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FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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

For the Quarterly Period Ended September 30, 2002

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-30389

EXE TECHNOLOGIES, INC.

8787 Stemmons Freeway
Dallas, Texas 75247
(Address including zip code of principal executive offices)

(214) 775-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES   X     NO      

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 31, 2002.

Common stock, $0.01 par value, 46,059,766 shares outstanding.

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

See accompanying notes.

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying notes.

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Principles of Consolidation and Basis of Presentation

     EXE Technologies, Inc. (the Company or EXE) provides software that drives customers’ supply chain execution processes, including fulfillment, warehousing, distribution, and inventory management. The accompanying unaudited consolidated financial statements include the accounts of EXE Technologies, Inc. and our majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

     The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year end financial statements. In the opinion of management, all adjustments (consisting only of normal recurring entries) considered necessary for a fair presentation of the results have been included for the interim periods presented. Operating results for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2002. These statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Form 10-K for the year ended December 31, 2001.

     Certain amounts in prior year financial statements have been reclassified to conform to current year presentation.

     On January 1, 2002, the Company adopted Financial Accounting Standards Board Staff Announcement Topic No. D-103, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred.” As a result, the Company began recording revenue and a related cost of revenue in its statement of operations for reimbursable expenses such as airfare, hotel lodging, meals, auto rental and other charges related to providing services to our customers. Prior to the adoption of this standard, the Company recorded these expense reimbursements as a reduction of expenses. The Company’s prior period financial statements have been reclassified to comply with the new standard.

     Effective January 1, 2002, the Company adopted Emerging Issues Task Force (EITF) 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products". EITF 00-25 requires consideration paid to resellers of the Company’s products be recorded as a reduction in revenue. The application of this EITF does not result in any impact to operating or net income (loss) in any past or future periods. The Company’s prior period financial statements have been reclassified to comply with the new standard.

     In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective for fiscal years beginning after December 15, 2001. This statement establishes new rules for determining impairment of certain other long-lived assets, including intangible assets subject to amortization, property and equipment and long-lived prepaid assets. The adoption of this standard did not have an effect on the operating results or the financial position of the Company.

     In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities, such as restructuring, involuntarily terminating employees and consolidating facilities. SFAS No. 146 excludes from its scope exit and disposal

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. Principles of Consolidation and Basis of Presentation (continued)

activities conducted in connection with a business combination and those activities to which SFAS No. 143 and 144 are applicable. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. We do not expect the adoption of this statement to have a material effect on our consolidated financial position or results of operations.

2. Net Loss Per Share

     The Company computes net income (loss) per share in accordance with the provisions of SFAS No. 128, “Earnings per Share.” Basic net income (loss) per common share is computed using the weighted average number of shares of common stock outstanding during each period.

     Diluted net income (loss) per common share is computed using the weighted average number of shares of common stock outstanding during each period and common equivalent shares consisting of preferred stock, warrants and stock options (using the treasury stock method), if dilutive. Diluted loss per common share is the same as basic loss per common share for all periods presented because all potentially dilutive securities were anti-dilutive. The following table sets forth anti-dilutive securities which have been excluded from diluted earnings per share for the periods presented:

3. Comprehensive Loss

     Comprehensive loss includes foreign currency translation gains (losses) and unrealized gains (losses) on securities available for sale. The following table sets forth the calculation of comprehensive loss for the periods presented:

4. Derivative Financial Instruments

     The Company hedges certain nonfunctional currency exposure. Forward currency exchange contracts are utilized by the Company to reduce foreign currency exchange and interest rate risks with the goal of

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

4. Derivative Financial Instruments (continued)

offsetting foreign currency transaction gains and losses recorded for accounting purposes with gains and losses realized on the forward contracts. The Company does not hold derivative financial instruments for trading or speculative purposes.

     As of September 30, 2002, the Company had outstanding forward currency exchange contracts of $2.0 million to sell British Pounds Sterling and $2.5 million to sell Japanese yen which hedge net balance sheet exposures. Gains and losses arising from the changes in the fair value of forward currency exchange contracts are recognized as a component of other income (expense). At September 30, 2002, the current market settlement values of the forward contracts would be immaterial.

5. Intangible Assets and Goodwill

     In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets,” effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with these statements. Other intangible assets will continue to be amortized over their useful lives.

     The Company completed the transitional impairment test for its enterprise goodwill and determined that no impairment loss should be recorded as of January 1, 2002. During the third quarter of 2002, the Company's market capitalization declined to a level that is less than the Company's net book value. The Company's required annual analysis of the impairment to be performed under SFAS No. 142 will be performed in the fourth quarter of each calendar year. If the Company's market capitalization remains at a level less than the Company's net book value, the Company believes that an impairment charge will likely be required.

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

5. Intangible Assets and Goodwill (continued)

     The Company has applied the new rules on accounting for goodwill and other intangible assets beginning January 1, 2002. With the application of the nonamortization provisions of SFAS No. 142, the Company ceased amortization of goodwill as of January 1, 2002. The following table presents the quarterly results of the Company on a comparative basis assuming the nonamortization provisions of SFAS No. 142 were effective January 1, 2001:

     Intangible assets as of December 31, 2001 and September 30, 2002 were as follows:

     In July 2002, the Company acquired developed software technology assets for an order analysis and planning system for $1.0 million. The acquisition price will be paid quarterly in four consecutive equal installments beginning in the third quarter of 2002, and the intangible assets associated with this acquisition will be amortized over a three year period.

