EXE TECHNOLOGIES INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2002

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

Commission File Number 000-30389

EXE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		751719817
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)


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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý NO o

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

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

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

PART I.		FINANCIAL INFORMATION

Item 1.		Financial Statements

		Consolidated Balance Sheets

		Consolidated Statements of Operations

		Consolidated Statements of Cash Flows

		Notes to Consolidated Financial Statements

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

PART II.		OTHER INFORMATION

Item 2.		Changes in Securities and Use of Proceeds

Item 4.		Submission of Matters to a Vote of Security Holders

Item 6.		Exhibits and Reports on Form 8-K

Signatures

Index to Exhibits and Exhibits

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of December 31, 2001			As of June 30, 2002
				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	30,250,156		$	35,260,238
Marketable securities, short-term	12,842,683			7,335,752
Accounts receivable, net of allowance for doubtful accounts and adjustments of approximately $3,721,000 and $4,153,000 at December 31, 2001 and June 30, 2002, respectively	25,029,162			17,488,596
Other receivables and advances	572,438			445,612
Prepaid and other current assets	2,171,409			2,852,463
Total current assets	70,865,848			63,382,661
Marketable securities, long-term	2,203,891			4,417,028
Property and equipment, net	8,424,584			6,080,219
Goodwill, net	5,265,685			5,265,685
Intangible assets, net	1,760,666			1,199,366
Other assets	2,549,794			1,709,569
Total assets	$	91,070,468		$	82,054,528

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,585,936		$	6,574,901
Accrued expenses	11,557,606			11,106,240
Accrued payroll and benefits	1,749,046			2,030,730
Deferred revenue	9,206,736			10,128,804
Current portion of long-term debt and capital lease obligations	435,167			541,842
Total current liabilities	29,534,491			30,382,517
Long-term debt and capital lease obligations, net of current portion	995,973			670,670
Long-term accrued expenses, net of current portion	6,814,018			9,106,545
Minority interest	169,623			178,794
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value: shares authorized — 20,000,000; none issued or outstanding	—			—
Common stock, voting, $.01 par value: shares authorized — 150,000,000; shares issued — 46,788,900 and 47,154,689 at December 31, 2001 and June 30, 2002, respectively	467,889			471,547
Additional paid-in capital	178,741,296			179,122,032
Note receivable from stockholder	(211,750		)	—
Treasury stock, at cost, 999,483 and 1,094,923 shares of common stock at December 31, 2001 and June 30, 2002, respectively	(3,431,464		)	(3,645,859		)
Accumulated deficit	(119,601,384		)	(131,748,713		)
Deferred compensation	(2,515,440		)	(1,978,070		)
Other comprehensive income (loss)	107,216			(504,935		)
Total stockholders’ equity	53,556,363			41,716,002
Total liabilities and stockholders’ equity	$	91,070,468		$	82,054,528

See accompanying notes.

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2002			2001			2002

Revenue:
Software license	$	5,545,591		$	3,122,592		$	15,530,773		$	7,266,664
Services and maintenance	16,757,063			12,831,201			34,429,139			24,694,834
Resale of software and equipment	2,412,377			2,000,300			4,112,350			5,099,369
Reimbursable expenses	657,452			477,017			1,514,655			1,006,215
Total revenue	25,372,483			18,431,110			55,586,917			38,067,082
Costs and expenses:
Cost of software licenses	84,158			86,305			130,459			199,381
Cost of services and maintenance	10,980,577			8,042,909			22,616,503			16,218,209
Cost of resale of software and equipment	1,989,929			1,655,829			3,316,041			4,228,063
Cost of reimbursable expenses	657,452			477,017			1,514,655			1,006,215
Sales and marketing	7,327,142			4,914,140			14,639,371			9,969,243
Research and development	3,989,260			2,907,218			7,836,946			5,960,601
General and administrative	5,621,392			3,018,315			10,039,759			6,195,616
Amortization of goodwill and intangible assets	2,316,591			280,293			4,203,504			561,300
Warrant and stock compensation expense allocated to:
Cost of services and maintenance	128,397			87,946			276,619			175,892
Sales and marketing	49,500			45,446			240,936			90,892
Research and development	58,487			45,446			94,076			90,892
General and administrative	130,204			89,847			316,090			179,694
Provision for estimated loss on lease abandonment	7,440,336			3,998,862			7,440,336			3,998,862
Employee severance and other facility closure costs	2,059,664			2,487,769			2,489,744			2,487,769
Total costs and expenses	42,833,089			28,137,342			75,155,039			51,362,629
Operating loss	(17,460,606		)	(9,706,232		)	(19,568,122		)	(13,295,547		)
Other income (expense):
Interest income	664,146			302,356			1,495,245			633,333
Interest expense	(12,304		)	(20,928		)	(20,008		)	(50,816		)
Other	17,464			807,198			(386,951		)	753,693
Total other income	669,306			1,088,626			1,088,286			1,336,210
Loss before minority interest and taxes	(16,791,300		)	(8,617,606		)	(18,479,836		)	(11,959,337		)
Minority interest in subsidiary income	(1,778		)	(4,150		)	(100,671		)	(9,171		)
Loss before taxes	(16,793,078		)	(8,621,756		)	(18,580,507		)	(11,968,508		)
Income taxes	151,377			178,821			151,377			178,821
Net loss	$	(16,944,455	)	$	(8,800,577	)	$	(18,731,884	)	$	(12,147,329	)
Net loss per common share - basic and diluted	$	(0.37	)	$	(0.19	)	$	(0.42	)	$	(0.26	)
Weighted average number of common shares outstanding - basic and diluted	45,432,434			46,049,634			45,086,391			45,982,161

See accompanying notes.

