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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ----------------

                                    Form 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
                   For the fiscal year ended December 31, 1996
or
(   ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934

                         Commission File Number: 0-27806

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                              THE INDUS GROUP, INC.
          (Exact name of Registrant issuer as specified in its charter)

               California                                        94-3108025
      (State or other jurisdiction                            (I.R.S. Employer
    of incorporation or organization)                        Identification No.)

60 Spear Street, San Francisco, California                         94105
 (Address of principal executive offices)                        (Zip code)

                                 (415) 904-5000
              (Registrant's telephone number, including area code)

                                ----------------

          Securities registered pursuant to Section 12(b) of the Act:
                                      None
          Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 par value
                                (Title of Class)

                                ----------------

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

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant,  based upon the closing  sale price of the Common Stock on March 11,
1997 as reported on the Nasdaq National Market, was approximately $18.75. Shares
of Common Stock held be each officer and director and by each person who owns 5%
or more of the outstanding  Common Stock have been excluded in that such persons
may be deemed to be affiliates.  This  determination  of affiliate status is not
necessarily a conclusive determination for other purposes.

The number of shares  outstanding of the  registrant's  common stock,  $.001 par
value was 18,645,401 at March 11, 1997.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Stockholders for the fiscal year ended December
31, 1996 are  incorporated  by reference  into Parts II and IV.  Portions of the
Proxy Statement for Registrant's  1996 Annual Meeting of Shareholders to be held
May 6, 1997 are incorporated by reference in Part III.

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TABLE OF CONTENTS


Part I

Item    1.    Description of Business......................................... 3
Item    2.    Description of Property.........................................15
Item    3.    Legal Proceedings...............................................16
Item    4.    Submission of Matters to a Vote of Security Holders.............16


Part II

Item    5.    Market for Registrant's Common Equity and Related 
              Stockholder Matters.............................................16
Item    6.    Selected Financial Data........................................ 17
Item    7.    Management's Discussion and Analysis of Financial Condition
              and Results of Operation........................................18
Item    8.    Financial Statements and Supplementary Data.....................18
Item    9.    Changes in and Disagreements with Accounting and 
              Financial Disclosure............................................18


Part III

Item   10.    Directors and Executive Officers of the Registrant..............19
Item   11.    Executive Compensation..........................................19
Item   12.    Security Ownership of Certain Beneficial Owners and Management..19
Item   13.    Certain Relationships and Related Transactions..................19


Part IV

Item   14.    Exhibits, Financial Statement Schedule, and Reports
              on Form 8-K.....................................................19
              Signatures......................................................22

                                       2

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                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS


General

The  Indus  Group  develops,  markets,  implements  and  supports  client/server
enterprise management software solutions for process industries  worldwide.  The
Company's  PASSPORT Software  Solutions  consist of 17 business  applications in
such  functional  areas as Work  Management  Systems,  Materials  &  Procurement
Systems,  Safety & Compliance Systems.  PASSPORT Software Solutions are designed
to  interoperate,  through the Company's  PassBook  integration  products,  with
popular  third-party  applications that provide basic business functions such as
corporate  finance,  payroll,  human  resources  and customer  integration.  The
Company has entered into strategic relationships with Oracle Corp.,  PeopleSoft,
Inc. and SPL  WorldGroup  B.V. (the "Alliance  Partners"),  through which it has
developed   or  is   developing   PassBook   integration   products  to  provide
interoperability  with Oracle's corporate financial  applications,  PeopleSoft's
corporate   financial,   payroll  and  human  resources   applications  and  SPL
WorldGroup's  customer  information  applications.  The Company and its Alliance
Partners  seek to provide  complete  enterprise-wide  solutions  that enable the
Company's customers to improve operating  efficiencies,  reduce costs and comply
with  governmental  regulation.  The Company  focuses  primarily  on the process
industry,  including electric utility,  petrochemical,  chemical refining, steel
and forest products companies.  The Company's PASSPORT applications are based on
an open,  client/server  architecture  featuring a layered  software design that
enables customers to use various operating systems, operate on multiple hardware
platforms and  interoperate  with many  third-party  software  applications  and
legacy   systems.   The  Company's   proprietary   ABACUS   software  tools  and
implementation   methodology  facilitate  rapid  and  effective  deployment  and
utilization  of its  PASSPORT  applications.  The Company  markets and sells its
products  and  services  primarily  through a direct  sales  force in the United
States and directly and indirectly in other parts of the world.

Products and Services

The  Company's  PASSPORT  Software  Solutions,  ABACUS tools and  implementation
methodology and PASSPORT  Workbenches  operate as a flexible,  fully  integrated
enterprise management software solution.  PASSPORT Software Solutions consist of
17 business  applications  grouped into three functional areas. ABACUS tools and
implementation  methodology allow for rapid  implementation and configuration of
PASSPORT Software  Solutions.  PASSPORT  Workbenches are a set of software tools
which support application  development,  data migration and installation support
used by the Company and its customers to develop, install and configure PASSPORT
Software Solutions.  The Company's PassBook integration products are intended to
enable PASSPORT  Software  Solutions to interoperate  with corporate  financial,
payroll, human resources and customer information applications systems available
from its Alliance Partners.