     Amortization expense related to intangible assets totaled $0.4 million and $0.3 million during the three months ended September 30, 2001 and 2002, respectively, and $1.2 million and $0.9 million during the nine months ended September 30, 2001 and 2002, respectively. Intangible assets with definite useful lives are amortized on a straight-line basis. The weighted average amortization period is five years for developed

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

5. Intangible Assets and Goodwill (continued)

and acquired technology and six years for customer base. The estimated aggregate future amortization expense for intangible assets remaining as of September 30, 2002 is as follows:

6. Segment Information

     The Company provides software that drives customers’ supply chain execution processes, including fulfillment, warehousing, distribution, and inventory management. All financial information is reviewed on a consolidated basis with additional information by geographic region used to make operating decisions and assess the results of the Company. Total assets are presented net of intercompany receivables and payables. The Company’s geographic information as of and for the three and nine months ended September 30, 2001 and 2002 is as follows:

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. Warrants Granted to IBM

     In September 2002, the Company expanded its strategic relationship with IBM. One of the key elements of the expanded relationship was the issuance of 1,000,000 warrants to IBM to purchase the Company’s common stock at an exercise price of $0.01 per share. The warrants are exercisable over a five-year period and will vest over a three-year period based on IBM’s generation of pre-established amounts of incremental software license revenue for the Company. At September 30, 2002, none of the warrants were vested or exercisable.

8. Line of Credit

     In October 2002, the Company entered into a revolving line of credit agreement with a financial institution under which the Company can borrow up to $10.0 million over a two-year period. The agreement contains certain financial covenants, including minimum cash and marketable securities balances, and the facility is secured with all of the Company’s tangible assets. Borrowings for half of the revolving credit line will be based on a defined borrowing base, while the balance does not contain this restriction. Interest on any borrowings will be at the prime rate, and the Company will pay a fee on the unused portion of the line of credit of 0.375% per annum.

9. Commitments and Contingencies

     The Company is involved in various legal actions and claims which arise in the normal course of business. In the opinion of management, the final disposition of these matters will not have a material adverse effect on the Company’s business, financial condition, cash flows or results of operations. The Company establishes accruals for losses related to such matters that are probable and reasonably estimable. However, an unfavorable outcome of some or all of these matters could have a material effect on the Company’s business, financial condition, cash flows and results of operations.

10. Estimated Provisions for Lease Abandonment, Employee Severance and Other Costs

     During the year ended December 31, 2001, the Company announced and implemented plans to reduce costs and improve operating efficiency. Provisions for estimated losses on lease abandonment and employee severance and other facility closure costs was $14.3 million for the year ended December 31, 2001, of which approximately $9.9 million was recognized during the nine months ended September 30, 2001. These estimated charges included: (a) $10.2 million and $7.4 million in abandonment of certain leased office space less estimated sublease rentals at facilities in North America and in Europe for the year ended December 31, 2001 and the nine months ended September 30, 2001, respectively, (b) $3.5 million and $2.4 million for severance and other employee related costs for the termination of 233 and 137 employees for the year ended December 31, 2001 and the nine months ended September 30, 2001, respectively, and (c) $0.6 million and $0.1 million for disposal of fixed assets, abandonment of leased equipment and other facility closure costs for the year ended December 31, 2001 and the nine months ended September 30, 2001, respectively.

     In response to the continued global slowdown in customer spending for large-scale IT projects, the Company launched additional cost reduction actions at the end of the second quarter of 2002. These actions, which include the consolidation of the U.S. professional services and development activities into one location in Dallas and the expansion of the Company’s offshore development operations, resulted in estimated

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

10. Estimated Provisions for Lease Abandonment, Employee Severance and Other Costs (continued)

provisions of approximately $6.5 million. These provisions consisted of approximately $1.4 million for estimated severance and other employee related costs for the termination of approximately 60 services, sales and marketing, development and administrative employees and approximately $1.1 million for the estimated loss on the abandonment of leased office space in Philadelphia. Additionally, the Company provided $2.9 million for additional estimated losses associated with facilities previously abandoned and $1.1 million in other facility closure costs primarily for the write-down of property and equipment.

     The Company has made cash payments of approximately $7.3 million against the reserves established for these various cost reduction actions. The remaining liability at September 30, 2002 is approximately $12.4 million, of which $8.8 million is long-term and is expected to be paid through 2009. These reserves include estimates pertaining to sublease rates, vacancy periods, employee separation costs and settlement of contractual obligations. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates.

11. Related Party

     In accordance with an amended employment agreement with the Company’s former Chief Financial Officer dated February 19, 2002, the Company forgave an outstanding loan of approximately $277,000 on July 1, 2002. Accordingly, the outstanding balance was charged against operating results during the six months ended June 30, 2002.

12. Subsequent Events

     On November 14, 2002, the Company announced, subject to stockholder approval, a reverse stock split which would result in each stockholder receiving one share of common stock for a range of every five (1:5) up to fifteen (1:15) common shares currently held. It is currently expected that the stockholder meeting to approve the reverse stock split will be held in early January 2003.

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

Management’s discussion and analysis of the financial condition and results of operations should be read in conjunction with the Certain Factors That May Affect Future Results included elsewhere in this Form 10-Q and the Company’s Critical Accounting Policies and Estimates included in the Company’s Form 10-K for the year ended 2001.

Overview

     EXE Technologies, Inc. provides software that drives customers’ supply chain execution processes, including fulfillment, warehousing, distribution, and inventory management. Our software solutions deliver the vital, frontline supply chain intelligence necessary to drive customer execution decisions and processes. Our products and services help customers worldwide to increase revenue, reduce distribution costs, manage inventory across the supply chain, and improve customer loyalty and satisfaction. We provide global service and support for our software from established facilities in North America, Europe, the Middle East, Asia, and Australia.

     We derive our revenue from the sale of software licenses; product related consulting, training, maintenance and support (collectively, “services and maintenance”); and the resale of software and equipment.

     Our revenues have been adversely impacted by a global slowdown in customer spending for large-scale IT projects during 2001 and 2002. This global slowdown began to adversely impact our revenues in early 2001 and was impacted further by the terrorist attacks upon the United States on September 11, 2001. While the global economic environment for large-scale IT projects remains challenging, we have remained focused on improving our performance through better sales execution and expanded product offerings, while significantly reducing global operating costs. At the end of the second quarter of 2002, we made the decision to take significant additional cost reduction actions, including the consolidation of our U.S. development and professional services operations in Dallas and expansion of our offshore development activities. These actions are expected to reduce operating costs in the future. We do not expect the full benefit of these actions to be achieved until the first quarter of 2003. The cost reduction actions resulted in special charges of approximately $6.5 million in the second quarter of 2002. The special charges included estimated severance and related costs and lease abandonment costs related to the closure of our Philadelphia office and a provision for additional estimated losses associated with facilities previously abandoned.