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2001			2002
Cash Flow from Opertating Activities:
Net loss	$	(18,731,884	)	$	(12,147,329	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	6,178,452			2,277,576
Write-down of property and equipment	—			1,032,408
Provision for doubtful accounts	2,591,418			1,847,146
Amortization of deferred compensation	753,371			537,370
Issuance of warrants for services	174,350			—
Minority interest	109,102			9,171
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable	(1,673,115		)	5,693,420
Other receivables and advances	(141,196		)	126,826
Prepaids and other current assets	(289,304		)	(681,054		)
Other long-term assets	(607,598		)	840,225
Accounts payable	(757,499		)	(11,035		)
Accrued payroll and benefits	(544,781		)	281,684
Deferred revenue	(889,102		)	922,068
Accrued expenses	8,135,580			1,841,161
Other	(132,185		)	(566,652		)
Net cash provided by (used in) operating activities	(5,824,391		)	2,002,985

Cash Flow from Investing Activites:
Purchases of property and equipment	(1,132,629		)	(452,463		)
Purchase of marketable securities	(12,250,000		)	(6,210,000		)
Proceeds from sale of marketable securities	13,922,116			9,503,794
Cash paid for AllPoints acquisition	(1,618,109		)	—
Net cash provided by (used in) investing activities	(1,078,622		)	2,841,331

Cash Flow from Financing Activities:
Issuance of common stock for options and warrants	1,114,665			384,394
Payments on long-term debt	(122,072		)	(218,628		)
Retirement of AllPoints line of credit	(750,000		)	—
Net cash provided by financing activities	242,593			165,766

Net increase (decrease) in cash and cash equivalents	(6,660,420		)	5,010,082
Cash and cash equivalents at beginning of year	39,820,056			30,250,156
Cash and cash equivalents at end of period	$	33,159,636		$	35,260,238

See accompanying notes.

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Principles of Consolidation and Basis of Presentation

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

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

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

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

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

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

2. Net Loss Per Share

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

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

	As of June 30,
	2001	2002

Common stock options	9,081,625	9,086,698
Warrants	—	15,000
Total anti-dilutive securities excluded	9,081,625	9,101,698

3. Comprehensive Loss

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2002			2001			2002

Net loss	$	(16,944,455	)	$	(8,800,577	)	$	(18,731,884	)	$	(12,147,329	)
Foreign currency translation gains (losses)	(2,490		)	(566,259		)	171,951			(483,796		)
Unrealized gain (loss) on securities available for sale	(385		)	(12,032		)	114,857			(128,355		)
Total comprehensive loss	$	(16,947,330	)	$	(9,378,868	)	$	(18,445,076	)	$	(12,759,480	)

4. Derivative Financial Instruments

The Company hedges certain nonfunctional currency exposure. Forward currency exchange contracts are utilized by the Company to reduce foreign currency exchange and interest rate risks with the goal of offsetting foreign currency transaction gains and losses recorded for accounting purposes with gains and losses realized on the forward contracts. The Company does not hold derivative financial instruments for trading or speculative purposes.

As of June 30, 2002, the Company had outstanding forward currency exchange contracts of $2.0 million to sell British Pounds Sterling which hedge net balance sheet exposures. Gains and losses

arising from the changes in the fair value of forward currency exchange contracts are recognized as a component of other income (expense). At June 30, 2002, the current market settlement values of the forward contracts would result in a loss of approximately $0.1 million.

5. Intangible Assets and Goodwill

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets,” effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with these statements. The Company completed the transitional impairment test for its enterprise goodwill during the three months ended June 30, 2002 and determined that no impairment loss should be recorded as of January 1, 2002. The assessment of goodwill impairment in the future will consider if future operating cash flows of the Company will decline, which might indicate a decrease in the related estimate of fair market values. Other intangible assets will continue to be amortized over their useful lives.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2001			2002			2001			2002

Reported net loss	$	(16,944,455	)	$	(8,800,577	)	$	(18,731,884	)	$	(12,147,329	)
Goodwill amortization	1,885,594			—			3,400,590			—
Adjusted net loss	$	(15,058,861	)	$	(8,800,577	)	$	(15,331,294	)	$	(12,147,329	)

Reported net loss per common share — basic and dilutive	$	(0.37	)	$	(0.19	)	$	(0.42	)	$	(0.26	)
Goodwill amortization per common share — basic and dilutive	0.04			—			0.08			—
Adjusted net loss per common share — basic and dilutive	$	(0.33	)	$	(0.19	)	$	(0.34	)	$	(0.26	)

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

	December 31, 2001			June 30, 2002

Developed and acquired technology	$	4,700,000		$	4,700,000
Customer base	1,800,000			1,800,000
Less accumulated amortization	(4,739,334		)	(5,300,634		)
Net intangible assets	$	1,760,666		$	1,199,366

Amortization expense related to intangible assets totaled $0.4 million and $0.3 million during the three months ended June 30, 2001 and 2002, respectively and $0.8 million and $0.6 million during the six months ended June 30, 2001 and 2002, respectively. Intangible assets with definite useful lives are amortized on a straight-line basis. The weighted average amortization period is five years for developed and acquired technology and six years for customer base. The estimated aggregate future amortization expense for intangible assets remaining as of June 30, 2002 is as follows:

Remainder of 2002	$	560,478
2003	333,333
2004	305,555
Total	$	1,199,366

6. Segment Information

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

	North America			Europe			Asia Pacific and the Middle East			Eliminations			Total

Three months ended June 30, 2001
Revenue	$	14,071,802		$	3,936,247		$	7,364,434		$	—		$	25,372,483
Amortization of goodwill and intangible assets	2,285,434			13,347			17,810			—			2,316,591
Warrant and stock compensation expense	212,318			66,938			87,332			—			366,588
Provision for estimated loss on lease abandonment	7,154,780			285,556			—			—			7,440,336
Employee severance and other facility closure costs	1,023,926			430,288			605,450			—			2,059,664
Operating income (loss)	(15,381,757		)	(1,701,713		)	(377,136		)	—			(17,460,606		)

Six months ended June 30, 2001
Revenue	$	30,909,090		$	8,469,270		$	16,208,557		$	—		$	55,586,917
Amortization of goodwill and intangible assets	4,154,468			27,174			21,862			—			4,203,504
Warrant and stock compensation expense	537,311			169,398			221,012			—			927,721
Provision for estimated loss on lease abandonment	7,154,780			285,556			—			—			7,440,336
Employee severance and other facility closure costs	1,453,984			430,310			605,450			—			2,489,744
Operating income (loss)	(17,711,580		)	(2,366,638		)	510,096			—			(19,568,122		)

As of June 30, 2001
Property and equipment, net	$	5,658,480		$	1,430,817		$	924,626		$	—		$	8,013,923
Total assets	129,450,245			2,278,922			6,771,114			(3,108,034		)	135,392,247

