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

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                                       OR
   [ ] TRANSITION REPORT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934

         For the transition period from _____________ to _______________

                         COMMISSION FILE NUMBER 0-24719

                                 SOFTWORKS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


    DELAWARE                         7372                          52-1092916
(State or other                (Primary Standard                  (I.R.S.
jurisdiction of                Industrial                         Employer
Incorporation or               Classification Code                Identification
organization)                  Number)                            No.)


                        5845 RICHMOND HIGHWAY, SUITE 400
                              ALEXANDRIA, VA 22303
                                 (703) 317-2424
                        (Address, including zip code, and
                           telephone number, including
                           area code, of registrant's
                          principal executive offices)

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

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


                                          NUMBER OF SHARES OUTSTANDING ON
     TITLE OF CLASS                              December 31, 1998
    Common Stock, $.001                             15,973,000
         par value

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

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

As of March 18, 1999, there were 15,973,000  shares of the  Registrant's  Common
Stock  outstanding,  which is the only outstanding  class of common stock of the
Registrant.  As of that date, the aggregate market value of the shares of Common
Stock held by  non-affiliates  of the registrant (based on the closing price for
the common  Stock as quoted by the Nasdaq  National  Market on such  date),  was
approximately $57,475,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

The following  documents  are hereby  incorporated  by reference  into this Form
10-K:  PART III - Registrant's  definitive  Proxy Statement to be filed with the
Securities and Exchange  Commission pursuant to Regulation 14a of The Securities
Exchange Act of 1934.
<PAGE>
                                 SOFTWORKS, INC.
                Form 10-K for the Period Ended December 31, 1998
                                Table of Contents



                                                                            PAGE
PART I                                                                      ----

          ITEM 1   Business                                                    3

          ITEM 2   Properties                                                  7

          ITEM 3   Legal Proceedings                                           7

          ITEM 4   Submission of Matters to a Vote of Security Holders         7

PART II
          ITEM 5   Market for Registrant's Common Equity and Related 
                   Stockholder Matters                                         7

          ITEM 6   Selected Consolidated Financial Data                        8

          ITEM 7   Management's Discussion and Analysis of Financial
                   condition and Results of Operations                         9
                          

          ITEM 7a  Quantitative and Qualitative Disclosures About 
                   Market Risk                                                16

          ITEM 8   Financial Statement and Supplementary Data                 17

          ITEM 9   Changes in and Disagreements with Accountants on 
                   Accounting and Financial Disclosure                        35

PART III                                                                    
          ITEM 10  Directors and Executive Officers of the Registrant         36

          ITEM 11  Executive Compensation                                     37

          ITEM 12  Security Ownership of Certain Beneficial Owners and
                   Management                                                 37

          ITEM 13  Certain Relationships and Related Transactions             37

PART IV                                                                     
          ITEM 14  Exhibits, Financial Statement schedules , and Reports
                   on Form 8-K                                                38


SIGNATURE                                                                     39
<PAGE>
                                     PART I

ITEM 1    BUSINESS

Overview

     Softworks, Inc., and its wholly owned subsidiaries,  (collectively referred
to as  "Softworks"),  develops,  markets,  licenses  and  supports  a family  of
enterprise systems management and maintenance software products for performance,
data and storage management. Softworks' products are designed to optimize system
and  application  performance,  maximize  the value of  purchased  hardware  and
software,  and enhance the reliability  and  availability of the data processing
environment for enterprises that employ large enterprise  servers,  UNIX, and/or
Microsoft(R) Windows NT(R) ("NT") computing environments.

     Softworks' products are developed using "SST", its proprietary  combination
of a design strategy and development  methodology and a set of core technologies
which is intended to enable Softworks' software products to provide an immediate
performance   improvement  and  cost  savings.   Softworks   believes  that  SST
differentiates  Softworks  from its  competition  by going  beyond  conventional
monitoring  and  reporting  systems  management  to  provide  proactive  alerts,
programmed  responses and automated  corrective actions.  Products employing SST
are  designed to address the  weaknesses  and  exploit the  strengths  of native
operating systems and access methods found in multiple processing  environments.
They  incorporate  a high  degree of  embedded  intelligence,  offer  controlled
automation  options  that  interface  with  existing  hardware  and software and
facilitate  proactive  systems  management.  With  SST,  the need  for  platform
specific  expertise  and  additional  manpower to  effectively  manage  multiple
platform environments is significantly reduced.

     Softworks  has over 6,000  licenses  of its  products  in use at over 2,000
installations  worldwide,  including  installations at approximately  87% of the
Fortune 100.  During 1998,  Softworks  added 50 new  customers to its user base.
Historically,  Softworks'  products  addressed  only  the  performance  and data
storage requirements of mainframe operating systems. In 1998, Softworks enhanced
its product family further by introducing UNIX and NT based storage products. In
1999,  Softworks plans to introduce  additional storage management  products for
Oracle, EMC Symmetrix, IBM RAMAC, and StorageTek Tape Silo. Softworks' customers
operate in a variety of industries,  such as financial services,  healthcare and
manufacturing,  and include  Citicorp,  GTE Data  Services,  NationsBank,  Paine
Webber, Prudential Service Company, Sprint, State Farm Mutual Auto Insurance and
Wal-Mart. Softworks sells its products through a global direct sales force and a
network of international distributors and resellers.

Products and Services

     Using  Softworks'  proprietary  SST  development   methodologies  and  core
technologies,  Softworks has developed  offerings grouped into four Arenas: data
and storage management  products,  performance  management  products,  Year 2000
products and professional services.
<PAGE>
Products

     The following table describes the functionality of Softworks' products:
<TABLE>
<CAPTION>
                                           INITIAL
                                           RELEASE
           PRODUCT                          DATE                                  DESCRIPTION

<S>                                          <C>       <C>    
DataStor Arena                                         Enterprise-Wide Tools Designed to Facilitate Storage Management and System
                                                       and Data Availability

Catalog Solution                             1986      .   Provides comprehensive OS/390 catalog maintenance, diagnostics, 
                                                           reporting, backup, repair and recovery
                                                       .   Reduces disaster recovery time
                                                       .   Improves the integrity and availability of the catalog environment and
                                                           mission-critical data resources distributed across multiple operating 
                                                           system platforms
CenterStage                                  1995      .   Provides centralized control and monitoring
  A suite of independent                                   of storage and data resources distributed
  and integratable                                         across multiple operating system platforms
  products for OS/390-MVS,                             .   Reduces the cost, complexity and skill
  AIX, HP-UX, Solaris, DB2                                 requirements for capacity planning, disaster
  and OpenEdition                                          recovery, and storage resource management
                                                       .   Reports storage subsystem information and provides an assessment of data
                                                           and storage problems  Provides customer-controlled automation to correct
                                                           designated storage problems and minimize the need for storage administra-
                                                           tors to develop platform-specific solutions

Resource Availability                        1998      .   Integration of DataStor Arena functionality while adding 24X7 proactive
                                                           catalog monitoring, event-based alerts for catalog events, and automated
                                                           corrective action.

Performance Arena                                      Derives Superior Performance from Mission-Critical Systems and Applications

Performance Essential
 I/O Plus for VSAM                           1984      .   Designed to optimize and improve system and processing performance
 I/O Plus for xSAM                           1993      .   Reduces the requirement for manual tuning 
HiperLoad for VSAM                                         efforts
                                             1992      .   May defer or eliminate costly processor upgrades while helping  to ensure
                                                           that service level requirements are met
TeraSAM                                      1995      .   Provides transparent file segmentation to overcome VSAM's 4GB file size
                                                           restriction
                                                       .   Splits large VSAM files into separate physical data sets that can be 
                                                           managed and processed more efficiently
                                                       .   Enables parallel backup, restore and reorganization of segments to reduce
                                                           batch processing time
VSAM  Assist                                 1978      .   Provides VSAM backup, recovery, and migration capabilities to simplify
                                                           and improve VSAM file and data maintenance
                                                       .   Reduces batch processing time while safeguarding data
VSAM Quick Index                             1981      .   Reduces batch processing time and processor utilization by building 
                                                           alternate indices quickly
                                                       .   Improves data availability by providing faster access to data

Year 2000 Arena                                            Enterprise-Wide Tools Designed to Identify, Assess, Diagnose, Simulate, 
                                                           Test, Age and Bridge Programs and Data to Solve Millennium Issues
HotDate 2000                                 1997-     .   Independent and integratable products which
                                             1998          facilitate Year 2000 assessment,
                                                           remediation and testing on OS/390 and MVS
HotDate 2000/MP                              1998      .   Products that perform Year 2000 assessment and remediation for C and 
                                                           COBOL on UNIX (HP-UX, Solaris, AIX) and assessment for Powerbuilder on NT
</TABLE>
<PAGE>
     Softworks  provides its customers both product  maintenance and enhancement
releases  under their  existing  maintenance  agreements.  Enhancement  releases
typically  occur once a year and are  developed  primarily  to respond to market
demand and to ensure that the product is competitive in the market.  Maintenance
releases  occur at a minimum of one  maintenance  release  per product per year.
Softworks typically introduces annual upgrades to its existing products.

     Softworks provides implementation, training and consulting services for its
own  software  (Product  SKILLPACKS)  and the  software of  third-party  vendors
(Extended SKILLPACKS). Softworks' SKILLPACKS are strategic IT services offerings
that  provide   customers  with  expertise  and  assistance  in  installing  and
implementing  certain  software  products.  Product  SKILLPACKS  are intended to
expedite the  effectiveness  of Softworks'  products,  accelerate the customer's
staff  productivity  and  expose  the  customer  to  the  full  capabilities  of
Softworks' products.  Extended SKILLPACKS provide  implementation of third-party
products,  assistance  with  product  conversions,  training in  specific  areas
related  to  systems  management  and  address   short-term,   critical  project
requirements.  SKILLPACKS  prices  are  dependent  upon the  complexity  of each
customer's  environment,  the expertise level of each customer's staff, and each
customer's goal and time frame.

Customer Service and Technical Support

     Softworks  maintains an experienced  staff of customer service personnel to
provide technical support to its customers.  Each member of the customer service
staff is certified  through an ongoing in-house  training and testing program to
provide support for each individual  product.  Softworks' customer service staff
provides  product  support via telephone and e-mail 24 hours per day, seven days
per week.  Softworks  generally  provides  software and  documentation  updates,
including maintenance  releases,  operating system upgrades and major functional
upgrades, as part of its customer support services.

Customers

     As of December  31,  1998,  Softworks'  products  were  licensed for use by
approximately 1,850 customers at over 2,000  installations,  including 87 of the
Fortune 100 companies.  Softworks' target customers are large organizations with
complex information systems.  Softworks targets multi-platform  enterprises that
rely on mainframe, UNIX OR NT based systems.

Sales, Distribution and Marketing

     Softworks   markets  its  products  and  services   through  its  worldwide
distribution  channels  which  include  direct  sales  personnel,   agents,  and
distributors.  Softworks has approximately 145 sales and sales support employees
who promote the  licensing of Softworks'  products and  services.  In the United
States Softworks operates 10 sales offices. Internationally, Softworks has sales
offices in Australia,  Brazil,  Canada, France, Spain, Japan, Germany, Italy and
the United  Kingdom.  The U.K. office also covers the  Scandinavian  and Benelux
countries.  Softworks'  international  distributors  currently  are  located  in
Argentina,  Chile,  Israel,  Korea,  Mexico,  Peru,  Philippines,  South Africa,
Thailand,  Turkey,  Uruguay  and  Venezuela.  All offices  are  responsible  for
specific geographic  territories that may extend beyond the state,  province, or
country in which the office is located.

     Softworks'  direct sales force is  comprised of account  managers and sales
engineers who, in addition to the sale of Softworks'  products,  are responsible
for technical demonstrations, product installation and product implementation. A
separate Federal Accounts group  specifically  targets United States  government
customers,  including  end-users  and system  integrators.  In  addition  to the
traditional  distribution  channels,   Softworks  has  established  a  web-based
interface to allow the purchase and download of Softworks' UNIX-based products.

     Since 1996,  Softworks actively has encouraged  customers who have licensed
only  one or two  products  to  license  multiple  products  and to  enter  into
multi-year   maintenance   agreements  to  generate  additional  revenue  and  a
significant deferred revenue stream.

     Softworks maintains vendor relationships with leading organizations such as
IBM, EMC, Hewlett-Packard,  Sun, Oracle, and Tivoli. These relationships provide
Softworks  access to  pre-release  versions  of  software  to help  ensure  that
Softworks' products utilize the latest technology and continue to be competitive
with new  operating  systems and database  releases.  These  relationships  also
provide Softworks with insight for strategic planning and product direction.
<PAGE>
     Softworks   maintains   marketing   programs   to  support  the  sales  and
distribution of its products and services,  and communicate corporate direction.
Softworks' marketing department is responsible for collateral development,  lead
generation and brand awareness of Softworks and its products. Marketing programs
include  public  relations,  seminars,  industry  conferences  and trade  shows,
advertising and direct mail. Softworks' marketing  organization also contributes
to both the product  direction  and  strategic  planning  processes by providing
market research and conducting surveys and focus groups.

Licensing and Intellectual Property

     Softworks  considers  certain  features  of  its  software,   its  internal
operations and development process, and its SST methodology and technology to be
proprietary.  Softworks  relies on a combination of trade secret,  copyright and
trademark  laws,  contractual  provisions  and certain  technology  and security
measures to protect its proprietary  intellectual  property.  Softworks does not
currently have any patents or pending patent  applications.  Notwithstanding the
efforts  Softworks  takes to protect  its  proprietary  rights,  existing  trade
secret,  copyright,  and  trademark  laws afford  only  limited  protection.  In
addition,  effective  protection of copyrights,  trade  secrets,  trademarks and
other proprietary rights may be unavailable or limited in certain  international
countries.  Softworks  believes that, because of the rapid rate of technological
change in the computer software industry, factors such as the knowledge, ability
and   experience  of  Softworks'   employees,   product  and  service   offering
development,  and quality of customer  support  services are more important than
any available trade secret or copyright protection.

     Softworks   generates   revenue  through  perpetual  product  licenses  and
maintenance  service  agreements that are renewed annually on the anniversary of
the original purchase date. In 1998, approximately 24% of Softworks' revenue was
generated from maintenance service  agreements.  Additional revenue is generated
when product  licenses are  transferred  to different or larger CPUs.  No single
customer  accounted  for greater than 5% of  Softworks'  total  revenue in 1998.
Sales in the DataStor Arena  accounted for 59% of total license  revenue in 1998
while  license  revenue from the  Performance  Arena  accounted for 32% of total
license revenue. For geographic data, please see "Geographic Information".

