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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2002

[  ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission File No. 000-30389

EXE TECHNOLOGIES, INC.

Delaware
(State or other jurisdiction of incorporation or organization)

75-1719817
(I.R.S. Employer Identification No.)

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

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 par value

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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes   [  ]   No   [X]

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The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of common stock as of the last business day of the registrant’s most recently completed second fiscal quarter as reported on the NASDAQ National Market, was approximately $25.6 million.

As of March 14, 2003, the Registrant had 6,665,681 outstanding shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for the 2003 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of the Registrant’s fiscal year end, are incorporated by reference into Part III hereof.

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Form 10-K

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Special Note Regarding Forward-Looking Statements

     In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements. Any statements contained herein (including, without limitation, statements to the effect that EXE or its management “believes,” “expects,” “anticipates,” “plans,” “estimates,” “predicts,” “seeks,” “intends” and similar expressions) that relate to future events or conditions should be considered forward-looking statements. The forward-looking statements are made pursuant to safe-harbor provisions of the Private Securities Reform Act of 1995. 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Certain Factors That May Affect Future Results” and in subsequently and previously filed reports. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake 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.

PART I

ITEM 1. BUSINESS

Overview

     EXE Technologies, Inc. (the “Company”) provides software that drives customers’ supply chain execution processes, including fulfillment, warehousing, distribution and inventory management. Our software allows companies to efficiently manage and control the flow of inventory throughout the supply chain. Companies use our software 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, Australia and through partners in Latin America. Revenue from our international operations for the year ended December 31, 2002 was approximately $38.4 million, or 52.2% of our total revenue, and for the year ended December 31, 2001 was approximately $45.4 million, or 46.6% of our total revenue.

     We sell our software worldwide through a direct sales force and through strategic alliances with complementary software vendors, resellers and consulting organizations. We target companies in industries characterized by large product selections, high transaction volumes and increasing demands for customer-specific order processing, including traditional and direct-to-consumer retailers, manufacturers and outsourced logistics providers.

     We began operations as a Delaware corporation under the name EXE Technologies, Inc. following the acquisition of Dallas Systems Corporation (Dallas Systems) by Neptune Systems, Inc. (Neptune) in September 1997. For accounting purposes, the acquisition was accounted for as a purchase of Dallas Systems by Neptune. Prior to the acquisition, Neptune was focused on delivering packaged supply chain execution software solutions primarily for manufacturing and third party logistics companies. Dallas Systems was focused on the development and sale of supply chain execution software solutions, primarily for retail companies, capable of operating in complex business environments. Dallas Systems also provided implementation and consulting services.

     In response to our declining revenues over the past two years, we have implemented several plans to reduce our costs. In 2001, we reduced our global headcount by over 17% and abandoned certain excess leased facilities. Additionally, during the last half of 2002, we took a number of actions to further reduce our cost structure to more closely align with our current levels of revenue. These actions included, among other things, the closure of our Philadelphia office, consolidation of our North American professional services and development operations in Dallas and expanding our lower cost offshore

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development activities. Our global headcount was lowered an additional 17% in 2002. Also, several changes to our executive management team were made during the year. Our new Chief Financial Officer, Kenneth R. Vines, was hired in May, we eliminated the Chief Operating Officer position in October and our new Chief Executive Officer, Joseph L. Cowan, was hired in November 2002. The former Chief Executive Officer, Raymond R. Hood, retained his position as Chairman of the Board of Directors.

Industry Background

     In recent years, supply chain operations have come under pressure from a variety of market and economic factors. The sales channels deployed by most companies have grown in both number and complexity. Companies who previously sold to a single class of customers now sell to multiple classes of customers through multiple distribution channels, including traditional retail, direct-to-consumer, through partners and others. Competition has intensified as customers have more options for purchasing goods and services and higher expectations for immediate availability at an attractive price. Furthermore, companies now buy supplies and sell products to customers around the world, requiring more elaborate logistics frameworks, including multiple modes of travel and the requirement to comply with international customs regulations. To address these new challenges, companies are opening up their systems to their suppliers, customers and partners, requiring the capability to communicate with industry standard technologies that is not present in existing legacy systems.

     The ability to manage inventory is a key element in determining a company’s financial performance and its ability to satisfy customer demands. Over the years businesses have deployed various technologies to reduce inventory levels, improve inventory turns and ensure that products available for sale are aligned with customer purchasing requirements. Warehouse management systems have traditionally been deployed to manage resources within a distribution center, including space, labor, equipment tasks and material flows.

     More recently, the Internet emerged as a powerful global commerce and communications medium, creating opportunities for companies to conduct business and interact directly with their suppliers and customers. We believe that the rise of the Internet has established a common platform and standards, creating the opportunity to bring increased efficiency to supply chain operations. However, the new relationships created between buyer and seller are driving a fundamental change in order execution and fulfillment, requiring increased synchronization and collaboration among the parties. Since competitive information is easily accessible over the Internet, companies are finding it increasingly difficult to differentiate their offerings solely on product, location or price. Accordingly, we believe that companies must distinguish their product and service offerings by providing reliable delivery and value-added services during the fulfillment process according to the consumers’ individual preferences.

     We believe the challenges of modern supply chain execution are more complex than those in the past. These challenges include:

	•		managing complex fulfillment processes across the supply chain;
	•		facilitating visibility of inventory, delivery and order status to both customers and suppliers;
	•		accurately forecasting demand and planning inventory and replenishment;
	•		providing personalized service during fulfillment, including value-added services such as customer-specific marketing, product assembly and product configuration;
	•		developing global fulfillment capabilities;
	•		processing orders from multiple media, including the Internet, facsimile, electronic data interchange and telephone;
	•		handling significant and rapid increases in the volume of transactions;

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	•		determining optimal locations from which to ship and optimal methods of how to ship inventory; and
	•		controlling reverse logistics functions such as product recall and product returns.

     In addition to these challenges, companies are faced with the task of rapidly developing their new supply chain capabilities in response to the increased competition for customers.

     Traditionally, supply chain execution systems have been highly customized, difficult to upgrade and have required costly and lengthy implementations. Moreover, many companies that implemented traditional systems have found that their existing systems do not readily support the proliferation of trading partners and sales channels and do not allow them to provide value added, customer-specific order completion on a global scale. In addition, legacy systems are unable to provide the real-time access to supply chain data to interact with newer supply chain planning, optimization, procurement and commerce applications. As a result, we believe many companies must invest in and deploy new supply chain execution software to satisfy their customers, to remain competitive and to achieve optimal operating efficiency and financial performance.

The EXE Technologies Solution

     Our software provides control over fulfillment processes both inside the four walls and yard operations of logistics centers and across a company’s entire supply chain network. It manages the fulfillment of orders initiated through both traditional and direct-to-consumer sales channels. Our software gives customers and suppliers a real-time view of customer fulfillment and provides the basis for developing improved inventory management, demand planning, replenishment planning, procurement, logistics and distribution processes and personalized customer-specific order fulfillment. In addition, we complement our software with a global professional services organization, which facilitates implementation, integration and modification of our software to meet the specific needs of our customers.

     We provide the following benefits to our customers:

	•		Reduced Costs and Improved Efficiency. We believe our software offers customers the opportunity to reduce operating costs by automating and streamlining many of the labor-intensive processes in both traditional and direct-to-consumer related logistics, distribution and inventory management operations. Our software allows companies to implement industry best practices to reduce inventory handling and obsolescence, increase inventory turnover and optimize labor requirements.
	•		Increased Revenue Through Reduced Time to Enter New Markets. We believe our software provides all of the functionality necessary for fulfillment in a single, packaged solution. Our easy-to-install applications reduce the time it takes for companies to launch new products, enter new geographic markets, or enhance direct-to-consumer initiatives, while simultaneously automating their traditional supply chains.
	•		Supply Chain Wide Process Management. Our software enables companies to exercise control over processes that span the supply chains of both their suppliers and customers. These processes may include product recall, returns processing, and merge-in-transit. By automating these workflows and combining them with execution capability, companies are able to maximize the utilization of their supply chain network to reduce costs and improve revenue.
	•		Customer-Specific Fulfillment. Our software allows companies to treat each transaction individually by automating and coordinating complex fulfillment, assembly, product configuration and customer-specific marketing campaigns across multiple sales channels.

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			Through the personalization of each customer order, companies are able to enhance customer interaction and maximize customer retention.
	•		Flexibility and Reliability. Our software has the flexibility to be deployed across most major computer systems and can operate in a hosted environment. Our software is expandable to meet growing client needs, which is increasingly critical in direct-to-consumer fulfillment environments, as well as in broader enterprise environments that support multiple sales channels. Our software has been proven reliable in high volume businesses that distribute through retail stores or sell directly to customers.
	•		Visibility. Our software provides a real-time view of customer fulfillment activities and order status across multiple channels and platforms. This allows suppliers to track orders and to implement targeted marketing campaigns at strategic times during the fulfillment cycle.
	•		Global Capability. Our software currently operates in 23 languages and is designed to accommodate rapid translations of product upgrades. In addition, we and/or our partners provide local service and support from established facilities in North America, Europe, the Middle East, Asia and Australia. We believe that our global presence benefits our customers by providing localized service and global customer support.
	•		Adaptability for Complex New Business Models. Our software is designed to handle complex logistics situations. This adaptability is increasingly critical for third-party logistics providers and exchanges where the ability to handle products owned by multiple companies is fundamental to their success.

