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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2001

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______


COMMISSION FILE NUMBER 000-30828

PRECISE SOFTWARE SOLUTIONS LTD.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


ISRAEL NOT APPLICABLE
- ------------------------------- ----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION
NUMBER)

10 HATA'ASIYA STREET
P.O. Box 1066
Or-Yehuda, Israel 60408
- ---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 972 (3) 634-5111

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

NONE

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

ORDINARY SHARES, PAR VALUE 0.03 NIS PER SHARE

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 report(s), 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. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 22, 2002, was approximately $699 million (based on the
closing price of the registrant's Ordinary Shares on March 22, 2002, of $24.85
per share). This excludes 331,306 ordinary shares deemed to be held by
affiliates. Exclusion of shares should not be construed to indicate that such
person possesses the power, direct or indirect, to direct or cause the direction
of the management or policies of the registrant, or that such person is
controlled by or under common control with the registrant.

The number of the registrant's Ordinary Shares outstanding as of March 22,
2002 was 28,475,772.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a proxy statement pursuant to Regulation 14A
within 120 days of the end of its fiscal year ended December 31, 2001. Portions
of such proxy statement are incorporated by reference into Part III of this
Report.
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PRECISE SOFTWARE SOLUTIONS LTD.

ANNUAL REPORT ON FORM 10-K

YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS


PAGE NO.
--------
PART I


Item 1. Business............................................................................. 1
Item 2. Properties........................................................................... 10
Item 3. Legal Proceedings.................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.................................. 10


PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 10
Item 6. Selected Consolidated Financial Data................................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 31
Item 8. Financial Statements and Supplementary Data.......................................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure........................................................................... 31


PART III

Item 10. Directors and Executive Officers of the Registrant................................... 31
Item 11. Executive Compensation............................................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management of Precise............ 31
Item 13. Certain Relationships and Related Transactions....................................... 32


PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................... 32

Index to Consolidated Financial Statements......................................................... F-1

SIGNATURES......................................................................................... II-1


INDEX TO EXHIBITS.................................................................................. II-2


PART I

Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K are forward-looking statements that
involve risks and uncertainties. Precise makes such forward-looking statements
under the provision of the "Safe Harbor" section of the Private Securities
Litigation Reform Act of 1995. Any forward-looking statements should be
considered in light of the factors described below in Item 7 under "Factors That
May Affect Future Results." Actual results may vary materially from those
projected, anticipated or indicated in any forward-looking statements. In this
Annual Report on Form 10-K, the words "anticipates," "believes," "expects,"
"intends," "future," "could," and similar words or expressions (as well as other
words or expressions referencing future events, conditions or circumstances)
identify forward-looking statements.

ITEM 1. BUSINESS

BUSINESS

OVERVIEW

Precise Software Solutions Ltd. is a provider of software that assists
organizations in monitoring and optimizing the performance of their enterprise
software applications across the Information Technology ("IT") infrastructure.
Businesses rely on the proper functioning of their IT application
infrastructure, which consists of networks, operating systems, servers,
applications, databases and storage devices to help manage traditional and
electronic business activities. Precise's software allows an organization to
continuously monitor its application infrastructure performance and be alerted
when application performance parameters exceed user-established thresholds. When
the software detects a performance problem, it also provides technology support
personnel with a thorough set of diagnostic data that pinpoints the specific
root cause of application performance degradation and offers suggested
alternatives to alleviate the problem. Precise's software serves those
businesses that rely on enterprise applications to cut costs, improve
efficiencies and generate revenues.

Precise was incorporated in 1990. Our U.S. headquarters are located at 690
Canton Street, Westwood, Massachusetts 02090, and our telephone number is (781)
461-0700. Our international office is located at 10 Hata'asiya Street,
Or-Yehuda, Israel 60408. Precise's Web site is located at www.precise.com, but
information contained on it does not constitute part of this Annual Report on
Form 10-K. The terms "Precise," "we," "us" and "our" as used in this Annual
Report on Form 10-K refer to Precise Software Solutions Ltd. and its
subsidiaries as a combined entity, except where it is made clear that such term
means only the parent company.

INDUSTRY BACKGROUND

Global competitive pressures are driving businesses to continuously seek new
and better ways to develop, market and maintain their products and services, as
well as attract, serve and retain their customers. To enhance their
competitiveness and serve business objectives, organizations are using IT. In
particular, an organization's IT infrastructure, which consists of networks,
operating systems, servers, applications, databases and storage devices, must
proactively support e-business initiatives. E-business occurs when employees,
customers, partners and vendors share information and conduct business
electronically. With the emergence of e-business, this infrastructure is no
longer just a cost center, but a means by which an organization can increase
operational and cost efficiencies and drive revenue generation. To enable and
support e-business activities, a complex and multi-tiered IT infrastructure of
technologies and services has evolved. As technical and operational complexities
have increased, so have user demands for efficiency and performance.

Today's businesses depend on custom-developed as well as packaged Enterprise
Resource Planning (ERP) and Customer Relationship Management (CRM) applications
to gain a competitive advantage and improve the efficiency of critical
e-business processes. These applications are the means through which an
organization controls, manages and expands its business operations and achieves
commonality of data and process.

The management of this heterogeneous, distributed and rapidly changing IT
environment, which is supporting continuously growing transaction and data
volumes, has become increasingly challenging. Efficient management of the IT
infrastructure involves addressing the needs and problems of all constituencies
across the extended enterprise.

1

Each class of user has different performance requirements and defines, and
refers to, its own performance metrics and problems differently. As a result,
technology support personnel are faced with the ongoing challenge of reconciling
these disparate needs and problems before they can optimize performance across
the entire application infrastructure. Equally challenging is the need to manage
this application infrastructure without employing techniques or technologies
that consume substantial additional resources and create further burdens on the
system. In addition, application performance must align with business priorities
so that, for example, critical revenue-generating applications, such as
completing an online sale, are processed prior to non-revenue generating
applications, such as posting data to an organization's accounting system.
Finally, management of the application infrastructure has become increasingly
challenging for an organization due to the increasing cost to hire and retain
the necessary personnel to manage it and the general shortage of qualified
technology professionals.

Our software solutions provide an integrated end-to-end, correlated view of
application performance and identify the interrelationships among the different
components of a customer's IT infrastructure - applications, network, operating
systems, servers, databases and storage devices. By monitoring and analyzing the
overall performance of the IT application infrastructure - from URL to SQL -
they pinpoint the root causes of performance degradation quickly and proactively
and determine their impacts on the entire IT application infrastructure - before
they affect end-users. By identifying trends and deviations, and translating
diverse performance data into a common language, our Application Performance
Management solutions bridge the gap between technology and business to
facilitate performance optimization and strategic planning. We call these
solutions Precise i3: Insight, Indepth and Inform. The Insight products contain
our end-to-end technology; the Indepth products include our drill-down
technology; and the Inform products contain our communications technology.

2

PRODUCTS

PRODUCT FAMILY PRODUCT FUNCTIONS


INSIGHT

Precise/Insight Precise/Insight measures the overall
response time of a multi-tier IT
application infrastructure and the
time spent in each technology tier,
helping to isolate the source of
performance degradation. It isolates
the response time delivered to a
geographical location or a business
unit and provides a consistent view
across the diverse technologies that
contribute to a business transaction.

Precise/Savvy Precise/Savvy overlays an application
view on top of Precise/Insight's
infrastructure perspective.
Precise/Savvy measures the response
time of an application transaction and
reports the results in units specific
to the application. Precise/Savvy
application coverage: Precise/Savvy
for Oracle, Precise/Savvy for Web,
Precise/Savvy for J2EE Platform,
Precise/Savvy for SAP R/3,
Precise/Savvy for BEA Tuxedo and
Precise/Savvy for Siebel.

INDEPTH

Precise/Crosspoint Precise/Crosspoint correlates
application, operating system,
database, and HP Surestore XP's disk
array storage performance metrics for
monitoring and tuning. Works as an
add-on product to Precise/Indepth for
Oracle.

Precise/Indepth for DB2 UDB Precise/Indepth for DB2 UDB monitors,
analyzes and helps tune DB2 UDB-based
applications and databases to ensure
that those applications perform at
peak efficiency. After being alerted
to a performance issue, the software
assists the user in identifying the
specific causes of slow performance.
The product permits users to view the
access path that the database has
chosen for a query from an
application, automatically generates
Structured Query Language (" SQL")
statements that will access the
database in a different manner, and
projects the performance improvement
if the change is made. Through an
internal data warehouse called the
Precise Performance Warehouse,
Precise/Indepth for DB2 UDB supports
long-term analysis and proactive
management by providing historical
performance information.

Precise/Indepth for J2EE Precise/Indepth for J2EE provides
performance management for server side
Java applications. It measures the
response time of HTTP requests
(servlets and JSPs) and EJB
invocations. It segments response time
by J2EE application server and
database server, and correlates
problematic SQL statements with EJBs,
JSPs, and servlets. SmarTune, added in
a recent release, automatically
identifies the root cause of J2EE
application performance problems and
recommends the most appropriate
corrective actions. This product
currently supports BEA's WebLogic,
IBM's WebSphere and Macromedia's JRun
J2EE application servers.

Precise/Indepth for Oracle Precise/Indepth for Oracle monitors,
(formerly Precise/SQL) analyzes and helps tune Oracle-based
applications and databases to ensure
that those applications perform at
peak efficiency. After being alerted
to a performance issue, the software
assists the user in identifying the
specific causes of slow performance.
The product

3

permits users to view the access path
that the database has chosen for a
query from an application,
automatically generates SQL statements
that will access the database in a
different manner, and projects the
performance improvement if the change
is made. In addition, the software can
simulate the result of a change in the
way the database is organized and
provide a full cross-reference between
database objects and the statements
that access them. Through the Precise
Performance Warehouse, Precise/Indepth
for Oracle supports long-term analysis
and proactive management by providing
historical performance information.

Precise/Interpoint Precise/Interpoint works as an add-on
product to Precise/Indepth for Oracle
and Precise/Indepth for DB2 UDB to
optimize ERP application performance.
By tracing a query from the ERP
application back to the initiating
person and form, Precise/Interpoint
provides information to the ERP
manager concerned with detecting and
correcting performance issues. The ERP
manager can then implement changes
suggested by Precise/Indepth for
Oracle and Precise/Indepth for DB2 UDB
or other changes to the ERP
application to improve performance.
This product supports Oracle
Applications and SAP R/3 ERP
environments.

Precise/Savant Precise/Savant provides visual
indicators to quickly diagnose the
performance of an Oracle enterprise
database environment. The software
solution detects abnormal performance
events and signals the administrator
via a real-time visual dashboard.
Intelligent display objects provide
the entry point for drill down
analysis and root cause investigation.
By providing "at a glance" performance
management, administrators see more
information, more timely, with more
comprehension, minimizing the time to
detect and correct performance
degradation.

Precise/StorageCentral SRM Precise/StorageCentral SRM is a
Storage Resource Management software
that monitors and controls disk
utilization in real time. The software
provides web-based reports on storage
content, usage and trending to ensure
appropriate disk allocation thus
eliminating server downtime from
exceeded capacity.

INFORM

Precise/Foresight Precise/Foresight is a web-based
performance portal that brings
Precise's performance data to the IT
and business staff that can leverage
it. Built-in expert analysis and
display techniques provide the IT team
with a common language across diverse
technology domains and the visibility
needed to clearly communicate the top
issues that need to be addressed.

Precise/Pulse! Precise/Pulse! monitors performance
metrics, triggering alerts and/or
tuning activity when user-defined
performance thresholds or baselines
are exceeded. Once an alert is
triggered, the user can use other
Precise products to locate and fix the
specific problem. This product is
compatible with many leading
monitoring products provided by other
software vendors.

4

We plan to continue to introduce Application Performance Management
solutions targeted at specific market and business segments to answer the call
for business-focused solutions.

SALES AND MARKETING

We sell our software through direct sales, indirect channels, resellers and
strategic relationships. To date, we have licensed our software to over 4,500
customers worldwide. Our North American sales organization is headquartered in
Westwood, Massachusetts, with additional sales offices in the U.S. metropolitan
areas of Atlanta, Chicago, Dallas, Denver, Detroit, New York, and Reston,
Virginia, and in Toronto, Canada. Our international sales organization is based
in metropolitan Tel Aviv, Israel, and we have additional sales offices in
France, Germany, Holland, the United Kingdom, Australia, China, and Malaysia.

DIRECT SALES. A sales team is comprised of a sales manager, in-house account
manager and systems engineer. The sales team for each customer is responsible
for qualifying leads, understanding the customer's problem, providing the
appropriate product information, and building and maintaining relationships with
personnel who have purchasing responsibility in the customer's organization.
Strategically, we use our direct sales force to generate repeat sales from our
installed customer base, negotiate license terms, sell products and professional
services engagements, and introduce and gain immediate feedback on our new
products. Our sales cycle varies substantially from customer to customer. When a
prospect or an existing customer evaluates one or more of our application
performance products for multiple departments or servers, the sales cycle may
range from one to four months.

INDIRECT SALES. Our Premier Partner Program is designed to attract vendors
that can establish new channels for our products in North and South America.
These vendors include application software vendors, system integrators, and
value-added resellers who market our products in Argentina, Brazil, Chile, Costa
Rica, Mexico, Peru, the United States, Venezuela, and the West Indies. The
valued-added products and services of these vendors combine with our products
serve to deliver a more complete solution to our customers. Outside of North and
South America, we sell our products through vendors that report to our
metropolitan Tel Aviv office. These vendors market our products in the Czech
Republic, Denmark, Finland, Hungary, Iceland, India, Israel, Italy, Japan,
Korea, Norway, Poland, Singapore, South Africa, Sweden, Switzerland, and Taiwan.

MARKETING ACTIVITIES. We undertake various marketing activities to generate
leads for our sales efforts and to enhance market awareness of our software and
services. Our marketing activities include company-sponsored seminars, and print
and electronic advertisements. We also seek to increase market awareness of our
software and services by working with industry analysts, user groups, and the
trade press to communicate our successful product implementations. We also
engage in targeted marketing through direct-mail and eblasts, and participation
in trade shows and speaking engagements. Our software trial program, which
generally runs for a seven day period and covers most of our products, allows us
to demonstrate our technology to potential customers.

STRATEGIC RELATIONSHIPS

EMC CORPORATION. EMC Corporation began selling our products in the fourth
quarter of 1999. EMC markets an exclusive bundled version of Precise/Indepth for
Oracle, Precise/Indepth for DB2 UDB and Precise/Presto for EMC software, called
Database (DB) Tuner, to its customers for use solely with EMC's storage
products, as well as providing EMC and EMC end customers with professional
services. Under the terms of our agreement with EMC, they pay us a fee on the
sales of these products to end users subject to the protection of a minimum
price per product. The term of our agreement is five years and can be extended
for one-year periods but may be earlier terminated in the event of a breach by
either party. Our relationship with EMC affords us opportunities to sell our
products into the EMC operating environment. Revenue from EMC in 2001
represented more than 10% of our total revenues.

5

AMDOCS. We currently have a strategic relationship with Amdocs, a provider
of information systems solutions to telecommunications companies, to sell
Precise i3 along with the Amdocs product offering. Under the terms of our
agreement, Amdocs pays us license and maintenance fees on the sale of these
products to end customers. This agreement expired in June 2001, but was
automatically renewed for an additional one-year term and will be renewed for
successive one-year terms unless either Precise or Amdocs notifies the other 30
days in advance of its desire to terminate the agreement. Revenue from Amdocs in
2001 represented more than 10% of our total revenues.

OTHER. We also have strategic original equipment manufacturer or "OEM"
relationships with Microsoft Corporation and Powerquest to sell bundled versions
of our products and have strategic reselling relationships with Hewlett-Packard
Company and SAP America.

PROFESSIONAL SERVICES

We also provide professional services that deliver the technological
expertise our customers need to optimize the performance of their IT
infrastructures. Our complete suite of professional services offerings includes
remote management, performance audit and accelerator engagements, implementation
services, and training.

CUSTOMER SUPPORT

Our customer support group provides both pre- and post-sales technical
support to our customers and prospects. Our base level of e-mail, Web, fax, and
telephone-based support, which we provide during conventional business hours,
includes assistance with installation, configuration and initial product setup,
ongoing product support, and software maintenance and upgrade releases. For
additional fees, we provide support 24 hours per day, seven days per week,
throughout the year.

We provide customer support for North and South America through our offices
in Westwood, Massachusetts and Reston, Virginia. We also provide local support
in the United Kingdom, Holland, Germany, and France. We provide customer support
in the rest of the world through our office in Israel and our network of
international resellers. Our support agreements are generally 12 months in
duration and are renewable at the customer's option.

RESEARCH AND DEVELOPMENT

Our research and development organization, based in metropolitan Tel Aviv,
Israel, Reston, Virginia, and Denver, Colorado, is responsible for developing
new software products, enhancing core technologies, conducting product testing
and quality assurance, and ensuring the compatibility of our products with
hardware and software platforms. Our research and development staff is focused
on delivering products that will support our product development strategy. The
engineers are market oriented and maintain a close relationship with our sales
personnel as well as our customers to better understand their needs.

COMPETITION

The market for infrastructure performance management software is rapidly
evolving and intensely competitive. This market is characterized by rapid
technological change, evolving industry standards and changing customer
requirements. We expect competition to increase in the future. Our primary
competitors are BMC Software, Quest Software, Mercury Interactive, Oracle, and
Wily Technology.

Many of our competitors and potential competitors have greater name
recognition, a larger installed customer base and significantly greater
financial, technical, marketing and other resources and experience than we do.
Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of their products than we can. In addition,
because there are relatively low barriers to entry in the software market, we
may encounter additional competition as other established and emerging companies
enter our field and introduce new products and technologies.

6

In addition to the competition that we may face because of the internal
development efforts of our competitors, current and potential competitors may
make strategic acquisitions or establish cooperative relationships among
themselves or with third parties, in turn increasing their ability to address
the needs of our current or prospective customers. Accordingly, it is possible
that new competitors or alliances among current and new competitors may emerge
and rapidly gain market share.

Many of our existing and potential customers evaluate on an on-going basis
whether to develop their own application performance management software or
purchase it from outside suppliers. As a result, we must, on an on-going basis,
educate existing and potential customers on the advantages of our software over
internally developed application performance software as well as our
competitors' products.

Our existing and potential customers have a pre-set budget for which we
compete along with our competitors. We currently compete primarily on the basis
of the following factors: breadth of functionality; product effectiveness;
scalability; ease of installation and use; and price.

We believe that we currently compete favorably with respect to each of these
factors. However, the Application Performance Management market is still rapidly
evolving, and we may not be able to compete successfully against present or
future competitors, which could harm our operating results.

PROPRIETARY RIGHTS AND LICENSING

Our success and ability to compete are dependent on our ability to develop,
maintain and protect the proprietary aspects of our technology. We rely on a
combination of trademark, trade secret and copyright laws and contractual
restrictions to protect the proprietary aspects of our technology. We seek to
protect our source code for our software, documentation and other written
materials under trade secret and copyright law. We license our software to
end-users under signed license agreements and under electronic (shrink-wrap)
agreements that restrict the customer's use to its own operations and prohibit
disclosure to third parties. The enforceability of shrink-wrap licenses is
unproven in certain jurisdictions. Finally, we seek to avoid disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality and assignment of invention
agreements with us and by restricting access to our source code.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our technology or products or to obtain and use
information that we regard as proprietary. In addition, we sell our products
throughout the world. The laws of many countries do not protect our proprietary
rights to the same extent as the laws of Israel or the United States. Litigation
may be necessary in the future to enforce our intellectual property rights, to
protect our trade secrets and to determine the validity and scope of the
proprietary rights of others. Any resulting litigation, even if we ultimately
prevail, could result in substantial costs and diversion of resources and could
adversely affect our business and operating results.