PASSPORT Software Solutions

PASSPORT  Software  Solutions  are  offered  in  three  functional  areas:  Work
Management  Systems,  Materials & Procurement  Systems,  and Safety & Compliance
Systems.  The  Company  has  designed  its  PASSPORT   applications  to  provide
interoperability  with basic  business  function  applications  developed by its
Alliance Partners.  Although most customers license multiple applications in two
or more functional  areas, the Company believes that the majority of its license
revenues has been derived from licenses of Work Management Systems applications.
Each PASSPORT  application  can operate on a stand-alone  basis or  interoperate
with other PASSPORT  applications or with many third-party software applications
and legacy systems. PASSPORT applications incorporate adaptable workflow methods
that enable  end-users to easily tailor workflow to correspond to their business
practices.

The license fees for PASSPORT  applications  vary depending on either the number
of users or facilities and the number and type of applications licensed. Typical
enterprise  license fees have generally ranged from  approximately $1 million to
approximately $5 million. Licenses generally have a perpetual term.

Software maintenance and support for the first year of the customer contract are
included in the license fee.  Thereafter,  maintenance and support  services are
subject to an initial  two-year  term  followed by separate  renewable  one-year
contracts. Software updates are included in the maintenance fee.

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The  Company's  PASSPORT   applications  consist  of  Work  Management  Systems,
Materials & Procurement Systems and Safety & Compliance Systems. Work Management
Systems  communicate  discrete  work task  requirements  and  priorities  to all
affected  departments  and  disciplines in the  enterprise,  actively  informing
individuals of work progress and cost and schedule  impacts of unforeseen  daily
events.  These  applications  allow  managers  to  modify  strategic  management
objectives  and  adjust  priorities,   work  plans,   schedules  and  associated
documentation. Materials & Procurement Systems improve overall plant performance
by streamlining the procurement cycle and enhancing the enterprise's  ability to
respond efficiently to planned  supply-cycle  replenishment and react quickly to
unplanned  demand for spare parts,  materials  and contract  services.  Safety &
Compliance  Systems  interoperate  with  other  systems  to  improve  regulatory
compliance and reporting in order to reduce safety and environmental  violations
and minimize  inspections and audit  interruptions  by local,  state and federal
regulatory agencies.

The complementary  Alliance Partner Systems  available via PassBook  Integration
Products include Corporate Financial Systems and Customer  Information  Systems.
Corporate Financial Systems are on-line,  activity-based  decision support tools
designed to keep managers and plant personnel throughout the enterprise aware of
costs  controlled  by other  PASSPORT  applications  and legacy  systems so that
informed  decisions  may  be  made  to  improve  financial   results.   Customer
Information Systems are on-line applications designed to provide energy delivery
companies  with  a  link  between  their  customers,  associated  revenue  cycle
requirements  and in-field work and materials  management  functions  controlled
within PASSPORT applications.

The  Company's  PASSPORT  applications  are  based  on  an  open,  client/server
architecture  featuring a layered software design that enables  customers to use
various  operating   systems,   operate  on  multiple  hardware   platforms  and
interoperate  with many  third-party  software  applications and legacy systems.
This  capability   permits  customers  to  integrate  their  existing  computing
resources  with a wide variety of emerging  technologies.  The  portability  and
scalability of the Company's  PASSPORT Software Solutions allows users to extend
their systems to accommodate  facility expansion or acquisitions.  The Company's
PORTAL/95 client  workstation  software  provides a Windows95 "look and feel" to
its PASSPORT applications.

The Company's layered software  architecture features an adapter code layer that
isolates PASSPORT applications from the systems environment, including hardware,
operating systems,  databases,  networks and user interfaces.  This adapter code
layer permits a single  repository  of  application  code to operate  across all
supported  platforms in their native runtime  environments  and allows  PASSPORT
applications to be implemented on multiple platforms with no significant loss of
efficiency.  Only the adapter code layer, and not the application  code, need be
reconfigured to enable PASSPORT applications to operate on additional platforms.
This layered architecture allows customers to protect their large investments in
information  systems  while  positioning  them to  adapt to  emerging  operating
system,  server and database  management system  technologies.  The architecture
supports  seamless  integration  of alliance  partner  programs via the PassBook
series  of  interfaces   which  allows   PASSPORT   controlled   information  to
interoperate with these select third party programs.

PASSPORT  applications  operate  on UNIX  servers  provided  by  Hewlett-Packard
Company,  Digital  Equipment  Corporation  and IBM  utilizing  the Oracle RDBMS.
PASSPORT  applications also operate on IBM mainframe or plug compatible hardware
used in conjunction with the IBM/DB2 RDBMS.  The server offering  supporting the
Company's  products is being  expanded to include NT Servers  which will be made
commercially  available in the third quarter of 1997. The Company  believes that
PASSPORT applications offer the only enterprise client/server business solutions
currently  available  that are  portable  among  these  UNIX/Oracle  and IBM/DB2
platforms.  PASSPORT  applications  provide  direct  access to  electronic  mail
systems  and,  via object  linking  and  embedding  (OLE 2.0),  to desktop  word
processing  and  spreadsheet  programs  such as those  included in the Microsoft
Office  application  suite.  PASSPORT  applications  may be image-enabled by the
Company's VIEWPORT image processing software,  allowing users to view associated
source documents and other digitized media upon demand.