Strategy

     Our goal is to be the leading global provider of supply chain execution software. To achieve this goal, we plan to:

	•		Take Advantage of Our Experience and Established Market Position. We intend to continue to leverage our market position, our strategic relationships and our brand recognition from the traditional warehouse management and distribution market to increase our share of the supply chain execution market. We intend to concentrate our efforts in the high volume retail and third party logistics market segments where we have a proven track record and deep domain knowledge.
	•		Use Our International Infrastructure to Gain Global Market Share. We believe there continues to be significant demand for our software solutions in international markets and have established a global infrastructure to target leading businesses worldwide. We provide sales, service and support from locations in North America, Europe, the Middle East, Asia and Australia. We intend to expand our global partner channels. Our software is installed in over 35 countries and currently operates in 23 languages, including English, Chinese, French, German, Japanese and Spanish. We intend to leverage our infrastructure to meet the needs of international organizations that have global supply chain requirements.
	•		Expand Our Strategic Alliances. We have established strategic alliances with industry-leading consultants and software systems implementers to supplement our direct sales force and professional services organization. These alliances help extend our market coverage and provide us with new business leads and access to trained implementation personnel, which we believe are crucial to the deployment of complex software solutions. We also have alliances with complementary software vendors that allow us to offer a comprehensive fulfillment and supply

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			chain execution solution. We intend to continue to seek to expand the number of companies with which we work to further penetrate our global market.
	•		Enhance Our Solutions. We intend to focus on offering solutions linking our customers’ operational results to financial improvements. We also have enhanced our products by releasing upgrades and introducing value-added modular components. We believe our customers will continue to demand greater breadth and depth from our solutions, and we intend to broaden our product offerings to integrate additional functionality and new technologies such as voice data capture, radio frequency identification and web services. Our ability to easily add software modules allows us to rapidly introduce new product features and functionality and to penetrate accounts that are in various stages of developing and implementing their business strategies. Our feature-rich products mean fewer customizations and simpler, less costly implementations.
	•		Expand Our Addressable Market Opportunity within Supply Chain Execution. We intend to extend our product suite to address more of the business processes related to supply chain execution outside the four walls and yard operations of a distribution center. We plan to leverage the EXceed AIM product, our adaptive inventory management solution, to provide better inventory management along the entire supply chain from the retail store to the distribution center to the factory warehouse. Our SNx product, based on agent technology, offers a unique capability in supply chain process execution that allows applications and systems from different vendors throughout the complete supply chain to interact and optimize performance.
	•		Provide Real-time Visibility of the entire Supply Chain. Visibility by management into what is happening on a real-time throughout their supply chain is key to future success for our customers. Our EXceed SNx, Analyze, Portals and Data Exchange products are the foundation for expanding our ability to give customers management information that provides complete control over their supply chains.

EXE Software

     Our EXceed software allows companies to deploy integrated fulfillment solutions across multiple distribution centers utilizing multiple computer systems and the Internet. The software includes functionality for:

	•		operating high-volume fulfillment centers;
	•		creating customer-specific fulfillment services;
	•		integrating fulfillment centers to web sites and planning engines;
	•		optimizing fulfillment center layouts;
	•		connecting multiple centers with each other and other e-commerce and enterprise systems;
	•		managing inventory including demand forecasting and replenishment planning; and
	•		controlling supply chain wide processes through software agents.

     Our EXceed software is designed to run on the most widely used hardware, operating system and database platforms, offering a unified architecture and creating a consistent display of the data to all concurrent users. Depending on our customers’ specific needs, EXceed software can be deployed on the

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UNIX environments, Windows NT/2000, IBM O/S 390 and AS 400 operating systems with Oracle, SQL Server, Informix or DB2 as the database engine.

			Our EXceed software products include:
	•		EXceed Fulfill — provides the base functionality for managing and controlling operations within the fulfillment center, including receiving, stocking, picking, replenishment, product configuration, packing, shipping, radio frequency support, quality assurance, inventory control, reporting and tax management. Our EXceed Fulfill modules include:

	•		Value - Automates customer-specific marketing activities and other more complex make-to-order operations.
	•		Crossdock - Merges inbound products shipped directly from suppliers with inventoried products in a high speed fashion.
	•		Billing - Generates activity-based charges for storage and labor to charge to customers or divisions.
	•		Optimize - Simulates and optimizes the attributes of a fulfillment center.
	•		Appointment - Schedules and coordinates shipping and receiving functions with transportation.
	•		Labor - Enables labor management and control by time and attendance measurement, assignment monitoring, reasonable expectancies and engineered labor standards.
	•		Yard - Automates and manages tasks associated with trailers within the property boundaries of a distribution center.
	•		Analyze - Provides industry and process specific key performance indicators for analyzing foundation data repository.
	•		Data Exchange - Highly configurable package that easily enables integration requirements across a full suite of exchange protocols and can be configured easily to exchange business data with enterprise partners.
	•		Warehouse Planner - Optimizes the fulfillment process for outbound shipments to maximize the utilization of existing resources.
	•		Voice – Enables voice-directed order picking to enable hands-free data and order collection.

•

EXceed Collaborate — allows users, suppliers and customers to manage workflows and share information across our applications, third party applications and networks of fulfillment centers. Our component products include:

	•		Sentinel - Automates quality processes, enables product traceability, tracks and manages shelf life and expiration dates, and facilitates product recall activities.
	•		Portals - Enables third-party software to link customers and suppliers to fulfillment centers over the Internet, allowing them to view, update and modify inventory levels and status.

	•		EXceed AIM (Adaptive Inventory Manager) — is a decision support tool for buyers and planners to forecast demand, generate purchase orders, size orders, allocate product and perform other functions necessary to support the inventory decision-making process.
	•		EXceed SNx (Supply Network Execution) – is a visibility and business process management solution designed to continuously monitor and coordinate execution in complex supply networks. The system continuously monitors supply chain processes, analyzes supply chain events and projects future events and requirements. The software automatically adapts execution plans and coordinates the flow of goods to resolve exceptions inherent in the real world execution within the supply network.

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EXE Product Packaging and Pricing

     We offer a variety of packaging options for our software. These options allow us to market our technology to companies in various stages of executing their fulfillment strategies. For example, customers seeking an enterprise fulfillment solution may license our EXceed Fulfill and Collaborate products, including all associated components. Companies pursuing less comprehensive initiatives may license single components as stand alone applications, with additional software components to be added later. Flexible packaging options allow our customers to make investments in our technology without necessarily committing to a larger enterprise platform.

     We offer a variety of pricing options that allow our customers to purchase our software for a defined number of users at a single site, a business unit or an entire enterprise. License fees for our products typically range from approximately fifty thousand dollars to several million dollars. We have recently introduced additional pricing options that we believe will allow us to expand our market presence with small to medium-sized companies.

Professional Services

     We offer a range of professional services that help facilitate the successful implementation and integration of our software with our customers’ existing systems. Our professional services include implementation project management, interfacing to existing systems, on-site software training, operational engineering, industrial engineering, software modification and supply chain consulting. Our professional services are billed on a time and material basis or, when requested, on a fixed fee basis.

     Our internally developed Global Execution Methodology, or GEM, is a nine step uniform process for implementing our software. GEM is supported by a globally deployed software application that aids in planning, change management and quality control during the implementation process. The application allows our professional services staff, customers and alliance companies to access project information on a global basis. Our professional services group is ISO 9001 certified.

     Our professional services personnel have extensive experience in the deployment of fulfillment systems. We assist companies in the implementation of our software and we help them determine how to use our technology in a way that fits their individual fulfillment strategy. We can, if requested, adapt the software to specific customer business practices.

     We believe that the use of outside consulting and service providers is an important component of our strategy to expand our professional services business and support the growth in our software license revenue. We currently intend to expand our relationships with, and reliance on, strategic alliance companies and consultants. We also believe this will allow us to manage the growth of our own professional services group without affecting other parts of our business.

     We provide a comprehensive upgrade and support program through which our customers, should they choose to participate, can receive upgrades to our licensed products and access to our support center. These services are typically offered under annual upgrade and support contracts. Our support center is open year round, seven days per week and twenty-four hours per day. Our support center can remotely access the customers’ systems and provide on-line assistance, diagnostics and software upgrades.

     We also offer an intensive education and training program for our customers, employees and third party service providers, either at our offices or at the customer’s site, through our EXE University. Students who are certified by EXE University are qualified to implement our software. EXE University also offers an accreditation program for those wishing to train others. We currently offer training in North America, Europe, Asia and Australia.

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Sales and Marketing

     We have multi-disciplined sales teams that consist of sales, technical, and sales support professionals. Our senior management also takes an active role in our sales efforts. We market and sell our software through our direct sales force, which is located in North America, Europe, the Middle East, Asia and Australia, and through our strategic alliances. In North America, our sales organization is focused on targeted vertical markets and geographic regions, with resources assigned to retail, manufacturing and third-party logistics. In Europe and Asia, our sales organization is deployed by geographic region, but targets the same vertical markets as in North America.

     We have sales offices in the Dallas, London, Paris, Amsterdam, Munich, Dubai, Tokyo, Seoul, Hong Kong, Singapore, Kuala Lumpur, Melbourne and Shanghai metropolitan areas. We also supplement our sales organization with our Alliance Sales Program. We use this program to sell to companies around the world that we do not service directly and to supplement our sales initiatives in certain overseas markets.

     Our marketing organization uses a variety of programs to support our sales efforts, including:

	•		market and product research and analysis;
	•		product and strategy updates with industry analysts;
	•		public relations activities and speaking engagements;
	•		Internet-based and direct mail marketing programs;
	•		seminars and trade shows;
	•		brochures, data sheets and white papers; and
	•		web site marketing.

     Financial information regarding our operating segments and foreign and domestic operations is presented in Note 18 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

Strategic Alliances and Relationships

     Another key element of our growth strategy is the formation of strategic relationships with industry leaders whose business offerings complement our own. We believe that these relationships will allow us to scale our business rapidly and effectively by enabling the expansion of our:

	•		global brand;
	•		qualified sales opportunities;
	•		capacity to effectively implement our software offerings for new and existing customers; and
	•		ability to deliver enhanced value to our customers.

     We have established relationships with large, international systems integrators and consulting services companies, including Cap Gemini Ernst & Young and IBM Global Services. Under these relationships, we provide referrals for services work or subcontract work to these companies in connection with the installation of our software. These companies may provide referrals of potential licensees to us. In general, the relationships are governed by short-term, non-exclusive, renewable written or oral contracts, with limited or no up-front financial commitments. Some of the contracts provide for compensation to the referring party, typically in the form of a commission or finder’s fee upon conclusion of a transaction.

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     During 2002, we expanded our relationship with IBM. We granted IBM warrants to purchase 142,857 shares of common stock of the Company. Under the agreement, IBM warrants vest based on predetermined quarterly software license revenue that we achieve over a three-year period from our relationship with IBM.

     We intend to expand these relationships and add new relationships to increase our capacity to sell and implement our products on a global basis. Our existing alliances have been aligned to coincide with our target vertical markets. We intend to continue to pursue relationships that enhance our strategy in industry-specific marketplaces.