A portion of the funding used to develop Precise/Indepth for Oracle software
came from grants made by the Office of Chief Scientist of the Israel Ministry of
Industry and Commerce. As a result, this software may not be manufactured, nor
may the technology embodied in this software, be transferred outside of Israel
without appropriate governmental approvals. We currently manufacture
Precise/Indepth for Oracle in Israel. These restrictions do not apply to the
sale or export from Israel of Precise/Indepth for Oracle. Under the terms of the
grants, we owe royalties to the Israeli government on sales of Precise/Indepth
for Oracle until we have repaid an amount equal to 100% to 150% of the amount of
the grants we received. These restrictions continue to apply to us even after we
have paid the full amount of royalties. If the Office of Chief Scientist
consents to the manufacturing of Precise/Indepth for Oracle outside Israel, the
regulations prescribe the payment of increased royalties, ranging from 120% to
300% of the amount of the grant, depending on the percentage of foreign
manufacture. As of December 31, 2001 we had no outstanding contingent liability
with respect to these royalties.

Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. In the event
of a successful claim of infringement against us and our failure or inability to
license the infringed technology on acceptable terms, our business and operating
results would be significantly harmed.

7

We integrate various third party software products as components of our
software under the terms of licensing agreements that permit us to do so. To
date, the integrated software components have not been related to the core
elements of our software products. The terms of the license agreements are
generally renewable or we believe we could license or develop alternative
components at a reasonable cost if the need arose.

Precise/Insight TM, Precise/Savvy TM, Precise/Indepth TM,
Precise/Crosspoint TM, Precise/Interpoint R, Precise/Savant TM, Precise/Inform
TM, Precise/Foresight! TM , Precise/Pulse! TM, SmarTune TM, Precise/i3 TM ,
Precise/Storage Central TM, Precise/Sitestor TM and the Precise Software
Solutions logo are trademarks or service marks of Precise Software Solutions
Ltd. or our subsidiaries. This Annual Report on Form 10-K also contains
trademarks, trade names and service marks of other companies that are the
property of their respective owners.

EMPLOYEES

At December 31, 2001, we had a total of 389 employees. None of our employees
is subject to a collective bargaining agreement and we believe that our
relations with our employees are good.

Certain provisions of the collective bargaining agreement between the
Histadrut (the General Federation of Labor in Israel) and the Coordination
Bureau of Economic Organizations (including the Industrialists' Association of
Israel) apply to our Israeli employees by virtue of expansion orders of the
Israeli Ministry of Labor and Welfare. These provisions principally concern the
length of the work day and the work week, minimum wages for workers,
contributions to pension funds, insurance for work-related accidents, procedures
for dismissing employees, determination of severance pay and other conditions of
employment. Furthermore, these provisions provide that the wages of most of our
employees are automatically adjusted based on changes in the Israeli Consumer
Price Index. The amount and frequency of these adjustments are modified from
time to time.

Israeli law generally requires the payment of severance pay by employers
upon the termination without due cause or death of an employee. Precise
currently funds its ongoing severance obligations by making monthly payments to
approved severance funds or insurance policies. In addition, according to the
National Insurance Law, Israeli employees and employers are required to pay
specified sums to the National Insurance Institute, which is similar to the U.S.
Social Security Administration. Since January 1, 1995, these amounts also
include payments for national health insurance. The payments to the National
Insurance Institute are approximately 14.5% of wages (up to a specified amount),
of which the employee contributes approximately 66% and the employer contributes
approximately 34%.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

For further information concerning the geographic distribution of our
revenues and assets, please refer to Note 12 to the consolidated financial
statements included in Part II of this Annual Report on Form 10-K.

EXECUTIVE OFFICERS OF THE REGISTRANT

SHIMON ALON has served as our Chief Executive Officer since September 1997
and as one of our directors since December 1998. From September 1997 until
December 2000, he also served as President. Mr. Alon served at Scitex
Corporation, a supplier of digital imaging solutions for graphic communication
image processing equipment, and its affiliates in varying executive management,
sales, marketing, and customer support capacities from October 1982 to September
1996. From November 1995 to September 1996, Mr. Alon was Scitex Corporation's
Senior Executive Vice President of the Graphic Art Division. From May 1995 to
September 1996, Mr. Alon was Scitex America Corporation's President and Chief
Executive Officer. From January 1993 to May 1995, Mr. Alon served Scitex Europe
Ltd. as Managing Director. Mr. Alon serves as a director of ORBIT/FR, Inc.

ITZHAK "AKI" RATNER has served as our President since December 2000. Prior
to that, he served as General Manager of our Israeli office from May 1997 to
December 2000 and served as our Vice President of Research and Development from
May 1997 to September 2000. Before joining Precise, Mr. Ratner served in the
Israeli Air Force from August 1981 to June 1996 in various software development
management positions. From February 1993 to

8

June 1996, Mr. Ratner served in the Israeli Air Force as a lieutenant
colonel in charge of client/server project development.

J. BENJAMIN H. NYE has served as our Vice President of Finance and Chief
Financial Officer since February 2000. Prior to joining Precise, Mr. Nye was a
principal of Allied Capital Corporation, a publicly-traded investment fund,
where he structured and oversaw private debt and equity investments in a
portfolio of operating companies. From February 1993 to June 1997, Mr. Nye was a
senior advisor to U.S. Treasury Secretaries Lloyd Bentsen and Robert Rubin in
the U.S. Department of the Treasury.

JOSEPH R. MCCURDY has served as our Executive Vice President of Business
Operations since January 2001. He is responsible for managing our distribution
channels - both direct sales and alliance partnerships. Prior to joining
Precise, from October 1999 to April 2000, Mr. McCurdy served as the President
and Chief Executive Officer of Tempest Software, Inc. From September 1991 to
June 1999, Mr. McCurdy served as Vice President at Boole & Babbage (acquired by
BMC Software) where he was responsible for sales and field support in the
northeast, southeast and the federal government. Concurrently, Mr. McCurdy
served as the Site Manager for the Storage Division with responsibility for
development, marketing, administration and sales. Mr. McCurdy has also held
senior sales positions at XA Systems Corp, Shared Medical Systems, and IBM.

ANDREW D. BIRD has served as our Executive Vice President of Marketing since
April 2001. He is responsible for the strategic direction and positioning of
Precise, including corporate strategy and global marketing. Prior to joining
Precise, Mr. Bird served as European Business Unit Director for BMC Software
where he was responsible for the market development of BMC's Systems Management
products across Europe, the Middle East and Africa. From 1996 to 1998 Mr. Bird
served as Vice President of Marketing for BGS Systems, which was acquired by BMC
Software, where he was responsible for global marketing and market development.
From 1990 to 1996, Mr. Bird served as Managing Director of BGS System's United
Kingdom operation where he was responsible for marketing, administration and
sales for the United Kingdom and major European countries. Mr. Bird has also
held senior sales positions at Cullinet, CCS and Cincom Systems.

OTHER KEY EMPLOYEES

RAMI SCHWARTZ has served as our Vice President of Research and Development
since September 2000 and as General Manager of our Israeli office since July of
2001. From October 1999 to September 2000, Mr. Schwartz was the Vice President
of Development of Amdocs. From June 1985 to June 1999, Mr. Schwartz served with
the Israeli Air Force Software Development Division most recently as its
Division Commander.

CHUCK DELOUIS has served as our Vice President of Professional Services
since May 2000. Prior to joining Precise, Mr. DeLouis served as the Director of
Technology at Creative Data, a data warehouse consulting company specializing in
large-scale e-commerce and web enabled data warehousing implementations. In
1998, Mr. DeLouis served as Director of MIS at Mango Software, a leading
developer of software-based web caching solutions. From 1992 to 1997, Mr.
DeLouis held a variety of positions at Sybase including Technical Support
Manager and Senior IT Manager responsible for the integration of PowerSoft and
Sybase.

DANIEL GERMAIN has served as the Vice President and Director of Customer
Service of our U.S. subsidiary since November 1995. From September 1994 to
November 1995, Mr. Germain served Open Data Inc., a data access software
company, as Product Manager and Senior Systems Engineer. From August 1991 to
September 1994, Mr. Germain served as Senior Systems Engineer for Information
Builders, Inc., an information systems software developer.

MICHAEL KILLORAN has served as the Vice President of North American Sales of
our U.S. subsidiary since October 1999. From June 1996 to October 1999, Mr.
Killoran served our U.S. subsidiary in various regional sales capacities. From
October 1992 to June 1996, Mr. Killoran was a Regional Sales Manager with BMC
Software (formerly Boole & Babbage Company), a developer of systems management
software.

HAIM KOPANS has served as our Vice President of Product Management since
March 1997 and is one of our founders. From August 1990 to March 1997, Mr.
Kopans served as our Development Manager. Mr. Kopans was a

9

database consultant and Product Division Manager with SCP Systems, a software
distributor and provider of consulting services, from February 1989 to August
1990 and a DB2 systems analyst for the Israeli Defense Forces prior to that. Mr.
Kopans is a Certified Systems Analyst.

ITEM 2. PROPERTIES

Our U.S. headquarters, located in Westwood, Massachusetts, are under a
lease, which expires in July 2004. Our offices located in Reston, Virginia are
under a lease, which expires in July 2009. Our international offices, located in
metropolitan Tel Aviv, Israel are under a lease, which expires in December 2004.
In addition, we have also entered into leasing arrangements for space in
Australia, France, Germany, Holland, Malaysia, Canada and the United Kingdom. We
believe that our existing facilities are adequate for our current needs and that
suitable additional or alternative space should be available in the future on
commercially reasonable terms as needed.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material pending legal proceedings.

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

No matters were submitted to a vote of our security holders during the
fourth quarter of the fiscal year ended December 31, 2001.

PART II

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

Precise commenced its initial public offering of ordinary shares on June 29,
2000 at a price to the public of $16.00 per share. As of March 22, 2002, there
were approximately 97 holders of record of Precise's ordinary shares. Precise's
ordinary shares are listed and traded on the Nasdaq National Market under the
symbol "PRSE."

The following table sets forth, for the periods indicated, the range of high
and low sales prices for Precise's ordinary shares since its initial public
offering, all as reported by the Nasdaq National Market.

2000 HIGH LOW
Second Quarter $ 28.69 $ 18.75
Third Quarter $ 44.38 $ 18.44
Fourth Quarter $ 42.38 $ 19.81

2001 HIGH LOW
First Quarter $ 31.63 $ 12.88
Second Quarter $ 30.70 $ 11.13
Third Quarter $ 30.10 $ 9.55
Fourth Quarter $ 23.88 $ 9.92

Precise has not paid any cash dividends on its ordinary shares and currently
intends to retain any future earnings for use in its business. Precise does not
anticipate that any cash dividends will be declared or paid on the ordinary
shares in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

During the fiscal year ended December 31, 2001, Precise issued the following
securities that were not registered under the Securities Act of 1933, as
amended:

In September 2001, Precise acquired W. Quinn Associates, Inc. In
connection with this acquisition, and pursuant to the terms of the
Agreement and Plan of Merger dated September 4, 2001, Precise issued an

10

aggregate of 774,413 ordinary shares to the shareholders of W. Quinn as
partial consideration for all of the outstanding capital stock of W.
Quinn. These shares were registered for resale in February 2002.

No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations thereunder
or were issued outside of the United States in transactions not subject to the
United States federal securities laws. All of the foregoing securities are
deemed restricted securities for purposes of the Securities Act.







11

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the related notes
included elsewhere in this Annual Report on Form 10-K.

The selected consolidated statement of operations data set forth below for
the years ended December 31, 1999, 2000 and 2001, and the selected consolidated
balance sheet data as of December 31, 2000 and 2001 are derived from our audited
consolidated financial statements that are included elsewhere in this Report.
The selected consolidated statement of operations data for the years ended
December 31, 1997 and 1998 and the selected consolidated balance sheet data as
of December 31, 1997, 1998 and 1999 are derived from audited consolidated
financial statements that are not included in this Report. These financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles.

YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(in thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:

Software licenses ..................................... $ 2,382 $ 5,331 $ 9,770 $ 22,968 $ 43,903
Services .............................................. 406 858 1,844 4,580 11,694
-------- -------- -------- -------- --------
Total revenues .................................. 2,788 6,189 11,614 27,548 55,597
Cost of revenues:
Software licenses ..................................... 349 522 741 742 362
Services, net ......................................... 86 198 906 1,693 3,143
-------- -------- -------- -------- --------
Total cost of revenues .......................... 435 720 1,647 2,435 3,505
-------- -------- -------- -------- --------
Gross profit ............................................ 2,353 5,469 9,967 25,113 52,092
-------- -------- -------- -------- --------
Operating expenses:
Research and development, net ......................... 1,737 2,214 2,891 4,987 10,924
Sales and marketing, net .............................. 3,278 5,739 7,913 20,749 34,675
General and administrative, net ....................... 1,341 1,272 1,598 3,923 7,046
Amortization of deferred stock compensation, goodwill
and intangible assets ................................ -- 300 234 6,250 4,970
In-process research and development write-off ......... -- -- -- 2,200 86
-------- -------- -------- -------- --------
Total operating expenses ........................ 6,356 9,525 12,636 38,109 57,701
-------- -------- -------- -------- --------
Operating loss .......................................... (4,003) (4,056) (2,669) (12,996) (5,609)
Financial income (expense), and other, net .............. (202) 34 71 3,091 6,565
-------- -------- -------- -------- --------
Income (loss) from continuing operations ................ (4,205) (4,022) (2,598) (9,905) 956
Income tax provision .................................... -- -- -- -- 33
Income (loss) from discontinued operations, net of tax .. (192) -- -- -- --
Gain from disposal of business segment .................. 182 -- -- -- --
-------- -------- -------- -------- --------
Net Income (loss) ....................................... $ (4,215) $ (4,022) $ (2,598) $ (9,905) $ 923
======== ======== ======== ======== ========
Net earnings (loss) per share:
Continuing operations ................................. $ (2.35) $ (1.31) $ (0.79) $ (0.77) $ 0.03
Discontinued operations ............................... (0.01) -- -- -- --
-------- -------- -------- -------- --------


Basic and diluted net earnings (loss) per share ......... $ (2.36) $ (1.31) $ (0.79) $ (0.77) $ 0.03
======== ======== ======== ======== ========
Weighted average number of shares used in computing basic
net earnings (loss) per share ......................... 1,785 3,077 3,299 12,901 26,745
======== ======== ======== ======== ========
Weighted average number of shares used in computing
diluted net earnings (loss) per share ................. 1,785 3,077 3,299 12,901 29,971
======== ======== ======== ======== ========

12


DECEMBER 31,
--------------------------------------------------
1997 1998 1999 2000 2001
-------- --------- --------- --------- -------
(in thousands)
CONSOLIDATED BALANCE SHEET DATA:

Cash and cash equivalents................................. $ 301 $ 844 $ 6,693 $82,218 $35,144
Working capital (deficit)................................. (3,656) 242 7,709 120,147 74,005
Total assets.............................................. 2,673 4,333 12,986 178,681 203,183
Shareholders' equity (deficiency)......................... (3,079) 742 8,293 166,876 185,659
















13

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

THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, WHICH INVOLVE
RISKS AND UNCERTAINTIES. PRECISE MAKES SUCH FORWARD-LOOKING STATEMENTS UNDER THE
PROVISION OF THE "SAFE HARBOR" SECTION OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. ANY FORWARD-LOOKING STATEMENTS SHOULD BE CONSIDERED IN LIGHT
OF THE FACTORS DESCRIBED BELOW IN THIS ITEM 7 UNDER "FACTORS THAT MAY AFFECT
FUTURE RESULTS." ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE PROJECTED,
ANTICIPATED OR INDICATED IN ANY FORWARD-LOOKING STATEMENTS. IN THIS ITEM 7, THE
WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," "COULD," AND
SIMILAR WORDS OR EXPRESSIONS (AS WELL AS OTHER WORDS OR EXPRESSIONS REFERENCING
FUTURE EVENTS, CONDITIONS, OR CIRCUMSTANCES) IDENTIFY FORWARD-LOOKING
STATEMENTS. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH "SELECTED CONSOLIDATED FINANCIAL DATA" AND THE ACCOMPANYING CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS FORM 10-K.

OVERVIEW

Precise is a provider of software that assists organizations in monitoring
and optimizing the performance of their complex Information Technology
infrastructure. We were incorporated in November 1990. Initially, we focused on
developing and marketing performance management software for mainframe computer
systems. In 1995, we shifted our focus to Application Performance Management
software for Oracle database environments. In 1996, we released the initial
version of our Precise/SQL software, now called Precise Indepth for Oracle, for
database monitoring. Since 1998, we have released or acquired new products and
continually updated our product suite making the following products generally
available:

RELEASE PRODUCT
------- -------
1998 Precise/Pulse!, Precise/Presto for
EMC, Precise/Interpoint

2000 Precise/Insight, Precise/Savant

2001 Precise/Foresight, Precise/Indepth
for J2EE, Precise/Savvy for Oracle,
Web, J2EE, SAP R/3, BEA Tuxedo, and
Siebel, Precise/Indepth for DB2 UDB,
Precise/Crosspoint, Precise/Storage
Central SRM, Precise i3 Suite

In September 2001, we completed the acquisition of all of the capital stock
of W. Quinn Associates, Inc. ("W. Quinn") for approximately $34.1 million in a
combination of cash and ordinary shares. We issued 774,413 ordinary shares and
paid $20.1 million in cash for the acquisition, which included $1.5 million in
transaction costs. In addition, W. Quinn shareholders received the right to
receive additional ordinary shares in an amount up to $17.5 million, based on
achievement of certain post-acquisition revenue and performance targets relating
to the one year period subsequent to closing. The business combination has been
accounted for using the purchase method and, accordingly, the purchase price has
been allocated to the fair value of the tangible assets acquired and the
liabilities assumed. Of the total purchase price, which included direct
acquisition costs, $25.5 million was allocated to goodwill, representing the
excess of the aggregate purchase price over the fair value of net assets
assumed, $2.1 million was allocated to acquired technology, $2.2 million was
allocated to acquired patents, $2.3 million was allocated to trademarks and
customer relationships, and a one-time charge of approximately $86,000 was
charged on our statement of operations for acquired in-process research and
development in September 2001.

In December 2000, we completed the acquisition of all of the capital stock
of Savant Corporation for $16.7 million in a combination of cash and ordinary
shares. The total purchase price consisted of $13.9 million payable in 512,445
ordinary shares and $2.8 million in cash. The business combination has been
accounted for using the purchase method and, accordingly, the purchase price has
been allocated to the fair value of the tangible assets acquired and the
liabilities assumed. Of the total purchase price which included direct
acquisition costs, $9.0 million was allocated to goodwill, representing the
excess of the aggregate purchase price over the fair value of net liabilities
acquired, $3.2 million was allocated to acquired technology, $1.8 million was
allocated to customer relationships,

14

$1.1 million was allocated to acquired assembled work force, and a one-time
charge of approximately $2.2 million on our statement of operations for acquired
in-process research and development was taken in December 2000. In 2001, upon
the completion of the allocation of the purchase price and the resolution of
certain contingencies, the goodwill and purchase price were reduced by $1.4
million.

In February 2000, we completed the acquisition of all of the capital stock
of Knight Fisk Software Ltd., or Knight Fisk, our U.K. based distributor, for
cash and options to purchase our ordinary shares. The business combination has
been accounted for using the purchase method and, accordingly, the purchase
price has been allocated to the fair value of the tangible assets acquired and
the liabilities assumed. Of the total purchase price, approximately $0.7 million
was allocated to goodwill, representing the excess of the aggregate purchase
price over the fair value of the net liabilities assumed. Prior to the Knight
Fisk acquisition, we sold our products to Knight Fisk at discounts of up to 45%
off our list price and we recognized revenues based on our sales to Knight Fisk
at these discounted prices. Knight Fisk, in turn, would resell these products to
third party end users and recognize revenues based on these sales. Since Knight
Fisk is now our U.K. subsidiary, we recognize revenues on Knight Fisk sales to
third party end users based on the actual price of the products sold by Knight
Fisk, as required by principles of consolidation, rather than based on our sales
to Knight Fisk at a discounted price. As a result, our total revenues from the
U.K. have increased. Our operating expenses in the U.K. have increased due to
the Knight Fisk acquisition.