Three months ended June 30, 2002
Revenue	$	8,998,368		$	4,848,868		$	4,583,874		—			$	18,431,110
Amortization of goodwill and intangible assets	280,293			—			—			—			280,293
Warrant and stock compensation expense	181,209			37,246			50,230			—			268,685
Provision for estimated loss on lease abandonment	3,900,000			98,862			—			—			3,998,862
Employee severance and other facility closure costs	2,252,745			133,105			101,919			—			2,487,769
Operating income (loss)	(10,028,920		)	739,736			(417,048		)	—			(9,706,232		)

Six months ended June 30, 2002
Revenue	$	18,275,236		$	10,103,861		$	9,687,985		$	—		$	38,067,082
Amortization of goodwill and intangible assets	560,586			714			—			—			561,300
Warrant and stock compensation expense	362,418			74,492			100,460			—			537,370
Provision for estimated loss on lease abandonment	3,900,000			98,862			—			—			3,998,862
Employee severance and other facility closure costs	2,252,745			133,105			101,919			—			2,487,769
Operating income (loss)	(13,707,715		)	759,158			(346,990		)	—			(13,295,547		)

As of June 30, 2002
Property and equipment, net	$	4,218,833		$	1,094,648		$	766,736		$	—		$	6,080,217
Total assets	81,017,460			3,985,191			1,159,911			(4,108,034		)	82,054,528

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

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

In response to the continued global slowdown in customer spending for large-scale IT projects, the Company launched additional cost reduction actions at the end of the second quarter of 2002. These actions, which include the consolidation of the U.S. professional services and development activities into one location in Dallas and the expansion of the Company’s offshore development operations, resulted in estimated provisions of approximately $6.5 million. These provisions consisted of approximately $1.4 million for estimated severance and other employee related costs for the termination of approximately 60 services, sales and marketing, development and administrative employees and approximately $1.1 million for the estimated loss on the abandonment of leased office space in Philadelphia. Additionally, the Company provided $2.9 million for additional estimated losses associated with facilities previously abandoned and $1.1 million in other facility closure costs primarily for the write-down of property and equipment.

The Company has made cash payments of approximately $6.1 million against the reserves established for these various cost reduction actions. The remaining liability at June 30, 2002 is approximately $13.3 million and is expected to be paid through 2009. These reserves include estimates pertaining to sublease rates, vacancy periods, employee separation costs and settlement of contractual obligations. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates.

8. Subsequent Events

During July 2002, EXE acquired intellectual property assets for an order analysis and planning system for $1.0 million. The acquisition price will be paid quarterly in four consecutive equal installments beginning in the third quarter of 2002 and the intangible assets associated with this acquisition is expected to be amortized over a three year period.

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

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

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

Overview

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

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

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

We have reduced our full time employee headcount from 630 at the beginning of 2001 to 497 at the end of June 2002. The cost reduction action we made at the end of June 2002 will further reduce our headcount in the future by approximately 60 employees.

Critical Accounting Policies and Estimates

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

Results of Operations

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

Revenue

Total Revenue. Total revenue decreased $7.0 million, or 27.4%, to $18.4 million for the three months ended June 30, 2002, from $25.4 million for the three months ended June 30, 2001. International revenue accounted for 51.2% of total revenue during the three months ended June 30, 2002 and 44.5% of total revenue during the three months ended June 30, 2001. No single customer accounted for more than 10.0% of total revenue during the three months ended June 30, 2002 or 2001.

Software License. Software license revenue decreased $2.4 million, or 43.7%, to $3.1 million for the three months ended June 30, 2002, from $5.5 million for the three months ended June 30, 2001. Software license revenue as a percentage of total revenue excluding reimbursable expenses was 17.4% for the three months ended June 30, 2002 versus 22.4% for the three months ended June 30, 2001. We believe these declines continue to reflect the global slowdown in customer spending for large-scale IT projects that began during 2001 and has extended into fiscal year 2002. When compared with the prior year, the largest decline in license revenue occurred in our Asia Pacific region. Software license revenue decreased $1.0 million or 24.7% when compared with the preceding three months ended March 31, 2002. This decline was attributed to lower license revenue in our North America and Asia Pacific regions.

Services and Maintenance. Services and maintenance revenue declined $4.0 million, or 23.4%, to $12.8 million for the three months ended June 30, 2002 from $16.8 million for the three months ended June 30, 2001. Services and maintenance revenue as a percentage of total revenue excluding reimbursable expenses was 71.5% for the three months ended June 30, 2002 versus 67.8% for the three months ended June 30, 2001. We believe the global slowdown in customer spending for large-scale IT projects has adversely impacted our ability to generate new license revenue resulting in a shift in our revenue mix. This decline in new projects from new license revenue has contributed to the decline in services and maintenance revenue. Most of the decline was in our North America and Asia Pacific regions since these areas have been the most adversely affected by license revenue declines. Revenues from consulting services have declined 32.8% when compared to the same three month period of the prior year and is largely attributed to the continued decline of consulting revenue from our EXceed Fulfill WMS Unix-based products. In addition, revenues from the AllPoints product line have declined 90.2% as a result of our November 2001 decision to no longer sell and market these products. Services and maintenance revenue increased $1.0 million or 8.2% when compared to the preceding three months ended March 31, 2002. This improvement is attributed to an increase in consulting revenue in Europe and increased maintenance revenues from contract renewals.

Resale Software and Equipment. Resale software and equipment revenue decreased $0.4 million, or 17.1%, to $2.0 million for the three months ended June 30, 2002, from $2.4 million for the three months ended June 30, 2001. Resale software and equipment as a percentage of total revenue excluding reimbursable expenses was 11.1% for the three months ended June 30, 2002 versus 9.8% for the three months ended June 30, 2001. Resale software and equipment revenue decreased $1.1 million or 35.5% when compared with the preceding three months ended March 31, 2002. This decrease is attributed to a decline in resale revenues from Europe due to a $0.9 million resale transaction during the three months ended March 31, 2002 that accompanied a large license and services contract.

Costs and Expenses

Cost of Software Licenses. Cost of software licenses consists primarily of royalties associated with software used to develop our software products, the cost of reproduction, and the cost of complementary software applications that we purchase to sell to our customers. Cost of software licenses represented 2.8% of software license revenue for the three months ended June 30, 2002 and 1.5% for the three months ended June 30, 2001. The increase in cost of software licenses as a percentage of software license revenue was attributed to an increase in purchasing of complementary software that was sold during the three months ended June 30, 2002.