                                       4

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ABACUS Tools, Implementation Methodology and Related Services

The Company's PASSPORT Software Solutions are implemented  through the Company's
proprietary  ABACUS tools and  implementation  methodology.  ABACUS  consists of
software-driven  analytical  tools,  implementation  plans and educational tools
that encapsulate the Company's extensive  experience in implementing  enterprise
management  software  solutions.  ABACUS provides a step-by-step  implementation
life cycle framework for all installation,  integration,  education and business
review activities. In addition, ABACUS enhances the ongoing effectiveness of the
Company's  PASSPORT Software  Solutions and assists customers in improving their
business processes.

ABACUS software tools use a time-sensitive and  track-oriented  approach to help
customers and the Company's business experts, technical specialists and training
professionals  implement  PASSPORT  applications.  In addition to  interactively
identifying implementation procedures,  ABACUS contains over 400 "best practice"
examples  of how  such  procedures  were  performed  by other  process  industry
companies,  drawn  from  the  Company's  extensive  experience  in  implementing
enterprise management software solutions.  The Company currently licenses ABACUS
software tools in conjunction  with PASSPORT  Software  Solutions which includes
the use of the ABACUS  Workbench,  a version of the ABACUS  software that allows
customers to tailor  their  internal  project  goals and  objectives  with other
corporate initiatives,  modify implementation plans and associated deliverables,
supporting specific project/progress reporting, etc.

The Company offers standardized  service packages that correspond to "tracks" in
the ABACUS  implementation  software.  The Management Track defines the scope of
the solution,  helps ensure that  strategic  goals are  addressed,  communicates
executive  sponsorship of PASSPORT applications to the organization and provides
for budgeting and progress reporting.  The Technical Track validates the overall
information strategy, defines the technology upgrade path utilizing PASSPORT and
provides for operational support. The Business Process Improvement Track engages
change  management  techniques to reengineer  processes to embody  PASSPORT best
practices in a cost-effective manner to improve overall company efficiency.  The
Integration  Track   incorporates   software  tools  to  rapidly  establish  the
enterprise-wide  information  resource which provides  interoperability  between
PASSPORT and other systems.  The Education Track helps ensure user acceptance of
both PASSPORT and new procedures  utilizing a comprehensive  education  program,
computer-based  training  tools and  courseware  tailored to the  organization's
training environment and specific operational needs.

PASSPORT Workbenches

PASSPORT  applications  are  developed  using  PASSPORT  Workbenches,  a set  of
integrated   application   development   and  support  tools  designed  to  make
analytical,  programming,  documentation,  quality  assurance  and data loading,
migration and archiving tasks more efficient.  PASSPORT  Workbenches include the
following:  the Analyst  Workbench,  which  allows the  developer  to  translate
business  requirements  into electronic  design  specifications;  the Programmer
Workbench, which generates application code and guides the developer through the
calculations  needed to meet the  requirements of the application and the target
platform; and the Documentation  Workbench,  which translates the specifications
into documentation including on-line tutorials, hard copy user guides, reference
and training materials, test scripts and systems administration guides. A fourth
post-development tool, the Data Services Workbench,  helps perform data load and
system interface exercises, facilitates data migration (from release to release)
and supports archiving and data warehousing facilities. PASSPORT Workbenches are
centered around a shared repository of design  information known as the PASSPORT
Data  Dictionary.  The accumulated  knowledge base stored in the Data Dictionary
promotes a high degree of design  consistency,  integrity and quality across the
PASSPORT  product  line. By using  PASSPORT  Workbenches  to design,  prototype,
build, document and maintain its application  products,  the Company believes it
has  demonstrated  that it can rapidly develop high quality,  highly  functional
applications on predictable schedules and within established budgets.

The Company licenses PASSPORT  Workbenches to customers  desiring the ability to
modify  PASSPORT  applications  to suit  internal  needs and to  perform  system
administration and maintenance over the application life cycle.

The statements made herein regarding  scheduled  release dates for the Company's
products  under  development  and  proposed   enhancements  are  forward-looking
statements, and the actual release dates for such products or enhancements could
differ  materially  from those  projected  as a result of a variety of  factors,
including the ability of the Company's engineers to solve technical problems and
test products,  Company priorities and the availability of development and other
resources,  and other  factors,  including  factors  outside  the control of the
Company.  There  can be no  assurance  that  the  Company  will  not  experience
difficulties   that  could   delay  or  prevent  the   successful   development,
introduction  and  marketing of new  products,  or that new products and product
enhancements  will meet the  requirements  of the  marketplace or achieve market
acceptance.

                                       5

<PAGE>

Customer Support, Software Maintenance and Training

In addition to the  standardized  services  offered through ABACUS,  the Company
offers systems integration, customer support, software maintenance and training.
The Company  provides  systems  integration  and customer  support on a time and
materials basis. The Company provides software maintenance for a fixed fee based
on the number and types of applications licensed.

The  customer   support  team  provides  a  help  desk,   warranty  support  and
post-implementation  services which are widely used by its  customers.  The help
desk is staffed by  experienced  product  specialists  who have direct access to
product development teams and technology  specialists.  A computerized system is
used to log, track, close and analyze all customer calls.

The Indus Institute,  the Company's training  division,  designs,  manages,  and
implements  comprehensive education and training solutions for the PASSPORT user
community. The Institute's team of training and technical professionals provides
instructional design and courseware development services,  training coordination
support,  train-the-trainer and end-user programs, as well as technical training
for customer installations  worldwide.  In addition, the Company has developed a
comprehensive  set of  training  courseware  which it uses to educate  and train
customers and internal  staff.  Subjects  covered by the  courseware  range from
application  product  basics  to  conducting  business  process  reviews.   Open
enrollment  training  courses are provided at the Company's  training centers in
San Francisco,  Dallas,  Pittsburgh, and internationally in London. In addition,
training is also provided at customer sites at the customer's option.