     License fees are generated from the initial  licensing of a product and the
subsequent  licenses purchased under Softworks' central processing units ("CPU")
tier-based  licensing  program or its  millions of  instructions  processed  per
second  ("MIPS")  based  licensing  program.  Included in license  revenues  are
capacity-based  license upgrade fees which are charged when a customer  acquires
the right to run an already licensed product on additional  processing  capacity
measured in MIPS for all CPU's for which Softworks' products are licensed. These
license upgrade fees include fees  associated with a customer's  purchase of the
right to  operate a  product  with  currently  installed  additional  processing
capacity and/or with anticipated future processing capacity.  Softworks does not
sell or transfer title of its products to its customers,  but rather a perpetual
right to use the  product  is  granted  to  customers  pursuant  to a  licensing
agreement.  Under the CPU option,  the license fee is based principally upon the
number and size of the central  processing units.  Under the MIPS option,  which
Softworks  is now  emphasizing,  the license fee is based upon the amount of the
customer's  computing  power as measured in MIPS. In 1998, 74% of Softworks' new
licenses  were priced on a MIPS basis.  Softworks'  client-server  products  are
licensed to end users on a per-server or length of service basis.

     Softworks  generally offers its customers  extended payment terms of one to
five years.  In the case of extended  payment term  agreements,  the customer is
typically  contractually bound to equal annual fixed payments. The first year of
maintenance  is  bundled  with  standard  licensing  agreements.  In the case of
extended payment term  agreements,  maintenance is bundled for the length of the
payment  term.  Thereafter,   in  both  instances,  the  customer  may  purchase
maintenance  annually.  Revenue,  with respect to extended  payment terms of one
year, is recognized upon contract  acceptance and delivery of product.  Revenue,
with respect to extended  payment terms of greater than one year is deferred and
recognized as payments become due.
<PAGE>

     Currently,  Softworks  licenses,  on a perpetual basis,  certain technology
from third parties which is incorporated in some of Softworks' products.  In the
future,  Softworks  may license  additional  technology  from third  parties for
incorporation in some of Softworks' products on a perpetual or term basis.

Research and Development

     The computer  software  industry is  characterized  by rapid  technological
change which requires ongoing  development and maintenance of software products.
It is customary for modifications to be made to a software product as experience
with its use  grows or  changes  in  manufacturers'  hardware  and  software  so
require.

     Softworks uses a design  strategy and  development  methodology,  SST, that
facilitates  product  development,  adherence  to market  requirements,  quality
testing practices,  product  consistency and ease of integration,  and long-term
supportability and  maintainability.  This methodology has evolved over the life
of  Softworks  to  address  the  changing   requirements  of  product-for-market
development  that  have  come  about as a  result  of  client-server  technology
advances. Softworks is currently expanding the scope of its CenterStage suite of
products to address  Oracle and NT, and to enhance and extend the SST  knowledge
base.

     Softworks  believes  that its research  and  development  staff,  many with
extensive  experience  in the  industry,  represents a  significant  competitive
advantage.  As of December 31, 1998,  Softworks'  research and development group
consisted  of  67  employees.   Softworks  seeks  to  recruit  highly  qualified
employees,  and its  ability to  attract  and retain  such  employees  will be a
principal factor in its success in maintaining a leading technological position.
For the three  years  ended  December  31,  1998,  1997 and 1996,  research  and
development  expenses  were  $7.8  million,   $6.1  million  and  $3.9  million,
respectively.  Softworks  believes that significant  investments in research and
development are required in order to remain competitive.

Competition

     The  market in which  Softworks  operates  is highly  competitive,  rapidly
evolving and subject to continuous  technological  change.  Softworks'  products
have   traditionally   addressed  niches  within  the  performance  and  storage
management  segments.  In conjunction  with  Softworks' SST strategy,  Softworks
groups its existing products into bundles to compete more effectively and better
address customers'  strategic issues.  This approach enables Softworks to expand
its audience to include systems and applications  personnel, as well as a higher
level of management within the customer and prospect base.

     Although  Softworks  believes that it maintains a competitive  advantage by
bundling its software  products to minimize  point  product  competition  and by
offering products which Softworks believes are unavailable from its competitors,
there are no assurances  that Softworks can maintain or enhance its  competitive
position against current and future competitors. Significant factors such as the
emergence of new products,  fundamental changes in computing technology and data
storage and manipulation  platforms and applications and aggressive  pricing and
marketing strategies by Softworks' competitors may affect Softworks' competitive
position.  Many of  Softworks'  current and  potential  competitors  have longer
operating histories,  greater name recognition,  larger installed customer bases
and  substantially  greater  financial,  technical and marketing  resources than
Softworks.  There can be no  assurance  that  Softworks'  current and  potential
competitors will not develop  software  products that may be or may be perceived
to be more effective or responsive to  technological  change than are Softworks'
current or future products or that Softworks' technologies and products will not
be rendered obsolete by such developments. Increased competition could result in
price  reductions,  reduced margins or loss of market share,  any of which could
have a material  adverse effect on Softworks'  business,  operating  results and
financial condition.  Softworks' primary competitors are Sterling Software, Inc.
and Boole & Babbage,  Inc. in the data and storage  management  market;  Boole &
Babbage,  Inc. and Computer  Associates  International,  Inc. in the performance
management market; and Compuware, Inc. and Viasoft Inc. in the Year 2000 market.
Softworks  believes  that  its  products  compete  effectively  on the  basis of
quality, functionality, technical support and service, and embedded intelligence
and proactive automation.
<PAGE>
Employees

     As of March 31, 1999, Softworks employed 264 full-time employees, including
151 in marketing, sales and support services, 66 in research and development, 20
in customer  support  and  maintenance,  and 27 in finance  and  administration.
Softworks  employs  201  people in the  United  States  and 63 in  international
countries.  The future  success of Softworks  will depend in large part upon its
continued  ability to attract and retain highly skilled and qualified  personnel
in a highly competitive  environment.  Softworks believes its employee relations
are good.

ITEM 2    PROPERTIES

     Softworks' executive offices, customer support and marketing operations are
currently  located  in  facilities  occupying  approximately  31,000  sq. ft. in
Alexandria,  Virginia pursuant to a lease expiring in September 2001. The annual
rent and  maintenance  for the  facility is  approximately  $411,000.  The lease
provides for a renewal  option for five years at the then current market rate of
rent.  Softworks also leases an aggregate of approximately  20,000 sq. ft. at an
aggregate  annual rental of  approximately  $350,000 in 11 locations  throughout
North  America which are used for sales  activities.  Softworks  also  maintains
international  sales  offices in  Australia,  Brazil,  France,  Spain,  Germany,
Canada, Japan and the United Kingdom.

ITEM 3    LEGAL PROCEEDINGS

     Softworks is not a party to any  litigation  that it believes  could have a
material  adverse  effect on its  business,  financial  condition and results of
operations.

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters  were  submitted  for vote of security  holders in the quarter  ended
December 31, 1998.


                                     PART II


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

         Softworks'  Common Stock began  trading on the Nasdaq  National  Market
under the symbol "SWRX" on August 4, 1998.  The  following  table sets forth the
high and low closing share prices per share for the periods indicated.
<TABLE>
<CAPTION>
           Year ended December 31, 1998               High        Low
           ----------------------------            ----------- ----------
<S>                                                <C>         <C>   
Third quarter (commencing August 7,1998)           $6.9375     $3.125
                                                   ----------- ----------
Fourth quarter                                     $7.435      $3.50
                                                   ----------- ----------
</TABLE>

     On March 18,  1999,  the closing  price was $11.00.  As of March 18,  1999,
Softworks had approximately 28 holders of record.

     Softworks  has  never  paid or  declared  any cash  dividends  and does not
anticipate paying cash dividends on its Common Stock in the foreseeable  future.
Softworks  currently intends to retain its future earnings,  if any, to fund the
development and finance the growth of its business. The amount and timing of any
future  dividends  will depend on general  business  conditions  encountered  by
Softworks, as well as the financial condition, earnings and capital requirements
of Softworks and such other factors as the Board may deem relevant.

     A  registration  statement  (Registration  No.  333-53939)  for  Softworks'
Initial  Public  Offering was filed on Form S-1 with the Securities and Exchange
Commission on July 9, 1998.  In the  offering,  which was completed on August 4,
1998,  Softworks sold  1,700,000  shares of common stock at an offering price of
$7.00  per  share,  generating  approximately  $9.7  million  in  net  proceeds.
Softworks incurred approximately $2.2 million in expenses related to the Initial
Public  Offering.  The  Underwriters  of the offering were  Soundview  Financial
Group, Inc. and Raymond James & Associates, Inc.

     Of the $9.7  million in net  proceeds  which  Softworks  received  from the
Initial Public Offering, $3.0 million was used to repay Computer Concepts Corp.,
the principal  shareholder,  for amounts previously  advanced and for Softworks'
effective  cost to Computer  Concepts of income tax  expenses  for prior  years.
Approximately  $1.5  million  was used for  working  capital  requirements.  The
remaining proceeds remain temporarily  invested in short-term federal guaranteed
securities, available for future product development, working capital, acquiring
or investing in businesses, technologies or products complimentary to Softworks'
business or other general corporate purposes.
<PAGE>
ITEM 6    SELECTED CONSOLIDATED FINANCIAL DATA

     The following  selected  consolidated  financial  data for the fiscal years
ended December 31, 1998, 1997, 1996 and 1995 are derived from Softworks' audited
financial statements and for the fiscal year ended December 31, 1994, is derived
from  Softworks'  unaudited  financial  statements.  To  better  understand  the
following  financial  information,  investors should also read the "Management's
Discussion  and  Analysis  of  Operations."  This  data  should  also be read in
conjunction with the  consolidated  financial  statements of Softworks,  related
notes, and other financial information included elsewhere in this Form 10-K. All
numbers are in thousands, except per share amounts.
<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                              -----------------------------------------------------------------  
                                                 1998            1997         1996         1995          1994
                                              ----------     -----------   -----------  ----------    ---------
<S>                                            <C>            <C>          <C>           <C>          <C>   
Statement of Operations Data:
Total revenue                                    $ 43,749       $  26,770    $  16,525     $ 11,626      $9,449
Gross Margin                                       39,499          25,135       15,381       10,534       8,866
Net income (loss)                                   2,957             786          792       (1,711)        482
                                               ==========     ===========  ===========   ==========   =========
Basic and diluted net income (loss)  per share $     0.20     $      0.06  $      0.06   $    (0.12)    $  0.03
                                               ==========     ===========  ===========   ==========   =========
Basic and diluted weighted average shares
outstanding                                        14,860          14,083       14,083       14,083      14,083
                                               ==========     ===========  ===========   ==========   =========

                                                                          December 31,
                                               ----------------------------------------------------------------
                                                  1998           1997         1996          1995         1994
                                               ----------     -----------  -----------   ----------   ---------
Consolidated Balance Sheet Data:
Cash and cash equivalents                       $   6,003     $       360   $    1,735   $      167     $   246
Working capital                                    11,879            (775)        (824)      (3,516)     (2,098)
Total assets                                       58,352          35,683       22,543       12,766      12,633
Long term debt, net of current portion              1,401           1,294          351          465         135
Total stockholders' equity                         18,685           6,087        5,355        4,563       6,214


</TABLE>
<PAGE>
ITEM 7    MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

Forward-Looking  Statements.  All statements other than statements of historical
fact included in this Form 10-K including, without limitation, statements under,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  regarding Softworks' financial position,  business strategy and the
plans and  objectives  of  Softworks'  management  for  future  operations,  are
forward-looking  statements.  When  used  in  this  Form  10-K,  words  such  as
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as  they  relate  to  Softworks  or  its  management,  identify  forward-looking
statements.  Such  forward-looking  statements  are  based  on  the  beliefs  of
Softworks' management, as well as assumptions made by, and information currently
available to, Softworks' management. Actual results could differ materially from
those  contemplated  by the  forward-looking  statements  as a result of certain
factors including but not limited to,  fluctuations in future operating results,
technological changes or difficulties, management of future growth, expansion of
international operations,  the risk of errors or failures in Softworks' software
products,  dependence on  proprietary  technology,  competitive  factors,  risks
associated with potential  acquisitions,  the ability to recruit personnel,  the
dependence on key personnel,  control of Softworks by the Principal Shareholder.
Such  statements  reflect the current views of Softworks  with respect to future
events and are subject to these and other risks,  uncertainties  and assumptions
relating to the operations, results of operations, growth strategy and liquidity
of  Softworks.  All  subsequent  written  and  oral  forward-looking  statements
attributable  to  Softworks  or  persons  acting  on its  behalf  are  expressly
qualified in their entirety by this paragraph.


                                    Overview

     Softworks develops,  markets,  licenses and supports a family of enterprise
systems  management  software  products  for data  and  storage  management  and
performance   management.   Softworks   provides  automated  systems  management
solutions  designed  to  optimize  system and  application  performance,  reduce
hardware expenditures,  and enhance the reliability and availability of the data
processing environment for enterprises that employ primarily mainframe computing
environments,  and  increasingly  UNIX  and  Microsoft(R)  Windows  NT(R)("NT").
Softworks  believes that it has been a pioneer in the  development  of automated
systems  management  solutions and that it is currently a leading vendor in this
market. As of December 31, 1998, Softworks' products were licensed for use by 87
of the Fortune 100 companies.

     Softworks' offerings are grouped into four market segments ("Arenas"): data
and storage  management;  performance  management;  Year 2000; and  professional
services.  Historically,  Softworks' products addressed only the performance and
data  storage   requirements  of  mainframe  operating  systems.   During  1998,
Softworks'   products  were  expanded  to  include  UNIX  and  NT-based  storage
management products.  In addition,  Softworks has extended its product family by
launching a multi-platform suite of products in the Year 2000 Arena.

     Softworks'   revenue  consists  of  revenue  from  licensing  its  software
products,  revenue from the maintenance and support of its software products and
professional  services  relating to information  technology  ("IT")  consulting.
Generally, Softworks is required by its license agreement to provide maintenance
and enhancements  during a stated  maintenance  period.  "Maintenance"  includes
diagnosis  and  correction  of errors in the current  version of the product and
telephone  consultation  to discuss general  support  questions.  "Enhancements"
include  upgrades to the products as they become  available  and new releases of
products,  except  for those  which are sold as charged  options  to  Softworks'
general customer base.  Substantially all of Softworks'  license  agreements are
perpetual. Maintenance agreements are typically for a term of one year and renew
automatically upon the payment by the customer of an annual maintenance fee.

