Use these links to rapidly review the documentLAWSON SOFTWARE, INC. Form 10-K Index Part IV

---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-K

|ý                                                                | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|FOR THE FISCAL YEAR ENDED MAY 31, 2003                          
|OR                                                              
|o                                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|FOR THE TRANSITION PERIOD
FROM                                TO

Commission file number: 000-33335

---

LAWSON SOFTWARE, INC.(Exact name of registrant as specified in its charter)

|DELAWARE(State or other jurisdiction of
incorporation or organization)                 |  | 41-1251159(I.R.S. Employer
Identification Number)
|-------------------------------------------------------------------------------------- |  | -------------------------------------------------
|380 ST. PETER STREET
ST. PAUL, MINNESOTA 55102(Address of principal executive offices)
|(651) 767-7000(Registrant's telephone number, including area code)                    

---

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.01 Par Value Per Share

---

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

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

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

The
aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant, based upon the closing sale price of Common Stock
on November 30, 2002 as reported on the Nasdaq National Market, was approximately $395,996,802. Shares of common stock held by each officer and director and by each person who owns 5% or more
of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other
purposes.

The
number of shares of the registrant's common stock outstanding on July 18, 2003 was 98,509,275.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Registrant's 2003 Annual Meeting of Stockholders to be held October 30, 2003 are incorporated by reference in
Part III of this Form 10-K Report.

---

---

---

LAWSON SOFTWARE, INC.  Form 10-K  Index



|PART I.   
|----------
|Item 1.   
|Item 2.   
|Item 3.   
|Item 4.   
|PART II.  
|Item 5.   
|Item 6.   
|Item 7.   
|Item 7A.  
|Item 8.   
|Item 9.   
|PART III. 
|Item 10.  
|Item 11.  
|Item 12.  
|Item 13.  
|Item 14.  
|PART IV.  
|Item 15.  
|SIGNATURES

---



Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements. The forward-looking statements are
made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section
entitled "Management's Discussion and Analysis of Financial Condition and Results of OperationsFactors That May Affect Our Future Results or the Market Price of Our Stock." 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 obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this Annual Report on Form 10-K and in other
documents the Company files from time to time with the Securities and Exchange Commission.

Part I

Item 1. Business

General

We are a provider of enterprise software solutions targeting specific service industries. In the markets we serve, we offer comprehensive financial management,
human resources, services automation, procurement, distribution and retail operations solutions designed to manage, analyze and improve our customers' businesses. Our software solutions automate and
integrate critical business processes, facilitating collaboration among customers, and their partners, suppliers and employees. We also
provide professional services that optimize and support the selection, implementation and execution of a customer's e-business technology and solutions infrastructure.

Founded
in 1975, we currently have over 2,000 customers, primarily in the healthcare, professional services, public sector, financial services and retail markets. We generate revenue
through license fees and separate fees for professional services, including consulting, training and implementation services, as well as ongoing customer support and maintenance. We market and sell
our software and services solutions primarily through a direct sales force, augmented by a combination of channel partners and resellers.

Lawson
Software is a Delaware corporation. In February 2001, we were reincorporated through a merger with our predecessor, Lawson Associates, Inc., a Minnesota corporation,
which was incorporated in 1975. Our principal executive office is located at 380 Saint Peter Street, St. Paul, Minnesota 55102-1302. Our telephone number at that address is
(651) 767-7000. We maintain a website at www.lawson.com. Our website, and the information contained therein, is not a part of this Form 10-K.

Our Solution

We provide collaborative, industry-tailored enterprise software solutions that fundamentally improve the business processes of our customers. The open
architecture of our solutions offers our customers the choice of directly deploying a pre-configured solution or quickly and easily customizing our product offerings to conform to our
customers' unique business processes. The benefits of our solutions include:

Comprehensive Software Suite.Our software provides integrated, comprehensive solutions that automate business processes,
enable collaboration among participants in the processes and deliver detailed analyses of the results of the processes. For example, our services automation solution enables appropriate staff to
assess critical information on service projects. Managers can easily identify and

1

---

assign
the appropriate personnel to projects based on skills and availability. Personnel can enter their time and expenses associated with a project into our services automation solution, which
processes these entries to automatically update our financial management solution for client billing, revenue recognition and project accounting; our payroll solution to update time records; our
accounts payable solution to reimburse any employee expenses; and our enterprise performance management solution to deliver financial, project and resource performance reports to appropriate managers.

Industry-Tailored Solutions.We use our expertise in each of our targeted service industries to provide
pre-configured functionality that addresses the specific business needs of these industries, thereby increasing the utility of the overall solution. For example, our
e-Procurement for Healthcare solution allows healthcare organizations to coordinate and automate the process of ordering, receiving and paying for medical and other supplies from multiple
suppliers, networks and web exchanges, using a single Web-based portal.

Flexible, Open, Web-Based Architecture.Our software is flexible. It can be deployed into a customer's system
with pre-configured industry solutions or efficiently customized to conform to the customer's business processes using our adaptable extensions. Our open architecture enables our software
to run on most leading hardware and operating system platforms and to operate with the leading relational database management systems. This allows our customers to choose the most appropriate
platforms independently from selecting our solutions. Furthermore, our solutions can integrate with legacy systems through standard interfaces and integration protocols. Because many of our solutions
do not require software to reside on the desktop computer and are accessed directly through a standard Web-browser or a supported wireless device, we believe many of our solutions can be
readily deployed and used without extensive training. Our software is also highly scalable, enabling deployment in large, global enterprises as well as in small and medium-sized businesses.

Rapid and Cost-Effective Implementation.Our industry focus and flexible product design enables fast and easy
enterprise deployment. We believe our knowledge of our target services industries allows our industry-focused services teams to implement our software with an in-depth understanding of the
business needs of the customer, thereby reducing time, effort and expense.

Products

Our software solutions are comprised of:



Our
services automation application automates the business processes of professional services organizations and corporate internal and external service departments. This application is a
complete solution and can work independent of any other system or in conjunction with our core business applications to add reporting and analysis, invoicing and capitalization capabilities. We
developed this application for corporate internal service departments, external services departments and professional services organizations.

Our
core business applications provide the platform and functionality for handling financial management, human resources, procurement, distribution and retail operations functions. These
applications include several components in each functional area, which we license separately or bundle together as suites designed for our targeted vertical markets.

2

---

Our
pre-configured integration and collaboration tools help customers improve their business processes through simplified presentation, navigation and access to information,
automation of complex business processes, and intelligent routing of work and tasks to appropriate personnel.

Our
product offerings include enterprise performance management applications that track over 200 pre-configured business metrics, including industry-specific metrics that
enable users to view and analyze key operational performance measurements and use graphical, end-user interfaces to navigate through relevant information stored in our customer's
transactional system.

Lawson
Portal enables a wide distribution of information to users based on their role in an organization, while controlling access to data. Our pre-configured Portal is
combined with the appropriate Lawson core business applications as well as third-party applications and data to provide a comprehensive solution for the industries we target. Portal allows the user to
participate in automated, industry-specific business processes with limited training.

Services Automation Applications

The services automation applications automate the work processes of service organizations, enabling them to initiate, deliver and measure projects. Customers can
also use this application to track and monitor professional resources, schedules, expenses and invoices. Our services automation application is comprised of several principal components, including the
following: forecasting and planning, scheduling and assignment, skills and resource allocation, and time and expense reporting. We tailor this application for internal services departments, as well as
professional services organizations and the other service industries on which we focus.



Core Business Applications

We offer the following core business applications: financials, human resources, procurement, distribution and retail operations. Our applications enable
organizations to execute standard business processes in each of the following areas, as well as provide functionality specific to the industries we target. The following pages list the primary
components within each core business application:

Lawson Financials Suite.The financials applications give our customers the ability to create and
track financial and accounting data across multiple companies, languages, currencies and books of accounts. These applications provide extensive analytical capabilities and integrate our customers'
financial management processes with other core business applications. The financials applications are comprised of several principal components, including the following:



3

---



Lawson Human Resources Suite.The human resources applications assist in attracting, developing and
managing employees. These applications are integrated with our financials applications to automatically update the financial reporting functions for changes in employment and payroll. The human
resources applications are comprised of several principal components, including the following:



4

---



Lawson Procurement Suite.The procurement applications automate the operational and administrative
procurement process, promote adherence to purchasing policies, assist businesses in negotiating pricing for supplies, lower materials and services costs and improve inventory practices. These
applications are comprised of several principal components, including the following:



Lawson Distribution Suite.The distribution applications provide sell-side order
management, warehouse fulfillment, customer invoicing and accounts receivable in an integrated solution. The distribution applications are comprised of several principal components, including the
following:



5

---



Retail Operations Suite.Retail operations solutions are built for high-volume retail
enterprises and encompass a complete range of activities, including the management of item information, category planning and review, assortment, pricing, promotions, warehouse replenishment,
multi-channel ordering, store replenishment, forecasting and order determination. The principal components of the retail operations applications include the following:



Integration and Collaboration Tools

Our information management and integration and collaboration tools help customers improve their business processes through simplified presentation, navigation and
access to information; automation of complex business processes; and intelligent routing of work and tasks to appropriate personnel.

Lawson Extensionsinclude:



Enterprise Performance Management

We offer a suite of role-based, pre-built reporting options and analytical tools to report, analyze and examine key metrics from both
Lawson and non-Lawson sources. Key products in Enterprise Performance Management include:



6

---



Lawson Portal

Lawson Portal enables a wide distribution of information to users based on their role in an organization, while controlling access to data. Our
pre-configured portal is combined with the appropriate Lawson core business applications, as well as third-party applications and data to provide a comprehensive solution for the
industries we target. Lawson Portal allows the user to participate in automated, industry-specific business processes with limited training. Key features include:



Technology Partners

We have relationships with other software companies that allow us to expand and complement our product offerings. For example, our relationships with Hyperion
Solutions Corporation (Hyperion) and Microsoft Corporation enhance our analytics offerings. Our contractual relationship with Hyperion
allows us to incorporate its online analytical processing technology into our financial suite of products. Other strategic relationships also allow us to expand our product functionality through the
offering of services that are not our core competency, such as BSI TaxFactory for state and local tax data.

Services

We offer comprehensive professional services, including consulting, training and implementation services, as well as ongoing customer support and maintenance,
which support our enterprise software solutions. Generally, we charge our customers for professional services on a fee-for-service basis, with training services billed based on
attendance. Customer support and maintenance typically is charged as a percentage of license fees and can be renewed annually at the election of our customers based on available support offerings. Our
in-house professional services organization also educates third-party

7

---

system
integrators in the use of our products to assist them in providing services to our customers. Given our current base of over 2,000 customers, our services organization is a large and important
part of our overall business. As of May 31, 2003, our services organization consisted of 698 employees.

Professional Services.Our professional services are integral to our ability to provide customers with successful enterprise
solutions. Our industry-experienced employees work with customers to design and execute an implementation plan based on their business processes. Our professional services organization is aligned with
our targeted vertical markets in order to best support our customers' needs. We also provide our customers with education and training. Our training services include providing user documentation and
training at our corporate offices in St. Paul, Minnesota and in several regional offices, as well as Web-based training and computer-based training that our customers can access from their
own offices.

Customer Support and Maintenance.We provide our customers with product updates, new releases, new versions and corrections
as part of our support fees. We offer help desk support through our Global Support Center, which provides technical and product error reporting and resolution support. Clients can access our global
support center by various methods, including the ability to manage their support issues online by enabling electronic submission of support issues to our global support center, with all communication
regarding the support issue being managed electronically. We enable customers to monitor the progress of their requests for assistance, and offer a wide variety of up-to-date
Lawson-specific product knowledge, including release planning, application descriptions, publications and training course dates, with intuitive search capabilities on our company-wide
intranet, a portion of which is accessible by our partners and customers.

Technology and Product Architecture

Our product architecture is designed to support today's rapidly changing technology standards by providing the following attributes:



Our
products are built upon proprietary, as well as industry-standard components. Over time, as industry standards evolve, we will be required to re-design our products to
incorporate new industry standards.

Our
technology architecture is composed of the following:



8

---



Trademarks

Drill Around® and Lawson®, are registered trademarks of ours. Other trademarks and trade names appearing in this document are the property
of their respective holders.

Sales and Marketing

We market and sell our software and services solutions through a combination of a direct sales force, channel partners and resellers.

Our
direct sales force and services organization is aligned with our strategy to provide industry-tailored solutions, and focuses on the unique business processes for each of our
targeted services industries. Within each services industry, we have a sales team dedicated to prospective customers, and another team dedicated to sales to existing customers. We also have regional
sales teams that focus on specific geographic territories. Our domestic sales offices are located in Atlanta, Boston, Chicago, Columbus, Dallas, Denver, Los Angeles, St. Paul, New York, Philadelphia,
San Francisco, Seattle and Washington, D.C. We also have international sales offices in Canada, France, the Netherlands and the United Kingdom and sell our solutions through affiliates in other
international locations.

In
addition to our direct sales teams, we enter into strategic alliances with systems integrators and resellers to benefit from our partners' resources, expertise and customer base.

Through
our alliances, we believe we are able to expand our market presence through increased awareness of our enterprise software solutions within their organizations and customer base
and through their personnel who are trained to implement our software solutions. Our channel partners and resellers market and promote our software products and typically provide implementation
services to their end users. Channel partners generate sales leads, make initial customer contacts and assess needs prior to our introduction. In addition, some of our channel partners engage in
customer support

9

---

and
localization of our products. We also engage in joint marketing programs, presentation of seminars, attendance at trade shows and the hosting of conferences with many of our business partners.

We
also use application service providers ("ASP's") to distribute our products. ASPs allow us to reach small-to medium-sized businesses that prefer a hosted solution. Our
software's architecture is easily distributed over the Internet and is highly scalable to serve many customers and supports multi-tenancy, which lets ASPs securely host multiple customers on a single
set of our applications.

Research and Development

Since inception, we have made substantial investments in research and software product development. We believe that timely development of new software products,
enhancements to existing software products and the acquisition of rights to sell or incorporate complementary technologies and products into our software product offerings are essential to maintain
our competitive position in the market. The enterprise software market is characterized by rapid technological change, frequent introductions of new products, changes in customer demands and rapidly
evolving industry standards.

Our
total research and development expenses were $59.1 million, $66.9 million and $52.6 million in fiscal 2003, 2002 and 2001, respectively. As of May 31,
2003, our research and development organization consisted of 406 employees.

Competition

The markets for our products and services are intensely competitive and we expect substantial additional competition from established and emerging software
companies. We believe that the principal competitive factors affecting our market include:



We
believe we have competitive advantages over a number of our competitors. Some of these advantages include the breadth and completeness of our software solutions, our focus on each of
our targeted industries, the depth of our product functionality for each of our targeted industries, the openness and flexibility of our software's architecture, the industry knowledge and expertise
of the members of our sales, marketing and services organizations and our long operating and product development history.

Many
of our competitors may have an advantage over us due to their larger customer bases, greater name recognition, operating and product development history, greater international
presence and substantially greater financial, technical and marketing resources. These competitors include, for example, well-established companies such as Oracle Corporation,
PeopleSoft Inc. and SAP AG. We also compete with numerous other software companies including Internet software vendors, single-industry software vendors and those companies that offer a
specific solution that directly competes with a portion of our comprehensive product offering.

10

---

Intellectual Property and Product Liability

We regard certain aspects of our internal operations, software and documentation as proprietary, and rely on a combination of contract, copyright, trademark and
trade secret laws and other measures, including confidentiality agreements, to protect our proprietary information. Existing copyright laws afford only limited protection. We believe that, because of
the rapid pace of technological change in the computer software industry, trade secret and copyright protection is less significant than factors such as the knowledge, ability and experience of our
employees, frequent software product enhancements and the timeliness and quality of support services. We cannot guarantee that these protections will be adequate or that our competitors will not
independently develop technologies that are substantially equivalent or superior to our technology. In addition, when we license our products to customers, we provide source code for most of our
products. We also permit customers to possibly obtain access to our other source code through a source code escrow arrangement. This access to our source code may increase the likelihood of
misappropriation or other misuse of our intellectual property. In addition, the laws of certain countries in which our software products are or may be licensed do not protect our software products and
intellectual property rights to the same extent as the laws of the United States.

Software
companies have increasingly applied for, and relied on, the protection of patents. To date, we have filed two patent applications. These applications may not result in issued
patents and, even if issued there is no assurance that the patents will provide us with any competitive advantage.

We
do not believe our software products, third-party software products we offer under sublicense agreements, our trademarks or other Lawson proprietary rights infringe the property
rights of third parties. However, we cannot guarantee that third parties will not assert infringement claims against us with respect to current or future software products or that any such assertion
may not require us to enter into royalty arrangements or result in costly litigation.

Our
license agreements with our customers contain provisions designed to limit the exposure to potential product liability claims. It is possible, however, that the limitation of
liability provisions contained in these license agreements may not be valid as a result of future federal, state or local laws or ordinances or unfavorable judicial decisions. The license and support
of our software for use in mission critical applications creates the risk of a claim being successfully pursued against us. Damages or injunctive relief resulting under such a successful claim could
seriously harm our business.

Employees

As of May 31, 2003, we had 1,675 employees, including 366 in sales and marketing, 406 in research and development, 698 in services and customer support and
205 in administration. Our performance depends in significant part on our ability to attract, train and retain highly qualified personnel. None of our employees are represented by a labor union and we
believe our relations with our employees are good.

Our
executive officers are:

|Name                |  | Age |  | Position                                            
|------------------- |  | --- |  | ----------------------------------------------------
|H. Richard Lawson   |  | 59  |  | Chairman                                            
|John J. Coughlan    |  | 44  |  | President, Chief Executive Officer, Director        
|Robert G. Barbieri  |  | 48  |  | Executive Vice President, Chief Financial Officer   
|James F. DeSocio    |  | 48  |  | Executive Vice President                            
|Dean J. Hager       |  | 36  |  | Executive Vice President                            
|Eric C. Morgan      |  | 43  |  | Executive Vice President                            
|Bruce B. McPheeters |  | 48  |  | General Counsel, Secretary and Senior Vice President

11

---

H. Richard Lawsonis one of our founders and has been one of our directors and an executive officer since our inception in 1975.
Mr. Lawson has served as the chairman of our board of directors since February 2001. From March 2000 until February 2001, Mr. Lawson was our chief executive officer.
Prior to that time, Mr. Lawson served as our president and chief operating officer from October 1998 until March 2000 and our chairman from June 1996 until
October 1998.

John J. Coughlanhas served as our chief executive officer since February 2001, our president since March 2000, and one of
our directors since April 2000. From March 2000 until February 2001, Mr. Coughlan also served as our chief operating officer. From 1987 until March 2000,
Mr. Coughlan worked for us in various capacities, including as executive vice president of the healthcare business unit and most recently as executive vice president of field operations and
marketing. In 1998, Mr. Coughlan was convicted of criminal vehicular homicide in connection with a one-car traffic accident that resulted in the death of his father.
Mr. Coughlan's conviction was reduced to a misdemeanor after the court received testimony from his probation officer, community members and
family members regarding his personal character and community service, including his activities on behalf of Mothers Against Drunk Driving. Our board of directors is fully informed of the facts and
circumstances surrounding this event and has expressed its full confidence in Mr. Coughlan's integrity and ability as an officer and director of our company.

Robert G. Barbierihas served as our executive vice president and chief financial officer since August 2000 and as our executive
vice president of operations since June 2003. From January 1997 until August 2000, Mr. Barbieri was employed by Apogee Enterprises, Inc., a publicly traded glass,
coatings and service technologies company, serving most recently as vice president and chief financial officer. From 1984 until joining Apogee, Mr. Barbieri was employed by Air Products and
Chemicals, Inc., a global gases and chemicals company, where he held several senior financial management positions, serving most recently as controller for the general industries division of
the gases group. Mr. Barbieri is a certified management accountant.

James F. DeSociohas served as an executive vice president since March 2000, and since June 2002 has been responsible for
the retail industry market. Mr. DeSocio has worked in various capacities since joining us in September 1991 as an account executive. Mr. DeSocio served as our executive vice
president, worldwide field operations from February 2001 until May 2002, our executive vice president, field operations from March 2000 until February 2001, our vice
president/ general manager, professional services from June 1999 until March 2000, our vice president of eastern area field operations from June 1996 until May 1999, and
our New York regional sales manager from March 1993 until May 1996. From October 1986 until September 1991, Mr. DeSocio was employed by Software Plus, Inc. a
developer of human resources information systems, serving most recently as senior marketing representative for HRIS software and services. From 1982 until 1986, Mr. DeSocio was employed by
Automatic Business Centers, an application service provider of financial, payroll and tax services, serving most recently as New York/ New Jersey sales manager.