     The benefits from these cost reduction measures began in the three months ended September 30, 2002 as expenses for cost of services and maintenance, sales and marketing, research and development, and general and administrative declined approximately $0.9 million from the expense level during the three months ended June 30, 2002. In early October 2002, we signed a three-year offshore development agreement in accordance with our cost reduction plans. The arrangement provides offshore development resources in India at a cost lower than we have been historically incurring in the United States. We expect future reductions in research and development expenses after a transition period during the fourth quarter of 2002.

     We have reduced our full time employee headcount from 630 at the beginning of 2001 to 459 at the end of September 2002. The cost reduction actions taken at the end of June 2002 have resulted in a reduction of 20 employees through September 30, 2002 and further reductions are expected by the first quarter of 2003.

     We will continue to review and evaluate our cost structure in the future in light of the existing business environment. Further cost reduction actions will be taken, should business volumes not improve.

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     In October 2002, we were notified by the NASDAQ Stock Market, Inc. that our common stock price had failed to maintain a minimum closing bid price greater than or equal to $1.00 for 30 consecutive trading days. This failure to comply with this requirement for continued listing on the NASDAQ National Market subjects our common stock to possible delisting. In accordance with NASDAQ rules, we have 90 calendar days, or until January 21, 2003, to regain compliance with the minimum closing bid requirements.

     In order to regain compliance with the minimum closing bid price requirements, on November 14, 2002, the Company announced, subject to stockholder approval, a reverse stock split (see Note 12 to the Consolidated Financial Statements included elsewhere herein).

Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial condition and the results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make judgments regarding estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases its judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not apparent from other sources. Although management evaluates these judgments on an ongoing basis, there can be no assurance that actual results will not ultimately differ from those estimates. For a more detailed explanation of these judgments, including our judgments relating to revenue recognition, allowance for doubtful accounts and adjustments, goodwill and intangible impairment, accruals for lease abandonment and employee termination costs, related party transactions, and contingencies you may refer to our Annual Report on Form 10-K for the year ended December 31, 2001.

Results of Operations

Three Months Ended September 30, 2002 Compared to the Three Months Ended September 30, 2001

Revenue

     Total Revenue. Total revenue declined $6.2 million, or 26.9%, to $16.7 million for the three months ended September 30, 2002, from $22.9 million for the three months ended September 30, 2001. International revenue accounted for 55.0% of total revenue during the three months ended September 30, 2002 and 48.3% of total revenue during the three months ended September 30, 2001. No single customer accounted for more than 10.0% of total revenue during the three months ended September 30, 2002 or 2001.

     In September 2002, the Company expanded its strategic relationship with IBM. One of the key elements of the expanded relationship was the issuance of 1,000,000 warrants to IBM to purchase the Company’s common stock at an exercise price of $0.01 per share. The warrants are exercisable over a five-year period and will vest over a three-year period based on IBM’s generation of pre-established amounts of incremental software license revenue for the Company.

     Software License. Software license revenue decreased $2.2 million, or 45.4%, to $2.7 million for the three months ended September 30, 2002, from $4.9 million for the three months ended September 30, 2001. Software license revenue as a percentage of total revenue excluding reimbursable expenses was 16.5% for the three months ended September 30, 2002 versus 22.1% for the three months ended September 30, 2001. We believe these declines continue to reflect the global slowdown in customer spending for large-scale IT projects that began during 2001 and has extended into fiscal year 2002. When compared with the

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prior year, the largest decline in license revenue occurred in our Asia Pacific region. Software license revenue declined $0.4 million or 13.7% when compared with the preceding three months ended June 30, 2002. This decline was attributed to lower license revenue in our North America and Asia Pacific regions.

     Services and Maintenance. Services and maintenance revenue declined $2.6 million, or 17.5%, to $12.3 million for the three months ended September 30, 2002 from $14.9 million for the three months ended September 30, 2001. Services and maintenance revenue as a percentage of total revenue excluding reimbursable expenses was 75.4% for the three months ended September 30, 2002 versus 66.8% for the three months ended September 30, 2001. We believe the global slowdown in customer spending for large-scale IT projects has adversely impacted our ability to generate new license revenue resulting in a shift in our revenue mix. This decline in new projects from new license revenue has contributed to the decline in services and maintenance revenue. Most of the decline was in our North America and Asia Pacific regions since these areas have been the most adversely affected by license revenue declines. Revenues from consulting services have declined 27.7% when compared to the same three month period of the prior year and is largely attributed to the continued decline of consulting revenue from our EXceed Fulfill WMS Unix-based products. In addition, revenues from the AllPoints product line have declined approximately $0.9 million as a result of our November 2001 decision to no longer sell and market these products. Services and maintenance revenue declined $0.5 million or 4.3% when compared to the preceding three months ended June 30, 2002. This decline is attributed to the European vacation season and decreased consulting revenues in Japan.

     Resale Software and Equipment. Resale software and equipment revenue decreased $1.2 million, or 46.7%, to $1.3 million for the three months ended September 30, 2002, from $2.5 million for the three months ended September 30, 2001. Resale software and equipment as a percentage of total revenue excluding reimbursable expenses was 8.1% for the three months ended September 30, 2002 versus 11.1% for the three months ended September 30, 2001. Resale software and equipment revenue decreased $0.7 million or 34.0% when compared with the preceding three months ended June 30, 2002. This decrease is attributed to a decline in resale revenues from our North American region.

Costs and Expenses

     Cost of Software Licenses. Cost of software licenses consists primarily of royalties associated with software used to develop our software products, the cost of reproduction, and the cost of complementary software applications that we purchase to sell to our customers. Cost of software licenses represented 8.8% of software license revenue for the three months ended September 30, 2002 and 6.5% for the three months ended September 30, 2001. The increase in cost of software licenses as a percentage of software license revenue was attributed to an increase in purchasing of complementary software that was sold during the three months ended September 30, 2002.