     Revenue  from  software  licenses  is  recognized  in  accordance  with the
American  Institute  of  Certified  Public  Accountants  Statement  of  Position
97-2,"Software  Revenue  Recognition",  Statement of Position 98-4, "Deferral of
the Effective  Date of a Provision of SOP 97-2" and Statement of Position  98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions."  Revenue from the sale of perpetual and term software licenses is
recognized,  net  of  provisions  for  returns,  at the  time  of  delivery  and
acceptance of software products by the customer. Softworks provides creditworthy
customers  with the option to pay for license  fees in one lump sum or generally
in equal annual  installments  over extended  periods of time,  generally one to
five years. In such instances,  Softworks does not consider sales contracts with
amounts  due  for  periods  greater  than  one  year  from  delivery  fixed  and
determinable,  and  accordingly  recognizes  such  amounts as revenue  when they
become due.  Maintenance  revenue that is bundled with an initial license fee is
deferred and recognized  ratably over the maintenance  period.  Amounts deferred
for maintenance are based on the fair value of equivalent  maintenance  services
sold  separately.  Revenue  from  professional  services  is  recognized  as the
services are performed. Deferred license revenue resulting from extended payment
agreements  beyond one year is included in  installment  receivable and deferred
revenue.  Related sales  commissions  are also deferred and recognized  over the
period of the installment payment plan.
<PAGE>
     Historically,  Softworks  has not  experienced  any  significant  bad debts
associated with these long-term  installment  arrangements which were introduced
by Softworks in 1996.  Softworks introduced extended payment terms to all of its
customers in an effort to increase  sales of its  products,  achieve a stream of
revenue and remain competitive. No single customer accounted for greater than 5%
of Softworks' total revenue in 1998.

     During 1998,  approximately 59% of Softworks' license revenue resulted from
products in the DataStor Arena which includes  products such as Catalog Solution
and  CenterStage.  The  Performance  Arena,  which  includes  products  such  as
Performance Essential and TeraSAM, accounted for approximately 32% of Softworks'
license revenue in 1998.  Softworks' cost of license revenue consists  primarily
of  royalties  paid  to  in-house  and  third-party   software   developers  and
amortization of capitalized  software  costs.  Beginning in 1997, and continuing
for  four  years,  Softworks  is  obligated  to  pay a  minimum  annual  royalty
associated with certain Year 2000 and other products.

     Softworks derives  significant  recurring revenue from maintenance  service
agreements.  Maintenance  fee revenue was $10.5 million,  $10.0 million and $7.9
million,  or 23.9%,  37.2% and 47.9% of total  revenue  in 1998,  1997 and 1996,
respectively.

     Softworks  markets and sells its  products  and  services  through a direct
sales force in the United States and directly and through  distributors in South
America, Europe and Asia.  International revenue transactions are denominated in
U.S. dollars and local currencies. Revenue generated by Softworks' international
distributors is translated into U.S. dollars at the time the transaction occurs.
Softworks  has not  sustained  material  foreign  currency  exchange  losses and
presently   does  not  attempt  to  hedge  its  exposure  to   fluctuations   in
international  currency  exchange  rates.  International  revenue  generated  by
Softworks  contributed  approximately  20.1%,  17.7%, and 29.5% of total revenue
during  1998,  1997 and  1996,  respectively.  Should  Softworks'  revenue  from
international  sales increase as intended,  and should such sales be denominated
in  international  currencies,  Softworks  intends to adopt an adequate  hedging
strategy to guard against international currency fluctuations.

     Historically,  Softworks has experienced fluctuations in interim sales with
greater  revenues and net earnings in the latter half of the calendar year. As a
result,  Softworks'  operating  results have  fluctuated  in the past and in the
future are expected to fluctuate  significantly  from quarter to quarter and may
fluctuate on an annual basis as a result of a number of factors.  Revenue in any
quarter is dependent to a  significant  degree on orders  booked and renewals of
agreements  for  maintenance  in that  quarter and is not  predictable  with any
degree  of  certainty.  Since  Softworks'  expense  levels  are based in part on
management's   expectations  regarding  future  revenue,  if  revenue  is  below
expectations  in any quarter,  the adverse effect may be magnified by Softworks'
inability to adjust  spending in a timely manner to  compensate  for any revenue
shortfall.
<PAGE>
RESULTS OF OPERATIONS

     The  following  table  sets  forth  for  the  periods   indicated   certain
consolidated  statement  of  operations  data  expressed in thousands of dollars
(except for per share data).
<TABLE>
<CAPTION>


                                                              Year Ended December 31,
                                             ----------------------------------------------------------
                                                    1998                1997                1996
                                             ------------------   -----------------   -----------------

<S>                                          <C>                  <C>                 <C>    
Revenue:
  Software licenses                          $           31,725   $          16,633   $           8,611
  Services                                               12,024              10,137               7,914
                                             ------------------   -----------------   -----------------
     Total revenue                                       43,749              26,770              16,525
                                             ------------------   -----------------   -----------------

Cost of revenue (exclusive of amortization
  and depreciation shown separately below
  except for amortization of software
  development costs):
  Software licenses                                       1,843                 580                 424
  Services                                                2,407               1,055                 720
                                             ------------------   -----------------   -----------------
     Total cost of revenue                                4,250               1,635               1,144
                                             ------------------   -----------------   -----------------
Gross margin                                             39,499              25,135              15,381
                                             ------------------   -----------------   -----------------


Operating expenses:
  Sales and marketing                                    19,666              12,463               6,161
  General and administrative                              4,575               2,791               2,217
  Amortization and depreciation                           2,169               1,972               1,596
  Research and development                                7,800               6,093               3,911
                                             ------------------   -----------------   -----------------
     Total operating expenses                            34,210              23,319              13,885
                                             ------------------   -----------------   -----------------
Operating income                                          5,289               1,816               1,496

Other expenses                                              252                   -                   -
                                             ------------------   -----------------   -----------------
Income from operations before
  provision for income taxes                              5,037               1,816               1,496

Provision for income taxes                                2,080               1,030                 704
                                             ------------------   -----------------   -----------------
Net income                                    $           2,957   $             786   $             792
                                             ==================   =================   =================

Basic and diluted net income per share        $            0.20   $            0.06   $            0.06
                                             ==================   =================   =================

Basic and diluted weighted average shares
  outstanding                                            14,860              14,083              14,083
                                             ==================   =================   =================
</TABLE>
<PAGE>
     The  following  table  sets  forth  for  the  periods   indicated   certain
consolidated  statement of  operations  data  expressed as a percentage of total
revenue.
<TABLE>
<CAPTION>

                                                               December 31,
                                                 ----------------------------------------
                                                    1998          1997           1996
                                                 -----------   -----------   ------------

<S>                                                 <C>           <C>            <C>    
Revenue:
  Software licenses                                  72.5%         62.1%          52.1%
  Services                                           27.5%         37.9%          47.9%
                                                    ------        ------         ------
           Total revenue                            100.0%        100.0%         100.0%

Cost of revenue (exclusive of amortization
  and depreciation shown separately below
  except for amortization of software
  development costs):
  Software licenses                                   4.2%          2.2%           2.6%
  Services                                            5.5%          3.9%           4.3%
                                                    ------        ------         ------
       Total cost of revenue                          9.7%          6.1%           6.9%
                                                    ------        ------         ------
Gross margin                                         90.3%         93.9%          93.1%
                                                    ------        ------         ------


Operating expenses:
  Sales and marketing                                44.9%         46.6%          37.3%
  General and administrative                         10.5%         10.4%          13.4%
  Amortization and depreciation                       5.0%          7.4%           9.6%
  Research and development                           17.8%         22.7%          23.7%
                                                    ------        ------         ------
      Total operating expenses                       78.2%         87.1%          84.0%
                                                    ------        ------         ------
Operating income                                     12.1%          6.8%           9.1%

Other expenses                                        0.6%          0.0%           0.0%
                                                    ------        ------         ------
Income from operations before
  income taxes                                       11.5%          6.8%           9.1%

Provision for income taxes                            4.7%          3.9%           4.3%
                                                    ------        ------         ------
Net income                                            6.8%          2.9%           4.8%
                                                    ======        ======         ======
</TABLE>
Years Ended December 31, 1998 and 1997

     Revenue.  Total revenue increased 63.4% to $43.7 million in 1998 from $26.8
million in 1997.  License revenue  increased 90.7% to $31.7 million in 1998 from
$16.6 million in 1997. The increase was primarily due to the increased  sales of
Softworks'  products  resulting from continued  expansion of the worldwide sales
force,  the  conversion  from  CPU-based  pricing to MIPS-based  pricing and the
introduction  of Resource  Availability  into the DataStor  Arena.  During 1998,
MIPS-based  licenses accounted for 74% of new sales. Sales in the DataStor Arena
accounted for 59% of total  license  revenue in 1998 and 1997.  License  revenue
from the  Performance  Arena  accounted for 32% of total license revenue in 1998
and 1997.  License  revenue from the Year 2000 Arena accounted for 5.3% of total
license revenue in 1998 and 3.5% in 1997.  International  revenue increased as a
percentage  of total  revenue to 20.1% in 1998 from 17.7% for the period  ending
December  31,  1997.  In  terms  of  absolute  dollars,  international  revenues
increased 85.9% to $8.8 million in 1998 from $4.7 million in 1997. This increase
is attributable to Softworks' continuing international expansion.

Services  revenue,  comprised  of  maintenance  revenue and to a lesser  extent,
revenue from  professional  services,  increased  18.6% to $12.0 million in 1998
from $10.1 million in 1997.  This increase is  attributable to overall growth in
license  revenue,  renewals of maintenance  contracts by the installed  customer
base and customer acceptance of the SKILLPACKS and Extended SKILLPACKS services.

     Cost of Revenue.  Cost of software license revenue includes  royalties paid
to  Company  developers  and to a  third  party  under  a  licensing  agreement,
<PAGE>
amortization of capitalized software development costs and costs of shipping and
fulfillment.  Cost of software license revenue increased 217.8% to $1.8 million,
or 4.2% of total revenue in 1998 from $580,000,  or 2.2% in 1997.  This increase
was primarily  attributable  to the royalties  paid as a result of a third party
licensing  agreement  that  commenced  in July 1997,  as well as an  increase in
royalty payments to Company developers resulting from increased software license
revenue. Costs of services revenue is comprised of costs of maintenance and to a
lesser  extent,  costs  of  professional  services.  Cost  of  services  revenue
increased  128.2% to $2.4  million,  or 5.5% of total  revenue in 1998 from $1.1
million  or  3.9%  of  total  revenue  in  1997.   This  increase  is  primarily
attributable  to the staffing of maintenance  personnel to support the growth of
the  international  customer base and to a lesser extent,  the  commencement  of
professional services operations in the third quarter of 1997.

     Sales and Marketing Expense.  Sales and marketing expenses include salaries
and related costs,  commissions,  travel,  facilities,  communications costs and
promotional  expenses for  Softworks'  direct sales  organization  and marketing
staff.  Sales and marketing  expenses  increased  57.8% to $19.7 million in 1998
from  $12.5  million  in 1997.  This  increase  was  attributable  primarily  to
increased  commission  expenses  resulting from increased  sales,  and increased
personnel  costs  resulting  from growth in Softworks'  sales  organization.  In
addition,  the opening of the international sales offices in Germany,  Australia
and Spain and one domestic  sales office  contributed  to an increase in certain
fixed costs over 1997. As a percentage of revenue,  sales and marketing expenses
decreased to 44.9% in 1998 from 46.6% in 1997.

     General and Administrative  Expense.  General and  administrative  expenses
include   administrative   salaries  and  related  benefits,   management  fees,
recruiting  and  relocation  expenses,  as well as legal,  accounting  and other
professional fees.  General and administrative  expenses increased 63.9% to $4.6
million  in 1998  from  $2.8  million  in 1997.  The  increase  in  general  and
administrative  expenses  was  principally  due to an  increase  in finance  and
administrative  personnel  necessary to support  Softworks' growth and the costs
associated with operating as a public company.

     Research and Development Expense. Research and development expenses include
salaries  and related  costs for  software  developers,  quality  assurance  and
documentation  personnel involved in Softworks' research and development efforts
as well as support for the research and development effort including  Softworks'
data center operations. Research and development increased 28.0% to $7.8 million
or 17.8% of 1998  revenue  from  $6.1  million  or  22.7% of 1997  revenue.  The
increase is  primarily  attributable  to an increase in  personnel  necessary to
support Softworks' research and development efforts.

     Provision  for Income Taxes.  The  provision for income taxes  increased to
$2.1 million in 1998 from $1.0 million in 1997.  For the period ending  December
31, 1997,  Softworks reported its financial results on a consolidated basis with
Computer Concepts and did not file separate tax returns. On a stand-alone basis,
if Softworks had filed a separate  Federal tax return,  its  effective  rate for
1997 would  have been  56.7%.  For 1998 the  effective  tax rate was 41.3%.  The
decrease in effective rates is due to the reduction in previously non-deductible
operating  losses  incurred  by the  international  subsidiary  corporations.  A
valuation reserve has been established for the deferred tax asset generated from
the remaining  international  net operating  losses as it is uncertain when, and
if, these losses will be utilized against future international income.