Dean J. Hagerhas served as an executive vice president since June 2000, and since June 2002 has been responsible for the
professional services industry market. Mr. Hager has worked in various capacities since joining us in May 1998. Mr. Hager served as our executive vice president, global products
division from February 2001 until May 2002, our executive vice president, worldwide marketing from June 2000 to February 2001, our vice president, e-business
marketing from June 1999 until June 2000, and our director of marketing for our former AS/400 business unit from May 1998 until June 1999. From March 1989 to
May 1998, Mr. Hager was employed by IBM, where he held several senior management positions, serving most recently as senior program manager with its server products division.

Eric C. Morganhas served as an executive vice president since February 2001, and since June 2002 has been responsible for
the healthcare services industry market. Mr. Morgan has worked in various

12

---

capacities
since joining us in 1991 as an account executive. Mr. Morgan served as our executive vice president, strategic market development from February 2001 until May 2002,
vice president and general manager, healthcare, from September 1999 until February 2001, and our vice president of sales, healthcare, from March 1999 until September 1999.
From 1988 to 1991, Mr. Morgan was employed by Global Turnkey Systems, an enterprise resource planning vendor for small- to medium-sized companies, serving in a variety of sales positions. From
1983 to 1988, Mr. Morgan was an account executive for NCR, a diversified hardware and software provider.

Bruce B. McPheetershas served as our senior vice president of administration since June 2002, our general counsel since
April 2000, our corporate secretary since October 1999, and our vice president of administration from April 2000 until May 2002. Mr. McPheeters joined us as
corporate counsel in September 1999. From 1981 until September 1999, Mr. McPheeters was a business lawyer in private practice, focusing primarily in the areas of intellectual
property, securities, and mergers and acquisitions of privately and publicly held companies. From December 1995 until September 1999, he was employed by the law firm of Gray, Plant,
Mooty, Mooty & Bennett, P.A.

Available Information

We make available, free of charge, on our website (www.lawson.com) our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 as soon as reasonably practicable after we have electronically filed or furnished such materials to the Securities and Exchange Commission.

Item 2. Properties

Our corporate headquarters and executive offices are in St. Paul, Minnesota, where we lease approximately 300,000 square feet of space. The lease on this facility
expires July 31, 2015. We also lease approximately 240,000 square feet of space, primarily for regional sales and support offices, elsewhere in the United States. Additionally, we lease
approximately 41,000 square feet of office space in countries outside the United States, used primarily as sales and services offices. Expiration dates of leases on these offices range from 2003 to
2017. We believe that our current domestic and international facilities will be sufficient to meet our needs for at least the next 12 months and that, if required, suitable additional or
alternative space will be available on commercially reasonable terms to accommodate expansion of our operations.

Item 3. Legal Proceedings

Pending Employment Litigation

We are a defendant in a lawsuit,Felice Cambridge v. Lawson Software, Inc. et. al.,filed on
December 26, 2001, in the United States District Court for the Northern District of Texas. The lawsuit primarily alleges violations of the Americans with Disabilities Act of 1990 and related
claims with respect to one former employee. We believe these claims are without merit and we will vigorously defend against these claims.

Other Matters

We are, and from time to time may become, involved in litigation in the normal course of business concerning our products and services. While the outcome of these
claims cannot be predicted with certainty, we do not believe that the outcome of any of these or the above mentioned legal matter will have a material adverse effect on our consolidated financial
position, results of operations or cash flows. However, depending on the amount and the timing, an unfavorable resolution of some or all of

13

---

these
matters could materially affect our future results of operations or cash flows in a particular period.

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

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended May 31, 2003.

14

---



Part II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters

Our common stock is traded in the Nasdaq National Market (Nasdaq) under the symbol LWSN. The following table lists the high and low closing prices by quarter as
reported by Nasdaq since our initial public offering in December 2001.

High

LowFiscal 2003:Fourth Quarter

$
5.59

$
4.25Third Quarter

$
7.09

$
4.38Second Quarter

$
5.00

$
3.25First Quarter

$
6.28

$
4.40Fiscal 2002:Fourth Quarter

$
13.00

$
4.06Third Quarter

$
17.80

$
9.74


We
have never declared or paid any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. We intend to retain future earnings to fund
the development and growth of our business. Our credit agreement with US Bank prohibits cash dividends without the bank's consent.

As
of July 18, 2003, the approximate number of stockholders of record was 226.

Between
June 1, 2002 and June 26, 2002, we sold 731,353 shares of common stock to various employees pursuant to the exercise of outstanding stock options for an aggregate
consideration of $1,004,608 in reliance upon Rule 701 of the Securities Act of 1933, as amended ("Securities Act"). Between June 1, 2002 and June 26, 2002 we granted options to
purchase an aggregate of 36,780 shares of common stock to four persons in exempt transactions under Section 4(2) under the Securities Act. After June 26, 2002, all stock option grants
and exercises were completed pursuant to a registration statement on Form S-8 effective June 26, 2002.

15

---

Item 6. Selected Consolidated Financial Data

|                                                      |                                                  | Year Ended May 31,          
|----------------------------------------------------- | ------------------------------------------------ | ----------------------------
|
|
|Consolidated Statement of Operations Data:            |                                                  |                             
|Revenues:                                             |                                                  |                             
|                                                      | License fees                                     |                             
|                                                      | Services(1)                                      |                             
|                                                      |                                                  |                             
|                                                      |                                                  | Total revenues(1)           
|Cost of revenues:                                     |                                                  |                             
|                                                      | Cost of license fees                             |                             
|                                                      | Cost of services(1)(2)                           |                             
|                                                      |                                                  |                             
|                                                      |                                                  | Total cost of revenues(1)(2)
|Gross profit                                          |                                                  |                             
|Operating expenses:                                   |                                                  |                             
|                                                      | Research and development(3)                      |                             
|                                                      | Sales and marketing(4)                           |                             
|                                                      | General and administrative(5)                    |                             
|                                                      | Other general expenses(6)                        |                             
|                                                      | Restructuring charges(7)                         |                             
|                                                      | Amortization of acquired intangibles intangibles |                             
|                                                      |                                                  |                             
|                                                      |                                                  | Total operating expenses(8) 
|                                                      |                                                  |                             
|Operating (loss) income                               |                                                  |                             
|Other income (expense), net(9)                        |                                                  |                             
|                                                      |                                                  |                             
|(Loss) income before income taxes                     |                                                  |                             
|(Benefit) provision for income taxes                  |                                                  |                             
|                                                      |                                                  |                             
|Net (loss) income                                     |                                                  |                             
|Accretion on and conversion of preferred stock(10)    |                                                  |                             
|                                                      |                                                  |                             
|Net (loss) income applicable to common stockholders   |                                                  | $                           
|Net (loss) income per share:                          |                                                  |                             
|                                                      | Basic                                            |                             
|                                                      |                                                  |                             
|                                                      | Diluted                                          |                             
|                                                      |                                                  |                             
|Shares used in computing net (loss) income per share: |                                                  |                             
|                                                      | Basic                                            |                             
|                                                      |                                                  |                             
|                                                      | Diluted                                          |                             
|                                                      |                                                  |                             

---

16

---

|                                                 |  | May 31, |        
|------------------------------------------------ |  | ------- | -------
|
|
|Consolidated Balance Sheet Data:                 |  |         |        
|Cash, cash equivalents and marketable securities |  | $       | 260,512
|Working capital                                  |  |         | 213,258
|Total assets                                     |  |         | 432,209
|Mandatorily redeemable common stock warrants     |  |         |       
|Senior subordinated convertible notes            |  |         |       
|Other long-term debt, net of current portion     |  |         | 255    
|Series A convertible preferred stock             |  |         |       
|Mandatorily redeemable common stock              |  |         |       
|Stockholders' equity (deficit)                   |  |         | 289,399

17

---



Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following should be read with our consolidated financial statements and the notes to those statements and other financial information
appearing elsewhere in this statement.

Forward-Looking Statements

In addition to historical information, this Form 10-K contains forward-looking statements. The forward-looking statements are made in reliance
upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are subject to certain risks and uncertainties that could cause actual results
to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of Operations"Factors That May Affect Our Future Results or the Market Price of Our Stock". Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of
any revision to these forward-looking statements. Readers should carefully review the risk factors described in this report on Form 10-K and in other documents we file from time to
time with the Securities and Exchange Commission.

Overview

We are a provider of enterprise software solutions for specific services industries. We derive revenues from licensing software solutions and providing
comprehensive professional services, including consulting, training and implementation services, as well as ongoing customer support and maintenance. Consulting, training and implementation services
are separately priced and generally are available from a number of suppliers and are not essential to the functionality of our software products. Accordingly, revenues from these services are
generally recorded separately from the license fee. Additionally, we generate a portion of our revenues from reselling our software solutions through third-party vendors.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and 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 of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and related disclosures of contingent
assets and liabilities. The Notes to Consolidated Financial Statements contained herein describe our significant accounting polices used in the preparation of the consolidated financial statements. On
an on-going basis, we evaluate our estimates, including, but not limited to, those related to bad debts, sales returns and allowances, intangible assets and contingencies. We base our
estimates on historical experience and on various other assumptions that we believe 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 readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions.

We
believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition.We recognize revenues in accordance with the provisions of the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9, as well as Technical Practice Aids
issued from time to time by the AICPA, and in accordance with the Securities and Exchange

18

---

Commission
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." We license software under non-cancelable license agreements and provide related
professional services, including consulting, training, and implementation services, as well as ongoing customer support and maintenance. Consulting, training and implementation services are not
essential to the functionality of our software products, are sold separately and also are available from a number of third-party service providers. Accordingly, revenues from these services are
generally recorded separately from license fees. Software arrangements which include fixed-fee service components are recognized using contract accounting. Our specific revenue recognition
policies are as follows:



Allowance for Doubtful Accounts.We maintain allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional
allowances may be required or future revenue could be deferred until collectibility becomes probable.

Sales Returns and Allowances.We also record a provision for estimated sales returns and allowances on product and service
related sales in the same period the related revenues are recorded or when current information indicates additional amounts are required. These estimates are based on historical sales returns,
analysis of credit memo data and other known factors. If the historical data we use to calculate these estimates does not properly reflect future returns, then a change in the allowances would be made
in the period in which such a determination is made and revenues in that period could be materially affected.

Valuation of Long-Lived and Intangible Assets and Goodwill.We review identifiable intangible and other
long-lived assets for impairment annually or sooner if events or changes in circumstances indicate that the carrying amount may not be recoverable. Events or changes in circumstances that
indicate the carrying amount may not be recoverable include, but are not limited to, a significant decrease in the market value of the business or asset acquired, a significant adverse change in the
extent or manner in which the business or asset acquired is used or a significant adverse change in the business climate. If

19

---

such
events or changes in circumstances are present, the undiscounted cash flow method is used to determine whether the asset is impaired. Cash flows would include the estimated terminal value of the
asset and exclude any interest charges. To the extent that the carrying value of the asset exceeds the undiscounted cash flows over the estimated remaining life of the asset, the impairment is
measured using the discounted cash flows. The discount rate utilized would be based on our best estimate of the related risks and return at the time the impairment assessment is made. In accordance
with Statement of Financial Accounting Standard ("SFAS') No. 142, "Goodwill and Other Intangible Assets," we test goodwill and other indefinite lived intangible assets for impairment annually,
or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of the asset with its carrying
amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. All of our goodwill was assigned to a single
reporting unit, which is our sole operating segment.

Deferred Taxes.Significant judgment is required in determining our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax
and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. Although we believe our assessments are reasonable,
no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions, benefits and accruals. Such
differences could have a material effect on our income tax provision and net income in the period in which such a determination is made.

We
assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation
allowance. To the extent we establish a valuation allowance, we must include an expense within the tax provision in the statement of operations. We have not recorded a valuation allowance as of
May 31, 2003, as we expect to be able to utilize all of our deferred tax assets. The ability to utilize our deferred tax assets is solely dependent on our ability to generate future taxable
income. In the event that we adjust our estimates of future taxable income, we may need to establish a valuation allowance, which could materially impact our financial position and results of
operations.

Contingencies.We are subject to the possibility of various loss contingencies in the normal course of business. We accrue
for loss contingencies when a loss is estimable and probable.

Initial Public Offering and Other Equity Transactions

In fiscal 2002, we closed our initial public offering on December 12, 2001, at which time we issued 13,675,000 shares of common stock from the primary
offering, 10,316,319 shares of common stock upon conversion of all of the outstanding shares of Series A Preferred Stock, 1,661,153 shares of common stock as part of the
over-allotment option exercise and 438,847 shares of common stock issued upon the exercise of warrants and sold as part of the over-allotment option exercise. After giving
effect to the issuance of these shares on December 12, 2001, we had 93,316,268 outstanding shares of common stock and 106,825,000 shares on a fully diluted basis using the treasury method. We
received proceeds, net of commissions and expenses, of $197.3 million in the initial public offering including exercise of the over-allotment option in full. Proceeds from the
initial public offering are invested in interest-bearing, investment grade securities. We used $10.2 million of the proceeds from the offering to repay senior subordinated convertible notes.
Due to the repayment of the notes prior to the scheduled maturity date, we recorded a charge in the third quarter of fiscal 2002 for the total amount of the unamortized debt issuance costs and the
discount on the notes of $2.3 million. Additionally, as a result of the conversion of the Series A Preferred Stock to common stock, which accelerated the amortization of the beneficial
conversion feature, we recognized a $30.0 million non-cash charge to net income

20

---

available
to common stockholders for the unamortized value of the beneficial conversion feature of our preferred stock in the third quarter of fiscal 2002. We also recognized accretion on the
preferred stock of $0.1 million for the year ended May 31, 2002. These charges adversely affected basic and diluted earnings per share by $0.38. However, these charges had no impact on
net income.

Acquisitions

The following acquisitions were accounted for by the purchase method of accounting, and, accordingly, the results of operations have been included in the
Consolidated Statements of Operations since the acquisition dates. All of the acquisitions were cash transactions. The assets and liabilities acquired were recorded at their estimated fair values at
the effective date of the acquisition. See Note 6 of Notes to Consolidated Financial Statements for a pro forma presentation of our significant acquisitions.

Armature

On June 28, 2002, we acquired certain assets of Armature Holdings Ltd. Armature provided merchandising/category management and supply chain
management solutions for retailers, consumer goods manufacturers and wholesalers. The assets acquired included all software applications, related trademarks and technologies. The purchase price for
this transaction was $8.1 million.

Keyola

On April 17, 2002, we acquired all of the outstanding capital stock of Keyola Corporation for $5.0 million. Keyola developed innovative business
intelligence technology to automatically deliver event-driven notifications to organizations. At May 31, 2003, additional cash payments ranging from zero to $1.5 million are contingent
upon the future performance of Keyola and will be recorded as additional goodwill if earned.

Account4, Inc.

On July 11, 2001, we acquired the outstanding securities of Account4, Inc. for $31.3 million including the repayment of assumed debt.
Account4 provided web-based professional services automation software that enables service organizations to more efficiently manage their businesses and workforce. As a result of the
acquisition, we expanded our software solution for service organizations to include automated functions such as forecasting and planning, scheduling and assignments, skills and resource management,
time and expense reporting, project management and invoicing. The acquisition of Account4 was intended to enhance our strategies of focusing on targeted vertical markets and providing additional
value-added products and services to customers.

Acquisition of Numbercraft Limited Subsequent to Year-End

On July 24, 2003, we acquired all of the outstanding capital stock of Numbercraft Limited (Numbercraft) for $4.0 million. Numbercraft provided
solutions for retailers and consumer packaged goods companies which enable a quantitative understanding of consumer dynamics, product and offer performance, and customer trends. Additional cash
payments ranging from zero to $9.0 million are contingent upon the future performance of Numbercraft and will be recorded as additional goodwill if earned.

21

---

Results of Operations

The following table sets forth certain line items in our Consolidated Statements of Operations as a percentage of total revenues for the periods indicated:

Year Ended May 31,2003

2002

2001Revenues:License fees

22.5
%
35.1
%
38.6
%Services

77.5

64.9

61.4Total revenues

100.0

100.0

100.0Cost of revenues:Cost of license fees

4.2

7.2

6.0Cost of services

41.1

35.9

33.2Total cost of revenues

45.3

43.1

39.2Gross profit

54.7

56.9

60.8Operating expenses:Research and development

17.2

15.6

13.3Sales and marketing

29.9

29.1

29.6General and administrative

8.7

7.5

9.9Other general expenses



0.2

1.9Restructuring charges

1.7

0.8

Amortization of acquired intangibles

0.3

0.1

Total operating expenses

57.8

53.3

54.7Operating (loss) income

(3.1
)
3.6

6.1Other income (expense), net

1.3

(0.3
)
0.3(Loss) income before income taxes

(1.8
)
3.3

6.4(Benefit) provision for income taxes

(0.7
)
1.3

2.7Net (loss) income

(1.1
)%
2.0
%
3.7
%


Fiscal Year Ended May 31, 2003 Compared To Fiscal Year Ended May 31, 2002

Revenues

Total Revenues.We license software under non-cancelable license agreements and provide related services
including consulting, training, and implementation services, as well as ongoing customer support and maintenance. Total revenues decreased to $344.3 million in fiscal 2003 from
$428.3 million in fiscal 2002, or 19.6%. The decrease was primarily due to a decline in revenues from license fees. The general economic slowdown in information technology spending has
continued to negatively impact the sales of our products to our customers and prospective customers.

License Fees.Revenues from license fees decreased to $77.6 million in fiscal 2003 from $150.2 million in
fiscal 2002, or 48.3%. The decrease is principally the result of a continued economic slowdown in information technology spending. Customers continue to delay purchasing new products, or purchase
individual products, rather than multi-product suites or systems, resulting in a lower average sales price of the mix of products sold. Revenues from license fees as a percentage of total revenues for
fiscal 2003 were 22.5%, compared to 35.1% in 2002. The decrease in license fees as a percentage of total revenues was primarily a result of the decrease in license fees in proportion to revenues from
services.

22

---

Services.Revenues from services decreased to $266.7 million for fiscal 2003 from $278.1 million for fiscal
2002, or 4.1%. The decline reflects the overall decrease in contracting activity which has resulted in less consulting and training opportunities. The decline in services revenue included a partially
offsetting increase in maintenance revenue which was primarily due to an expanded customer base and increased maintenance prices. Services revenues as a percentage of total revenues for fiscal 2003
and 2002 were 77.5% and 64.9%, respectively.

The
current technology recession and decline in overall technology spending may cause our customers to continue to reduce or eliminate their information technology spending, which could
substantially reduce the number of new software licenses we sell, the average sales price for these licenses and the need for our services. Given continued weak economic conditions and the uncertainty
regarding Middle East conflicts and threats of hostilities elsewhere, projections of future revenue and operating results are difficult to predict. There can be no assurance that our future revenue
and operating results will not be adversely affected by the aforementioned factors.

Cost of Revenues

Cost of License Fees.Cost of license fees includes royalties to third parties, amortization of acquired software and
software delivery expenses. Our software solutions may include embedded components of third-party vendors, for which a fee is paid to the vendor upon sale of our products. In addition, we resell
third-party products in conjunction with the license of our software solutions. The cost of license fees is higher when we resell products of third-party vendors. As a result, gross margins vary
depending on the proportion of third-party product sales in our revenue mix. Cost of license fees includes amortization expense of intangibles related to the acquisitions of Armature in 2003 and
Account4 and Keyola in 2002, of $1.5 million and $0.9 million for fiscal 2003 and 2002, respectively. Cost of license fees decreased to $14.4 million for fiscal 2003 from
$30.9 million for fiscal 2002, or 53.5%. Cost of license fees as a percentage of total revenues for fiscal 2003 and 2002 were 4.2% and 7.2%, respectively. This decline reflects an overall
decrease in license fees and third party products sold in relation to total sales due, in part, to the termination of our Siebel Systems reseller agreement in the fourth quarter of fiscal 2002. Gross
margin on revenue from license fees was 81.5% and 79.5% for fiscal 2003 and 2002, respectively. The increase in gross margin on license fees was primarily attributable to the decrease in sales of
third party products which typically carry lower margins, partially offset by higher amortization expense of intangibles.