OUR CONSOLIDATED FINANCIAL STATEMENTS, WHICH ARE INCLUDED ELSEWHERE IN THIS
REPORT, ARE PREPARED IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES. THE FUNCTIONAL CURRENCY OF OUR OPERATIONS IS THE U.S. DOLLAR, WHICH
IS THE PRIMARY CURRENCY IN THE ECONOMIC ENVIRONMENT IN WHICH WE CONDUCT THE
MAJORITY OF OUR BUSINESS. WE HAVE OPERATIONS IN THE U.S., THE U.K., ISRAEL,
HOLLAND, AUSTRALIA, GERMANY, FRANCE, CHINA AND MALAYSIA WHERE BUSINESS IS
USUALLY CONDUCTED USING THE LOCAL CURRENCIES. WE DO NOT ENGAGE IN ANY CURRENCY
OR EXCHANGE RATE HEDGING ACTIVITIES TO MITIGATE OUR EXPOSURE TO THESE
FLUCTUATIONS. WE MAY, HOWEVER, ENGAGE IN THESE TYPES OF TRANSACTIONS IN THE
FUTURE.

RESULTS OF OPERATIONS

The following table presents certain consolidated statement of operations
data as a percentage of total revenues for the periods indicated:

Years Ended December 31,
---------------------------
Percent of Total Revenues: 1999 2000 2001
---- ---- ----

Revenues:
Software licenses...................................... 84% 83% 79%
Services............................................... 16 17 21
----- ----- -----
Total revenues...................................... 100 100 100
Cost of revenues:
Software licenses...................................... 6 3 1
Services, net.......................................... 8 6 5
----- ----- -----
Total cost of revenues.............................. 14 9 6
----- ----- -----
Gross profit.............................................. 86 91 94
Operating expenses:
Research and development, net........................... 25 18 20
Sales and marketing, net................................ 68 75 62
General and administrative, net.......................... 14 14 13
Amortization of deferred stock compensation 2 22 3
Amortization of goodwill and intangible assets - 1 6
In-process research and development write-off - 8 -
------ ------ ------
Total operating expenses............................ 109 138 104
----- --- ---
Operating loss............................................ (23) (47) (10)
Financial income and other, net........................... 1 11 12
----- ----- -----
Income (loss) before income tax provision................. (22) (36) 2
Income tax provision...................................... - - -
------ ------ ------
Net income (loss)......................................... (22)% (36)% 2%
===== ===== =====


15

YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001

REVENUES

We derive our revenues from the sale of software licenses and from services
consisting primarily of maintenance fees, and, to a lesser extent, professional
services. Total revenues were $11.6 million, $27.5 million, and $55.6 million in
1999, 2000, and 2001, respectively, representing an increase of $15.9 million,
or 137%, from 1999 to 2000, and an increase of $28.1 million, or 102%, from 2000
to 2001. One customer accounted for 15% and 13% of total revenues for the years
ended December 31, 1999 and 2001, respectively. In addition, one customer
accounted for 23% and 18% of total revenues for the years ended December 31,
2000 and 2001, respectively.

Revenues from sales of software licenses were $9.8 million, $23.0 million,
and $43.9 million in 1999, 2000, and 2001, respectively, representing an
increase of $13.2 million, or 135%, from 1999 to 2000, and an increase of $20.9
million, or 91%, from 2000 to 2001. The increase in software license revenue
from 1999 to 2000 is due to the increased volume of license sales, which is
attributable to continued expansion of the direct sales force and indirect sales
channels, and the strength of our OEM relationships. The increase in software
license revenue from 2000 to 2001 is due to increased volume of license sales
due to the expansion of the direct and indirect sales channels, the continued
strength of our OEM relationships, and the acquisition and introduction of new
products to the market.

Revenues from services were $1.8 million, $4.6 million, and $11.7 million in
1999, 2000, and 2001 respectively, representing an increase of $2.8 million, or
156%, from 1999 to 2000, and an increase of $7.1 million, or 155%, from 2000 to
2001. The increase in service revenue from 1999 to 2000 and from 2000 to 2001 is
attributable to additional maintenance agreements from new sales of software
licenses, renewals of annual maintenance agreements with existing customers and
additional professional services revenue.

COST OF REVENUES

Cost of revenues consists of costs associated with generating software
license and service revenues. Cost of revenues were $1.6 million, $2.4 million,
and $3.5 million in 1999, 2000, and 2001, respectively, representing an increase
of $0.8 million, or 50%, from 1999 to 2000, and an increase of $1.1 million, or
44%, from 2000 to 2001. Cost of revenues as a percentage of total revenues were
14%, 9%, and 6% in 1999, 2000, and 2001, respectively.

Cost of software license revenues consists primarily of royalties to the
government of Israel as consideration for royalty-bearing marketing and research
and development grants received in previous years and, to a lesser extent,
production costs. Cost of software license revenues were $0.7 million, $0.7
million, and $362,000 in 1999, 2000, and 2001, respectively, whereby the cost of
software licenses remained constant from 1999 to 2000 and decreased $380,000 or
51% from 2000 to 2001. The decrease in cost of software licenses from 2000 to
2001 is due to a decrease in the royalty expense owed to the Chief Scientist of
the Ministry of Industry and Trade. This royalty has been fully accrued at
December 31, 2001. Cost of software license revenues as a percentage of total
software license revenues were 8%, 3%, and 1% in 1999, 2000, and 2001,
respectively.

Cost of service revenues consists primarily of costs related to personnel
providing customer support and professional services. Cost of service revenues
were $0.9 million, $1.7 million, and $3.1 million in 1999, 2000, and 2001,
respectively, representing an increase of $0.8 million, or 89%, from 1999 to
2000, and an increase of $1.4 million, or 86%, from 2000 to 2001. The increase
from 1999 to 2000 and from 2000 to 2001 is due to the continued increase in the
number of customer support personnel hired to service our growing customer base
and to the hiring of additional personnel to provide professional services. Cost
of service revenues as a percentage of service revenues were 49%, 37%, and 27%
in 1999, 2000, and 2001, respectively.

RESEARCH AND DEVELOPMENT

Research and development expenses consist primarily of costs related to
research and development personnel, including salaries and other
personnel-related expenses, sub-contracting fees, facilities and computer
equipment used in our product and technology development. Research and
development expenses were $2.9 million, $5.0 million, and $10.9 million in 1999,
2000, and 2001, respectively, representing an increase of $2.1 million, or 72%,
from 1999 to 2000, and an increase of $5.9 million, or 119%, from 2000 to 2001.
The increase from 1999 to 2000 was attributable to the cost associated with the
development of new products to enhance our software suite, including
Precise/Insight and Precise/Foresight, which were introduced to the market in
2000 and early 2001, respectively. The increase was primarily related to
headcount related costs due to the increase in the number of software

16

developers and quality assurance personnel. The increase from 2000 to 2001 was
attributable to the cost associated with the development of new products to
enhance our software suite. In addition, we expanded our development team in
2001, which resulted in an increase in headcount costs.

SALES AND MARKETING

Sales and marketing expenses consist primarily of salaries and other
personnel-related expenses, commission and other costs associated with our sales
and marketing efforts. Sales and marketing expenses were $7.9 million, $20.7
million, and $34.7 million in 1999, 2000, and 2001, respectively, representing
an increase of $12.8 million, or 162%, from 1999 to 2000, and an increase of
$14.0 million, or 67%, from 2000 to 2001. The increase from 1999 to 2000 and
from 2000 to 2001 is primarily due to an increase in payroll and headcount
related expenses related to the increase in the number of people comprising our
direct sales force, an increase in commission expenses attributable to the
increase in software license revenues, and an increase in marketing
communications such as trade shows, seminars, and promotional activities.

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of salaries and other
personnel-related expenses from our administrative and finance personnel,
facilities, computer equipment and professional services fees. General and
administrative expenses were $1.6 million, $3.9 million, and $7.0 million in
1999, 2000, and 2001, respectively, representing an increase of $2.3 million, or
144%, from 1999 to 2000, and an increase of $3.1 million, or 80%, from 2000 to
2001. The increase from 1999 to 2000 and from 2000 to 2001is primarily
attributable to an increase in payroll and headcount related expenses.

AMORTIZATION OF DEFERRED STOCK COMPENSATION

Amortization of deferred stock compensation was $0.2 million, $ 6.2
million, and $1.9 million in 1999, 2000, and 2001, respectively, representing an
increase of $6.0 million from 1999 to 2000, and a decrease of $4.2 million from
2000 to 2001. The increase from 1999 to 2000 is attributable to an increase of
$6.0 million in compensation costs. The decrease from 2000 to 2001 is
attributable to deferred stock compensation being fully amortized and options
reaching the end of the vesting period throughout 2001.

AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS

Amortization of goodwill and intangible assets was $0, $ 99,000, and $3.0
million in 1999, 2000, and 2001, respectively, representing an increase of
$99,000 from 1999 to 2000, and an increase of $2.9 million from 2000 to 2001.
The increase from 1999 to 2000 is primarily attributable to one month of
amortization of goodwill relating to the acquisition of Savant Corporation. The
increase from 2000 to 2001 is attributable to amortization of goodwill and
intangible assets relating to the purchase of Savant Corporation and W. Quinn
Associates, Inc. in December of 2000 and September of 2001, respectively.

IN-PROCESS RESEARCH AND DEVELOPMENT WRITE-OFF

In-process research and development write-offs were $0, $2.2 million, and
$86,000 in 1999, 2000, and 2001, respectively, representing an increase of $2.2
million from 1999 to 2000, and a decrease of $2.1 million from 2000 to 2001. The
in-process research and development write-off from 2000 was related to the one
time write-off of software from the Savant acquisition for which technological
feasibility had not yet been established and for which no alternative future use
existed for the software. The in-process research and development write-off from
2001 was related to the one time write-off of software from the W. Quinn
acquisition for which technological feasibility had not yet been established and
for which no alternative future use existed for the software.

FINANCIAL INCOME AND OTHER, NET

Financial income and other, net was $71,000, $3.1 million, and $6.6 million
in 1999, 2000, and 2001, respectively, representing an increase of $3.0 million
from 1999 to 2000, and an increase of $3.5 million, or 112%,

17

from 2000 to 2001. The increase from 1999 to 2000 is attributable to interest
earned on the investment of the initial public offering and secondary offering
proceeds in marketable securities. The increase from 2000 to 2001 is
attributable to additional interest earned on a full year of investment of both
the initial public offering and the secondary offering, which occurred in June
of 2000 and November of 2000, respectively.

QUARTERLY RESULTS OF OPERATIONS

The following table presents certain consolidated statement of operations
data for each quarter of 2000 and 2001. We believe this information has been
prepared on the same basis as our annual consolidated financial statements and
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for the quarters presented.
This information should be read together with the consolidated financial
statements and the related notes included elsewhere in this Annual Report on
Form 10-K. The operating results for any quarter are not necessarily indicative
of the results for any future period.


THREE MONTHS ENDED

MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31,
2000 2000 2000 2000 2001 2001 2001 2001
-------- -------- -------- ------- -------- -------- -------- --------

Revenues:
Software licenses.................... $ 3,588 $ 4,875 $ 6,412 $ 8,093 $ 9,446 $ 9,995 $ 11,300 $ 13,161
Services............................. 954 870 1,227 1,529 2,064 2,712 3,028 3,891
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues................ 4,542 5,745 7,639 9,622 11,510 12,707 14.328 17,052
Cost of revenues:
Software licenses.................... 116 181 187 258 70 42 69 181
Services, net........................ 356 411 407 519 745 702 766 931
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of revenues........ 472 592 594 777 815 744 835 1,112
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit........................... 4,070 5,153 7,045 8,845 10,695 11,963 13,493 15,940
Operating expenses:
Research and development, net........ 1,019 1,032 1,386 1,550 2,236 2,688 2,850 3,149
Sales and marketing, net............. 3,754 4,555 5,478 6,962 7,633 8,121 8,688 10,233
General and administrative, net...... 609 758 1,273 1,283 1,552 1,586 1,887 2,020
Amortization of deferred stock
compensation........................ 780 2,938 1,235 1,198 713 469 404 345
Amortization of goodwill and
intangible assets................... -- -- -- 99 638 654 747 1,001
In-process research and
development write-off............... -- -- -- 2,200 -- -- 86 --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses.... 6,162 9,283 9,372 13,292 12,772 13,518 14,662 16,748
-------- -------- -------- -------- -------- -------- -------- --------
Operating loss......................... (2,092) (4,130) (2,327) (4,447) (2,077) (1,555) (1,169) (808)
Financial income (expenses) and other,
net................................... 37 99 1,236 1,719 2,106 1,765 1,621 1,073
-------- -------- -------- -------- -------- -------- -------- --------

Income (loss) before income tax
provision (2,055) (4,031) (1,091) (2,728) 29 210 452 265
Income tax provision -- -- -- -- -- -- -- 33
Net income (loss) $(2,055) $ (4,031) $ (1,091) $ (2,728) $ 29 $ 210 $ 452 $ 232
======== ======== ======== ======== ======== ======== ======== ========

Percent of Total Revenues:
Revenues:
Software licenses................... 79% 85% 84% 84% 82% 79% 79% 77%
Services............................ 21 15 16 16 18 21 21 23
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues............... 100 100 100 100 100 100 100 100
Cost of revenues:
Software licenses................... 2 3 3 3 1 0 1 1
Services, net....................... 8 7 5 5 6 6 5 6
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of revenues....... 10 10 8 8 7 6 6 7
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin........................... 90 90 92 92 93 94 94 93
Operating expenses:
Research and development, net....... 23 18 18 16 19 21 20 18
Sales and marketing, net............ 83 80 72 72 66 64 61 60
General and administrative, net..... 13 13 17 13 14 12 13 12
Amortization of deferred stock 17 51 16 13 6 4 3 2
compensation
Amortization of goodwill and
intangible assets................ -- -- -- 1 6 5 5 6
In-process research and development
write-off........................ -- -- -- 23 -- -- 0 --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses.... 136 162 123 138 111 106 102 98
-------- -------- -------- -------- -------- -------- -------- --------
Operating loss......................... (46) (72) (31) (46) (18) (12) (8) (5)
Financial income (expenses) and other,
net................................... 1 0 17 18 18 14 11 6
-------- -------- -------- -------- -------- -------- -------- --------

18


Income (loss) before income tax (45) (72) (14) (28) 0 2 3 1
provision
Income tax provision -- -- -- -- -- -- -- 0
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) (45)% (72)% (14)% (28)% 0% 2% 3% 1%
======== ======== ======== ======== ======== ======== ======== ========



LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have funded operations primarily through the sales
of our equity securities, including cash generated from our initial public
offering, in June 2000, and our secondary public offering, in November 2000,
which resulted in total net proceeds of approximately $147 million, the issuance
of convertible notes to shareholders and, to a lesser extent, borrowings from
financial institutions. As of December 31, 2001, our principal source of
liquidity was $136 million of cash and cash equivalents and marketable
securities. As of December 31, 2001, we had $134,000 of debt outstanding
relating to obligations under capital leases and an obligation for severance pay
to Israeli employees of $1.1 million that is fully provided by monthly deposits
with severance pay funds, insurance policies and by an accrual. As of December
31, 2001, our accumulated net deficit was $25.4 million.

Net cash provided by (used in) operating activities was ($2.6) million,
($0.7) million and $6.2 million in 1999, 2000, and 2001, respectively. Net cash
used in operating activities in 1999 and 2000 was primarily the result of net
losses, increases in other accounts receivable and prepaid expenses and
increases in trade receivables, year-to-year. These cash outflows were offset by
increases in accrued employee and payroll expenses, deferred revenue, and
amortization of goodwill, stock compensation, and in-process research and
development write-offs for 1999 and 2000. Net cash provided by operating
activities for 2001 was primarily the result of net income, depreciation,
amortization of goodwill, intangibles and stock compensation, decreases in other
accounts receivable and prepaid expenses, and increases in accrued employee and
payroll expenses and deferred revenues. These items were primarily offset by an
increase in trade receivables for 2001.

Net cash used in investing activities was $1.4 million, $72.1 million, and
$57.2 million in 1999, 2000, and 2001, respectively. Net cash used for investing
activities in 1999 consisted of capital expenditures and purchases of short-term
deposits. Investing activities in 2000 consisted of $70.8 million in purchases
of short-term and long-term marketable securities, $2.1 million related to
capital expenditures, and $3.3 million in payments relating to the acquisitions
of Savant Corporation and Knight Fisk Software. In 2000 the net cash used was
offset by $4.9 million in proceeds received from the sale and redemption of
short-term deposits and marketable securities. Investing activities in 2001
consisted of $89.4 million in purchases of short-term and long-term marketable
securities, $3.3 million related to capital expenditures, and $20.6 million in
payments relating to the acquisition of W. Quinn. The use of cash relating to
capital expenditures and acquisition activity was offset by $57.5 million in
proceeds received from the sale and redemption of short-term deposits and
marketable securities. The majority of our capital investments were for
computers, peripheral equipment and software.

Net cash provided by financing activities was $9.8 million, $148.3 million,
and $4.0 million in 1999, 2000, and 2001, respectively. The net cash provided by
financing activities in 1999 was primarily from net proceeds from the sale of
our preferred shares. Net cash provided in 2000 was primarily from the proceeds
of our initial public offering in June 2000 and our secondary public offering in
November 2000, offset slightly by the repayment of long-term debt. Net cash
provided in 2001 was primarily from the issuance of shares from the employee
stock purchase plan and the exercise of options.

We believe that our existing cash equivalents and marketable securities will
be sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. Thereafter, if we do not have
available sufficient cash to finance our operations, we may be required to
obtain additional debt or equity financing. We cannot be certain that we will be
able to obtain, if required, additional financing on acceptable terms, or at
all.

CRITICAL ACCOUNTING POLICIES

In December 2001, the SEC requested that all registrants discuss their
"critical accounting policies." A critical accounting policy is a policy that is
both important to the portrayal of our financial condition and results and
requires subjective or complex judgments, often as a result of the need to make
estimates about the effect of matters that are

19

inherently uncertain. While our significant accounting policies are discussed in
Note 3 to our consolidated financial statements included in this Form 10-K, we
believe the following accounting policies to be critical:

REVENUE RECOGNITION. We derive our revenues from the sale of software
licenses and from services. Our products are sold worldwide through a
combination of our direct sales force and indirect sales channels, including
original equipment manufacturers, or OEMs, and resellers. Our services revenues
consist primarily of fees derived from annual maintenance and support agreements
and consulting and training, none of which are considered essential to the
functionality of the software license.

The Company recognizes revenue in accordance with Staff Accounting Bulletin
No. 101 (SAB 101), which summarizes the views of the staff of the U.S.
Securities and Exchange Commission in applying generally accepted accounting
principles to revenue recognition. Generally revenues from our OEMs are
recognized when we receive reports of fees due upon the sublicensing of our
products by the OEMs. Software license revenues on sales to resellers and end
users are recognized when:

persuasive evidence of an agreement exists;

the product has been delivered;

all license payments are due within one year;

vendor-specific objective evidence exists;

the license fee is fixed or determinable; and

collection of the fee is probable.

Maintenance-related service revenues are recognized ratably over the term of
the maintenance agreement, which is typically one year. Consulting and training
revenues are recognized after the services are rendered.