     We also have relationships with vendors of complementary software including IBM, Microsoft and Oracle. In general, the relationships are governed by short-term, non-exclusive, renewable contracts, with limited or no up-front financial commitments. These relationships typically involve reseller or marketing arrangements, or both, under which the vendor compensates the reseller or marketer in the form of discounts or commissions. We intend to pursue additional relationships with vendors of complementary software to increase our ability to deliver enhanced value to our customers.

     We also have alliance relationships with hardware vendors such as Hewlett-Packard, IBM, Intermec, Sun Microsystems and Symbol Technologies. We act as a marketer or reseller, or both, of their server and radio frequency hardware. In general, the relationships are governed by short-term, non-exclusive, renewable written or oral contracts, with limited or no up-front financial commitments. We receive discounts or commissions as compensation for sales under some of these relationships. We intend to pursue additional technology relationships that we believe will increase our value to potential customers, expand our ability to offer integrated enterprise solutions and increase our market opportunities.

Customers

     We have targeted and will continue to target selected vertical industries characterized by large product selections, high transaction volumes and increased demands for personalized fulfillment, including traditional and direct-to-consumer retailers, manufacturers and outsourced direct-to-consumer and third-party logistics providers.

     Our top five customers, in the aggregate, accounted for 15.8%, 13.4% and 19.3% of total revenues excluding reimbursable expenses, in the years ended December 31, 2000, 2001 and 2002, respectively. No single customer accounted for 10% or more of our revenue during any of the three years ended December 31, 2002.

     Our license agreements with our customers are typically perpetual in duration. Our support and upgrade services contracts ordinarily are annual contracts, subject to renewal. Our professional services agreements are relatively short in duration, lasting anywhere from a few months to a year, depending on the project requirements.

Research and Development

     Our research and development team is responsible for product planning and design, development of functionality within the EXceed Fulfill, Collaborate, AIM and SNx products and general release and quality assurance functions. Our research and development group is ISO 9001 certified.

     In October 2002, we signed a contract with a company in India to provide offshore development services at a significantly lower cost than in the United States. The agreement is for three years and at the end of 2002 there were 30 contract engineers working full time on our development projects.

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     We also use third-party resources to augment our own development efforts for specific projects from time to time. We believe this provides us access to a skilled labor pool, more rapid development cycles and a cost-effective solution to our research and development needs. In addition, we complement our product suite with certain specialized products developed by third parties including Boomi, C³ Solutions, St. Onge and Intellicyber. We distribute these products under the EXE name and pay a royalty to the vendor as these products are sold.

     During the years ended December 31, 2000, 2001 and 2002 we invested approximately $9.6 million, $14.6 million and $12.1 million, respectively, in research and development.

Competition

     The market for fulfillment solutions is intensely competitive, fragmented and subject to rapid technological change. The principal competitive factors in this market include:

	•		adherence to emerging technology standards;
	•		comprehensiveness of applications;
	•		adaptability and flexibility;
	•		immediate, interactive capability with customer and partner systems;
	•		financial viability;
	•		global capability;
	•		references from existing customers;
	•		industry domain experience and expertise;
	•		ability to support specific industry requirements;
	•		ease of application use and deployment;
	•		speed of implementation;
	•		customer service and support; and
	•		initial price and total cost of ownership.

     We believe that we compete favorably with competitors in terms of our technology, service and support, global presence, targeted vertical focus, and comprehensiveness of our solutions.

     Our competitors include companies or groups that:

	•		focus on providing fulfillment applications, such as Catalyst International, Inc., Highjump, Logility, LIS, Manhattan Associates, Optum, Inc., Red Prairie and Provia;
	•		offer enterprise platforms for order management, fulfillment and inventory management, such as Yantra, Oracle, JDA, Retek, and SAP; and
	•		service internal customers, such as internal information technology groups.

     There are a substantial number of other companies focused on providing Internet-enabled software applications for fulfillment or related supply chain functions that may offer competitive products in the future.

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     We expect competition to increase as a result of software industry consolidation. For example, a number of enterprise software companies have acquired point solution providers to expand their product offerings. Our competitors may also package their products in ways that may discourage users from purchasing our products. Current and potential competitors may establish alliances among themselves or with third parties or adopt aggressive pricing policies to gain market share. In addition, new competitors could emerge and rapidly capture market share.

Intellectual Property

     Our intellectual property rights are significant and are critical to our success and our ability to compete. We rely on intellectual property laws, including copyright, trademark, trade secret and other laws, confidentiality procedures and contractual provisions to protect our proprietary rights in our products and technology. Under the terms of our agreements with our customers, we usually own all modifications to our software that are implemented for a customer. We believe, however, that these steps to protect our intellectual property afford only limited protection to us, particularly on an international basis. We do not currently have any patents issued or patent applications pending. We give some of our customers, alliance companies, resellers and development partners access to our software program instructions, or source code, and other intellectual property in certain limited circumstances when necessary to facilitate a project. In addition, our source code is held in escrow to be released to customers on specific events such as bankruptcy or inability to provide contractually obligated support. Access to our source code may create a risk of disclosure or other inappropriate use. Despite our contractual protections, this access could enable a third party to use our intellectual property, including our source code, to wrongfully develop and manufacture competing products. In addition, policing unauthorized use of our products is difficult.

     We cannot be certain that others will not independently develop substantially equivalent or better intellectual property, gain access to our trade secrets or intellectual property, or disclose our intellectual property or trade secrets. We also conduct a substantial amount of business abroad, and the laws of many foreign countries do not protect our intellectual property to the same degree as the laws of the United States.

     Also, we may desire or be required to renew or to obtain licenses from others to enable us to develop and market commercially viable products and to run our internal software systems, including for financial reporting and other purposes. We can give no assurances that any necessary licenses will be available on reasonable terms in the future, if at all.

     From time to time, third parties may assert claims or initiate litigation against us or our alliance companies alleging that our products infringe their proprietary rights. As the number of fulfillment and supply chain execution applications in the industry increases and products overlap, we may become increasingly subject to claims of infringement or misappropriation of the intellectual property rights of others. In addition, we may in the future initiate claims or litigation against third parties for infringement of our proprietary rights to determine the scope and validity of our proprietary rights. Litigation claims, with or without merit, could be time-consuming and costly, divert management’s attention, cause product shipment delays, and require us to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all.

     We have received notices from five customers requesting defense and indemnification for patent claims in lawsuits brought or threatened against them by a third party with respect to the use of bar code technology. We are currently investigating these claims. We have become aware that several manufacturers of bar code scanning equipment are challenging the underlying patents in a separate lawsuit, and we continue to monitor the progress of this litigation. Based on our investigation to date, we do not believe that we have an obligation to defend or that we ultimately will have liability for the indemnification requests of customers. However, if the various disputes are resolved unfavorably to us,

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then they could have a material adverse effect on our business, operations and financial condition. For example, we may be required to modify our software, obtain additional licenses and defend and indemnify our customers. Furthermore, our future customers may be required to obtain additional licenses in order to use our software.

Employees

     As of December 31, 2002, we had a total of 431 employees, of which 90 were in research and development, 74 were in sales and marketing, 70 were in finance and administration, and 197 were in professional services and support. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. In January and February 2003, we reduced our headcount by approximately 50 additional employees as a part of our cost reduction activities discussed elsewhere herein.

Foreign Operations

     In 2000, 2001 and 2002 the revenues from our foreign operations were $47.0 million, $45.4 million, and $38.4 million, respectively. At December 31, 2000, 2001, and 2002, the assets, net of intercompany receivables and payables, from our foreign operations were $23.5 million, $22.5 million and $17.9 million, respectively. Financial information regarding our operating segments and foreign and domestic operations is presented in Note 18 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

ITEM 2. PROPERTIES

     Our corporate headquarters occupy approximately 195,000 square feet in Dallas, Texas. Our lease for this facility expires in January 2015. We currently occupy approximately less than 50% of this leased facility. A substantial portion of the remaining space has been abandoned and we are currently attempting to sublease this space. In the last half of 2002, we terminated our facility lease for 21,000 square feet in Philadelphia, Pennsylvania and agreed to pay a termination fee of approximately $400,000. This fee was included in special charges provided in the Statement of Operations for 2002. We also lease offices in London, Paris, Amsterdam, Munich, Dubai, Tokyo, Seoul, Hong Kong, Kuala Lumpur, Singapore, Melbourne and Shanghai. We believe these facilities will be adequate to meet our needs for the next 12 months.

ITEM 3. LEGAL PROCEEDINGS

     We are engaged in legal proceedings incidental to the normal course of business. Although the ultimate outcome of our pending legal proceedings cannot be determined, we believe that the final outcome of these matters will not seriously harm our business. Information concerning asserted and potential claims regarding our intellectual property is discussed above under “Item 1. Business - Intellectual Property.”

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     A Special Meeting of the stockholders was held on December 30, 2002. At the Special Meeting the stockholders voted on the following matter:

To approve six alternative amendments to the Company’s Second Amended and Restated Certificate of Incorporation which will effect a reverse split of the Company’s outstanding common stock at rations of 1:5, 1:7, 1:9, 1:11, 1:13 and 1:15, and authorize the Board of

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Directors to choose among these ratios and to abandon some or all of such amendments in its discretion.

     The stockholder-voting tally was as follows (all share data below reflects the one for seven stock split of our common stock effective January 2, 2003):

     A total of 5,726,974 shares were present in person or by proxy at the Special Meeting, each with one vote, out of 6,651,395 shares of record outstanding on December 4, 2002. On December 30, 2002, our Board of Directors approved a one for seven stock split to be executed on January 2, 2003.

Executive Officers of the Registrant

     The following table sets forth information regarding our current executive officers:

     Joseph L. Cowan has served as our President and Chief Executive Officer since November 2002. Prior to that Mr. Cowan was President and Chief Executive Officer of Invensys Automation and Information systems from June 2001 to November 2002. From September 2000 to June 2001 he served as President and Chief Executive Officer for Wonderware, a wholly owned subsidiary of Invensys. He had been with Wonderware as Senior Vice President, Sales and Marketing from 1995 to 2000 prior to the acquisition by Invensys in 1998.

     Kenneth R. Vines has served as our Senior Vice President, Chief Financial Officer and Treasurer since May 2002 and as Secretary since February 2003. From October 1998 until joining EXE, Mr. Vines was the Senior Vice President and Chief Financial Officer of Triton Network Systems, Inc. (Triton) and additionally, was appointed Chief Executive Officer and a member of the Board of Directors beginning in August 2001. On August 17, 2001 the Board of Directors of Triton approved, effective August 20, 2001, a complete plan of liquidation and dissolution of Triton, which plan was ratified and approved by the stockholders of Triton on October 29, 2001. Prior to joining Triton, Mr. Vines was the Vice President of Finance of DSC Communications Corporation.