Cost of Services and Maintenance. Cost of services and maintenance consists primarily of salaries of professional staff and costs associated with implementation, consulting and training services, hotline telephone support, new releases of software and updating user documentation. Cost of services and maintenance decreased $3.0 million, or 26.8%, to $8.0 million for the three months ended June 30, 2002, from $11.0 million for the three months ended June 30, 2001. The decrease was related primarily to a

31.7% reduction in the number of full time and contract services and maintenance employees. Cost of services and maintenance decreased $0.1 million or 1.6% when compared to the preceding three months ended March 31, 2002. As a percentage of services and maintenance revenue, cost of services and maintenance decreased to 62.7% for the three months ended June 30, 2002, from 65.5% for the three months ended June 30, 2001 and from 68.9% for the three months ended March 31, 2002. These decreases in cost as a percentage of services and maintenance revenue are due primarily to improved utilization of our professional services employees.

Cost of Resale Software and Equipment. Cost of resale software and equipment consists primarily of the costs of the database software tools and hardware we purchase to resell to our customers. Cost of resale software and equipment decreased $0.3 million, or 16.8%, to $1.7 million for the three months ended June 30, 2002, from $2.0 million for the three months ended June 30, 2001. As a percentage of resale software and equipment revenue, cost of resale software and equipment was 82.8% for the three months ended June 30, 2002, 82.5% for the three months ended June 30, 2001 and 83% for the three months ended March 31, 2002.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions, bonuses, recruiting costs, travel, marketing materials and trade shows. Sales and marketing expenses decreased $2.4 million, or 32.9%, to $4.9 million for the three months ended June 30, 2002, from $7.3 million for the three months ended June 30, 2001. The decrease was related primarily to a 29.0% reduction in the number of sales and marketing employees and to lower commission expenses for sales staff and partners as a result of lower software license revenues. As a percentage of total revenue excluding reimbursable expenses, sales and marketing expenses decreased to 27.4% for the three months ended June 30, 2002, from 29.6% for the three months ended June 30, 2001, and increased from 26.5% for the three months ended March 31, 2002. Sales and marketing expenses decreased $0.1 million or 2.8% when compared with the preceding three months ended March 31, 2002 primarily due to efforts to reduce marketing and travel expenses.

Research and Development. Research and development expenses consist primarily of salaries and other personnel-related costs for our product development activities. Research and development expenses decreased $1.1 million, or 27.1%, to $2.9 million for the three months ended June 30, 2002, from $4.0 million for the three months ended June 30, 2001. The decrease in research and development expenses was due primarily to a 35.7% reduction in the number of research and development employees and contractors. As a percentage of total revenue excluding reimbursable expenses, research and development expenses increased to 16.2% for the six months ended June 30, 2002, from 16.1% for the three months ended June 30, 2001, and from 16.0% for the three months ended March 31, 2002. Research and development expenses decreased $0.1 million or 4.8% when compared with the preceding three months ended March 31, 2002 primarily due to efforts to reduce contractor and consulting expenses.

General and Administrative. General and administrative expenses consist primarily of salaries and other personnel-related costs of our finance, human resources, information systems, administrative, legal and executive departments, insurance costs and the costs associated with legal, accounting, and other administrative services. General and administrative costs decreased $2.6 million, or 46.3%, to $3.0 million for the three months ended June 30, 2002, from $5.6 million for the three months ended June 30, 2001. The decrease in general and administrative expenses was due primarily to a 36.2% reduction in the number of general and administrative employees and contractors. As a percentage of total revenue excluding reimbursable expenses, general and administrative expenses decreased to 16.8% for the three months ended June 30, 2002, from 22.7% for the three months ended June 30, 2001, and increased from 16.6% for the three months ended March 31, 2002. General and administrative expenses decreased $0.2 million or 5.0% when compared with the preceding three months ended March 31, 2002 primarily due to efforts to reduce consulting expenses.

In August 2002, we renewed our director and officer liability insurance for one year. The premium was approximately $0.9 million and will be charged to expense over the next four quarters. The previous premium had an annual cost of approximately $0.3 million.

Amortization of Goodwill and Intangible Assets. Amortization of goodwill and intangible assets relates primarily to assets acquired in connection with the 1997 acquisition of Dallas Systems and the 2001 acquisition of AllPoints. Amortization of goodwill and intangible assets decreased $2.0 million to $0.3 million for the three months ended June 30, 2002, from $2.3 million for the three months ended June 30, 2001, and is consistent with $0.3 million for the three months ended March 31, 2002. Of the decline from the prior year, approximately $0.7 million is attributed to the implementation in the current year of Statement of Financial Accounting Standards Board (SFAS) No. 142, Goodwill and Other Intangible Assets, which directs that goodwill and intangible assets which are deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. The remaining $1.3 million of the decline is attributed to the goodwill and intangible impairment write-off of AllPoints at the end of 2001.

Non-Cash Warrant and Stock Compensation. Non-cash warrant and stock compensation expense relates to the amortization of deferred compensation recorded primarily in connection with stock options granted to employees. The deferred compensation recorded represented the difference between the exercise price and the deemed fair value of our common stock on the date of grant of these options. Non-cash warrant and stock compensation expense decreased $0.1 million to $0.3 million for the three months ended June 30, 2002, from $0.4 million for the three months ended June 30, 2001, and is consistent with $0.3 million for the three months ended March 31, 2002.

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

During the three months ended June 30, 2001, we implemented a cost reduction plan and recorded a pretax charge of $9.5 million that included approximately $2.0 million for severance and other employee related costs for the termination of 119 services, sales and marketing, development and administrative employees, $7.4 million for the abandonment of certain leased office space, less estimated sublease recoveries, at our North American and United Kingdom facilities, and $0.1 million for other costs associated with the downsizing of operations at our Hong Kong office.

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

Other Income (Expense). Other income (expense) consists of gains and losses from currency fluctuations, interest expense, and interest income on investments. Other income increased $0.4 million to an income of $1.1 million for the three months ended June 30, 2002, from an income of $0.7 million for the three months ended June 30, 2001. The increase was due primarily to an improvement of $0.8 million from foreign exchange gains. This increase was offset by a decrease in interest income of $0.4 million due to a

decline in interest rates and a decline in funds held in marketable securities during the three months ended June 30, 2002. Other income (expense) improved $0.8 million when compared with the preceding three months ended March 31, 2002 primarily due to foreign exchange gains during the three months ended June 30, 2002. Although we periodically buy forward contracts to hedge against certain foreign currency fluctuations, we may have foreign currency gains and losses which can significantly vary from quarter to quarter.