     Cost of Services and Maintenance. Cost of services and maintenance consists primarily of salaries of professional staff and costs associated with implementation, consulting and training services, hotline telephone support, new releases of software and updating user documentation. Cost of services and maintenance declined $1.6 million, or 17.2%, to $7.9 million for the three months ended September 30, 2002, from $9.5 million for the three months ended September 30, 2001. The decrease was related primarily to a reduction in the number of full time and contract services and maintenance employees. Cost of services and maintenance decreased $0.2 million or 2.3% when compared to the preceding three months ended June 30, 2002. As a percentage of services and maintenance revenue, cost of services and maintenance was approximately 64.0% for the three months ended September 30, 2002 and for the three months ended September 30, 2001 and was slightly increased from 62.7% for the three months ended June 30, 2002. The increase in cost as a percentage of services and maintenance revenue was largely due primarily to a decline in utilization attributed to the traditional third quarter European vacation season.

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     Cost of Resale Software and Equipment. Cost of resale software and equipment consists primarily of the costs of the database software tools and hardware we purchase to resell to our customers. Cost of resale software and equipment decreased $1.1 million, or 49.3%, to $1.0 million for the three months ended September 30, 2002, from $2.1 million for the three months ended September 30, 2001. As a percentage of resale software and equipment revenue, cost of resale software and equipment was 81.8% for the three months ended September 30, 2002, 86.2% for the three months ended September 30, 2001 and 82.8% for the three months ended June 30, 2002. The decrease in cost of resale as a percentage of resale software and equipment revenue was largely attributed to the increase in revenues obtained from commissions earned on resale referrals.

     Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions, bonuses, recruiting costs, travel, marketing materials and trade shows. Sales and marketing expenses decreased $1.7 million, or 28.0%, to $4.5 million for the three months ended September 30, 2002, from $6.2 million for the three months ended September 30, 2001. The decrease was related primarily to a 26.4% reduction in the number of sales and marketing employees and to lower commission expenses for sales staff and partners as a result of lower software license revenues. As a percentage of total revenue excluding reimbursable expenses, sales and marketing expenses remained steady at 27.5% for the three months ended September 30, 2002, 27.9% for the three months ended September 30, 2001, and 27.4% for the three months ended June 30, 2002. Sales and marketing expenses decreased $0.4 million or 8.8% when compared with the preceding three months ended June 30, 2002 primarily due to reduced staff headcount and lower commission expenses as a result of lower software license revenues.

     Research and Development. Research and development expenses consist primarily of salaries and other personnel-related costs for our product development activities. Research and development expenses decreased $0.6 million, or 18.1%, to $2.9 million for the three months ended September 30, 2002, from $3.5 million for the three months ended September 30, 2001. The decrease in research and development expenses was largely due to efforts to improve the utilization of development staff on billable service projects and lower travel and equipment costs as a result of our decision to close the Philadelphia facility in June of 2002. As a percentage of total revenue excluding reimbursable expenses, research and development expenses increased to 17.5% for the three months ended September 30, 2002, from 15.6% for the three months ended September 30, 2001, and from 16.2% for the three months ended June 30, 2002. Research and development expenses slightly decreased $0.1 million or 1.9% when compared with the preceding three months ended June 30, 2002. As part of our cost reduction program, we have signed a three-year agreement with a company to provide offshore development resources in India at a cost that will be lower than our historic development costs. Due to transitional costs in the final quarter of this year, reduced research and development costs from the closure of our Philadelphia development operations and the outsourcing of development from the offshore development contract are not expected to be fully realized until the first quarter of next year.

     General and Administrative. General and administrative expenses consist primarily of salaries and other personnel-related costs of our finance, human resources, information systems, administrative, legal and executive departments, insurance costs and the costs associated with legal, accounting, and other administrative services. General and administrative costs decreased $1.4 million, or 32.5%, to $2.8 million for the three months ended September 30, 2002, from $4.2 million for the three months ended September 30, 2001. The decrease in general and administrative expenses was due primarily to a 26.5% reduction in the number of general and administrative employees and contractors. As a percentage of total revenue excluding reimbursable expenses, general and administrative expenses decreased to 17.2% for the three months ended September 30, 2002, from 18.7% for the three months ended September 30, 2001, and increased from 16.8% for the three months ended June 30, 2002. General and administrative expenses decreased $0.2 million or 6.9% when compared with the preceding three months ended June 30, 2002 primarily due to efforts to reduce contractor expenses and from reduced depreciation expense caused by

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property and equipment write-offs associated with the facility closure actions during the three months ended June 30, 2002. In November 2002, we hired a new Chief Executive Officer. The existing Chief Executive Officer will continue with the Company as Chairman of the Board of Directors. As a result, we expect general and administrative expenses will increase in the future.

     Amortization of Goodwill and Intangible Assets. Amortization of goodwill and intangible assets relates primarily to assets acquired in connection with the 1997 acquisition of Dallas Systems and the 2001 acquisition of AllPoints. Amortization of goodwill and intangible assets decreased $2.0 million to $0.3 million for the three months ended September 30, 2002, from $2.3 million for the three months ended September 30, 2001, and is consistent with $0.3 million for the three months ended June 30, 2002. Of the decline from the prior year, $1.3 million of the decline is attributed to the goodwill and intangible impairment write-off of AllPoints at the end of 2001 and approximately $0.8 million is attributed to the implementation in the current year of Statement of Financial Accounting Standards Board (SFAS) No. 142, Goodwill and Other Intangible Assets, which directs that goodwill and intangible assets which are deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. In November of 2001 and July of 2002, we acquired a total of $2.0 million of developed software technology that has resulted in $0.1 million in amortization during the three months ended September 30, 2002.