     Mark R. Weaser has served as our President, Asian Operations since January 2003 and from July 2001 to December 2002 he served as Senior Vice President and Managing Director, Asia Pacific/Japan. From January 2000 to July 2001, Mr. Weaser served as our Senior Vice President, International Operations. From September 1997 to January 2000, Mr. Weaser served as our Managing Director of Asia Pacific and served in the same position for Neptune since August 1996. From July 1995 to July 1996, he was the Asia Vice President for Telxon Corporation.

     In November 2002, our Chief Executive officer resigned and was replaced by Joseph L. Cowan. The former Chief Executive Officer, Raymond R. Hood, retained his position as Chairman of the Board of Directors.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock began trading on the NASDAQ National Market on August 4, 2000 under the symbol “EXEE.” Prior to that time, there had been no market for our common stock. The following table sets forth the high and low sales price range information per share of our common stock on the NASDAQ National Market for the indicated periods. All share and per share data in this report reflect the one for seven stock split of our common stock effective January 2, 2003.

     The number of record holders of our common stock as of March 14, 2003 was 168. We believe that a larger number of beneficial owners hold shares of our common stock in depository or nominee form.

     We have never declared or paid cash dividends on our capital stock. We currently intend to retain any earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future. Our Board of Directors will determine future dividends, if any.

Use of Proceeds

     The Company completed its initial public offering of 1,142,857 shares of its common stock pursuant to a Registration Statement on Form S-1 (Registration No. 333-35106, effective August 3, 2000) on August 9, 2000. Total proceeds from the offering, including the exercise of the over-allotment option with respect to an additional 120,000 (as adjusted to reflect the one for seven stock split effective January 2, 2003) shares of common stock, were approximately $63.9 million, net of underwriting discounts and commissions of approximately $5.0 million and other fees and expenses of approximately $1.8 million.

     From the date of receipt through December 31, 2002, we have used the proceeds as follows:

     The remainder of the proceeds has been invested in investment grade corporate and government securities and money market funds. We intend to use the remaining proceeds for research and development activities; expenditures on sales and marketing, consulting services and general and administrative personnel; systems costs; and working capital and general corporate purposes, including possible acquisitions of, or investments in, businesses and technologies that are complementary to our

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business. None of the net proceeds of the offering were paid by us, directly or indirectly, to any director, officer or general partner of ours or any of their associates, or to any persons owning ten percent or more of any class of our equity securities, or any affiliate of ours.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this document. The statement of operations data for the years ended December 31, 2000, 2001 and 2002 and the balance sheet data as of December 31, 2001 and 2002 are derived from our audited consolidated financial statements included elsewhere in this document. The statement of operations data for the years ended December 31, 1998 and 1999 and the balance sheet data as of December 31, 1998, 1999 and 2000 are derived from our audited financial statements for the years then ended, which are not included in this document. All share and per share data has been adjusted to reflect a one for seven reverse stock split which was effective January 2, 2003 (see Note 15 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data).

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(a)		See Note 3 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
(b)		See Note 7 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     We provide 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.

Our Formation

     We began operations as a Delaware corporation under the name EXE Technologies, Inc. following the acquisition of Dallas Systems Corporation (Dallas Systems) by Neptune Systems, Inc. (Neptune) in September 1997. For accounting purposes, the acquisition was accounted for as a purchase of Dallas Systems by Neptune. Prior to the acquisition, Neptune was focused on delivering packaged supply chain execution software solutions primarily for manufacturing and third party logistics companies. Dallas Systems was focused on the development and sale of supply chain execution software solutions, primarily for retail companies, capable of operating in complex business environments. Dallas Systems also provided implementation and consulting services.

Our Revenue

     Revenue has been primarily provided from our EXceed Fulfill products. Our revenue has declined from $118.8 million in 2000 to $97.5 million in 2001 and declined further to $73.7 million in 2002.

     We derive our revenue from:

	•		the sale of software licenses, which we recognize as software license revenue;
	•		product related consulting, training, maintenance and support, which we recognize as services and maintenance revenue; and
	•		the resale of hardware and software, which we recognize as resale of software and equipment revenue.

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          In January 2000, we sold our mainframe services and maintenance practice to an unrelated third-party consulting firm in exchange for royalties that will be received on future revenue generated by customers using this product. The royalties earned by us are based upon a declining percentage of the consulting firm’s services and maintenance revenues generated from customers using our mainframe product, subject to a maximum of $0.4 million per year. The percentages of revenue are: 20% for the first two years, 15% for the third year, 10% for the fourth and fifth years and 5% for each year after the fifth year. The agreement is perpetual, but may be terminated at our option in the event of default by the consulting firm. Royalties recognized in 2002, 2001 and 2000 totaled $0.2 million, $0.2 million and $0.4 million, respectively. We do not expect these royalties to be a material portion of our future services and maintenance revenues. The royalties are included as a component of services and maintenance revenue.

Software Pricing and Professional Services

          We offer a variety of pricing options that allow our customers to purchase our software for a defined number of users at a single site, a business unit or an entire enterprise. We market and sell our software and services through our direct sales force which is located in North America, Europe, the Middle East, Asia and Australia and through our strategic alliance relationships. In addition, we intend to pursue additional relationships with vendors of complementary software to increase our ability to deliver enhanced value to our customers.

          We offer a range of professional services that help facilitate the successful implementation and integration of our software with our customers’ existing systems. Our professional services offering include installation, implementation project management, interfacing systems, on-site software training, operational engineering, industrial engineering, software modification and supply chain consulting. Our professional services are billed on a time and material basis or, when requested, on a fixed fee basis. For the years ended December 31, 2002 and 2001, approximately 20.0% and 14.6%, respectively, of our total revenue was derived from fixed fee contracts.

Acquisitions

          On January 25, 2001, we completed the acquisition of AllPoints Systems, Inc. (AllPoints) of Norwood, Massachusetts. The transaction was completed in a stock-for-stock merger in which we issued 227,194 shares of our common stock and assumed options for an additional 58,515 shares of our common stock in exchange for all of the outstanding securities of AllPoints. The transaction was accounted for as a purchase. The goal of this acquisition was to strengthen our product offerings in the high volume, piece pick and parcel environments that were critical to the direct-to-consumer and e-commerce market segments. Shortly after the acquisition was completed, the market for these products declined significantly. During 2001, we were unable to sell new licenses for the AllPoints products, and expenses associated with the AllPoints subsidiary, excluding amortization, exceeded revenues by approximately $2.4 million. Additionally, approximately $4.9 million of cash was used to acquire the obligations and operate the AllPoints subsidiary during the twelve months ended December 31, 2001. As a result, in November of 2001 we determined there would be no further sales or marketing efforts regarding this product line, most of the remaining AllPoints employees were terminated, and the remaining $26.7 million of intangibles associated with this acquisition were judged impaired and written off.

Recent Developments

          In response to our declining revenues over the past two years, we have implemented several plans to reduce our costs. In 2001, we reduced our global headcount by over 17% and abandoned certain excess leased facilities. Additionally, during the last half of 2002, we took a number of actions to further reduce our cost structure to more closely align with our current levels of revenue. These actions included, among other things, the closure of our Philadelphia office, consolidation of our North American professional services and development operations in Dallas and expanding our lower-cost offshore development activities. Our global headcount was lowered an additional 17% in 2002. Also, several

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changes to our executive management team were made during the year. Our new Chief Financial Officer, Kenneth R. Vines, was hired in May, we eliminated the Chief Operating Officer position in October and our new Chief Executive Officer, Joseph L. Cowan, was hired in November 2002. The former Chief Executive Officer, Raymond R. Hood, retained his position as Chairman of the Board of Directors.

          As a result of these actions, we made provisions for severance and related employee costs, facility closure costs and estimated losses on abandoned facilities totaling $9.7 million and $14.3 million in 2002 and 2001, respectively. Should additional cost reduction actions be required in the future or if management’s estimates of the losses on the current abandoned facility leases are inadequate, future provisions could be required.

          Our current plans are to improve our execution by focusing on our core product offerings and the markets where we have traditionally been most successful, retail and third-party logistics customers. We expect our newest products such as our adaptive inventory management solution (EXceed AIM) and our visibility and business process management solution, Supply Network Execution (EXceed SNx), will provide the opportunity for growth and an ability to differentiate us from our competitors. We are hopeful that the cost reduction actions we have taken, which will further lower operating costs in 2003, will allow us to return to profitability. If we are unable to improve our revenue levels, further cost reduction actions may be necessary.

Critical Accounting Policies and Estimates

General

          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 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 estimates and 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. On an on-going basis, management evaluates its estimates and judgments. There can be no assurance that actual results will not ultimately differ from those estimates.

          Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

          We recognize software license revenue under Statement of Position, or SOP, No. 97-2. Under SOP No. 97-2, software license revenue is recognized upon execution of a contract and delivery of the software, provided that the license fee is fixed and determinable, no significant production, modification or customization of the software is required, vendor specific objective evidence of fair value exists to allow for the allocation of the total fee to elements of the arrangement, and collection of the license fee is considered probable by management. Product related maintenance and support revenue is generally recognized equally over the term of the contract, which is typically one year. Revenue from product related consulting and training is recognized as these services are performed, typically on a time and materials basis. A portion of our product related consulting and training revenue is derived from engagements that are performed for a fixed price. Fixed price engagements require us to estimate the percentage of the contract that is complete to determine the revenue and costs from these arrangements. Recognized revenue and profit from fixed price engagements are subject to revisions as the contract progresses to completion. Revenue from resale of software and equipment is recognized upon receipt of a purchase order and shipment of the software and equipment to the customer provided payment terms are

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fixed and determinable, no significant production, modification, or customization is required, and collection is considered probable by management.

Allowance for Doubtful Accounts and Adjustments

          Our ability to collect outstanding receivables from our customers is critical to our operating performance and cash flows. A receivable can deteriorate as a result of an impairment of the customer’s ability to make payments and may result in changes in the required reserves. Additionally, collection of a receivable may become doubtful due to a dispute with a customer that arises subsequent to the delivery of our products and services. We are required to estimate the collectibility of our trade receivables when we initially record revenue from our customers and to continue assessing our ability to collect until the ultimate realization of these receivables is determined. If circumstances change, such as higher than expected defaults or an unexpected material adverse change in a customer’s ability to meet their financial obligations to us, our estimates of recoverability of amounts due us could be reduced by a material amount.