Income Taxes. An income tax provision of $0.2 million was recognized during the three months ended June 30, 2002 and 2001. The income tax provision was primarily due to tax on income earned by foreign subsidiaries while corresponding domestic tax benefit generated by foreign tax credits was not recognized due to the uncertainty of the timing and amount of future taxable income.

Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30, 2001

Revenue

Total Revenue. Total revenue decreased $17.5 million, or 31.5%, to $38.1 million for the six months ended June 30, 2002, from $55.6 million for the six months ended June 30, 2001. International revenue accounted for 52.0% of total revenue during the six months ended June 30, 2002 and 44.4% of total revenue during the six months ended June 30, 2001. No single customer accounted for more than 10.0% of total revenue during the six months ended June 30, 2002 or 2001.

Software License. Software license revenue decreased $8.2 million, or 53.2%, to $7.3 million for the six months ended June 30, 2002, from $15.5 million for the six months ended June 30, 2001. Software license revenue as a percentage of total revenue excluding reimbursable expenses was 19.6% for the six months ended June 30, 2002 versus 28.7% for the six months ended June 30, 2001. We believe these declines were primarily attributed to the global slowdown in customer spending for large-scale IT projects that began during 2001 and has extended into the first and second quarters of fiscal year 2002.

Services and Maintenance. Services and maintenance revenue decreased $9.7 million, or 28.3%, to $24.7 million for the six months ended June 30, 2002 from $34.4 million for the six months ended June 30, 2001. Services and maintenance revenue as a percentage of total revenue excluding reimbursable expenses was 66.6% for the six months ended June 30, 2002 versus 63.7% for the six months ended June 30, 2001. We believe the global slowdown in customer spending for large-scale IT projects has adversely impacted our ability to generate new license revenue resulting in a shift in our revenue mix. This decline in new projects from new license revenue has contributed to the decline in services and maintenance revenue. Most of the decline was in our North America and Asia Pacific regions since these areas have been the most adversely affected by license revenue declines. Revenues from consulting services have declined 37.1% when compared to the same six month period of the prior year and is largely attributed to the continued decline of consulting revenue from our EXceed Fulfill WMS Unix-based products. In addition, revenues from the AllPoints product line have declined 83.7% as a result of our November 2001 decision to no longer sell and market these products.

Resale Software and Equipment. Resale software and equipment revenue increased $1.0 million, or 24.0%, to $5.1 million for the six months ended June 30, 2002, from $4.1 million for the six months ended June 30, 2001. Resale software and equipment as a percentage of total revenue excluding reimbursable expenses was 13.8% for the six months ended June 30, 2002 versus 7.6% for the six months ended June 30, 2001. The increase was due to improved resale revenue from Europe that accompanied a large new license and services contract during the first quarter of 2002.

Costs and Expenses

Cost of Software Licenses. Cost of software licenses represented 2.7% of software license revenue for the six months ended June 30, 2002 and 0.8% for the six months ended June 30, 2001. The increase in cost of software licenses as a percentage of software license revenue was attributed to an increase in purchasing of complementary software that was sold during the six months ended June 30, 2002.

Cost of Services and Maintenance. Cost of services and maintenance decreased $6.4 million, or 28.3%, to $16.2 million for the six months ended June 30, 2002, from $22.6 million for the six months ended June 30, 2001. The decrease was related primarily to a reduction in the number of full time and contract services and maintenance employees. As a percentage of services and maintenance revenue, cost of services and maintenance was 65.7% for the six months ended June 30, 2002 and 2001.

Cost of Resale Software and Equipment. Cost of resale software and equipment increased $0.9 million, or 27.5%, to $4.2 million for the six months ended June 30, 2002, from $3.3 million for the six months ended June 30, 2001. The increase was due to higher resale software and equipment sales for the six months ended June 30, 2002. As a percentage of resale software and equipment revenue, cost of resale software and equipment was 82.9% for the six months ended June 30, 2002 and 80.6% for the six months ended June 30, 2001. The increase in cost as a percentage of revenue reflects that significant sales of higher margin data base software occurred during the first quarter of the prior year.

Sales and Marketing. Sales and marketing expenses decreased $4.6 million, or 31.9%, to $10.0 million for the six months ended June 30, 2002, from $14.6 million for the six months ended June 30, 2001. The decrease was related primarily to a reduction in the number of sales and marketing employees and to lower commission expenses for sales staff and partners as a result of lower software license revenues. As a percentage of total revenue excluding reimbursable expenses, sales and marketing expenses decreased to 26.9% for the six months ended June 30, 2002, from 27.1% for the six months ended June 30, 2001.

Research and Development. Research and development expenses decreased $1.8 million, or 23.9%, to $6.0 million for the six months ended June 30, 2002, from $7.8 million for the six months ended June 30, 2001. The decrease in research and development expenses was due primarily to a reduction in the number of research and development employees and contractors. As a percentage of total revenue excluding reimbursable expenses, research and development expenses increased to 16.1% for the six months ended June 30, 2002, from 14.5% for the six months ended June 30, 2001. The increase was primarily due to lower revenue we have experienced since the beginning of the slowdown in global IT spending.

General and Administrative. General and administrative costs decreased $3.8 million, or 38.3%, to $6.2 million for the six months ended June 30, 2002, from $10.0 million for the six months ended June 30, 2001. The decrease in general and administrative expenses was due to a reduction in the number of general and administrative employees and contractors. As a percentage of total revenue excluding reimbursable expenses, general and administrative expenses decreased to 16.7% for the six months ended June 30, 2002, from 18.6% for the six months ended June 30, 2001.

Amortization of Goodwill and Intangible Assets. Amortization of goodwill and intangible assets decreased $3.6 million to $0.6 million for the six months ended June 30, 2002, from $4.2 million for the six months ended June 30, 2001. Approximately $1.4 million of this decline is attributed to the implementation in the current year of Statement of Financial Accounting Standards Board (SFAS) No. 142, Goodwill and Other Intangible Assets, which directs that goodwill and intangible assets which are deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. The remaining $2.2 million of the decline is attributed to the goodwill and intangible impairment write-off of AllPoints in the fourth quarter of 2001.