     Non-Cash Warrant and Stock Compensation. Non-cash warrant and stock compensation expense relates to the amortization of deferred compensation recorded primarily in connection with stock options granted to employees. The deferred compensation recorded represented the difference between the exercise price and the deemed fair value of our common stock on the date of grant of these options. Non-cash warrant and stock compensation expense decreased $0.2 million to $0.2 million for the three months ended September 30, 2002, from $0.4 million for the three months ended September 30, 2001, and $0.3 million for the three months ended June 30, 2002.

     Other Income (Expense). Other income (expense) consists of gains and losses from currency fluctuations, interest expense, and interest income on investments. Other income decreased $0.5 million to an income of $0.2 million for the three months ended September 30, 2002, from an income of $0.7 million for the three months ended September 30, 2001. The decrease was due primarily to $0.2 million decline in foreign exchange gains and a decrease in interest income of $0.3 million due to a decline in interest rates and a decline in funds held in marketable securities during the three months ended September 30, 2002. Other income (expense) declined $0.9 million when compared with the preceding three months ended June 30, 2002 primarily due to foreign exchange gains during the three months ended June 30, 2002. Although we periodically buy forward contracts to hedge against certain foreign currency fluctuations, we may have foreign currency gains and losses that can significantly vary from quarter to quarter.

     Income Taxes. An income tax provision of $0.1 million was recognized during the three months ended September 30, 2002 compared to no income tax provision or benefit during the same period of 2001. The income tax provision was primarily due to tax on income earned by foreign subsidiaries while corresponding domestic tax benefit generated by foreign tax credits was not recognized due to the uncertainty of the timing and amount of future taxable income.

Nine Months Ended September 30, 2002 Compared to the Nine Months Ended September 30, 2001

Revenue

     Total Revenue. Total revenue decreased $23.7 million, or 30.2%, to $54.8 million for the nine months ended September 30, 2002, from $78.5 million for the nine months ended September 30, 2001. International revenue accounted for 52.9% of total revenue during the nine months ended September 30,

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2002 and 45.6% of total revenue during the nine months ended September 30, 2001. No single customer accounted for more than 10.0% of total revenue during the nine months ended September 30, 2002 or 2001.

     Software License. Software license revenue decreased $10.5 million, or 51.3%, to $10.0 million for the nine months ended September 30, 2002, from $20.5 million for the nine months ended September 30, 2001. Software license revenue as a percentage of total revenue excluding reimbursable expenses was 18.7% for the nine months ended September 30, 2002 versus 26.8% for the nine months ended September 30, 2001. We believe these declines were primarily attributed to the global slowdown in customer spending for large-scale IT projects that began during 2001 and has extended into fiscal year 2002.

     Services and Maintenance. Services and maintenance revenue decreased $12.3 million, or 25.0%, to $37.0 million for the nine months ended September 30, 2002 from $49.3 million for the nine months ended September 30, 2001. Services and maintenance revenue as a percentage of total revenue excluding reimbursable expenses was 69.3% for the nine months ended September 30, 2002 versus 64.6% for the nine months ended September 30, 2001. We believe the global slowdown in customer spending for large-scale IT projects has adversely impacted our ability to generate new license revenue resulting in a shift in our revenue mix. This decline in new projects from new license revenue has contributed to the decline in services and maintenance revenue. The decline occurred in our North America and Asia Pacific regions since these areas have been the most adversely affected by license revenue declines. Revenues from consulting services have declined 34.3% when compared to the same nine month period of the prior year and is largely attributed to the continued decline of consulting revenue from our EXceed Fulfill WMS Unix-based products. In addition, revenues from the AllPoints product line have declined approximately $2.2 million as a result of our November 2001 decision to no longer sell and market these products.

     Resale Software and Equipment. Resale software and equipment revenue decreased $0.2 million, or 2.5%, to $6.4 million for the nine months ended September 30, 2002, from $6.6 million for the nine months ended September 30, 2001. Resale software and equipment as a percentage of total revenue excluding reimbursable expenses increased to 12.0% for the nine months ended September 30, 2002 from 8.6% for the nine months ended September 30, 2001. This increase was due to improved resale revenue from Europe that accompanied a large new license and services contract during the first quarter of 2002.

Costs and Expenses

     Cost of Software Licenses. Cost of software licenses represented 4.4% of software license revenue for the nine months ended September 30, 2002 and 2.2% for the nine months ended September 30, 2001. The increase in cost of software licenses as a percentage of software license revenue was attributed to an increase in purchasing of complementary software that was sold during the nine months ended September 30, 2002.

     Cost of Services and Maintenance. Cost of services and maintenance decreased $8.0 million, or 25.0%, to $24.1 million for the nine months ended September 30, 2002, from $32.1 million for the nine months ended September 30, 2001. The decrease was related primarily to a reduction in the number of full time and contract services and maintenance employees. As a percentage of services and maintenance revenue, cost of services and maintenance was 65.1% for the nine months ended September 30, 2002 and 2001.

     Cost of Resale Software and Equipment. Cost of resale software and equipment decreased $0.1 million, or 2.5%, to $5.3 million for the nine months ended September 30, 2002, from $5.4 million for the nine months ended September 30, 2001. As a percentage of resale software and equipment revenue, cost of resale software and equipment was 82.7% for the nine months ended September 30, 2002 and 2001.

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     Sales and Marketing. Sales and marketing expenses decreased $6.4 million, or 30.8%, to $14.4 million for the nine months ended September 30, 2002, from $20.8 million for the nine months ended September 30, 2001. The decrease was related primarily to a reduction in the number of sales and marketing employees and to lower commission expenses for sales staff and partners as a result of lower software license revenues. As a percentage of total revenue excluding reimbursable expenses, sales and marketing expenses decreased to 27.1% for the nine months ended September 30, 2002, from 27.3% for the nine months ended September 30, 2001.

     Research and Development. Research and development expenses decreased $2.5 million, or 22.2%, to $8.8 million for the nine months ended September 30, 2002, from $11.3 million for the nine months ended September 30, 2001. The decrease in research and development expenses was due primarily to a reduction in the number of research and development employees and contractors. As a percentage of total revenue excluding reimbursable expenses, research and development expenses increased to 16.5% for the nine months ended September 30, 2002, from 14.8% for the nine months ended September 30, 2001. The increase was primarily due to lower revenue we have experienced since the beginning of the slowdown in global IT spending.

