months, of $2,226,008. 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 restructuring. The Company has
no commitments at this time from third parties for any new financing.
During the three months ended December 31, 2002, the Company purchased
approximately $12,000 of capital equipment and software.
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
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 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 December 31,
2002, the Company was liable for $278,857 and $1,127,138, 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 includes interest at 11%. At December 31,
2002, the principal balance was approximately $723,000. The Company is currently
negotiating with the vendor to convert the promissory note into the Company's
common stock. No definitive agreement has been reached.
During fiscal 2001, the Company signed a settlement agreement with Sunburst
Acquisitions IV, Inc. The settlement agreement resulted in 1,959,972 shares of
the Company's common stock being returned to the Company and cancelled, and
$100,000 in settlement expense cost reimbursement to be paid 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
December 31, 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 an
initial 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 of the maker to extend the maturity date to
April 2005. The balance of the current promissory note at December 31, 2002 is
$6,361,686 with approximately $558,000 accrued interest at December 31, 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 December 31, 2002, the remaining principle balance on these
notes, which is currently overdue, is $108,000.
13
Plan of Operations
The Company's apparent improving performance in fiscal 2001 was adversely
impacted by the general national and regional economic downturn, and the
situation was 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 customers and potential
customers took an increasingly conservative position on hardware and software
spending.
The Company, during the first nine months of fiscal 2003 has continued to
reduce controllable expenses and is focusing on securing ESS maintenance
contracts, professional service engagements and third party software license
revenues, which have been less susceptible to adverse economic conditions than
the demand for computer hardware and which, generally speaking, have
substantially higher margins than hardware sales. For the three month period
ended December 31, 2002, the hardware sales represented less than 51% of total
sales. For the nine months ended December 31, 2002, hardware sales represented
58% of total sales compared to 65% of total sales for the nine months ended
December 31, 2001. It is the company's intention to further reduce its reliance
upon hardware sales and increase its sales of ESS maintenance service,
professional services and third party software. An active program has been put
in place by management to accomplish this transition. The company expects to see
hardware sales as a percentage of total sales below 50% in the next fiscal year
and gradually diminishing over time.
In addition to the Company's recent geographical expansion into Texas and
Louisiana the Company has reopened an office in Oregon to service the Portland
metropolitan area. During the course of the next fiscal year it is likely that
the Company will open additional offices as strategic opportunities dictate. No
specific geographic areas have been identified at this time.
During the past few years the Company has considered the acquisition of one
or more systems integration/high technology service companies in other regions
of the United States to increase its market coverage, expand its product
offerings and achieve higher sales and profitability. At this time there are no
ongoing discussions of a substantive nature with any such acquisition
candidates. The Company, without detracting from its primary goal of returning
to profitability through geographic expansion and product diversification, will
continue to consider potential acquisitions. However, in conjunction with any
such suitable acquisition, the Company would likely need to raise capital to
provide the necessary working capital for the consolidated entity. The Company
has no commitments at this time from third parties for any such financing nor is
it likely that any third parties would provide such financing on terms
acceptable to the Company until the Company has demonstrated that it is
foreseeable that the Company will return to profitability.
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.
14
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. The Company 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.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure" ("FAS 148"), which amends Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, FAS 148 amends the disclosure requirements of FAS 123 to require more
prominent and more frequent disclosures in financial statements of the effects
of stock-based compensation. The transition guidance and annual disclosure
provisions of FAS 148 are effective for fiscal years ending after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing condensed financial statements for interim periods beginning after
December 15, 2002. The adoption of FAS 148 is not expected to have a material
impact on the Company's consolidated balance sheet or results of operations. The
Company will provide the interim disclosures required by FAS 148 beginning in
the first quarter of fiscal 2004.
"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 report on 10-QSB for the quarter
ended September 30, 2001. Settlement discussions are ongoing but no
definitive settlement agreement has been reached.
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
10.16 Employment Agreement of James M. Heim
10.17 Employment Agreement of John W. Olynick
B. Reports:
No reports on Form 8-K were filed during the quarter ended
December 31, 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
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: February 12, 2003 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 the 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: February 12, 2003
/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 the 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: February 12, 2003
/s/ James M. Heim
-----------------------
James M. Heim
Chief Financial Officer
19