Non-Cash Warrant and Stock Compensation. Non-cash warrant and stock compensation expense decreased $0.4 million to $0.5 million for the six months ended June 30, 2002, from $0.9 million for the six months ended June 30, 2001.

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

Other Income (Expense). Other income increased $0.2 million to an income of $1.3 million for the six months ended June 30, 2002, from an income of $1.1 million for the six months ended June 30, 2001. The increase was due primarily to an improvement of $1.2 million from foreign exchange gains. This increase was offset by a decrease in interest income of $1.0 million due to a decline in interest rates and a decline in funds held in marketable securities during the six months ended June 30, 2002. Although we periodically buy forward contracts to hedge against foreign currency fluctuations, we may have foreign currency gains or losses which can significantly vary from quarter to quarter.

Income Taxes. An income tax provision of $0.2 million was recognized during the six months ended June 30, 2002 and 2001. The income tax provision was primarily due to tax on income earned by foreign subsidiaries while corresponding domestic tax benefit generated by foreign tax credits was not recognized due to the uncertainty of the timing and amount of future taxable income.

Liquidity and Capital Resources

We have funded our operations through the issuance of our preferred and common stock, bank borrowings and cash flow from operations. As of June 30, 2002 we had approximately $47.0 million in cash and marketable securities, including long-term marketable securities, a growth of approximately $1.7 million during the first six months of 2002.

Net cash provided by operating activities was $2.0 million for the six months ended June 30, 2002. The net loss after deducting non-cash adjustments was approximately $6.4 million. This net cash use was more than offset by cash generated by changes in operating assets and liabilities of approximately $8.4 million. This includes an improvement in our receivable days outstanding which improved from 121 days at the end of 2001 to 85 days at the end of June 2002. As a result, $5.7 million of cash was generated from a reduction in net receivables. Additionally, accrued expenses increased by $1.8 million due primarily to the cost reduction plan and deferred revenues increased $1.0 million. Net cash used in operating activities was $5.8 million for the comparable six months ended June 30, 2001.

Net cash provided by investing activities was $2.8 million for the six months ended June 30, 2002. We purchased property and equipment of $0.5 million and generated $3.3 million of cash from net sales of marketable securities. Net cash used in investing activities was $1.1 million for the comparable six months ended June 30, 2001. We believe that capital expenditures over the next twelve months will not exceed $1.0 million. In July 2002, we agreed to purchase certain intellectual property for $1.0 million (see Note 8 to the consolidated financial statements included elsewhere herein). The acquisition will be paid quarterly in four consecutive equal installments beginning in the third quarter of 2002.

Net cash provided by financing activities was $0.2 million for the six months ended June 30, 2002. We generated cash of $0.4 million from the issuance of common stock and reduced other long-term debt by $0.2 million. Net cash provided by financing activities was $0.2 million for the comparable six months ended June 30, 2001.

We currently have operating lease obligations of approximately $45.5 million, of which $5.1 million are payable over the next year and the balance is due over an additional 13 years. Certain of the leases are abandoned and provisions have been made for the estimated losses on these leases (see Note 7 to the consolidated financial statements included elsewhere herein), but cash payments will be required for the remainder of the existing lease obligation. If we are able to reach a settlement with the lessors of these abandoned facilities on terms favorable to the Company within the next twelve months, a settlement payment might be required which could be considerably higher than the scheduled lease payments during that period. As of the date of this Form 10-Q there has been no settlement offer by any of the lessors.

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

Forward-Looking Statements

In addition to historical information, this filing and our Annual Report on Form 10-K may contain forward-looking statements. Any statements contained herein (including without limitation statements to the effect that the Company or its management “believes,” “expects,” “anticipates,” “plans,” and similar expressions) that relate to future events or conditions, including, among others, statements relating to

economic conditions, sales execution, cost reduction and restructuring actions and their impact on earnings and cash flows, sufficiency of working capital, accounting for goodwill and other intangible assets, interest rate risk and enhancement of the company’s software should be considered forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Certain Factors That May Affect Future Results” below. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. The Company undertakes no obligations to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, future events, or otherwise.

Certain Factors That May Affect Future Results

Risks Relating to Our Business

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

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

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

Our growth rates and, consequently, our future operating results may be affected by any of the following factors:

• a continued decline in general economic conditions;

• the level of market acceptance of, and demand for, our software;

• the overall growth rate of the markets in which we compete;

• our competitors’ products and prices;

• our ability to establish strategic marketing relationships;

• our ability to develop and market new and enhanced products;

• our ability to successfully train alliance companies and consulting organizations;

• our ability to control costs;

• changes in our products and services mix; and

• our ability to train and expand our direct sales force and indirect distribution channels worldwide.

We may not be profitable in the future.

With the exception of the third and fourth quarters of the year ended December 31, 2000, we have experienced quarterly and annual losses since the formation of EXE in September 1997. We experienced net losses of $26.1 million in 1999, $3.3 million in 2000, $63.9 million in 2001, and $12.1 million for the six

months ended June 30, 2002. We may continue to incur losses on both a quarterly and an annual basis. Moreover, we expect to continue to incur significant sales and marketing, research and development and general and administrative expenses and, as a result, we will need to generate significant revenue to report net income in future periods. We may not achieve our planned growth or generate sufficient revenue to report net income in future periods.

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

We expect to derive a majority of our product license revenue in the future from our fulfillment and collaboration products and their components. Our business depends on continued customer acceptance of these products and the release, introduction and customer acceptance of new products. We expect that we will continue to depend on revenue from new and enhanced versions of our fulfillment and collaboration products, and our revenue could decline if our target customers do not continue to adopt and expand their use of these products and their components.

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

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

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

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

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

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

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

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

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

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

• the changing requirements of our industry;

• the performance, quality and price of our new and enhanced products; and

• the availability, performance, quality and price of competing products and technologies.

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

Historically, we have issued significant new software products or new releases of our software periodically, with interim releases issued more frequently. Our software is particularly complex, because it

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

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

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

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

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

• diversion of management’s attention;

• failure to retain key personnel of the acquired businesses;

• unanticipated events or circumstances;

• legal liabilities; and

• impairment charges on goodwill and intangible assets.