Customers

The Company provides  enterprise  management software solutions to large process
industry customers  primarily in the electric utility,  petrochemical,  chemical
refining,  steel and forest  products  industries.  As of December 31, 1996, the
Company had more than 2,000 site implementations at more than 60 companies.

Revenues from Ontario  Hydro-Nuclear  and PECO Energy accounted for 11% and 10%,
respectively, of the Company's total revenues in 1996. Revenues from Duke Power,
and Occidental Chemical Corporation  accounted for 12% and 11% respectively,  of
total revenues in 1995. No customer accounted for more than 10% of total revenue
in 1994. 

Sales and Marketing

The corporate marketing function is organized into vertical business areas which
comprise the process  industries  targeted by the  Company.  By  segmenting  the
market into six vertical business areas, the Company can package and deliver its
products effectively to the industries it serves. The vertical business segments
comprising the market include:

Power Generation                  Addresses  electric  utilities with generating
                                  capacity  comprised  of fossil,  hydro,  wind,
                                  solar or geothermal  power  generation.  Power
                                  Generation  addresses a trend in the  industry
                                  where  disparate  generation  groups are being
                                  aggregated  into a single business unit within
                                  the utility structure.

Nuclear Power Generation          Recognizes the unique  requirements of nuclear
                                  generating  stations  in the areas of  special
                                  materials,  heath physics,  safety and nuclear
                                  regulatory reporting and compliance issues.

Energy Delivery                   Includes  the   Transmission   &  Distribution
                                  business units of utilities,  coupled with the
                                  revenue   cycle   components   from   Customer
                                  Information  Systems for electric,  gas, water
                                  utilities.

Oil, Gas, & Chemical Refining     Comprised of the 'upstream'  companies charged
                                  with  prospecting and developing new oil & gas
                                  sources  (both  on and  offshore),  as well as
                                  'downstream'  operating companies charged with
                                  refining,     packaging    and    distribution
                                  processing.
                                  
Integrated-Process Industries     Represents  steel  making,  pulp and paper and
                                  others  whose  process  involves  moving  from
                                  crude   raw   materials    through   secondary
                                  operations to finished  goods.

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DOE/Facilities                    Management Focuses on facilities maintained by
                                  the   Department   of  Energy  and  others  in
                                  facilities   management   that   serve   large
                                  facility   complexes,   maintain   high   rise
                                  facilities and the distributed  needs of large
                                  consumer  retailers,  insurance  companies and
                                  other facility-intense organizations.

The Company  markets and sells its  products and  services  primarily  through a
direct sales force in the United  States and directly  and  indirectly  in other
parts of the world.  As of December 31, 1996, the Company's  sales and marketing
organization  consisted of 39  employees.  The  marketing  staff is based at the
Company's corporate headquarters in San Francisco,  while the sales organization
is  decentralized  and positioned in North America in seven regions:  Northeast,
North  Central,  Pacific  Northwest,  Southwest,  South  Central,  Southeast and
Canada.  Internationally  the  regional  model will be  extended  during 1997 to
recognize the special  marketing  needs of Europe and South America,  the Middle
East and Africa, and Pacific Rim countries.

The direct  sales cycle  begins  with the  generation  of a sales  lead,  or the
receipt  of a  request  for  proposal  from a  prospect,  which is  followed  by
qualification  of the lead, an analysis of the customer's  needs,  response to a
request for proposal,  one or more  presentations to the customer  utilizing the
special  knowledge of the industry vertical  pre-sales staff,  customer internal
sign-off activities and contract  negotiation and finalization.  While the sales
cycle from customer to customer varies substantially,  the sales cycle generally
requires three to nine months.

In  support   of  its  sales   force,   the   Company   conducts   comprehensive
industry-specific  vertical  marketing  programs which include public relations,
trade  advertising,   industry  seminars,  trade  shows  and  on-going  customer
communication  programs  through  the  International  Passport  User  Group.  In
addition,  the Company's Account Executive Program provides regional support and
specialized  attention for each of its customers.  Account  Executives assist in
implementing   licensed  applications  over  multi-year   engagements,   promote
licensing  of  additional  applications  and  encourage  existing  customers  to
identify and help fund new applications.

Strategic Relationships

Through its PASSPORT Alliance and PASSPORT Partner programs, the Company intends
to continue to develop new products,  to keep pace with the latest technological
developments, and to extend its marketing, sales and support efforts by building
synergy  between the Company's  products and services and those  available  from
complementary  third party  providers.  The Company has entered  into  strategic
alliances and other formal and informal  relationships  with major  software and
hardware  vendors  and with  consulting  firms,  service  providers  and systems
integrators.  Members of the Company's  Alliance and Partner programs assist the
Company  with sales and support  activities  and with  product  localization  in
foreign countries.