Goodwill and Intangible Impairment

          In assessing the recoverability of our goodwill and other intangibles, assumptions are made regarding estimated future cash flows and other factors to determine the fair value of the respective assets. During the year ended December 31, 2001, an impairment charge of approximately $26.7 million was recorded for the impairment of intangibles associated with the acquisition of AllPoints.

          In October 2001, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) that is effective for our current year. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are to be subjected to annual impairment tests in accordance with these statements. We made an evaluation of our existing intangible assets in accordance with this standard during December 2002 utilizing various assumptions and factors to estimate future cash flows to determine the fair value of the business. No impairment was recognized during 2002, however if our estimates for cash flows or other factors and assumptions change, further impairment charges might be recorded in the future.

Accruals for Lease Abandonment and Employee Termination Costs

          Included in our accruals are reserves for the losses on lease abandonment and costs for employee severance and other costs associated with facility closures. These reserves include estimates pertaining to sublease rates, vacancy periods, employee separation costs and settlement of contractual obligations. If market conditions worsen, additional charges could be incurred. For example, during 2002, our estimates for the vacancy period on the abandoned portion of our North American facility increased and approximately $3.5 million was added to our lease abandonment reserve. Although we do not anticipate significant changes, the actual costs may differ from these estimates.

Related Party Transactions

          The Company had full recourse notes receivable from various officers of the Company totaling approximately $1.2 million and $1.0 million (including accrued interest) at December 31, 2001 and 2002, respectively. These notes receivable are secured by stock and options of the Company and are subject to forgiveness in the event of termination of employment due to death or disability, or if termination happens without cause or, in certain cases, for good reason following a change in control.

          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 $0.3 million on July 1, 2002. Accordingly, the outstanding balance was charged against operating results

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in 2002. In March 2003, the Company’s former Chief Executive Officer repaid his notes payable, including accrued interest, to the Company totaling approximately $0.8 million.

Contingencies

          We are subject to proceedings, lawsuits and other claims related to labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in insurance coverage or approach such as change in settlement strategy.

Income Taxes

          We recognize deferred tax assets or liabilities for the expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities. We review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. As a result of our cumulative net losses we have provided a full valuation allowance against our net deferred tax assets. In addition, we expect to provide a full valuation allowance on any future tax benefits until we can sustain a level of profitability that demonstrates our ability to utilize these assets.

Results of Operations

          The following table sets forth our statement of operations data as a percentage of total revenue for the three years ended December 31, 2000, 2001 and 2002:

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Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001

     Revenue

          Total Revenue. Total revenue declined by $23.8 million, or 24.5%, to $73.7 million for the year ended December 31, 2002, from $97.5 million for the year ended December 31, 2001. International revenue accounted for 52.2% of total revenue in 2002 and 46.6% of total revenue in 2001. No single customer accounted for more than 10.0% of total revenue in 2002 or 2001.

          Software License. Software license revenue declined $11.4 million, or 47.7%, to $12.6 million for the year ended December 31, 2002, from $24.0 million for the year ended December 31, 2001. Three major factors contributed to the lower revenue level:

	•		The global slowdown in customer spending for large-scale IT projects, which began during 2001, continued to negatively impact software license revenue. This global slowdown resulted in fewer software license sales and significant price erosion.
	•		Significantly lower software license sales in Japan where IT spending has slowed due to the economic and currency concerns.
	•		The substantial turnover of our North America sales team in early 2002 contributed to the loss of several potential sales opportunities.

          Services and Maintenance. Services and maintenance revenue declined $13.4 million, or 21.7%, to $48.2 million for the year ended December 31, 2002, from $61.6 million for the year ended December 31, 2001. This decline is primarily attributable to the lower software license revenue, particularly in North America and Asia Pacific. The decline in consulting and training revenue for the year ended December 31, 2002 was 31.8% when compared with the consulting and training revenue in the prior year. This decline is largely attributable to the continuing decline of service revenue from the EXceed Fulfill WMS Unix-based products (formerly known as EXceed 2000 warehouse management system product). Additionally, revenues from the AllPoints product line have declined approximately $2.2 million as a result of our prior year decision to no longer sell and market these products. These declines were partially offset by a 12.9% improvement in maintenance revenue for the year ended December 31, 2002 that is attributed to additional maintenance revenue from new sales and maintenance renewals.

          Resale of Software and Equipment. Resale software and equipment revenue increased $1.7 million, or 17.8%, to $11.0 million for the year ended December 31, 2002, from $9.3 million for the year ended December 31, 2001. The increase was largely attributed to a few large hardware resale transactions.

     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 4.9% of software license revenue for the year ended December 31, 2002 and 3.0% of software license revenue for the year ended December 31, 2001. This increase is attributed to the increase in royalties for sales of complementary software applications during the current year.

          Cost of Services and Maintenance. Cost of services and maintenance consists primarily of salaries of professional staff and costs associated with implementation, interfacing, consulting and training services, hotline telephone support, new releases of software and updating user documentation. Cost of services and maintenance of $32.3 million for the year ended December 31, 2002 was $8.9 million, or 21.6%, lower than in 2001. The decrease was caused by a reduction in the number of full time employees and contracted services and maintenance staff in response to lower revenue levels. As a percentage of services and maintenance revenue, cost of services and maintenance remained fairly flat at 66.9% for the year ended December 31, 2002, compared with 66.8% for the year ended December 31, 2001.

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          Cost of Resale of Software and Equipment. Cost of resale of 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 increased $1.8 million, or 23.3%, to $9.4 million for the year ended December 31, 2002, from $7.6 million for the year ended December 31, 2001. The increase was due to a higher sales volume of resale software and equipment, which resulted in higher purchase costs. As a percentage of resale of software and equipment revenue, cost of resale of software and equipment was 85.3% for the year ended December 31, 2002 and 81.5% for the year ended December 31, 2001. The increase in cost as a percentage of resale software and equipment revenue was largely attributed to a few large low margin resale transactions that occurred during the final quarter of the year ended December 31, 2002.

          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 $8.2 million, or 30.1%, to $19.0 million for the year ended December 31, 2002, from $27.2 million for the year ended December 31, 2001. The decrease in sales and marketing expense was largely attributable to reductions 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. Sales and marketing expenses represented 26.5% of revenue, excluding reimbursable expenses, in 2002 compared to 28.7% in 2001. During 2002, we expanded our relationship with IBM. We granted IBM warrants to purchase 142,857 shares of common stock of the Company. Under the agreement, IBM warrants vest based on predetermined quarterly software license revenue that we achieve over a three-year period from our relationship with IBM. Should the warrants vest in the future, sales and marketing expense would increase for the value attributable to the vested warrants.

          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 in 2002 of $12.1 million were $2.5 million, or 17.1%, lower than the $14.6 million recorded in 2001. The decrease in research and development expenses was due primarily to a reduction in the number of research and development employees and contractors. Research and development expenses represented 16.8% of revenue, excluding reimbursable expenses compared to 15.4% in 2001. In June, we made the decision to close our Philadelphia development and services operation and expand our offshore development activities. As a result, we reduced our development personnel by 30 employees. In October 2002, we signed a contract with a company in India to provide offshore development services at a significantly lower cost than in the United States. The agreement is for three years and at the end of 2002 there were 30 contract engineers working full time on our development projects.

          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 declined $6.5 million, or 35.2%, to $11.8 million for the year ended December 31, 2002, from $18.3 million for the year ended December 31, 2001. The decrease in general and administrative expenses was due primarily to a reduction in the number of general and administrative employees and contractors and reduced facility costs. As a percentage of total revenue excluding reimbursable expenses, general and administrative expenses decreased to 16.5% for the year ended December 31, 2002, from 19.2% for the year ended December 31, 2001.

          Amortization of Intangibles. Amortization of goodwill and intangible assets decreased $7.1 million to $1.3 million for the year ended December 31, 2002, from $8.4 million for the year ended December 31, 2001. Of the decline from the prior year, $4.4 million of the decline is attributed to the goodwill and intangible impairment write-off of AllPoints during the fourth quarter of the prior year and approximately $3.1 million is attributed to the implementation in the current year of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) 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.

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          In November 2001 and July 2002, we acquired a total of $2.0 million of developed software technology that resulted in $0.4 million of incremental amortization during the year ended December 31, 2002.

          Non-Cash Warrant and Stock Compensation. Non-cash warrant and stock compensation expense decreased $0.5 million to $1.1 million for the year ended December 31, 2002, from $1.6 million for the year ended December 31, 2001. The deferred compensation expense represents the difference between the exercise price and the deemed fair value of our common stock on the date of grant of these options that has been expensed as the options vest. The decline in stock compensation expense primarily was attributed to employee reductions and the associated cancellation of the remaining non-vested options offset by a $0.1 million compensation expense attributed to restricted shares granted to our CEO during the year ended December 31, 2002.

          Impairment of Intangibles. Impairment of intangibles was $26.7 million for the year ended December 31, 2001. This write-off relates to intangibles acquired in connection with the acquisition of AllPoints that are impaired due to decisions to no longer sell and market AllPoints’ products or utilize its technology in future product offerings.

          Loss on Lease Abandonment and Employee Severance and Other Facility Closure Costs. During 2001 and 2002, the Company has taken various cost reduction actions to lower the Company’s cost structure, including the reduction of 233 employees in 2001 and 110 employees in 2002, the write off of equipment and the abandonment of certain leased facilities. As a result, employee severance and related costs totaling approximately $3.6 million and $3.5 million were charged against operating results in 2002 and 2001, respectively. The 2002 severance charge includes approximately $1.4 million paid to the Company’s former Chief Executive Officer in early 2003, in accordance with his employment agreement. Additionally, facility closure costs of $2.1 million and $0.6 million were charged against operating results in 2002 and 2001, respectively, for the write down or disposal of certain property and equipment and purchase commitments.

          The Company also abandoned certain leased facilities in North America and Europe in 2001 and its Philadelphia facility in 2002. As a result, the Company provided approximately $4.0 million and $10.2 million in 2002 and 2001, respectively for the estimated loss for abandonment of the leased facilities, net of estimated sublease rentals. The 2002 provision includes $3.5 million for additional estimated losses associated with facilities previously abandoned.