Where software arrangements involve multiple elements, revenue is allocated
to each element based on vendor specific objective evidence, or VSOE, of the
relative fair values of each element in the arrangement in accordance with the
"residual method" prescribed by SOP 98-9. Our VSOE used to allocate the sales
price to training and maintenance is based on the price charged when these
elements are sold separately. License revenues are recorded based on the
residual method. Under the residual method, revenue is recognized for the
delivered elements when (1) there is VSOE of the fair values of all the
undelivered elements and (2) all revenue recognition criteria of SOP 97-2, as
amended, are satisfied. Under the residual method of accounting any discount in
the arrangement is allocated to the delivered elements. Should changes in
conditions cause management to determine these criteria are not met for certain
future transactions, revenue recognized for any subsequent reporting period
could be adversely affected.

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS. Goodwill associated with
the excess of purchase price over the fair value of assets acquired and other
intangible assets, such as trademarks and trade names, favorable leases, and
covenants not to compete are currently amortized using the straight-line method
over their estimated useful lives. These assets will be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.

In June 2001, the FASB issued SFAS No. 141 and SFAS No. 142. SFAS No. 141
requires business combinations initiated after June 30, 2001 to be accounted for
using the purchase method of accounting and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of the
non-amortization approach to account for purchased goodwill and certain
intangible assets. We have adopted SFAS No. 142 for the W. Quinn Associates, Inc
acquisition in September 2001, and have not amortized the associated goodwill
for 2001. We plan to adopt these pronouncements related to acquisitions that
occurred prior to June 2001 at such time as the amortization associated with
purchased goodwill will cease.

20

USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

MARKETABLE SECURITIES. We account for investments in debt and equity
securities in accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." We determine the proper classification of
investments in obligations with fixed maturities and marketable equity
securities at the time of purchase and reevaluate such designations as of each
balance sheet date. At December 31, 2001, most securities were designated as
available-for-sale with a small portion classified as trading securities.
Accordingly, the available-for-sale securities are stated at fair value, with
unrealized gains and losses reported in a separate component of shareholders'
equity, accumulated other comprehensive income. Amortization of premium and
accretion of discounts are included in financial income and other, net. Realized
gains and losses on sales of all investments, as determined on a specific
identification basis, are included in the consolidated statements of operations.
Our trading securities are carried at their fair value based upon the quoted
market price of those investments. Net realized and unrealized gains and losses
on these securities are included in financial income and other, net.

FACTORS THAT MAY AFFECT FUTURE RESULTS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. PRECISE'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN THE
FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. IN
ADDITION TO THE OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS
ANNUAL REPORT ON FORM 10-K, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING PRECISE AND ITS BUSINESS.

RISKS RELATED TO OUR BUSINESS

BECAUSE OF THE SIGNIFICANT PURCHASE PRICE OF OUR SOFTWARE PRODUCTS AND THE
CORRESPONDING CARE THAT OUR POTENTIAL CUSTOMERS EXERCISE IN MAKING A PURCHASE
DECISION, WE EXPECT THAT OUR QUARTERLY OPERATING RESULTS WILL CONTINUE TO
FLUCTUATE AND THIS COULD CAUSE THE TRADING PRICE OF OUR SHARES TO FLUCTUATE OR
DECLINE.

Like many software and technology related companies, our quarterly
operating results have varied significantly in the past. Because of the
significant purchase price of our software products, our customers exercise care
in making a purchase decision. We believe that this caution, in combination with
the other factors listed below, exposes us to larger variability in quarterly
operating results relative to other software or technology companies. Since our
operating results are likely to vary significantly in the future, we believe
that period-to-period comparisons of our operating results are not meaningful
and you should not rely upon our results in any one quarter as an indicator of
our future performance. If our quarterly revenues and operating results fail to
meet or exceed the expectations of securities analysts or investors, the market
price of our ordinary shares could fall substantially. Our operating results
vary depending on a number of factors, many of which are outside our control,
including:

o varying budgeting cycles and available funds of our customers and potential
customers;

o the length and variability of our sales cycle;

o varying size, timing and contractual terms of enterprise-wide orders for our
software;

o changes in demand for Oracle and other databases, with which our software
operates, and related enterprise application software;

o acceptance of new products in the marketplace;

o seasonality in our revenues, which have been lower historically in the first
and third quarters;

o changes in gross margins resulting from the mix of U.S. vs. international
sales or license sales vs. services;

o software defects and other product quality problems that may not become
known until customer trials or after installation;

o changes in gross margins depending on whether our software is sold directly
or through indirect sales channels; and

o the revenue performance of third party sales channels.

In addition, a significant portion of our software license revenues in any
quarter is often derived from orders booked and shipped in the last weeks or
days of that quarter. A delay in an order, even from just one customer, could
negatively impact our quarterly revenues and operating results.

A substantial portion of our expenses, including most software development
and sales and marketing expenses, must be incurred in advance of generating
revenues. In addition, our operating expenses are largely based on anticipated
organizational growth and revenue trends and a high percentage of our expenses
are, and will continue to be, fixed. As a result, if our projected revenues do
not meet our expectations, for the reasons above or for any other reasons, then
we will still incur these fixed expenses and are likely to experience an even
larger shortfall in our quarterly operating results relative to expectations.

21

WE HAVE A HISTORY OF LOSSES, AND WE ANTICIPATE OUR EXPENSES WILL INCREASE IN THE
FORESEEABLE FUTURE AS A RESULT OF PLANNED EXPANSION OF OUR SALES AND MARKETING
CHANNELS AND RESEARCH AND DEVELOPMENT ACTIVITIES, WHICH COULD DELAY US FROM
ATTAINING PROFITABILITY.

We incurred net losses of approximately $2.6 million for the year ended
December 31, 1999, $9.9 million for the year ended December 31, 2000 and had net
income of $923,000 for the year ended December 31, 2001. As of December 31,
2001, we had an accumulated deficit of approximately $25.4 million. We cannot
predict the extent of our future losses and when, or if, we may become
profitable on a sustained basis. We anticipate that our expenses may increase
substantially in the foreseeable future as we seek to expand our distribution
channels, to increase our sales and marketing activities, and to continue to
develop our technology and introduce new software. These efforts may prove more
costly than we currently anticipate and we may not succeed in increasing our
revenues sufficiently to offset these higher expenses. If we fail to increase
our revenues at a greater rate than our expenses, we will not be able to
maintain profitability.

OUR INABILITY TO DEDICATE APPROPRIATE FINANCIAL AND MANAGERIAL RESOURCES COULD
IMPAIR OUR ABILITY TO GROW OUR REVENUES AT THE SAME RATE IN THE FUTURE AS THEY
HAVE IN THE PAST AND, FOR THE SAME REASON, THEY COULD DECLINE.

Although our revenues have grown at substantial rates in recent years, we
do not expect our revenues to grow as rapidly in the future, and our revenues
could decline. Our total revenues have grown from $11.6 million for the year
ended December 31, 1999, to $27.5 million for the year ended December 31, 2000
and to $55.6 million for the year ended December 31, 2001. As our business
develops and the market for our software products matures, it is unlikely that
our revenues will continue to grow at the same rapid pace. We may not be able to
dedicate the significant managerial time and effort required to develop
additional strategic relationships, and we may not be able to hire sufficient
numbers of sales personnel to expand our sales channels and increase penetration
of our existing markets. In addition, we may not have the financial liquidity
required to develop and introduce, on a timely basis, new products that achieve
broad market acceptance.

OUR FAILURE TO DEDICATE APPROPRIATE RESOURCES TO OUR BUSINESS COULD STRAIN OUR
EXISTING SYSTEMS OR MANAGEMENT CAPABILITIES, LIMIT OUR GROWTH AND HARM OUR
BUSINESS AND FINANCIAL PERFORMANCE.

We currently have employees based in Israel, the United Kingdom, France,
Holland, Germany, Australia, Canada, China, Malaysia and throughout the United
States. We increased our employee base significantly during 2000 and 2001. In
particular, we have increased, and expect to continue to increase, the size of
our sales force through the integration of the operations of Knight Fisk
Software Ltd., which we acquired in February 2000, Savant Corporation, which we
acquired in December 2000, JC2 Informatique, the workforce and assets of which
we acquired in December 2000 and W. Quinn Associates, Inc., which we acquired in
September 2001. Furthermore, we have recently established subsidiaries and joint
ventures in Europe and expect to continue to establish additional distribution
channels through third-party relationships. Our growth, coupled with rapid
changes in our market, has placed, and is likely to continue to place,
significant strains on our administrative, operational and financial resources
and places significant demands on our internal systems, procedures and controls.
In order to manage growth effectively, we must implement and improve our
operational systems and controls. The failure to invest in and establish systems
with sufficient capacity to handle expanded operations or failure to dedicate
appropriate managerial resources could restrain our potential future growth and
may harm the efficiency of our operations. If we fail to manage our growth
effectively, the quality of our products and services and our operating results
could be seriously harmed.

WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL TO
SUCCESSFULLY GROW OUR BUSINESS.

Our future success will depend in large part on our ability to attract and
retain experienced sales, marketing, research and development, customer support
and management personnel. If we do not attract and retain such personnel, we may
not be able to expand our sales coverage or develop and introduce new or
enhanced products on the scale and schedule that we intend. Competition for
qualified personnel in the computer software industry is intense, especially for
technical personnel. We have experienced difficulty in the past recruiting
qualified personnel, especially technical and sales personnel. Moreover, we
intend to expand the scope of our international operations and these plans will
require us to hire experienced management, service, marketing, sales and
customer support personnel abroad. We expect competition for qualified personnel
to remain intense and we may not succeed in attracting or retaining these
personnel.

22


In addition, new employees generally require substantial training in the use of
our products, which in turn requires significant resources and management
attention. There is a risk that even if we invest significant resources in
attempting to attract, train and retain qualified personnel, we will not be
successful in our efforts. Our costs of doing business would increase without
the expected increase in revenues. Our inability to recruit, hire, train and
retain qualified employees could cause our business to suffer.

ANY ACQUISITIONS OR ATTEMPTED ACQUISITIONS WILL DIVERT MANAGEMENT ATTENTION AND
FINANCIAL RESOURCES AND MAY HARM OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.

As part of our growth strategy, we intend to consider acquiring
complementary technologies, products and businesses. Attempted acquisitions may
divert management, operational and financial resources from the conduct of our
core business. As a result, if we pursue this growth strategy, the efforts of
management will be diverted from their other operational responsibilities, and
we may not complete any attempted acquisition. If we use capital stock, our
existing shareholders may experience dilution. If we use cash or debt financing,
our financial liquidity will be reduced, the holders of our debt would have
claims on our assets ahead of holders of our ordinary shares and our business
operations may be restricted by the terms of any debt, including restrictions on
our ability to pay dividends on our ordinary shares. In addition, an acquisition
may involve nonrecurring charges or amortization of significant amounts of
goodwill and other intangible assets, which would adversely affect our ability
to achieve and maintain profitability.

ACQUISITIONS MAY NOT PRODUCE THE REVENUES, EARNINGS OR BUSINESS SYNERGIES THAT
WE ANTICIPATED AND MAY CAUSE OUR REVENUES TO DECLINE.

The acquisition of Savant, W. Quinn and any other past or future
acquisitions may not produce the revenues, earnings or business synergies that
we anticipated, and acquired businesses or technologies may not perform as
expected for a variety of reasons, including:

o difficulties in the integration of the operations, technologies, products
and personnel of the acquired company;

o risks of entering markets in which we have no or limited prior experience;

o potential loss of key employees of the acquired entity; and

o expenses of any undisclosed or potential legal liabilities of the acquired
company.

In addition, management's attention and resources may be diverted during
any attempted integration. Any one or a combination of these factors may cause
our revenues or earnings to decline.

WE DEPEND UPON KEY PERSONNEL, THE LOSS OF WHOM WOULD HARM OUR OPERATIONS.

Our success depends, to a significant extent, upon the continued
performance and services of our executive officers and other key sales,
marketing, engineering and support personnel. The loss of the services of any of
our executive officers or key personnel, including Shimon Alon, our Chief
Executive Officer, and Itzhak "Aki" Ratner, our President, would be disruptive
to our operations. It would be difficult and time consuming to replace them. We
do not maintain key person life insurance policies on any of our officers. Any
of these individuals may voluntarily terminate his employment with Precise. Our
inability to retain these employees could harm the growth and success of our
business.

WE COMPETE WITH ORACLE, A COMPANY WITH LONG-STANDING RELATIONSHIPS WITH OUR
CUSTOMERS; EFFORTS BY ORACLE TO IMPROVE THEIR COMPETITIVE POSITION COULD REDUCE
OUR REVENUES OR GROSS MARGINS

We face both current and potential competition from Oracle. Our
Precise/Indepth for Oracle software presently competes with a product sold by
Oracle in the market for Information Technology infrastructure performance
management software. As part of its competitive strategy, Oracle could attempt
to increase its presence in this market by focusing its efforts on selling its
own performance management software to our present and potential customers. In
addition, Oracle could bundle its own performance management software, or
performance management software offered by a third party, with its database
software, which could discourage potential customers from purchasing our
software. Even if the performance management software sold by Oracle or bundled
with Oracle's database software was more limited in functionality than our
software, a significant number of customers or potential customers might

23


elect to accept more limited functionality instead of purchasing additional
software from us. Although to date we have not experienced pressure to reduce
prices or margins as a result of Oracle bundling performance management software
with their database software, this bundling practice could lead to future price
reductions for our software, reducing our gross margins. Oracle has a longer
operating history, a larger installed base of customers and substantially
greater financial, distribution, marketing and technical resources than we do.
If any of those events occurred, our ability to compete effectively could be
impaired, and we would lose market share.

OUR RELATIONSHIP WITH ORACLE IS IMPORTANT TO OUR SOFTWARE DEVELOPMENT EFFORTS
AND ANY DETERIORATION IN THIS RELATIONSHIP COULD IMPAIR OUR ABILITY TO DEVELOP
OUR SOFTWARE RELATED TO ORACLE PRODUCTS.

We rely on our participation in Oracle's testing and feedback programs to
develop our technology and enhance the features and functionality of our
software on a timely basis to coincide with the release of new software or
software enhancements from Oracle. Any deterioration of our relationship with
Oracle could delay development or introduction of our new or enhanced software.
This would adversely affect our competitive position. We do not have any
agreements to ensure that our existing relationship with Oracle will continue.
Traditionally, Oracle has not prohibited companies who develop software that
supports Oracle products from participating in these programs. However, if
Oracle were to prohibit us from participating in these programs in the future
for competitive or other reasons, our inability to respond to any changes in
Oracle products could result in shipment delays or lost revenues.

IF THE MARKETS FOR ORACLE DATABASES AND RELATED APPLICATIONS SOFTWARE DO NOT
CONTINUE TO EXPAND, OUR ABILITY TO GROW OUR BUSINESS MAY BE ADVERSELY AFFECTED.

To date, most of the Precise software has been designed to support
Oracle-based IT infrastructures, although we have introduced new products and
expect to continue to develop new products which are designed for databases
marketed by other software providers, or are not dependent on databases. If the
market for Oracle databases and related applications software declines or
expands more slowly than we currently anticipate, our ability to grow our
business, sell our software and achieve and maintain profitability may be
impaired. Although the market for Oracle databases and related applications has
grown rapidly, this growth may not continue at the same rate, or at all.

THE APPLICATION PERFORMANCE MANAGEMENT SOFTWARE MARKET IS EXPECTED TO RAPIDLY
EVOLVE, AND IF WE ARE NOT ABLE TO ACCURATELY PREDICT AND RESPOND TO MARKET
DEVELOPMENTS OR CUSTOMER NEEDS, OUR COMPETITIVE POSITION WILL BE IMPAIRED.

The market for IT Application Performance Management software is relatively
new and is expected to evolve rapidly. However, estimates of our market's
expected growth are inherently uncertain and are subject to many risks and
assumptions. Moreover, many of our customers operate in markets characterized by
rapidly changing technologies and business plans. These customers look to our
software products to monitor application performance in this environment. Rapid
changes in the needs of these customers and changing technologies make it
difficult for us to predict their demands. We are particularly susceptible to
those changes since our software is used in a wide array of operating
environments, which are constantly evolving. As a result, we may not be able to
develop, on a timely basis or at all, software that meets our customers' needs
or desires. In addition, various sectors of our market are served by competitors
who may respond more effectively to market developments and customer needs. We
cannot assure you that the market for our software will grow or that we will be
able to respond to changes in the market, evolving customer needs or our
competition. If the market for our software does not develop as we expect or if
we fail to respond to market and competitive developments, our business
prospects and competitive position will be impaired.

THE FAILURE OF OUR NEW SOFTWARE TO ACHIEVE MARKET ACCEPTANCE OR DELAYS IN OUR
CURRENT OR FUTURE SOFTWARE DEVELOPMENT EFFORTS COULD ERODE OUR COMPETITIVE
POSITION.

The failure to successfully develop, enhance or modify our software, or the
failure to do so on a timely basis, could limit our revenue growth and
competitive position. We expanded our product line to allow the monitoring of an
organization's application performance across the IT infrastructure and continue
to develop new releases of our core products that incorporate additional
features. We may need to rapidly develop and introduce additional software and
enhancements to our existing software to satisfy our current customers and
maintain our competitive position in the marketplace. We may also need to modify
our software so that it can operate with new or enhanced software introduced

24


by other software vendors. The failure to introduce new, enhanced or modified
software on a timely basis could prevent our software from achieving market
acceptance. We have in the past, and may in the future, experience delays in the
timing of new software introductions. To support our software development,
enhancement or modification, we may find it necessary to license or acquire new
technologies, which may not be available to us on acceptable terms, if at all.

OUR FAILURE TO ESTABLISH AND EFFECTIVELY MANAGE INDIRECT DISTRIBUTION CHANNELS
COULD CAUSE OUR REVENUES TO DECLINE.

Our ability to sell our software in new markets and to increase our share
of existing markets will be impaired if we fail to expand significantly our
indirect distribution channels. Our sales strategy involves the establishment of
multiple distribution channels domestically and internationally through
value-added resellers, systems integrators and original equipment manufacturers.
We have entered into agreements with EMC, Amdocs, and several other companies to
bundle a version of our software or to sell our software along with their
product. Although these relationships have been successful to date, we cannot
predict the extent to which these companies will continue to be successful in
marketing or selling our software. These agreements could be terminated on short
notice and they do not prevent any of these parties from selling the software of
other companies, including our competitors. Our OEMs or resellers could give
higher priority to other companies' software or to their own software than they
give to ours.

OUR INABILITY TO DEVELOP AND EXPAND OUR DIRECT SALES FORCE WOULD LIMIT OUR
REVENUE GROWTH.

If we do not expand and retain our direct sales force, revenue growth could
be seriously harmed. Competition for qualified sales personnel is intense and we
may not be able to hire and retain as many qualified individuals as we may
require in the future. To the extent we hire personnel from competitors, we may
be subject to allegations that they have been improperly solicited or divulged
proprietary or other confidential information. In addition, sale of our software
requires sales personnel, experienced in our market, who target and gain access
to the senior management of our prospective customers. Newly hired sales
personnel require extensive training and may take six months or longer to
achieve full productivity. This training period, along with the difficulty in
attracting and retaining qualified individuals, makes it difficult to grow the
size of our sales force rapidly and utilize them effectively.

A DECLINE IN THE PRICE OF OR DEMAND FOR OUR PRECISE/INDEPTH FOR ORACLE SOFTWARE,
WHICH ACCOUNTS FOR A SUBSTANTIAL PORTION OF OUR TOTAL REVENUES, WOULD CAUSE A
SIGNIFICANT DECLINE IN OUR REVENUES.

Our success depends on continued market acceptance of our Precise/Indepth
for Oracle software. Revenues from licensing Precise/Indepth for Oracle
accounted for approximately 72% of our total revenues for the year ended
December 31, 1999, 60% of our total revenues for the year ended December 31,
2000, and 43% of our total revenues for the year ended December 31, 2001. We
expect software license revenues from Precise/Indepth for Oracle to continue to
account for a substantial portion of our future revenues, although we expect
this percentage to continue to decline. For instance, for the three months ended
December 31, 2001, Precise/Indepth for Oracle accounted for approximately 32% of
our total revenues. If Precise/Indepth for Oracle does not continue to achieve
market acceptance, or if our competitors release new products that have more
advanced features, offer better performance or are more price competitive than
Precise/Indepth for Oracle, our revenues may not grow and may even decline.