Cost of Services.Cost of services includes the salaries, employee benefits and related travel and overhead costs for
providing consulting, training, implementation and support services to customers. Cost of services decreased to $141.7 million for fiscal 2003 from $153.8 million for fiscal 2002, or
7.9%. The decrease in cost of services was primarily due to lower compensation expense and related travel expenses as a result of our May 2002 and September 2002 workforce reductions,
and a reduction in the use of third-party consultants' services in our revenue mix. These declines are partially offset by an increase in expenses due to the addition of headcount resulting from the
Armature acquisition. Cost of services as a percentage of total revenues for fiscal 2003 and 2002 were 41.1% and 35.9%, respectively. The increase in cost of services as a percentage of total revenues
is due to the decrease in total revenues. Gross margin on services revenues was 46.9% and 44.7% for fiscal 2003 and 2002, respectively. The gross margin improvement on services was primarily
attributable to the increase in maintenance revenue in proportion to consulting and other service revenue.

Operating Expenses

Research and Development.Research and development expenses consist primarily of salaries, employee benefits, related
overhead costs and consulting fees associated with product development, enhancements, upgrades, testing, quality assurance and documentation. Research and development expenses decreased to
$59.1 million for fiscal 2003 from $66.9 million for fiscal 2002, or 11.6%. The

23

---

decrease
in expense is primarily attributed to the workforce reductions, partially offset by an increase in headcount as a result of the Armature acquisition. Also, research and development expenses
included lower non-cash charges for stock-based compensation of $0.7 million for fiscal 2003 compared to $1.6 million for fiscal 2002. Research and development expenses as a
percentage of total revenues for fiscal 2003 and 2002 were 17.2% and 15.6%, respectively. The increase reflects the lower total revenue in fiscal 2003 compared to fiscal 2002 and our continued
commitment to reinvest in research and development.

Sales and Marketing.Sales and marketing expenses consist primarily of salaries and incentive compensation, employee benefits
and travel and overhead costs related to our sales and marketing personnel, as well as trade show activities and advertising costs. Sales and marketing expenses decreased to $103.0 million for
fiscal 2003 from $124.6 million for fiscal 2002, or 17.4%. The decrease in expenses is largely the result of our two workforce reductions, a reduction in marketing activities and a decrease
non-cash stock-based compensation expense. Stock based compensation expense for the sales and marketing area was $0.8 million for fiscal 2003 compared to $2.3 million for
fiscal 2002. Sales and marketing expenses as a percentage of total revenues for fiscal 2003 and 2002 were 29.9% and 29.1%, respectively.

General and Administrative.General and administrative expenses consist primarily of salaries, employee benefits and related
overhead costs for administrative employees, as well as legal and accounting fees, consulting fees and bad debt expense. General and administrative expenses decreased to $30.0 million for
fiscal 2003 from $32.1 million for fiscal 2002, or 6.6%. The decrease in expense is primarily due to a $5.8 million decline in bad debt expense reflecting the decrease in the trade
accounts receivable balance and our collection history, a decrease in employee and employee related costs resulting from workforce reductions and a decrease in non-cash charges for
stock-based compensation. General and administrative expenses included non-cash charges for stock-based compensation of $1.9 million in fiscal 2003 compared to $4.2 million
for fiscal 2002. The decrease in general and administrative expenses was partially offset by an increase in insurance costs of $0.9 million, an asset impairment charge related to a discontinued
project of $0.7 million, non-recurring costs of $0.4 million incurred for the audit of Armature in preparation for the required Form 8-K/A filing and
increased lease termination expense related to our former headquarters of $0.3 million. General and administrative expenses as a percentage of total revenues for fiscal 2003 and 2002 were 8.7%
and 7.5%, respectively.

Restructuring Charges.During fiscal 2003, we recorded a total of $6.0 million of restructuring charges for our 2003
restructuring plan and adjustments to the 2002 plan. In the second quarter of fiscal 2003, we approved a $5.8 million restructuring plan to realign projected expenses with anticipated lower
revenue levels resulting from the continued economic downturn. The plan included the termination and payment of severance-related benefits of $4.7 million for 244 employees in various functions
including
administrative, professional, and managerial, in the United States, Canada and Europe. The charges also included expenses totaling $1.1 million related to the closure and consolidation of
facilities. All terminations and associated payments are expected to be paid in calendar 2003. Cash payments related to remaining facility closure liabilities are expected to continue through
October 2003. Adjustments to the charges were recorded upon finalization of lease termination agreements and severance related benefits. For a summary of the activity for the year, see
Note 5 of Notes to Consolidated Financial Statements.

In
the fourth quarter of fiscal 2002, we approved a restructuring plan in response to the general economic downturn and incurred restructuring charges of $3.3 million. The plan
included the termination and payment of severance-related benefits of $2.9 million for 111 employees in various functions including administrative, professional, and managerial, primarily in
the United States. All terminations and associated payments were completed during the first quarter of fiscal 2003. The

24

---

charges
also included expenses of $0.3 million related to closing a leased office facility. An additional $0.2 million provision was recorded in 2003 related to the closed facility based
on finalization of lease termination agreements. Cash payments related to remaining facility closure liabilities are expected to continue through June 2005. For a summary of the activity for
the year, see Note 5 of Notes to Consolidated Financial Statements.

Other General Expenses.Other general expenses in fiscal 2002 consisted of $0.7 million of business process
improvement initiatives designed to prepare our organization for our initial public offering. We did not incur similar expenses for fiscal 2003.

Amortization of Acquired Intangibles.Amortization of acquired intangibles was $0.9 million for fiscal 2003 and
$0.6 million for fiscal 2002 and consisted of amortization expense related to the purchase of Account4 in July 2001, Keyola in April 2002 and Armature in June 2002.

Other Income (Expense), net

Other income (expense), net was $4.5 million of income for fiscal 2003 compared with expense of $1.6 million for fiscal 2002. Other income
(expense), net as a percentage of total revenues for fiscal 2003 and 2002 was 1.3% and (0.3)%, respectively. We earned interest income of $4.6 million and $2.8 million for fiscal 2003
and 2002, respectively. This was partially offset by interest expense of $0.1 million and $2.0 million for fiscal 2003 and fiscal 2002, respectively. The increase in interest income is
due to an increase in our invested cash, cash equivalents and marketable securities balances. The decrease in interest expense is due to the repayment of senior subordinated convertible notes
subsequent to our initial public offering in December 2001. As a result of the early repayment of the notes, we recorded a non-cash charge of $2.3 million to
write-off unamortized debt issuance costs and the discount on notes for fiscal 2002. In accordance with SFAS
No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," we have reclassified the $2.3 million previously
reported as an extraordinary loss in fiscal 2002, to a component of other income (expense) in the Consolidated Statements of Operations contained in this report.

(Benefit) Provision for Income Taxes

We recognized an income tax benefit of $2.4 million for fiscal 2003 compared to a tax provision of $5.6 million for fiscal 2002. Our income tax
(benefit) provision is comprised primarily of federal and state taxes. Our effective rate was 39.0% and 40.0% for fiscal 2003 and 2002, respectively. The decrease in the effective tax rate was
primarily due to an increase in tax-exempt income.

Fiscal Year Ended May 31, 2002 Compared To Fiscal Year Ended May 31, 2001

Revenues

Total Revenues.Total revenues increased to $428.3 million in fiscal 2002 from $394.3 million in fiscal 2001,
or 8.6%. The increase was attributable to a $36.1 million increase in services revenues.

License Fees.Revenues from license fees decreased to $150.2 million in fiscal 2002 from $152.3 million in
fiscal 2001, or 1.3%. The decrease is primarily due to a decline in the average sales price per customer, particularly during the fourth quarter of fiscal 2002, reflecting an increase in customer
purchases of individual products, rather than multi-product suites or systems, which was partially offset by an increase in the volume of license transactions. Revenues from license fees as a
percentage of total revenues for fiscal 2002 and 2001 were 35.1% and 38.6%, respectively. The decrease as a percentage of revenues was primarily a result of the increase in revenues from services as a
percentage of total revenues.

25

---

Services.Revenues from services increased to $278.1 million for fiscal 2002 from $242.0 million for fiscal
2001, or 14.9%. The increase was primarily due to greater demand for consulting services and maintenance revenues from our expanding customer base. Services revenues as a percentage of total revenues
for fiscal 2002 and 2001 were 64.9% and 61.4%, respectively.

Cost of Revenues

Cost of License Fees.Cost of license fees increased to $30.9 million for fiscal 2002 from $23.6 million for
fiscal 2001, or 30.9%. Cost of license fees included amortization expense of acquired intangibles related to the purchases of Account4 and Keyola of $0.9 million for fiscal 2002. Cost of
license fees as a percentage of total revenues for fiscal 2002 and 2001 were 7.2% and 6.0%, respectively. Gross margin on revenue from license fees was 79.5% and 84.5% for fiscal 2002 and 2001,
respectively. The increase in cost of license fees as a percentage of total revenues and the decrease in gross margin on license fees was due primarily to the increased proportion of sales of
third-party products in our revenue mix.

Cost of Services.Cost of services increased to $153.8 million for fiscal 2002 from $130.9 million for fiscal
2001, or 17.5%. The increase in expenses was primarily due to higher compensation expenses, and other related costs from additional headcount, and increased third party consulting expenses. Cost of
services included non-cash charges for stock-based compensation of $0.4 million and $0.1 million for fiscal 2002 and 2001, respectively. Cost of services as a percentage of
total revenues for fiscal 2002 and 2001 were 35.9% and 33.2%, respectively. Gross margin on services revenues was 44.7% and 45.9% for fiscal 2002 and 2001, respectively. The increase in cost of
services as a percentage of total revenues and the decrease in gross margin on services was primarily due to increased headcount and increased use of third-party consultants.

Operating Expenses

Research and Development.Research and development expenses increased to $66.9 million for fiscal 2002 from
$52.6 million for fiscal 2001, or 27.2%. Research and development expenses included non-cash charges for stock-based compensation of $1.6 million and $0.5 million for
fiscal 2002 and 2001, respectively. Research and development expenses as a percentage of total revenues for fiscal 2002 and 2001 were 15.6% and 13.3%, respectively. The increase in expenses was
primarily due to higher compensation expenses and other related costs from additional headcount, increased amounts paid to third parties for language translation services, and increased lease expense
for additional computer equipment.

Sales and Marketing.Sales and marketing expenses increased to $124.6 million for fiscal 2002 from
$116.7 million for fiscal 2001, or 6.8%. The increase in expenses was primarily due to higher compensation expenses and other related costs from additional headcount and increased expenses
related to expanded branding efforts subsequent to our initial public offering. Sales and marketing expenses also included non-cash charges for stock-based compensation of
$2.3 million and $0.9 million for fiscal 2002 and 2001, respectively. Sales and marketing expenses as a percentage of total revenues for fiscal 2002 and 2001 were 29.1% and 29.6%,
respectively.

General and Administrative.General and administrative expenses decreased to $32.1 million for fiscal 2002 from
$39.1 million for fiscal 2001, or 18.0%. General and administrative expenses included non-cash charges for stock-based compensation of $4.2 million and $2.1 million
for fiscal 2002 and 2001, respectively and compensation associated with a repurchase of stock options from current employees of $5.1 million for fiscal 2001. Additionally, general and
administrative expenses included a lease abandonment expense of $0.2 million and $1.8 million for fiscal 2002 and 2001, respectively. General and administrative expenses as a percentage
of total revenues for fiscal 2002 and 2001 were 7.5% and 9.9%, respectively.

26

---

Restructuring Charges.In the fourth quarter of fiscal 2002, we approved a restructuring plan in response to the general
economic downturn and incurred restructuring charges of $3.3 million. The plan included the termination and payment of severance-related benefits for 111 employees in various functions
including administrative, professional, and managerial, primarily in the United States. All terminations and associated payments were completed during the first quarter of fiscal 2003. The charge also
included expenses related to closing a leased office facility. The remaining facility closure liabilities are expected to be paid through 2005. For a summary of the activity for the year, see
Note 5 of Notes to Consolidated Financial Statements.

Other General Expenses.Other general expenses in fiscal 2002 consisted of $0.7 million of business process
improvement initiatives. Fiscal 2001 consisted of $4.9 million in consulting fees related to business process improvement initiatives designed to prepare our organization for our initial public
offering and $2.4 million in expenses related to the repurchase of options held by one of our former executives.

Amortization of Acquired Intangibles.Amortization of acquired intangibles for fiscal 2002 consisted of $0.6 million
in amortization expense related to the purchase of Account4 in July 2001 and Keyola in April 2002.

Other Income (Expense), net

Other income (expense), net was $(1.6) million for fiscal 2002 compared with $0.9 million for fiscal 2001. Other income (expense), net as a percentage of
total revenues for fiscal 2002 and 2001 was (0.3)% and 0.3%, respectively. We earned interest income of $2.8 million and $2.5 million for fiscal 2002 and 2001, respectively. This was
partially offset by interest expense of $2.0 million and $1.5 million for fiscal 2002 and fiscal 2001, respectively. The increase in interest income was primarily due to the interest
earned on proceeds from our initial public offering. The increase in interest expense was due to interest on Senior Subordinated Convertible Notes and accretion of stock warrants, which were
outstanding for two quarters of fiscal 2002 and only one quarter in fiscal 2001. Subsequent to our initial public offering, in the third fiscal quarter of 2002, we repaid the notes. As a result of the
early repayment of the notes, we recorded a non-cash charge of $2.3 million to write-off unamortized debt issuance costs and the discount on notes in fiscal 2002.

Provision for Income Taxes

We recognized an income tax provision of $5.6 million for fiscal 2002 compared to $10.6 million for fiscal 2001. Our income tax provision is
comprised primarily of federal and state taxes. Our effective rate was 40.0% and 42.0% for fiscal 2002 and 2001, respectively. The decrease in the effective tax rate was primarily due to a decrease in
permanent non-deductible expenses and an increase in tax-exempt interest income.

Accretion and Conversion of Preferred Shares

As part of our initial public offering on December 12, 2001, we converted all of the outstanding shares of Series A Preferred Stock and issued
10,316,000 shares of common stock. As a result of the conversion of the Series A Preferred Stock, we recognized a $30.1 million non-cash charge to net income available to
common stockholders for the unamortized value of the beneficial conversion feature of our preferred stock. The charge had no impact on net income. See Note 10 of Notes to Consolidated Financial
Statements.

27

---

Liquidity and Capital Resources

We finance our operations primarily with cash generated through operations. As of May 31, 2003, we had $260.5 million in cash, cash equivalents and
marketable securities and $213.3 million in working capital.

Net
cash provided by operating activities was approximately $47.9 million, $6.0 million and $33.4 million in fiscal 2003, 2002, and 2001, respectively. The increase
in cash from operating activities in fiscal 2003 was primarily due to a decrease in accounts receivable, partially offset by our net loss and a decrease in accounts payable and other liabilities. The
decrease in 2002 was primarily due to changes in operating assets and liabilities, reduced net income, partially offset by tax benefits resulting from stockholders transactions, and
non-cash charges related to stock-based compensation.

Net
cash provided by (used in) investing activities was $34.8 million, $(180.5) million and $(24.8) million in fiscal 2003, 2002, and 2001, respectively. Cash flows provided by
investing activities for fiscal 2003 consisted of $48.8 million of net sales of marketable securities, partially offset by $7.8 million used for the purchase of Armature assets, and
$6.1 million for the purchase of property and equipment. We have generally funded capital expenditures through the use of cash generated through operations and stockholder transactions. Net
cash used in investing activities in 2002 primarily reflects net purchases of marketable securities of $137.7 million, $31.6 million for the acquisitions of Account4 and Keyola, and
$11.1 million of property and equipment additions.

We
have a contingent consideration agreement related to the acquisition of Keyola in fiscal 2002. Under the terms of the agreement, additional cash payments ranging from zero to
$1.5 million are contingent upon the future performance of Keyola, measured annually through fiscal 2005, and will be recorded as additional goodwill if earned. At May 31, 2003, no
amounts had been earned under this agreement.

Net
cash (used in) provided by financing activities was $(2.8) million, $188.8 million and $4.4 million in fiscal 2003, 2002, and 2001, respectively. Net cash used in
financing activities in fiscal 2003 reflects $15.0 million used to repurchase shares of our common stock and $1.4 million used for repayment of debt, partially offset by
$7.0 million received from the exercise of stock options and $6.6 million from the issuance of treasury shares for our employee stock purchase program. Net cash provided by financing
activities in fiscal 2002 reflects $197.3 million of net proceeds from our initial public offering, of which $10.2 million was used to repay senior subordinated convertible notes. During
fiscal 2002, we received $3.9 million for the exercise of stock options and paid $1.2 million for the repurchase of common stock
related to the mandatory redemption requirement of certain shares under our ESOP plan and $1.0 million for the repayment of debt.

In
December 2002, our Board of Directors authorized us to repurchase, from time to time, up to $15.0 million of our common shares. We repurchased a total of
2.9 million shares for $15.0 million during fiscal 2003. The share repurchase was largely funded by cash proceeds obtained from exercise of employee stock options and the employee stock
purchase plan. The repurchased shares will be used for general corporate purposes.

In
June 2003, our Board of Directors authorized us to repurchase up to $50.0 million worth of our common shares. Shares will be repurchased from time to time as market
conditions warrant either through open market transactions, block purchases, private transactions or other means. The repurchase will be funded primarily from proceeds and tax benefits derived from
the Company's stock option and employee stock purchase plans, and supplemented with portions of available cash from operations. The repurchased shares will be used for general corporate purposes. No
time limit has been set for the repurchase program.

We
have summarized future minimum lease commitments as of May 31, 2003 in Note 19 of Notes to Consolidated Financial Statements included in this
Form 10-K.

28

---

We
have a $25.0 million revolving credit facility, which expires on September 30, 2003. At May 31, 2003, we had no amounts outstanding under the revolving credit
facility. The agreement with the bank contains limitations on dividends and capital expenditures and requires compliance with specific financial ratios and covenants. We were in compliance with or had
obtained waivers for all covenants and restrictions under the debt agreement at May 31, 2003.

We
believe that cash flow from operations, together with our cash, cash equivalents and marketable securities will be sufficient to meet our cash requirements for working capital,
capital expenditures and investments for the foreseeable future.

Disclosures about Contractual Obligations and Commercial Commitments

The following summarizes our contractual obligations at May 31, 2003, and the effect these contractual obligations are expected to have on our liquidity
and cash flows in future periods (in millions):

Total

1 Year or Less

1-3 Years

After 3 YearsOperating leases

$
81.7

$
10.7

$
21.5

$
49.5Debt


1.2


0.9


0.3


Total

$
82.9

$
11.6

$
21.8

$
49.5


Recent Accounting Pronouncements

In August, 2001 the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." In June 2002 we adopted this statement which addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to
be disposed of and supersedes SFAS No.121, "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to Be Disposed Of" and Accounting Principles Board
("APB") Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." Upon adoption, we determined we did not have any impaired long-lived assets.

In
April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This statement provides guidance on the classification of gains and losses from the extinguishment of debt and on the accounting for certain specified lease transactions. The provisions of this
statement, related to the rescission of FASB Statement No. 4, were effective for us beginning on June 1, 2002. All other provisions of this statement were effective for transactions
occurring after May 15, 2002. In accordance with the transition provisions
the adoption resulted in our fiscal 2002 extraordinary item being reclassified in the Consolidated Statements of Operations to other income (expense) in fiscal 2003.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." This statement addresses the accounting for costs associated with exit or disposal
activities. Commitment to a plan to exit an activity or disposal of long-lived assets will no longer be sufficient to record a one-time charge for most anticipated costs.
Instead, SFAS 146 requires exit or disposal costs be recorded when they are "incurred" and can be measured at fair value. SFAS 146 further requires that the recorded liability be
adjusted for changes in estimated cash flows. The provisions of the statement were effective for exit and disposal activities initiated after December 31, 2002. The adoption of this statement
did not have an impact on our consolidated financial position, results of operations or cash flows, but will change on a prospective basis, the timing of when restructuring charges are recorded from
the commitment date to when the liability is incurred.

29

---

In
November 2002, the FASB issued Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34." The Interpretation requires that a guarantor recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires additional disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain guarantees it has issued. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of FIN No. 45 are
effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN No. 45 did not have a material effect on our consolidated financial
position; however, management is continuing to evaluate the impact on future financial statements. A summary of agreements that we have determined are within the scope of FIN No. 45 is included
in Note 19 of Notes to Consolidated Financial Statements.

In
December 2002, the FASB issued SFAS No. 148,"Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FASB Statement
No. 123." This statement provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. The statement amends the
disclosure requirements of SFAS No. 123, "Accounting for Stock Based Compensation", to require prominent disclosure in both annual and interim financial statements about the method of
accounting for stock-based compensation and the effect of the method used on reported results. We account for stock-based compensation arrangements in accordance with the provisions of APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and comply with the disclosure provisions of SFAS No. 123. The transition provisions are effective for fiscal years ending after
December 15, 2002. The disclosure provisions are effective for interim periods beginning after December 15, 2002, with early application encouraged. We currently have no plans to change
to the fair value method of accounting for stock-based compensation. The adoption of this statement is not expected to have a material impact on our consolidated financial position, results of
operations or cash flows. We implemented the
year-end disclosure provisions as of May 31, 2003 and will implement the interim period disclosure provisions in the quarter ending August 31, 2003.

In
January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51." FIN
No. 46 requires certain variable interest entities or VIEs, to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN
No. 46 is effective for all VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be
applied for the first interim or annual period beginning after June 15, 2003. We currently have no contractual relationship or other business relationship with a variable interest entity and
therefore the adoption of FIN No. 46 did not have a material effect on our consolidated financial position, results of operations or cash flows. However, if we enter into any such arrangement
with a variable interest entity in the future, our consolidated financial position or results of operations may be adversely effected.

Factors That May Affect Future Results or the Market Price of Our Stock

An investment in our common stock involves a high degree of risk. Investors evaluating our company and its business should carefully consider the factors
described below and all other information contained in this report on Form 10-K. This section should be read in conjunction with the Consolidated Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-K. Any of the

30

---

following
factors could materially harm our business, operating results and financial condition. Additional factors and uncertainties not currently known to us or that we currently consider immaterial
could also harm our business, operating results and financial condition. The Company may make forward-looking statements from time to time, both written and oral. We undertake no obligation to revise
or publicly release the results of any revisions to these forward-looking statements based on circumstances or events which occur in the future. The actual results may differ materially from those
projected in any such forward-looking statements due to a number of factors, including those set forth below and elsewhere in this report on Form 10-K.

A continuing reduction in information technology spending may decrease our revenues, lower our growth rate or adversely affect our operating results.

During fiscal 2003, our license revenue was lower than the prior fiscal year because prospective customers continued to delay or cancel their information
technology projects, or purchase individual products, rather than multi-product suites or systems. Demand for enterprise software and demand for
our solutions are affected by general economic conditions, competition, product acceptance and technology lifecycles. The current technology recession and decline in overall technology spending,
terrorist activity, Middle East conflicts, and threats of hostilities elsewhere may cause our customers to continue to reduce or eliminate their information technology spending, which could
substantially reduce the number of new software licenses we sell, the average sales price for these licenses and the need for our services. Because of these factors, we believe the level of demand for
our products and services, and projections of future revenue and operating results, are difficult to predict. In fiscal 2003, we continued to take measures to realign our projected expenses with
anticipated revenue, and incurred restructuring charges for severance and related benefits and facility closure and consolidation charges. We may need to make further expense reductions to address
shortfalls in revenue caused by these or other conditions and we cannot assure you those reductions will be available or sufficient to offset revenue declines.

Because our customers are concentrated in targeted service industries, our operating results may be adversely affected by adverse changes in one or more
of these industries.

As a result of our focus on targeted service industries, our financial results depend, in significant part, upon economic and market conditions in the healthcare,
professional services, retail, public sector and financial services industries. Because the healthcare marketplace for our products is maturing, we will need to expand our product offerings to achieve
long-term revenue growth at our historical rate in that market. Many state and local governments are facing budget shortfalls and are reducing capital spending, including spending on
software and services. The economic downturn has also reduced capital spending in the professional services and financial services industries. A continued economic downturn, or adverse change in the
regulatory environment or business prospects for one or more of these industries may further decrease our revenues or lower our growth rate. In addition, we must continue to develop industry specific
functionality for our solutions, which satisfies the changing, specialized requirements of prospective customers in our target industries.

We may experience fluctuations in quarterly revenue that could adversely impact our stock price and our operating results.

Our actual revenues in a quarter could fall below expectations, which could lead to a decline in our stock price. Our revenues and operating results are difficult
to predict and may fluctuate substantially from quarter to quarter. Revenues from license fees in any quarter depend substantially upon our licensing activity and our ability to recognize revenues in
that quarter in accordance with our

31

---

revenue
recognition policies. Our quarterly revenue may fluctuate and may be difficult to forecast for a variety of reasons, including the following:



Fluctuation
in our quarterly revenues may adversely affect our operating results. In each fiscal quarter our expense levels, operating costs and hiring plans are based on projections of
future revenues and are relatively fixed. If our actual revenues fall below expectations we could experience a reduction in operating results.

Our lengthy and variable sales cycle makes it difficult to predict our operating results.

It is difficult for us to forecast the timing and recognition of revenues from sales of our products because our existing and prospective customers often take
significant time evaluating our products before licensing them. The period between initial customer contact and a purchase by a customer may vary from nine months to more than one year. During the
evaluation period, prospective customers may decide not to purchase or may scale down proposed orders of our products for various reasons, including:



Our
existing and prospective customers routinely require education regarding the use and benefit of our products. This may also lead to delays in receiving customers' orders.

32

---

A reduction in our licensing activity may result in reduced services revenues in future periods.

Our ability to maintain or increase service revenue primarily depends on our ability to increase the number of our licensing agreements. Variances or slowdowns in
licensing activity may impact our consulting, training and maintenance service revenues in future periods.

We may be required to delay revenue recognition into future periods, which could adversely impact our operating results.

We have in the past had to, and in the future may have to, defer revenue recognition for license fees due to several factors, including the following situations:



Because
of the factors listed above and other specific requirements under accounting principles generally accepted in the United States for software revenue recognition, we must have
very precise terms in our license agreements to recognize revenue when we initially deliver software or perform services. Negotiation of mutually acceptable terms and conditions can extend the sales
cycle, and sometimes we do not obtain terms and conditions that permit revenue recognition at the time of delivery or even as work on the project is completed.

If we account for employee stock option and employee stock purchase plans using the fair value method, it could significantly reduce our net income and
earnings per share.

There has been ongoing public debate whether employee stock option and employee stock purchase plans shares should be treated as a compensation expense and, if
so, how to properly value such charges. If we elected or were required to record an expense for our stock-based compensation plans using the fair value method, we could have material accounting
charges. Although we are not currently required to record any compensation expense using the fair value method in connection with option grants that have an exercise price at or above fair market
value and for shares issued under our employee stock purchase plan, it is possible that future laws or regulations will require us to treat all stock-based compensation as a compensation expense using
the fair value method. Note 2 of the Notes to Consolidated Financial Statements describes the pro forma impact of a change to fair market value accounting on earnings and earnings per share for
each of the past three years.

A number of our competitors are well-established software companies that have advantages over us.

We face competition from a number of software companies that have advantages over us due to their larger customer bases, greater name recognition, long operating
and product development history, greater international presence and substantially greater financial, technical and marketing resources. These competitors include well-established companies
such as Oracle Corporation, PeopleSoft Inc. and SAP AG, all of which have larger installed customer bases. Furthermore, Oracle is capable of bundling

33

---

its
software with its database applications, which underlie a significant portion of our installed applications.

In
addition, we compete with a variety of more specialized software and services vendors, including:



As
a result, the market for enterprise software applications has been and continues to be intensely competitive. Some competitors have become more aggressive with their pricing, payment
terms and/or issuance of contractual warranties, implementation terms or guarantees. We may be unable to continue to compete successfully with new and existing competitors without lowering prices or
offering other favorable terms. We expect competition to persist and intensify, which could negatively impact our operating results and market share.

Changes in the terms on which we license technologies from third-party vendors could result in the loss of potential revenues or increased costs or
delays in the production and improvement of our products.

We license complementary third-party software products that we incorporate into, or resell with, our own software products. For example, we incorporate Micro
Focus International, Inc.'s software in many of our products and have reseller relationships with Business Software Incorporated, Crystal Decisions, Inc. and Hyperion Solutions
Corporation that allows us to resell their technology with our products. These licenses and other technology licenses are subject to periodic renewal and may include minimum sales requirements. A
failure to renew, or early termination of these licenses or other technology licenses could adversely impact our business. If any of the third-party software vendors change their product offerings or
terminate our licenses, we may lose potential revenues and may need to incur additional development costs and seek alternative third-party relationships. In addition, if the cost of licensing any of
these third-party software products significantly increases, or if there is a change in the relative mix of products we offer, our gross margins could significantly decrease. We rely on existing
relationships with software vendors who are also competitors. If these vendors change their business practices, we may be compelled to find alternative vendors with complementary software, which may
not be available on attractive terms or at all, or may not be as widely accepted or as effective as the software provided by our existing vendors. Our relationships with these and other third-party
vendors are an important part of our business, and a deterioration of these relationships could adversely impact our business and operating results.

A deterioration in our relationship with resellers, systems integrators and other third parties that market and sell our products could reduce our
revenues.

Our ability to achieve revenue growth will depend in large part on adding new partners to expand our sales channels, as well as leveraging our relationships with
existing partners, such as Siemens Medical Solutions Health Services Corporation. If our relationships with these resellers, system integrators and strategic and technology partners deteriorate or
terminate, we may lose important sales

34

---

and
marketing opportunities. Our reseller arrangements from time to time give rise to disputes regarding marketing strategy, exclusive territories, payment of fees and customer relationships, which
could negatively affect our business or result in costly litigation. For example, we are currently in discussions with Siemens regarding our current reseller agreement and potential modifications to
our reselling relationship.

Our
current and potential customers often rely on third-party systems integrators to implement and manage new and existing applications. These systems integrators may increase their
promotion of competing enterprise software applications, or may otherwise discontinue their relationships with or support of us.

We
also may enter into joint arrangements with strategic partners to develop new software products or extensions, sell our software as part of integrated products or serve as an
application service provider for our products. Our business may be adversely affected if these strategic partners change their business priorities or experience difficulties in their operations, which
in either case causes them to terminate or reduce their support for the joint arrangements. Furthermore, the financial condition of our channel partners impacts our business. If our partners are
unable to recruit and adequately train a sufficient number of consulting personnel to support the implementation of our software products, or they otherwise do not adequately perform implementation
services, we may lose customers. Our relationships with resellers, systems integrators and other third-party vendors are an important part of our business, and a deterioration of these relationships
could adversely impact our business and operating results.

We may be unable to retain or attract clients if we do not develop new products and enhance our current products in response to technological changes.

As a software company, we have been required to migrate our products and services from mainframe to client-server to web-based environments. In
addition, we have been required to adapt our products to emerging standards for operating systems, databases and other technologies. We will be unable to compete effectively if we are unable to:



New
products require significant development investment. We face uncertainty when we develop or acquire new products because there is no assurance that a sufficient market will develop
for those products. For example, we have made a significant investment in the acquisition and development of services automation and retail merchandising software products. If we do not attract
sufficient customer interest in those products, we will not realize a return on our investment and our operating results will be adversely affected.

Our
core technologies face competition from new or revised technologies that may render our existing technology less competitive or obsolete, reducing the demand for our solutions. As a
result, we must continually redesign our products to incorporate these new technologies and to adapt our software products to operate on, and comply with evolving industry standards for hardware and
software platforms. In addition, conflicting new technologies present us with difficult choices of which new technologies to adopt. If we fail to anticipate or respond adequately to technological
developments, or experience significant delays in product development or introduction, our business and operating results will be negatively impacted.

35

---

In
addition, to the extent we determine that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of such technologies may
require us to make significant capital investments. We may not be able to obtain capital for these purposes and investments in new technologies may not result in commercially viable technological
products. The loss of revenue and increased costs to us from such changing technologies would adversely affect our business and operating results.

Our programs are deployed in large and complex systems and may contain defects that are not detected until after our programs have been installed, which
could damage our reputation and cause us to lose customers or incur liabilities.

Our software programs are often deployed in large and complex computer networks. Because of the nature of these programs, they can only be fully tested for
reliability when deployed in networks for long periods of time. Our software programs may contain undetected defects when first introduced or as new versions are released, and our customers may
discover defects in our products or experience corruption of their data only after our software programs have been deployed. As a consequence, from time to time we have received customer complaints
following installation of our products. In addition, our products are combined with products from other vendors. As a result, should problems occur, it may be difficult to identify the source of the
problem. Software and data security are becoming increasingly important because of regulatory restrictions on data privacy and the significant legal exposures and business disruptions stemming from
computer viruses and other unauthorized entry or use of computer systems. These conditions increase the risk that we could experience, among other things:



In
addition, we may not be able to avoid or limit liability for disputes relating to product performance, software security or the provision of services. The occurrence of any one or
more of the foregoing factors could cause us to experience losses, incur liabilities and adversely affect our operating results.

We may not be able to develop our international operations successfully.

We may not be successful in developing business outside of the United States despite continued investment in our international operations. Additionally, we must
adapt our products to meet the requirements of local markets, primarily in Asia. Factors that could have an adverse effect on our ability to develop our international operations include:



36

---



If
our international operations expand, our business may become subject to unexpected, uncontrollable and rapidly changing events and circumstances in addition to those experienced in
the United States. The following factors, among others, could have an adverse effect on our business and operating results:



We may be unable to identify or complete suitable acquisitions and investments; and any acquisitions and investments we do complete may create business
difficulties or dilute our stockholders.

As part of our business strategy, we intend to pursue strategic acquisitions. We may be unable to identify suitable acquisitions or investment candidates. Even if
we identify suitable candidates, we cannot assure you that we will be able to make acquisitions or investments on commercially acceptable terms. If we acquire a company, we may have difficulty
integrating its products, personnel and operations into our business. In addition, its key personnel may decide not to work for us. We may also
have difficulty integrating acquired businesses, products, services and technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and workforce,
increase our expenses and adversely affect our operating results. We may also incorrectly judge the value or worth of an acquired company or business. Furthermore, we may incur significant debt or be
required to issue equity securities to pay for future acquisitions or investments. The issuance of equity securities may be dilutive to our stockholders.

Increases in services revenue as a percentage of total revenues could decrease overall margins and adversely affect our operating results.

We realize lower margins on service revenue than on license revenue. We subcontract certain consulting services to systems integrators, which generally causes
such services to carry lower gross margins than services provided by our employees. Therefore, an increase in the percentage of services provided by systems integrators versus services provided by our
employees could have a detrimental impact on our overall gross margins and could adversely affect operating results.

We may be unable to compete effectively in the application service provider market.

Some businesses choose to access enterprise software applications through application service providers, or ASPs, which are businesses that host applications and
provide access to software on a subscription basis. We have limited experience selling our solutions through ASPs and may not be successful in generating revenue from this distribution channel.
Moreover, the use of ASPs as a distribution channel may occur more rapidly than we anticipate, and we may not be able to compete effectively in this environment.

37

---



In the event our products infringe on the intellectual property rights of third parties, our business may suffer if we are sued for infringement or
cannot obtain licenses to these rights on commercially acceptable terms.

We are subject to the risk of adverse claims and litigation alleging infringement by us of the intellectual property rights of others. Many participants in the
technology industry have an increasing number of patents and patent applications and have frequently demonstrated a readiness to take legal action based on allegations of patent and other intellectual
property infringement. Further, as the number and functionality of our products increase, we believe that we may become increasingly subject to the risk of infringement claims. If infringement claims
are brought against us, these assertions could distract management and we may have to expend potentially significant funds and resources to defend or settle such claims. If we are found to infringe on
the intellectual property rights of others, we could be forced to pay significant license fees or damages for infringement.

As
part of our standard license agreements, we agree to indemnify our customers for some types of infringement claims under the laws of the United States and some foreign jurisdictions
that may arise from the use of our products. If a claim against us were successful, we may be required to incur significant expense and pay substantial damages as we are unable to insure against this
risk. Even if we were to prevail, the accompanying publicity could adversely impact the demand for our software. Provisions attempting to limit our liability in our standard agreements may be
invalidated by unfavorable judicial decisions or by federal, state, local or foreign laws or ordinances.

It may become increasingly expensive to obtain and maintain liability insurance.

We contract for insurance to cover several, but not all, potential risks and liabilities. In the current market, insurance coverage is becoming more restrictive,
and, when insurance coverage is offered, the deductible for which we are responsible is larger. In light of these circumstances, it may become more difficult to maintain insurance coverage at
historical levels, or if such coverage is available, the cost to obtain or maintain it may increase substantially. This may result in our being forced to bear the burden of an increased portion of
risks for which we have traditionally been covered by insurance, which could negatively impact our results of operations.

We have limited protection of our intellectual property and, if we fail to adequately protect our intellectual property, we may not be able to compete.

We consider certain aspects of our internal operations, software and documentation to be proprietary, and rely on a combination of contract, copyright, trademark
and trade secret laws to protect this information. In addition, to date we have filed two patent applications but we intend to file additional patent applications. Outstanding applications may not
result in issued patents and, even if issued, the patents may not provide any competitive advantage. Existing copyright laws afford only limited protection. Our competitors may independently develop
technologies that are less expensive or better than our technology. In addition, when we license our products to customers, we provide source code for many of our products. We may also permit
customers to obtain access to our other source code through a source code escrow arrangement. This access to our source code may increase the likelihood of misappropriation or other misuse of our
intellectual property. In addition, the laws of some countries in which our software products are or may be licensed do not protect our software products and intellectual property rights to the same
extent as the laws of the United States. Defending our rights could be costly.

Business disruptions may interfere with our ability to conduct business.

Business disruptions could affect our future operating results. Our operating results and financial condition could be adversely affected in the event of a
security breach, major fire, war, terrorist attack or other catastrophic event. Impaired access or significant damage to our data center at our

38

---

headquarters
in St. Paul, Minnesota due to such an event could cause a disruption of our information systems and loss of financial data and certain customer data, which could adversely impact results
of operations and business financial conditions.

There are a large number of shares that may be sold in the market, which may depress our stock price.

In January 2003, we announced that our Chairman, H. Richard Lawson, had entered into a selling plan to sell up to 500,000 shares of our stock over a
six-month period and that our Chief Executive Officer, John Coughlan, and three other executive officers had each entered into selling plans to sell up to an aggregate of 664,000 shares of
our stock over a 12-month period. These executives may also elect to sell or transfer other shares apart from these selling plans. A substantial number of shares of our common stock are
held by our founders, their family members, current or former employees, officers or directors. Sale of a portion of these shares in the public market, or the perception that such sales are likely to
occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.

Control by existing shareholders could significantly influence matters requiring stockholder approval.

As of May 31, 2003, our executive officers, directors, and affiliated entities, in the aggregate, beneficially owned approximately 21.8% of our outstanding
common stock. These stockholders, if acting together, would be able to significantly influence all matters requiring approval by stockholders, including the election of directors and the approval of
mergers or other business combinations.

Financial outlook.

From time to time in press releases and otherwise, we may publish forecasts or other forward-looking statements regarding our future results, including estimated
revenues or net earnings. Any forecast of our future performance reflects various assumptions. These assumptions are subject to significant uncertainties, and as a matter of course, any number of them
may prove to be incorrect. Further, the achievement of any forecast depends on numerous risks and other factors (including those described in this discussion), many of which are beyond our control. As
a result, we cannot provide assurance that our performance will be consistent with any management forecasts or that the variation from such forecasts will not be material and adverse. Current and
potential stockholders are cautioned not to base their entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize our entire publicly available mix
of historical and forward-looking information, as well as other available information affecting us, our products and services, and the software industry when evaluating our prospective results of
operations.

Item 7A. Qualitative and Quantitative Disclosures About Market Risk.

Currently, we have minimal monetary assets, liabilities and operating expenses denominated in foreign currencies. If our international operations expand and we
decide to enter into hedging transactions to minimize foreign currency rate risk, the adoption of SFAS No. 133, as amended by SFAS Nos. 137 and 138, could have a material impact on our
operating results.

We
do not utilize any derivative security instruments. Our investments are consistent with the Company's investment policies. We invest our cash in financial instruments consisting
principally of tax-exempt money market funds and highly liquid debt securities of corporations and municipalities. These investments are denominated in U.S. dollars. Investments with
original maturities of three months or less are classified as cash and cash equivalents. As of May 31, 2003, the average maturity of our investment securities was less than three months and all
investment securities had maturities less than 24 months. As of May 31, 2003, we consider the reported amounts of these investments to be

39

---

reasonable
approximations of their values. Changes in the market interest rates will not have a material impact on our financial position.

Through
May 31, 2003, interest expense was not sensitive to the general levels of United States interest rates because all of our notes payable bear fixed interest rates.

Item 8. Consolidated Financial Statements and Supplementary Data.

The information required by this Item is included in Part IV Item 14(a)(1) and (2).

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

40

---

Part III

The information required by Items 10 through 13 is incorporated by reference from our definitive Proxy Statement pursuant to general instruction G(3), with the
exception of the executive officers section of Item 10, which is included in Part I of this Form 10-K. We will file our definitive 2003 Proxy Statement pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 10. Directors and Executive Officers of the Registrant.

The information concerning our officers required by this item is included in Part I hereof under the heading "Employees." Information required under this
item is contained in the section entitled "Election of Directors" in our 2003 Proxy Statement and is incorporated herein by reference.

Item 11. Executive Compensation.

Information required under this item is contained in the sections entitled "Executive Compensation and other Information" and "Employment Agreements" in our 2003
Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information required under this item is contained in the sections entitled "Securities Authorized for Issuance Under Equity Compensation Plans" and "Security
Ownership of Principal Stockholders and Management" in our 2003 Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

Information required under this item is contained in the section entitled "Certain Transactions" in our 2003 Proxy Statement and is incorporated herein by
reference.

Item 14. Controls and Procedures.

Under
the supervision and with the participation of our management, including the Company's Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in
timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic SEC filings.

During
our fourth fiscal quarter, there were no significant changes made in our internal control over financial reporting (as defined in Rule 13(a) - 15(f) under the Exchange Act)
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

41

---



Part IV

Item 15. Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K.



No
reports on Form 8-K were filed during the fourth quarter of fiscal 2003.

Index To Financial Statements and Financial Statement Schedules (Item 14-(a))



|Reports of Independent Auditors                                                                          
|---------------------------------------------------------------------------------------------------------
|Consolidated Balance Sheets at May 31, 2003 and 2002                                                     
|Consolidated Statements of Operations for the years ended May 31, 2003, 2002 and 2001                    
|Consolidated Statements of Stockholders' Equity (Deficit) for the years ended May 31, 2003, 2002 and 2001
|Consolidated Statements of Cash Flows for the years ended May 31, 2003, 2002 and 2001                    
|Notes to Consolidated Financial Statements                                                               
|Supplemental Quarterly Financial Information                                                             

Index to Exhibits (Item 14(a))

|Number |     | Description                                                                                                                  
|------ | --- | -----------------------------------------------------------------------------------------------------------------------------
|3.1    | (1) | Certificate of Incorporation of the Company.                                                                                 
|3.2    | (1) | Bylaws of the Company.                                                                                                       
|4.1    | (1) | Form of Certificate of Common Stock of the Company.                                                                          
|10.1   | (1) | Amended and Restated 1996 Stock Incentive Plan.                                                                              
|10.2   | (1) | 2001 Stock Incentive Plan.                                                                                                   
|10.3   | (1) | Employee Stock Ownership Plan (1999 Restatement), as amended to date.                                                        
|10.4   | (1) | 2001 Employee Stock Purchase Plan.                                                                                           
|10.5   | (1) | Warrant Purchase Agreement, dated January 28, 2000, as amended, between the Company and Hewlett Packard Company.             
|10.6   |     | [Reserved]                                                                                                                   
|10.7   |     | Stock Purchase Warrant, dated May 20, 2003, issued to Convertible Fund Offshore Ltd., an assignee of Hewlett Packard Company.
|10.8   |     | [Reserved]                                                                                                                   
|       |     |                                                                                                                              

42

---

|10.9  | (1)    | Warrant Purchase Agreement, dated July 18, 2000, between the Company and CIS Holdings, Inc.                                            
|----- | ------ | ---------------------------------------------------------------------------------------------------------------------------------------
|10.10 | (1)    | Warrant issued to CIS Holdings, Inc.                                                                                                   
|10.11 | (1)    | Employment Agreement, dated February 15, 2001, between the Company and Jay Coughlan.                                                   
|10.12 | (1)    | Employment Agreement, dated February 15, 2001, between the Company and Robert Barbieri.                                                
|10.13 | (1)    | Director Indemnification Agreement, dated March 19, 2001, between the Company and David S. B. Lang.                                    
|10.14 | (1)    | Stock Purchase and Exchange Agreement, dated February 23, 2001, between the Company and the investors named therein.                   
|10.15 | (1)    | Registration Rights Agreement, dated February 23, 2001, between the Company and the stockholders, investors and founders named therein.
|10.16 | (1)    | Stockholders' Agreement, dated February 23, 2001, between the Company and the stockholders, investors and founders named therein.      
|10.17 |        | [Reserved]                                                                                                                             
|10.18 |        | [Reserved]                                                                                                                             
|10.19 |        | [Reserved]                                                                                                                             
|10.20 |        | [Reserved]                                                                                                                             
|10.21 | (1)    | Lease of real property located at 380 St. Peter St., St. Paul, MN 55102.                                                               
|10.22 | (1)    | Lease of real property located at 1300 Godward Street, Minneapolis, MN 55413.                                                          
|10.23 | (1)    | Amended and Restated Credit Agreement, dated May 31, 2001, between the Company and U.S. Bank National Association.                     
|10.24 |        | [Reserved]                                                                                                                             
|10.25 |        | [Reserved]                                                                                                                             
|10.26 | (1)(2) | Independent Software Vendor Partner Agreement, effective June 13, 2003, between the Company and Hyperion Solutions Corporation.        
|21.1  |        | Subsidiaries                                                                                                                           
|23.1  |        | Consent of PricewaterhouseCoopers LLP.                                                                                                 
|24.1  |        | Powers of Attorney (included on signature page).                                                                                       
|31.1  |        | Certification Pursuant to Section 302 of the Sarbanes-Oxley ActJohn J. Coughlan.                                                      
|31.2  |        | Certification Pursuant to Section 302 of the Sarbanes-Oxley ActRobert G. Barbieri.                                                    
|32.1  |        | Certification Pursuant to Section 906 of the Sarbanes-Oxley ActJohn J. Coughlan                                                       
|32.2  |        | Certification Pursuant to Section 906 of the Sarbanes-Oxley ActRobert G. Barbieri.                                                    

---

43

---



SIGNATURES

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

| |  | LAWSON SOFTWARE, INC.
| |  | ---------------------
| |  | By:                  

Dated:
July 29, 2003

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John J. Coughlan and Robert G. Barbieri, and
each of them, his true and lawful attorney-in-fact and agents, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants
to such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or his substitute or substitutes may lawfully do or cause
to be done by virtue hereof.

Pursuant
to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates
indicated.

|Signature                                |  | Title                                                                                            |  | Date         
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | -------------
|                                         |  |                                                                                                  |  |              
|/s/ H. RICHARD LAWSONH. Richard Lawson   |  | Chairman                                                                                         |  | July 29, 2003
|/s/ JOHN J. COUGHLANJohn J. Coughlan     |  | President and Chief Executive Officer and Director(principal executive officer)                  |  | July 29, 2003
|/s/ ROBERT G. BARBIERIRobert G. Barbieri |  | Executive Vice President and Chief Financial Officer(principal financial and accounting officer) |  | July 29, 2003
|/s/ DAVID J. ESKRADavid J. Eskra         |  | Director                                                                                         |  | July 29, 2003
|/s/ DAVID R. HUBERSDavid R. Hubers       |  | Director                                                                                         |  | July 29, 2003
|                                         |  |                                                                                                  |  |              

44

---

|/s/ THOMAS G. HUDSONThomas G. Hudson     |  | Director |  | July 29, 2003
|---------------------------------------- |  | -------- |  | -------------
|/s/ RICHARD D. KREYSARRichard D. Kreysar |  | Director |  | July 29, 2003
|/s/ DAVID S. B. LANGDavid S. B. Lang     |  | Director |  | July 29, 2003
|/s/ MICHAEL A. ROCCAMichael A. Rocca     |  | Director |  | July 29, 2003

45

---



REPORT OF INDEPENDENT AUDITORS

To
the Board of Directors and Stockholders of
Lawson Software, Inc.:

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity (deficit) and comprehensive income (loss) and
of cash flows present fairly, in all material respects, the financial position of Lawson Software, Inc. and its subsidiaries at May 31, 2003 and 2002, and the results of their operations
and their cash flows for each of the three years in the period ended May 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

As
discussed in Note 2 to the financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" on
June 1, 2001.

| |  | /s/ PRICEWATERHOUSECOOPERS LLP |  | 
| |  | ------------------------------ |  | 

Minneapolis,
Minnesota
June 20, 2003, except as to Note 23, which is as of July 24, 2003

F-1

---



LAWSON SOFTWARE, INC.  CONSOLIDATED BALANCE SHEETS  (in thousands, except share and per share data)

|                                                                        |                                                                                                                                                        | May 31,
2003                                                                  |        | May 31,
2002 |        
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------- | ------ | ------------ | -------
|ASSETS                                                                  |                                                                                                                                                        |                                                                               |        |              |        
|Current assets:                                                         |                                                                                                                                                        |                                                                               |        |              |        
|                                                                        | Cash and cash equivalents                                                                                                                              |                                                                               | $      | 153,071      |        
|                                                                        | Marketable securities                                                                                                                                  |                                                                               |        | 102,266      |        
|                                                                        | Trade accounts receivable, less allowance for doubtful accounts of $6,440 and $8,243                                                                   |                                                                               |        | 62,433       |        
|                                                                        | Deferred income taxes                                                                                                                                  |                                                                               |        | 14,373       |        
|                                                                        | Prepaid expenses and other assets                                                                                                                      |                                                                               |        | 19,749       |        
|                                                                        |                                                                                                                                                        |                                                                               |        |              |        
|                                                                        |                                                                                                                                                        | Total current assets                                                          |        |              | 351,892
|Long-term marketable securities                                         |                                                                                                                                                        |                                                                               | 5,175  |              |        
|Property and equipment, net                                             |                                                                                                                                                        |                                                                               | 21,364 |              |        
|Goodwill                                                                |                                                                                                                                                        |                                                                               | 31,410 |              |        
|Other intangible assets, net                                            |                                                                                                                                                        |                                                                               | 12,533 |              |        
|Deferred income taxes                                                   |                                                                                                                                                        |                                                                               | 8,620  |              |        
|Other assets                                                            |                                                                                                                                                        |                                                                               | 1,215  |              |        
|                                                                        |                                                                                                                                                        |                                                                               |        |              |        
|                                                                        |                                                                                                                                                        | Total assets                                                                  |        | $            | 432,209
|                                                                        |                                                                                                                                                        |                                                                               |        |              |        
|LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND STOCKHOLDERS' EQUITY |                                                                                                                                                        |                                                                               |        |              |        
|Current liabilities:                                                    |                                                                                                                                                        |                                                                               |        |              |        
|                                                                        | Current portion of long-term debt                                                                                                                      |                                                                               | $      | 896          |        
|                                                                        | Accounts payable                                                                                                                                       |                                                                               |        | 13,407       |        
|                                                                        | Accrued compensation and benefits                                                                                                                      |                                                                               |        | 23,480       |        
|                                                                        | Other accrued liabilities                                                                                                                              |                                                                               |        | 14,209       |        
|                                                                        | Deferred revenue and customer deposits                                                                                                                 |                                                                               |        | 86,642       |        
|                                                                        |                                                                                                                                                        |                                                                               |        |              |        
|                                                                        |                                                                                                                                                        | Total current liabilities                                                     |        |              | 138,634
|Long-term debt, less current portion                                    |                                                                                                                                                        |                                                                               | 255    |              |        
|Other long-term liabilities                                             |                                                                                                                                                        |                                                                               | 3,921  |              |        
|                                                                        |                                                                                                                                                        |                                                                               |        |              |        
|                                                                        |                                                                                                                                                        | Total liabilities                                                             |        |              | 142,810
|                                                                        |                                                                                                                                                        |                                                                               |        |              |        
|Commitments and contingencies (Notes 6, 8, and 19)                      |                                                                                                                                                        |                                                                               |        |              |        
|Mandatorily redeemable common stock at redemption value                 |                                                                                                                                                        |                                                                               |       |              |        
|Stockholders' equity:                                                   |                                                                                                                                                        |                                                                               |        |              |        
|                                                                        | Preferred stock; $0.01 par value; 42,562,135 shares authorized; no shares issued or or outstanding                                                     |                                                                               |        |             |        
|                                                                        | Common stock; $0.01 par; 750,000,000 shares authorized; 105,946,971 and 102,101,336 shares issued; 97,695,531 and 95,361,204 outstanding, respectively |                                                                               |        | 1,058        |        
|                                                                        | Additional paid-in capital                                                                                                                             |                                                                               |        | 309,637      |        
|                                                                        | Treasury stock; at cost; 8,251,440 and 6,740,132 shares, respectively                                                                                  |                                                                               |        | (28,824      | )      
|                                                                        | Deferred stock-based compensation                                                                                                                      |                                                                               |        | (3,117       | )      
|                                                                        | Retained earnings                                                                                                                                      |                                                                               |        | 9,480        |        
|                                                                        | Accumulated other comprehensive income (loss)                                                                                                          |                                                                               |        | 1,165        |        
|                                                                        | Adjustment for mandatorily redeemable common stock                                                                                                     |                                                                               |        |             |        
|                                                                        |                                                                                                                                                        |                                                                               |        |              |        
|                                                                        |                                                                                                                                                        | Total stockholders' equity                                                    |        |              | 289,399
|                                                                        |                                                                                                                                                        |                                                                               |        |              |        
|                                                                        |                                                                                                                                                        | Total liabilities, mandatorily redeemable securities and stockholders' equity |        | $            | 432,209
|                                                                        |                                                                                                                                                        |                                                                               |        |              |        

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

F-2

---

LAWSON SOFTWARE, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except share and per share data)

|                                                      |                                      | Year Ended May 31,           |        
|----------------------------------------------------- | ------------------------------------ | ---------------------------- | -------
|
|Revenues:                                             |                                      |                              |        
|                                                      | License fees                         |                              | $      
|                                                      | Services                             |                              |        
|                                                      |                                      |                              |        
|                                                      |                                      | Total revenues               |        
|Cost of revenues:                                     |                                      |                              |        
|                                                      | Cost of license fees                 |                              |        
|                                                      | Cost of services                     |                              |        
|                                                      |                                      |                              |        
|                                                      |                                      | Total cost of revenues       |        
|Gross profit                                          |                                      |                              | 188,234
|Operating expenses:                                   |                                      |                              |        
|                                                      | Research and development             |                              |        
|                                                      | Sales and marketing                  |                              |        
|                                                      | General and administrative           |                              |        
|                                                      | Other general expenses (see Note 4)  |                              |        
|                                                      | Restructuring charges (see Note 5)   |                              |        
|                                                      | Amortization of acquired intangibles |                              |        
|                                                      |                                      |                              |        
|                                                      |                                      | Total operating expenses     |        
|                                                      |                                      |                              |        
|Operating (loss) income                               |                                      |                              | (10,728
|Other income (expense):                               |                                      |                              |        
|                                                      | Interest income                      |                              |        
|                                                      | Interest expense                     |                              |        
|                                                      | Early extinguishment of debt expense |                              |        
|                                                      |                                      |                              |        
|                                                      |                                      | Total other income (expense) |        
|(Loss) income before income taxes                     |                                      |                              | (6,271 
|(Benefit) provision for income taxes                  |                                      |                              | (2,446 
|                                                      |                                      |                              |        
|Net (loss) income                                     |                                      |                              | (3,825 
|                                                      |                                      |                              |        
|Accretion on and conversion of preferred stock        |                                      |                              |       
|                                                      |                                      |                              |        
|Net (loss) income applicable to common stockholders   |                                      | $                            | (3,825 
|                                                      |                                      |                              |        
|Net (loss) income per share:                          |                                      |                              |        
|                                                      | Basic                                |                              | $      
|                                                      |                                      |                              |        
|                                                      | Diluted                              |                              | $      
|                                                      |                                      |                              |        
|Shares used in computing net (loss) income per share: |                                      |                              |        
|                                                      | Basic                                |                              |        
|                                                      |                                      |                              |        
|                                                      | Diluted                              |                              |        
|                                                      |                                      |                              |        

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

F-3

---



LAWSON SOFTWARE, INC.  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)  AND COMPREHENSIVE INCOME (LOSS)  (in thousands, except share data)

|                                                                                                                             |  | Common Stock |   |   |       |   |   |         |   |   |         | Accumulated
Other
Comprehensive
Loss (Income) |   | Adjustment for
Mandatorily
Redeemable
Common Stock |   | Total
Stockholders'
(Deficit)
Equity |         |   |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - | - | ----- | - | - | ------- | - | - | ------- | --------------------------------------------- | - | -------------------------------------------------- | - | ------------------------------------ | ------- | - | -
|
|
|Balance at May 31, 2000                                                                                                      |  | 70,734,108   |   | $ | 707   |   | $ | 4,973   |   | $ |        |                                               | $ | (397                                               | ) | $                                    | 20,508  |   | $
|                                                                                                                             |  |              |   |   |       |   |   |         |   |   |         |                                               |   |                                                    |   |                                      |         |   |  
|Deferred stock-based compensation                                                                                            |  |             |   |   |      |   |   | 18,292  |   |   |        |                                               |   | (18,292                                            | ) |                                      |        |   |  
|Amortization of stock-based compensation                                                                                     |  |             |   |   |      |   |   |        |   |   |        |                                               |   | 3,596                                              |   |                                      |        |   |  
|Exercise of stock options                                                                                                    |  | 3,481,408    |   |   | 35    |   |   | 1,728   |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Tax benefit from stockholder transactions                                                                                    |  |             |   |   |      |   |   | 2,778   |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Repurchase and retirement of common stock                                                                                    |  | (1,162,380   | ) |   | (12   | ) |   | (2,687  | ) |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Purchase of treasury stock                                                                                                   |  | (4,307,453   | ) |   | (43   | ) |   |        |   |   | (9,957  | )                                             |   |                                                   |   |                                      |        |   |  
|Common stock exchanged for preferred stock                                                                                   |  | (2,330,160   | ) |   | (23   | ) |   |        |   |   | (5,387  | )                                             |   |                                                   |   |                                      |        |   |  
|Beneficial conversion feature associated with preferred stock                                                                |  |             |   |   |      |   |   | 2       |   |   |        |                                               |   |                                                   |   |                                      | (2      | ) |  
|Warrant issued to non-employee                                                                                               |  |             |   |   |      |   |   | 1,040   |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Stock options issued to non-employee                                                                                         |  |             |   |   |      |   |   | 657     |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Accretion on preferred stock                                                                                                 |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      | (50     | ) |  
|Increase in redemption value of mandatorily redeemable common stock, net of cancellation of mandatorily redeemable provision |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Translation adjustment                                                                                                       |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Net income                                                                                                                   |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      | 14,569  |   |  
|                                                                                                                             |  |              |   |   |       |   |   |         |   |   |         |                                               |   |                                                    |   |                                      |         |   |  
|Balance at May 31, 2001                                                                                                      |  | 66,415,523   |   |   | 664   |   |   | 26,783  |   |   | (15,344 | )                                             |   | (15,093                                            | ) |                                      | 35,025  |   |  
|                                                                                                                             |  |              |   |   |       |   |   |         |   |   |         |                                               |   |                                                    |   |                                      |         |   |  
|Proceeds from initial public offering, net                                                                                   |  | 15,336,153   |   |   | 153   |   |   | 197,154 |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Deferred stock-based compensation                                                                                            |  |             |   |   |      |   |   | 1,579   |   |   |        |                                               |   | (1,579                                             | ) |                                      |        |   |  
|Amortization of stock-based compensation                                                                                     |  |             |   |   |      |   |   |        |   |   |        |                                               |   | 8,343                                              |   |                                      |        |   |  
|Exercise of stock options                                                                                                    |  | 3,029,484    |   |   | 30    |   |   | (1,105  | ) |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Tax benefit from stockholder transactions                                                                                    |  |             |   |   |      |   |   | 10,594  |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Repurchase of common stock                                                                                                   |  | (103,210     | ) |   | 67    |   |   | (258    | ) |   | (387    | )                                             |   |                                                   |   |                                      |        |   |  
|Repurchase of ESOP stock                                                                                                     |  | (71,912      | ) |   |      |   |   |        |   |   | (1,243  | )                                             |   |                                                   |   |                                      |        |   |  
|Beneficial conversion feature associated with preferred stock                                                                |  |             |   |   |      |   |   | 29,998  |   |   |        |                                               |   |                                                   |   |                                      | (29,998 | ) |  
|Exercise of warrants                                                                                                         |  | 438,847      |   |   | 3     |   |   | 3,556   |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Accretion on preferred stock                                                                                                 |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      | (100    | ) |  
|Decrease in redemption value of mandatorily redeemable common stock                                                          |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Conversion of preferred stock to common stock                                                                                |  | 10,316,319   |   |   | 103   |   |   | 29,747  |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Translation adjustment                                                                                                       |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                    |   |                                      |        |   |  
|Unrealized gains/losses on investments                                                                                       |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Net income                                                                                                                   |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      | 8,378   |   |  
|                                                                                                                             |  |              |   |   |       |   |   |         |   |   |         |                                               |   |                                                    |   |                                      |         |   |  
|Balance at May 31, 2002                                                                                                      |  | 95,361,204   |   |   | 1,020 |   |   | 298,048 |   |   | (16,974 | )                                             |   | (8,329                                             | ) |                                      | 13,305  |   |  
|                                                                                                                             |  |              |   |   |       |   |   |         |   |   |         |                                               |   |                                                    |   |                                      |         |   |  
|Deferred stock-based compensation                                                                                            |  |             |   |   |      |   |   | (1,650  | ) |   |        |                                               |   | 1,650                                              |   |                                      |        |   |  
|Amortization of stock-based compensation                                                                                     |  |             |   |   |      |   |   |        |   |   |        |                                               |   | 3,562                                              |   |                                      |        |   |  
|Exercise of stock options                                                                                                    |  | 3,845,635    |   |   | 38    |   |   | 5,206   |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Tax benefit from stockholder transactions                                                                                    |  |             |   |   |      |   |   | 4,594   |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Employee stock purchase plan                                                                                                 |  | 1,369,748    |   |   |      |   |   | 3,439   |   |   | 3,179   |                                               |   |                                                   |   |                                      |        |   |  
|Repurchase ESOP shares                                                                                                       |  | (5,808       | ) |   |      |   |   |        |   |   | (27     | )                                             |   |                                                   |   |                                      |        |   |  
|Repurchase of common stock                                                                                                   |  | (2,875,248   | ) |   |      |   |   |        |   |   | (15,002 | )                                             |   |                                                   |   |                                      |        |   |  
|Increase in redemption value of mandatorily redeemable common stock, net of cancellation of mandatorily redeemable provision |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Unrealized gain/losses on investments                                                                                        |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Translation adjustment                                                                                                       |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      |        |   |  
|Net loss                                                                                                                     |  |             |   |   |      |   |   |        |   |   |        |                                               |   |                                                   |   |                                      | (3,825  | ) |  
|                                                                                                                             |  |              |   |   |       |   |   |         |   |   |         |                                               |   |                                                    |   |                                      |         |   |  
|Balance at May 31, 2003                                                                                                      |  | 97,695,531   |   | $ | 1,058 |   | $ | 309,637 |   | $ | (28,824 | )                                             | $ | (3,117                                             | ) | $                                    | 9,480   |   | $
|                                                                                                                             |  |              |   |   |       |   |   |         |   |   |         |                                               |   |                                                    |   |                                      |         |   |  

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

F-4

---



LAWSON SOFTWARE, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)

|                                                 |                                                                                          | Year Ended May 31,                                                            |                                       
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | --------------------------------------
|
|Cash flows from operating activities:            |                                                                                          |                                                                               |                                       
|                                                 | Net (loss) income                                                                        |                                                                               | $                                     
|                                                 | Adjustments to reconcile net (loss) income to net cash provided by operating activities: |                                                                               |                                       
|                                                 |                                                                                          | Depreciation and amortization                                                 |                                       
|                                                 |                                                                                          | Deferred income taxes                                                         |                                       
|                                                 |                                                                                          | Provision for doubtful accounts                                               |                                       
|                                                 |                                                                                          | Early extinguishment of debt expense                                          |                                       
|                                                 |                                                                                          | Equity instruments issued to non-employees                                    |                                       
|                                                 |                                                                                          | Tax benefit from stockholder transactions                                     |                                       
|                                                 |                                                                                          | Tax commitment from exercise of stock options                                 |                                       
|                                                 |                                                                                          | Accretion on put warrants                                                     |                                       
|                                                 |                                                                                          | Amortization of stock-based compensation                                      |                                       
|                                                 |                                                                                          | Amortization of discounts on notes payable                                    |                                       
|                                                 |                                                                                          | Amortization of discount and accretion of premium on marketable securities    |                                       
|                                                 |                                                                                          | Restructuring                                                                 |                                       
|                                                 |                                                                                          | Changes in operating assets and liabilities, net of effect from acquisitions: |                                       
|                                                 |                                                                                          |                                                                               | Trade accounts receivable             
|                                                 |                                                                                          |                                                                               | Prepaid expenses and other assets     
|                                                 |                                                                                          |                                                                               | Accounts payable                      
|                                                 |                                                                                          |                                                                               | Accrued and other liabilities         
|                                                 |                                                                                          |                                                                               | Income taxes payable                  
|                                                 |                                                                                          |                                                                               | Deferred revenue and customer deposits
|                                                 |                                                                                          |                                                                               |                                       
|                                                 | Net cash provided by operating activities                                                |                                                                               |                                       
|                                                 |                                                                                          |                                                                               |                                       
|Cash flows from investing activities:            |                                                                                          |                                                                               |                                       
|                                                 | Cash paid in conjunction with acquisitions, net of cash acquired                         |                                                                               |                                       
|                                                 | Purchases of marketable securities                                                       |                                                                               |                                       
|                                                 | Sales and maturities of marketable securities                                            |                                                                               |                                       
|                                                 | Purchases of property and equipment                                                      |                                                                               |                                       
|                                                 |                                                                                          |                                                                               |                                       
|                                                 | Net cash provided by (used in) investing activities                                      |                                                                               |                                       
|                                                 |                                                                                          |                                                                               |                                       
|Cash flows from financing activities:            |                                                                                          |                                                                               |                                       
|                                                 | Proceeds from initial public offering, net of offering costs                             |                                                                               |                                       
|                                                 | Borrowings under long-term debt                                                          |                                                                               |                                       
|                                                 | Principal payments on long-term debt                                                     |                                                                               |                                       
|                                                 | Proceeds from sale of senior subordinated convertible notes, net of offering costs       |                                                                               |                                       
|                                                 | Payments on senior subordinated convertible notes                                        |                                                                               |                                       
|                                                 | Exercise of stock options                                                                |                                                                               |                                       
|                                                 | Proceeds from sale of Series A Preferred Stock, net of offering costs                    |                                                                               |                                       
|                                                 | Issuance of treasury shares for employee stock purchase plan                             |                                                                               |                                       
|                                                 | Repurchase of common stock                                                               |                                                                               |                                       
|                                                 |                                                                                          |                                                                               |                                       
|                                                 | Net cash (used in) provided by financing activities                                      |                                                                               |                                       
|                                                 |                                                                                          |                                                                               |                                       
|Increase in cash and cash equivalents            |                                                                                          |                                                                               | 79,923                                
|Cash and cash equivalents at beginning of period |                                                                                          |                                                                               | 73,148                                
|                                                 |                                                                                          |                                                                               |                                       
|Cash and cash equivalents at end of period       |                                                                                          | $                                                                             | 153,071                               
|                                                 |                                                                                          |                                                                               |                                       
|                                                 | Supplemental disclosures:                                                                |                                                                               |                                       
|                                                 |                                                                                          | Interest paid                                                                 |                                       
|                                                 |                                                                                          | Income taxes (refunded) paid                                                  |                                       

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

F-5

---



LAWSON SOFTWARE, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (in thousands, except share and per share data)

1.     Business Description

Lawson Software, Inc. (the Company) develops and markets enterprise software solutions targeting specific service industries. In markets it serves, the
Company offers comprehensive financial management, human resources, services automation, procurement, distribution and retail operations solutions designed to manage, analyze and improve customers'
businesses. The Company's software solutions automate and integrate critical business processes, facilitating collaboration among customers, partners, suppliers and employees. The Company also
provides professional services that optimize and support the selection, implementation and execution of a customer's e-business technology infrastructure, as well as offering
on-going maintenance and other support services.

The
Company is subject to risks and uncertainties including dependence on information technology spending by customers, well-established competitors, concentration of
customers in a limited number of industries, fluctuations of quarterly results, a lengthy and variable sales cycle, dependence on principal products and third-party technology, rapid technological
change, development of products that gain market acceptance and international expansion.

2.     Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned branches and subsidiaries operating in Canada, the United Kingdom,
Germany, France and the Netherlands. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company's financial instruments consist primarily of cash, marketable securities, trade accounts receivable and accounts payable for which the current
carrying amounts approximate fair market value. Additionally, the borrowing rates currently available to the Company approximate current rates for debt agreements with similar terms and average
maturities.

Cash Equivalents

All highly liquid investments with a maturity of three months or less are considered to be cash equivalents. The Company's cash equivalents consist primarily of
tax-exempt money market instruments and highly liquid debt securities of corporations and municipalities. These investments are denominated in U.S. dollars. The carrying amount of cash
equivalents approximates fair value due to the short maturity of these instruments.

F-6

---

Accounts Receivable

Accounts receivable are initially recorded at fair value upon the sale of software licenses or services to customers. They are stated net of allowances for
uncollectible accounts, which represent estimated losses resulting from the inability of customers to make the required payments. When determining the allowances for uncollectible accounts the Company
takes several factors into consideration including the overall composition of accounts receivable aging, its prior history of accounts receivable write-offs, the type of customer and its
day-to-day knowledge of specific customers. Changes in the allowances for uncollectible accounts are recorded as bad debt expense and are included in general and administrative
expense in the Consolidated Statements of Operations.

Marketable Securities

The Company accounts for marketable securities in accordance with provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 addresses the accounting and reporting for investments in fixed maturity securities and for equity securities with readily
determinable fair values. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Currently, all
marketable securities held by the Company are classified as available-for-sale. Available-for-sale securities are carried at fair value as determined by
quoted market prices, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity (deficit). The cost basis of securities sold is determined using the
specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. As of May 31, 2003, $102,266 of
total investments mature within one year and $5,175 mature beyond one year and within two years.

As
of May 31, 2003 and 2002, the Company's debt and marketable equity securities were as follows (in thousands):

|                                    |  | May 31, 2003 |         | May 31, 2002
|----------------------------------- |  | ------------ | ------- | ------------
|
|Commercial paper                    |  | $            |        |             
|State and local municipalities debt |  |              | 105,169 |             
|US Agency                           |  |              | 1,998   |             
|Corporate debt                      |  |              | 4       |             
|                                    |  |              |         |             
|                                    |  | $            | 107,171 |             
|                                    |  |              |         |             

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets, which generally range from three to seven years. Depreciation expense was $11,559, $11,447, and $10,440 for the years ended May 31, 2003, 2002, and 2001,
respectively.

F-7

---

Revenue Recognition

The Company recognizes revenues in accordance with the provisions of the American Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9, as well as Technical Practice Aids issued from time to time by the AICPA, and in
accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The Company licenses software under
non-cancelable license agreements and provides related services, including support, consulting, training and implementation. Training, consulting and implementation services are not
essential to the functionality of the Company's software products, are sold separately and also are available from a number of third-party service providers. Accordingly, revenues from these services
are generally recorded separately from the license fee. Software arrangements which include fixed-fee service components are recognized using contract accounting. The specific revenue
recognition policies of the Company are as follows:



Sales Returns and Allowances

The Company records a provision for estimated sales returns and allowances on license and services related sales in the same period the related revenues are
recorded or when current information indicates additional amounts are required. These estimates are based on historical sales returns, analysis of credit memo data and other known factors.

F-8

---

Research and Development

Expenditures for software research and development are expensed as incurred. Such costs are required to be expensed until the point that technological feasibility
of the software is established. Technological feasibility is determined after a working model has been completed. The Company's software research and development costs primarily relate to software
development during the period prior to technological feasibility and are charged to operations as incurred.

Advertising Expense

The Company expenses advertising costs as incurred. Advertising expenses of approximately $8,764, $14,594, and $12,462 were charged to sales and marketing
expenses during the years ended May 31, 2003, 2002, and 2001, respectively.

Income Taxes

The Company provides for income taxes using the liability method under SFAS No. 109, "Accounting for Income Taxes," which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this statement, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to
reverse.

Concentrations of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. Cash equivalents consist primarily of tax-exempt money market instruments and highly liquid debt securities of corporations and municipalities, with a maturity of three months
or less and are readily convertible into cash.

The
Company grants credit to customers in the ordinary course of business. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of
customers comprising the Company's customer base and their dispersion across different industries and geographic areas. No single customer accounted for ten percent or more of revenues for fiscal
2003, 2002 or 2001 or of trade accounts receivable at May 31, 2003 or 2002.

Long-Lived Assets

In accordance with SFAS No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable
include, but are not limited to, a significant decrease in the market value of the business or asset acquired, a significant change in the extent or manner in which the business or asset acquired is
used or a significant adverse change in the business climate. If such events or changes in circumstances are present, the undiscounted cash flows method is used to determine whether the asset is
impaired. Cash flows would include the estimated terminal value of the asset and exclude any interest charges. To the extent the carrying value of the asset exceeds the undiscounted cash flows over
the estimated remaining life of the asset, the impairment is measured using the discounted cash flows. The discount rate utilized would be based on management's best estimate of the related risks and
return at the time the impairment assessment is made.

F-9

---

Goodwill and Other Intangible AssetsAdoption of Statements 141 and 142

Effective June 1, 2001, the Company adopted SFAS No. 141 "Business Combinations" and No. 142, "Goodwill and other Intangible Assets." In
accordance with SFAS 142, the Company ceased amortizing goodwill totaling $4,259 as of June 1, 2001. Adoption of the new standard resulted in not recognizing approximately $1,549 in
goodwill amortization expense for the year ended May 31, 2002 that would have been recognized had the old standard been in effect. Goodwill amortization expense under the old standard totaled
$1,183 in the year ended May 31, 2001.

The
following table presents the impact of the new standard (only goodwill amortization and related tax effects) on operating income, net income and earnings per share, as if it had been
in effect for the years ended May 31, 2001:

2001As Reported

As AdjustedOperating income

$
24,170

$
25,353Net income

$
14,569

$
15,255Earnings per sharebasic

$
0.21

$
0.22Earnings per sharediluted

$
0.17

$
0.18


The
changes in the carrying amount of goodwill for the year ended May 31, 2003 is as follows:

Balance as of May 31, 2002

$
26,851Goodwill acquired during the year


4,428Purchase accounting adjustments to deferred income taxes


(168
)Currency translation effect


299Balance as of May 31, 2003

$
31,410


Acquired
intangible assets subject to amortization were as follows:

|                      |  | May 31, 2003 |        | May 31, 2002
|--------------------- |  | ------------ | ------ | ------------
|
|Acquired technology   |  | $            | 7,673  |             
|Customer list         |  |              | 8,659  |             
|Non-compete agreement |  |              | 100    |             
|                      |  |              |        |             
|                      |  | $            | 16,432 |             
|                      |  |              |        |             

Intangible
assets are amortized on a straight-line basis over the estimated periods benefited, generally five years for acquired technology, ten years for customer lists, and
the term of the agreement for non-compete agreements. For the years ended May 31, 2003 and 2002, amortization expense for intangible assets was $ 2,372 and $1,510. There were no
intangible assets subject to amortization at May 31, 2001. The estimated annual amortization expense for intangible assets is approximately $2,434, $2,428, $2,401, $1,513 and $894 for the
fiscal years ending May 31, 2004, 2005, 2006, 2007 and 2008, respectively.

F-10

---

In
accordance with the new standard the Company will test goodwill and other indefinite lived intangible assets for impairment annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The impairment test shall consist of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an
intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. Goodwill recorded as of May 31, 2003 is evaluated for impairment on an
enterprise level, as the businesses acquired have been integrated into the Company's overall operations. The Company completed its annual impairment test of all goodwill during the fourth quarter of
fiscal 2003 and did not record any impairment as a result of that test.

Stock Split

Effective August 8, 2001, the Company's Board of Directors authorized a 1.387-for-1 stock split of the then issued and outstanding
shares of common stock. All references to common stock amounts, shares and per share data included in the financial statements and related notes have been adjusted to give retroactive effect to the
stock splits.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148 "Accounting for
Stock-Based CompensationTransition and Disclosure, an amendment of FASB Statement No. 123."

The
Company has adopted the disclosure-only provisions of SFAS No. 123. For purposes of the pro forma disclosures below, the estimated fair value of the options is
amortized to expense over the options' vesting period. Had compensation cost for the Company's stock options been recognized
based on the fair value at the grant date consistent with the provisions of SFAS No. 123, the Company's net (loss) income would have been adjusted to the pro forma amounts indicated below:

Year Ended May 31,2003

2002

2001Net (loss) income:As reported

$
(3,825
)
$
(21,720
)
$
14,569Add: Stock-based employee compensation expense included in reported net (loss) income, net of taxes


2,173


5,132


2,085Deduct: Total stock-based compensation expense determined under fair value based method for all rewards, net of taxes


(6,744
)

(5,832
)

(4,319
)Pro forma net (loss) income

$
(8,396
)
$
(22,420
)
$
12,335Net (loss) income per share:Basic:As reported

$
(0.04
)
$
(0.27
)
$
0.21Pro forma

$
(0.09
)
$
(0.28
)
$
0.18Diluted:As reported

$
(0.04
)
$
(0.27
)
$
0.17Pro forma

$
(0.09
)
$
(0.28
)
$
0.15


F-11

---



The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions
used for grants in fiscal 2003, 2002, and 2001, respectively: dividend yield of 0%; risk-free interest rates of 3.7%, 4.5%, and 5.6%, volatility factors of 75%, 75%, and 0% and expected
lives of approximately 5 years for grants in fiscal 2003 and 2002 and 7.5 years for prior years. Volatility factors are not applicable to non-public companies for options
granted to employees. The weighted-average fair value of each option granted during fiscal 2003, 2002, and 2001 using the Black-Scholes option-pricing model was $3.34, $10.39, and $4.28, respectively.

Foreign Currency Translation

All assets and liabilities of the Company's foreign branches and subsidiaries are translated from local currencies to United States dollars at period end rates of
exchange, while revenues and expenses are translated at the average exchange rates during the period. The functional currency for each of the Company's foreign branches and subsidiaries is the
respective local currency. Translation adjustments arising from the translation of net assets located outside of the United States into United States dollars are recorded as a separate component of
stockholders' equity (deficit). Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's local currency) are included in the
Consolidated Statements of Operations and are not significant.

Comprehensive Income (Loss)

Comprehensive income (loss) as defined by SFAS No. 130, "Reporting Comprehensive Income," includes net income (loss) and items defined as other
comprehensive income. SFAS No. 130 requires that items defined as other comprehensive income (loss), such as foreign currency translation adjustments and unrealized gains and losses on certain
marketable securities, be separately classified in the financial statements. Such items are reported in the Consolidated Statements of Stockholders' Equity (Deficit) as comprehensive income (loss).

The
following table summarizes the components of accumulated other comprehensive income, net of income taxes:

Year Ended May 31,2003

2002

2001Foreign currency translation adjustment

$
1,003

$
(1,228
)
$
(759
)Unrealized gains/losses on investments


162


16


Accumulated other comprehensive income (loss)

$
1,165

$
(1,212
)
$
(759
)


Net (Loss) Income Per Share

Net (loss) income per share is computed under the provisions of SFAS No. 128, "Earnings Per Share." Basic net (loss) income per common share is computed
using the net (loss) income applicable to common stockholders and the weighted-average number of shares of common stock outstanding. Diluted earnings per share reflect the potential dilution of
securities that could share in the earnings of an entity. Diluted net loss per common share does not differ from basic net loss per common share for the year ended May 31, 2003 and
May 31, 2002 since 23,060,641 and 24,808,260, respectively, potential shares of common stock from conversion of stock options and warrants were anti-dilutive.

F-12

---

The
following table sets forth the computation of basic and diluted net (loss) income per share:

|                                        |                                                     | Year Ended May 31,
|--------------------------------------- | --------------------------------------------------- | ------------------
|
|Basic earnings per share computation:   |                                                     |                   
|                                        | Net (loss) income applicable to common stockholders |                   
|                                        |                                                     |                   
|                                        | Weighted average common sharesbasic                |                   
|                                        |                                                     |                   
|                                        | Basic net (loss) income per share                   |                   
|                                        |                                                     |                   
|Diluted earnings per share computation: |                                                     |                   
|                                        | Net (loss) income applicable to common stockholders |                   
|                                        |                                                     |                   
|Shares calculation:                     |                                                     |                   
|                                        | Weighted average common shares                      |                   
|                                        | Effect of dilutive preferred stock                  |                   
|                                        | Effect of dilutive stock options and warrants       |                   
|                                        |                                                     |                   
|                                        | Weighted average common sharesdiluted              |                   
|                                        |                                                     |                   
|Diluted net (loss) income per share     |                                                     | $                 
|                                        |                                                     |                   

New Accounting Pronouncements

In August, 2001 the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." In June 2002, the
Company adopted this statement which addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of and
supersedes SFAS No. 121 and APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." Upon adoption, the Company determined it did not have any impaired long-lived assets.

In
April 2002, the FASB issued Statement of Financial Accounting Standard SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections." This statement provides guidance on the classification of gains and losses from the extinguishment of debt and on the accounting for certain specified lease
transactions. The provisions of this statement, related to the rescission of FASB Statement No. 4, were effective for fiscal years beginning after December 31, 2002. All other provisions
of this statement were effective for transactions occurring after May 15, 2002. In accordance with the transition provisions the adoption resulted in the Company's fiscal 2002 extraordinary
item being reclassified in the Consolidated Statements of Operations to other income (expense) in fiscal 2003.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." This statement addresses the accounting for costs associated with exit or disposal
activities. Commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge for most anticipated costs.
Instead, SFAS 146 requires exit or disposal costs be recorded when they are "incurred" and can be measured at fair value. SFAS 146 further requires that the recorded liability be
adjusted for changes in estimated cash flows. The provisions of the statement were effective for exit and disposal activities initiated after December 31, 2002. The adoption of this statement
did not have an impact on the Company's consolidated financial position, results of operations or cash

F-13

---

flows,
but will change on a prospective basis, the timing of when restructuring charges are recorded from the commitment date to when the liability is incurred.

In
November 2002, the FASB issued Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34." The Interpretation requires that a guarantor recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires additional disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain guarantees it has issued. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a
prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of FIN No. 45 are effective for financial statements of interim or annual
periods ending after December 15, 2002. The adoption of FIN No. 45 did not have a material effect on the Company's consolidated financial position; however, management is continuing to
evaluate the impact on future financial statements. A summary of agreements that have been determined to be within the scope of FIN No. 45 is included in Note 19.

In
December 2002, the FASB issued SFAS No. 148,"Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FASB Statement
No. 123." This statement provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. The statement amends the
disclosure requirements of SFAS No. 123, "Accounting for Stock Based Compensation," to require prominent disclosure in both annual and interim financial statements about the method of
accounting for stock-based compensation and the effect of the method used on reported results. The Company accounts for stock-based compensation arrangements in accordance with the provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and comply with the disclosure provisions of SFAS No. 123. The transition provisions are effective for fiscal years ending
after December 15, 2002. The disclosure provisions are effective for interim periods beginning after December 15, 2002, with early application encouraged. The Company currently has no
plans to change to the fair value method of accounting for stock-based compensation. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial
position, results of operations or cash flows. The Company implemented the year-end disclosure provisions included in Note 2 as of May 31, 2003 and will implement the interim
period disclosure provisions in the quarter ending August 31, 2003.

In
January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51." FIN
No. 46 requires certain variable interest entities or VIEs, to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN
No. 46 is effective for all VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be
applied for the first interim or annual period beginning after June 15, 2003. The Company currently has no contractual relationship or other business relationship with a variable interest
entity and therefore the adoption of FIN No. 46 did not have a material effect on its consolidated financial position, results of operations or cash flows. However, should the Company enter
into any such arrangement with a variable interest entity in the future, its consolidated financial position or results of operations may be adversely effected.

F-14

---

3.     Reclassification of Early Extinguishment of Debt Expense

The Company adopted SFAS No. 145 effective June 1, 2002. Among other matters, SFAS 145 rescinds Statement of Financial Accounting Standards
No. 4, "Reporting Gains and Losses from Extinguishment of Debt," which required all gains and losses from extinguishment of debt be aggregated and, if material, classified as an extraordinary
item, net of the related income tax effect. In connection with its adoption, gains and losses from extinguishments of debt are no longer classified as extraordinary items in the Company's statement of
operations. In addition, prior period financial statements were reclassified to reflect the new standard. As such, the Company reclassified the $2,321 extraordinary loss on early extinguishment of
debt recorded in the third quarter of fiscal 2002 as a separate component of other income (expense) in its Consolidated Statements of Operations.

4.     Other General Expenses

The following table presents a summary of other general expenses:

2003

2002

2001Business process improvement initiatives

$


$
655

$
4,929Repurchase of stock options held by former employees (see Note 10)








2,379Total other general expenses

$


$
655

$
7,308


During
fiscal years ended May 31, 2002 and 2001 the Company recognized $655, and 4,929 respectively, in expenses related to business process improvement initiatives designed to
prepare the Company for an initial public offering. These costs did not recur in fiscal 2003. Business process improvement initiatives consisted of consulting fees to improve the Company's budgeting,
forecasting and financial reporting. Such costs were expensed as incurred.

5.     Restructuring

Fiscal 2003 Restructuring

During fiscal 2003, the Company approved a restructuring plan to realign projected expenses with anticipated lower revenue levels and incurred restructuring
charges of $5,846, which included $4,691 of severance and related benefits and $1,155 for the closure and consolidation of facilities. The plan included the termination of 244 employees in various
functions including administrative, professional and managerial in the United States, Canada and Europe, all of which were terminated during the three months ended November 30, 2002. The
adjustments to the restructuring provision resulted from an increase in the estimated office closure liability upon finalization of lease termination agreements and a decrease from previously
estimated severance and related benefits. The Company expects to pay all termination benefits during calendar year 2003. The cash payments related to lease obligations are expected to be made through
October 2003.

F-15

---

The
following table sets forth the restructuring reserve activity related to the fiscal 2003 restructuring plan and the remaining balances as of May 31, 2003, which are included
in accrued compensation and benefits and other accrued liabilities:

Severance and related benefits

Facilities

TotalFiscal 2003 restructuring charges, before adjustments

$
4,763

$
1,060

$
5,823Cash payments


(4,392
)

(509
)

(4,901
)Adjustments to provision


(72
)

95


23Non-cash





(42
)

(42
)Balance, May 31, 2003

$
299

$
604

$
903


Fiscal 2002 Restructuring

During fiscal 2002, the Company approved a restructuring plan in response to the general economic downturn and incurred restructuring charges of $3,258, which
included $2,943 for severance related benefits and $315 for the closure of a leased office facility. The plan included the termination and payment of severance related benefits for 111 employees in
various functions including administrative, professional, and managerial, primarily in the U.S. All terminations and related payments were completed during the first quarter of fiscal 2003. Cash
payments relating to facility closure liabilities are expected to extend through June 2005.

During
fiscal 2003, the Company recorded additional charges related to the fiscal 2002 restructuring plan of $189. The incremental charges resulted from an increase in the estimated
office closure liability upon the finalization of lease termination agreements. The following table sets forth the restructuring reserve activity related to the fiscal 2002 restructuring plan and the
remaining balances as of May 31, 2003, which are included in other accrued liabilities:

Severance and related benefits

Facilities

TotalBalance, May 31, 2002

$
2,943

$
315

$
3,258Cash payments


(2,943
)

(180
)

(3,123
)Adjustments to provision





189


189Balance, May 31, 2003

$


$
324

$
324


6.     Acquisitions

The following acquisitions were accounted for under the purchase method of accounting, and, accordingly, the assets and liabilities acquired were recorded at
their estimated fair values at the effective date of the acquisition and the results of operations have been included in the Consolidated Statements of Operations since the acquisition dates. All of
the acquisitions were cash transactions.

Armature

On June 28, 2002, Lawson Software Limited, a wholly owned subsidiary of Lawson Software, Inc. acquired certain assets of Armature Limited and
Armature Group Limited (collectively, Armature) for

F-16

---

approximately
$8,140. These assets consist of all software applications, related trademarks, technologies, intangibles and certain fixed assets used in Armature's business. Armature provided
merchandising/category management and supply chain management solutions for retailers, consumer goods manufacturers and wholesalers.

The
following table summarizes the estimated fair values of the Armature assets acquired and liabilities assumed as of the acquisition date. These amounts are based on preliminary
estimates due to the finalization of certain tax attributes; accordingly the allocation of the purchase price is subject to refinement:

Acquisition price:Cash consideration paid

$
7,670Acquisition costs


153$
7,823Accrued severance cost


317Total

$
8,140Purchase price allocation:Tangible net assets acquired

$
322Intangible assets


3,390Goodwill


4,428Total

$
8,140


The
total purchase price was allocated to tangible assets, liabilities and intangible assets. Accrued severance cost represents the estimated severance and related benefits for one
terminated employee. Intangible assets include acquired technology and a customer list. The acquired technology totaling $1,582 is being amortized on a straight-line basis over five years
and the customer list totaling $1,808 is being amortized on a straight-line basis over ten years.

Keyola

On April 17, 2002, the Company acquired all of the outstanding capital stock of Keyola Corporation (Keyola) for $5,000. Keyola developed innovative
business intelligence technology to automatically deliver event-driven notifications to organizations. Additional cash payments ranging from zero to $1,500 are contingent upon the future performance
of Keyola and will be recorded as additional goodwill if earned. As of May 31, 2003, no amounts had been earned or recorded under this agreement. Pro forma information has not been provided, as
the effects of the acquisition were not material.

Account4, Inc.

In July 2001, the Company completed the acquisition of Account4, Inc. ("Account4"). Account4 provided web-based professional services
automation software that enables service organizations to more efficiently manage their businesses and workforce. In this transaction, the Company acquired all the outstanding securities of Account4
in exchange for $31,336 including the repayment of assumed liabilities, and recognized goodwill and intangible assets in the amount of $18,380 and $11,314, respectively.

F-17

---

The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:

July 11,
2001Current assets

$
4,008Intangible assets


11,314Goodwill


18,380Other long-term assets


215Total assets acquired


33,917Current liabilities


(2,053
)Deferred tax liability


(2,763
)Long-term debt


(47
)Total liabilities assumed


(4,863
)Net assets acquired


29,054Less cash acquired


(2,581
)Net cash paid

$
26,473


The
intangible assets of $11,314 have a weighted-average useful life of approximately 7 years. The intangible assets that make up that amount include acquired technology of $4,585
(5-year useful life) and customer list of $6,729 (10-year useful life). No amounts were allocated to in-process research and development, as Account4 did not have
any new products in development at the time of the acquisition. All of the goodwill was assigned to the Company's single reporting unit, which is its sole operating segment.

The
following table presents the consolidated results of operations on an unaudited pro forma basis as if the acquisitions of Armature and Account4 had taken place at the beginning of
the periods presented:

Year Ended May 31,2003

2002

2001Total revenues

$
344,940

$
429,077

$
403,633Net loss (income)

$
(3,183
)
$
6,473

$
9,033Net (loss) income per sharebasic

$
(0.03
)
$
(0.30
)
$
0.13Net (loss) income per sharediluted

$
(0.03
)
$
(0.30
)
$
0.11


The
pro forma data gives effect to actual operating results prior to the acquisitions, and adjustments to reflect interest income foregone, eliminate interest expense, increased
intangible asset amortization, and income taxes. No effect has been given to cost reductions or operating synergies in this presentation. The unaudited pro forma results of operations are for
comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the beginning of the periods presented or the results which may occur in
the future.

F-18

---



7.     Financial Statement Components

Supplemental disclosures of non-cash investing and financing transactions:

May 31,2003

2002

2001Accretion on and conversion of preferred stock

$


$
30,098

$
52Preferred stock exchanged for common stock





29,850


Conversion of redeemable warrants





3,559


Assets acquired under capital leases


390


1,252


Stock option exercises using common stock


1,724


5,013


1,100Common stock exchanged for preferred stock








5,410Warrants issued with debt








2,069Debt incurred relating to acquisition








1,702Accrued liability converted to debt








1,307


Certain
balance sheet components consist of the following:

Rollforward of the allowance for doubtful accounts:Balance, May 31, 2000

$
5,246Provision


3,730Write-offs


(2,187
)Recoveries


172Balance, May 31, 2001


6,961Provision


6,250Write-offs


(5,145
)Recoveries


177Balance, May 31, 2002


8,243Provision


423Write-offs


(2,839
)Recoveries


197Translation adjustment


416Balance, May 31, 2003

$
6,440


F-19

---

May 31,2003

2002Property and Equipment, NetEquipment

$
44,611

$
48,617Office furniture


12,356


11,931Leasehold improvements


9,521


10,16066,488


70,708Less accumulated depreciation and amortization


(45,124
)

(44,616
)$
21,364

$
26,092Deferred Revenue and Customer Deposits:Services

$
76,797

$
72,734License


11,924


15,843Total deferred revenue


88,721


88,577Less current portion


(86,642
)

(86,676
)Long-term portion of deferred revenue

$
2,079

$
1,901


8.     Credit Facilities and Long-Term Debt

Long-term debt consists of:

May 31,2003

2002Note payableinterest at 13.00% due in monthly installments of $44 through June 1, 2003

$
44

$
569Note payableinterest at 5.20% due in monthly installments of $23 through February 1, 2004


225


479Capital leasespayments annually through November 2004. As of May 31, 2003, future minimum lease payments were $882 excluding $45, representing interest


882


1,0811,151


2,129Less current maturities


(896
)

(1,225
)$
255

$
904


Scheduled
maturities of long-term debt including capital leases, as of May 31, 2003, are as follows:

2003

$
8962004


255Thereafter


$
1,151


The
Company's credit agreement with a financial institution provides for a $25,000 revolving facility. The revolving credit facility bears interest on borrowings at the financial
institution's Reference Rate (4.25% at May 31, 2003) and expires September 2003. At May 31, 2003 and 2002, the Company had no amounts outstanding under the revolving credit
facility. The arrangements with the bank

F-20

---

contain
limitations on dividends and capital expenditures and require the compliance with specific financial ratios. The Company was in compliance with or had obtained waivers for all covenants and
restrictions under the debt agreement at May 31, 2003.

9.     Common Stock

The Company closed its initial public offering on December 12, 2001, at which time the Company issued 13,675,000 shares of common stock from the primary
offering, 10,316,319 shares of common stock upon conversion of all of the outstanding shares of Series A Preferred Stock, 1,661,153 shares of common stock as part of the
over-allotment option exercise and 438,847 shares of common stock issued upon the exercise of warrants and sold as part of the over-allotment option exercise. After giving
effect to the issuance of these shares on December 12, 2001, the Company had 93,316,268 shares of common stock and 106,825,000 shares on a fully diluted basis using the treasury stock method.
The Company received proceeds, net of commissions and expenses of $197,307 in the initial public offering. Due to the repayment of the notes prior to the scheduled maturity date, the Company recorded
a charge in the third quarter for the total amount of the unamortized debt issuance costs and the discount on the notes of $2,321. Additionally, as a result of the conversion of the Series A
Preferred Stock to common stock, which accelerated the amortization of the beneficial conversion feature, the Company recognized a $29,998 non-cash charge to net income available to common
stockholders for the unamortized value of the beneficial conversion feature of the Company's preferred stock in the third quarter of fiscal 2002. The Company also recognized accretion on the preferred
stock of $100 for the year ended May 31, 2002. These charges adversely impacted basic and fully diluted earnings per share by $0.38. However, these charges had no impact on net income.

On
February 15, 2001, the Company reincorporated under the laws of the state of Delaware and increased the number of authorized shares of common stock to 500,000,000 and of
preferred stock to 50,000,000. On August 31, 2001, the Company increased the number of authorized shares of common stock to 750,000,000.

Pursuant
to the Company's Stock Purchase Agreement, common stockholders had the right to require the Company to repurchase any shares they receive at a price determined by the most
recent independent valuation of the Company's common stock. Consequently, shares held by the common stockholders were considered mandatorily redeemable common stock and were recorded at the estimated
fair market value at each balance sheet date. During the year ended May 31, 2002, the Company repurchased common stock related to the mandatory redemption requirement of certain shares under
the Company's Employee Stock Ownership Plan ("ESOP"). In October 2000, the Company amended the Stock Purchase Agreement to remove the mandatory redemption feature on all shares of common stock,
except for shares held by the Company's ESOP. In fiscal 2002, the Company terminated the ESOP, subject to completion of applicable government filings. As a result of the plan termination, the
mandatory redemption feature terminated, and the mandatorily redeemable common stock amounts were eliminated from the accompanying Consolidated Balance Sheet as of May 31, 2003 (see
Note 15).

F-21

---

A
summary of the mandatorily redeemable common stock activity is presented below:

Balance, May 31, 2001

$
56,145Cancellation of redeemable feature for all ESOP shares, except 59,254 shares


(55,318
)Decrease in redemption value of mandatorily redeemable common stock from $13.95 to $6.31 for 59,254 shares issued under the ESOP


(453
)Balance, May 31, 2002


374Cancellation of redeemable feature for all ESOP shares


(374
)Balance, May 31, 2003

$



In
December 2002, the Board of Directors authorized the Company to repurchase, from time to time, up to $15,000 of its common shares. During the year ended May 31, 2003 a
total of 2,900,000 shares were repurchased for $15,000. The share repurchase was largely funded by cash proceeds obtained from exercise of employee stock options and the employee stock purchase plan,
and will be used for general corporate purposes. The repurchased common shares are recorded as treasury stock and result in a reduction of stockholders' equity.

10.   RecapitalizationStock Purchase and Exchange Agreement

On February 23, 2001, the Company closed a Stock Purchase and Exchange Agreement with various investors. In conjunction with the closing, the Company
issued 6,124,855 shares of Series A Preferred Stock for a total purchase price of $25,234. In addition, in February and March 2001, the investors purchased from certain stockholders of
the Company 2,330,160 shares of the Company's common stock for a total purchase price of $5,410. The investors then exchanged the 2,330,160 shares of common stock for 1,313,010 shares of
Series A Preferred Stock with the Company.

The
Company also issued to the investors Senior Subordinated Convertible Notes aggregating $10,000, bearing annual interest of 12% and maturing February 23, 2006. From the date of
issuance, at the option of the holder, the Senior Subordinated Convertible Notes were convertible into (i) Senior Subordinated Notes aggregating $9,990, bearing annual interest of 12% and
maturing February 23, 2006, and (ii) seven year mandatorily redeemable warrants to purchase 438,847 shares of common stock at a price of $0.01 per share. The allocated fair value of the
warrants had been accounted for as a discount of $2,069 on the Senior Subordinated Convertible Notes and was being amortized to interest expense over the term of the notes. As these warrants enabled
the holders to put the warrant to the Company at fair value on February 23, 2006, if the Company had not completed a qualifying initial public offering, the warrants were considered a debt
instrument in accordance with Emerging Issues Task Force ("EITF") Issue No. 00-19. Therefore, the Company recorded $491 of interest expense during the year ended May 31, 2001
relating to the increase in the fair value of the warrants as provided by FIN No. 28, "Accounting for Appreciation Rights and other Variable Stock Option or Award Plans." Due to the repayment
of the notes prior to the scheduled maturity date, the Company recorded a charge in the third quarter of fiscal 2002, for the total amount of the unamortized debt issuance costs and the discount on
the notes of $2,321 (Notes 3 and 9).

The
Company used a portion of the proceeds from the Stock Purchase and Exchange Agreement to recapitalize the Company and reduce the overall number of common shares and stock options
outstanding. As part of the recapitalization, the Company purchased 4,307,453 shares of the Company's common stock from a stockholder of the Company for $10,000, and retired options to purchase

F-22

---

5,843,431
shares of the Company's common stock from certain current and former employees of the Company for $7,509 which the Company recognized as expense during the year ended May 31, 2001.
The repurchased options consisted of 2,371,770 options, with an exercise price of $0.54 per share, held by each of the Company's chairman and one of the Company's founders, and resulted in a charge of
$5,130 which was included in general and administrative expenses as it related to payments to current employees. In addition, the Company repurchased 1,099,891 options, with an exercise price of $0.16
per share, held by a former executive of the Company, resulting in a charge of $2,379. This charge was included in other general expenses as it related to a payment to a former employee.

Total
offering costs relating to the Stock Purchase and Exchange Agreement were $1,259. Offering costs of $315 were allocated to the Senior Subordinated Convertible Notes and were being
amortized to interest expense over the term of the notes, and $944 were allocated to the Series A Preferred Stock and were being accreted over the redemption period using the effective interest
method.

Prior
to the initial public offering, shares of Series A Preferred Stock were convertible, at the option of the holder, into shares of common stock, at $2.97 per share, subject to
weighted-average anti-dilution price protection. The Series A Preferred Stock automatically converted into common upon the initial public offering.

The
Series A Preferred Stock were deemed to include a beneficial conversion feature. At the date of issue, the Company allocated the entire gross proceeds of $30,000 to the
beneficial conversion feature and was accreting the beneficial conversion feature over the redemption period using the effective interest method. The Company recorded no accretion in fiscal 2003 and
$100 in fiscal 2002, relating to the beneficial conversion feature. As a result of the conversion of the Series A Preferred Stock to common stock, which accelerated the amortization of the
beneficial conversion feature, the Company recognized a $29,998 non-cash charge to net income available to common stockholders for the unamortized value of the beneficial conversion
feature of our preferred stock in fiscal 2002 (Note 9).

11.   Stock Option Plans

The Company's 1996 Stock Incentive Plan reserves a total of 27,740,000 shares of common stock for issuance of stock options to employees. In addition, the Company
has also historically granted to employees individual stock options, which were not under a stock option plan. The total number of stock options outstanding outside the stock option plan were
1,423,062 at May 31, 2003 and 2002.
Option grants may be of incentive or non-qualified stock options for the purchase of shares of the Company's common stock at exercise prices determined by the Company's Board of Directors.
Generally, options granted to employees vest over a three-year to five-year period and expire ten years after the date of grant. Prior to the initial public offering, the
Company historically determined the exercise price of stock options granted by reference to the most recent independent valuation performed in conjunction with the Company's ESOP. After the initial
public offering, the Company determines the exercise price using the closing market value.

In
February 2001, the stockholders of the Company approved the 2001 Stock Incentive Plan, which became effective upon the initial public offering. The plan provides for the
granting of stock options, including incentive stock options and non-qualified stock options, restricted stock, performance awards and other stock-based awards. There are 35,000,000 shares
of the Company's common stock reserved for issuance under the plan.

F-23

---

The
following summarizes employee stock option activity under and outside of the plan:

Number
of Shares

Exercise
Price
Per Share

Weighted-
Average
Exercise
PriceOutstanding, May 31, 2000

32,098,163

$0.16-$2.25

$
1.40Canceled

(7,428,151
)
$0.16-$2.97

$
0.80Granted at fair market value

5,452,297

$2.25-$2.97

$
2.73Exercised

(3,549,207
)
$0.16-$2.25

$
0.54Outstanding, May 31, 2001

26,573,102

$0.54-$2.97

$
1.95Canceled

(1,064,176
)
$1.87-$6.49

$
2.48Granted below fair market value

479,119

$2.25-$14.00

$
7.50Granted at fair market value

96,000

$4.06-$16.26

$
13.18Exercised

(3,633,685
)
$0.54-$6.49

$
1.17Outstanding, May 31, 2002

22,450,360

$0.54-$16.26

$
2.22Canceled

(1,354,900
)
$1.87-$14.00

$
3.34Granted at fair market value

3,789,263

$3.99-$6.24

$
5.26Exercised

(4,181,982
)
$0.59-$5.20

$
1.66Outstanding, May 31, 2003

20,702,741

$0.54-$16.26

$
2.83


Stock
options exercisable at May 31, 2003, 2002 and 2001 were 13,620,697, 12,424,851, and 9,447,674, respectively.

The
following table summarizes fixed-price stock options outstanding at May 31, 2003:

|              |  | Options Outstanding |  | Options Exercisable
|------------- |  | ------------------- |  | -------------------
|
|$0.54-$0.81   |  | 2,160,456           |  | 2.34               
|$1.23-$1.87   |  | 356,805             |  | 4.46               
|$2.25-$2.32   |  | 11,582,011          |  | 6.59               
|$2.97         |  | 2,701,977           |  | 7.73               
|$3.99-$6.49   |  | 3,726,296           |  | 9.12               
|$14.00-$16.26 |  | 175,196             |  | 8.33               
|              |  |                     |  |                    
|$0.54-$16.26  |  | 20,702,741          |  | 6.73               
|              |  |                     |  |                    

There
was zero and $1,579 deferred compensation relating to stock options granted below fair market value in the years ended May 31, 2003 and 2002, respectively. Such deferred
compensation is amortized over the vesting periods of the related stock options, which generally range from three to five years. This compensation is recognized on an accelerated basis in accordance
with FIN No. 28. Compensation expense relating to stock options granted below fair market value of approximately $3,562, $8,554, and $3,596 was recognized during the years ended May 31,
2003, 2002 and 2001, respectively.

F-24

---

12.   Stock Options Issued to a Non-Employee

On September 27, 2000, the Company issued stock options to purchase 69,350 shares of the Company's common stock at $2.32 per share to a
non-employee in conjunction with a consulting agreement. The stock options vested one-sixth every six months beginning June 1, 2001. The Company accounted for the
options in accordance with EITF Issue No. 96-18. On May 1, 2001, the Company fully vested the stock options. Total compensation expense relating to these stock options was
$657 during the year ended May 31, 2001. The following assumptions were used to value the stock options: dividend yield of 0%, risk-free interest rate of 6.0%, expected life equal
to the contractual life of ten years and volatility of 50%.

13.   Stock Warrants

At May 31, 2003, the Company had two outstanding fully-vested stock warrants. The first, a four-year warrant, was issued to a strategic partner
in conjunction with an agreement which provided for joint sales and marketing efforts of the Company's application service provider product and subsequently assigned to a non-affiliated
third-party. The warrant expires in January 2004, and allows the holder to purchase 1,248,300 shares of the Company's common stock at an
exercise price of $4.64 per share. A second fully vested five-year warrant was issued to a customer in conjunction with a license agreement. The warrant expires July 2005 and allows
the holder to purchase 1,040,250 shares of the Company's common stock at an exercise price of $4.64 per share.

14.   Profit Sharing and 401(k) Retirement Plan

The Company has a defined contribution profit sharing plan which conforms to IRS provisions for 401(k) plans. Employees are eligible to participate in the plan
upon employment and are eligible for the Company match after completing one year of service. Participants may contribute up to 15% of their gross earnings to the plan. The Company matches 50% of the
first 4% of employee contributions and may make additional contributions as determined by the Board of Directors. The Company recorded 401(k) matching contribution expense of approximately $2,346,
$2,175, and $1,826 for the years ended May 31, 2003, 2002, and 2001, respectively.

15.   Employee Stock Ownership Plan

In May 2002, the Company terminated the ESOP, subject to completion of applicable government filings. In December 2002, the Company received final
approval by the Internal Revenue Service. Prior to the termination, certain employees who were ESOP participants had the right to require the Company to repurchase any vested ESOP shares they received
at the market price. Consequently, shares held by those ESOP participants were considered mandatorily redeemable common stock and were recorded at the estimated fair market value at each balance sheet
date. As a result of the plan termination, the mandatory redemption feature terminated, and the mandatorily redeemable common stock amounts were eliminated from the accompanying balance sheet as of
May 31, 2003. There were zero and 59,254 mandatorily redeemable shares outstanding as of May 31, 2003 and 2002, respectively. The Company expects that all remaining shares held in the
plan will be distributed to participants in the first quarter of fiscal 2004. The termination did not have a material effect on the Company's financial position, results of operations or cash flows.
There was no ESOP contribution for the fiscal years ended May 31, 2003, 2002 and 2001.

F-25

---



16.   Employee Stock Purchase Plan

In February 2001, the stockholders of the Company approved the 2001 Employee Stock Purchase Plan, which was effective as of the Company's initial public
offering. The purchase plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended. The plan allows
eligible employees to purchase common stock at a price equal to 85% of the lower the fair market value of the common stock at the beginning or end of the offering period, which commences on each
January 1st and July 1st. The plan will terminate when all of the shares reserved under the plan have been purchased or five years from the effective date unless the Board of Directors
resolves to extend the purchase plan for one or more additional periods of five years each. There are 20,805,000 shares of the Company's common stock reserved for issuance under the plan, of which
19,435,252 were available for issuance as of May 31, 2003. Shares issued under this plan were 1,369,748 and zero in the years ended May 31, 2003 and 2002, respectively.

17.   Phantom Stock Plans

The Company had two phantom stock compensation plans for certain employees of the Company who were residents of Canada or the United Kingdom. The phantom stock
plans provided each eligible employee with a specified number of phantom shares at a share value equal to the current fair market value of the Company's common stock. Participant's phantom shares
vested over a five-year period. Upon death, retirement or any cessation of the employment relationship, the Company paid the employee the vested fair market value of their phantom stock
shares. Compensation expense recognized under these plans was approximately $266 and $1,006 during the years ended May 31, 2002 and 2001, respectively. The phantom stock plan was terminated
December 5, 2001 and all participants were paid out. There was no expense during the year ended May 31, 2003.

18.   Income Taxes

The (benefit) provision for income taxes consists of the following components:

Year Ended May 31,2003

2002

2001Currently (receivable) payable:Federal

$
(3,968
)
$
5,214

$
15,485State


(219
)

1,816


3,508(4,187
)

7,030


18,993Deferred:Federal


1,434


(1,118
)

(6,841
)State


307


(326
)

(1,602
)1,741


(1,444
)

(8,443
)$
(2,446
)
$
5,586

$
10,550


F-26

---

A
reconciliation of the expected federal income tax (benefit) provision at the statutory rate with the provision for income taxes is as follows:

Year Ended May 31,2003

2002

2001Taxes computed at statutory rate

(35.0
)%
35.0
%
35.0
%Nondeductible expenses

15.4

5.6

3.9State taxes, net of federal benefit

(6.2
)
6.2

4.2Tax exempt interest income

(13.8
)
(3.1
)
Research and development credits and other, net

0.6

(3.7
)
(1.1
)(39.0
)%
40.0
%
42.0
%


At
May 31, 2003, the Company had research and development credits for federal and state income tax purposes of approximately $200, which are available to reduce future taxes, if
any. The credits begin to expire in 2016 for state purposes and 2021 for federal purposes.

Temporary
differences comprising net deferred tax assets are as follows:

May 312003

2002Current:Allowance for doubtful accounts

$
2,540

$
4,043Accrued liabilities and other


8,140


6,175Deferred revenue


3,693


9,067Total current

$
14,373

$
19,285Noncurrent:Depreciation and amortization

$
(3,333
)
$
(2,529
)Stock-based compensation


7,645


6,176Accrued liabilities and other


240


Deferred rent


711


1,125Net operating loss carryover


2,537


Deferred revenue


820


494Total noncurrent

$
8,620

$
5,266


The
Company expects to generate future taxable income to be able to utilize all of its deferred tax assets. As a result, no valuation allowance was recorded as of May 31, 2003.
The Company's ability to utilize deferred tax assets is solely dependent on its ability to generate future taxable income. In the event that the Company adjusts its estimates of future taxable income,
the Company may need to establish a valuation allowance, which could materially impact its financial position and results of operations.

19.   Commitments and Contingencies

Employment Agreements

The Company has entered into various employment agreements with certain executives of the Company, which provide for severance payments subject to certain
conditions and events.

F-27

---

Operating Leases

The Company rents office space and certain office equipment under operating leases. In addition to minimum lease payments, the office leases require payment of a
proportionate share of real estate taxes and building operating expenses. Some of the lease agreements include escalation clauses. In 1999, in conjunction with a decision to move to its present
facility, the Company recorded a charge and related reserve relating to estimated sublease shortfalls on its former Minneapolis headquarters lease that expired in June 2003. Sublease shortfalls
represent the difference between the total remaining lease obligation and the amount of any estimated sublease recoveries. The Company recorded $551, $215 and $1,765 for the years ended May 31,
2003, 2002 and 2001, respectively, of additional lease abandonment expense related to this location in response to conditions in the real estate market and the loss of two subtenants. At
May 31, 2003, the Company had an accrual of approximately $143 to cover remaining estimated sublease shortfalls. The Company's remaining obligation on the underlying lease as of May 31,
2003, which expired on June 30, 2003, was approximately $195. Rent expense under operating leases was approximately $16,094, $15,905, and $14,678 for the years ended May 31, 2003, 2002,
and 2001, respectively.

Future
minimum lease payments are summarized as follows:

2004

$
10,7082005


8,3242006


6,7682007


6,3712008


6,294Thereafter


43,274Total minimum lease payments

$
81,739


Other Guarantees

In November 2002, the FASB issued FIN No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34." The Interpretation requires that a guarantor recognize, at
the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also requires additional disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under certain guarantees it has issued. The initial recognition and initial measurement provisions of FIN No. 45 are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of FIN No. 45
are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN No. 45 did not have a material effect on the Company's
consolidated financial position; however, management is continuing to evaluate the impact on future financial statements. The following is a summary of the Company's agreements that management has
determined are within the scope of FIN No. 45.

The
Company licenses its software products to customers under end user license agreements and to certain resellers or other business partners under business partner agreements. These
agreements generally include certain provisions for indemnifying the customer or business partner against losses, expenses and liabilities from damages that may be awarded against them if our
software, or the third

F-28

---

party-owned
software the Company resells, is found to infringe a patent, copyright, trademark or other proprietary right of a third party. These agreements generally limit the Company's
indemnification obligations based on industry-standards and geographical parameters, and give the Company the right to replace an infringing product. The maximum potential amount of future payments
the Company could be required to make under these indemnification agreements is unlimited; however, the Company believes its internal development processes and other practices limit its exposure under
these indemnification provisions. In addition, the invention and nondisclosure agreements signed by the Company's employees, assign to it various intellectual property rights. The Company has never
incurred costs payable to a customer or business partner to defend lawsuits or settle claims related to these indemnification agreements. As a result, management believes the estimated fair value of
these agreements is minimal. Accordingly, there are no liabilities recorded for these agreements as of May 31, 2003.

The
Company enters into services agreements with customers for the implementation of its software. The Company also may subcontract those services to its business partners. From time to
time, the Company includes in those services agreements, certain provisions for indemnifying the customer against losses, expenses and liabilities from those services, including, for example, personal
injury or tangible property damage. Lease agreements and other contracts with the Company's vendors may also impose similar indemnification obligations on the Company for personal injury, tangible
property damage or other claims. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has
general liability and umbrella insurance policies that enable it to recover a portion of certain amounts paid. The Company has never incurred costs payable to a customer to defend lawsuits or settle
claims related to these indemnification agreements. As a result, management believes the estimated fair value of these agreements is minimal. Accordingly, there are no liabilities recorded for these
agreements as of May 31, 2003.

When,
as part of an acquisition, the Company acquires all of the stock or all of the assets and liabilities of a company, it assumes the liability for certain events or occurrences that
took place before the date of acquisition. The maximum potential amount of future payments the Company could be required to make for such obligations is undeterminable at this time. All of these
obligations were grandfathered under the provisions of Interpretation 45 as they were in effect prior to December 31, 2002. Accordingly, there are no liabilities recorded for these items as of
May 31, 2003.

The
Company has arrangements with certain vendors whereby it guarantees the expenses incurred by certain of its employees. The term is from execution of the arrangement until
cancellation and payment of any outstanding amounts. Unless otherwise limited in the contract, the Company would be required to pay any unsettled employee expenses upon notification from the vendor.
The maximum potential
amount of future payments the Company could be required to make under these indemnification agreements is not significant. As a result, management believes the estimated fair value of these agreements
is minimal. Accordingly, there are no liabilities recorded for these agreements as of May 31, 2003.

Delaware
law and the Company's certificate of incorporation and bylaws provide that the Company shall, under certain circumstances and subject to certain limitations, indemnify any
person made or threatened to be made a party to a proceeding by reason of that person's former or present official capacity with the Company against judgments, penalties, fines, settlements and
reasonable expenses. Any such person also is entitled, subject to limitations, to payment or reimbursement of reasonable expenses in advance of the final disposition of the proceeding. The Company has
also entered into an

F-29

---

agreement
with one of its directors that requires the Company to indemnify him for expenses and liabilities incurred by him in any proceeding by reason of his status as a director with the Company to
the extent permitted by Delaware law and as authorized in the Company's certificate of incorporation. The maximum potential amount of future payments the Company could be required to make under these
indemnification arrangements is unlimited; however, the Company has insurance policies that enables the Company to recover a portion of certain amounts paid. The Company has never incurred costs
payable to an indemnitee to defend lawsuits or settle claims related to these indemnification arrangements. As a result, management believes the estimated fair value of these arrangements is minimal.
Accordingly, there are no liabilities recorded for these agreements as of May 31, 2003.

When
a customer purchases support for the Company's software products, the Company generally warrants that those products then eligible for support will operate materially and
substantially as described in the documentation that is provided with that software. The Company also generally warrants that its services will be provided by trained personnel and in a professional
manner using commercially reasonable efforts. If necessary, the Company provides for the estimated cost of product and service warranties based on specific warranty claims and claim history.

Contingencies

Employment Litigation

The Company is a defendant in a lawsuit,Felice Cambridge v. Lawson Software, Inc. et. al.,filed in the
United States District Court for the Northern District of Texas. The lawsuit primarily alleges violations
of the Americans with Disabilities Act of 1990 and related claims with respect to one former employee. The Company believes these claims are without merit and will vigorously defend against these
claims.

Other Matters

The Company is involved in various claims and legal actions in the normal course of business. Management is of the opinion that the outcome of such legal actions
will not have a significant adverse effect on the Company's financial position, results of operations or cash flows.

20.   Segment and Geographic Areas

The Company views its operations and manages its business as one segment, the development and marketing of computer software and related services. Factors used to
identify the Company's single operating segment include the financial information available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and
assess performance. The Company markets its products and services through the Company's offices in the United States and its wholly-owned branches and subsidiaries operating in Canada, the United
Kingdom, Germany, France and the Netherlands.

F-30

---

The
following table presents a summary of revenues and long-lived assets summarized by geographic region:

Year Ended May 31,2003

2002

2001Revenues:Domestic operations

$
322,986

$
398,931

$
364,887International operations


21,332


29,405


29,437Consolidated

$
344,318

$
428,336

$
394,324Long- lived assets:Domestic operations

$
54,373

$
63,605

$
28,568International operations


10,934


642


663Consolidated

$
65,307

$
64,247

$
29,231


21.   Related Parties

The Company has utilized the marketing and consulting services of one of the Company's directors and of that director's firm. Total fees paid to the director and
the director's firm were $118, $15, and $73 for the years ended May 31, 2003, 2002 and 2001, respectively. The Company also purchased software from a company of which this individual is also a
director. The software purchase and services totaled $201 and $564 for the years ended May 31, 2003 and 2002. This individual resigned as director of the Company on May 19, 2003 and
continues to provide consulting services to the Company.

The
Company utilized the consulting services of one of the Company's directors and of the director's firm. There were no consulting fees paid to the director or the director's firm in
fiscal 2003, and $30, and $855 for fiscal 2002, and 2001, respectively. This individual resigned as a director of the Company on April 30, 2001.

On
May 22, 2000, the Company entered into a service agreement with Triad Conferences (formerly NCG, Inc.) (Triad) a company controlled by a stockholder and former employee
of the Company. Under the terms of the agreement, Triad provided the Company strategic event planning services for one year commencing June 1, 2000 and ending May 31, 2001. Total fees
paid to Triad were $12,481 for the year ended May 31, 2001. On June 1, 2001, the Company entered into a new service agreement with Triad. Under the terms of the agreement, Triad provides
the Company strategic event planning services. Total fees paid to Triad were $8,348 for the year ended May 31, 2002. During fiscal 2003, the Company continued to utilize its services, however
the related individual was no longer affiliated with Triad.

F-31

---

22.   Supplemental Quarterly Financial Information (Unaudited):

Summarized quarterly supplemental consolidated financial information for 2003 and 2002 are as follows (in thousands, except per share amounts):

|                                                    |         | Quarter Ended
|--------------------------------------------------- | ------- | -------------
|
|Fiscal 2003                                         |         |              
|Total revenues                                      |         | $            
|Gross profit                                        |         |              
|(Loss) income before income taxes                   |         |              
|Net (loss) income                                   |         |              
|Net (loss) income applicable to common stockholders |         |              
|Net (loss) income per share:                        |         |              
|                                                    | Basic   |              
|                                                    | Diluted |              
|Fiscal 2002                                         |         |              
|Total revenues                                      |         | $            
|Gross profit                                        |         |              
|Income before income taxes                          |         |              
|Net income                                          |         |              
|Net (loss) income applicable to common stockholders |         |              
|Net (loss) income per share:                        |         |              
|                                                    | Basic   |              
|                                                    | Diluted |              

No
cash dividends have been declared or paid in any period presented.

23.   Subsequent Events

In June 2003, the Company's Board of Directors authorized the repurchase of up to $50,000 worth of the Company's common shares. Shares will be repurchased
from time to time as market conditions warrant either through open market transactions, block purchases, private transactions or other means. The repurchase will be funded primarily from proceeds and
tax benefits derived from the Company's stock option and employee stock purchase plans, and supplemented with portions of available cash from operations. The repurchased shares will be used for
general corporate purposes. No time limit has been set for the completion of the program.

On
July 24, 2003, the Company acquired all of the outstanding capital stock of Numbercraft Limited (Numbercraft) for $4,000. Numbercraft provides solutions for retailers and
consumer packaged goods companies which enable a quantitative understanding of consumer dynamics, product and offer performance, and customer trends. Additional cash payments ranging from zero to
$9,000 are contingent upon the future performance of Numbercraft and will be recorded as additional goodwill if earned. Pro forma information has not been provided, as the effects of the acquisition
were not material.

F-32

---