          The Company has made cash payments of approximately $8.9 million and has written-off approximately $1.6 million in non-cash charges against the reserves established for these various cost reduction actions. The remaining liability at December 31, 2002 is approximately $13.5 million, of which $8.2 million is long-term and is expected to be paid through 2009.

     Other Income (Expense) Items

          Other Income (Expense). Other income increased $0.3 million to an income of $2.2 million for the year ended December 31, 2002, from an income of $1.9 million for the year ended December 31, 2001. The improvement in other income is due to a $1.7 improvement in foreign currency exchange transactions offset by lower interest income of $1.4 million caused by lower interest rates and a decrease in funds held in marketable securities. Although we periodically buy forward contracts to hedge against foreign currency fluctuations, we may have foreign currency gains or losses that can vary from period to period.

          Income Tax. Tax provisions of $0.5 million and $0.1 million were recognized during the years ended December 31, 2002 and 2001, respectively. 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 the amount of future taxable income. No tax benefit has been recognized on losses incurred in our North American operations and

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foreign operations.

Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000

     Revenue

          Total Revenue. Total revenue declined by $21.3 million, or 17.9%, to $97.5 million for the year ended December 31, 2001, from $118.8 million for the year ended December 31, 2000. International revenue accounted for 46.6% of total revenue in 2001 and 39.5% of total revenue in 2000. No single customer accounted for more than 10.0% of total revenue in 2001 or 2000.

          Software License. Software license revenue declined $14.3 million, or 37.2%, to $24.0 million for the year ended December 31, 2001, from $38.3 million for the year ended December 31, 2000. This decline was primarily attributable to the global slowdown in customer spending for large-scale IT projects during 2001. The decline was most significant during the third and fourth quarters of 2001 that were further adversely impacted by the terrorist attacks upon the United States on September 11, 2001. North America and Europe both experienced declines in license sales, while license sales in Asia Pacific improved slightly as a result of improved revenues from alliance and industry partners and from the sale of new EXceed Collaborate products. During the final months of 2001, we made significant changes to our U.S. sales operations, including new sales executive leadership and sales personnel with the goal of improving our lead generation activity and future sales results. This transition also contributed to lower than expected license revenues.

          Services and Maintenance. Services and maintenance revenue declined $7.1 million, or 10.4%, to $61.6 million for the year ended December 31, 2001, from $68.7 million for the year ended December 31, 2000. The decline was attributed to lower software sales caused by the global slowdown in customer spending for large-scale IT projects during 2001, which reduced our services and maintenance revenue opportunities. Most of the declines were in North America and Europe and were consistent with the declines in software license revenues. The decline in consulting and training revenue for the year ended December 31, 2001 was 15.3% when compared with the consulting and training revenue in the prior year. This decline is largely attributable to the continuing decline of service revenue from the EXceed Fulfill WMS Unix-based products (formerly known as EXceed 2000 warehouse management system product). These products have been largely replaced by our newer EXceed Fulfill WMS products that feature flexible data handling for complex distribution environments and provide a more easily deployed solution. These declines were partially offset by a 12.0% improvement in maintenance revenue for the year ended December 31, 2001 that is attributed to additional maintenance revenue from new sales and maintenance renewals.

          Resale of Software and Equipment. Resale software and equipment revenue increased $1.1 million, or 13.7%, to $9.3 million for the year ended December 31, 2001, from $8.2 million for the year ended December 31, 2000. The increase was largely due to significant sales to a single customer that provided 25.5% of the resale revenue during 2001.

     Costs and Expenses

          Cost of Software Licenses. Cost of software licenses declined $0.7 million, or 48.3%, to $0.7 million for the year ended December 31, 2001, from $1.4 million for the year ended December 31, 2000. The decrease was due to a decline in license revenues during the year ended December 31, 2001 and the inclusion in the prior year of the cost of purchasing a partner’s transportation management software that was sold to our customer to operate in concert with our EXceed Fulfill products. Cost of software licenses

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represented 3.0% of software license revenue for the year ended December 31, 2001 and 3.6% of software license revenue for the year ended December 31, 2000.

          Cost of Services and Maintenance. Cost of services and maintenance declined $12.4 million, or 23.2%, to $41.2 million for the year ended December 31, 2001, from $53.6 million for the year ended December 31, 2000. The decline was caused by a reduction in the number of full time employees and contracted services and maintenance staff in response to the decline in the market for global IT spending during the current year. As a percentage of services and maintenance revenue, cost of services and maintenance decreased to 66.8% for the year ended December 31, 2001, from 78.0% for the year ended December 31, 2000. The decrease in cost as a percentage of services and maintenance revenue was due to efforts to improve productivity (i.e., higher revenue generated per employee).

          Cost of Resale of Software and Equipment. Cost of resale software and equipment increased $1.0 million, or 15.2%, to $7.6 million for the year ended December 31, 2001, from $6.6 million for the year ended December 31, 2000. The increase was due to a higher sales volume of resale software and equipment, which resulted in higher purchase costs. As a percentage of resale of software and equipment revenue, cost of resale of software and equipment was 81.5% for the year ended December 31, 2001 and 80.4% for the year ended December 31, 2000.

          Sales and Marketing. Sales and marketing expenses increased $2.1 million, or 8.4%, to $27.2 million for the year ended December 31, 2001, from $25.1 million for the year ended December 31, 2000. The increase in sales and marketing expense was largely attributable to the additional sales and marketing expense associated with the acquisition of the AllPoints operations and bad debt expenses associated with bankrupt direct-to-consumer and e-commerce companies and write-offs of license sales receivables in Japan caused by the severe recession conditions. As a percentage of total revenue excluding reimbursable expenses, sales and marketing expenses increased to 28.7% for the year ended December 31, 2001, from 21.8% for the year ended December 31, 2000. The increase in sales and marketing expense as a percentage of total revenue was the result of lower-than-anticipated revenue due to the economic environment.

          Research and Development. Research and development expenses increased $5.0 million, or 52.5%, to $14.6 million for the year ended December 31, 2001, from $9.6 million for the year ended December 31, 2000. The increase in research and development expenses was due primarily to an increase in the number of employees obtained through the AllPoints acquisition and hired to develop and enhance our EXceed Collaborate Suite of products. As a percentage of total revenue excluding reimbursable expenses, research and development expenses increased to 15.4% for the year ended December 31, 2001, from 8.3% for the year ended December 31, 2000. This increase in the level of spending as a percentage of total revenue for the year ended December 31, 2001 was due to the lower-than-anticipated revenues caused by the economic environment.

          General and Administrative. General and administrative costs increased $3.8 million, or 26.6%, to $18.3 million for the year ended December 31, 2001, from $14.4 million for the year ended December 31, 2000. The increase in general and administrative expenses was due to higher personnel-related expenses associated with the acquisition of AllPoints, opening and staffing new offices in Benelux, France, and Germany, and increased consulting and contract services costs associated with outsourcing and upgrading internal information systems. As a percentage of total revenue excluding reimbursable expenses, general and administrative expenses increased to 19.2% for the year ended December 31, 2001, from 12.5% for the year ended December 31, 2000. This increase in the level of spending as a percentage of total revenue for the year ended December 31, 2001 was due to the lower-than-anticipated revenues caused by the current economic environment.

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          Amortization of Intangibles. Amortization of intangibles increased $3.8 million to $8.4 million for the year ended December 31, 2001, from $4.6 million for the year ended December 31, 2000. The increase in amortization primarily relates to intangibles acquired in connection with the acquisition of AllPoints, all of which were written off in November 2001.

          Non-Cash Warrant and Stock Compensation. Non-cash warrant and stock compensation expense decreased $1.2 million to $1.6 million for the year ended December 31, 2001, from $2.8 million for the year ended December 31, 2000. Warrant expense decreased $1.0 million for the year ended December 31, 2001 versus 2000 due primarily to stock warrants that were issued in 1999 in connection with a consulting agreement with an independent third party. Additionally, stock compensation expense decreased $0.7 million for the year ended December 31, 2001 due to terminations prior to full vesting that reduced the amount of amortization for deferred compensation recorded in connection with stock options granted to employees between October 1999 and June 2000. This was offset by $0.5 million of new amortization on deferred compensation recorded in the current year associated with the acquisition of AllPoints and the employment of an executive officer. 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.

          Impairment of Intangibles. Impairment of intangibles was $26.7 million for the year ended December 31, 2001. This write-off relates to intangibles acquired in connection with the acquisition of AllPoints that are impaired due to decisions to no longer sell and market AllPoints’ products or utilize its technology in future product offerings.

          Loss on Lease Abandonment and Employee Severance and Other Facility Closure Costs. During the year ended December 31, 2001, we announced and implemented plans to reduce costs. Loss on lease abandonment and employee severance and other facility closure costs was $14.3 million for the year ended December 31, 2001. These charges included $10.2 million in abandonment of certain leased office space less estimated sublease rentals at facilities in North America and in Europe, $3.5 million for severance and other employee related costs for the termination of 233 employees, $0.3 million for disposal of fixed assets, and $0.3 million for abandonment of leased equipment and other facility closure costs.

Other Income (Expense) Items

          Other Income (Expense). Other income increased $2.3 million to an income of $1.9 million for the year ended December 31, 2001, from a loss of $0.4 million for the year ended December 31, 2000. The improvement in other income was due to higher interest income of $0.7 million and lower interest expense of $1.1 million, and a reduction in other losses of $0.5 million that is largely attributed to a reduction in foreign exchange losses due to the implementation of a foreign currency-hedging program in 2001.

          Income Tax. A tax provision of $0.1 million was recognized during the year ended December 31, 2001 for foreign income taxes. No income tax benefit was recorded during the years ended December 31, 2001 and 2000 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 December 31, 2002 we had approximately $37.4 million in cash and marketable securities, a decline of approximately $7.9 million during the twelve months ended December 31, 2002.

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          Net cash used by operating activities was $6.1 million for the year ended December 31, 2002. The net loss before non-cash adjustments (depreciation and amortization, provision for losses on receivables, amortization of deferred compensation, write-down of property and equipment, and minority interest) was approximately $12.2 million, while operating assets and liabilities generated approximately $6.1 million of cash. Accounts receivable declined approximately $3.4 million, resulting from an improvement in our receivable days outstanding from approximately 121 days at the end of 2001 to approximately 80 days at the end of 2002. Additionally, accounts payable were $2.5 million higher than at the end of 2001, accrued liabilities grew by approximately $1.8 million, and deferred revenues declined by approximately $1.3 million. Net cash used in operating activities was $9.7 million for the comparable year ended December 31, 2001.