PASSPORT Alliance Program

The  PASSPORT  Alliance  Program  is  comprised  of  third  party  providers  of
complementary  software  products  which  interoperate  with  PASSPORT  Software
Solutions through PassBook  integrater  products to provide  additional  license
revenues  and  services  to the  Company  while  delivering  a  broad  suite  of
enterprise-wide  software  capabilities.  Membership  in this  program  includes
Oracle  Corporation  for  corporate  financial  systems,  PeopleSoft,  Inc.  for
corporate  financial,  human resources and payroll  systems,  SPL WorldGroup for
customer  information  systems and Nuclear Fuels  Services/Radiation  Protection
Systems for jointly  developed  Nuclear Health Physics Systems marketed as Total
Exposure.  Other third party  integration  alliance partners are currently under
consideration by the Company.

PASSPORT Partner Program

The PASSPORT  Partner  Program  consists of three classes of members  including:
PASSPORT  Associates  (foreign and domestic),  PASSPORT Platform  Partners,  and
partners in the PASSPORT Extension Program.

PASSPORT  Associates are third party  consultants and system  integration  firms
which  help  deliver  the  services  required  to  implement  PASSPORT  Software
Solutions.  These recognized firms add specialty knowledge to assist in training
and reengineering  services,  help provide staffing levelization and supply peak
load project resources to the regional operators.  These resources assist in the
delivery of ABACUS  services and those  performed  by the Indus  Institute on an
as-needed  basis.  Domestically,  firms  providing such services for the Company
include:  Duke Engineering  Services,  Inc., PCS, Software Consulting Group, PRC
Engineering Services, Transcend Data Systems, Dublin Group, and General Physics.
Internationally,  the partners provides national language support and an ability
to deliver regional customer service to international customers without the need
for complete  facility and  infrastructure  costs associated with local offices.
International   implementation   partners  include:   Euriware  Reseau  Eurisys,
supporting  France and French speaking  regions;  EniData  supporting  Italy and
providing  additional  worldwide

                                       7

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support for projects  within the ENI Group of Companies and their  subsidiaries;
Gulf Data  International,  providing Arabic language support and services in the
United Arab Emirates for customers in Abu Dhabi; ISSC/Australia and Westinghouse
Corporation with emphasis in Eastern Europe and the Spanish nuclear market.

PASSPORT Platform Partners are computer hardware  providers and operating system
software providers that help the Company remain  technologically  current and in
step with  evolving  releases of software  and  hardware  upgrades.  Cooperative
marketing,  joint trade show  participation,  vendor fair  participation  at the
Annual Conference of the International  Passport User Group are extended to this
cooperative group of vendors.  The Company  participates in the  Hewlett-Packard
Channel Program,  Digital Equipment's Business Partner Program, the IBM Business
Partner  Program  as well  as the  Microsoft's  Solution  Provider  Program  and
Oracle's Cooperative Applications Initiative.

The PASSPORT Extension Program is comprised of third party vendors with products
which  provide  value-added  product  extensions or specialty  services,  taking
PASSPORT data beyond the specified scope of the Company's  application  systems.
Both  specialty  hardware and  specialty  point  solution  software  vendors are
recognized in this program which include offerings from:  Meridium  Corporation,
Dolphin Software,  Telxon, Zebra Printers,  Intermat, MAC, GDS, MapFrame, Trimco
and InterGraph.

Research and Development

The  Company  has  a  dedicated   research  and   development   and  engineering
organization  and has  regularly  released  new  products  and  enhancements  to
existing products.  Research and development  efforts are directed at increasing
product   functionality,   improving  product   performance  and  expanding  the
capabilities of the products to interoperate with selected  third-party software
products available from its alliance partners such as Oracle, PeopleSoft and SPL
WorldGroup.  In  particular,  the  Company is devoting  substantial  development
resources in its next Release 6.0 scheduled for the third quarter of 1997. These
efforts  include  developing  new  PASSPORT  applications  that  address  energy
delivery, a new targeted vertical market, and enhancing to the Company's nuclear
offerings.  To assist  international  customers,  all  application  products are
incurring  significant changes to support national language support. The Company
expects that Release 6.0 will also include support for new Windows NT servers to
create  pre-packaged  "turn-key"  product  offerings,  and  enhanced  electronic
commerce features via Internet integration.

The  Company   believes  that  research  and  development  is  most  effectively
accomplished  if customers are involved in the process.  Though direct  customer
involvement  and  consensus  input from its  International  Passport User Group,
product  content is  improved  and the  customer  acceptance  threshold  usually
associated with new software deployment  significantly lowered. In addition, the
interactive  development  process promotes  increased  customer awareness of the
technological features of the product and fosters greater product loyalty.

There can be no assurance  that the Company will be successful in developing and
marketing  product  enhancements  or new products that respond to  technological
change, changes in customer requirements,  or emerging industry standards,  that
the Company  will not  experience  difficulties  that could delay or prevent the
successful   development,   introduction  or  marketing  of  such  products  and
enhancements, or that any new products or enhancement that it may introduce will
achieve market  acceptance.  The inability of the Company,  for technological or
other reasons, to develop and introduce new products or enhancements in a timely
manner in response to changing customer  requirements,  technological  change or
emerging  industry  standards,  would  have a  material  adverse  effect  on the
Company's business or results of operations.

As of December 31, 1996,  the Company had 103 employees  engaged in research and
development.  The Company's research and development expenses were approximately
$7.1  million,  and $8.3  million  and  $12.5  million  in  1994,  1995 and 1996
respectively.  Development  costs  funded by  customers  as part of license  and
service contracts is included as part of cost of revenues.

Competition

The  enterprise  management  software  solutions  market is highly  competitive,
rapidly changing and  significantly  affected by new product  introductions  and
other  market  activities  of  industry  participants.   The  Company's  primary
competition stems from companies offering enterprise software solutions, vendors
offering  partial  solutions and suppliers of  departmental  systems  (primarily
LAN-based).  The  Company's  competitors  include SAP, the  Company's  principal
competitor, and other software vendors such as TSW International,  Marcam Corp.,
and Project  Software &  Development,  Inc. In the future,  the Company may face
competition  from its Alliance  Partners.  In the electric  utility market,  the
Company  faces  competition  from  suppliers  of energy  delivery  applications,
including Severn Trent Systems and Synercom.

In  addition,   the  Company  faces  indirect   competition  from  suppliers  of
custom-developed  business  applications  software that have focused  largely on
proprietary  mainframe- and  minicomputer-based  systems with highly  customized
software,  such as the systems

                                       8
<PAGE>

consulting groups of major accounting firms and systems integrators. The Company
also faces  indirect  competition  from  systems  developed  by the internal MIS
departments of large organizations.

Many  of  the  Company's  competitors  and  potential  competitors  have  longer
operating histories,  significantly greater financial,  technical, marketing and
other  resources,  greater  name  recognition,  and a larger  installed  base of
customers than the Company.  In addition,  certain  competitors,  including SAP,
have  well-established  relationships  with  customers  of the  Company and with
accounting  and  consulting  firms that may have an incentive to recommend  such
competitors over the Company. Furthermore, as the enterprise management software
solutions market for process  industries  expands,  companies with significantly
greater  resources  than the Company could attempt to increase their presence in
this market by acquiring or forming strategic  alliances with competitors of the
Company.

The  principal  competitive  factors  affecting  the  market  for the  Company's
software  products  are  responsiveness  to  process  industry  needs,   product
functionality and ease of use, speed of  implementation,  product  architecture,
quality  and  reliability,  vendor and product  reputation,  quality of customer
support and price.  Based on these  factors,  the Company  believes  that it has
competed  effectively  to date.  In order to be  successful  in the future,  the
Company must continue to respond  promptly and  effectively to the challenges of
technological change and its competitors'  innovations by continually  enhancing
its  own  product  offerings.  There  can be no  assurance,  however,  that  the
Company's  products will continue to compete  favorably or that the Company will
be  successful  in the face of  increasing  competition  from new  products  and
enhancements  introduced by existing  competitors or new companies entering this
market.

Proprietary Rights and Licensing

The Company relies on a combination of the protections provided under applicable
copyright,  trademark  and  trade  secret  laws,  as well as on  confidentiality
procedures and licensing  arrangement to establish and protect its rights in its
software.  Despite the Company's  efforts,  it may be possible for  unauthorized
third parties to copy certain  portions of the Company's  products or to reverse
engineer or obtain and use information  that the Company regards as proprietary.
In  addition,  the  laws of  certain  countries  do not  protect  the  Company's
proprietary  rights  to the same  extent  as do the laws of the  United  States.
Furthermore, the Company has no patents, and existing copyright laws afford only
limited protection. Accordingly, there can be no assurance that the Company will
be able to protect its proprietary  software  against  unauthorized  third party
copying or use, which could adversely affect the Company's competitive position.

The Company  licenses  its PASSPORT  applications  to  customers  under  license
agreements  which are  generally  in standard  form,  although  each  license is
individually negotiated and may contain variations.  The standard form agreement
allows the  customer  to use the  Company's  products  solely on the  customer's
computer  equipment for the customer's  internal  purposes,  and the customer is
generally   prohibited  from   sub-licensing   or   transferring   the  PASSPORT
applications.  The agreements  generally provide that the Company's warranty for
its products is limited to correction or  replacement  of the affected  product,
and in most cases the Company's  warranty liability may not exceed the licensing
fees  from  the  customer.   The  Company's   form  agreement  also  includes  a
confidentiality  clause  protecting  proprietary  information  relating  to  the
PASSPORT applications.

The  Company's  products  are  generally  provided to  customers  in object code
(machine-readable) format only. From time to time, in limited circumstances, the
Company has  licensed  source code  (human-readable  form)  subject to customary
protections  such  as  use  restrictions  and  confidentiality   agreements.  In
addition,  customers can be beneficiaries of a master source code escrow for the
PASSPORT applications, pursuant to which the source code will be released to end
users  upon the  occurrence  of  certain  events,  such as the  commencement  of
bankruptcy  or  insolvency  proceedings  by or against the  Company,  or certain
material  breaches of the agreement.  The Company has the right to object to the
release of the source  code in such  circumstances,  and to submit the matter to
dispute  resolution  procedures.  In the event of any release of the source code
from  escrow,  the  customer's  license is limited to use of the source  code to
maintain, support and configure PASSPORT applications.

The Company may from time to time receive  notices from third  parties  claiming
infringement by the Company's  products of proprietary  rights of others. As the
number of software  products in the industry  increases and the functionality of
these products  further overlap,  the Company believes that software  developers
may become increasingly subject to infringement claims. Any such claims, with or
without  merit,  can be time  consuming and expensive to defend or could require
the Company to enter into royalty and licensing agreements.  Such agreements, if
required, may not be available on terms acceptable to the Company, or at all.

                                       9

<PAGE>

Employees

As of December 31,  1996,  the Company  employed  463 people,  of which 103 were
primarily  engaged in research  and  development  activities,  254 in  post-sale
support  and  customer  project  operations,  39 in sales and  marketing,  14 in
management and 53 in administration and finance. None of the Company's employees
is represented by a labor union.  The Company has  experienced no work stoppages
and believes that its relationship with its employees is excellent.

Executive Officers

The executive officers of the Company as of December 31, 1996 are as follows:

Name of Officer                 Age  Principal Occupation

Robert W. Felton                58   President, Chief Executive Officer and 
                                     Chairman of the Board of Directors

Richard W. Mac Almon            47   Senior Vice President, Vice President of 
                                     Marketing and Director

Michael E. Percy                50   Senior Vice President, Vice President of 
                                     Education and Methodologies and Director

Douglas R. Piper                44   Senior Vice President and Vice President 
                                     of Information Technologies

Frank M. Siskowski              49   Senior Vice President and Chief Financial
                                     Officer


         Except as set forth below, each of the officers has been engaged in his
principal  occupation  described  above during the past five years.  There is no
family relationship between any executive officer of the Company.

         Robert  W.  Felton  was a  founder  of the  Company  and has  been  the
Chairman,  President  and  Chief  Executive  Officer  of the  Company  since its
inception in 1988.

         Richard W. Mac Almon was a founder of the Company and has been the Vice
President of Marketing  and a director of the Company  since  January 1990 and a
Senior Vice  President  of the Company  since June 1995.  From  January  1988 to
December 1989, Mr.
Mac Almon served as a Product Developer for the Company.

         Michael  E.  Percy  has  served  as Vice  President  of  Education  and
Methodologies  of the  Company  since  January  1995 and was Vice  President  of
Operations  from January 1990 to December 1994. Mr. Percy has been a director of
the Company since January 1990 and a Senior Vice President since June 1995. From
July 1989 to June 1992, Mr. Percy served as a Project Manager for the Company.

         Douglas  R.  Piper  has  served  as  Vice   President  of   Information
Technologies  of the Company since April 1991 and as Senior Vice President since
June  1995.  From  February  1988 to  April  1991,  Mr.  Piper  served  as Chief
Technologist for the Company.

         Frank M.  Siskowski  has  served as  Senior  Vice  President  and Chief
Financial  Officer  of the  Company  since  September  1996.  From  July 1991 to
September 1996, Mr.  Siskowski served as Senior Vice President and Controller of
VISA International.  From January 1983 to July 1991, he served as Vice President
and Controller of MCI  Telecommunications and Chief Financial and Administrative
Officer of the Pacific Division of MCI Communications Corporation.

Risk Factors

     This report  contains  forward-looking  statements  that involve  risks and
uncertainties.  The  statements  contained  in this  report  that are not purely
historical are  forward-looking  statements within the meaning of Section 27A of
the  Securities  Act of 1933 and Section 21E of the  Securities  Exchange Act of
1934,   including  without   limitation   statements   regarding  the  Company's
expectations, beliefs, intentions, plans or strategies regarding the future. All
forward-looking  statements  included in this document are based on  information
available  to the  Company  on the  date  hereof,  and the  Company  assumes  no
obligation to update any such forward-looking  statements.  The Company's actual
results could differ materially from those anticipated in these  forward-looking
statements  as a result of  certain  factors,  including  those set forth in the
following risk factors and elsewhere in

                                       10

<PAGE>

this report.

Variability of Quarterly Operating Results; Lengthy Sales Cycle

     The Company has experienced, and may in the future experience,  significant
fluctuations in quarterly revenues and operating results. The Company's revenues
and  operating  results in general,  and in  particular  its  revenues  from new
licenses,  are  relatively  difficult  to  forecast  for a  number  of  reasons,
including (i) the relatively long sales cycles for the Company's products,  (ii)
the variable size and timing of individual license  transactions,  (iii) changes
in demand for the Company's products and services,  (iv) competitive  conditions
in the  industry,  (v)  changes  in  customer  budgets,  (vi) the  timing of the
introduction  of new  products  or product  enhancements  by the  Company or its
competitors, (vii) the Company's success in and costs associated with developing
and  introducing  new products,  (viii) product life cycles,  (ix) the timing of
revenue  recognition under the  percentage-of-completion  method, (x) changes in
the proportion of revenues  attributable to license fees versus  services,  (xi)
changes in the level of operating expenses,  (xii) delay or deferral of customer
implementations  of the Company's  software,  (xiii) software  defects and other
product quality problems,  and (xiv) other economic  conditions  generally or in
specific  process  industry  segments.  Further,  the purchase of the  Company's
products  generally  involves a  significant  commitment  of  capital,  with the
attendant  delays  frequently  associated  with large capital  expenditures  and
authorization  procedures  within  large  organizations.  For  these  and  other
reasons,  the sales cycles for the Company's  products are typically lengthy and
subject to a number of significant risks over which the Company has little or no
control,  including  customers'  budget  constraints and internal  authorization
reviews. In addition,  delays in the completion of a product  implementation may
require that the revenues associated with such implementation be recognized over
a longer period than originally  anticipated.  Such delays in the implementation
or  execution  of orders  has  caused,  and may in the  future  cause,  material
fluctuations in the Company's operating results. Similarly, customers may cancel
implementation  projects at any time  without  penalty,  and such  cancellations
could have a material  adverse  effect on the  Company's  business or results of
operations.  Because  the  Company's  expenses  are  relatively  fixed,  a small
variation  in  the  timing  of  recognition  of  specific   revenues  can  cause
significant  variations in operating  results from quarter to quarter and may in
some future  quarter  result in losses or have a material  adverse effect on the
Company's business or results of operations.