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

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

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

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

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

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

International revenue accounted for approximately 52.0% of our total revenue during the six months ended June 30, 2002, 46.9% of our total revenue during the year ended December 31, 2001, 40.5% of our total revenue during the year ended December 31, 2000 and approximately 36.2% of our total revenue during 1999. We expect international revenue to continue to account for a significant percentage of total revenue in the future, and we plan to continue to expand our international activities as part of our growth strategy. This expansion will require significant financial resources and management attention that could have a negative effect on our earnings. As our international operations continue to develop, they may become increasingly subject to risks inherent in international business activities, including:

• difficulty in staffing and managing geographically diverse operations;

• longer accounts receivable payment cycles in certain countries;

• compliance with a variety of foreign laws and regulations;

• unexpected changes in regulatory requirements and overlap of different tax structures;

• greater difficulty in safeguarding intellectual property;

• trade restrictions;

• changes in tariff rates and import and export licensing requirements; and

• general economic conditions in international markets.

Our earnings could decline if these or other factors affect international operations.

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

A majority of the revenue and expenses incurred by our international operations are denominated in currencies other than the United States dollar. In particular, our revenue and costs of operations in Japan and Singapore are denominated in Japanese yen and Singapore dollars and in Europe some of our contracts are denominated in the Euro. In addition, with the expansion of international operations, the number of foreign currencies in which we must operate is likely to increase, resulting in increased exposure to exchange rate fluctuations. Exchange rate fluctuations have caused and will continue to cause currency transaction gains and losses. We experienced currency transaction gains (losses) of $0.8 million for the six months ended June 30, 2002, $(0.5) million for the year ended December 31, 2001 and $(0.8) million for the year ended December 31, 2000. We can give you no assurance that currency transaction losses will not adversely affect our results in future periods.

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

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

Also, we believe our success will depend on our ability to productively manage our personnel. We expect future increases in the number of our sales and professional services staff. Growth may result in increased salary expenses and training costs in advance of any resulting increase in services revenue due to the typically lower productivity levels of newer personnel. Moreover, any growth in software license revenue will likely generate the need for more professional services personnel to deploy and implement software and to train customers. A shortage in the number of trained personnel, either within our company or available from outside consulting firms, could limit our ability to implement our software on a timely and cost-effective basis. Our earnings will suffer if we generate insufficient revenue to cover growth-related expenses, significantly strain management resources with additional responsibilities, fail to successfully expand our relationships and develop additional relationships with third-party implementers and complementary software vendors or fail to have sufficiently trained sales and marketing personnel and professional services personnel.

We depend on the services of a number of key personnel, and a loss of any of these personnel could disrupt our operations and result in reduced revenue.

Our success depends on the continued services and performance of our senior management staff, in particular, Raymond Hood, our Chairman of the Board of Directors and Chief Executive Officer. The loss of the services of Mr. Hood or any of our other senior management staff or key employees could seriously impair our ability to operate and achieve our objectives, which could reduce our revenue. We have $3.0 million of key man life insurance on Mr. Hood. This amount may not be sufficient to compensate us for the loss of his services. We also have employment agreements with Mr. Hood and all of our executive officers.

However, these employment agreements do not prevent Mr. Hood, or other key employees, from voluntarily terminating their employment with us.

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

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

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

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

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

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

• software embedded in our products;

• software that enables our software to interact with other software systems or databases; and

• software in conjunction with which our software operates.

We also license software tools used to develop our software and software for internal systems. We cannot assure you that the third party software or software tools will continue to be available to us on commercially reasonable terms. The loss or inability to maintain any of these software licenses could result in delays or reductions in product shipments until equivalent software could be identified and licensed or compiled, which could harm our business.

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

During the calendar year 2001, we terminated approximately 233 of our services, sales, development and administrative personnel. Additionally, at the end of June 2002, we announced that approximately an additional 60 employees would be terminated. It is possible that these employees could bring legal actions against us under applicable federal, state or local laws. Any such claims, whether with or without merit, could subject us to costly litigation and the diversion of management time and attention, and successful claims could result in awards of damages to or reinstatement of former employees, any of which could harm our operating results.

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

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

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

Five customers have requested defense and indemnification from us for threatened patent claims against them by a third party relating to bar code technology. For additional information about these requests, see “Item 1. Business—Intellectual Property” in our Annual Report on Form 10-K.

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

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

• general economic conditions;

• demand for our products and services;

• our competitors’ products and prices;

• the timing and market acceptance of new product introductions and upgrades by us or our competitors;

• our success in expanding our services, customer support and marketing and sales organizations, and the timing of these activities;

• the mix of products and services sold;

• delays in, or cancellations of, customer implementations;

• customers’ budget constraints;

• the level of research and development expenditures;

• the size of recurring compensation charges;

• changes in foreign currency exchange rates;

• our ability to control costs; and

• the timing of acquisitions and of the amortization or impairment of intangible assets.

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

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

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

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

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

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

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

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

• a board that is divided into three classes, each of which is elected to serve staggered three year terms;

• provisions under which only the board of directors or our chief executive officer or secretary may call a special meeting of the stockholders;

• provisions which permit the board of directors to increase the number of directors and to fill these positions without a vote of the stockholders;

• provisions under which no director may be removed at any time except for cause and by a majority vote of the outstanding shares of voting stock; and

• provisions under which stockholder action may be taken only at a stockholders meeting and not by written consent of the stockholders.

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

Risks Relating to Our Industry

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

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

• adherence to emerging Internet-based technology standards;

• comprehensiveness of applications;

• adaptability and flexibility;

• immediate, interactive capability with customer and partner systems;

• financial viability;

• global capability;

• references from existing customers;

• industry domain experience and expertise;

• ability to support specific industry requirements;

• ease of application use and deployment;

• speed of implementation;

• customer service and support; and

• initial price and total cost of ownership.

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

• focus on providing fulfillment applications;

• offer enterprise platforms for order management, fulfillment and inventory management; and

• service internal customers, such as internal information technology groups.

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

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

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

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

• meet or exceed technological advances in the marketplace;

• meet changing customer requirements;

• respond to competitive products; and

• achieve market acceptance.