          Net cash used by investing activities was $3.2 million for the year ended December 31, 2002. Investing activities for 2002 included $1.0 million for the purchase of the rights to certain developed software technology (see Note 7 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data) and $0.7 million for property and equipment. Net cash used in investing activities was $0.3 million for the comparable twelve months ended December 31, 2001. We expect that capital expenditures will not exceed $1.0 million in 2003.

          Net cash used by financing activities was $0.1 million for the year ended December 31, 2002. We generated cash of $0.4 million from the issuance of common stock and reduced long-term debt by approximately $0.5 million. Net cash provided by financing activities was $0.5 million for the comparable twelve months ended December 31, 2001.

          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 a minimum $10.0 million cash and marketable securities balance, restrictions on dividends 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. There were no borrowings under this agreement during 2002.

          We currently have operating lease obligations of approximately $42.7 million. Approximately $38.8 million of the total lease obligations relate to our Dallas facility lease for approximately 195,000 square feet, which expires in 2015. Currently, we occupy less than 50% of the space and we are attempting to sublease the unoccupied leased space. Provisions have been made for estimated losses on certain leases which are abandoned (see Note 17 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data), 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 our abandoned Dallas facility 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 operating lease payments shown on the table below 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 during 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, other than the operating leases previously discussed.

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     The following table summarizes our contractual obligations as of December 31, 2002 and the effect these obligations are expected to have on our liquidity and cash flow in future periods (in millions).

(a)		Includes $10.6 million which is included as current and long-term liabilities on the Consolidated Balance Sheet at December 31, 2002.
(b)		Certain purchase commitments include minimum annual purchase obligations. The amounts included above are an estimate of the cash payments we will expect to make under these agreements.

Recently Issued Accounting Pronouncements

     In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146). SFAS 146 provides guidance on the accounting for recognizing, measuring and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS 146 adjusts the timing of when a liability for termination benefits is to be recognized based on whether the employee is required to render future service. A liability for costs to terminate an operating lease or other contract before the end of its term is to be recognized when the entity terminates the contract or ceases using the rights conveyed by the contract. All other costs associated with an exit or disposal activity are to be expensed as incurred. SFAS 146 requires the liability to be measured at its fair value with subsequent changes in fair value to be recognized each reporting period utilizing an interest allocation approach. The provisions of SFAS 146 are required to be applied prospectively after the adoption date to newly initiated exit activities, and may affect the timing of recognizing future restructuring costs, as well as the amounts recognized. This Statement is effective for exit or disposal activities initiated after December 31, 2002.

     In November 2002, the Emerging Issues Task Force (EITF) reached a consensus regarding EITF Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” The consensus provides guidance on how to account for certain arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. While the Company will continue to evaluate the requirements of EITF Issue No. 00-21, management does not currently believe adoption will have a significant impact on its accounting for multiple element arrangements as such accounting will generally continue to be accounted for pursuant to the American Institute of Certified Public Accountants Statement of Position 97-2, “Software Revenue Recognition,” and related pronouncements.

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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 $3.3 million in 2000, $63.9 million in 2001 and $23.8 million in 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 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.

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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 customer’s 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 L. Cowan, our President and Chief Executive Officer, and Kenneth R. Vines, our Senior Vice President, Chief Financial Officer, Secretary and Treasurer, joined us in November 2002 and May 2002, respectively. Additionally, Mark Weaser, President, Asian Operations has been an employee of the Company for several years. Failure to integrate Mr. Cowan or Mr. Vines into the Company or with the senior management team, or should one of the executives leave the Company it 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.

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     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.

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 portion of our revenues in the future from new and enhanced products currently being developed, including EXceed AIM and EXceed SNx. 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.

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 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 have 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

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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.

     Our growth is dependent in part on our ability to attract new customers for our products. We derive a substantial portion of our revenue from the sale of additional products and services to our existing customers. If we are unable to expand our customer base by attracting new customers for our products, our business will suffer. In addition, a material reduction in the demand for our products and services from our existing customers would have a material adverse effect on our business, financial condition and results of operations.

Our international operations are subject to heightened risks. If any of these risks actually occur, our earnings could decline.

     International revenue accounted for approximately 52.2% of our total revenue during the year ended December 31, 2002, 46.6% of our total revenue during the year ended December 31, 2001, and 39.5% of our total revenue during the year ended December 31, 2000.

     Our international operations are subject to risks inherent in international business activities, including:

•		difficulty in staffing and managing geographically diverse operations;
•		longer accounts receivable payment cycles in certain countries;
•		compliance with a variety of foreign laws and regulations;
•		unexpected changes in regulatory requirements and overlap of different tax structures;
•		greater difficulty in safeguarding intellectual property;
•		trade restrictions;
•		changes in tariff rates and import and export licensing requirements; and
•		general economic conditions in international markets.

     In addition, we have expanded our offshore research and development activities. In the instance of a political upheaval in certain regions, our development process could be severely disrupted. Our operating results could be negatively impacted if these or other factors affect international operations.

Because many of our customers pay us in foreign currencies, we may be exposed to exchange rate risks and our profitability may suffer due to currency fluctuations.

     A majority of the revenue and expenses incurred by our international operations are denominated in currencies other than the United States dollar. In particular, our revenue and costs of operations in Japan and Singapore are denominated in Japanese Yen and Singapore Dollars and in Europe some of our contracts are denominated in the Euro. Exchange rate fluctuations have caused and will continue to cause currency transaction gains and losses. We experienced currency transaction gains (losses) of $1.2 million, $(0.5) million, and $(0.8) million for the years ended December 31, 2002, 2001 and 2000, respectively. We can give you no assurance that currency transaction losses will not adversely affect our results in future periods.

Our success depends on our ability to attract and retain key personnel, in particular knowledgeable and experienced sales and marketing personnel and professional services personnel. If we are unable to attract these personnel and use them efficiently, our ability to sell and implement our software could be harmed.

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     We believe our success will depend significantly on our ability to attract, motivate and retain highly skilled technical, managerial, consulting, sales and marketing personnel and professional services personnel. We compete intensely for these personnel, and we may be unable to achieve our personnel goals. Our failure to attract, motivate and retain such highly skilled personnel could seriously limit our ability to expand our business.

     Our operating performance, personnel reductions and lower stock price over the last two years has made it difficult to retain key personnel. There is no assurance we will be able to retain our key personnel in the future.

     Also, we believe our success will depend on our ability to productively manage our personnel. Any significant growth in software license revenue will likely generate the need for more professional services personnel to deploy and implement software and to train customers. A shortage in the number of trained personnel, either within our Company or available from outside consulting firms, could limit our ability to implement our software on a timely and cost-effective basis. Our operating performance will suffer if we generate insufficient revenue to cover growth-related expenses, significantly strain management resources with additional responsibilities, fail to successfully expand our relationships and develop additional relationships with third-party implementers and complementary software vendors or fail to have sufficiently trained sales and marketing personnel and professional services personnel.

The length and complexity of our implementation cycle may result in implementation delays, which may cause customer dissatisfaction.

     The introduction of new products and the size and complexity of some of our software implementations can result in lengthy implementation cycles and may result in delays. These delays could result in customer dissatisfaction, which could adversely affect our reputation. Additional delays could result if we fail to attract, train and retain services personnel, or if our alliance companies fail to commit sufficient resources towards implementing our software. These delays and resulting customer dissatisfaction could harm our reputation and cause our revenue to decline.

The use of fixed-price service contracts subjects us to the risk that we may not successfully complete these contracts on budget.

     We offer software implementation and related consulting services to our customers. Although we typically provide services on a “time and material” basis, we have from time to time entered into fixed-price service contracts, and we expect that some customers will demand these contracts in the future. These contracts specify certain milestones to be met by us regardless of actual costs incurred in meeting those obligations. If we are unable to successfully complete these contracts on budget, our earnings could suffer.

We rely on software licenses that may be terminated or unavailable to us on commercially reasonable terms.

     We market and resell, under license, third party software, including:

•		software embedded in our products;
•		software that enables our software to interact with other software systems or databases; and
•		software in conjunction with which our software operates.

     We also license software tools used to develop our software and software for internal systems. We cannot assure you that the third party software or software tools will continue to be available to us on commercially reasonable terms. The loss or inability to maintain any of these software licenses could

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result in delays or reductions in product shipments until equivalent software could be identified and licensed or compiled, which could harm our business.

We could be subject to legal actions by former personnel, which could be costly, divert management time and attention and harm our operating results.

     During 2001 and 2002, we terminated approximately 343 of our services, sales, development and administrative personnel. It is possible that some of these employees could bring legal actions against us under applicable federal, state or local laws. Any such claims, whether with or without merit, could subject us to costly litigation and the diversion of management time and attention, and successful claims could result in awards of damages to or reinstatement of former employees, any of which could harm our operating results.

Our non-cancelable, long-term lease of office space in Dallas, Texas is substantially in excess of our expected facility requirements resulting in significant future cash obligations for unused office space, which could negatively impact our financial condition in the future.

     We lease approximately 195,000 square feet of office space in Dallas, Texas under a lease that extends to 2015. Amounts due the landlord over the remaining term of the lease are in excess of $38.8 million. Currently, we occupy less than 50% of the office space. Approximately half of the office space has been abandoned and a reserve for the estimated loss has been provided in the Consolidated Financial Statements. Although we have attempted to renegotiate the lease terms, the landlord has been unwilling to modify the lease or reduce the lease cost. We have also been unable to sublease the excess office space. As a result, we will be required to continue to make significant lease payments in the future for the unused space.

Product liability and other claims related to our customers’ business operations could result in substantial costs.

     Many of our installations involve projects that are critical to the operations of our clients’ businesses and provide benefits that may be difficult to quantify. Any failure in a client’s system or any intellectual property infringement claims by third parties could result in a claim for substantial damages against us, regardless of our responsibility for the failure or for the alleged intellectual property infringement. We cannot assure you that our customer contracts will protect us in the event of any such claim. In addition, although we maintain general liability insurance coverage, including coverage for errors or omissions, we cannot assure you that this coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage.

     The successful assertion of one or more large claims against us that exceeds available insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could result in substantial costs.