Years Ended December 31, 1997 and 1996

     Total Revenue.  Total revenue increased 62.0% to $26.8 million in 1997 from
$16.5 million in 1996.  License revenue increased 93.2% to $16.6 million in 1997
from $8.6 million in 1996.  The increase was primarily due to an increase in the
number of licenses of Softworks'  products in the Performance Arena and DataStor
Arena,  the  conversion  from  CPU-based  pricing  to  MIPS-based  pricing,  the
availability  of extended  payment terms to customers for a full fiscal year, as
well as the  introduction  of its Year 2000  products.  New products in the Year
2000 Arena introduced during 1997 accounted for  approximately  3.5% of software
license  revenue.   During  1997,   Softworks  entered  into  approximately  100
MIPS-based  licenses which  accounted for $6.2 million in revenue.  Sales in the
DataStor  Arena  accounted  for  approximately  59% of license  revenue in 1997,
compared  to  approximately  60%  of  license  revenue  in  1996.  Sales  in the
Performance  Arena accounted for  approximately  32% of license revenue in 1997,
compared to  approximately  36% of license revenue in 1996.  Services revenue is
comprised  of  maintenance  revenue  and  to  a  lesser  extent,   revenue  from
professional services. Services revenue increased 28.1% to $10.1 million in 1997
from $7.9 million in 1996.  This increase is  attributable  to overall growth in
license revenue and renewals of maintenance  contracts by the installed customer
base  and  to  a  lesser  extent,  the  commencement  of  professional  services
operations in the third quarter of 1997.  International  revenue  decreased as a
percentage  of total  revenue to 17.7% for the period  ending  December 31, 1997
from  29.5% for the  period  ending  December  31,  1996.  In terms of  absolute
dollars, international revenue decreased slightly to $4.7 million for the period
ending  December 31, 1997 from $4.9 million for the period  ending  December 31,
1996.
<PAGE>
     Cost of  Revenue.  Cost of  software  license  revenue  increased  36.8% to
$580,000,  or 2.2% of total revenue,  in 1997,  from $424,000,  or 2.6% of total
revenue,  in 1996. Cost of services revenue is comprised of costs of maintenance
and to a  lesser  extent,  costs  of  professional  services.  Cost of  services
increased  46.5% to $1.0 million in 1997 from  $720,000 in 1996. As a percentage
of services  revenue,  cost of services  increased to 10.4% in 1997 from 9.1% in
1996.  This increase is primarily  attributable  to the staffing of  maintenance
personnel to support  international  sales in lieu of reliance upon distributors
and to a lesser extent, the commencement of professional  services operations in
the third quarter of 1997.

         Sales and  Marketing  Expense  Sales and  Marketing  expense  increased
102.3% to $12.5  million in 1997 from $6.2  million in 1996.  The  increase  was
primarily  attributable  to  the  expansion  of  the  direct  sales  force  both
domestically and internationally. Sales and marketing expense was 46.6% of total
revenue in 1997 and 37.3% of total revenue in 1996.

     General and  Administrative  Expense.  General and  administrative  expense
increased  25.9% to $2.8  million  in 1997  from  $2.2  million  in  1996.  As a
percentage of total  revenue,  general and  administrative  expense  declined to
10.4% in 1997 from 13.4% in 1996.  General and  administrative  expenses grew in
absolute dollars as Softworks added personnel to all  administrative  areas, but
declined as a percentage of total revenue  principally due to economies of scale
associated with increased revenue.

     Research  and  Development   Expense.   Research  and  development  expense
increased  55.8% to $6.1 million in 1997 from $3.9 million in 1996. The increase
was  primarily  attributable  to  Softworks'  accelerated   development  of  its
multi-platform and Year 2000 products.

     Provision for Income Taxes.  The provision for income taxes increased 46.3%
to $1.0 million in 1997 from $704,000 in 1996. During these years, Softworks was
reported on a  consolidated  basis for Federal income tax purposes with Computer
Concepts and did not file a separate Federal tax return. On a stand-alone basis,
if Softworks had filed a separate  Federal tax return,  its effective  rates for
1997 and 1996 would have been 56.7% and 47.1%, respectively.  These rates differ
from  the  Federal   statutory   income  tax  rate  primarily   because  of  the
non-deductibility  of operating losses incurred by the international  subsidiary
corporations.  A valuation  reserve has been  established  for the  deferred tax
asset generated from international net operating losses as it is uncertain when,
and if, these losses will be utilized against future international income.



LIQUIDITY AND CAPITAL RESOURCES

     Softworks has funded its operations  through cash generated from operations
and proceeds from its recent  initial  public  offering.  Softworks had cash and
cash  equivalents of $6.0 million and $360,000 at December 31, 1998 and December
31, 1997, respectively.

     Softworks has not sustained  material foreign currency  exchange losses and
presently  does not  attempt to hedge its  exposure to  fluctuations  in foreign
currency exchange rates.  Should  Softworks'  revenue from  international  sales
increase  as  intended,   and  should  such  sales  be  denominated  in  foreign
currencies,  Softworks  intends to adopt an adequate  hedging  strategy to guard
against foreign currency fluctuations.

     For the twelve months ended  December 31, 1998 and 1997,  net cash provided
by  operating  activities  was $1.3  million and  $213,000,  respectively.  This
increase  is  primarily  a result of an  increase  in net  income  adjusted  for
significant non-cash expenses, such as depreciation and amortization.

     Softworks'  investing  activities  primarily include expenditures for fixed
assets  in  support   of   Softworks'   product   development   activities   and
infrastructure,  software  development  and technology  purchases and additional
contingent  consideration paid to two former stockholders in connection with the
acquisition  of  Softworks  by  Computer  Concepts.  Net cash used in  investing
activities  increased  29.6% to $3.3  million in 1998 from $2.6 million in 1997.
The increase was primarily a result of an increase in purchases related to fixed
assets in support of Softworks' product development infrastructure .

     For the twelve months ended  December 31, 1998 and 1997,  net cash provided
by financing  activities  was $7.7 million and $1.0 million,  respectively.  The
increase in cash provided by financing activities was primarily a result of cash
generated from  Softworks'  initial public offering offset by repayments made to
Computer Concepts for federal income taxes and borrowings.
<PAGE>
     Softworks'  principal   commitments  as  of  December  31,  1998  consisted
primarily of (i) leases on its corporate headquarters facilities,  various sales
offices and operating equipment, (ii) employment agreements and (iii) a software
licensing  and  distribution   agreement.   Softworks'  current  cash  and  cash
equivalent  balances,  cash flow from its  operations,  and the  proceeds of its
recent  public  offering,  are  expected  to be  sufficient  to meet its working
capital and capital expenditure needs for at least the next 12 months.  However,
there can be no assurance that Softworks will have sufficient capital to finance
potential acquisitions or other growth oriented activities,  which could require
Softworks to incur additional debt or obtain other financing.

RECENT DEVELOPMENTS

New Sales Office

In February,  1999, Softworks  established a branch sales office in Tokyo, Japan
which will serve customers of the OS/390, MVS, and Fujitsu operating systems.

YEAR 2000 ISSUES

     Background.   Some  computers,   software,   and  other  equipment  include
programming  code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct  results if "00" is interpreted to mean 1900,  rather
than 2000.  These  problems  are widely  expected to increase in  frequency  and
severity  as the year  2000  approaches,  and are  commonly  referred  to as the
"Millenium Bug"or "Year 2000 Problem".

     Assessment.  The Year 2000 Problem could affect  computers,  software,  and
other  equipment  used,  operated,  or  maintained  by  Softworks.  Accordingly,
Softworks is reviewing its internal computer programs and systems to ensure that
the  programs  and  systems  will be Year 2000  compliant.  Softworks  presently
believes  that its  computer  systems  will be Year 2000  compliant  in a timely
manner. However, while the estimated cost of these efforts is not expected to be
material to Softworks'  overall  financial  position,  or any year's  results of
operations, there can be no assurance to this effect.

     Softworks has obtained  certification  of its processes to assess Year 2000
Problems from the Information  Technology Association of America (ITAA). Because
Softworks'  business  involves  software  development,  Softworks has not sought
further   verification  or  validation  by  independent  third  parties  of  its
corrections of Year 2000 Problems. However, Softworks' Year 2000 project team is
reviewing Softworks' project plans and monitoring progress against those plans.

     Software Sold to Consumers.  Softworks  believes that it has  substantially
identified  and  resolved  all  potential  Year  2000  Problems  with any of the
software  products it develops and markets.  However,  management  also believes
that it is not possible to determine with complete  certainty that all Year 2000
Problems  affecting   Softworks'  software  products  have  been  identified  or
corrected due to complexity of these  products and the fact that these  products
interact with other third party vendor products and operate on computer  systems
which are not under Softworks' control.

     Internal Information Technology Infrastructure.  Softworks believes that it
has identified substantially all of the major computers,  software applications,
and related equipment used in connection with its internal  operations that must
be modified,  upgraded,  or replaced to minimize the  possibility  of a material
disruption  to its  business.  Softworks has commenced the process of modifying,
upgrading,  and replacing  major systems that have been  identified as adversely
affected,  and  expects  to  complete  this  process or to the extent it has not
modified or replaced such systems,  to develop  contingency  plans before the
end of June, 1999.

     Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities  equipment,  such as
fax machines, photocopiers, telephone switches, security systems, elevators, and
other  common  devices may be affected by the Year 2000  Problem.  Softworks  is
currently assessing the potential effect of, and costs of remediating,  the Year
2000 Problem on its office and facilities equipment and expects to complete such
assessment  by the  June,  1999.  Softworks  estimates  that the  total  cost of
completing  any  required  modifications,  upgrades,  or  replacements  of these
internal systems will not have a material adverse effect on Softworks'  business
or results of operations.  This estimate is being  monitored and will be revised
as additional information becomes available.

     Suppliers. Softworks has initiated communications,  including surveys, with
third party  suppliers of the major  computers,  software,  and other  equipment
used,  operated,  or  maintained  by  Softworks  to identify  and, to the extent
possible, to resolve issues involving the Year 2000 Problem. However,  Softworks
has limited or no control  over  responses to its  inquiries  and the actions of
these third party  suppliers.  Thus,  while  Softworks  does not  anticipate any
significant  Year 2000  Problems with these  systems,  there can be no assurance
that these  suppliers  will resolve any or all of their Year 2000  Problems with
these systems before the occurrence of a material  disruption to the business of
Softworks or any of its customers. Any failure of these third parties to resolve
Year 2000  problems  with their systems in a timely manner could have a material
adverse  effect on  Softworks'  business,  financial  condition,  and results of
operation.
<PAGE>
     Most  Likely  Consequences  of Year 2000  Problems.  Softworks  expects  to
identify  and resolve all Year 2000  Problems  that could  materially  adversely
affect its business  operations.  However,  management  believes  that it is not
possible  to  determine  with  complete  certainty  that all Year 2000  Problems
affecting  Softworks  have been  identified or corrected.  The number of devices
that could be affected and the  interactions  among these devices are simply too
numerous.  In  addition,  one  cannot  accurately  predict  how many  Year  2000
Problem-related  failures  will occur or the  severity,  duration,  or financial
consequences of these perhaps  inevitable  failures.  In addition,  Softworks is
unable to determine  with any degree of certainty,  the changes in buying habits
of its current and  potential  customers  due to their  concerns  over Year 2000
issues. As a result,  management  expects that Softworks could likely suffer the
following

          1.   a   significant   number  of   operational   inconveniences   and
               inefficiencies  for Softworks  and its customers  that may divert
               management's time and attention and financial and human resources
               from its ordinary business activities; and

          2.   a lesser  number of  serious  system  failures  that may  require
               significant  efforts by Softworks or its  customers to prevent or
               alleviate material business disruptions.

     Contingency Plans.  Softworks is currently developing  contingency plans to
be implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal  systems.  Softworks  expects to complete its contingency
plans by the end of June 1999.  Depending on the systems  affected,  these plans
could include accelerated  replacement of affected equipment or software,  short
to medium-term  use of backup  equipment and software,  increased work hours for
Company  personnel  or use of contract  personnel  to correct on an  accelerated
schedule any Year 2000 Problems that arise or to provide manual  workarounds for
information  systems,  and  similar  approaches.  If  Softworks  is  required to
implement  any of these  contingency  plans,  it could have a  material  adverse
effect on Softworks' financial condition and results of operations.

     Disclaimer.   The  discussion  of  Softworks'  efforts,   and  management's
expectations,  relating to Year 2000 compliance are forward- looking statements.
Softworks'  ability to achieve Year 2000 compliance and the level of incremental
costs associated therewith,  could be adversely impacted by, among other things,
the availability and cost of programming and testing resources, vendors' ability
to modify proprietary  software,  and unanticipated  problems  identified in the
ongoing compliance review.


ITEM 7a    QUANTIATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.
<PAGE>
ITEM 8    FINANCIAL STATEMENT AND SUPPLEMENTARY DATA


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To SOFTWORKS, Inc.:

We have audited the accompanying consolidated balance sheets of SOFTWORKS, Inc.,
a Delaware corporation, and subsidiaries (the "Company") as of December 31, 1998
and 1997, and the related consolidated  statements of operations,  stockholders'
equity and cash flows for each of the three years in the period  ended  December
31, 1998.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  financial  position  of  SOFTWORKS,   Inc.,  and
subsidiaries  as of  December  31,  1998  and  1997,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.


                                             /s/ Arthur Andersen LLP
                                             ARTHUR ANDERSEN LLP

Washington D.C.
February 9, 1999
<PAGE>
                             SOFTWORKS, INC. AND SUBSIDIARIES

                                CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                            December 31,
                                                                   ------------------------------
                                                                       1998             1997
                                                                   -------------    -------------
                                          ASSETS
<S>                                                               <C>               <C>    
Current Assets:
  Cash and cash equivalents                                       $        6,003    $         360
  Accounts receivable, net of allowance for doubtful accounts of
    $289 and $206 in 1998 and 1997, respectively                          14,316           10,652
  Installment receivables                                                 16,406            6,148
  Prepaid expenses and other current assets                                1,349              984
  Deferred tax assets                                                        306              138
                                                                   -------------    -------------
   Total current assets                                                   38,380           18,282
                                                                   -------------    -------------
  Installment receivables, noncurrent                                      7,908            6,480
  Property and equipment, net                                              2,498            1,523
  Software development costs, net                                          3,039            3,357
  Goodwill, net of accumulated amortization of $3,346
    and $2,477 in 1998 and 1997, respectively                              4,143            4,611
  Other assets                                                             1,900              734
  Deferred tax assets, noncurrent                                            484              696
                                                                   -------------    -------------
     Total assets                                                  $      58,352    $      35,683
                                                                   =============    =============
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable and accrued expenses                            $       6,136   $        4,689
  Current portion of long-term debt                                        1,930            1,083
  Deferred maintenance revenue                                             9,064            6,225
  Deferred installment revenue                                             7,314            5,506
  Income taxes payable                                                     2,057                -
  Due to Principal Shareholder                                                 -            1,554
                                                                   -------------    -------------
   Total current liabilities                                              26,501           19,057
                                                                   -------------    -------------
  Deferred maintenance revenue, noncurrent                                 3,882              740
  Deferred installment revenue, noncurrent                                 7,883            7,122
  Long-term debt, noncurrent                                               1,401            1,294
  Payable to Principal Shareholder for federal income taxes                    -            1,383
                                                                   -------------    -------------
   Total liabilities                                                      39,667           29,596
                                                                   -------------    -------------
Stockholders' Equity:
  Preferred stock, $.001 par value; 2,000,000 shares authorized;
    none issued or outstanding                                                 -                -
  Common stock, $.001 par value; 150,000,000 authorized;                      16               14
    15,973,000 and 14,083,000 shares issued and outstanding
      in 1998 and 1997, respectively
  Additional paid-in capital                                              15,201            5,549
  Retained earnings                                                        3,535              578
  Accumulated other comprehensive loss                                       (67)             (54)
                                                                   -------------    -------------
   Total stockholders' equity                                             18,685            6,087
                                                                   -------------    -------------
     Total liabilities and stockholders' equity                    $      58,352    $      35,683
                                                                   =============    =============
<FN>
          The accompanying notes are an integral part of these consolidated balance sheets.
</FN>
</TABLE>
<PAGE>
                           SOFTWORKS, INC. AND SUBSIDIARIES

                         CONSOLIDATED STATEMENTS OF OPERATIONS
                         (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                   For Year Ended December 31,
                                            -------------------------------------------
                                                1998           1997           1996
                                            ------------   ------------   -------------

<S>                                         <C>            <C>            <C>    
Revenue:
  Software licenses                         $     31,725   $     16,633   $      8,611
  Services                                        12,024         10,137          7,914
                                            ------------   ------------   ------------
     Total revenue                                43,749         26,770         16,525
                                            ------------   ------------   ------------

Cost of revenue (exclusive of amortization
  and depreciation shown separately below
  except for amortization of software
  development costs):
  Software licenses                                1,843            580            424
  Services                                         2,407          1,055            720
                                            ------------   ------------   ------------
     Total cost of revenue                         4,250          1,635          1,144
                                            ------------   ------------   ------------
Gross margin                                      39,499         25,135         15,381
                                            ------------   ------------   ------------

Operating expenses:
  Sales and marketing                             19,666         12,463          6,161
  General and administrative                       4,575          2,791          2,217
  Amortization and depreciation                    2,169          1,972          1,596
  Research and development                         7,800          6,093          3,911
                                            ------------   ------------   ------------
     Total operating expenses                     34,210         23,319         13,885
                                            ------------   ------------   ------------
Operating income                                   5,289          1,816          1,496

Other expenses                                       252              -              -
                                            ------------   ------------   ------------
Income from operations before
  provision for income taxes                       5,037          1,816          1,496

Provision for income taxes                         2,080          1,030            704
                                            ------------   ------------   ------------
Net income                                  $      2,957   $        786    $       792
                                            ============   ============    ===========

Basic and diluted net income per share      $       0.20   $       0.06    $      0.06
                                            ============   ============    ===========

Basic and diluted weighted average shares
  outstanding                                     14,860         14,083         14,083
                                            ============   ============    ===========
<FN>
     The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
                                        SOFTWORKS, INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                        Accumulated
                                                                 Additional  Retained      Other          Total
                                              Common Stock        Paid-In    Earnings  Comprehensive   Stockholders'  Comprehensive
                                            Shares      Amount    Capital    (Deficit)      Loss           Equity     Income (Loss)
                                         ------------  -------  -----------  ---------- ------------   ------------   ------------


 <S>                                       <C>          <C>     <C>          <C>               <C>            <C>          <C>
 BALANCE, January 1, 1995                  14,083,000   $ 14    $     5,489  $     711   $        -     $      6,214
   Contribution to Capital                          -      -             60          -            -               60
   Net loss and comprehensive loss                  -      -              -     (1,711)           -           (1,711)  $   (1,711)
                                         ------------  -----   ------------  ---------   ----------     ------------   ==========
 BALANCE, December 31, 1995                14,083,000     14          5,549     (1,000)           -            4,563

   Net income and comprehensive income              -      -              -        792            -              792   $      792
                                         ------------  -----   ------------  ---------   ----------     ------------   ========== 
 BALANCE, December 31, 1996                14,083,000     14          5,549       (208)           -            5,355

   Foreign currency translation adjustment          -      -              -          -          (54)             (54)  $      (54)
   Net income                                       -      -              -        786            -              786          786
                                         ------------  -----   ------------  ---------   ----------     ------------   ----------

     Total comprehensive income                                                                                        $      732
                                                                                                                       ==========
 BALANCE, December 31, 1997                14,083,000     14          5,549        578         (54)            6,087

   Foreign currency translation adjustment          -      -              -          -         (13)              (13)  $      (13)
   Issuance of common stock to consultant 
    in connection with initial public 
    offering                                  190,000      -              -          -           -                 -
   Issuance of common stock pursuant to 
    the initial public offering, net of
    offering costs                          1,700,000      2          9,652          -           -             9,654
    
   Net income                                        -     -               -     2,957           -             2,957        2,957
                                         ------------  -----   ------------  ---------   ----------     ------------   ----------
     Total comprehensive income                                                                                        $    2,944
                                                                                                                       ==========
 BALANCE, December 31, 1998               15,973,000    $ 16     $   15,201   $  3,535     $   (67)      $    18,685
                                        ============   =====   ============  =========   ==========     ============
<FN>
                      The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>

                                              SOFTWORKS, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                       (In thousands)
<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                  -------------------------------------------------
                                                                       1998             1997                1996
                                                                  --------------   --------------    --------------
<S>                                                              <C>               <C>               <C>   
Cash flows from operating activities:
 Net income                                                       $        2,957   $          786    $          792
 Adjustments to reconcile net income to net cash
  provided by operating activities ---
  Amortization and depreciation
   Property and equipment                                                    774              697               505
   Software development costs                                              1,480              689               543
   Goodwill                                                                  869              749               659
  Provision for doubtful accounts                                            317               75                50
  Loss on disposal of property and equipment                                   -                -                 2
  Deferred tax provision (benefit)                                            44              (33)              569
 Changes in operating assets and liabilities---                                                    
  Accounts receivable and installment receivables                        (15,667)         (11,002)           (8,598)
  Prepaid expenses and other current assets                                 (365)            (561)             (314)
  Other assets                                                            (1,166)            (377)             (306)
  Accounts payable and accrued expenses                                    1,447            2,515               761
  Income taxes payable                                                     2,057                -                 -
  Deferred revenue                                                         8,550            6,675             8,071
                                                                  --------------   --------------    --------------
    Net cash provided by operating activities                              1,297              213             2,734
                                                                  --------------   --------------    --------------
Cash flows from investing activities:
 Purchases of property and equipment                                      (1,749)            (990)             (445)
 Software development and technology purchases                            (1,162)          (1,044)             (359)
 Additional consideration for SOFTWORKS, Inc. acquisition                   (401)            (522)             (478)
                                                                  --------------   --------------    --------------
    Net cash used in investing activities                                 (3,312)          (2,556)           (1,282)
                                                                  --------------   --------------    --------------
Cash flows from financing activities:
 Net (payments to) borrowings from Parent                                 (1,554)             407               145
 Change in amount payable to Parent for federal income taxes              (1,383)             858                 -
 Repayments of long-term debt                                                  -             (253)             (190)
 Proceeds from long-term debt                                                954                -               161
 Net proceeds from initial public offering                                 9,654                -                 -
                                                                  --------------   --------------    --------------
    Net cash provided by financing activities                              7,671            1,012               116
                                                                  --------------   --------------    --------------

Effect of exchange rate changes on cash and cash equivalents                 (13)             (44)                -
                                                                  --------------   --------------    --------------
Net increase (decrease) in cash and cash equivalents                       5,643           (1,375)            1,568
Cash and cash equivalents, beginning of period                               360            1,735               167
                                                                  --------------   --------------    --------------
Cash and cash equivalents, end of period                         $         6,003  $           360  $          1,735
                                                                  ==============   ==============    ==============
Supplemental disclosure of cash flow information:
  Interest paid                                                  $            24  $            44 $              46
                                                                  --------------   --------------    --------------
  Income taxes paid                                              $            14  $           (96) $             40
                                                                  ==============   ==============    ==============
Supplemental schedule of noncash investing and
  financing activities:
  Assumption of long-term debt from capitalized
    software technology                                              $         -   $       2,160     $            -
                                                                  ==============   ==============    ==============
<FN>
                     The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
                                 SOFTWORKS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Operations:

The Company

     SOFTWORKS, Inc. ("SOFTWORKS" or the "Company") designs, develops,  markets,
and supports  systems  management  software  products for  enterprise  computing
environments primarily in the United States.  SOFTWORKS wholly owns subsidiaries
in the United Kingdom,  France,  Brazil,  Australia,  Italy,  Germany, and Spain
which operate  primarily as sales offices.  SOFTWORKS was  incorporated  in 1977
under the state laws of Maryland and reincorporated in 1998 under the state laws
of Delaware.  In 1993,  SOFTWORKS was acquired by Computer  Concepts Corp.  (the
"Principal Shareholder").


Increase in Authorized Shares and Stock Split

     SOFTWORKS has restated its articles of incorporation to increase the number
of authorized  shares to 2,000,000 of preferred shares and 150,000,000 of common
shares.  Additionally,  on May 28,  1998,  the Board of  Directors  of SOFTWORKS
effected a  5,000-for-1  stock split.  Further,  on June 29, 1998,  the Board of
Directors of SOFTWORKS declared and issued a stock dividend of 583,000 shares of
Common Stock to its sole stockholder,  the Principal Shareholder. The effects of
the stock split, and stock dividend have been given  retroactive  application in
the consolidated financial statements for all periods presented.


Public Offering

     On August 4, 1998, the Company completed an initial public offering ("IPO")
of 4,200,000 shares of the Company's common stock, par value $.001. 1,700,000 of
these shares were sold by the Company,  resulting in net proceeds to the Company
of approximately  $9.7 million,  while the remaining  2,500,000 shares sold were
owned by the Principal Shareholder and another stockholder.  In conjunction with
the IPO, the Company also issued 190,000 shares of common stock to a consultant.


Voting Trust Agreement

     In conjunction with the IPO, shares owned by the Principal Shareholder were
deposited in a voting  trust.  The voting  power of the shares  deposited in the
trust is held by three  trustees  who are members of the Board of  Directors  of
SOFTWORKS.  One  trustee  is  the  Chief  Executive  Officer  of  the  Principal
Shareholder  and the  remaining two trustees are directors of the Company who do
not have a significant financial interest in the Principal  Shareholder,  one of
which is the Chairman of SOFTWORKS. The agreement provides that upon a change in
either of the  remaining  two  trustees,  the trustees not  affiliated  with the
Principal  Shareholder  shall have  control of the  selection  of the  successor
director/trustee.   This  agreement   remains  in  effect  until  the  Principal
Shareholder reduces its ownership to 25% of SOFTWORKS.


Principles of Consolidation

     The consolidated financial statements include the accounts of SOFTWORKS and
its wholly-owned  subsidiaries.  All significant  intercompany  transactions and
balances have been eliminated in consolidation.


Risks and Other Factors

     As a company  that  develops,  markets,  licenses  and supports a family of
enterprise systems management  software products for data and storage management
and  performance  management,  SOFTWORKS  faces  certain  risks.  These  include
dependence on proprietary  technology,  rapid  technological  change,  errors or
failures in its products, dependence on key personnel,  challenges in recruiting
personnel and a highly competitive marketplace.

     As of December 31, 1998, the Principal  Shareholder  owned more than 50% of
the  outstanding  shares of the Company.  The Principal  Shareholder  received a
going concern opinion with respect to its audited  financial  statements for the
year ended December 31, 1997. A going concern opinion was not rendered for 1998.
Under certain circumstances, the Principal Shareholder's financial condition may
influence  its  decisions as the  controlling  stockholder  of the Company.  The
voting trust agreement  noted above gives the majority of trustees  control over
significant corporate actions, including certain dispositions or encumbrances of
assets and the payment of dividends.
<PAGE>
2. Significant Accounting Policies

Revenue Recognition

     Revenue  from  the  sale  of  perpetual  and  term  software   licenses  is
recognized,  net  of  provisions  for  returns,  at the  time  of  delivery  and
acceptance  of  software  products  by  the  customer,  when  collectibility  is
probable. The Company provides customers with the option to pay for license fees
in one lump sum or in installments over extended periods of time,  generally one
to five years. In such instances,  the Company does not consider sales contracts
with  amounts  due for periods  greater  than one year from  delivery  fixed and
determinable,  and  accordingly,  recognizes  such  amounts as revenue when they
become due.  Maintenance  revenue that is bundled with an initial license fee is
deferred and recognized  ratably over the maintenance  period.  Amounts deferred
for maintenance are based on the fair value of equivalent  maintenance  services
sold  separately.  Revenue  from  professional  services  is  recognized  as the
services  are  performed.  Maintenance  and  professional  service  revenue  are
classified as services revenue on the accompanying statement of operations.

     The American  Institute  of Certified  Public  Accountants  (AICPA)  issued
Statement of Position 97-2 "Software Revenue  Recognition"  ("SOP 97-2"),  which
superceded  Statement of Position 91-1 "Software Revenue  Recognition." SOP 97-2
provides  additional  guidance  with respect to multiple  element  arrangements;
returns,  exchanges, and platform transfer rights;  resellers;  services; funded
software  development  arrangements;   and  contract  accounting.   The  Company
implemented  SOP 97-2 for the year  ended  December  31,  1997.  In March  1998,
Statement of Position  98-4 ("SOP 98-4"),  "Deferral of the Effective  Date of a
Provision  of SOP  97-2",  amended a  portion  of SOP  97-2.  Subsequent  to the
issuance  of SOP 98-4 the  AICPA  issued  SOP 98-9,  "Modification  of SOP 97-2,
Software Revenue Recognition,  With Respect to Certain Transactions".  SOP 97-2,
the amendment  contained in SOP 98-4 and the modification  contained in SOP 98-9
were adopted by the Company but did not have a material  effect on the Company's
software revenue recognition policy.


Cash Equivalents

     The  Company  considers  all highly  liquid  instruments  with an  original
maturity of three months or less at the time of purchase to be cash equivalents.


Installment Receivables

     The Company offers customers  extended payment terms to purchase  software.
The extended payment plans consist  generally of plans with payment terms of one
to five years.  The Company  records an installment  receivable for the payments
not yet billed by the Company.  When the payment is billed by the  Company,  the
payment is classified as accounts receivable.

     The Company imputes  interest on the extended  payment plans and recognizes
interest income as the related deferred license revenue is recognized.


Property and Equipment

     Property  and   equipment  are  stated  at  cost  and   depreciated   on  a
straight-line  basis over the  estimated  useful  lives of the  related  assets.
Leasehold  improvements are amortized over the shorter of the useful life of the
asset or the lease term. Capitalized lease assets are amortized over the shorter
of the lease term or the service life of the related assets.


Software Development Costs

     Costs  associated with the  development of software  products are generally
capitalized once  technological  feasibility is established.  Purchased software
technologies are recorded at cost and software technologies acquired in purchase
business transactions are recorded at their estimated fair value. Software costs
associated with technology  development and purchased software  technologies are
amortized  using the greater of the ratio of current  revenue to total projected
revenue for a product or the  straight  line method over a useful life of 2 to 5
years.  Amortization of software costs begins when products become available for
general  customer  release.   Costs  incurred  prior  to  the  establishment  of
technological feasibility are expensed as incurred and reflected as research and
development costs in the accompanying consolidated statements of operations.


Goodwill

     In connection  with its  acquisition  by the Principal  Shareholder in 1993
under which there was a change in 100 percent of the Company's equity interests,
the excess of the  acquisition  cost of the Company  over the then fair value of
its tangible and  intangible  net assets (or  goodwill) has been recorded on the
books of the  Company,  using  "push-down"  accounting.  The  goodwill  is being
amortized over a ten year period.
<PAGE>
Impairment of Long-Lived Assets

     The Company reviews its long-lived  assets,  including  goodwill  resulting
from business acquisitions, capitalized software development costs, and property
and  equipment,  for  impairment  whenever  events or changes  in  circumstances
indicate that the carrying amount of the assets may not be fully recoverable. To
determine  recoverability  of its long-lived  assets,  the Company evaluates the
probability that future  undiscounted net cash flows,  without interest charges,
will be less than the carrying amount of the assets.  The Company has determined
that as of December 31, 1998, there has been no impairment in the carrying value
of long-lived assets.


Income Taxes

     The  Company  accounts  for  income  taxes  under  Statement  of  Financial
Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS No. 109").
SFAS No. 109 requires the  determination  of deferred tax assets and liabilities
based on the differences between the financial statement and income tax bases of
assets and liabilities,  using enacted tax rates. SFAS No. 109 requires that the
net deferred tax asset is to be adjusted by a valuation allowance,  if, based on
the weight of available  evidence,  it is more likely than not that some portion
or all of the net deferred tax asset will not be realized.


Basic and Diluted Net Income (Loss) Per Share

     In March 1997, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement  No.  128,  "Earnings  Per Share"  ("SFAS No.  128").  SFAS No. 128 is
effective for financial  statements issued for periods ending after December 15,
1997 and has been implemented for all periods  presented.  SFAS No. 128 requires
dual  presentation of basic and diluted  earnings per share.  Basic earnings per
share  includes no dilution and is computed by dividing net income  available to
common  stockholders by the weighted average number of common shares outstanding
for the period.  Diluted earnings per share includes the potential dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or converted  into common  stock.  As of December 31, 1998,  the total
stock options  outstanding  were 3,604,225 of 3,727,000  authorized.  Due to the
anti-dilutive  nature of the  options  for all  periods  presented,  there is no
effect on the  calculation of weighted  average shares for diluted  earnings per
share.  As a result,  the basic  and  diluted  earnings  per share  amounts  are
identical.

     Basic and diluted net earnings per share is also  computed  pursuant to SEC
Staff  Accounting  Bulletin No. 98 ("SAB 98").  SAB 98 requires  that all equity
instruments issued at nominal prices,  prior to the effective date of an initial
public offering,  be included in the calculation of basic and diluted net income
per share as if they were  outstanding  for all periods  presented.  To date the
Company has not had any issuances or grants at nominal prices.


Foreign Currency

     The functional currency for all of the Company's international subsidiaries
is the  subsidiary's  local currency.  Assets and  liabilities of  international
subsidiaries are translated into U.S.  dollars at period-end  exchange rates and
revenue and expense  accounts and cash flows are translated at average  exchange
rates  during  the  period.  Gains and losses  resulting  from  translation  are
recorded as accumulated  other  comprehensive  income in  stockholders'  equity.
Transaction  gains and losses are recognized in the  consolidated  statements of
operations as incurred.  The Company does not engage in any hedging activities .
As a result, there is no guarantee that fluctuations in exchange rates might not
have a material adverse effect on the Company's financial results.

     Included in cash and cash equivalents at December 31, 1998 and December 31,
1997 is  approximately  $464,000  and  $278,000 of cash  denominated  in various
foreign currencies, respectively.


New Accounting Pronouncements

     The Company has adopted  SFAS No. 130,  "Reporting  Comprehensive  Income."
SFAS No. 130  establishes  standards for reporting and display of  comprehensive
income and its components in the financial statements.  The adoption of SFAS No.
130 did not have a  material  impact on the  Company's  results  of  operations,
financial position, or cash flows.

     The Company has adopted  SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise and Related  Information." SFAS No. 131 establishes standards for the
<PAGE>
way that public business enterprises report information about operating segments
in annual  financial  statements  and  requires  that those  enterprises  report
selected  information  about  operating  segments in interim  financial  reports
issued to shareholders.  It also establishes  standards for related  disclosures
about products and services,  geographic areas and major customers. The adoption
of SFAS No.  131 has had no  significant  impact  on the  Company's  results  of
operations, financial position or cash flows.

     In March 1998, the AICPA issued  Statement of Position 98-1 "Accounting for
the Costs of Computer  Software  Developed or Obtained for Internal Use",  ("SOP
98-1").  SOP 98-1 requires the Company to capitalize  internal computer software
costs once certain capitalization criteria is met. SOP 98-1 is effective January
1, 1999, and is applied to all projects in progress upon the initial application
of SOP 98-1.  The Company has not yet  determined  the impact of the adoption of
SOP 98-1, however, a percentage of the Company's historical development expenses
may now be required to be capitalized under SOP 98-1.

     During  1998,  the  Company  adopted  AICPA  Statement  of  Position  98-5,
"Reporting on the Cost of Start-Up  Activities."  The adoption of this statement
requires the expensing of preopening costs as incurred. The adoption of SOP 98-5
did not have a material impact on the Company's results of operations, financial
position, or cashflows.


Concentrations and Fair Value of Financial Instruments

     Financial   instruments   that   potentially   subject   the   Company   to
concentrations of credit risk consist  principally of cash equivalents and trade
accounts  receivables.  At December 31, 1998, the Company's cash investments are
held at  various  financial  institutions,  which  limits  the  amount of credit
exposure to any one financial  institution.  Concentrations  of credit risk with
respect to trade  accounts  receivables  are limited due to the large  number of
customers  comprising  the Company's  revenue base and their  dispersion  across
different  industries and geographic  areas. The Company performs ongoing credit
evaluations  of its  customers'  financial  condition but requires no collateral
from its  customers.  Unless  otherwise  disclosed,  the fair value of financial
instruments approximates their recorded values.


Use of Estimates

     In preparing consolidated financial statements in conformity with generally
accepted accounting principles,  management makes estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities  and  disclosures  of
contingent  assets and  liabilities  at the date of the  consolidated  financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.


Reclassifications

     Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.


3. Installment Receivables and Deferred Installment Revenue:

     Perpetual  license  agreements  may be executed under  installment  payment
plans with  payment  terms of one to five  years.  The  initial  payment  due is
classified as accounts  receivable and the remaining  payments are classified as
installment receivables. Revenue for payment terms beyond one year is classified
as deferred installment revenues and recognized when the payments become due.

     Maintenance  revenue  that is  bundled  with  the  initial  license  fee is
deferred, classified as deferred installment revenue and recognized ratably over
the  maintenance  period.  The  maintenance  revenue due within twelve months is
classified  as accounts  receivable  and the amount due beyond  twelve months is
classified as installment receivables.

     The  following   identifies  the  payment   schedules  for  the  noncurrent
installment receivables at December 31, 1998 (in thousands):
<PAGE>
<TABLE>
<CAPTION>
                                             Payment Schedule
                                             ----------------

      <S>                                          <C>             
      Due in 2000                             $         5,249
      Due in 2001                                       1,852
      Due in 2002                                         756
      Due in 2003                                          51
                                             ----------------
                                              $         7,908
                                             ================
</TABLE>


     Deferred  installment revenue which relates to the installment  receivables
is scheduled to be earned as follows (in thousands):
<TABLE>
<CAPTION>

                                              Software Licenses       Software            Total
                                                                    Maintenance
                                             --------------------------------------------------------

 <S>                                          <C>               <C>                 <C>              
 Earned in 1999                               $         5,656   $           1,658   $           7,314

                                             ================   =================   =================

 Earned in 2000                                         3,988               1,237               5,225
 Earned in 2001                                         1,428                 424               1,852
 Earned in 2002                                           534                 222                 756
 Earned in 2003                                            38                  12                  50
                                             ----------------   -----------------   ----------------- 
                                              $         5,988   $           1,895   $           7,883
                                             ================   =================   =================
</TABLE>


     The  Company  imputes  interest on extended  payment  contracts  based on a
borrowing rate of 6.1% (libor plus one percent).  Interest  income is recognized
when the  related  deferred  license  revenue  is  recognized.  Interest  income
included in software  license revenue is $433,000 in 1998,  $136,000 in 1997 and
$0 in 1996.


4.  Prepaid Expenses and Other Assets:

     Included  in  prepaid   expenses  and  other  current  assets  are  prepaid
commissions of $839,000 and $511,000 at December 31, 1998 and December 31, 1997,
respectively.  Also included in other assets are noncurrent prepaid  commissions
of  $878,000   and  $538,000  at  December  31,  1998  and  December  31,  1997,
respectively.


5.  Property and Equipment:

     Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                                       December 31,
                                               Useful Life      --------------------------
                                                 in Years           1998          1997
                                             ----------------   ------------   -----------


 <S>                                              <C>            <C>            <C>        
 Computer equipment and software                  3 to 5         $     4,214    $     2,565
 Furniture and fixtures                           5 to 7                 250            204
 Leasehold improvements                              7                   554            500
                                                                 -----------    -----------
                                                                       5,018          3,269
                                                                 -----------    -----------

 Less-Accumulated depreciation                                        (2,520)        (1,746)
                                                                 -----------    -----------

         Property and equipment, net                             $     2,498    $     1,523
                                                                 ===========    ===========
</TABLE>
<PAGE>
6.  Software Development Costs:

     Software development costs consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                            December 31,
                                               -------------------------------------
                                                      1998               1997
                                               -----------------   -----------------


 <S>                                            <C>                <C>              
 Capitalized software development costs         $          2,298   $           1,242
 Purchased and acquired software
  technologies for resale                                  4,334               4,228
                                               -----------------   ----------------- 
                                                           6,632               5,470
                                               -----------------   -----------------

 Less-Accumulated amortization                            (3,593)             (2,113)
                                               -----------------   -----------------

 Capitalized software development costs, net    $          3,039   $           3,357
                                               =================   =================
</TABLE>
     In July 1997,  the Company  acquired from  Cognizant  Technology  Solutions
Corporation  ("CTS") the rights to certain  technology (the  "Technology")  that
complement  certain  Year 2000  product  solutions  and the  development  of the
Company's  application  resource  management  tools.  Pursuant  to the  software
distribution  agreement,  in exchange for the Technology  rights, the Company is
required  to pay CTS a  royalty  on sales of the  Technology  at  defined  rates
subject to minimum annual  royalties as follows:  $100,000 in 1997,  $900,000 in
1998,  $1,400,000  in 1999 and  $400,000 in 2000.  An asset equal to the present
value of the  minimum  annual  royalties  of  $2,160,000  has been  recorded  as
purchased and acquired  software  technologies for resale and is being amortized
using the  straight-line  method over the five year term of the  agreement.  The
payment obligation is recorded as debt.


7. Acquisition by the Principal Shareholder:

     In September  1993,  the Company was acquired by the Principal  Shareholder
and the  acquisition  was accounted for using the purchase method of accounting.
Accordingly, assets and liabilities were recorded at their fair values as of the
effective date of the  acquisition,  and the operations of the Company have been
included in the Principal  Shareholder's  consolidated  statements of operations
since that date. The purchase price approximated $5,700,000 (payable in cash and
restricted common stock of the Principal Shareholder) and originally resulted in
$5,484,000 of goodwill  related to the excess of cost over the fair value of net
assets  acquired.  The  acquisition  agreement also required the Company to make
additional  contingent purchase  consideration  payments to two of the Company's
former  stockholders based upon certain product revenue for the four-year period
ending  September  1998,  up to a maximum of $1,000,000  each,  for an aggregate
maximum of $2,000,000. As of December 31, 1998, the Company had paid the maximum
of $2,000,000 to the non-employee former stockholders, which has been treated as
additional  consideration in connection with the acquisition  and,  accordingly,
added to the goodwill related to the acquisition.


8.  Accounts Payable and Accrued Expenses:

     Accounts  payable  and  accrued  expenses  consist  of  the  following  (in
thousands):
<TABLE>
<CAPTION>
                                                             December 31,
                                               -------------------------------------
                                                     1998                1997
                                               -----------------   -----------------

 <S>                                                       <C>                 <C>  
 Trade accounts payable                                    1,069               1,834
 Accrued payroll and benefits                              1,046                 579
 Commissions payable                                       2,463               1,368
 Royalties Payable                                           538                  75
 Other accrued expenses                                    1,020                 833
                                               -----------------   -----------------

                                                           6,136               4,689
                                               =================   =================
</TABLE>
<PAGE>
     9.    Stock Options and Stock-Based Compensation:

Principal Shareholder Common Stock and Options

     Prior  to the  IPO,  certain  Company  employees  received  part  of  their
compensation in the form of the Principal Shareholder's common stock or options.
Included in the Company's  consolidated  statements  of  operations  are noncash
compensation  charges  related to the fair value of the Principal  Shareholder's
common stock issued and noncash  compensation  charges  related to the intrinsic
value of stock options granted  pursuant to APB Opinion No. 25,  "Accounting for
Stock Issued to Employees".  Charges for both stock and options  totaled $18,000
and  $187,000  for the years ended  December  31,  1997 and 1996,  respectively.
During 1998,  no such stock or options were issued.  Accordingly,  there were no
related charges. In addition, during 1998, certain outstanding options under the
existing  plan were  repriced;  however,  there were no  related  charges to the
Company associated with this repricing.

Stock Option Plan

     In May 1998,  the  Company  adopted  the  SOFTWORKS,  Inc.  1998  Long-Term
Incentive Plan (the "1998  Incentive  Plan") which  authorizes the issuance of a
maximum of 3,727,000  shares of Common Stock.  The 1998  Incentive Plan provides
for grants of options to officers,  key employees,  consultants  and independent
contractors of the Company and its affiliates.  The 1998 Incentive Plan provides
for the  granting of  incentive  stock  options,  non-qualified  stock  options,
performance  grants and other types of awards.  This plan is administered by the
Long-Term  Incentive  Plan  Administrative  Committee of the Board of Directors,
which has sole  discretion and authority,  consistent with the provisions of the
1998  Incentive  Plan, to determine  which  eligible  participants  will receive
options, the time when options will be granted and the terms of options granted.

     Prior to the implementation of the 1998 Incentive Plan, the Company did not
have a stock  option  plan in place.  The  following  is a summary of the option
activity of the 1998 Incentive Plan.
<TABLE>
<CAPTION>

                                            Options            Weighted-
                                                           Average Exercise
                                                                 Price
                                       -----------------   -----------------
 <S>                                           <C>         <C>
 Balance December 31, 1997                             -   $               -
 Stock options granted                         3,613,850                7.00
 Stock options exercised                               -                   -
 Stock options canceled                           (9,625)               7.00
                                       -----------------   -----------------
 Balance December 31, 1998                     3,604,225   $            7.00
                                       =================   =================
</TABLE>
     As of December 31,  1998,  options to purchase  1,599,660  shares of common
stock were  exercisable  with a  weighted-average  exercise price of $7.00.  The
weighted-average  remaining  contractual life of options outstanding at December
31, 1998,  was 3.3 years.  The weighted  average fair value of options issued in
1998 was $3.77.

     In October 1995, the FASB issued SFAS No. 123,  "Accounting for Stock-Based
Compensation."  SFAS No. 123 defines a "fair value based  method" of  accounting
for stock-based  compensation.  Under the fair value based method,  compensation
cost is  measured  at the grant date based on the fair value of the award and is
recognized  over the  service  period.  Prior to the  issuance  of SFAS No. 123,
stock-based compensation was accounted for under the "intrinsic value method" as
defined by Accounting  Principles Board ("APB") Opinion No. 25,  "Accounting for
Stock Issued to Employees."  Under the intrinsic  value method,  compensation is
the  excess,  if any,  of the  market  price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.

     SFAS No.  123  allows an  entity to  continue  to use the  intrinsic  value
method.  However,  entities  electing the  accounting in APB Opinion No. 25 must
make pro forma  disclosures  as if the fair value based method of accounting had
been  applied.   The  Company  applies  APB  Opinion  No.  25  and  the  related
interpretations in accounting for its stock-based compensation.
<PAGE>
     Had  compensation  expense been  determined  based on the fair value of the
options at the grant dates  consistent with the method of accounting  under SFAS
No.  123,  the  Company's  net income  and net income per share  would have been
decreased to the pro forma amounts  indicated  below (in  thousands,  except per
share amounts):
<TABLE>
<CAPTION>

                                                       Year Ended December 31,
                                             --------------------------------------
                                                1998            1997         1996
                                             ---------        -------      --------
   <S>                                        <C>             <C>          <C>   
   Net income (loss) attributable to 
    common stockholders:
       As reported..................          $  2,957        $   786      $    792
       Pro forma....................          $   (287)           598           672


   Basic and diluted loss per share:
       As reported..................          $   0.20        $  0.06       $  0.06
       Pro forma....................          $  (0.02)          0.04          0.05
</TABLE>

     The fair value of each option is  estimated  on the date of grant using the
Black-Scholes  option-pricing  model  with the  following  assumptions  used for
grants  during the years ended  December  31, 1998,  1997 and 1996:  no dividend
yield,  expected volatility from 72% to 130%, risk-free interest rates from 5.4%
to 6.3% and an expected terms ranging from 1.1 to 4.4 years.


10. Transactions with the Principal Shareholder:

     Prior to the initial public offering,  the Principal  Shareholder  provided
certain  corporate  and  administrative  services  to  the  Company,   including
executive  management  and  professional  services  (accounting,  auditing,  and
legal).  These  services were performed for $500,000 in the years ended December
31,  1997 and  1996.  These  costs  were  allocated  to the  Company  based on a
proportional cost allocation method.  During 1998, there were no net charges for
administrative  services. The Company and its Principal Shareholder also jointly
participated  in  certain  employee  benefit  plans  (defined  contribution  and
employee  health),  and the Company was allocated a portion of these costs on an
incremental  basis.  As of December 31, 1998 the Company's  foreign  subsidiary,
Softworks  International,  Ltd employed 2 individuals  that  performed  services
primarily  on behalf of the  Principal  Shareholder.  These  amounts,  and other
associated costs are reimbursed to the Company periodically.  As of December 31,
1998,  the  amount  owed  to  the  Company  by  the  Principal  Shareholder  was
approximately $188,000, which has subsequently been repaid.

     Management believes that the intercompany charges and cost allocations were
reasonable and approximate the expenses that the Company would have incurred had
it been operating as a stand-alone  entity.  Subsequent to its public  offering,
the Company has performed the corporate and administrative  functions  directly,
using  its  own  resources  or  purchased  services,  and  will  continue  to be
responsible  for the costs and  expenses  associated  with the  management  of a
public corporation.  As of December 31, 1998, other than as set forth above, the
Company had no amounts due from or owed to the Principal Shareholder.
<PAGE>
11.  Income Taxes:

     The following  table  summarizes  components of income (loss) before income
taxes and the (benefit  from)  provision  for both  current and deferred  income
taxes.
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                     -----------------------------------------------------
                                                          1998               1997               1996
                                                     ---------------    ---------------    ---------------

<S>                                                  <C>               <C>               <C>    
Income (loss) before (benefit from) provision
 for income taxes:
  United States                                      $        4,857    $         2,579    $         1,471
  Foreign                                                       180               (763)                25
                                                     --------------    ---------------    ---------------
     Total                                           $        5,037    $         1,816    $         1,496
                                                     ==============    ===============    ===============

Provision for (benefit from) income taxes

  Current-
    United States                                    $        1,769     $           858    $             -
    Foreign                                                      30                  55                135
    State and other                                             237                 150                  -
                                                      --------------    ---------------    ---------------
                                                              2,036               1,063                135
                                                      --------------    ---------------    ---------------

  Deferred-
    United States                                                40                (27)                505
    Foreign                                                       -                  -                 (16)
    State and other                                               4                 (6)                 80
                                                    ---------------     ---------------    ---------------
                                                                 44                (33)                569
                                                    ---------------     ---------------    ---------------

     Total                                          $        2,080    $          1,030     $           704
                                                    ===============    ===============     ===============
</TABLE>
         The following table summarizes the significant  differences between the
U.S.  Federal  statutory  tax  rate  and the  Company's  effective  tax rate for
financial statement purposes:
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                  -------------------------------------------------------
                                                       1998                1997                1996
                                                  ---------------     ---------------     ---------------

<S>                                                          <C>                <C>                 <C>   
U.S. Federal statutory tax rate                              34.0%               34.0%               34.0%
State and local taxes, net of U.S. federal tax effect         4.7                 3.5                 6.8
Non-U.S. taxes                                                1.0                 2.0                 5.9
Foreign operating (loss) income                              (0.4)               14.3               (0.6)
Other                                                         2.0                 2.9                 1.0
                                                  ---------------     ---------------     ---------------
     Effective tax rate                                      41.3%               56.7%               47.1%
                                                  ===============     ===============     ===============
</TABLE>
         The tax effects of temporary  differences and  carryforwards  that give
rise to significant portions of deferred tax assets are summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
                                                                              December 31,
                                                                    -----------------------------
                                                                        1998             1997
                                                                    ------------    -------------
<S>                                                                  <C>            <C>    
          Current:
          Accruals and reserves                                      $       306    $         138
                                                                    ------------    -------------
                                                                             306              138
                                                                    ------------    -------------

          Long-Term:
          Fixed and intangible assets                                        115              347
          Capitalized software                                               369              349
          Net operating loss carryforwards - foreign                         200              229
          Valuation allowance on foreign net operating
            loss carryforwards                                             (200)            (229)
                                                                    ------------    -------------
                                                                             484              696
                                                                    ------------    -------------

          Net deferred tax assets                                   $        790    $         834
                                                                    ============    =============
</TABLE>
         In 1997, the Company utilized federal net operating losses generated in
1995 and 1996, aggregating $1,000,000. Included in the deferred tax assets as of
December 31, 1998 and 1997, is net operating income and loss from  international
subsidiaries in the amount of $180,000 and $763,000, resulting in a deferred tax
benefit of $200,000 and $229,000,  respectively.  Most of the net operating loss
carryforwards  have no  expiration  date.  The  Company  has  provided  for full
valuation allowances of these international net operating losses.


12.  Commitments and Contingencies:

Royalty Commitments

     The Company has entered into royalty  agreements with several  employees of
the  Company.  These  agreements  call for  royalties  ranging  from 1% to 7% of
various product revenue. These agreements range in term from three to five years
and  contain no  provisions  for minimum  royalties.  One  agreement  is with an
officer of the Company and has resulted in royalty expense of $115,000, $188,000
and $98,000 for the years ended December 31, 1998, 1997 and 1996,  respectively.
The agreement with this officer was  terminated in conjunction  with the signing
of an employment agreement in 1998.


Employment Agreements

     The  Company  has  entered  into  employment  agreements  with  several key
employees of the Company.  These  agreements  call for an annual  aggregate base
compensation commitment of $800,000 through 2001.



Leases

     The   Company   leases   certain   computer   equipment   under   long-term
non-cancelable leases which are classified as capital leases and are included as
part of property and equipment.  Operating leases are primarily for office space
and equipment.
<PAGE>
         At December 31, 1998, the future minimum lease payments under operating
and capital leases are summarized as follows (in thousands):
<TABLE>
<CAPTION>
      Year Ending December 31,           Operating Leases    Capital Leases          Total
-------------------------------------  --------------------------------------- -----------------

 <S>                                                <C>                 <C>              <C>  
 1999                                               1,080               269              1,349
 2000                                               1,013               269              1,282
 2001                                                 747               268              1,015
 2002                                                 153                 -                153
 2003                                                 101                 -                101
                                        -----------------   -----------------   -----------------
                Total                               3,094               806              3,900

Amounts representing interest                           -               (59)               (59)
                                        -----------------   -----------------   -----------------

                 Net                                3,094               747              3,841
                                        =================  =================    =================
</TABLE>
     Rent expense approximated  $1,097,000,  $896,000 and $522,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.


Employee 401(k) Savings Plan

     The Company  provides  pension  benefits to  eligible  employees  through a
401(k) plan sponsored jointly by the Company and the Principal Shareholder.  The
Company's allocable share of employer matching contributions to this 401(k) plan
approximated $77,000, $52,000 and $36,000 for the years ended December 31, 1998,
1997 and 1996, respectively.


Long Term Debt

     The Company's long term debt commitments  consist of future amounts due for
certain technology purchases (Note 6) and an obligation under a capital lease.

13. Segment Reporting

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures  about  Segments of an Enterprise and Related  Information,"  which
establishes  standards  for the way  that  public  business  enterprises  report
information  about  operating  segments in the annual  financial  statements and
requires  selected  information  about operating  segments in interim  financial
reports.  SFAS No. 131 also establishes  standards for related disclosures about
products and services, geographic areas and major customers.

     The Company is primarily engaged in a single line of business.  The Company
aggregates  and reports  revenues  from  products  which have  similar  economic
characteristics  in their nature,  production,  and  distribution  process.  The
Company's  geographic  locations vary between full  operating  offices and sales
offices.  The Company has identified the reportable  operating segments as North
America and  International.  These operating  segments are representative of the
Company's  management  approach  to  its  evaluation  of  the  operations.   The
accounting  policies of the reportable  operating segments are the same as those
described in the summary of significant  accounting policies.  The International
segment includes an aggregation of certain  operations  consisting  primarily of
sales operations through the Company's international  subsidiaries in the United
Kingdom,  France,  Brazil,  Australia,  Spain,  Germany,  and  Italy,  and sales
generated through international  distributors  primarily in Europe and Asia. The
following  information  is  presented  in  accordance  with SFAS No. 131 for all
periods presented (in thousands):
<PAGE>
<TABLE>
<CAPTION>
                                                                              1998
                                               ----------------------------------------------------------------------
                                                  Mar. 31      June 30       Sept. 30      Dec 31           Year
                                               ------------- ------------ --------------- ------------- -------------
                                                (unaudited)  (unaudited)    (unaudited)    (unaudited)
<S>                                                    <C>          <C>             <C>          <C>           <C>   
Revenue
     North America                                     5,290        7,022           8,827        13,812        34,951
     International                                     1,306        2,032           2,420         3,040         8,798
                                               ------------- ------------ --------------- ------------- -------------
          Total                                        6,596        9,054          11,247        16,852        43,749
                                               ============= ============ =============== ============= =============
Operating Income (Loss)
     North America                                      (384)         464           1,395         4,588         6,063
     International                                      (589)        (128)           (227)          170          (774)
                                               ------------- ------------ --------------- ------------- -------------
          Total                                         (973)         336           1,168         4,758         5,289
                                               ============= ============ =============== ============= =============     
Identifiable Assets
     North America                                    31,897       32,457          39,478        48,827        48,827
     International                                     3,465        4,235           6,517         9,525         9,525
                                               ------------- ------------ --------------- ------------- -------------
          Total                                       35,362       36,692          45,995        58,352        58,352
                                               ============= ============ =============== ============= =============

                                                                              1997
                                               ----------------------------------------------------------------------

                                                  Mar. 31      June 30       Sept. 30      Dec 31           Year
                                               ------------- ------------ --------------- ------------- -------------
                                                (unaudited)  (unaudited)    (unaudited)    (unaudited)
Revenue
     North America                                     3,647        5,161           5,709         7,521        22,038
     International                                     1,019        1,106           1,195         1,412         4,732
                                               ------------- ------------ --------------- ------------- -------------
          Total                                        4,666        6,267           6,904         8,933        26,770
                                               ============= ============ =============== ============= =============
Operating Income (Loss)                                                                                  
     North America                                     (263)          215             503         1,901         2,356
     International                                     (233)         (151)           (169)           13          (540)
                                               ------------- ------------ --------------- ------------- -------------
          Total                                        (496)           64             334         1,914         1,816
                                               ============= ============ =============== ============= =============
Identifiable Assets
     North America                                    21,240       23,881          26,878        33,015        33,015
     International                                     1,152        1,307           1,820         2,668         2,668
                                               ------------- ------------ --------------- ------------- -------------
          Total                                       22,392       25,188          28,698        35,683        35,683
                                               ============= ============ =============== ============= =============

                                                                              1996
                                               ----------------------------------------------------------------------

                                                  Mar. 31      June 30       Sept. 30      Dec 31           Year
                                               ------------- ------------ --------------- ------------- -------------
                                                (unaudited)  (unaudited)    (unaudited)    (unaudited)
Revenue
     North America                                     2,236        2,051           3,188         4,168        11,643
     International                                       956        1,363             900         1,663         4,882
                                               ------------- ------------ --------------- ------------- -------------
          Total                                        3,192        3,414           4,088         5,831        16,525
                                               ============= ============ =============== ============= =============
Operating Income (Loss)
     North America                                      (267)        (155)            441           571           590
     International                                       110          337              80           379           906
                                               ------------- ------------ --------------- ------------- -------------
          Total                                         (157)         182             521           950         1,496
                                               ============= ============ =============== ============= =============

Identifiable Assets
     North America                                    11,649       12,753          15,241        21,272        21,272
     International                                       435          770             851         1,271         1,271
                                               ------------- ------------ --------------- ------------- -------------
          Total                                       12,084       13,523          16,092        22,543        22,543
                                               ============= ============ =============== ============= =============
</TABLE>
<PAGE>
     Revenue  from  unaffiliated  customers  is  based  on the  location  of the
customer.  Operating  income (loss) consists of the related income (loss) of the
Company's  subsidiaries based upon the location of their respective  operations.
Identifiable  assets are those assets used in the Company's  operations in those
operating  segments.  No single customer represents greater than five percent of
revenues.

14.  Interim Financial Data -- Unaudited

The  following  table of quarterly  financial  data has been  prepared  from the
financial  records of the Company,  without audit,  and reflects all adjustments
that are, in the opinion of management, necessary for a fair presentation of the
results of operations for the interim periods presented:
<TABLE>
<CAPTION>
                                                                1998 Quarter Ended
                                               -------------------------------------------------------
                                                   Mar. 31      June 30       Sept. 30        Dec. 31
                                               ------------ ------------ --------------- -------------
<S>                                                    <C>          <C>            <C>           <C>   
Revenue                                                6,596        9,054          11,247        16,852
Gross margin                                           5,632        8,334          10,217        15,316
Income (loss) from operations                           (973)         336           1,168         4,758
Net income (loss)                                       (767)         (13)            537         3,200
Basic and diluted income (loss) per share              (0.05)       (0.00)           0.04          0.20



                                                                1997 Quarter Ended
                                               --------------------------------------------------------
                                                  Mar. 31       June 30       Sept. 30        Dec. 31
                                               ------------ ------------- --------------- -------------
Revenue                                               4,666         6,267           6,904         8,933
Gross margin                                          4,385         5,943           6,465         8,342
Income (loss) from operations                          (496)           64             334         1,914
Net income (loss)                                      (333)          (20)            127         1,012
Basic and diluted income (loss) per share             (0.02)        (0.00)           0.01          0.07
</TABLE>
The sum of the per share amounts may not equal the annual amounts because of the
changes in the weighted-average number of shares outstanding during the year.
<PAGE>
ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None
<PAGE>
                                    PART III


ITEM 10    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive officers and directors of Softworks, and their ages as of December 31,
1998, are as follows:
<TABLE>
<CAPTION>

Name                                    Age                  Position
----                                    ---                  --------
<S>                                     <C>         <C>    
Directors and Executive Officers
James A. Cannavino(1)                   54          Chairman of the Board of Directors
Judy G. Carter                          46          President, Chief Executive Officer and Director
C.R. Kinsey, III                        53          Vice President and Chief Technology Officer
Robert C. McLaughlin                    52          Treasurer and Chief Financial Officer
Daniel DelGiorno, Jr.                   43          Director
Robert Devine(1)                        59          Director
Charles Feld(1)                         55          Director
Other Key Personnel
Joseph Miksch                           50          Vice President, Global Sales
Lisa Welch                              33          Vice President, Technology
<FN>
(1)  Member, audit committee.
</FN>
</TABLE>
     James A. Cannavino has been Chairman of the Board of Softworks  since April
1998. Mr. Cannavino is President and Chief Executive Officer of CyberSafe, Inc.,
a corporation  specializing in network security.  He was the President and Chief
Executive Officer of Perot Systems  Corporation  through July 1997, and prior to
that  was  a  Senior  Vice  President  at  IBM,  responsible  for  strategy  and
development.  He  also  served  on the IBM  Corporate  Executive  Committee  and
Worldwide  Management Council, and on the board of IBM's integrated services and
solutions company.  Mr. Cannavino currently is a consultant to Computer Concepts
and  serves on the  boards of the  National  Center for  Missing  and  Exploited
Children, 7th Level and Marist College.

     Judy G.  Carter  has been  President  and  Chief  Executive  Officer  and a
Director of Softworks  since October  1993.  Prior  thereto,  Ms. Carter was the
Chief Operating Officer for Softworks from 1991. Ms. Carter started at Softworks
as a system  software  developer and progressed into a number of supervisory and
managerial roles,  culminating in her appointment as vice president of technical
services in 1990. Ms. Carter is a director of Fairfax Opportunities Unlimited, a
non-profit organization.

     C.R.  Kinsey,  III, a co-founder of Softworks,  has been Vice  President of
Softworks since May 1998 and has been Chief Technology  Officer since 1977. From
1977 until May 1998, Mr. Kinsey was also Secretary and Treasurer of the Company.
In  addition,  Mr.  Kinsey  is a  primary  technical  advisor  to the  Company's
technology   division  for  new  product  research  and   development,   product
enhancements and service and support.

     Robert C. McLaughlin has been Treasurer and Chief  Financial  Officer since
March 1998. Prior thereto,  Mr. McLaughlin was a Department Director with global
responsibilities  at Perot Systems  Corporation  in Dallas,  Texas from November
1996 through December 1997. Mr.  McLaughlin also served as Senior Vice President
for a real estate  investment  venture in West Palm Beach,  Florida from 1993 to
1996, as a Vice President of First Union National Bank of Florida,  N.A. in Fort
Lauderdale  from 1991 to 1993 and a Vice  President of Southeast  Bank,  N.A. in
Miami from 1987 to 1991.

     Daniel DelGiorno,  Jr. has been a Director of Softworks since May 1998. Mr.
DelGiorno is the President and Chief Executive Officer, Treasurer and a director
of Computer Concepts for more than the past five years. He is also the President
and  principal  stockholder  of Tech  Marketing  Group Corp.,  a privately  held
corporation which is a stockholder of Computer Concepts.

     Robert Devine has been a Director of Softworks  since May 1998.  Mr. Devine
is a director and the Chief Executive Officer of Chemtainer Industries, Inc. for
more than twenty years.  Chemtainer  Industries  manufactures  and distributes a
diverse array of commercial and consumer products nationally and internationally
with eleven  plants  located in nine states from coast to coast.  Mr.  Devine is
also a director  of  Rototron  Corp.  and Tracey  International,  and has been a
director  and  vice-president  of the  non-profit  New York City  Mental  Health
Association for more than ten years.

     Charles Feld has been a Director of Softworks  since July 1998. Mr. Feld is
President of the Feld Group,  Inc., a provider of  temporary  chief  information
officer consulting  services,  for more than the past five years. Since December
1997, Mr. Feld has also served as operating Chief  Information  Officer of Delta
Air Lines.  Prior thereto,  from June 1992 until August 1997, Mr. Feld served as
operating Chief Information Officer for Burlington Northern Santa Fe Corp.
<PAGE>
Other Key Personnel

     Joseph Miksch has been Vice President,  Global Sales since 1996. Mr. Miksch
is responsible  for all of Softworks's  global direct and indirect sales efforts
in Europe,  the Middle East,  Africa,  Asia-Pacific and North and South America.
Prior to joining the Company,  Mr.  Miksch was Chief  Operating  Officer at DBE,
Inc. for two years, where he was responsible for launching new products into the
Oracle and DB2  markets.  Prior  thereto,  for 10 years,  Mr.  Miksch  served in
several  senior vice  president  positions at Computer  Associates,  Inc. in its
system, graphics application and database divisions.

     Lisa Welch has been Vice  President,  Technology  since 1996.  Ms. Welch is
responsible for strategic planning and business development, and direct research
and  product  development.  She is also  responsible  for  customer  service and
information delivery  activities.  Prior to joining Softworks in 1988, Ms. Welch
was employed with NCR as a systems engineer.


ITEM 11    EXECUTIVE COMPENSATION

The information that is required in response to this Item is incorporated herein
by reference to Softworks'  Proxy  Statement to be filed with the Securities and
Exchange Commission by April 30, 1999 pursuant to Regulation 14A.

ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information that is required in response to this Item is incorporated herein
by reference to Softworks'  Proxy  Statement to be filed with the Securities and
Exchange Commission by April 30, 1999 pursuant to Regulation 14A.


ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information that is required in response to this Item is incorporated herein
by reference to Softworks'  Proxy  Statement to be filed with the Securities and
Exchange Commission by April 30, 1999 pursuant to Regulation 14A.
<PAGE>
                                     PART IV

ITEM 14    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10K

(a)      Listed below are the documents filed as a part of this report:
         1.       Financial Statements and the Independent Auditors' Report
                      Report of Independent Public Accountants
                      Consolidated Balance Sheets
                      Consolidated Statements of Operations
                      Consolidated Statements of Changes in Stockholders' Equity
                      Consolidated Statements of Cash Flows
                      Notes to the Consolidated Financial Statements

         2.       Financial Statement Schedules:
                      Schedule II - Valuation and Qualifying Accounts

         3.       Exibits


Exhibit                            Description
Number
------------- ------------------------------------------------------

3.1           Certificate of Incorporation of Registrant*
3.2           By-Laws of Registrant*
4.1           Specimen Common Stock Certificate*
10.1          Lease Agreement dated June 14, 1994 between
              Registrant and WHT Reall Estate Limited Partnership*
10.2          First Amendment to Lease Agreement*
10.3          Second Amendment to Lease Agreement*
10.4          1998 Long Term Incentive Plan*
10.5          Employment Agreement between the Registrant and
              James Cannavino*
10.6          Employment Agreement between the Registrant and
              C.R. Kinsey, III*
10.7          Employment Agreement between the Registrant and
              Judy G. Carter*
10.8          Employment Agreement between the Registrant and
              Lisa Welch*
10.9          Employment Agreement between the Registrant and
              Joseph Miksch*
10.10         Employment Agreement between the Registrant and
              Robert McLaughlin*
10.11         Form of Indemnification Agreement between the
              Company and its officers and directors*
10.12         Distribution Agreement dated July 8, 1997 between the
              Registrant and Cognizant Technology Solutions
              Corporation*
27.1          Financial Data Schedule

*  Incorporated by reference to Registration Statement No 333-
53939.

(b)           Reports on Form 8-K
                  None.
<PAGE>
                                    SIGNATURE

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

                               Softworks, Inc.


    Date: March 30, 1999       By:  /s/  Judy G. Carter
                               -------------------------------------
                               Judy G. Carter
                               President, Chief Executive Officer and Director

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

    Date: March 30, 1999       By:  /s/ James A. Cannavino
                               -------------------------------------
                               James A. Cannavino
                               Chairman of the Board of Directors

    Date: March 30, 1999       By:  /s/  Judy G. Carter
                               -------------------------------------
                               Judy G. Carter
                               President, Chief Executive Officer  and Director

    Date: March 30, 1999      
                               -------------------------------------
                               C.R. Kinsey, III
                               Vice President and Chief Technology Officer

    Date: March 30, 1999       By:  /s/  Robert C. McLaughlin
                               -------------------------------------
                               Robert C. McLaughlin
                               Treasurer and Chief Financial Officer

    Date: March 30, 1999       By:  /s/  Daniel DelGiorno, Jr.
                               -------------------------------------
                               Daniel DelGiorno, Jr.
                               Director

    Date: March 30, 1999       By:  /s/  Robert Devine
                               -------------------------------------
                               Robert Devine
                               Director

    Date: March 30, 1999       By:  /s/  Charles Feld
                               -------------------------------------
                               Charles Feld
                               Director

<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To SOFTWORKS, Inc.:

We have audited, in accordance with generally accepted auditing  standards,  the
consolidated  financial statements of SOFTWORKS,  Inc. (a Delaware  corporation)
and  subsidiaries and have issued our report thereon dated February 9, 1999. Our
audits  were made for the  purpose of forming an opinion on the basic  financial
statements taken as a whole.  The schedule listed in item 14.a.2,  Valuation and
Qualifying  Accounts is the  responsibility  of the Company's  management and is
presented  for  purposes  of  complying   with  the   Securities   and  Exchange
Commission's  rules  and is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures applied in the audits of
the basic  financial  statements  and, in our  opinion,  fairly  states,  in all
material  respects,  the  financial  data  required  to be set forth  therein in
relation to the basic financial statements taken as a whole.

                                             ARTHUR ANDERSEN LLP

Washington, D.C.
February 9, 1999



                                               SOFTWORKS, INC.

                                      VALUATION AND QUALIFYING ACCOUNTS
                             FOR THE YEAR ENDED DECEMBER 31, 1998, 1997 AND 1996
                                              (IN THOUSANDS)
<TABLE>
<CAPTION>
                                             Balance at                 Charged to
                                            Beginning of               Revenue and
                                              Period      Deductions     Expense   Ending Balance
                                            ----------------------------------------------------- 

     <S>                                     <C>          <C>            <C>          <C>  
     Year ended December 31, 1996
       Allowance for accounts receivable     $     242    $     (43)     $     50     $     249

     Year ended December 31, 1997
       Allowance for accounts receivable     $     249    $    (118)     $     75     $     206

     Year ended December 31, 1998
       Allowance for accounts receivable     $     206    $    (234)     $    317     $     289
</TABLE>