IF EXISTING CUSTOMERS DO NOT MAKE SUBSEQUENT PURCHASES FROM US OR IF OUR
RELATIONSHIPS WITH OUR LARGEST CUSTOMERS ARE IMPAIRED, OUR REVENUE GROWTH COULD
DECLINE.

Our revenue growth could decline if our current customers do not purchase
additional licenses from us. As we deploy new versions of our existing software
or introduce new software, our current customers may not require the
functionality of this new software and may not license it.

We also depend on our installed customer base for future service revenue
from maintenance renewal fees. The terms of our standard license arrangements
provide for a one-time license fee and a prepayment of one year of software
maintenance. Our maintenance agreements are renewable annually at the option of
our customers but there are no obligations to renew. If customers choose not to
continue their maintenance service, our revenues may decline.

25


In addition, our strategic channel represents a large portion of our total
revenues. These revenues are derived from EMC, Amdocs and, to a lesser extent,
other strategic partners. If our sales from these customers were impaired, our
revenue growth could decline.

DEFECTS IN OUR SOFTWARE WOULD HARM OUR BUSINESS AND DIVERT RESOURCES.

Because our software is complex, it may contain errors that can be detected
at any point in its life cycle. Any errors or defects in our software could
result in:

o delayed or lost revenue;

o failure to attract new customers or achieve market acceptance;

o claims against us;

o diversion of development resources;

o increased service, warranty and insurance costs; and

o negative publicity resulting in damage to our reputation.

While we continually test our software for errors and work with customers
to identify and correct them, errors in our software may be found in the future.
Testing for errors is complicated because it is difficult to simulate the
breadth of operating systems, user applications and computing environments that
our customers use and because our software is becoming increasingly complex
itself. The costs we may incur in addressing software errors could be
substantial.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US.

Because our customers rely on our software to monitor and improve the
performance of their critical software applications, they are sensitive to
potential disruptions that may be caused by the use of, or any defects in, our
software. As a result, we may be subject to claims for damages related to
software errors in the future. Liability claims could require us to spend
significant time and money in litigation or to pay significant damages.
Regardless of whether we prevail, diversion of key employees' time and attention
from the business, incurrence of substantial expenses and potential damage to
our reputation might result. Our license agreements with our customers typically
contain provisions designed to limit our exposure to potential product liability
claims. Limitation of liability provisions like those in our license agreements,
however, may not be effective under the laws of some jurisdictions. In addition,
although we maintain general liability insurance, we cannot assure you that this
coverage will be available in amounts sufficient to cover one or more large
claims, or that the insurer will not disclaim coverage as to any future claim

OUR FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR
COMPETITIVE MARKET POSITION.

Our success and ability to compete are substantially dependent upon our
internally developed technology, consisting primarily of computer programs and
instructions stored on digital media that can be easily reproduced. If we are
unable to protect that technology, our market position will be harmed. Other
than our trademarks, most of our intellectual property consists of proprietary
or confidential information that is not subject to patent or similar protection.
Unauthorized third parties may attempt to copy or otherwise obtain and use the
technology protected by those rights. Furthermore, policing unauthorized use of
our software is difficult and costly, particularly in countries where the laws
may not protect our proprietary rights as fully as in the U.S. If competitors or
potential customers are able to use our technology, our ability to compete
effectively would be harmed.

We have placed, and in the future may place, source code for our software
in escrow. The source code may, under certain circumstances, be made available
to certain of our customers. This may increase the likelihood of
misappropriation or other misuse of our software.

26

CLAIMS THAT OUR SOFTWARE INFRINGES THE PROPRIETARY RIGHTS OF OTHERS COULD HARM
OUR BUSINESS AND CAUSE US TO INCUR SIGNIFICANT COSTS.

Software products are increasingly subject to third-party infringement
claims as the functionality of products in different industry segments overlaps.
As a result, third parties may claim that our software infringes on their
proprietary rights. The application of patent law to the software industry is
particularly uncertain as the U.S. Patent and Trademark Office has only recently
begun to issue software patents in large numbers. Any potential intellectual
property claims against us, with or without merit, could:

o be expensive and time consuming to defend; o cause us to cease making,
licensing or using software that incorporates the challenged intellectual
property;
o cause software shipment and installation delays;
o require us to redesign our software, if feasible;
o divert management's attention and resources; or
o require us to enter into royalty or licensing agreements in order to obtain
the right to use a necessary product or component.

Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. A successful claim of software infringement against
us and our failure or inability to license the infringed or similar technology
could prevent us from distributing our software or cause us to incur great
expense and delay in developing non-infringing software.

WE RELY ON SOFTWARE LICENSES FROM THIRD PARTIES, THE LOSS OF WHICH COULD
INCREASE OUR COSTS AND DELAY SOFTWARE SHIPMENTS.

We integrate various third-party software products as components of our
software. Our business would be disrupted if this software, or functional
equivalents of this software, were either no longer available to us or no longer
offered to us on commercially reasonable terms. In either case, we would be
required to either redesign our software to function with alternate third-party
software or develop these components ourselves, which would result in increased
costs and could result in delays in our software shipments. Furthermore, we
might be forced to limit the features available in our current or future
software offerings.

WE ARE SUBJECT TO RISKS OF OPERATING WORLDWIDE THAT COULD IMPAIR OUR ABILITY TO
GROW OUR REVENUES ABROAD.

We market and sell our software in North America, South America, Europe and
Asia and we plan to establish additional facilities in these and other parts of
the world. Therefore, we are subject to risks associated with having worldwide
operations. Sales to customers located outside of North America accounted for
approximately 30% of our total revenues in the year ended December 31, 1999,
approximately 29% of our total revenues in the year ended December 31, 2000 and
approximately 36% of our total revenues in the year ended December 31, 2001. In
addition, our largest research and development facility is located in Israel.
The expansion of our existing operations and entry into additional worldwide
markets will require significant management attention and financial resources.
We are also subject to a number of risks customary for worldwide operations,
including:

o economic or political instability in worldwide markets;
o greater difficulty in accounts receivable collection and longer collection
periods;
o unexpected changes in regulatory requirements;
o difficulties and costs of staffing and managing foreign operations;
o import and export controls;
o the uncertainty of protection for intellectual property rights in some
countries;
27


o multiple and possibly overlapping tax structures; and
o foreign currency exchange rate fluctuations.

To date, a substantial portion of our sales have been denominated in U.S.
dollars, and we have not used risk management techniques or "hedged" the risks
associated with fluctuations in foreign currency exchange rates. In the future,
if we do not engage in hedging transactions, our results of operations will be
subject to losses from fluctuations in foreign currency exchange rates.

OUR SHARE PRICE HAS BEEN VOLATILE AND COULD DROP UNEXPECTEDLY.

The price at which our ordinary shares trade has been and is likely to
continue to be volatile. The stock market from time to time experiences
significant price and volume fluctuations that affect the market prices of
securities, particularly securities of technology and computer software
companies. As a result, investors may experience a significant decline in the
market price of our ordinary shares, regardless of our operating performance.
Price declines in our stock could result from many factors outside of our
control, including:

o announcements by our competitors of financial results, acquisitions, new
products or technological innovations;
o disputes concerning patents or other proprietary rights;
o conditions in Israel; and
o general market conditions.

In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. We may become involved in this type of
litigation in the future. Litigation of this type, regardless of its merit, is
often extremely expensive and diverts management's attention and resources.

RISKS RELATED TO OUR OPERATIONS IN ISRAEL

POTENTIAL POLITICAL, ECONOMIC AND MILITARY INSTABILITY IN ISRAEL MAY HARM OUR
RESULTS OF OPERATIONS.

Our largest research and development facility is located in Israel and a
small portion of our sales is currently being made to customers in Israel.
Accordingly, political, economic and military conditions in Israel may directly
affect our business. Since the establishment of the State of Israel in 1948, a
number of armed conflicts have taken place between Israel and its Arab neighbors
as well as many incidents of civil unrest. Any hostilities involving Israel or
the interruption or curtailment of trade between Israel and its present trading
partners could adversely affect our operations. Despite the efforts towards
peace between Israel and its Arab neighbors and the Palestinians, there can be
no assurance that ongoing or revived hostilities or other factors related to
Israel will not harm our business. Furthermore, several countries still restrict
business with Israel and Israeli companies. These restrictive laws and policies
may seriously limit our ability to operate in Israel or sell our software in
these countries and would harm our results of operations.

OUR OPERATIONS MAY BE NEGATIVELY AFFECTED BY THE OBLIGATIONS OF OUR PERSONNEL TO
PERFORM MILITARY SERVICE.

Many of our employees in Israel are obligated to perform military reserve
duty. In addition, in the event of a war, military or other conflict,
individuals could be required to serve in the military for extended periods of
time. Our operations could be disrupted by the absence for a significant period
of time of one or more of our key employees or a significant number of our other
employees due to military service. Any such disruption in our operations could
harm our operations.

BECAUSE MOST OF OUR REVENUES ARE GENERATED IN NON-ISRAELI CURRENCIES, BUT A
PORTION OF OUR EXPENSES ARE INCURRED IN NEW ISRAELI SHEKELS, INFLATION AND
CURRENCY FLUCTUATIONS COULD SERIOUSLY HARM OUR RESULTS OF OPERATIONS.

28


We generate most of our revenues in U.S. dollars but a portion of our costs
associated with our Israeli operations is in New Israeli Shekels, or NIS. We
also pay some of our international-based sales and support staff in local
currencies, such as the British pound sterling. As a result, we are exposed to
risks to the extent that the rate of inflation in Israel or in the U.K. exceeds
the rate of devaluation of the NIS or the British pound sterling in relation to
the U.S. dollar or if the timing of such devaluations lags behind inflation in
Israel or in the U.K. In that event, the cost of our operations in Israel and
the U.K. measured in terms of U.S. dollars will increase and our U.S.
dollar-measured results of operations will suffer. Historically, Israel has
experienced periods of high inflation. Our results of operations also could be
harmed if we are unable to guard against currency fluctuations in Israel, the
U.K. or other countries in which we may employ sales or support staff in the
future.

YOU MAY HAVE DIFFICULTIES IN ENFORCING A U.S. JUDGMENT AGAINST US, OUR EXECUTIVE
OFFICERS AND DIRECTORS OR IN ASSERTING U.S. SECURITIES LAWS CLAIMS IN ISRAEL.

Because a significant portion of our assets and the assets of our directors
and executive officers are located outside the United States, a judgment
obtained in the United States against us or any of them may not be collectible
in the United States and may not be enforced by an Israeli court. Further, if a
foreign judgment is enforced by an Israeli court, it will be payable in Israeli
currency.

WE INTEND TO RELY UPON TAX BENEFITS FROM THE STATE OF ISRAEL IF AND WHEN WE
BECOME PROFITABLE, BUT THOSE TAX BENEFITS MAY NOT BE AVAILABLE TO US AT THAT
TIME.

We are eligible for certain tax benefits for the first several years in
which we generate taxable income pursuant to Israel's Law for the Encouragement
of Capital Investments, 1959. Although, we have not historically generated
taxable income for purposes of this law, we may utilize these tax benefits
beginning in 2001. Our financial condition could suffer if these tax benefits
were subsequently reduced or not available to us.

In order to receive tax benefits, we must comply with two material
conditions. We must have a certain amount of investments in fixed assets and
must finance a portion of these investments with proceeds of equity capital
raised by Precise. We believe we have complied with these conditions, but we
have not received confirmation from the Investment Center with respect to our
compliance. If we fail to comply in whole or in part with these conditions, the
tax benefits that we expect to receive could be partially or fully canceled. In
that event, we could be forced to refund the amount of the benefits we have
received, adjusted for inflation and interest. From time to time, the Government
of Israel has discussed reducing or eliminating the benefits available under the
Approved Enterprise program. Thus, these tax benefits may not be continued in
the future at their current levels or at all.

Additionally, in the event that we increase our activities outside the
State of Israel due to, for example, future acquisitions, our increased
activities generally will not be eligible for inclusion in Israeli tax benefit
programs. Accordingly, our effective corporate tax rate could increase
significantly in the future as the revenues generated by the new activities will
not qualify for Approved Enterprise treatment.

THE TRANSFER AND USE OF PORTIONS OF OUR TECHNOLOGY ARE LIMITED BECAUSE OF
RESEARCH AND DEVELOPMENT GRANTS WE RECEIVED FROM THE ISRAELI GOVERNMENT.

Our research and development efforts associated with the development of
Precise/Indepth for Oracle software have been partially financed through grants
from the Office of the Chief Scientist of the Israeli Ministry of Industry and
Commerce. We have developed software through Chief Scientist grants that subject
us to royalty payments and restrictions, which could limit or prevent our growth
and profitability. The software developed with this funding may not be
manufactured, nor may this technology embodied in our software be transferred,
outside of Israel without appropriate governmental approvals. These restrictions
do not apply to the sale or export from Israel of our software developed with
this know-how. These restrictions will continue to apply to us after we pay the
full amount of royalties payable in respect of the grants. However, if the Chief
Scientist consents to the manufacture of our software outside Israel, the
regulations prescribe the payment of increased royalties, ranging from 120% to
300% of the amount of the Chief Scientist grant, depending on the percentage of
foreign manufacture.

29


PROVISIONS OF ISRAELI LAW MAY DELAY, PREVENT OR MAKE DIFFICULT AN ACQUISITION OF
PRECISE, WHICH COULD PREVENT A CHANGE OF CONTROL AND THEREFORE DEPRESS THE PRICE
OF OUR SHARES.

Provisions of Israeli corporate and tax law may have the effect of
delaying, preventing or making more difficult a merger or other acquisition of
Precise. The new Israeli Companies Law generally requires that a merger must be
approved by the holders of a majority of the shares present and voting on the
proposed merger, excluding shares held by the potential acquiror, at a
shareholders meeting that has been called on at least 21 days' advance notice.
Any creditor of a merger party may seek a court order blocking the merger, if
there is a reasonable concern that the surviving company will not be able to
satisfy all of the obligations of the parties to the merger. Moreover, a merger
may not be consummated until at least 70 days have passed from the time that the
merger proposal has been filed with the Israeli Registrar of Companies. Other
potential means of acquiring a public Israeli company such as Precise might
involve significant obstacles, such as a requirement of court approval of the
acquisition or business combination under certain circumstances. Israeli tax law
treats some acquisitions, particularly stock-for-stock exchanges between an
Israeli company and a foreign company, less favorably than United States tax
law. Israeli tax law will, for instance, subject a shareholder who is subject to
Israeli taxation and who exchanges his or her Precise shares for shares in
another corporation to immediate Israeli taxation.

U.S. INVESTORS IN OUR COMPANY COULD SUFFER ADVERSE TAX CONSEQUENCES IF WE ARE
CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY.

If, for any taxable year, our passive income or our assets that produce
passive income exceed levels provided by law, we may be characterized as a
passive foreign investment company, or PFIC, for U.S. federal income tax
purposes. This characterization could result in adverse U.S. tax consequences to
our shareholders. U.S. shareholders should consult with their own U.S. tax
advisors with respect to the U.S. tax consequences of investing in our ordinary
shares.

BECAUSE THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS, IT
MAY NOT PROVE TO BE ACCURATE

This Annual Report on Form 10-K and the documents we incorporate by
reference include forward-looking statements. We use words like "anticipates,"
"believes," "plans," "expects," "future," "intends" and similar expressions to
identify these forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements are subject to risks, uncertainties and
assumptions about Precise, the market for our products and the competition,
including, among other things:

o our inability to achieve or maintain profitability since we expect to incur
significant expenses in the near future to grow our business, particularly
our direct sales force and indirect sales channels;

o the size, timing and recognition of revenue from major customers;

o market acceptance of new product offerings and our ability to predict and
respond to market developments;

o our ability to attract and retain key personnel;

o the development and expansion of our direct sales force;

o our ability to consummate acquisitions and to successfully integrate and
operate the acquired businesses;

o risks associated with management of growth;

o political, economic and business fluctuations in Israel and our
international markets; and

o risks of downturns in economic conditions generally, and in the information
technology and software industries specifically.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this Annual Report on Form 10-K might not occur.

30


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We own financial instruments that are sensitive to market risks as part of
our investment portfolio. The investment portfolio is used to preserve our
capital until it is required to fund operations, including research and
development activities. None of these market-risk sensitive instruments are held
for trading purposes. We do not own derivative financial instruments in our
investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.

Our investment portfolio includes debt instruments that are United States
government obligations. These investments are subject to interest rate risk, and
could decline in value if interest rates fluctuate. We do not engage in currency
hedging activities and hold no foreign currency related derivative instruments
that would subject our financial condition or results of operations to risks
associated with foreign currency exchange rate fluctuations. We do, however,
incur a portion of our expenditures in foreign currencies, such as NIS, the Euro
and British pound sterling that could cause our results of operations to
fluctuate.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's consolidated financial statements, together with the related
notes and independent auditors' report thereon, appear beginning on page F-1 of
this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Anything herein to the contrary notwithstanding, in no event whatsoever are the
sections entitled "Stock Performance Graph," "Audit Committee Report" and
"Compensation Committee Report on Executive Compensation" and the to be
incorporated by reference herein from Precise's proxy statement in connection
with Precise's annual general meeting of shareholders to be held on May 30,
2002.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information relating to directors and executive officers of Precise
is incorporated by reference herein from Precise's proxy statement in connection
with its annual general meeting of shareholders to be held on May 30, 2002,
which proxy statement will be filed with the Securities and Exchange Commission
not later than 120 days after the close of Precise's fiscal year ended December
31, 2001.

Certain information relating to the executive officers of Precise can be
found in Part I hereof.

ITEM 11. EXECUTIVE COMPENSATION

Certain information relating to remuneration of directors and executive
officers and other transactions involving management is incorporated by
reference herein from Precise's proxy statement in connection with its annual
general meeting of shareholders to be held on May 30, 2002, which proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the close of Precise's fiscal year ended December 31, 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
PRECISE

Certain information relating to security ownership of certain beneficial
owners and management is incorporated by reference herein from Precise's proxy
statement in connection with its annual general meeting of shareholders to be
held on May 30, 2002, which proxy statement will be filed with the Securities
and Exchange Commission not later than 120 days after the close of Precise's
fiscal year ended December 31, 2001.

31



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The following documents are filed as part of this Annual Report on Form
10-K:

(1) Financial Statements: The financial statements included in
Item 8 of Part II which appear beginning on page F-1 of this
Annual Report on Form 10-K

(2) Financial Statement Schedules: Financial statement schedules
have been omitted because the required information is not
present or not present in amounts sufficient to require
submission of the schedule, or because the information
required is included in the financial statements or the notes
thereto.

(3) Exhibits: The exhibits listed in the Exhibit Index
immediately preceding the Exhibits.

(b) Reports on Form 8-K: Precise filed the following reports on Form 8-K
during the fiscal year ended December 31, 2001: Report on Form 8-K on
September 19, 2001 reporting the acquisition of W. Quinn Associates,
Inc; Report on Form 8-K/A on November 9, 2001 reporting the financial
statements of W. Quinn and the pro-forma financial information of
Precise and W. Quinn.

32


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2001

IN U.S. DOLLARS

INDEX

PAGE

REPORT OF INDEPENDENT AUDITORS F-2

CONSOLIDATED BALANCE SHEETS F-3

CONSOLIDATED STATEMENTS OF OPERATIONS F-5

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9


F-1


REPORT OF INDEPENDENT AUDITORS

To the Shareholders of

PRECISE SOFTWARE SOLUTIONS LTD.


We have audited the accompanying consolidated balance sheets of Precise
Software Solutions Ltd. ("the Company") and its subsidiaries as of December 31,
2000 and 2001 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. 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 generally accepted auditing
standards 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 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
the Company and its subsidiaries as of December 31, 2000 and 2001, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2001, in conformity with generally
accepted accounting principles in the United States.

/s/ KOST, FORER & GABBAY
-------------------------
Tel-Aviv, Israel KOST, FORER & GABBAY
January 18, 2002 A Member of Ernst & Young
International


F-2


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS




DECEMBER 31,
-------------------------------------
2000 2001
---------------- -----------------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 82,218 $ 35,144
Marketable securities 39,261 39,752
Trade receivables, net of allowance for
doubtful accounts ($ 74 in 2000 and $ 179 in 2001) 5,834 12,156
Other accounts receivable and prepaid expenses 3,688 3,168
---------------- -----------------

Total current assets 131,001 90,220
---------------- -----------------

MARKETABLE SECURITIES, NON CURRENT 27,931 60,935
---------------- -----------------

SEVERANCE PAY FUND 540 750
---------------- -----------------

PROPERTY AND EQUPIMENT, NET 2,696 5,047
---------------- -----------------

OTHER ASSETS, NET

16,513 46,231
---------------- -----------------

$ 178,681 $ 203,183
================ =================





The accompanying notes are an integral part of the consolidated financial
statements.

F-3


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)



DECEMBER 31,
-------------------------------------
2000 2001
----------------- ----------------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Trade payables $ 1,452 $ 1,394
Deferred revenues 3,351 6,673
Employees and payroll accruals 3,903 5,161
Accrued expenses 1,342 2,014
Other current liabilities 806 973
----------------- ----------------

Total current liabilities 10,854 16,215
----------------- ----------------

LONG-TERM LIABILITIES:
Long-term debt and other liabilities 120 193
Accrued severance pay 831 1,116
----------------- ----------------

Total long-term liabilities 951 1,309
----------------- ----------------

SHAREHOLDERS' EQUITY Ordinary shares:

NIS 0.03 par value: Authorized: 70,000,000 shares at December
31, 2000 and December 31, 2001; Issued and outstanding:
25,540,602 shares at December 31, 2000 and 27,937,776 shares
at December 31, 2001 204 221
Additional paid-in capital 195,406 210,215
Deferred stock compensation (2,717) (544)
Accumulated other comprehensive income 330 1,191
Accumulated deficit (26,347) (25,424)
----------------- ----------------

Total shareholders' equity 166,876 185,659
----------------- ----------------

$ 178,681 $ 203,183
================= ================



The accompanying notes are an integral part of the consolidated financial
statements.

F-4


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)



YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 2000 2001
--------------- --------------- --------------

Revenues:
Software licenses $ 9,770 $ 22,968 $ 43,903
Services 1,844 4,580 11,694
--------------- -------------- --------------
Total revenues 11,614 27,548 55,597
--------------- -------------- --------------

Cost of revenues:
Software licenses 741 742 362
Services (1) 906 1,693 3,143
--------------- -------------- --------------
Total cost of revenues 1,647 2,435 3,505
--------------- -------------- --------------

Gross profit 9,967 25,113 52,092
--------------- -------------- --------------

Operating expenses:
Research and development (2) 2,891 4,987 10,924
Sales and marketing (3) 7,913 20,749 34,675
General and administrative (4) 1,598 3,923 7,046
Amortization of deferred stock compensation 234 6,151 1,930
Amortization of goodwill and intangible assets - 99 3,040
In-process research and development write-off - 2,200 86
--------------- -------------- --------------

Total operating expenses 12,636 38,109 57,701
--------------- -------------- --------------

Operating loss (2,669) (12,996) (5,609)
Financial income and other, net 71 3,091 6,565
--------------- -------------- --------------

Income (loss) before income tax provision (2,598) (9,905) 956
Income tax provision - - 33
--------------- -------------- --------------
Net income (loss) $ (2,598) $ (9,905) $ 923
=============== ============== ==============

Net earnings (loss) per share:

Basic net earnings (loss) per share $ (0.79) $ (0.77) $ 0.03
=============== ============== ==============
Diluted net earnings (loss) per share $ (0.79) $ (0.77) $ 0.03
=============== ============== ==============
Weighted average number of shares used in computing
basic net earnings (loss) per share 3,299 12,901 26,745
=============== ============== ==============
Weighted average number of shares used in computing
diluted net earnings (loss) per share 3,299 12,901 29,971
=============== ============== ==============


- -------------------
(1) Excludes $0, $283 and $12 in amortization of deferred stock compensation
in 1999, 2000 and 2001, respectively.
(2) Excludes $16, $144 and $59 in amortization of deferred stock compensation
in 1999, 2000 and 2001, respectively.
(3) Excludes $104, $2,382 and $419 in amortization of deferred stock
compensation in 1999, 2000 and 2001, respectively.
(4) Excludes $114, $3,342 and $1,440 in amortization of deferred stock
compensation in 1999, 2000 and 2001, respectively.

The accompanying notes are an integral part of the consolidated financial
statements.


F-5


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES


STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS




ACCU- TOTAL
DEFERRED MULATED COMPRE- TOTAL
ADDITIONAL STOCK OTHER HENSIVE SHARE-
PREFERRED PAID-IN PAID-IN COMPEN- COMPRE- ACCUMULATED INCOME HOLDERS'
SHARES SHARES CAPITAL SATION HENSIVE DEFICIT (LOSS) EQUITY
--------- ------- ---------- -------- ------- ----------- ------- --------

Balance as of January 1, 1999..... $ 62 $ 31 $ 14,680 (187) $ -- $ (13,844) -- $ 742
Issuance of shares, net......... 35 -- 9,860 -- -- -- -- 9,895
Deferred stock compensation
related to options granted to
employees...................... -- -- 712 (712) -- -- -- --
Amortization of deferred stock
compensation and compensation
for warrants granted to
consultants.................... -- -- 20 234 -- -- -- 254
Net loss........................ -- -- -- -- -- (2,598) (2,598) (2,598)
--------- ------- ---------- -------- ------- ----------- ------- --------
Total comprehensive loss.......... $(2,598)
===========
Balance as of December 31, 1999 97 31 25,272 (665) -- (16,442) -- 8,293
Options issued pursuant
to the acquisition of
Knight Fisk Software LTD........ -- -- 199 -- -- -- -- 199
Issuance of shares in
IPO, net of $1,628 offering
costs........................... -- 39 75,909 -- -- -- -- 75,948
Conversion of Preferred shares
upon IPO........................ (97) 97 -- -- -- -- -- --
Issuance of shares in second
public offering, net of $2,257
offering costs.................. -- 21 71,423 -- -- -- -- 71,444
Exercise of options.............. -- 12 468 -- -- -- -- 480
Issuance of shares pursuant to the
acquisition of Savant
Corporation .................... -- 4 13,932 -- -- -- -- 13,936
Deferred stock compensation
related to options granted to
employees....................... -- -- 8,203 (8,203) -- -- -- --
Amortization of deferred
stock compensation.............. -- -- -- 6,151 -- -- -- 6,151
Comprehensive income:
Unrealized holding gains
on available-for-sale
marketable securities........... -- -- -- -- 322 -- 322 322
Foreign currency translation
adjustment...................... -- -- -- -- 8 -- 8 8
-------
Total other comprehensive income 330
Net loss......................... -- -- -- -- -- (9,905) (9,905) (9,905)
--------- ------- ---------- -------- ------- ----------- ------- --------
Total comprehensive loss......... $(9,575)
=======
Balance as of December 31, 2000... $ -- $ 204 $ 195,406 $(2,717) $ 330 $ (26,347) $ $166,876

Issuance of shares under ESPP.... -- 1 726 -- -- -- -- 727

Issuance of shares pursuant to
acquisition of W. Quinn
Associates, Inc. ............... -- 5 12,480 -- -- -- -- 12,485
Exercise of options, net......... -- 11 3,272 -- -- -- -- 3,283
Adjustments to Savant
acquisition..................... -- -- (1,426) -- -- -- -- (1,426)
Amortization of deferred
stock compensation, net......... -- -- (243) 2,173 -- -- -- 1,930
Comprehensive income:
Unrealized holding gains on
available-for-sale marketable
securities...................... -- -- -- -- 903 -- 903 903
Foreign currency translation
adjustment...................... -- -- -- -- (42) -- (42) (42)
-------
Total other comprehensive income 861
Net income........................ -- -- -- -- -- 923 923 923
--------- ------- ---------- -------- ------- ----------- ------- --------
Total comprehensive income $ 1,784
=======

Balance as of December 31, 2001... $ -- $ 221 $ 210,215 $ (544) $ 1,191 $ (25,424) $185,659
========= ======= ========== ======== ======= =========== ======= ========



The accompanying notes are an integral part of the consolidated financial
statements.

F-6


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS


YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 2000 2001
----------------- ---------------- ----------------

Cash flows from operating activities:
- -------------------------------------
Net income (loss ) $ (2,598) $ (9,905) $ 923
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 399 603 1,329
Capital loss on sale of equipment - - 61
Accretion of discount/(amortization of premium)on
available- for-sale securities - (18) 109
Amortization of deferred stock compensation and
compensation of warrants granted to consultants 254 6,151 1,930
Amortization of goodwill and intangible assets - 99 3,040
In-process research and development write off - 2,200 86
Increase in accrued severance pay, net 53 102 75
Increase in trade receivables (1,576) (1,386) (5,680)
Decrease (increase) in other accounts receivable
and prepaid expenses (119) (3,248) 1,315
Increase (decrease) in trade payables 82 588 (518)
Increase in deferred revenues 664 958 2,111
Increase in employees and payroll accruals 207 2,946 1,044
Increase (decrease) in other current liabilities
and accrued expenses (15) 174 385
Other 46 9 (32)
------------------ ----------------- ------------------

Net cash provided by (used in) operating activities (2,603) (727) 6,178
------------------ ----------------- ------------------

Cash flows from investing activities:
- -------------------------------------
Purchase of property and equipment (499) (2,089) (3,274)
Purchase of short-term bank deposits (876) - -
Purchase of available-for-sale marketable securities - (70,852) (89,440)
Purchase of other assets - (765) (1,328)
Payment for acquisition of consolidated subsidiary (1) - (507) -
Payment for acquisition of consolidated subsidiary (2) - (2,787) -
Payment for acquisition of consolidated subsidiary (3) - - (20,641)
Proceeds from sale of short-term bank deposits - 888 -
Proceeds from sale of available-for-sale marketable - - 3,785
securities
Proceeds from redemption of available-for-sale
marketable securities - 4,000 53,710
------------------ ----------------- ------------------

Net cash used in investing activities (1,375) (72,112) (57,188)
------------------ ----------------- ------------------

Cash flows from financing activities:
- -------------------------------------
Short-term bank credit, net - (24) -
Proceeds from issuance of shares, net 9,839 148,141 727
Proceeds from exercise of options, net - 480 3,283
Repayment of other long-term debt (12) (251) (27)
------------------ ----------------- ------------------

Net cash provided by financing activities 9,827 148,346 3,983
------------------ ----------------- ------------------
Effect of exchange rate change on cash and cash - 18 (47)
equivalents
------------------ ----------------- ------------------

Increase (decrease) in cash and cash equivalents 5,849 75,507 (47,074)
Cash and cash equivalents at the beginning of the year 844 6,693 82,218
------------------ ----------------- ------------------

Cash and cash equivalents at the end of the year $ 6,693 $ 82,218 $ 35,144
================== ================= ==================


The accompanying notes are an integral part of the consolidated financial
statements.


F-7


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS



YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 2000 2001
-------------------- --------------- ----------------


(1) In February 2000, the Company acquired all of the
outstanding shares of Knight Fisk Software Ltd.
The net estimated fair value of the assets acquired and
liabilities assumed at the date of the acquisition was
as follows:
Working deficiency, except cash and cash equivalents $ (8)
Property and equipment 41
Long-term loans and other (45)
Other assets 718
-----------------
706
Options granted (199)
-----------------

$ 507
=================

(2) In December 2000, the Company acquired all of the
outstanding shares of Savant Corporation.
The net estimated fair value of the assets acquired and
liabilities assumed at the date of the acquisition was
as follows:
Working deficiency, except cash and cash equivalents $ (687)
Property and equipment 111
Long-term loans (23)
Other assets 15,122
In-process research and development 2,200
-----------------
16,723
Issuance of shares, net (13,936)
-----------------

$ 2,787
=================

(3) In September 2001, the Company acquired all of the
outstanding shares of W. Quinn Associates, Inc.
The net estimated fair value of the assets acquired and
liabilities assumed at the date of the acquisition was
as follows:
Working capital, except cash and cash equivalents $ 43
Property and equipment 475
Long-term loans and other liabilities (93)
Other assets 32,615
In-process research and development 86
-----------------
33,126
Issuance of shares, net (12,485)
-----------------

$ 20,641
=================

Supplemental disclosure of cash flows activities:
- -------------------------------------------------
(a) Cash paid during the year for:
Interest $ 19 $ 13 $ 21
==================== ================= =================
(b) Non cash transactions:
----------------------
Capital lease obligation $ - $ 97 $ -
==================== ================= =================
Adjustment to Savant Corporation acquisition $ - $ - $ 1,426
==================== ================= =================
Accrued issuance and acquisition costs $ - $ 749 $ 241
==================== ================= =================


The accompanying notes are an integral part of the consolidated financial
statements.


F-8


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: GENERAL

A. ORGANIZATION:

Precise Software Solutions Ltd. ("the Company") was established in Israel
on November 15, 1990. The Company is a provider of software products that assist
organizations in performance management, monitoring and tuning of database
applications, and related consulting, training and support services. The Company
has operations in the form of wholly owned subsidiaries in the United States,
the United Kingdom, France, Germany, Holland, Malaysia and Australia.

B. PUBLIC OFFERING:

The Company completed an initial public offering in June 2000, and since
then the Company's ordinary shares have been traded on the NASDAQ National
Market in the United States.

NOTE 2: ACQUISITIONS

A. ACQUISITION OF W. QUINN ASSOCIATES, INC.:

In September 2001, the Company acquired all the outstanding ordinary shares
of W. Quinn, a United States based company, in consideration of approximately
$34.1 million. W. Quinn develops and markets storage resource and performance
management solutions. The total purchase price consisted of $21.6 million paid
in cash and $12.5 million paid by the issuance of 774,413 ordinary shares. The
consideration included $1.5 million of transaction costs.

In addition, W. Quinn's shareholders received the right to receive
additional ordinary shares in an amount up to $17.5 million, based on the
achievement of certain post-acquisition revenue and performance targets relating
to the one year period subsequent to the closing.

The acquisition of W. Quinn was accounted for under the purchase method,
accordingly the purchase price has been allocated to the assets acquired and
liabilities assumed based on their estimated fair value at the date of
acquisition. The excess of the purchase price over the estimated fair value of
the net assets acquired has been recorded as goodwill.

According to Statement of Financial Accounting Standards Board ("SFAS") No.
142, "Goodwill and Other Intangible Assets", this goodwill will not be
amortized, but will be subject to annual impairment tests in accordance with the
statement. The allocation of the purchase price of the W. Quinn acquisition is
based on the fair value of assets acquired.


F-9

PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the W. Quinn acquisition, the Company recorded a
one-time expense of $86,000 to write-off software acquired from W. Quinn for
which technological feasibility has not yet been established and for which no
alternative future use existed. Other intangible assets acquired had an
estimated fair value of $32.1 million shown in the following table (in
thousands):

Goodwill $ 25,553
Acquired developed technology 2,147
Patent 2,165
Trademark and customer relationships 2,269
-----------------
$ 32,134
=================

PRO FORMA FINANCIAL INFORMATION (IN THOUSANDS EXCEPT PER SHARE DATA):

The operations of W. Quinn are included in the Company's consolidated
results of operations from September 5, 2001. The following unaudited pro forma
information presents the results of operations for the Company and W. Quinn for
the years ended December 31, 2000 and December 31, 2001, as if the acquisition
had been consummated as of January 1, 2000 and January 1, 2001, respectively.
The pro forma total revenues would have been $36,405 and $61,985 for the years
ended December 31, 2000 and 2001, respectively. The pro forma net loss would
have been $10,158 and $1,849 for the years ended December 31, 2000 and 2001,
respectively. The pro forma basic and diluted net loss per share would have been
$0.74 and $0.07 for the years ended December 31, 2000 and 2001, respectively.
The pro forma financial information is not necessarily indicative of the
consolidated results that would have been attained had the acquisition taken
place at the beginning of 2000 or 2001, nor is it necessarily indicative of
future results.

B. ACQUISITION OF SAVANT CORPORATION:

In December 2000, in consideration of approximately $16.7 million, the
Company acquired all the outstanding shares of Savant Corporation ("Savant"), a
United States based company. Savant develops and markets a suite of real-time
diagnostic and proactive performance management solutions. The total purchase
price consisted of $2.8 million in cash, including $0.3 million of transaction
related costs, and $13.9 million in 512,445 ordinary shares

The acquisition of Savant was accounted for under the purchase method,
accordingly the purchase price has been allocated to the assets acquired and
liabilities assumed based on their estimated fair value at the date of
acquisition. The excess of the purchase price over the estimated fair value of
the net assets acquired has been recorded as goodwill.

In connection with the Savant acquisition, the Company recorded a one-time
expense of $ 2.2 million to write-off software acquired from Savant for which
technological feasibility has not yet been established and for which no
alternative future use exists. Other intangible assets acquired had an estimated
fair value of $ 15.1 million shown in the following table (in thousands):

Goodwill $ 9,022
Acquired technology 3,200
Acquired assembled work force 1,100
Customer relationship 1,800
--------------
$ 15,122
==============
F-10

PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


In 2001, upon the completion of the allocation of the purchase price and
the resolution of certain contingencies, the company reduced goodwill by
$1,426,000.

PRO FORMA FINANCIAL INFORMATION (IN THOUSANDS EXCEPT PER SHARE DATA):

The operations of Savant are included in the Company's consolidated results
of operations from January 1, 2001. The following unaudited pro forma
information represents the results of operations for the Company and Savant for
the years ended December 31, 1999 and December 31, 2000, as if the acquisition
had been consummated as of January 1, 1999 and January 1, 2000, respectively.
The pro forma total revenues would have been $15,242 and $30,900 for the years
ended December 31, 1999 and 2000, respectively. The pro forma net loss would
have been $3,102 and $10,876 for the years ended December 31, 1999 and 2000,
respectively. The pro forma basic and diluted net loss per share would have been
$0.81 and $0.81 for the years ended December 31, 1999 and 2000, respectively.
The pro forma financial information is not necessarily indicative of the
consolidated results that would have been attained had the acquisition taken
place at the beginning of 1999 or 2000, nor is it necessarily indicative of
future results.

C. ACQUISITION OF KNIGHT FISK SOFTWARE LTD.:

In February 2000, for consideration of $706,000, the Company acquired all
the outstanding shares of Knight Fisk Software Ltd. ("Knight Fisk"), a
U.K.-based company and the distributor of the Company's products in the United
Kingdom. Knight Fisk changed its name to Precise Software Solutions UK Ltd.
("Precise UK"). The acquisition was accounted for under the purchase method.

PRO FORMA FINANCIAL INFORMATION (IN THOUSANDS EXCEPT PER SHARE DATA):

The operations of Precise UK are included in the Company's consolidated
results of operations from February 1, 2000. The following unaudited pro forma
information presents the results of operations for the Company and Precise UK
for the years ended December 31, 1999 and December 31, 2000, as if the
acquisition had been consummated as of January 1, 1999 and January 1, 2000,
respectively. The pro forma total revenues would have been $12,100 and $27,730
for the years ended December 31, 1999 and 2000, respectively. The pro forma net
loss would have been $3,027 and $9,827 for the years ended December 31, 1999 and
2000, respectively. The pro forma basic and diluted net loss per share would
have been $0.92 and $0.76 for the years ended December 31, 1999 and 2000,
respectively. The pro forma financial information is not necessarily indicative
of the consolidated results that would have been attained had the acquisition
taken place at the beginning of 1999 or 2000, nor is it necessarily indicative
of future results.

NOTE 3: SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP").

A. USE OF ESTIMATES:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

F-11

PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

B. FINANCIAL STATEMENTS IN U.S. DOLLARS:

A majority of the revenues of the Company and some of its subsidiaries are
generated in U.S. dollars ("U.S. dollar"). In addition, a substantial portion of
the Company's and some of its subsidiaries' costs are incurred in dollars. The
Company's management believes that the U.S. dollar is the primary currency of
the economic environment in which the Company and these subsidiaries operate.
Thus, the functional and reporting currency of the Company and these
subsidiaries is the U.S. dollar.

Accordingly, monetary accounts maintained in currencies other than the U.S.
dollar are remeasured into U.S. dollars in accordance with SFAS No. 52 "Foreign
Currency Translation." All transaction gains and losses from the remeasurement
of monetary balance sheet items are reflected in the consolidated statements of
operations as financial income or expenses, as appropriate.

The financial statements of other subsidiaries whose functional currency is
not the U.S. dollar, have been translated into U.S. dollars. All balance sheet
accounts have been translated using the exchange rates in effect at the balance
sheet date. Statements of operations amounts have been translated using the
average exchange rate for the period. The resulting translation adjustments are
reported as a component of accumulated other comprehensive income in
shareholders' equity.

C. PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany balances and transactions have
been eliminated in consolidation.

D. CASH EQUIVALENTS:

Cash equivalents are short-term highly liquid investments that are readily
convertible to cash with original maturities of three months or less.

E. MARKETABLE SECURITIES:

The Company accounts for investments in debt and equity securities in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Management determines the proper classification of
investments in obligations with fixed maturities and marketable equity
securities at the time of purchase and reevaluates such designations as of each
balance sheet date. At December 31, 2001, most securities were designated as
available-for-sale with a small portion classified as trading securities.
Accordingly, the available-for-sale securities are stated at fair value, with
unrealized gains and losses reported in a separate component of shareholders'
equity, accumulated other comprehensive income. Amortization of premium and
accretion of discounts are included in financial income and other, net. Realized
gains and losses on sales of all investments, as determined on a specific
identification basis, are included in the consolidated statements of operations.

The Company's trading securities are carried at their fair value based upon
the quoted market price of those investments. Net realized and unrealized gains
and losses on these securities are included in financial income and other, net.

F. PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated by the straight-line method over the estimated useful
lives of the assets at the following annual rates:

F-12


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Computers and peripheral equipment 3-5 years
Office furniture and equipment 6-14 years
Leasehold improvements Over the term of the lease

The Company and its subsidiaries periodically assess the recoverability of
the carrying amount of property and equipment and provide for any possible
impairment loss based upon the difference between the carrying amount and fair
value of such assets, in accordance with SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed." As of
December 31, 2001, no impairment losses have been identified.

G. OTHER ASSETS:

Acquired assembled workforce, acquired technology, acquired trademark and
customer relationship, acquired patents, capitalized internet site costs and
goodwill are stated at amortized cost. Amortization is calculated using the
straight-line method over their estimated useful life, which is three to ten
years (see note 3r).

The carrying value of goodwill and intangible assets and the
appropriateness of the amortization periods are periodically reviewed by
management, based on the expected future undiscounted operating cash flows over
the remaining intangible assets amortization period. Based on its most recent
analysis, management believes that no impairment of other assets exists as at
December 31, 2001.

Under SFAS No. 142 "Goodwill and Other Intangible Assets", goodwill and
intangible assets acquired subsequent to June 30, 2001, are deemed to have
indefinite lives, will not be amortized, and will be subject to annual
impairment tests in accordance with the statement. Other intangible assets will
continue to be amortized over their useful lives. The Company and its
subsidiaries will perform the first of the required impairment tests of goodwill
and indefinite lived intangible assets during 2002.

H. RESEARCH AND DEVELOPMENT COSTS:

SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed", requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.

Based on the Company's product development process, technological
feasibility is established upon completion of a working model. The Company does
not incur material costs between the completion of the working model and the
point at which the product is ready for general release. Therefore, research and
development costs are charged to the statement of operations as incurred.

I. INCOME TAXES:

The Company and its subsidiaries account for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 prescribes the
use of the liability method whereby deferred tax asset and liability account
balances are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. The
Company and its subsidiaries provide a valuation allowance, if necessary, to
reduce deferred tax assets to there estimated realizable value.

F-13


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


J. REVENUE RECOGNITION:

The Company and its subsidiaries generate revenues mainly from licensing
the rights to use their software products and services. The Company and its
subsidiaries sell its products primarily through its direct sales force,
resellers and Original Equipment Manufacturers ("OEMs").

The Company has implemented Statement of Position (SOP) 97-2, "Software
Revenue Recognition", as amended. Revenues from software arrangements are
recognized upon delivery of the product when no future obligation exists, when
collection is probable, the product fee is either fixed or determinable and
persuasive evidence of an arrangement exists. SOP 97-2 requires revenue earned
on software arrangements involving multiple elements to be allocated to each
element based on the relative fair value of the elements. The Company has also
adopted SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition with
Respect to Certain Transactions," for all transactions entered into after
January 1, 2000. The Company's Vendor Specific Objective Evidence ("VSOE") used
to allocate the sales price to maintenance and support and professional services
are based on renewal ratio or the price charged when these elements will be sold
separately. SOP 98-9 requires that revenue be recognized under the "residual
method" when (1) VSOE of fair value exists for all undelivered elements, and (2)
all revenue recognition criteria of SOP 97-2, as amended, are satisfied. Under
the residual method any discount in the arrangement is allocated to the
delivered elements.

The Company is entitled to fees from its OEMs upon the sublicensing of the
Company's products to end-users. Generally the fees due from the OEMs are
recognized when such fees are reported to the Company upon the sublicensing of
the products by the OEMs.

The Company and its subsidiaries generally do not grant a right of return
to their customers except for time-limited warranty provisions. Historically,
the Company has seen negligible returns.

Service revenues are comprised of revenues from maintenance and support
arrangements, consulting fees, and training, none of which are considered
essential to the functionality of the software license. Revenues from
maintenance and support arrangements are deferred and recognized on a
straight-line basis as service revenues over the life of the related agreement.
Consulting fees and training revenues are recognized after the services are
rendered.

Deferred revenue includes unearned amounts received under maintenance and
support contracts, and amounts received from customers but not yet recognized as
revenues.

K. CONCENTRATIONS OF CREDIT RISKS:

Financial instruments which potentially subject the Company and its
subsidiaries to concentrations of credit risk consist principally of cash and
cash equivalents, marketable securities and trade receivables.

Cash and cash equivalents are almost entirely invested in major banks in
the United States in U.S. dollars. A small portion of cash and cash equivalents
are invested in major banks in Europe and Israel. Management believes that the
financial institutions holding the Company's investments are financially sound
and, accordingly, minimal credit risk exists with respect to these investments.

Almost all marketable securities include investments in of U.S. treasury
notes. Management believes that these investments are financially secure, the
portfolio is well diversified, and accordingly, minimal credit risk exists with
respect to these investments.

F-14


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The trade receivables of the Company and its subsidiaries are mainly
derived from sales to customers and resellers located primarily in the U.S.,
Europe and Asia. The Company and its subsidiaries perform periodic credit
evaluations of their customers' financial condition and generally do not require
collateral. An allowance for doubtful accounts is determined with respect to
those accounts that the Company and its subsidiaries have determined to be
doubtful of collection.

The Company has no significant off-balance-sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements.

As for major customers, see also Note 12.

L. ACCOUNTING FOR STOCK-BASED COMPENSATION:

The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB 25") and FASB Interpretation
No. 44 "Accounting for Certain Transactions Involving Stock Compensation" ("FIN
44") in accounting for its employee share option plans. Under APB 25, when the
exercise price of the Company's share options is less than the market price of
the underlying shares on the date of grant, compensation expense is recognized.
The pro forma disclosures required by SFAS No. 123 "Accounting for Stock-Based
Compensation," are provided in Note 8.

The Company applies SFAS No. 123 and Emergency Issue Task Force 96-18,
"Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring in Conjunction with Selling Goods or Services", with respect to
warrants issued to non-employees. SFAS No. 123 requires the use of option
valuation models to measure the fair value of the warrants at the date of grant.

M. ROYALTY-BEARING GRANTS:

Royalty-bearing grants from the Government of Israel for funding approved
research and development projects and for the encouragement of marketing
activity, are recognized at time the Company is entitled to such grants; on the
basis of the costs incurred; and are netted from research and development, and
selling and marketing costs, respectively. The Company did not receive
development grants or marketing grants in 1999, 2000 and 2001, respectively.

N. SEVERANCE PAY:

The Company's liability for severance pay is calculated pursuant to the
Israeli Severance Pay Law based on the most recent salary of the employees
multiplied by the number of years of employment as of the balance sheet date.
Employees are entitled to one month's salary for each year of employment or a
portion thereof. The Company's liability for all of its employees is fully
provided for by monthly deposits with severance pay funds, insurance policies
and by an accrual. The value of these policies is recorded as an asset on the
Company's balance sheet.

The deposited funds include profits accumulated up to the balance sheet
date. The deposited funds may be withdrawn only in accordance with the Israeli
Severance Pay Law or labor agreements. The value of the deposited funds are
based on the cash surrendered value of these policies and include immaterial
profits.

Severance expenses for the years ended December 31, 1999, 2000 and 2001
amounted to $260,000, $323,000 and $308,000, respectively.

O. ADVERTISING:

Advertising costs are expensed as incurred.

F-15


P. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following methods and assumptions were used by the Company and its
subsidiaries in estimating the fair value disclosures for financial instruments:

(1) The carrying amounts of cash and cash equivalents, trade accounts
receivable and trade payables approximate their fair value due to the
short-term maturity of such instruments.

(2) The fair value for available-for-sale and trading securities are based
on the quoted market prices (See Note 4).

(3) The carrying amount of the Company's long-term liabilities approximates
their fair value. The fair value was estimated using discounted cash
flow analysis, based on the Company's incremental liabilities rates for
similar types of arrangements.

Q. BASIC AND DILUTED NET EARNINGS (LOSS) PER SHARE:

Basic net earnings (loss) per share is computed based on the weighted
average number of ordinary shares outstanding during each period. Diluted net
earnings (loss) per share is computed based on the weighted average number of
ordinary shares outstanding during each period, plus dilutive potential ordinary
shares considered outstanding during the period, in accordance with SFAS No.
128, "Earnings per Share".

All convertible Preferred shares, outstanding stock options, and warrants
have been excluded from the calculation of the diluted net earnings (loss) per
ordinary share because such securities are anti-dilutive for the periods
presented. The total weighted average number of shares related to the
outstanding convertible Preferred shares, options and warrants excluded from the
calculations of diluted net loss per share was 10,256,164, 4,147,968 and 0 for
the years ended December 31, 1999, 2000 and 2001, respectively.

R. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase
method of accounting be used for guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. SFAS No. 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives.
SFAS No. 142 requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to be amortized over
their estimated useful lives. Additionally, SFAS No. 142 requires that goodwill
included in the carrying value of equity method investments no longer be
amortized. Application of the non-amortization provision of these statements is
expected to result in an increase in net income of $1,208,000 and an increase in
net earnings per share of $0.04, assuming no impairment will be identified.

FASB recently issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," that is applicable to financial statements
issued for fiscal years beginning after December 15, 2001. FASB's new rules on
the asset impairment supersede FASB Statement 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and portions of APB Opinion 30, "Reporting the Results of Operations." SFAS No.
144 provides a single accounting model for long-lived assets to be disposed of
and significantly changes the criteria that must be met to classify an asset as
"held-for-sale." Classification as "held-for-sale" is an important distinction
since such assets are not depreciated and are stated at the lower of fair value
and carrying amount. SFAS No. 144 also requires expected future operating losses
from discontinued operations to be displayed in the period(s) in which the
losses are incurred, rather than as of the measurement date as presently
required. This pronouncement is not expected to have a material effect on the
Company's financial position or operating results.

F-16

PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

S. RECLASSIFICATION:

Certain prior period amounts have been reclassified to conform to current
period presentation.

NOTE 4: MARKETABLE SECURITIES

The following is a summary of trading and available-for-sale securities:

DECEMBER 31, 2000
--------------------------------------------------------------
IN THOUSANDS
--------------------------------------------------------------

GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR MARKET
Available-for-sale: AMORTIZED COST GAINS LOSSES VALUE
------------------- --------------- -------------- --------------- ---------------
US Treasury notes $ 66,870 $ 322 $ - $ 67,192
=============== ============== =============== ===============


DECEMBER 31, 2001
--------------------------------------------------------------
IN THOUSANDS
--------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR MARKET
COST GAINS LOSSES VALUE
--------------- -------------- --------------- ---------------
Available-for-sale:
US Treasury notes $ 98,716 $ 1,293 $ 68 $ 99,941
=============== ============== =============== ===============

There were no realized gains from sales of available-for-sale securities in
2000 and 2001.

The unrealized holding gains on available-for-sale securities included as a
separate component of shareholders' equity, other comprehensive income, totaled
$0, $322,000 and $903,000 in 1999, 2000 and 2001, respectively. The unrealized
holding gain on available-for-sale securities balance was $322,000 and
$1,225,000 as of December 31, 2000 and 2001, respectively. The amortized cost
and estimated fair value of debt and marketable securities as of December 31,
2001, by contractual maturity, are shown below.

DECEMBER 31,2000 DECEMBER 31,2001
------------------------------------ -------------------------------------

ESTIMATED ESTIMATED
AMORTIZED FAIR MARKET AMORTIZED FAIR MARKET
COST VALUE COST VALUE
----------------- ----------------- ---------------- ----------------
Available-for-sale: IN THOUSANDS
------------------- ----------------------------------------------------------------------------
Matures in one year $ 39,170 $ 39,261 $ 38,361 $ 39,006
Matures in second year 27,700 27,931 60,355 60,935
----------------- ----------------- ---------------- ----------------
Total $ 66,870 $ 67,192 $ 98,716 $ 99,941
================= ================= ================ ================

F-17


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company has invested $746,000 in trading securities and recorded a net
gain of $29,000 in 2001 from these investments.

NOTE 5: PROPERTY AND EQUIPMENT, NET



DECEMBER 31,
--------------------------------------
2000 2001
------------------ ----------------
IN THOUSANDS
--------------------------------------

Cost:
Computers and peripheral equipment $ 3,743 $ 6,035
Office furniture and equipment 454 896
Leasehold improvements 144 1,079
----------------- ----------------
4,341 8,010
----------------- ----------------
Accumulated depreciation: 1,645 2,963
----------------- ----------------
Depreciated cost $ 2,696 $ 5,047
================= ================



Depreciation expenses for the years ended December 31, 1999, 2000 and 2001
were $360,000, $603,000 and $1,329,000 million, respectively.

As for charges, see Note 10c.


NOTE 6: OTHER ASSETS, NET

a. Composed as follows:



DECEMBER 31,
--------------------------------------
2000 2001
------------------ ----------------
IN THOUSANDS
--------------------------------------

Intangible assets:
Goodwill 9,747 34,166
Acquired technology 3,312 6,555
Assembled workforce 1,623 1,100
Customer relationships and trademarks 1,800 4,754
Acquired Patents - 2,165
Capitalized internet site costs 130 130
----------------- ----------------
Intangible assets 16,612 48,870
Accumulated amortization 99 3,139
----------------- ----------------
Intangible assets, net 16,513 45,731

Other assets - 500
----------------- ----------------
Total other assets, net $ 16,513 $ 46,231
================= ================



Amortization expense amounted to $0, $99,000 and $3,040,000 for the years
ended December 31, 1999, 2000 and 2001, respectively.


F-18


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

b. On October 1, 2001, the Company purchased the intellectual property of a
third party for $1.1 million. The purchase has been recorded as acquired
technology and will be amortized over 3 years. In addition, the third party has
the right to receive 10% of revenues generated up to a set maximum from the sale
of products containing this intellectual property until October 1, 2004.

NOTE 7: LONG-TERM DEBT AND OTHER LIABILITIES

Composed as follows:
DECEMBER 31,
INTEREST --------------------------
CURRENCY RATE 2000 2001
-------------------- ------------ ------------
IN THOUSANDS
--------------------------
Capital lease obligations U.S. $ 9.5% $ 147 $ 134
Other liabilities U.S. $ - 101
------------ ------------
147 235

Less - current maturities 27 42
------------ ------------
$ 120 $ 193
============ ============

The lease obligations are calculated based on the present value of the
future lease payments.

As of December 31, 2001, the Company has an unutilized credit line of
$23,000.

NOTE 8: SHAREHOLDERS' EQUITY

A. REVERSE SPLIT

All share and per share data included in these financial statements have
been retroactively adjusted to reflect a two-for-three reverse stock split as
approved by the Company's shareholders on April 12, 2000.

B. AUTOMATIC CONVERSION UPON IPO:

All Preferred Shares were automatically converted into ordinary shares at
the time of the Company's Initial Public Offering ("IPO"), which took place in
July 2000.

C. ORDINARY SHARES:

Ordinary Shares confer upon their holders voting rights, the right to
receive cash dividends and the right to share in excess assets upon liquidation
of the Company.

D. SHARE OPTION PLANS:

The Company has two share option plans, the 1995 Share Option and Incentive
Plan (the "1995 Plan") and the 1998 Share Option and Incentive Plans ("the 1998
Plan"), together the "Plans". In addition, as part of the acquisition

F-19


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of Savant, the Company assumed the existing stock option plan of Savant
Corporation (the "Savant Plan"). No additional options may be granted under the
1995 Plan or the Savant Plan. Under the 1998 Plan, options may be granted to
employees, officers, directors and consultants of the Company and its
subsidiaries. Pursuant to the Plans, the Company reserved for issuance a total
of 9,549,000 ordinary shares. As of December 31, 2001, an aggregate of 596,479
ordinary shares of the Company are still available for future grant.

Options granted under these plans generally vest annually over 3-4 years
and will expire ten years from the date of grant. Options granted under the 1998
Plan which are forfeited or canceled before expiration become available for
future grants. Where the Company has recorded deferred stock compensation for
options issued with an exercise price below the fair market value of the
ordinary Shares, the deferred stock compensation is amortized and recorded as
compensation expense ratably over the vesting period of the options.



YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 2000 2001
-------------------------- ------------------------- --------------------------

WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------ ------------ ------------ ------------ ------------ -------------
Outstanding at the
beginning of the
year 2,559,348 $ 0.86 3,681,044 $ 1.04 5,384,175 $ 6.10
Granted 1,248,366 $ 1.40 2,215,916 13.37 3,717,448 $ 15.22
Exercised - $ - (393,278) $ 0.71 (1,521,203) $ 2.17
Forfeited (126,670) $ 1.04 (119,507) $ 2.49 (542,048) $ 12.54
------------ ------------ ------------ ----------- ------------ -------------
Outstanding at the
end of the year 3,681,044 $ 1.04 5,384,175 $ 6.10 7,038,372 $ 11.18
============ ============ ============ =========== ============ =============
Exercisable
options at the
end of the year 1,088,448 $ 0.80 2,043,033 $ 1.10 1,772,878 $ 4.51
============ ============ ============ =========== ============ =============






The options outstanding as of December 31, 2001, have been broken down by
exercise price as follows:




WEIGHTED OPTIONS
AVERAGE WEIGHTED EXERCISABLE EXERCISE
RANGE OF OPTIONS OUTSTANDING REMAINING AVERAGE AS OF PRICE OF
EXERCISE AS OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, OPTIONS
PRICE 2001 LIFE PRICE 2001 EXERCISABLE
----------------------- ------------------- ------------ ------------- -------------- -------------
(years)

$ 0.38 221,778 6.3 $ 0.38 221,778 $ 0.38
$ 1.04 1,109,842 7.0 $ 1.04 790,893 $ 1.04
$ 1.50 833,292 7.9 $ 1.50 341,144 $ 1.50
$ 10.30 - 11.125 760,298 9.1 $ 10.30 - 11.125 54,672 $ 10.34
$ 14.25 - 15.00 1,869,206 8.6 $ 14.25 - 15.00 243,606 $ 14.92
$ 17.11 1,434,666 9.8 $ 17.11 - $ -
$ 19.63 - 20.2 809,290 8.6 $ 19.63 - 20.2 120,785 $ 19.75
----------------------- ------------------- -------------- -------------- -------------
$ 11.18 7,038,372 $ 11.18 1,772,878 $ 4.51
======================= =================== ============== ============== =============

F-20



PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


E. PRO FORMA INFORMATION UNDER SFAS NO. 123:

Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant, using the
Black-Scholes Option Valuation Model, with the following weighted-average
assumptions for each of the three years in the period ended December 31, 2001:
expected volatility of 0.001, 1.1 and .86, respectively; risk-free interest
rates of 6%, 6.5% and 4%, respectively; dividend yields of 0% for each of the
years, and a weighted-average expected life of the option of 4.13, 2.57 and 2.97
years, respectively. The weighted average exercise prices and weighted average
fair values of options granted for the years ended December 31, 1999, 2000 and
2001 were:



FOR EXERCISE PRICE ON THE GRANT DATE THAT:
---------------------------------------------------------
EQUALS MARKET PRICE IS LESS THAN MARKET PRICE
---------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 2000 2001 1999 2000 2001
---------------------------------------------------------

Weighted average exercise price $ 1.04 $ 17.73 $ 15.92 $ 1.43 $ 4.41 $ -

Weighted average fair values on
grant date $ 0.15 $ 11.74 $ 4.91 $ 0.63 $12.98 $ -





PRO FORMA INFORMATION UNDER SFAS 123:



YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 2000 2001
---------------- ---------------- ----------------
IN THOUSANDS
(EXCEPT PER SHARE DATA)
---------------------------------------------------------

Net income (loss) as reported $ (2,598) $ (9,905) $ 923
Pro forma net loss $ (2,628) $ (14,162) $ (10,310)
Pro forma basic and diluted net
loss per share $ (0.80) $ (1.10) $ (0.39)



E. EMPLOYEE SHARE PURCHASE PLAN:

During 2000, the Company adopted its 2000 Employee Share Purchase Plan
("ESPP") and reserved 667,000 ordinary Shares for issuance under the ESPP. As of
December 31, 2001, an aggregate of 598,787 ordinary shares of the Company are
available for future issuance. The ESPP provides eligible employees with the
opportunity to acquire the Company's Ordinary Shares through periodic payroll
deductions. According to the ESPP, eligible employees are entitled to purchase
the Company's Ordinary Shares at the amount equal to the lower of 85% of the
Company's share price at the beginning or at the end of the period. During
fiscal 2001, 68,213 ordinary shares were issued pursuant to the ESPP.

F. DIVIDENDS:

The Company does not intend to pay cash dividends in the foreseeable
future. Dividends declared on the Ordinary Shares will be paid in NIS. Dividends
paid to shareholders outside Israel will be converted into U.S. dollars on the
basis of the exchange rate prevailing at the date of payment.


F-21


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9: INCOME TAXES

A. ISRAELI INCOME TAX:

1.Measurement of taxable income under the Income Tax (Inflationary
Adjustments) Law, 1985:

Results for tax purposes are measured in terms of earnings in NIS after
certain adjustments for increases in the Israeli Customer Price Index
("CPI"). As explained in Note 2b, the financial statements are measured in
U.S. dollars. The difference between the annual change in the Israeli CPI
and in the NIS/dollar exchange rate causes a further difference between
taxable income and the income before taxes shown in the financial
statements. In accordance with paragraph 9(f) of SFAS No. 109, the Company
has not provided deferred income taxes on the difference between the
functional currency and the tax bases of assets and liabilities.

2.Tax benefits under the Law for Encouragement of Capital Investments, 1959
("the Law")

The Company has been granted an "Approved Enterprise" status for three
investment programs approved in 1992, 1994 and 1998, by the Israeli
Government under the Law.

Undistributed Israeli income derived from the first and the third "Approved
Enterprise" programs entitle the Company to a tax exemption for a period of
two years and to a reduced tax rate of 10% - 25% for an additional period
of five to eight years (depending on the level of foreign-investment in the
Company). Undistributed Israeli income derived from the second "Approved
Enterprise" program entitles the Company to a tax exemption of four years
and to a reduced tax rate of 10%-25% for an additional period of three to
six years (depending on the level of foreign-investment in the Company).
These tax benefits are subject to a limitation of the earlier of twelve
years from commencement of operations, or fourteen years from receipt of
approval. Thereafter, the Company's income will be subject to the regular
income tax rate of 36%. Since the Company has had no taxable income, the
benefits have not yet commenced for all programs.

The Company completed the implementation of its first and second investment
programs in 1994 and 1998, respectively. The third program has not yet been
completed.

The tax exempt profits that will be earned by the Company's "Approved
Enterprises" can be distributed to shareholders, without imposing tax
liability to the Company only upon the complete liquidation of the Company.
If these retained tax-exempt profits are distributed in a manner other than
in the complete liquidation of the Company they would be taxed at the
corporate tax rate applicable to such profits as if the Company had not
elected the alternative system of benefits currently between 10% to 25% for
an "Approved Enterprise". The Company's Board of Directors has determined
that such tax exempt income will not be distributed as dividends.

Income from sources other than the "Approved Enterprise" during the benefit
period, will be subject to tax at the regular corporate tax rate of 36%.

The Company is entitled to claim accelerated depreciation in respect to
equipment in use by "Approved Enterprises" during the first five years of
operations of these assets.

The entitlement to the above benefits is conditional upon the Company
fulfilling the conditions stipulated by the above law regulations published
thereunder and the instruments of approval for the specific investments in
"approved enterprises." In the event of failure to comply with these
conditions, the benefits may be canceled and the Company may be required to
refund the amount of the benefits, in whole or in part, including interest.

3.Tax benefits under the Law for Encouragement of Industry (Taxation) 1969:


F-22


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company is an "industrial company" under the Law for the Encouragement
of Industry (Taxation), 1969 and as such is entitled to certain tax
benefits, including accelerated rate of depreciation and deduction of
public offering expenses. The Company has not utilized this tax benefit.

B. DEFERRED INCOME TAXES:

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company and its subsidiaries' deferred tax liabilities and assets are as
follows:

DECEMBER 31,
------------------------------
2000 2001
------------- -------------
IN THOUSANDS
------------------------------

Operating loss carryforward $ 8,718 $ 15,614
Reserves and allowances 685 880
------------- --------------

Net deferred tax asset before
valuation allowance 9,403 16,494
Valuation allowance (9,403) (16,494)
------------- --------------

Net deferred tax asset $ - $ -
============= ==============

The Company and its subsidiaries have provided valuation allowances in
respect of deferred tax assets resulting from tax loss carryforwards. Management
currently believes that since the Company and its subsidiaries have a history of
losses and various tax benefits it is more likely than not that the deferred tax
regarding the loss carryforwards and other temporary differences will not be
realized in the foreseeable future. During fiscal year 2001, the Company
provided certain deferred tax assets and increased the valuation allowance by $
7,091.

C. RECONCILIATION OF THE THEORETICAL TAX EXPENSE (BENEFIT) TO THE ACTUAL TAX
EXPENSE (BENEFIT):

Theoretical tax reconciliation was not calculated due to the amounts of
carryforward tax losses of the Company and its subsidiaries.

D. NET OPERATING LOSSES CARRYFORWARDS:

The Company has accumulated losses for Israeli tax purposes as of December
31, 2001, in the amount of approximately $ 16 million, which may be carried
forward and offset against taxable income in the future for an indefinite
period.

Through December 31, 2001, Precise Software Solutions Inc. had a U.S.
federal net operating loss carryforward of approximately $ 31 million that can
be carried forward and offset against taxable income for 15 to 20 years and will
expire from 2009 to 2014. Utilization of U.S. net operating losses may be
subject to substantial annual limitations due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses
before utilization.
The Company's subsidiary in the United Kingdom has estimated available
carryforward tax losses of $ 2.5 million.


F-23


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


E. INCOME (LOSS) BEFORE INCOME TAX PROVISION CONSISTS OF THE FOLLOWING:

YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 2000 2001
----------------- ----------------- ----------------
IN THOUSANDS
----------------------------------------------------------
Domestic $ 499 $ 878 $ 4,746
Foreign (3,097) (10,783) (3,799)
----------------- ------------------ -----------------
$ (2,598) $ (9,905) $ 956
================= ================== =================

NOTE 10: COMMITMENTS AND CONTINGENT LIABILITIES

a. The Company and its subsidiaries lease their facilities under
non-cancelable operating lease agreements for periods through 2009.

Future minimum commitments under non-cancelable operating leases as of
December 31, 2001, are as follows:

YEAR ENDED OPERATING
DECEMBER 31, LEASES
-------------------- --------------
2002 $ 2,915
2003 2,406
2004 1,571
2005 468
Thereafter 1,700
--------------
$ 9,060
==============

Certain expenses under operating leases for the years ended December 31,
1999, 2000 and 2001, aggregate to approximately $406,000, $848,000 and
$2,450,000, respectively.

B. ROYALTIES:

1.The Company is committed to pay royalties to the Chief Scientist of the
Ministry of Industry and Trade at a rate of 3.5% on the sales of products
developed with funds provided by the Chief Scientist, up to an amount
equal to 100%-150% of dollar-linked research and development grants
related to such projects.

Royalties paid or accrued amounted to $295,000, $586,000 and $151,000 in
1999, 2000 and 2001, respectively.

As of December 31, 2001, the Company has no outstanding contingent
liability.

2.The Government of Israel, through the Fund for the Encouragement of
Marketing Activities, awarded the Company grants for participation in its
foreign marketing expenses. The Company is committed to pay royalties at
the rate of 4% of the increase in export sales, up to the amount of the
grants and linked to the U.S. dollar.

F-24


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Royalties paid or accrued amounted to $108,000, $28,000 and $0 in 1999,
2000 and 2001, respectively.

As of December 31, 2001, the Company has no outstanding contingent
liability.

C. CHARGES AND GUARANTEES:

The Company has placed a fixed charge on certain fixed assets in favor of
the supplier of those assets.

The Company obtained bank guarantees in the amount of $622,000 in favor
of the lease landlords of its U.S. and subsidiary facilities.



NOTE 11: FINANCIAL INCOME AND OTHER, NET


YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 2000 2001
----------------- ----------------- ---------------
IN THOUSANDS
---------------------------------------------------------

Other income:
Interest and others $ 122 $ 3,163 $ 6,845
Accretion of discount - 54 262
Foreign currency translation

differences 5 364 201
---------------------------------------------------------
127 3,581 7,308
----------------- ------------------ ----------------
Other expenses:
Interest and others (21) (38) (113)
Amortization of premium - (36) (371)
Foreign currency translation

differences (35) (416) (198)
----------------- ------------------ ----------------
(56) (490) (682)
----------------- ------------------ ----------------

Financial income, net 71 3,091 6,626

Capital loss on property and equipment - - (61)
----------------- ------------------ ----------------
$ 71 $ 3,091 $ 6,565
================= ================== ================



NOTE 12: CUSTOMERS AND GEOGRAPHIC INFORMATION

A. SUMMARY INFORMATION ABOUT GEOGRAPHICAL AREAS:

The Company and its subsidiaries operate in one industry segment, the
development and marketing of performance software products. See Note 1 for a
brief description of the Company's business. The following data is presented in
accordance with SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information". The following is a summary of operations within geographic
areas based on customer's location.

F-25




YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 2000 2001
-------------- --------------- --------------
IN THOUSANDS
----------------------------------------------------

Revenues from sales to unaffiliated customers:

U.S.A. $ 7,753 $ 17,737 $ 33,142
North and South America

(excluding U.S.A.) 530 1,469 3,209
Asia 1,184 3,181 4,738
United Kingdom 1,262 2,074 5,747
Europe and others (Excluding the
United Kingdom) 885 3,087 8,761
--------------- ---------------- ---------------

$ 11,614 $ 27,548 $ 55,597
=============== ================ ===============

Long-lived assets, by geographic region:

Israel $ 477 $ 1,187 $ 3,956
United States 495 16,613 45,635
Europe - 1,409 1,687
--------------- ---------------- ---------------

$ 972 $ 19,209 $ 51,278
=============== ================ ===============

B. MAJOR CUSTOMER DATA AS A PERCENTAGE OF TOTAL REVENUES:

YEAR ENDED DECEMBER 31,

------------------------------------------------------
1999 2000 2001
---------------- ---------------- ----------------
%
------------------------------------------------------

Customer A 15.3% 6.7% 13.1%
Customer B 0.8% 23.1% 18.2%


- - - - - - - - - - -


F-26



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.


PRECISE SOFTWARE SOLUTIONS LTD.
Date: March 28, 2002
By: /s/ Shimon Alon
------------------------------------
Shimon Alon, Chief Executive Officer


POWER OF ATTORNEY AND SIGNATURES

We, the undersigned officers and directors of Precise Software Solutions
Ltd., hereby severally constitute and appoint Shimon Alon, our true and lawful
attorney, with full power to him singly, to sign for us and in our names in the
capacities indicated below, any amendments to this Annual Report on Form 10-K,
and generally to do all things in our names and on our behalf in such capacities
to enable Precise Software Solutions Ltd. to comply with the provisions of the
Securities Exchange Act of 1934, as amended, and all the requirements of the
Securities Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.


SIGNATURE TITLE(S) DATE
- ------------------------ ------------------------------- --------------


/s/ Shimon Alon Chief Executive Officer and Director March 28, 2002
- ------------------------ (Principal Executive Officer)
Shimon Alon


/s/ J. Benjamin H. Nye Chief Financial Officer March 28, 2002
- ------------------------ (Principal Financial Officer)
J. Benjamin H. Nye


/s/ Richard Forcier Chief Accounting Officer March 28, 2002
- ------------------------ (Principal Accounting Officer)
Richard Forcier


/s/ Ron Zuckerman Director and Chairman of the
- ------------------------ Board of Directors March 28, 2002
Ron Zuckerman


/s/ Robert Dolan Director March 28, 2002
- ------------------------
Robert Dolan


/s/ Mary Palermo Director March 28, 2002
- ------------------------
Mary Palermo


Director March 28, 2002
- ------------------------
Yoseph Sela


/s/ Anton Simunovic Director March 28, 2002
- ------------------------
Anton Simunovic


Director March 28, 2002
- ------------------------
Gary Fuhrman

II-1


EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K

FOR FISCAL YEAR ENDED DECEMBER 31, 2001


EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------

2.1(1) Agreement and Plan of Merger by and among Precise Software Solutions
Ltd., Precise Acquisition Corporation, Savant Corporation and certain
stockholders of Savant Corporation, dated as of October 27 2000
2.2(1) Amendment to Agreement and Plan of Merger, dated as of November 13,
2000, by and among Precise Software Solutions Ltd., Precise
Acquisition Corporation, Savant Corporation and Certain Stockholders
of Savant Corporation
2.3(2) Agreement and Plan of Merger by and among Precise Software Solutions,
Ltd., WQ Acquisition Corporation, W. Quinn Associates, Inc. and
Certain Stockholders of W. Quinn Associates, Inc. dated as of
September 4, 2001
3.1(3) Memorandum of Association of Registrant (English translation)
3.2(3) Amendment to Memorandum of Association of Registrant, dated April 12,
2000 (English translation)
3.3(4) Amended and Restated Articles of Association of Registrant
4.1(3) Specimen of Ordinary Share Certificate
10.1 Lease Agreement by and between Precise and Software Solutions Ltd.,
and Ness B.S.G. Ltd. and Ilan Gat Engineers Ltd. dated November 2001.
(English translation)
10.2(3) Sublease Agreement, by and between the Travelers Indemnity Company
and Precise Software Solutions, Inc. dated June 3, 1999
10.3(3)+ Application Software Vendor Agreement by and between Precise and
Amdocs UK Limited dated January 12, 1998
10.4(3)+ Software License Agreement by and between Precise and EMC Corporation
dated March 19, 1999 and the amendments thereto dated October 5, 1999
and December 13, 1999
10.5(3) Share Purchase Agreement by and among Precise and the Investors named
therein, dated July 22, 1999, as amended on August 5, 1999
10.6(3) Share Purchase Agreement by and among the Registrant and certain
investors dated as of December 31, 1997
10.7(3) Share Purchase and Shareholders Agreement by and among the
Registrant, certain shareholders of the Registrant, Gemini Israel
Fund LP, certain Advent Limited Partnerships and certain other
purchasers dated May 6, 1996
10.8(3) Agreement by and among the Registrant, certain shareholders of the
Registrant, Gemini Israel Fund LP and certain Advent Limited
Partnerships dated November 9, 1993
10.9(3) Letter Agreement between Precise and EMC Investment Corporation dated
April 18, 2000, as amended May 19, 2000 and June 26, 2000
10.10(3) Form of Purchase Agreement by and among the Company and Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, CIBC
World Markets Corp. and Wit SoundView Corporation, dated as of June
29, 2000
10.11(1) Form of Purchase Agreement by and among the Company and Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, CIBC
World Markets Corp. Dain Rauscher Incorporated, Wit SoundView
Corporation and First Albany Corporation, dated as of November 15,
2000
10.12(5) Registration Rights Agreement, dated as of December 5, 2000, between
Precise Software Solutions Ltd. and Richard North as agent for the
stockholders of Savant Corporation
10.13(2) Registration Rights Agreement, dated as of September , 2001, between
Precise Software Solutions Ltd. and the parties named therein as
agent for the stockholders of W. Quinn Associates, Inc.
10.14(6) Employment Agreement dated as of November 23, 1998, as amended,
between Precise and Shimon Alon
10.15(6) Employment Agreement dated as of February 9, 2000, between Precise
and J. Benjamin H. Nye
10.16(6) Employment Agreement dated as of May 1, 1997, between Precise and
Itzhak ("Aki") Ratner
10.17(3) 1995 Share Option and Incentive Plan
10.18(7) 1998 Amended and Restated Share Option and Incentive Plan
10.19(7) 2000 Employee Share Purchase Plan

II-2



10.20(6) Form of indemnification agreement between Precise Software Solutions
Ltd. and its executive officers
10.21(6) Form of indemnification agreement between Precise Software Solutions,
Inc. and its executive officers
10.22 Lease Agreement by and between Campus Commons, LLC and W.Quinn
Associates, Inc. dated May 4, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of Kost, Forer & Gabbay, a member of Ernst and Young
International
24.1 Powers of Attorney (included on page II-1)
- ------------
+ The Securities and Exchange Commission granted confidential treatment as to
certain portions, which portions were separately filed with the Securities
and Exchange Commission pursuant to a confidential treatment request.

(1) Incorporated by reference to the exhibits to the registrant's registration
statement on Form F-1 (File No. 333-48878).

(2) Incorporated by reference to the exhibits to the registrant's current
report on Form 8-K filed September 19, 2001.

(3) Incorporated by reference to the exhibits to the registrant's registration
statement on Form F-1 (File No. 333-11992).

(4) Incorporated by reference to the exhibits to the registrant's registration
statement on Form F-1 (File No. 333-11992) and the registrant's definitive
proxy statement filed on April 11, 2001.

(5) Incorporated by reference to the exhibits of the registrant's current
report on Form 8-K filed December 20, 2000.

(6) Incorporated by reference to the exhibits to the registrant's annual report
on Form 10-K for the year ended December 31, 2000.

(7) Incorporated by reference to the exhibits to the registrant's definitive
proxy statement filed April 11, 2001.



II-3