     Five customers have requested defense and indemnification from us for threatened patent claims against them by a third party relating to bar code technology. For additional information about these requests, see “Item 1. Business—Intellectual Property” herein.

Should our stock price fall below $1 per share for a period of time our common stock could be de-listed from the NASDAQ National market.

     During the last half of 2002 our common stock price was subject to de-listing on the NASDAQ National Market due to our stock price being below $1 per share for a specified period of time. Our shareholders approved a one for seven reverse stock split which was effective in January 2003. As a result

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of the reverse stock split, our stock price increased substantially above $1 per share. Should our stock price fall below $1 per share again, we could be subject to de-listing again.

     If our common stock is de-listed by NASDAQ and our securities begin to trade on the OTC Bulletin Board maintained by NASDAQ, another over-the-counter quotation system, or on the pink sheets, investors may find it more difficult to dispose of or obtain accurate quotations as to the market value of the securities. In addition, we would be subject to a rule promulgated by the Securities and Exchange Commission that, if we fail to meet criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transactions prior to sale. Consequently, the rule may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. De-listing from NASDAQ will make trading our shares more difficult for investors, potentially leading to further declines in our share price. It would also make it more difficult for us to raise additional capital. Further, if we are de-listed we could also incur additional costs under state blue-sky laws in connection with any sales of our securities.

     Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the low share price of the common stock can result in an individual stockholder paying transaction costs that represent a higher percentage of total share value than would be the case if the share price were higher. This factor may also limit the willingness of institutions to purchase our common stock.

We expect our results of operations to fluctuate, and the price of our common stock could fall if quarterly results differ from the expectations of securities analysts.

     Our operating results historically have fluctuated on a quarterly basis and may continue to do so in the future. If our quarterly results differ from the expectations of securities analysts, the price of our common stock could fall. Some of the factors that could cause our operating results to fluctuate include:

•		general economic conditions;
•		demand for our products and services;
•		our competitors’ products and prices;
•		the timing and market acceptance of new product introductions and upgrades by us or our competitors;
•		our success in expanding our services, customer support and marketing and sales organizations, and the timing of these activities;
•		the mix of products and services sold;
•		delays in, or cancellations of, customer implementations;
•		customers’ budget constraints;
•		the level of research and development expenditures;
•		the size of recurring compensation charges;
•		changes in foreign currency exchange rates;
•		our ability to control costs; and
•		the timing of acquisitions and of the amortization or impairment of intangible assets.

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     A large portion of our expenses, including expenses for facilities, equipment and personnel, is relatively fixed. Accordingly, if our revenue declines or does not grow as anticipated, we may not be able to correspondingly reduce our operating expenses in a timely manner. Failure to achieve anticipated levels of revenue could therefore significantly harm our operating results for a particular fiscal period.

Our stock price could be extremely volatile and may result in litigation against us.

     The stock market has experienced significant price and volume fluctuations, and the market price for our common stock has been in the past and could continue to be volatile. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. Litigation could result in substantial costs and a diversion of management’s attention and resources.

The concentration of ownership of our common stock may have the effect of delaying or preventing a change of control of us.

     Our directors, executive officers and their affiliated companies beneficially own more than 40% of our outstanding common stock. As a result, these stockholders will have the ability to significantly influence the election of our directors and the outcome of corporate actions requiring stockholder approval. This concentration of ownership may have the effect of delaying or preventing a change of control of us. As a result, if these stockholders voted as a group, they would have the ability to significantly influence the outcome of corporate actions requiring stockholder approval.

We have implemented anti-takeover provisions that may discourage a change of control.

     Our certificate of incorporation authorizes the issuance of 20,000,000 shares of preferred stock. Our board of directors has the power to determine the price and terms of any preferred stock. The ability of our board of directors to issue one or more series of preferred stock without stockholder approval could deter or delay unsolicited changes of control by discouraging open market purchases of our common stock or a non-negotiated tender or exchange offer for our common stock. Discouraging open market purchases may be disadvantageous to our stockholders who may otherwise desire to participate in a transaction in which they would receive a premium for their shares.

     In addition, some provisions of our certificate of incorporation and by-laws may also discourage a change of control by means of a tender offer, open market purchase, proxy contest or otherwise. These provisions include:

•		a board that is divided into three classes, each of which is elected to serve staggered three year terms;
•		provisions under which only the board of directors or our chief executive officer or secretary may call a special meeting of the stockholders;
•		provisions which permit the board of directors to increase the number of directors and to fill these positions without a vote of the stockholders;
•		provisions under which no director may be removed at any time except for cause and by a majority vote of the outstanding shares of voting stock; and
•		provisions under which stockholder action may be taken only at a stockholders meeting and not by written consent of the stockholders.

These provisions may have the effect of discouraging takeovers and encouraging persons seeking to acquire control first to negotiate with us.

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Risks Relating to Our Industry

We face intense competition from numerous competitors, some of whom have a significant competitive advantage over us. If we lose our competitive position, our revenue could decline.

     The market for fulfillment, collaboration and inventory management solutions is intensely competitive, fragmented and subject to rapid technological change. The principal competitive factors in our market include:

•		adherence to emerging Internet-based technology standards;
•		comprehensiveness of applications;
•		adaptability and flexibility;
•		immediate, interactive capability with customer and partner systems;
•		financial viability;
•		global capability;
•		references from existing customers;
•		industry domain experience and expertise;
•		ability to support specific industry requirements;
•		ease of application use and deployment;
•		speed of implementation;
•		customer service and support; and
•		initial price and total cost of ownership.

     Because we offer fulfillment, traditional supply chain, collaboration, inventory management and supply network execution software, we consider a number of companies in different market categories to be our competitors. Our competitors include companies and groups that:

•		focus on providing fulfillment applications;
•		offer enterprise platforms for order management, fulfillment and inventory management; and
•		service internal customers, such as internal information technology groups.

     We believe that the market for integrated fulfillment, collaboration, inventory management and supply network execution solutions is still in its formative stage, and that no currently identified competitor represents a dominant presence in this market.

     We expect competition to increase as a result of software industry consolidation. New competitors could emerge and rapidly capture market share. We can give you no assurance that we can maintain our competitive position against current and potential competitors, especially those with greater name recognition, comparable or superior products, significant installed customer bases, long-standing customer relationships or the ability to price products as incremental add-ons to existing systems. If we lose our competitive position, our revenue could decline.

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The market for our software is characterized by rapid technological change. If we fail to respond promptly and effectively to technological change and competitors’ innovations, our growth and operating results could be harmed.

     The market for fulfillment, warehousing, distribution, inventory management and supply network execution systems experiences rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. Our growth and future operating results will depend in part on our ability to enhance existing applications and develop and introduce new applications or components. These new applications must:

•		meet or exceed technological advances in the marketplace;
•		meet changing customer requirements;
•		respond to competitive products; and
•		achieve market acceptance.

     Our product development and testing efforts have required, and are expected to continue to require, substantial investments. Also, we may be unable to successfully identify new software opportunities and develop and bring new software to market quickly and efficiently. Our software may not achieve market acceptance and current or future products may not conform to industry standards in the markets served. If we are unable to develop and introduce new and enhanced software in a timely manner, our growth and operating results could be harmed.

We depend on intellectual property laws, which may not fully protect us from unauthorized use or misappropriation of our proprietary technologies.

     We rely on intellectual property laws, confidentiality procedures and contractual provisions to protect our proprietary rights in our products and technology. These measures afford only limited protection to us, particularly on an international basis. We may be unable to avoid infringement or misappropriation claims regarding current or future technology, or unable to adequately deter misappropriation or independent third-party development of our technology. In addition, policing unauthorized use of our products is difficult.

     We are unable to determine the extent to which piracy of our software products exists and software piracy could become a problem. Litigation to defend and enforce our intellectual property rights could result in substantial costs and diversion of resources, regardless of the final outcome of such litigation.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We develop products in the United States and market our products in North America, Europe, the Middle East, Asia and Australia. Revenues outside the United States were 39.5%, 46.6% and 52.2% of our total revenues in 2000, 2001 and 2002, respectively. Most of our foreign subsidiaries’ sales and expenses are made in local currencies. International sales denominated in currencies other than the U.S. dollar are primarily in the Japanese Yen, Singapore dollar and the Euro. Accordingly, we are exposed to fluctuations in currency exchange rates. Foreign currency transaction gains (losses) were approximately $(0.8) million, $(0.5) million and $1.2 million for the years ended December 31, 2000, 2001 and 2002, respectively. Because most of our sales are currently made in U.S. dollars, a strengthening of the dollar could make our profits less competitive in foreign markets.

     Our net assets denominated in currencies other than U.S. dollars as of December 31, 2002 were approximately $8.0 million. A potential loss in the value of these net assets resulting from a hypothetical 10% adverse change in foreign exchange rates would be approximately $0.8 million.

     In January 2001, we began a foreign currency-hedging program to hedge certain nonfunctional currency exposure. Forward currency exchange contracts are utilized by us to reduce foreign currency exchange risks with the goal of offsetting foreign currency transaction gains and losses recorded for accounting purposes with gains and losses realized on the forward contracts. We do not hold derivative financial instruments for trading or speculative purposes.

     As of December 31, 2002, the Company had outstanding forward currency exchange contracts of $3.0 million to sell Japanese Yen and $2.0 million to sell Euro which hedge certain foreign currency 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 December 31, 2002, the current market settlement values of the forward contracts would result in a loss of approximately $0.2 million.

     We used a portion of the proceeds obtained from our August 2000 initial public offering to repay all outstanding amounts under our revolving credit facility and term loan, which we subsequently terminated. To the extent that we enter into a new credit facility in the future, future interest expense could be subject to fluctuations based on the general level of U.S. interest rates.

     We have invested the remaining proceeds from our initial public offering in investment grade corporate and government securities and money market funds. The primary objective of our investment activities is to preserve capital while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. As of December 31, 2002, we had $17.6 million of securities that mature in 90 days or less and $16.6 million of securities that mature between 90 days and one year. We do not believe that we have any material exposure to interest rate risk.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT AUDITORS

Stockholders and
Board of Directors
EXE Technologies, Inc.

We have audited the accompanying consolidated balance sheets of EXE Technologies, Inc. and subsidiaries as of December 31, 2001 and 2002, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of EXE Technologies, Inc. and subsidiaries at December 31, 2001 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

Dallas, Texas
March 28, 2003

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EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS