Markets of primary focus for the Company's products include utilities, communications, defense, energy resource extraction, and process industries. As of December 31, 2000, the Company's products were licensed for use by over 300,000 end users representing 460 customers in 45 countries.

The Indus Solution Series is designed to interoperate with popular third-party applications that provide best business practices functions to its customers. Through strategic alliances, the Company works with software providers, such as Oracle Corporation ("Oracle"), and PeopleSoft, Inc. ("PeopleSoft"), and systems integrators, such as Accenture (formerly Andersen Consulting), Deloitte Consulting, and PricewaterhouseCoopers to create a software series that provides seamless interoperability with corporate and financial applications, expert systems, and certain industry specific systems that enable the Company's customers to improve operating efficiencies, reduce costs and comply with governmental regulation.

The software tools comprising the Indus Solution Series are based on an open client/server architecture featuring a layered and object-oriented software design that enables customers to use various operating systems, operate on multiple hardware platforms and interoperate with many third-party software applications and legacy systems. Proprietary systems implementation methodology tools and best practice education tools facilitate rapid and effective deployment and utilization of its EAM applications.

The Company's EAM solutions include consulting services provided by subject matter experts. This unique approach helps customers implement advanced EAM maintenance principles, materials management theories, and other advanced strategies designed to provide a competitive advantage to the customer. The service package content comprising this business process improvement solution leverages the knowledge gained from hundreds of customer implementations, the extensive plant experience of the Company's employees, and the global experience of its user community.

Regionally located in close proximity to customer sites, the Company's professional services organization supports the Indus sales organization. The resulting process provides a high quality information exchange as customers learn how the Indus Solution Series addresses industry-specific requirements. The Company also offers global 7 (days a week) x 24 (hours a day) multilingual customer support. The Company believes this combination of enterprise software, vertically oriented consulting services and worldwide customer support enables customers to increase equipment and production capacity, reduce operating costs, and safeguard the workforce and the environment.

In September 1999, the Company announced its eBusiness initiatives, including myindus.com, which are focused on next generation internet applications, portals and web-based solutions for the EAM market.

Indus, Indus Solution Series, IndusWorld, PassPort Software Solutions, ABACUS, ABACUS Toolkit, Sextant, PORTAL/G, PORTAL/95, PORTAL/97, PORTAL/J, ViewPort, Prism Consulting, Enterprise MPAC, Indus Knowledge Warehouse Curator, AssetWare, AssetCare, myindus.com and CareNet are trademarks and servicemarks of the Company. All other brand names or trademarks are the property of their respective holders.

The Company was formed through the combination of The Indus Group, Inc., a California corporation, and TSW International, Inc., a Georgia corporation, in August 1997.

The Company offers software products and service packages that incorporate sophisticated EAM methodologies, extensive subject matter expertise and advanced technology designed to interoperate seamlessly with other enterprise business information systems. Marketed as the Indus Solution Series, these business tools support the needs of an organization's core decision makers in the operations and maintenance workforce, inventory management and procurement professionals, safety and compliance engineers, and related disciplines affected by asset care decisions throughout the enterprise. This customer user group is supported by such Indus software solutions as: Asset & Work Management Systems, Materials & Procurement Systems, and Safety & Compliance Systems, which seamlessly integrate to third party corporate financial systems from Oracle, PeopleSoft, and other providers. Beyond providing departmental information to affected workgroups throughout the customer organization, EAM techniques employed by the Company integrate process control systems from vendors such as Allen-Bradley and Johnson Controls, optimizing capacity utilization through just-in-time maintenance management practices. The Indus Solution Series reflects EAM best practices, including Reliability Centered Maintenance (RCM), Total Productive Maintenance (TPM), web-based electronic commerce, and handheld mobile units to enable customers to apply Indus software solutions as a means to achieving a strategic and competitive advantage.

A proprietary implementation methodology and set of data content "workbenches" round out the service package offerings available from the regionally positioned professional services solutions centers throughout the Americas, Europe, Middle East and Africa and Asia Pacific. Marketed as ABACUS tools and implementation methodology, ABACUS enables rapid implementation and configuration of Indus software solutions. Workbenches are a set of software tools which support application development, data migration and installation support used by the Company and its customers to develop, install and configure Indus software solutions. Integration products are also sold to enable Indus software solutions to interoperate with corporate financial, payroll, human resources, geographic information systems, outage management, and customer information applications systems available, and other industry-specific programs included in the Company's Business Partner Alliance program.

EAM application business systems comprising the Indus Solution Series are designed to reflect the requirements of specific vertical industry functions, and the technical architecture traditionally employed in these industries. The resultant transaction engines are designed to support Indus Solution Series products. Functions within the application product lines have been tailored to encapsulate vertical business processing requirements that are augmented by subject matter expertise and consulting service packages, which uniquely position Indus to deliver a total solution across the enterprise.

Indus Solution Series for Utilities, Communications and Defense Industries provide a series of business applications and business process improvement service packages that meet the needs of both integrated electric and gas utilities or standalone utility business units including: nuclear, fossil, and hydroelectric power generating stations; water and pollution control plants and defense logistics support. The specific needs of communications companies are also addressed in a related offering for these firms.

Specific packaged solutions in this series include:

Indus Solution Series for Nuclear Power Generation
Indus Solution Series for Fossil Power Generation
Indus Solution Series for Hydroelectric Power Generation
Indus Solution Series for Energy Distribution and Delivery
Indus Solution Series for Energy Transmission and Substations
Indus Solution Series for Water and Water Pollution Control
Indus Solution Series for Defense Logistics
Indus Solution Series for Communications

Indus Solution Series for Energy Resource Extraction and Process Industries provide a set of business applications that meet the needs of capital-intensive businesses seeking a competitive advantage through the application of technology. Business applications and subject matter expertise in the areas of delivering advanced enterprise asset management strategies across the enterprise have been packaged to meet the needs of specific vertical industries in the series.

Specific packaged solutions in this series include:

Indus Solution Series for Chemical, Petrochemical, Oil, and Gas
Indus Solution Series for Metals & Mining
Indus Solution Series for Pulp, Paper and Forest
Indus Solution Series for Consumer Packaged Goods
Indus Solution Series for Public Transit
Indus Solution Series for Facilities Management

Commercial Off-the-shelf Technology. The Company utilizes industry-standard tools and technologies to develop its products, enabling Software Solutions comprising this series to evolve along with rapidly emerging standards and best business practices. The Company's products are largely platform independent, running on industry-standard UNIX and Windows NT servers including the IBM RS/6000, HP 9000, Sun SPARCstation and Intel-based systems. The Company's architecture utilizes the functionality of both Oracle and IBM's DB2 databases with both text-based and graphical user interfaces. Commencing with its latest product releases, the Company provides versions of its client products on the Internet, for both E-Commerce (Extranet) and internal (Intranet) applications. The Company's "next generation" clients also support a Windows Explorer navigational ability, which can be accessed from the native product client as well as the Internet. The Company is also the first EAM vendor to provide a suite of Mobile Computing modules to support critical field and warehouse business practices.

Partitioned Application Architecture. The layers of the Company's application architecture-the user interface, business logic, data storage, workflow and browser interface-are interoperable but not interdependent and support an n-tier environment. For example, changes to the database layer are not dependent on the user interface. The partitioning built into the Company components minimizes the Company's dependence on third-party vendors and efficiently utilizes desktop computers, "thin client," servers and networks. The Company believes this architecture reduces its exposure to the risks of technology or market shifts that require changes in one or more of the layers, and enables rapid exploitation of technology advances.

Object-oriented Design and Third-party Interoperability. The Company develops its products through an object-oriented design and development methodology by which software "objects" (i.e., collections of properties and methods) are used as building blocks to model real-world business processes. Further, the Company's architecture is designed to be an open system with Application Program Interfaces ("APIs") that enable easy interoperability and extension at the application level. The APIs are available to third party developers to facilitate the integration of Indus Software Solutions with other client/server applications. The Company believes object-oriented development has several benefits including software reusability, which results in decreased development expense and improved software quality, and component management, which allows customers to implement and upgrade subsets of the application.

Flexible Network Technology. The Company's applications can be installed in a network configuration to enable customers to take full advantage of client/server technology with low cost and low maintenance "thin clients." Network-centric implementation is attractive to clients concerned about the acquisition and systems management expense associated with personal computers. The efficient network architecture inherent in its Indus products is particularly important to clients with low-bandwidth networks, prevalent in developing markets, which require the minimization of network traffic to support advanced client/server applications.

Indus software solutions are implemented through the Company's proprietary ABACUS tools and implementation methodology. ABACUS consists of software-driven analytical tools, implementation plans and educational resources that encapsulate the Company's extensive experience in implementing enterprise management software solutions. ABACUS provides a step- by-step implementation life cycle framework for all installation, integration, and education and business review activities. In addition, ABACUS enhances the ongoing effectiveness of Indus software solutions and assists customers in improving their business processes.

ABACUS software tools use a time-sensitive and track-oriented approach to help customers and the Company's business experts, technical specialists and training professionals implement the Company's applications. In addition to interactively identifying implementation procedures, ABACUS contains over 575 "best practice" examples of how such procedures were performed by other process industry companies, drawn from the Company's extensive experience in implementing enterprise asset management software solutions. The Company currently licenses ABACUS software tools in conjunction with Indus software solutions, which includes the use of the ABACUS ToolKit, a version of the ABACUS software that allows customers to tailor their internal project goals and objectives with other corporate initiatives, modify implementation plans and associated deliverables, supporting specific project/progress reporting, etc. Versions of ABACUS products have been created to effectively address the Company's entire product suite, as well as implementation requirements and best practice selections of interest to specific vertical industries.

A critical component of the ABACUS implementation is the partnership between the software provider (the Company) and the customer. At the outset of the project, the Company assigns a Project Manager or Account Executive to help ensure a successful, on-schedule implementation. Throughout the implementation process, the Company's customer's team defines and then executes a customer-specific, yet time-proven, implementation process that focuses heavily on critical Business Process Improvement (BPI) and Return on Investment (ROI) processes to drive current and future customer success. The Company has also developed alliances with several of the "big five" accounting firms, and consulting firms, as well as smaller third party implementers and providers. This ensures that customers with specific requirements can leverage the value-added services of these firms when implementing the Indus Solution Series.

A series of best practice workbenches assist information engineers in the development of business application systems and post-development implementation support. These workbenches include programming tools, data services workbenches for data load and system interface exercises, data migration tools, and archiving mechanisms. These productivity tools help the Company demonstrate rapid development of high quality, highly functional applications on predictable schedules and within established budgets. The Company also leverages critical third party components, such as RDBMS, Network, and Operating system tools, to help customers manage their software both during implementation and production.

The Company also licenses Indus Solution Series Workbenches to customers desiring the ability to modify business applications to suit internal needs and to perform system administration and maintenance over the application life cycle.

In addition to the standardized services offered through ABACUS, the Company offers systems integration, customer support, software maintenance and training through its regionally positioned professional services capability. The Company provides systems integration and customer support on a time and materials basis. The Company provides software maintenance for a fixed fee based on the number and types of applications licensed.

To help track and coordinate customer support and service requirements, the Company has employed a service product marketed as CareNet. This customer care system, used throughout the global support organization, provides the customer support team with a consistent approach towards an interactive help desk, warranty support, and post-implementation services which are widely used by its customers. Experienced product specialists who have direct access to product development teams and technology specialists staff the help desk. A computerized system is used to log, track, close, and analyze all customer calls.

Indus Education Services and Products, the Company's training division, designs, manages, and implements comprehensive education and training solutions for its user community. The Company's training and technical professionals provide instructional design and courseware development services, training coordination support, train-the-trainer and end-user programs, and technical training for customer installations worldwide. In addition, the Company has developed a comprehensive set of training courseware to educate and train customers and internal staff. Subjects covered by the courseware range from application product basics to conducting business process reviews. Open enrollment training courses are provided at the Company's training centers in San Francisco, California, Atlanta, Georgia, Dallas, Texas, Pittsburgh, Pennsylvania and internationally in London, England, Paris, France, and Brisbane, Australia. In addition, training is also provided at customer sites at the customer's option. The Company also provides computer-based and web-based training modules to provide additional value to customers who desire these training needs. Finally, the Indus Solution Series' online help and wizards, including its CoPilot tool, help to guide the new user through standard work processes by providing context-sensitive assistance and pop-up screens.

The Company provides enterprise management software solutions to large process industry customers primarily in the energy industry, continuous process industries, industrial manufacturing and the public sector. Customer groups within these capital-intensive markets include: electric and gas utilities, telecommunications providers, petrochemical refineries, mining and metals, forest products producers, consumer packaged goods manufacturers, educational systems, and governmental and military institutions.

As of December 31, 2000, the Company products were licensed for use by over 300,000 end-users representing 460 customers in 45 countries. One customer accounted for 12.2% and 13.2% of Company's total revenues in 2000 and 1999. No single customer accounted for 10% or more of the Company's total revenues in 1998.

The corporate marketing function is organized into vertical business areas, which comprise capital intensive facilities and process industries targeted by the Company. By segmenting the market into vertical business areas, the Company can package and deliver its products and service offerings effectively to the industries it serves. These markets and subsectors consist of the following:

Water and pollution control
Nuclear power generation
Fossil power generation
Hydroelectric power generation
Energy Transmission and substations
Energy distribution and delivery
Defense logistics
Communications

Chemical, petrochemical, oil, and gas
Metals and mining
Pulp, paper and forest
Process manufacturing
Consumer packaged goods
Public transit
Facilities management

The Company markets and sells its products and services in three primary areas of the world: (i) the Americas, with direct sales representatives in the US, Canada, Argentina and Brazil; (ii) Europe, the Middle East & Africa, with direct sales representatives in the UK, France and the United Arab Emirates, and (iii) Asia-Pacific, with direct sales representatives in Australia and Japan. In addition to these direct marketing and sales resources, the Company utilizes business partner relationships and channel partner programs directly and indirectly in other parts of the world. As of December 31, 2000, the Company's Sales and Marketing organization consisted of 136 employees. The marketing staff is based at the Company's offices in Atlanta, GA., while the sales organization is decentralized throughout the three operational centers.

The direct sales cycle begins with the generation of a sales lead, or the receipt of a request for proposal from a prospect, which is followed by qualification of the lead, an analysis of the customer's needs, response to a request for proposal, one or more presentations to the customer utilizing the special knowledge of the industry vertical pre-sales staff, customer internal sign-off activities, and contract negotiation and finalization. While the sales cycle varies depending on the customer, the sales cycle generally requires from three to nine months.

In support of its sales force, the Company conducts comprehensive industry-specific vertical marketing programs which include public relations, trade advertising, industry seminars, trade shows and ongoing customer communication programs through IndusWorld, the Company's international user group. In addition, the Company's Account Manager Program provides regional support and specialized attention for each of its customers. Account Managers assist in implementing licensed applications over multi-year engagements, promote licensing of additional applications, and encourage existing customers to identify and help fund new applications.

Through its alliance and channel partner programs, the Company intends to continue to develop new products, to keep pace with the latest technological developments, and to extend its marketing, sales and support efforts by building synergy between the Company's products and services and those available from complementary third party providers. The Company has entered into strategic alliances and other formal and informal relationships with major software and hardware vendors and with consulting firms, service providers and systems integrators. Members of the Company's Alliance and Partner programs assist the Company with sales and support activities and with product localization in foreign countries.

The Indus Alliance Program is comprised of third party providers of complementary software products, which interoperate with Indus software solutions through integration products to provide additional license revenues and services to the Company while delivering a broad suite of enterprise-wide software capabilities. Membership in this program includes Oracle for corporate financial and human resources systems, PeopleSoft for corporate financial, human resources and payroll systems, and Nuclear Fuels Services/Radiation Protection Systems for jointly developed Nuclear Health Physics Systems marketed as Total Exposure. Other third party integration alliance partners are currently under consideration by the Company.

The Indus Partner Program consists of three classes of third party providers including: Indus Service Partners (foreign and domestic), Indus Solution Series Platform Partners, and partners in the Indus Extension Program.

Indus Service Partners include third-party consultants and system integration firms that help deliver the services required to implement Indus Software Solutions. These recognized firms add specialty knowledge to assist in training and reengineering services, help provide staff leveling and supply peak load project resources to the regional operators. These resources assist in the delivery of ABACUS services on an as-needed basis. Domestically, implementation partners include: Accenture (formerly Andersen Consulting), PriceWaterhouseCoopers, Computer Science Corporation, Deloitte & Touche Consulting Group, Solbourne Group, Cimcorp, and The Application Group. International implementation partners include Enidata, Euriware, Gulf Data International, Innova, Maxon Engineering Services, Inc., Eagle Technologies, International Computers South Africa and PosData.

Indus Series Platform Partners are computer hardware providers and operating system software providers that help the Company remain technologically current with evolving releases of software and hardware upgrades. Cooperative marketing, joint trade show participation, and vendor fair participation at the Company WORLD EXPO Annual Conference of the User Group are extended to this cooperative group of vendors. The Company participates in the Hewlett-Packard Channel Program, Digital Equipment's Business Partner Program, the IBM Business Partner Program, Sun MicroSystems Alliance Program, as well as Microsoft's Solution Provider Program and Oracle's Cooperative Applications Initiative.

The Indus Extension Program is comprised of third party vendors offering products, which provide value-added product extensions or specialty services, taking Indus Solution Series data beyond the specified scope of the Company's application systems. Both specialty hardware and specialty point solution software vendors are recognized in this program which include offerings from: Harbinger Corporation (Acquion, Inc.), Commerce One, Inc., Dolphin Software, DEI Group, iMedeon, Inc., Intermat, Meridium Corporation, Primavera, Sqribe Technologies Corporation, Tadcom, and Telxon Corporation. For industries with distributed assets, integration is provided with AM/FM/GIS solutions from Intergraph, SHL Vision and Smallworld Corporation.

The Company has a dedicated research, development and software engineering organization, and regularly releases new products and enhancements to existing products. Research and development efforts are directed at increasing product functionality, improving product performance, and extending the capabilities of the products to interoperate with selected third- party software products available from alliance partners such as Oracle, PeopleSoft and others. These efforts include developing new applications that address new horizontal and vertical functions.

The Company believes that research and development is most effectively accomplished if customers are involved in the process. Through direct customer involvement and consensus input from user group oversight committees, InSight and InFocus, product content is improved and the customer acceptance of new software deployment significantly increased. In addition, the interactive development process promotes increased customer awareness of the technological features of the product and fosters greater product loyalty.

As of December 31, 2000, the Company had 426 employees engaged in research and development. The Company's research and development expenses were approximately $30.4 million, $33.8 million and $51.6 million in 1998, 1999 and 2000 respectively. Development costs funded by customers as part of license and service contracts are included as part of cost of revenues.

Competition

The EAM software solutions business is highly competitive, constantly changing, and significantly affected by new product and technology innovations brought about by industry participants. The Company's competitors include companies in the enterprise, departmental, and point solutions market segments. At the enterprise solution level, the Company's main competitor is SAP. The Company counters SAP by offering solution sets that provide baseline integration to Oracle's corporate financial and human resources applications and PeopleSoft's corporate financial, payroll, and human resources applications. In the departmental or plant solutions market for "Tier 1" customers having annual revenues greater than one billion dollars, the Company competes primarily with other EAM software vendors such as Mincom Corp., MRO Software, Inc. (formerly Project Software & Development, Inc.), Marcam, Walker, and Datastream, Inc. Point solutions vendors such as Severn Trent Systems, Synercom, and others provide competing software products to industry sub-sectors such as transmission and distribution of electric power for utilities. In the future, the Company may also face competition from Oracle, PeopleSoft and SPL WorldGroup B.V., if these vendors elect to broaden their solutions to include some components of EAM functionality. In addition, the Company faces competition from suppliers of custom-developed business application software that have focused largely on proprietary mainframe- and microcomputer-based systems with highly customized software, such as the systems consulting groups of major accounting firms and systems integrators. A host of Internet-based application vendors, who offer state-of-the-art systems that can complement the Indus Solution Series, may become competitors in certain cases where they attempt to extend their solutions to cover the entire range of Supply Chain Management or other activities. The Company also faces competition from systems developed by the internal MIS departments of large organizations.

The Company relies on a combination of the protections provided under applicable copyright, trademark and trade secret laws, as well as on confidentiality procedures and licensing arrangements to establish and protect its rights in its software. Despite the Company's efforts, it may be possible for unauthorized third parties to copy certain portions of the Company's products or to reverse engineer or obtain and use information that the Company regards as proprietary. In addition, the laws of certain countries do not protect the Company's proprietary rights to the same extent, as do the laws of the United States. Furthermore, the Company has no patents, and existing copyright laws afford only limited protection. Accordingly, there can be no assurance that the Company will be able to protect its proprietary software against unauthorized third party copying or use, which could adversely affect the Company's competitive position.

The Company licenses its applications to customers under license agreements, which are generally in standard form, although each license is individually negotiated and may contain variations. The standard form agreement allows the customer to use the Company's products solely on the customer's computer equipment for the customer's internal purposes, and the customer is generally prohibited from sub-licensing or transferring the applications. The agreements generally provide that the Company's warranty for its products is limited to correction or replacement of the affected product, and in most cases the Company's warranty liability may not exceed the licensing fees from the customer. The Company's form agreement also includes a confidentiality clause protecting proprietary information relating to the licensed applications.

The Company's products are generally provided to customers in object code (machine-readable) format only. From time to time, in limited circumstances, the Company has licensed source code (human-readable form) subject to customary protections such as use restrictions and confidentiality agreements. In addition, customers can be beneficiaries of a master source code escrow for the applications, pursuant to which the source code will be released to end users upon the occurrence of certain events, such as the commencement of bankruptcy or insolvency proceedings by or against the Company, or certain material breaches of the agreement. The Company has the right to object to the release of the source code in such circumstances, and to submit the matter to dispute resolution procedures. In the event of any release of the source code from escrow, the customer's license is limited to use of the source code to maintain, support and configure the Company applications.

The Company may from time to time receive notices from third parties claiming infringement by the Company's products of proprietary rights of others. As the number of software products in the industry increases and the functionality of these products further overlap, the Company believes that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, can be time consuming and expensive to defend or could require the Company to enter into royalty and licensing agreements. Such agreements, if required, may not be available on terms acceptable to the Company, or at all.

As of December 31, 2000, the Company employed 1,016 people, of which 426 were primarily engaged in research and development activities, 374 in post-sales support and customer project operations, 136 in sales and marketing, and 80 in administration and finance. None of the Company's employees is represented by a labor union. The Company has experienced no work stoppages and believes that its relationship with its employees is excellent.

The Company's future success depends, in large part, on the continued service of its key management, sales, product development and operational personnel and on its ability to attract and retain highly qualified employees, including management personnel. There can be no assurance that the Company will be successful in attracting, retaining and motivating key personnel.

The executive officers of the Company as of February 15, 2001 were as follows:

Mr. Hudson has served as President and Chief Executive Officer, and director, of the Company since January 11, 2000. During 1999, he was a consultant for myindus.com. Since August 1998, he has been and continues to serve as the President of Trinity Coast, Inc., a management consulting firm. From July 1997 to September 1998, he was President and Chief Executive Officer of Strategic Resource Solutions, the non-regulated subsidiary of Carolina Power and Light. From November 1991 to June 1997, he was Founder and Chief Executive Officer of Applied Computer Technologies, an EAM software solution for educational institutions, prior to its acquisition by Carolina Power and Light.

Mr. Beatty has served as Executive Vice President and Chief Operating Officer, and director of the Company since January 11, 2000. He has also served as President of myindus.com since August 1999. From 1996 to August 1999 he was an independent consultant. From 1992 to 1996 he served as President, Consulting Services for SHL SYSTEMHOUSE. From 1980 to 1992 he was a Partner at Andersen Consulting.

Mr. Highland has served as Executive Vice President Finance and Administration and Chief Financial Officer since February 1, 2001. He served as Chief Operating Officer for Gainor Medical Management, Inc., a diabetes disease management provider and medical device distributor from 1996 to 1999 and was their Chief Financial Officer from 1995 to 1996. From 1994 to 1995 he was the Chief Financial Officer of Automated Systems Design, Inc., and from 1991 to 1994 he was a manager with Arthur Andersen & Co.

All the executive officers of the company have employment contracts with the Company.

Fluctuating Operating Results. The Company's operating results have fluctuated in the past, and the Company's results may fluctuate significantly in the future depending on a number of factors, including (i) the relatively long sales cycles for its products, (ii) the variable size and timing of individual license transactions, (iii) changes in demand for its products and services and market acceptance of new products, including any eBusiness offerings, (iv) competitive conditions in the industry, (v) changes in customer budgets, (vi) the timing of the introduction of new products or product enhancements by each such company or its competitors, (vii) its success in and costs associated with developing and introducing new products, including the necessary software and technology for its eBusiness and/or next generation product initiatives, (viii) product life cycles, (ix) variability in new licenses obtained, (x) changes in the proportion of revenues attributable to licensing fees versus services, (xi) changes in the level of operating expenses, (xii) delay or deferral of customer implementations of their software, (xiii) software defects and other product quality problems, (xiv) effect of SEC requirements and AICPA Statements of Position on the Company's revenue recognition, and (xv) other economic conditions, generally, or in specific process industry segments. Further, the purchase of the Company's products generally involves a significant commitment of capital, with the attendant delays frequently associated with large capital expenditures and authorization procedures within large organizations. For these and other reasons, the sales cycles for the Company's products are typically lengthy and subject to a number of significant risks over which each such company has little or no control, including customers' budget constraints and internal authorization reviews. In addition, delays in the completion of a product implementation may require that the revenues associated with such implementation be recognized over a longer period than originally anticipated. Such delays in the implementation or execution of orders have caused, and may in the future cause, material fluctuations in the Company's operating results. Similarly, customers may cancel implementation projects at any time without penalty, and such cancellations could have a material adverse effect on the Company's business or results of operations. Because the Company's expenses are relatively fixed, a small variation in the timing of recognition of specific revenues can cause significant variations in operating results from quarter to quarter and may in some future quarter result in losses or have a material adverse effect on the Company's business or results of operations.

Additional factors that may contribute to future fluctuations in the Company's quarterly operating results include, but are not limited to: (i) the development and introduction of new operating systems that require additional development efforts, including any eBusiness initiatives, (ii) the introduction or enhancement of products by the Company or its competitors, (iii) changes in demand for the Company's products and services, (iv) economic conditions in process industry segments, (v) changes in pricing policies of the Company or its competitors, (vi) increased competition, (vii) technological changes in computer systems and environments, (viii) the ability of the Company to timely develop, introduce and market new products, (ix) the quality control of products sold, (x) changes in demand for the Company's products and services, including any eBusiness and/or next generation product initiatives, (xi) market acceptance of new products and product enhancements, including any eBusiness and/or next generation product offerings, (xii) the Company's successful completion of customer funded development and implementation projects, (xiii) the Company's success in expanding its sales and marketing programs, (xiv) personnel changes including changes in Company management, (xv) changes in the Company's sales organization, (xvi) foreign currency exchange rates, (xvii) the mix of products sold, (xviii) acquisition costs, and (xix) general economic conditions.

In September 1999, the Company announced its eBusiness initiatives which are focused on next generation internet products, applications, portals and web-based solutions for the EAM market. There can be no assurance that the Company's eBusiness offerings will be sold successfully in the business-to-business eBusiness market or if they can achieve market acceptance. The Company's future success in the eBusiness market will depend on its ability to accurately determine the functionality and features required by its customers, as well as the ability to enhance its eBusiness products and deliver them in a timely manner.

The internet market is an emerging market that may undergo rapid technological change. The Company cannot predict the present and future size of the potential market for its eBusiness products and services. The Company may incur substantial costs to enhance and modify its products and services in order to meet the demands of this potential market.

Changes to the Company's business and customer base have placed a strain on management and operations. Previous expansion had resulted in substantial growth in the number of its employees, the scope of its operating and financial systems and the geographic area of its operations, resulting in increased responsibility for management personnel. The Company depends on the service of key personnel to manage the Company's business.

In the future, the Company will be required to improve its financial and management controls, reporting systems and procedures on a timely basis and to expand, train and manage its employee work force. There can be no assurance that the Company will be able to effectively manage its operations. Failure to do so would have a material adverse effect on its business, operating results and financial condition. Competition for qualified sales, technical and other personnel is intense, and there can be no assurance that the Company will be able to attract, assimilate or retain additional highly qualified employees in the future. The Company continues to experience significant changes to its senior management. If the Company were unable to hire and retain personnel, particularly those in key positions, including senior management, its business, operating results and financial condition would be materially adversely affected. The Company's future success also depends in significant part upon the continued service of its key technical, sales and senior management personnel. The loss of the services of one or more of these key employees could have a material adverse effect on its business, operating results and financial condition. Additions of new and departures of existing personnel, particularly in key positions, can be disruptive and have a material adverse effect on the Company's business, operating results and financial condition.

Overall demand for enterprise software may grow more slowly or actually decrease in upcoming quarters and years. This may reflect a saturation of the market for enterprise software as well as deregulation and retrenchment affecting the way companies purchase enterprise software. The Company has reported a decrease in software licensing fees by 33.8% in 2000 as compared to 1999. To the extent that a slowdown in the market for enterprise software market materializes, the Company's business, results of operations and financial condition are likely to be adversely affected.

The industries in which the Company participates are intensely competitive and characterized by rapid technological change, evolving industry standards in computer hardware and software technology changes in customer requirements and frequent new product introductions and enhancements. The introduction of products embodying new technologies, the emergence of new standards or changes in customer requirements could render the Company's existing products obsolete and unmarketable. As a result, the Company's success will depend in part upon its ability to continue to enhance existing products and expand its products, continue to provide enterprise solutions and develop and introduce new products that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve customer acceptance. Customer requirements include, but are not limited to, product operability and support across distributed and changing heterogeneous hardware platforms, operating systems, relational databases and networks. There can be no assurance that the Company's products will achieve customer acceptance or will adequately address the changing needs of the marketplace or that the Company will be successful in developing and marketing enhancements to its existing products or new products incorporating new technology on a timely basis. The Company has in the past experienced delays in product development, and there can be no assurance that the Company will not experience further delays in connection with its current product development or future development activities. If the Company is unable to develop and introduce new products, or enhancements to existing products, in a timely manner in response to changing market conditions or customer requirements, the Company's business, operating results and financial condition will be materially and adversely affected. Because the Company has limited resources, the Company must effectively manage and properly allocate and prioritize its product development efforts and its porting efforts relating to newer products and operating systems. There can be no assurance that these efforts will be successful or, even if successful, that any resulting products or operating systems will achieve customer acceptance.

International revenue (from sales outside the United States, Canada and Mexico) accounted for approximately 13%, 16% and 21% of total revenues in 1998, 1999 and 2000, respectively. The Company maintains an operational presence in the United Kingdom, Australia, France, and Japan. In addition, the Company has established sales and support offices in Europe, Australia and Japan, and expects international sales to continue to become a more significant component of its business. International expansion may require the Company to establish additional foreign operations and hire additional personnel. This may require significant management attention and financial resources and could adversely affect the Company's operating margin. To the extent the Company is unable to effect these additions efficiently and in a timely manner, its growth, if any, in international sales will be limited, and its business, operating results and financial condition could be materially and adversely affected. There can be no assurance that the Company will be able to maintain or increase international market demand for its products.

The Company's international business will also involve a number of additional risks, including lack of acceptance of localized products, cultural differences in the conduct of business, longer accounts receivable payment cycles, greater difficulty in accounts receivable collection, seasonality due to the annual slow-down in European business activity during the Company's third fiscal quarter, unexpected changes in regulatory requirements and royalty and withholding taxes that restrict the repatriation of earnings, tariffs and other trade barriers, and the burden of complying with a wide variety of foreign laws. The Company's international sales are generated primarily through its international sales subsidiaries and indirect sales channel partners creating a risk of foreign currency translation gains and losses. To the extent profit is generated or losses are incurred in foreign countries, the Company's effective income tax rate may be materially and adversely affected. In some markets, localization of the Company's products will be essential to achieve market penetration. The Company may incur substantial costs and experience delays in localizing its products, and there can be no assurance that any localized product will ever generate significant revenue. There can be no assurance that any of the factors described herein will not have a material adverse effect on the Company's future international sales and operations and, consequently, its business, operating results and financial condition.

Recent economic fluctuations, particularly in the Asia-Pacific marketplace, have caused a heightened awareness of the impact this portion of the world's economy can have on the overall economy. As the Asia-Pacific market currently represents almost one-third of the world's buying power and approximately 3% of the Company's revenues in 1999 and 2000, changes in this area's economic growth rate may impact suppliers of product into that market. While the actual magnitude of the business at risk is unknown, it is likely that capital spending in this market will continue to fluctuate and thus, the Company's ability to increase revenues in this region may be negatively impacted.

The Company's success is heavily dependent upon its proprietary technology. The Company will rely on a combination of the protections provided under applicable copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements, to establish and protect its proprietary rights. As part of its confidentiality procedures, the Company will generally enter into non-disclosure agreements with its employees, distributors and corporate partners, and license agreements with respect to its software, documentation and other proprietary information. Despite these precautions, it may be possible for unauthorized third parties to copy certain portions of the Company's products or to reverse engineer or obtain and use information that the Company regards as proprietary, to use the Company's products or technology without authorization, or to develop similar technology independently. Moreover, the laws of certain countries do not protect the Company's proprietary rights to the same extent, as do the laws of the United States. Furthermore, the Company has no patents, and existing copyright laws afford only limited protection. The Company will make source code available for certain of its products and providing such source code may increase the likelihood of misappropriation or other misuses of the Company's intellectual property. Accordingly, there can be no assurance that the Company will be able to protect its proprietary software against unauthorized third party copying or use, which could adversely affect the Company's competitive position.

The Company is not aware that any of its products infringe the proprietary rights of third parties. There can be no assurance, however, that a third party will not assert that the Company's technology violates its patents in the future. As the number of software products in the industry increases and the functionality of these products further overlap, the Company believes that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, can be time consuming and expensive to defend or could require the Company to enter into royalty and licensing agreements. Such royalty or license agreements, if required, may not be available on terms acceptable to the Company or at all, which could have a material adverse effect upon the Company's business, operating results and financial condition.

The purchase and implementation of the Company's software solutions by a customer will generally involve a significant commitment of capital over a long period of time, with the risk of delays frequently associated with large capital expenditures and implementation procedures within an organization, such as budgetary constraints and internal approval review. During the sales process, the Company may devote significant time and resources to a prospective customer, including costs associated with multiple site visits, product demonstrations and feasibility studies, and experience significant delays over which the Company will have no control. In addition, following license sales, the implementation of the Company's products will involve a lengthy process, including customer training and consultation. A successful implementation will require a close working relationship between the Company, the customer and, if applicable, third party consultants and systems integrators who assist in the process. These factors may increase the costs associated with completion of any given sale, and risks of cancellation or delay of such sales.

Elements of the Company's products are licensed from third parties under license agreements. The loss of the Company's right to use and license such technology could limit the Company's ability to successfully market certain modules or products. While the Company believes that it would be able to either license or develop alternatives to such component technologies, there can be no assurance that the Company would be able to do so, or that such alternatives would achieve market acceptance or be available on a timely basis. Failure to obtain the necessary licenses or to develop needed technologies could have a material adverse effect on the Company's business, operating results and financial condition.

The Company signed a co-development and implementation agreement with British Energy plc ("British Energy") in May 1999 under which the Company will provide products and services over a three-year period. Over the term of the agreement, the Company is obligated to install the Indus Solution Series at each British Energy facility, which currently includes eight power stations. Due to the size of this project, problems with the successful and timely completion of the British Energy funded development and implementation may have a material effect on the future financial results of the Company.

The sale and support of the Company's products may entail the risk of product liability claims. The license agreements of the Company typically contain provisions designed to limit exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in such license agreements may not be effective as a result of federal, state or local laws or ordinances or unfavorable judicial decisions. A successful product liability claim brought against the Company could have a material adverse effect upon the Company's business, operating results and financial condition.

In October 1997, the AICPA issued Statement of Position ("SOP") no. 97-2 "Software Revenue Recognition" which superceded SOP No. 91-1. SOP No. 97-2 was effective for the Company's fiscal year beginning June 1, 1998, as amended by SOP No. 98-4 and SOP No. 98-9, and provides guidance on applying generally accepted accounting principles for software recognition transactions. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB"), Revenue Recognition in Financial Statements" which provides further revenue recognition guidance. The accounting profession continues to review certain provisions of SOP No. 97-2 and SAB 101 with the objective of providing additional guidance on implementing its provisions. Depending on the outcome of these reviews and the issuance of implementation guidelines and interpretations, the Company may be required to change its revenue recognition policies and business practices, and such changes could have a material adverse impact on the Company's business, results of operations or financial position.

Past and Future Acquisitions

The Company, as well as its predecessor corporations, The Indus Group, Inc. and TSW International, Inc., have made acquisitions in the past. The Company may make additional acquisitions in the future. Acquisitions of companies, divisions of companies or products entail numerous risks, including difficulty in successfully assimilating acquired operations, diversion of management's attention and loss of key employees of acquired companies. Products acquired by The Indus Group, Inc. and TSW International, Inc., in the past, required significant additional development before they could be marketed and some failed to generate any revenue for The Indus Group, Inc. or TSW International, Inc. Any problems related to acquisitions, could have a material adverse effect on the Company's business, operating results and financial condition.

Beginning in February 2000, the Company and several of its former officers and/or directors were named as defendants in securities class action cases filed in the United States District Court, Northern District of California. The complaints were brought on behalf of all persons who purchased Indus common stock between October 28, 1999, when the Company issued a press release announcing unaudited financial statements for the third quarter of 1999; through January 27, 2000, when the Company announced its intention to restate those financial statements. In August 2000, all parties to the litigation agreed to a settlement. Under the settlement, defendants' insurance carriers paid $4.3 million. In January 2001, the court granted final approval of the settlement and entered into a judgement dismissing the litigation with prejudice. The Company continues to cooperate with the SEC regarding the restatement.

In June 2000, the Company was served with a demand for arbitration by William Grabske, the Company's former Chief Executive Officer. Mr. Grabske seeks enforcement of a purported Settlement Agreement and Mutual Release. The demand seeks severance pay and reimbursement of expenses of approximately $1.0 million plus interest, options for approximately 20,000 shares of stock in the Company and fees and costs. The Company has asserted counterclaims alleging it was fraudulently induced to enter into the Settlement Agreement and Mutual Release, and setting forth other claims. The parties have agreed to arbitrate their dispute before Judicial Arbitration and Mediation Services, Inc. ("JAMS").

In January 2001, the Company was notified of the filing of a lawsuit by Robert Pocsik, the Company's former Chief Administrative Officer. The complaint alleges breach of implied contract and of the covenant of good faith and fair dealing, and defamation. The complaint appears to allege that plaintiff was wrongfully terminated; and that unnamed representatives of the Company gave unnamed persons, on unspecific occasions, false reasons for the termination. The complaint does not allege an amount of damages, other than that the damages exceed $25,000. If the complaint is served the Company intends to vigorously contest plaintiff's claims, and to assert counterclaims.

From time to time, the Company is involved in other legal proceedings incidental to the conduct of its business. While the outcome of these claims cannot be predicted with certainty, the Company does not believe that such matters, individually or in the aggregate, to which it is currently a party are likely to have a material adverse effect on the results of operations or financial condition.

The Company intends to defend itself vigorously in these actions. However, any settlement or judgment may have a material adverse effect on the Company's results of operations in the period in which such settlement or judgment is paid or payment becomes probable.

Certain information concerning the Company's office space at December 31, 2000 is set forth below:

Management is currently and will continue to evaluate additional leased facilities to accommodate the anticipated growth in operations for 2001. The Company owns substantially all of the equipment used in its facilities.

Beginning in February 2000, the Company and several of its former officers and/or directors were named as defendants in securities class action cases filed in the United States District Court, Northern District of California. The complaints were brought on behalf of all persons who purchased Indus common stock between October 28, 1999, when the Company issued a press release announcing unaudited financial statements for the third quarter of 1999; through January 27, 2000, when the Company announced its intention to restate those financial statements. In August 2000, all parties to the litigation agreed to a settlement. Under the settlement, defendants' insurance carriers paid $4.3 million. In January 2001, the Court granted final approval of the settlement and entered into a judgement dismissing the litigation with prejudice. The Company continues to cooperate with the SEC regarding the restatement.

In June 2000, the Company was served with a demand for arbitration by William Grabske, the Company's former Chief Executive Officer. Mr. Grabske seeks enforcement of a purported Settlement Agreement and Mutual Release. The demand seeks severance pay and reimbursement of expenses of approximately $1.0 million plus interest, options for approximately 20,000 shares of stock in the Company and fees and costs. The Company has asserted counterclaims alleging it was fraudulently induced to enter into the Settlement Agreement and Mutual Release, and setting forth other claims. The parties have agreed to arbitrate their dispute before JAMS.

In January 2001, the Company was notified of the filing of a lawsuit by Robert Pocsik, the Company's former Chief Administrative Officer. The complaint alleges breach of implied contract and of the covenant of good faith and fair dealing, and defamation. The complaint appears to allege that plaintiff was wrongfully terminated; and that unnamed representatives of the Company gave unnamed persons, on unspecific occasions, false reasons for the termination. The complaint does not allege an amount of damages, other than that the damages exceed $25,000. If the complaint is served the Company intends to vigorously contest plaintiff's claims, and to assert counterclaims.

From time to time, the Company is involved in other legal proceedings incidental to the conduct of its business. While the outcome of these claims cannot be predicted with certainty, the Company does not believe that such matters, individually or in the aggregate, to which it is currently a party are likely to have a material adverse effect on the results of operations or financial condition.

The Company intends to defend itself vigorously in these actions. However, any settlement or judgment may have a material adverse effect on the Company's results of operations in the period in which the such settlement or judgment is paid or payment becomes probable.

No matters were submitted to a vote of security holders of the Company during the fourth quarter of the fiscal year ended December 31, 2000.

The Company's common stock, $.001 par value, is traded on the Nasdaq National Market under the symbol "IINT". The table sets forth the high and low closing prices of the Company's common stock for the periods indicated.

The Company anticipates that any future earnings will be retained to finance the continuing development of its business. The Company has not declared or paid any cash dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future.

On July 15, 1999, the Company's Board of Directors approved a stock repurchase program for up to 2,000,000 shares of the Company's outstanding common stock. The Company is authorized to use available cash to buy back its shares in open market transactions from time to time, subject to price and market conditions. No purchases were made in 2000. As of December 31, 2000, the Company held, as treasury stock, 435,500 shares that had been repurchased at a cost of $2.2 million under the program.

The following selected consolidated financial data of the Company is qualified by reference to and should be read in conjunction with the consolidated financial statements and notes thereto and other financial information included elsewhere herein. During 1997, The Indus Group, Inc. entered into an Agreement and Plan of Merger and Reorganization with TSW International, Inc. The merger was consummated on August 25, 1997 and was accounted for as a pooling of interests. All financial information was restated to reflect the combined operations of The Indus Group, Inc. and TSW International, Inc. The summary consolidated balance sheet data as of December 31, 1999 and 2000 and summary consolidated statements of operations data for the years ended December 31, 1998, 1999, and 2000 are derived from and qualified by reference to the audited consolidated financial statements of the Company which are included elsewhere herein. The summary consolidated balance sheet data as of December 31, 1996, 1997 and 1998 and the summary consolidated statement of operations for the years ended December 31, 1996 and 1997 are derived from the audited consolidated financial statements of the Company which are not included herein.

                                                                   Years Ended December 31,
                                                      -------------------------------------------------
                                                          1996      1997      1998      1999      2000
                                                      --------- --------- --------- --------- ---------
                                                              (in thousands, except per share data)
Statement of operations data:
Revenues:
   Software licensing fees...........................  $43,060   $55,958   $55,546   $19,071   $12,622
   Services and maintenance .........................   97,515   119,382   138,956   158,160   131,956
   Other revenue ....................................    2,463     1,694       975     1,274     1,111
                                                      --------- --------- --------- --------- ---------
     Total revenues .................................  143,038   177,034   195,477   178,505   145,689
Cost of revenues (1).................................   63,738    78,575   103,517    98,050    90,880
                                                      --------- --------- --------- --------- ---------
Gross margin ........................................   79,300    98,459    91,960    80,455    54,809
                                                      --------- --------- --------- --------- ---------
Operating expenses:
   Research and  development ........................   23,265    27,664    30,372    33,801    51,607
   Sales and marketing ..............................   26,523    33,568    31,517    31,667    49,348
   General and administrative .......................   14,951    14,991    15,270    18,145    20,944
   Merger and restructuring expenses ................      --     12,083       --        --      2,063
                                                      --------- --------- --------- --------- ---------
     Total operating expenses .......................   64,739    88,306    77,159    83,613   123,962
                                                      --------- --------- --------- --------- ---------
Income (loss) from operations .......................   14,561    10,153    14,801    (3,158)  (69,153)
Gain on sale of investment in TenFold Corporation  ..      --        --        --     38,170       --
Other income (expense) net ..........................   (1,887)   (1,968)     (936)    3,120     3,712
                                                      --------- --------- --------- --------- ---------
Income (loss) before taxes ..........................   12,674     8,185    13,865    38,132   (65,441)
Provision (credit)  for income taxes ................    6,849     6,408       450    14,295    (6,666)
Cumulative effect of deferred income taxes
   provided upon conversion by Indus to C
   Corporation (2) ..................................    6,700       --        --        --        --
                                                      --------- --------- --------- --------- ---------
Income (loss) before extraordinary item .............     (875)    1,777    13,415    23,837   (58,775)
Extraordinary item ..................................      --       (787)      --        --        --
                                                      --------- --------- --------- --------- ---------
Net Income (loss) ...................................    ($875)     $990   $13,415   $23,837  ($58,775)
                                                      ========= ========= ========= ========= =========
Pro forma statement of operations as adjusted:
   Income  before income taxes ......................  $12,674
   Provision  for income taxes (federal, state
      and foreign) (2) ..............................    6,849
                                                      ---------
   Pro forma net income  ............................   $5,825
                                                      =========
Income (loss) per share (computed on pro forma
   net income (loss) in 1996 - basic (3) )...........    $0.22     $0.03     $0.44     $0.74    ($1.72)
                                                      ========= ========= ========= ========= =========
Shares used in computing per share data .............   25,976    28,574    30,717    32,109    34,248
                                                      ========= ========= ========= ========= =========


                                                                          December 31,
                                                      -------------------------------------------------
                                                          1996      1997      1998      1999      2000
                                                      --------- --------- --------- --------- ---------
                                                                          (in thousands)
Balance sheet data:
Working capital .....................................  $43,064   $37,238   $58,609   $95,872   $43,466
Total assets ........................................  117,855   136,725   150,785   168,901   140,732
Short-term debt .....................................   16,951    29,054    21,005       301        71
Long-term debt ......................................    2,126     1,105       257       163        71
Subordinated long-term notes ........................   18,065      --        --        --        --
TSW redeemable preferred stock ......................   18,100      --        --        --        --
Total stockholders' equity ..........................   20,666    70,230    86,075   118,352    68,957

The Company has experienced, and may in the future experience, significant fluctuations in revenues and operating results. The Company's revenues and operating results in general, and in particular its revenues from new licenses, are relatively difficult to forecast for a number of reasons, including: (i) the relatively long sales cycles for the Company's products, (ii) the variable size and timing of individual license transactions, (iii) changes in demand for the Company's products and services, (iv) competitive conditions in the industry, (v) changes in customer budgets, (vi) the timing of the introduction of new products or product enhancements by the Company or its competitors, (vii) the Company's success in and costs associated with developing and introducing new products, (viii) product life cycles, (ix) changes in the proportion of revenues attributable to license fees versus services, (x) the percentage of license fees attributable to third party software, (xi) changes in the level of operating expenses, (xii) delay or deferral of customer implementations of the Company's software, (xiii) software defects and other product quality problems, and (xiv) effect of SEC requirements and AICPA Statements of Position on the Company's revenue recognition, (xv) other economic conditions generally or in specific industry segments. Further, the purchase of the Company's products generally involves a significant commitment of capital, with the attendant delays frequently associated with large capital expenditures and authorization procedures within large organizations. For these and other reasons, the sales cycles for the Company's products are typically lengthy and subject to a number of significant risks over which the Company has little or no control, including customers' budget constraints and internal authorization reviews. In addition, delays in the completion of a product implementation may require that the revenues associated with such implementation be recognized over a longer period than originally anticipated. Such delays in the implementation or execution of orders have caused, and may in the future cause, material fluctuations in the Company's operating results. Similarly, customers may cancel implementation projects at any time without penalty, and such cancellation could have a material adverse effect on the Company's business or results of operations. Because the Company's expenses are relatively fixed, a small variation in the timing of recognition of specific revenues can cause significant variations in operating results and may in some future period result in losses or have a material and adverse effect on the Company's business or results of operations.

                                                   Percentage of Total Revenues
                                                     Years Ended December 31,
                                                --------------------------------
Statement of Operations Data:                        1998       1999       2000
                                                ---------- ---------- ----------
Revenues:
   Software licensing fees ....................      28.4%      10.7%       8.7%
   Services, and maintenance and other ........      71.6%      89.3%      91.3%
                                                ---------- ---------- ----------
     Total revenues ...........................     100.0%     100.0%     100.0%
Cost of revenues (including $6,838 writedown of
   third party software held for sale in 2000).      53.0%      54.9%      62.4%
                                                ---------- ---------- ----------
Gross margin ..................................      47.0%      45.1%      37.6%
                                                ---------- ---------- ----------
Operating expenses:
   Research and development ...................      15.5%      18.9%      35.4%
   Sales and marketing ........................      16.1%      17.7%      33.9%
   General and administrative .................       7.8%      10.2%      14.4%
   Restructuring expenses .....................      --         --          1.4%
                                                ---------- ---------- ----------
     Total operating expenses .................      39.4%      46.8%      85.1%
                                                ---------- ---------- ----------
Income (loss) from operations .................       7.6%     (1.7%)    (47.5%)
Gain on sale of investment in TenFold
  Corporation..................................      --         21.4%      --
Other income (expense) net ....................     (0.5%)       1.7%       2.5%
                                                ---------- ---------- ----------
Income (loss) before income taxes .............       7.1%    (21.4%)    (45.0%)
Provision (credit) for income taxes ...........       0.2%       8.0%     (4.6%)
                                                ---------- ---------- ----------
Net income (loss)..............................       6.9%      13.4%    (40.4%)
                                                ========== ========== ==========

                                                               December 31,
                                                          ----------------------
                                                               1999        2000
                                                          ----------  ----------
ASSETS

Current assets:
   Cash and cash equivalents ............................   $16,345     $37,535
   Marketable securities ................................    64,427      17,572
   Billed accounts receivable, net of allowance for
    doubtful accounts of $3,991 and $5,379 at
    December 31, 1999 and 2000, respectively ............    35,432      33,835
   Unbilled accounts receivable .........................    13,735      13,039
   Income tax  receivable ...............................       --        5,983
   Deferred tax assets ..................................     9,512         --
   Other current assets .................................     6,807       7,206
                                                          ----------  ----------
     Total current assets ...............................   146,258     115,170
Property and equipment, net .............................    16,092      22,233
Investments and intangible assets, net ..................     1,894         386
Employee notes receivable ...............................       187          24
Other assets ............................................     4,470       2,919
                                                          ----------  ----------
                                                           $168,901    $140,732
                                                          ==========  ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable .....................................    $5,532      $5,867
   Other accrued liabilities ............................    20,190      24,581
   Current portion of obligations under capital leases ..       301          71
   Deferred revenue .....................................    24,363      41,185
                                                          ----------  ----------
     Total current liabilities ..........................    50,386      71,704


Obligations under capital leases and other liabilities ..       163          71

Commitments and contingencies ...........................

Stockholders' equity:
   Preferred stock ......................................       --          --
   Common stock .........................................        33          35
   Additional paid-in capital ...........................   112,473     121,313
   Treasury stock........................................    (2,181)     (2,181)
   Note receivable from stockholder......................      (548)        (24)
   Deferred compensation.................................      (152)       (104)
   Retained earnings (accumulated deficit)...............    10,564     (48,211)
   Accumulated other comprehensive loss .................    (1,837)     (1,871)
                                                          ----------  ----------
     Total stockholders' equity .........................   118,352      68,957
                                                          ----------  ----------
                                                           $168,901    $140,732
                                                          ==========  ==========

                                                     Years Ended December 31,
                                                --------------------------------
                                                     1998       1999       2000
                                                ---------- ---------- ----------
Revenues:
   Software licensing fees ....................   $55,546    $19,071    $12,622
   Services and maintenance ...................   138,956    158,160    131,956
   Other revenue ..............................       975      1,274      1,111
                                                ---------- ---------- ----------
     Total revenues ...........................   195,477    178,505    145,689
Cost of revenues (including $6,838 writedown of
   third party software held for sale in 2000).   103,517     98,050     90,880
                                                ---------- ---------- ----------
Gross margin ..................................    91,960     80,455     54,809
                                                ---------- ---------- ----------
Operating expenses:
   Research and development ...................    30,372     33,801     51,607
   Sales and marketing ........................    31,517     31,667     49,348
   General and administrative .................    15,270     18,145     20,944
   Restructuring expenses .....................      --         --        2,063
                                                ---------- ---------- ----------
     Total operating expenses .................    77,159     83,613    123,962
                                                ---------- ---------- ----------
Income (loss) from operations .................    14,801     (3,158)   (69,153)
Gain on sale of investment in TenFold
  Corporation..................................      --       38,170      --
Interest and other income .....................     1,118      3,523      3,784
Interest expense ..............................    (2,054)      (403)       (72)
                                                ---------- ---------- ----------
Income (loss) before income taxes .............    13,865     38,132    (65,441)
Provision (credit) for income taxes ...........       450     14,295     (6,666)
                                                ---------- ---------- ----------
Net income (loss)..............................   $13,415    $23,837   ($58,775)
                                                ========== ========== ==========

Net income (loss) per share:
Basic..........................................     $0.44      $0.74     ($1.72)
                                                ========== ========== ==========
Diluted........................................     $0.38      $0.68     ($1.72)
                                                ========== ========== ==========
Shares used in computing per share data
   Basic ......................................    30,717     32,109     34,248
   Diluted ....................................    35,263     35,274     34,248

                                                                                                      Accumu-
                                                                                   Deferred Retained   lated
                                                                                   Compen-  Earnings   Other    Total
                                                 Common Stock   Additional          sation  (Accumu-  Compre-   Stock-
                                              -----------------  Paid-In  Treasury   and      lated   hensive  holders'
                                               Shares   Amount   Capital   Stock    Other   Deficit)    Loss    Equity
                                              -------- -------- --------- -------- -------- --------- -------- --------
Balance at December 31, 1997 ................  29,936      $29   $98,608     $ --    ($262) ($26,688) ($1,457) $70,230
  Exercise of stock options .................   1,507        2     2,750       --       --       --        --    2,752
  Tax benefit from exercise of stock options     --         --       294       --       --       --        --      294
  Sale of common stock under ESPP ...........     174        1       970       --       --       --        --      971
  Note receivable from stockholder...........    --         --       --        --     (492)      --        --     (492)
  Amortization of deferred compensation .....    --         --       --        --       14       --        --       14
  Net income ................................    --         --       --        --       --    13,415       --   13,415
  Unrealized loss on marketable securities ..    --         --       --        --       --       --        (6)      (6)
  Foreign currency translation ..............    --         --       --        --       --       --    (1,103)  (1,103)
                                                                                                               --------
  Comprehensive income ......................    --         --       --        --       --       --        --   12,306
                                              -------- -------- --------- -------- -------- --------- -------- --------
Balance at December 31, 1998 ................  31,617       32   102,622       --     (740)  (13,273)  (2,566)  86,075
  Exercise of stock options .................   1,619        1     5,658       --       --       --        --    5,659
  Tax benefit from exercise of stock options     --         --     3,471       --       --       --        --    3,471
  Sale of common stock under ESPP ...........     191 -     --       722       --       --       --        --      722
  Note receivable from stockholder ..........    --         --       --        --      (56)      --        --      (56)
  Purchase of treasury stock ................    (435)      --       --    (2,181)      --       --        --   (2,181)
  Amortization of deferred compensation .....    --         --       --        --       96       --        --       96
  Net income ................................    --         --       --        --       --    23,837       --   23,837
  Unrealized loss on marketable securities ..    --        --        --        --       --       --        (8)      (8)
  Foreign currency translation ..............    --         --       --        --       --       --       737      737
                                                                                                               --------
  Comprehensive income ......................    --         --       --        --       --       --        --   24,566
                                              -------- -------- --------- -------- -------- --------- -------- --------
Balance at December 31, 1999 ................  32,992       33   112,473   (2,181)    (700)   10,564   (1,837) 118,352
  Exercise of stock options .................   1,485        2     7,899      --        --       --        --    7,901
  Sale of common stock under ESPP ...........     218      --        941      --        --       --        --      941
  Notes receivable from stockholders ........    --        --        --       --       524       --        --      524
  Amortization of deferred compensation......    --        --        --       --        48       --        --       48
  Net loss...................................    --        --        --       --        --   (58,775)      --  (58,775)
  Foreign currency translation ..............    --        --        --       --        --       --       (34)     (34)
                                                                                                               --------
  Comprehensive loss ........................    --        --        --       --        --       --        --  (58,809)
                                              -------- -------- --------- -------- -------- --------- -------- --------
Balance at December 31, 2000 ................  34,695      $35  $121,313  ($2,181)   ($128) ($48,211) ($1,871) $68,957
                                              ======== ======== ========= ======== ======== ========= ======== ========

                                                                              Years Ended December 31,
                                                                          -----------------------------
                                                                              1998      1999      2000
                                                                          --------- --------- ---------
Cash flows from operating activities:
Net income (loss)........................................................  $13,415   $23,837  ($58,775)
Adjustments to reconcile net income
   to net cash used in operating activities:
   Depreciation and amortization ........................................    7,922     7,677     8,472
   Provision for doubtful accounts ......................................    1,604       413     1,388
   Amortization of deferred compensation ................................       14        96        48
   Loss on sale of fixed assets .........................................      (24)    --        --
   Tax benefit from exercise of stock options ...........................      294     3,471     --
   Gain on sale of investment in TenFold Corporation.....................      --    (38,170)    --
   Changes in operating assets and liabilities:
     Billed accounts receivable .........................................  (14,951)   21,076       209
     Unbilled accounts receivable .......................................    8,875     7,739       696
     Income tax  receivable .............................................      --      --       (5,983)
     Other current assets ...............................................      256    (4,576)     (399)
     Other assets .......................................................      (43)     (726)    1,434
     Employee notes receivable ..........................................       94       135       163
     Accounts payable ...................................................    1,052    (3,950)      335
     Deferred income taxes ..............................................     (419)   (9,513)    9,512
     Income taxes payable ...............................................      --      2,361     --
     Other accrued liabilities ..........................................    2,653     1,108     4,391
     Deferred revenue ...................................................    3,826     7,118    16,822
     Foreign currency translation adjustment ............................   (1,103)      737       (34)
     Other ..............................................................      547        (8)     (642)
                                                                          --------- --------- ---------
     Net cash (used in) provided by operating activities.................   24,012    18,825   (22,363)
                                                                          --------- --------- ---------
Cash flows from investing activities:
Purchase of marketable securities .......................................   (8,612) (471,555) (361,567)
Sale of marketable securities ...........................................    9,796   422,724   408,422
Proceeds from sale of investment in TenFold .............................      --     46,178     --
Purchase of investments and intangible assets............................     (628)      --      --
Acquisition of property and equipment ...................................   (6,418)   (6,402)  (12,346)
Other....................................................................       18       --      --
                                                                          --------- --------- ---------
Net cash (used in) provided by investing activities......................   (5,844)   (9,055)   34,509
                                                                          --------- --------- ---------
Cash flows from financing activities:
Net repayment of line of credit .........................................   (7,000)  (19,650)    --
Net repayment of capital leases/notes payable............................   (1,897)   (1,148)     (322)
Net proceeds from issuance of common stock ..............................    3,231     6,381     8,842
Note receivable from stockholder.........................................     --         (56)      524
Purchase of treasury stock...............................................     --      (2,181)    --
                                                                          --------- --------- ---------
Net cash (used in) provided by financing activities......................   (5,666)  (16,654)    9,044
                                                                          --------- --------- ---------
Net increase/(decrease) in cash and cash equivalents.....................   12,502    (6,884)   21,190
Cash and cash equivalents at beginning of period.........................   10,727    23,229    16,345
                                                                          --------- --------- ---------
Cash and cash equivalents at end of period ..............................  $23,229   $16,345   $37,535
                                                                          ========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid ...........................................................   $1,245      $403       $72
                                                                          ========= ========= =========
Income taxes paid .......................................................     $735   $15,812      $729
                                                                          ========= ========= =========
Supplemental schedule of noncash, investing
  and financing activities:
Issuance of common stock in exchange for stockholder note receivable.....     $492      $548     --
                                                                          ========= ========= =========

                                                     Years Ended December 31,
                                                --------------------------------
                                                     1998       1999       2000
                                                ---------- ---------- ----------
Net income (loss)..............................   $13,415    $23,837   ($58,775)
                                                ========== ========== ==========

Weighted average shares of common stock
  outstanding .................................    30,717     32,109     34,248
                                                ========== ========== ==========

Basic net income (loss) per share .............     $0.44      $0.74     ($1.72)
                                                ========== ========== ==========
Calculation of shares outstanding for
 computing diluted net (loss) income per share:
  Shares used in computing basic net income
  (loss) per share ............................    30,717     32,109     34,248
  Shares to reflect the effect of the
  assumed exercise of:
    Employee stock options ....................     2,091      1,345      --
    Warrants ..................................     2,455      1,820      --
                                                ---------- ---------- ----------
Shares used in computing diluted net
income (loss) per share .......................    35,263     35,274     34,248
                                                ========== ========== ==========

Diluted net income (loss) per share............     $0.38      $0.68     ($1.72)
                                                ========== ========== ==========

December 31, 1999
- -------------------
Marketable securities..................    $63,764
Certificates of deposit ...............      1,185
Commercial paper and corporate notes ..        663
                                        -----------
                                           $65,612
                                        ===========
Included in:
Cash and cash equivalents .............     $1,185
Marketable securities .................     64,427
                                        -----------
                                           $65,612
                                        ===========

December 31, 2000
- -------------------
Money market funds.....................    $17,672
Commercial paper and corporate notes ..      8,953
Auction rate notes ....................     12,970
                                        -----------
                                           $39,595
                                        ===========
Included in:
Cash and cash equivalents .............    $21,825
Marketable securities..................     17,572
Other assets...........................        198
                                        -----------
                                           $39,595
                                        ===========

                                                       December 31,
                                                -------------------------
                                                     1999         2000
                                                ------------ ------------
Furniture and fixtures .......................       $5,588       $6,389
Office equipment .............................       30,135       37,342
Leasehold improvements .......................        3,084        3,677
Internally used capitalized software .........        5,150        8,849
                                                ------------ ------------
                                                     43,957       56,257
Less accumulated depreciation and
amortization .................................       27,865       34,024
                                                ------------ ------------
                                                    $16,092      $22,233
                                                ============ ============

                                                       December 31,
                                                -------------------------
                                                    1999         2000
                                                ------------ ------------
Accrued commissions ..........................       $3,171       $2,166
Accrued payroll and related expenses .........        7,195        7,778
Accrued taxes payable ........................        4,347        2,846
Accrued restructuring expenses ...............           --        1,597
Other ........................................        5,477       10,194
                                                ------------ ------------
                                                    $20,190      $24,581
                                                ============ ============

                                                 Operating     Capital
Years Ending December 31,                          Leases       Leases
- ---------------------------------------         ------------ ------------
     2001 ....................................       $9,998          $82
     2002 ....................................       10,022           74
     2003 ....................................       10,031          --
     2004 ....................................        9,795          --
     2005 ....................................        8,939          --
     Thereafter ..............................       25,759          --
                                                ------------ ------------
Total minimum payments required ..............      $74,544         $156
                                                ============
Less amounts representing interest .........................          14
                                                             ------------
Present value of future lease payments .....................        $142
Less current portion .......................................          71
                                                             ------------
Long term portion ..........................................         $71
                                                             ============

                                                          December 31,
                                                   -------------------------
                                                       1999         2000
                                                   ------------ ------------

Preferred Stock
  Authorized shares, $.001 par value per share ..   10,000,000   10,000,000
  Shares issued and outstanding .................        --           --

Common Stock
  Authorized shares, $.001 par value per share ..  100,000,000  100,000,000
  Shares issued and outstanding .................   32,991,713   34,695,394

                                                 Options Outstanding
                                  Shares    -------------------------------
                                 Available    Number
                                   for          of
                                   Grant      Shares       Price Per Share
- ------------------------------- ----------- ----------- -------------------
Balances at December 31, 1997..  1,704,500   8,356,008    $0.28  -  $25.75
   Shares reserved ............  2,500,000        --
   Options granted ............ (7,744,071)  7,744,071    $3.69  -  $10.38
   Options forfeited ..........  5,511,630  (5,511,630)   $0.67  -  $25.75
   Options exercised ..........       --    (1,506,678)   $0.28  -   $5.34
   Plan shares expired ........   (548,870)       --
                                ----------- -----------
Balances at December 31, 1998..  1,423,189   9,081,771    $0.28  -  $18.15
   Shares reserved ............  2,500,000        --
   Options granted ............ (3,153,000)  3,153,000    $4.13  -   $6.63
   Options forfeited ..........  3,247,490  (3,247,490)   $0.28  -  $16.50
   Options exercised ..........       --    (1,617,776)   $0.28  -   $4.56
   Plan shares expired ........   (294,485)       --
                                ----------- -----------
Balances at December 31, 1999..  3,723,194   7,369,505    $0.28  -  $18.15
   Shares reserved ............    500,000        --
   Options granted ............ (5,643,578)  5,643,578    $1.75  -   $8.06
   Options forfeited ..........  2,227,709  (2,227,709)   $3.38  -  $16.50
   Options exercised ..........       --    (1,477,633)   $0.28  -   $8.50
   Plan shares expired ........   (128,390)       --
                                ----------- -----------
Balances at December 31, 2000..    678,935   9,307,741    $0.28  -  $18.15
                                =========== ===========

                                                    Options Vested and
                        Options Outstanding            Exercisable
                 --------------------------------- ---------------------
                              Weighted-
                               Average   Weighted-             Weighted-
                              Remaining   Average               Average
   Range of      Outstanding Contractual Exercise  Exercisable Exercise
 Exercise Prices  in shares     Life       Price    in shares    Price
- ---------------- ----------- ----------- --------- ----------- ---------
 $0.28 -  $3.93     967,494        7.32     $2.60     477,981     $2.46
 $3.94 -  $3.94   1,513,167        9.78     $3.94      --         $0.00
 $3.95 -  $4.50     569,407        8.62     $4.47     260,592     $4.48
 $4.51 -  $4.56   1,891,585        6.93     $4.56   1,244,981     $4.56
 $4.57 -  $6.88   1,358,688        8.93     $5.77     238,000     $5.48
 $6.89 -  $8.00   1,798,050        9.18     $7.74     331,250     $7.65
 $8.01 - $18.15   1,209,350        8.45     $9.55     326,313    $12.73
                 -----------                       -----------
Total             9,307,741        8.47     $5.69   2,879,117     $5.56
                 ===========                       ===========

                                                 Year Ended December 31,
                                             -----------------------------
                                                 1998      1999      2000
                                             --------- --------- ---------
Pro forma net income (loss).................  ($6,122)  $19,502  ($71,258)
Pro forma basic net income (loss) per share.   ($0.20)    $0.64    ($2.08)
Pro forma diluted net income (loss)
  per share.................................   ($0.17)    $0.63    ($2.08)

                                                  Year Ended December 31,
                                              -----------------------------
                                                  1998      1999      2000
                                              --------- --------- ---------
Net revenues (based on destination)
   United States ............................ $149,282  $121,449  $101,256
   International:
     Europe .................................   19,491    40,130    33,291
     Asia ...................................      233       818     1,387
     Canada .................................   20,491    10,390     5,854
     Australia...............................    5,980     5,718     3,901
                                              --------- --------- ---------
Total International .........................   46,195    57,056    44,433
                                              --------- --------- ---------
   Total consolidated net revenues .......... $195,477  $178,505  $145,689
                                              ========= ========= =========

Income (loss) from operations
   United States ............................  $78,105   $66,153   $43,545
   International:
     Europe .................................   10,179     8,742    10,811
     Asia ...................................     (392)     (135)      272
     Canada .................................   (3,109)    4,086      (756)
     Australia...............................    7,178     1,608       937
Corporate administrative and other expenses .  (77,160)  (83,612) (123,962)
                                              --------- --------- ---------
Total consolidated income (loss)
 from operations ............................  $14,801   ($3,158) ($69,153)
                                              ========= ========= =========
Identifiable assets
   United States ............................ $124,373  $144,276  $110,072
   International:
     Europe .................................   13,261    16,023    22,861
     Asia ...................................      242        60     1,428
     Canada .................................    9,407     4,100     3,433
     Australia...............................    3,502     4,442     2,938
                                              --------- --------- ---------
Total consolidated identifiable assets ...... $150,785  $168,901  $140,732

                                              ========= ========= =========

Net assets
   United States ............................  $68,739  $103,363   $51,951
   International:
     Europe .................................    6,757    10,558    13,085
     Asia ...................................     (138)       45       989
     Canada .................................    8,415     1,652     1,735
     Australia...............................    2,302     2,734     1,197
                                              --------- --------- ---------
Total consolidated net assets ...............  $86,075  $118,352   $68,957
                                              ========= ========= =========

                                                  Year Ended December 31,
                                              -----------------------------
                                                  1998      1999      2000
                                              --------- --------- ---------
Current:
   Federal ..................................     $484   $19,301  ($14,794)
   State and foreign ........................      385     4,506    (1,384)
                                              --------- --------- ---------
                                                   869    23,807   (16,178)
                                              --------- --------- ---------

Deferred:
   Federal ..................................      --     (8,384)    8,384
   State and foreign ........................     (419)   (1,128)    1,128
                                              --------- --------- ---------
                                                  (419)   (9,512)    9,512
                                              --------- --------- ---------
                                                  $450   $14,295   ($6,666)
                                              ========= ========= =========

                                                       Percentage
                                                  Year Ended December 31,
                                              -----------------------------
                                                  1998      1999      2000
                                              --------- --------- ---------
Federal statutory rate ......................     35.0 %    35.0 %    35.0 %
State taxes, net of federal benefit .........      0.4       3.0       1.4
Foreign taxes ...............................      --        7.3      (5.4)
FSC benefit .................................     (2.1)     (0.9)      --
Research and development credit .............      --       (3.7)      --
Utilization of TSW net operating loss
  carryforwards..............................    (33.6)     (5.0)      --
Reported losses and tax credits not benefited      --        --      (19.3)
Other .......................................      3.5       1.8      (1.2)
                                              --------- --------- ---------
                                                   3.2 %    37.5 %    10.5 %
                                              ========= ========= =========

                                                             December 31,
                                                        -------------------
                                                            1999      2000
                                                        --------- ---------

Accounts receivable allowances ........................   $2,322    $2,297
Tax over book depreciation.............................      396       603
Nondeductible accruals ................................    3,847     6,542
Deferred licensing fee revenue ........................    2,947     2,843
Net operating loss carryforwards ......................      --      2,792
Research and other credit carryforwards ...............      --      3,638
Foreign tax credits and losses ........................    5,182     8,735
                                                        --------- ---------
                                                          14,694    27,450
Valuation allowance ...................................   (5,182)  (27,450)
                                                        --------- ---------
                                                          $9,512        $0
                                                        ========= =========

                            Balance at Charged to Charges-    Balance
                            Beginning  Costs and     Add       at End
  Year       Description     of Year   Expenses  (Deduct)(1)  of Year
- --------- ----------------- ---------- --------- ----------- ----------
  2000    Allowance for
          doubtful accounts    $3,991     3,051      (1,663)    $5,379

  1999    Allowance for
          doubtful accounts    $3,578     2,478      (2,065)    $3,991

  1998    Allowance for
          doubtful accounts    $1,974     2,130        (526)    $3,578