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

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We develop products in the United States and market our products in North America, Europe, the Middle East, Asia and Australia. Revenues outside the United States were 40.5%, 46.9% and 52.0% of our total revenues for the years ended December 31, 2000 and 2001 and for the six months ended June 30, 2002, respectively. Most of our foreign subsidiaries’ sales and expenses are made in local currencies. International sales denominated in currencies other than the U.S. dollar are primarily in the Japanese Yen, Singapore dollar and the Euro. Accordingly, we are exposed to fluctuations in currency exchange rates. Foreign currency transaction gains (losses) were approximately $(0.8) million, $(0.5) million and $0.8 million for the years ended December 31, 2000 and 2001 and for the six months ended June 30, 2002, respectively. Because most of our sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets.

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

As of June 30, 2002, the Company had outstanding forward currency exchange contracts of $2.0 million to sell British Pounds Sterling that hedge net balance sheet exposures. Gains and losses arising from the changes in the fair value of forward currency exchange contracts are recognized as a component of other income (expense). At June 30, 2002, the current market settlement values of the forward contracts would result in a loss of approximately $0.1 million.

We used a portion of the proceeds obtained from our August 2000 initial public offering to repay all

outstanding amounts under our revolving credit facility and term loan, which we subsequently terminated. To the extent that we enter into a new credit facility in the future, future interest expense could be subject to fluctuations based on the general level of U.S. interest rates.

We have invested the remaining proceeds from our initial public offering in investment grade corporate and government securities and money market funds. The primary objective of our investment activities is to preserve capital while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then–prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. As of June 30, 2002, we had $29.1 million of securities which mature in 90 days or less, $7.3 million of securities which mature between 90 days and one year, and $4.4 million of securities which mature between one and two years. We do not believe that we have any material exposure to interest rate risk.

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c) Recent Sales of Unregistered Securities

During the six months ended June 30, 2002, we issued warrants to purchase 15,000 shares of Common Stock to alliance partners at exercise prices of $1.57 and $1.85 per share. The securities were not registered under the Securities Act of 1933.

We believe that the transactions described above were exempt from registration under Section 3(b) or 4(2) of the Securities Act because the subject securities were issued to a limited group of persons, each of whom was believed to be a sophisticated investor or to have had a pre-existing business or personal relationship with us or our management and to have been purchasing for investment without a view to further distribution. In addition, the recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the certificates issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.

(d) Use of Proceeds

The Company completed its initial public offering of 8.0 million shares of its common stock pursuant to a Registration Statement on Form S-1 (Registration No. 333-35106, effective August 3, 2000) on August 9, 2000. Total proceeds from the offering, including the exercise of the over-allotment option, were approximately $63.9 million, net of underwriting discounts and commissions of approximately $5.0 million and other fees and expenses of approximately $1.8 million.

From the date of receipt through June 30, 2002, we have used the proceeds as follows:

Repayment of indebtedness	$	16.6 million
Acquisition of businesses	3.4 million
Working capital	9.1 million
Total	$	29.1 million

The remainder of the proceeds has been invested in investment grade corporate and government

securities and money market funds. We intend to use the remaining proceeds for research and development activities; expenditures on sales and marketing, consulting services, and general and administrative personnel; systems costs; and working capital and general corporate purposes, including possible acquisitions of, or investments in, businesses and technologies that are complementary to our business. None of the net proceeds of the offering were paid by us, directly or indirectly, to any director, officer or general partner of ours or any of their associates, or to any persons owning ten percent or more of any class of our equity securities, or any affiliates of ours.

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

The Company held its Annual Meeting of Stockholders on May 30, 2002, at which the Company’s stockholders voted to elect two Class II members to the Board of Directors. Jay C. Hoag and William J. Lansing were elected to serve until the 2005 annual meeting and until their successors are duly elected and qualified. There were 35,063,517 votes cast for the election of Mr. Hoag and 35,031,846 votes cast for the election of Mr. Lansing. There were 1,047,258 votes withheld from Mr. Hoag and 1,078,929 votes withheld from Mr. Lansing. The stockholders also approved amendments to the Amended and Restated 1997 Incentive and Non-Qualified Stock Option Plan (the “Employee Plan”) increasing the number of shares of Common Stock available for issuance thereunder from 12,000,000 shares to 15,000,000 shares and increasing the maximum number of shares of Common Stock with respect to which options may be granted thereunder to any employee during any calendar year from 1,000,000 shares to 3,000,000 shares; and an amendment to the Amended and Restated Stock Option Plan for Non-Employee Directors (the “Director Plan”) increasing the number of shares of Common Stock available for issuance thereunder from 300,000 shares to 600,000 shares. There were 20,283,019 votes cast for the amendments to the Employee Plan, 8,448,046 votes cast against the proposal, 4,920 votes abstained, and 7,374,790 broker non-votes. There were 25,172,345 votes cast for the amendment to the Director Plan, 3,557,977 votes cast against the proposal, 5,663 votes abstained, and 7,374,790 broker non-votes. The stockholders also voted to ratify the selection of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending December 31, 2002. There were 36,036,277 votes cast for this proposal, 69,998 votes cast against this proposal and 4,500 votes abstained.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Employment Agreement dated as of May 13, 2002 between the Company and Kenneth R. Vines.

10.2 Amended and Restated EXE Technologies, Inc. 1997 Incentive and Non-Qualified Stock Option Plan, as amended.

10.3 EXE Technologies, Inc. Amended and Restated Stock Option Plan for Non-Employee Directors, as amended.

99.1 Certification pursuant to 18 U.S.C. Section 1350.

(b) Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EXE TECHNOLOGIES, INC.

Date: August 14, 2002	By:	/s/ RAYMOND R. HOOD
	Raymond R. Hood
	Chairman of the Board of Directors and
	Chief Executive Officer


Date: August 14, 2002	By:	/s/ KENNETH R. VINES
	Kenneth R. Vines
	Senior Vice President, Finance, Chief
	Financial Officer and Treasurer

INDEX TO EXHIBITS

10.1 Employment Agreement dated as of May 13, 2002 between the Company and Kenneth R. Vines.

10.2 Amended and Restated EXE Technologies, Inc. 1997 Incentive and Non-Qualified Stock Option Plan, as amended.

10.3 EXE Technologies, Inc. Amended and Restated Stock Option Plan for Non-Employee Directors, as amended.

99.1 Certification pursuant to 18 U.S.C. Section 1350.