     General and Administrative. General and administrative costs decreased $5.2 million, or 36.6%, to $9.0 million for the nine months ended September 30, 2002, from $14.2 million for the nine months ended September 30, 2001. The decline in general and administrative expenses was largely due to a reduction in the number of general and administrative employees and contractors. As a percentage of total revenue excluding reimbursable expenses, general and administrative expenses decreased to 16.9% for the nine months ended September 30, 2002, from 18.6% for the nine months ended September 30, 2001.

     Amortization of Goodwill and Intangible Assets. Amortization of goodwill and intangible assets decreased $5.6 million to $0.9 million for the nine months ended September 30, 2002, from $6.5 million for the nine months ended September 30, 2001. Of the decline from the prior year, $3.4 million of the decline is attributed to the goodwill and intangible impairment write-off of AllPoints at the end of 2001 and approximately $2.5 million is attributed to the implementation in the current year of Statement of Financial Accounting Standards Board (SFAS) No. 142, Goodwill and Other Intangible Assets, which directs that goodwill and intangible assets which are deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. In November of 2001 and July of 2002, we acquired a total of $2.0 million of developed software technology that has resulted in $0.3 million in amortization during the nine months ended September 30, 2002.

     Non-Cash Warrant and Stock Compensation. Non-cash warrant and stock compensation expense decreased $0.6 million to $0.7 million for the nine months ended September 30, 2002, from $1.3 million for the nine months ended September 30, 2001. The decline primarily was attributed to employee reductions and the associated cancellation of the remaining vesting of options.

     Estimated Provisions for Lease Abandonment, Employee Severance and Other Facility Closure Costs. In response to the continued global slowdown in customer spending for large-scale IT projects, we launched additional cost reduction actions during the three months ended June 30, 2002. These actions, which include the consolidation of the U.S. professional services and development activities into one location in Dallas and the expansion of our offshore development operations, resulted in a charge of approximately $6.5 million. These provisions consisted of approximately $1.4 million for estimated severance and other employee related costs for the termination of approximately 60 services, sales and marketing, development and administrative employees and approximately $1.1 million for the estimated loss on the abandonment of leased office space in Philadelphia. Additionally, we provided $2.9 million for additional estimated losses associated with facilities previously abandoned and $1.1 million in other facility closure costs primarily for the write-down of property and equipment.

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     During the nine months ended September 30, 2001, we implemented cost reduction plans and recorded a pretax charge of $9.9 million that included approximately $2.4 million for severance and other employee related costs for the termination of 137 services, sales and marketing, development and administrative employees, $7.4 million for the abandonment of certain leased office space, less estimated sublease recoveries, at our North American and United Kingdom facilities, and $0.1 million for other costs associated with the downsizing of operations at our Hong Kong office.

     These provisions are based on management’s judgment of the estimated costs related to the severance, lease abandonments and other related costs. Actual future costs could vary from these estimates and result in additional provisions in the future.

     Other Income (Expense). Other income decreased $0.2 million to an income of $1.5 million for the nine months ended September 30, 2002, from an income of $1.7 million for the nine months ended September 30, 2001. The decrease was due primarily to a $1.2 million decline in interest income caused by a decline in interest rates and a decline in funds held in marketable securities during the nine months ended September 30, 2002. This decrease was offset by and increase of $1.0 million from foreign exchange gains. Although we periodically buy forward contracts to hedge against foreign currency fluctuations, we may have foreign currency gains or losses that can significantly vary from quarter to quarter.

     Income Taxes. An income tax provision of $0.3 million was recognized during the nine months ended September 30, 2002 compared to $0.2 million tax provision during the same period of 2001. The income tax provisions were primarily due to taxes on income earned by foreign subsidiaries while corresponding domestic tax benefits generated by foreign tax credits was not recognized due to the uncertainty of the timing and amount of future taxable income.

Liquidity and Capital Resources

     We have funded our operations through the issuance of our preferred and common stock, bank borrowings and cash flow from operations. As of September 30, 2002 we had approximately $42.5 million in cash and marketable securities, including long-term marketable securities, a decline of approximately $2.8 million during the first nine months of 2002.

     Net cash used by operating activities was $1.2 million for the nine months ended September 30, 2002. The net loss after deducting non-cash adjustments was approximately $8.1 million. This net cash use was significantly offset by cash generated from changes in operating assets and liabilities of approximately $6.9 million. Accounts receivable declined approximately $7.8 million, resulting from an improvement in our receivable days outstanding from 121 days at the end of 2001 to 80 days at the end of the third quarter of 2002. Additionally, accrued liabilities grew by approximately $1.3 million and deferred revenues increased by approximately $1.1 million. Prepaids and other current assets increased by $2.9 million due primarily to prepayment of insurance premiums, including director and officer liability insurance. Net cash used in operating activities was $7.7 million for the comparable nine months ended September 30, 2001.

     Net cash used in investing activities was $0.3 million for the nine months ended September 30, 2002. We acquired the rights to certain developed software technology, during the third quarter of 2002, for $1.0 million (see Note 5 to the consolidated financial statements included elsewhere herein) and purchased property and equipment of $0.6 million. Additionally, we generated approximately $1.4 million of cash from net sales of marketable securities. Net cash used in investing activities was $1.3 million for the comparable nine months ended September 30, 2001. We believe that capital expenditures over the next twelve months will not exceed $1.0 million.

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     Net cash provided by financing activities was less than $0.1 million for the nine months ended September 30, 2002. We generated cash of $0.4 million from the issuance of common stock and reduced long-term debt by approximately $0.4 million. Net cash provided by financing activities was $0.4 million for the comparable nine months ended September 30, 2001.

     In October 2002, we entered into a revolving line of credit agreement with a financial institution under which we can borrow up to $10.0 million over a two-year period. The agreement contains certain financial covenants, including minimum cash and marketable securities balances, and the facility is secured with all of our tangible assets. Borrowings for half of the revolving credit line will be based on a defined borrowing base, while the balance does not contain this restriction. Interest on any borrowings will be at the prime rate, and we will pay a facility fee on the unused portion of the line of credit of 0.375% per annum.

     We currently have operating lease obligations of approximately $44.2 million, of which $5.0 million is payable over the next year and the balance is due over an additional 13 years. Certain of the leases are abandoned and provisions have been made for the estimated losses on these leases (see Note 10 to the consolidated financial statements included elsewhere herein), but cash payments will be required for the remainder of the existing lease obligations. In October 2002, we agreed to pay the landlord of our abandoned Philadelphia facility $0.4 million in early 2003 to terminate the facility lease. If we are able to reach a settlement with the lessors of other abandoned facilities on terms favorable to the Company within the next twelve months, additional settlement payments might be required which could be considerably higher than the scheduled lease payments during that period.

     Although we expect to continue to use some cash over the next six months due to operating losses, severance and facility related costs associated with the cost reduction actions taken at the end of the second quarter of 2002 and certain other expenditures previously discussed, we believe that our existing working capital and the availability of cash under the new revolving credit line will be sufficient to fund our operations for at least the next year. However, there can be no assurance that we will not require additional financing in the future. We cannot be sure that we will be able to obtain any additional required financing or that, if we can, the terms will be acceptable to us.

     We do not engage in any activities involving special purpose entities or off-balance sheet financing.

Forward-Looking Statements

     In addition to historical information, this filing and our Annual Report on Form 10-K may contain forward-looking statements. Any statements contained herein (including without limitation statements to the effect that the Company or its management “believes,” “expects,” “anticipates,” “plans,” and similar expressions) that relate to future events or conditions, including, among others, statements relating to economic conditions, sales execution, cost reduction and restructuring actions and their impact on earnings and cash flows, sufficiency of working capital, accounting for goodwill and other intangible assets, interest rate risk, the enhancement of the Company’s software and a reverse stock split should be considered forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Certain Factors That May Affect Future Results” below. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. The Company undertakes no obligations to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, future events, or otherwise.

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Certain Factors That May Affect Future Results

Risks Relating to Our Business

Our customers may continue to delay or cancel spending on software and services because of the current economic climate.

     Since the beginning of 2001, some companies have experienced financial difficulties or uncertainty and, as a result, have delayed or canceled spending on information technology projects such as fulfillment software and services. If companies continue to delay, or cancel, their information technology initiatives because of the current economic climate, or for other reasons, our business, financial condition and results of operations could be materially adversely affected.

We can give you no assurance that we will be able to maintain or grow our level of revenue or achieve profitability in the future.

     Our future operating results may be affected by any of the following factors:

•		a continued decline in general economic conditions;
•		the level of market acceptance of, and demand for, our software;
•		the overall growth rate of the markets in which we compete;
•		our competitors’ products and prices;
•		our ability to establish strategic marketing relationships;
•		our ability to develop and market new and enhanced products;
•		our ability to successfully train alliance companies and consulting organizations;
•		our ability to control costs;
•		changes in our products and services mix; and
•		our ability to train and expand our direct sales force and indirect distribution channels worldwide.

We may not be profitable in the future.

     With the exception of the third and fourth quarters of the year ended December 31, 2000, we have experienced quarterly and annual losses since the formation of EXE in September 1997. We experienced net losses of $26.1 million in 1999, $3.3 million in 2000, $63.9 million in 2001, and $15.7 million for the nine months ended September 30, 2002. We may continue to incur losses on both a quarterly and an annual basis. Moreover, we expect to continue to incur significant sales and marketing, research and development and general and administrative expenses and, as a result, we will need to generate significant revenue to report net income in future periods. We may not achieve our planned growth or generate sufficient revenue to report net income in future periods.

Our revenue could decline if our customers do not continue to accept our existing products, including fulfillment and collaboration products.

     We expect to derive a majority of our product license revenue in the future from our fulfillment and collaboration products and their components. Our business depends on continued customer acceptance of these products and the release, introduction and customer acceptance of new products. We expect that we

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will continue to depend on revenue from new and enhanced versions of our fulfillment and collaboration products, and our revenue could decline if our target customers do not continue to adopt and expand their use of these products and their components.

Our quarterly operating results depend heavily on software license revenue, which is difficult to forecast and may fluctuate.

     Our quarterly software license revenue is difficult to forecast because our sales cycles, from initial evaluation to delivery of software, vary substantially from customer to customer. Revenue in any quarter is dependent on orders received, contracts signed and products shipped in that quarter. We typically recognize the majority of our revenue in the last month of the quarter, frequently in the last week or even days of the quarter. In addition, the timing of large individual license sales is difficult for us to predict, and, in some cases, transactions are concluded later than anticipated. Since our operating expenses are based on anticipated revenue levels and most of our operating expenses, particularly personnel and facilities costs, are relatively fixed in advance of any particular quarter, any revenue shortfall may cause fluctuations in operating results in any particular quarter. We can give you no assurance that revenue will grow in future periods, that revenue will grow at historical rates, or that we will achieve and maintain positive operating margins in future quarters. If revenue falls below our expectations in a particular quarter, our operating results could be harmed.

Because our sales cycles are lengthy and subject to uncertainties, it is difficult to forecast our sales, and the delay or failure of a significant software license transaction or our inability to anticipate a delay could harm our operating results.

     Our software is used for mission critical division- or enterprise-wide purposes and involves a significant commitment of resources by customers. A customers’ decision to license our software usually involves the evaluation of the available alternatives by a number of personnel in multiple functional and geographic areas, each often having specific and conflicting requirements. Accordingly, we typically must expend substantial resources educating prospective customers about the value of our solutions. For these and other reasons, the length of time between the date of initial contact with the potential customer and the execution of a software license agreement typically ranges from three to nine months, and is subject to delays over which we may have little or no control. As a result of the length and variability of the sales cycle for our software products, our ability to forecast the timing and amount of specific sales is limited, and the delay or failure to complete one or more anticipated large license transactions could harm our operating results.

We depend on the services of a number of key personnel, some of whom have recently joined us. A failure to integrate these personnel into the Company or a loss of any of these personnel could disrupt our operations and result in reduced revenue.

     Our success depends on the continued services and performance of our senior management staff. The loss of the services of any of our senior management staff or key employees could seriously impair our ability to operate and achieve our objectives, which could reduce our revenue. We have employment agreements with all of our executive officers. However, these employment agreements do not prevent key employees, from voluntarily terminating their employment with us.

     Joseph Cowan, our President and Chief Executive Officer, and Ken Vines, our Senior Vice President, Chief Financial Officer and Treasurer, joined us in November 2002 and May 2002, respectively.

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     Failure to integrate Mr. Cowan or Mr. Vines into the Company or with the senior management team could disrupt our operations and harm our business and financial results.

Failure to expand our alliance relationships with consulting firms and complementary software vendors and to establish new strategic alliances may slow acceptance of our software and delay the growth of our revenue.

     To supplement our direct sales force and our implementation capabilities, we have established strategic marketing alliances with consulting firms and complementary software vendors, and we rely on them to recommend our software to their customers and to periodically install and support our software. To increase our sales and implementation capabilities, one of our key strategies is to expand our existing relationships and establish new strategic alliances with consulting firms and complementary software vendors. The loss of, or failure to expand, existing relationships or our failure to establish new strategic alliances could limit the number of transactions we may complete, may result in our inability to recognize revenue and may harm our operating results.

We depend on a limited number of sales personnel who have recently joined us.

     We sell our software primarily through a direct sales force and through strategic relationships with systems integrators, consulting services companies, vendors of complementary software and hardware vendors. During the past year we have experienced significant turnover in our U.S. sales force. Almost all of the current members of our U.S. sales force have joined us within the past year. Our future success will depend in part on the efforts of our direct sales force. Most of the members of our sales force have not worked together in the past and, as a result, may not work together effectively as a team. In addition, our newly hired sales personnel may fail to develop the necessary skills to be productive within our organization, or if they reach productivity more slowly than anticipated, our ability to increase our revenue and grow our business will be compromised. In addition, due to the competitive nature of our industry, we may not be able to retain some or all of the members of our sales force.

If our new or enhanced products do not gain market acceptance, our business and results of operations would be harmed.

     The growth of our business will depend on the successful development, introduction and acceptance of new and enhanced versions of our products. The introduction of new or enhanced products requires that we manage the transition from existing products to these new or enhanced products. We have recently introduced our EXceed AIM and EXceed SNx software solutions to work in conjunction with our existing fulfillment software suite in order to extend our product reach into complementary markets. We expect to derive a significant portion of our revenues in the future from EXceed AIM and EXceed SNx and other new and enhanced products. If EXceed AIM and EXceed SNx and our other new and enhanced products do not gain market acceptance, our revenues may decline. Factors that may affect the market acceptance of EXceed AIM and EXceed SNx and our other new and enhanced products, some of which are beyond our control, may include:

•		the changing requirements of our industry;
•		the performance, quality and price of our new and enhanced products; and
•		the availability, performance, quality and price of competing products and technologies.

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We may experience delays in the scheduled introduction of new or upgraded software, and our software may contain undetected errors or “bugs,” resulting in loss of revenue and harm to our reputation.

     Historically, we have issued significant new software products or new releases of our software periodically, with interim releases issued more frequently. Our software is particularly complex, because it must perform in environments operating multiple computer systems and respond to customer demand for high performance fulfillment, warehousing and distribution applications and major new product enhancements. Our software requires long development and testing periods before it is commercially released. For example, the development cycle for the introduction of our EXceed Crossdock component took approximately nine months. If we experience delays in the scheduled introduction of new software or software upgrades, our customers may become dissatisfied and our reputation and operating results could be harmed.

     Also, despite testing by us, our software may contain undetected errors or “bugs.” In the past, we have discovered software bugs in new versions of our software after its release. We may experience software bugs in the future. These bugs could result in a delay or loss of revenue, diversion of development resources, damage to our reputation, increased service and warranty costs, or impaired market acceptance and sales of this software, any of which could harm our operating results.

If we are unsuccessful in identifying, financing and integrating suitable acquisition candidates, including businesses, products and technologies, our growth could be harmed.

     Due to the intense competition we face, we may not be able to identify suitable acquisition candidates available for purchase at reasonable prices, consummate any acquisition or successfully integrate any acquired business into our operations.

     Further, acquisitions may involve a number of additional risks, including:

•		diversion of management’s attention;
•		failure to retain key personnel of the acquired businesses;
•		unanticipated events or circumstances;
•		legal liabilities; and
•		impairment charges on goodwill and intangible assets.

     We expect to finance any future acquisitions with cash on hand, as well as with possible debt financing or by issuing common or preferred stock. If we were to proceed with one or more future acquisitions for cash, a substantial portion of our available cash could be used to complete them. If we were to proceed with one or more acquisitions for stock, our stockholders would suffer dilution of their interests. We can give you no assurance that we would be able to arrange for any needed debt financing on terms acceptable to us. Most of the businesses that might be attractive acquisition candidates are likely to have significant intangible assets. During 2001, amortization of acquired or existing intangible assets represents a substantial charge and has and will continue to reduce earnings. However, under new accounting rules effective for fiscal years beginning after December 15, 2001, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the new rules. Other intangible assets will continue to be amortized over their useful lives.

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If we are unable to timely collect our accounts receivable, our cash flow will be harmed.

     Although we have recently improved on the time required to collect accounts receivable from our customers, there is no assurance that this trend will continue. Historically, we have experienced longer receivable collection periods that has largely been attributed to the deterioration of certain of our customers’ financial condition due to the negative economic climate in the United States and the international markets we serve. The failure of any significant customer to pay for our products on a timely basis could adversely affect our results of operations and our operating cash flow.

If we do not expand our customer base, our business may not grow.