     As a result,  it is  possible  that in some future  quarter  the  Company's
results of  operations  could  fail to meet the  expectations  of public  market
analysts or investors.  In such event,  or in the event that adverse  conditions
prevail or are  perceived to prevail  generally or with respect to the Company's
business,  the price of the  Company's  Common Stock would likely be  materially
adversely  affected.

Lack of Firm Orders

     The majority of the Company's revenues are earned from services rendered on
a time- and materials-basis under its customer contracts.  Such contracts do not
obligate  customers to purchase any minimum amount of services from the Company.
Customers   typically   engage   the   Company   to   provide   services   on  a
project-by-project basis and such engagements are cancelable at any time without
penalty. In order to provide services to a particular customer, the Company must
have available an adequate  number of trained  qualified  personnel.  Though the
Company assists customers in creating  implementation  schedules and attempts to
anticipate their needs,  there can be no assurance that the Company will be able
to forecast  accurately  customers'  demand for its  services.  A failure by the
Company to forecast  demand for its services  accurately  could result in either
its being unable to provide adequate service to all customers who desire service
or its having an excessive  number of personnel on its payroll.  The former case
could result in customer  dissatisfaction and a loss of potential business.  The
latter case could result in  disproportionately  high  personnel  expenses and a
related adverse effect on the Company's results of operations.


Rapid Technological Change; Need to Develop New Products

     The market for the Company's  software  products is  characterized by rapid
technological  change,  evolving  industry  standards  in computer  hardware and
software technology,  changes in customer  requirements and frequent new product
introductions and enhancements. The Company's future success will depend in part
upon its ability to continue to enhance and expand its PassPort applications, to
continue  to provide  enterprise  solutions  and to develop  and  introduce  new
products that keep pace with technological  developments,  satisfy  increasingly
sophisticated   customer   requirements  and  achieve  market   acceptance.   In
particular,  the Company must continue to anticipate  and respond  adequately to
advances in  relational  database  management  systems  ("RDBMS")  software  and
desktop computer  operating  systems such as Microsoft  Windows,  Windows NT and
Windows95.  There  can be no  assurance  that the  Company  will not  experience
difficulties that could delay or prevent the

                                       11
<PAGE>

successful  development,  introduction or marketing of new products, or that new
products and product enhancements will achieve market acceptance. If the Company
is unable to enhance existing  products or develop and introduce new products in
a  timely  manner  in  response  to  changing  market   conditions  or  customer
requirements,   the  Company's  business  or  results  of  operations  could  be
materially adversely affected.

     Historically,  the Company has issued new releases of its software products
approximately  annually,  although it has on occasion  experienced delays in the
scheduled introduction of new and enhanced products. The Company currently plans
to begin shipping Release 6.0 of its PassPort  applications in the third quarter
of 1997. There can be no assurance that Release 6.0, will be developed or become
commercially  available on a timely basis or that any such products will achieve
market acceptance.  After Release 6.0, the Company intends to increase the speed
of its development cycle to allow issuances of new releases  approximately every
six months in order to meet the increasing demands of its customers for enhanced
features and  performance.  There can be no  assurance  that the Company will be
able to increase the speed of the development  cycle, and failure to do so could
adversely affect the ability of the Company to satisfy its current and potential
customers,  which could have a material adverse effect on the Company's business
results  of  operations.   In  addition,  the  Company's  PassPort  applications
currently  operate only on the Oracle and IBM/DB2 RDBMS platforms.  There can be
no assurance  that the  Company's  current and  prospective  customers  will not
utilize  other RDBMS  platforms  and,  if so,  that the Company  will be able to
successfully  migrate its products to such  platforms.  The occurrence of any of
these problems could have a material adverse effect on the Company's business or
results of operations.

The  Company  uses  PassPort  Workbenches,  a  set  of  proprietary  application
development and support tools, to develop its PassPort  applications and markets
these  tools  to  certain   customers  for  use  in  implementing  its  PassPort
applications.  In the event that PassPort  Workbenches do not keep pace with the
technological changes required by its customers,  the Company could be forced to
modify or abandon PassPort Workbenches in favor of third-party products, and the
Company's  license  revenues  from  PassPort  Workbenches  could  be  materially
adversely affected.

Dependence on Electric Utility Industry

     The Company  currently  derives  nearly all of its  revenues  from sales to
customers in process  industries,  and has  historically  derived a  significant
majority of its revenues from customers in the electric  utility  industry.  The
Company's dependence on the electric utility industry raises certain significant
risks with respect to the future success of the Company's PassPort applications.
The electric  utility  industry is generally  characterized  by long  purchasing
cycles.  The decision by an electric  utility to deploy the  Company's  products
involves a significant  organizational commitment by the utility. Such decisions
may be influenced  by utilities'  perceptions  of the  prevailing  trends in the
industry with respect to information  technology  deployment.  As a result,  the
decision by a small  number of  utilities  to defer or delay  implementation  of
enterprise  software  solutions  may  negatively  affect  purchasing   decisions
throughout the industry,  thereby  reducing  demand for the Company's  products.
Accordingly,  there can be no  assurance  that the Company  will  continue to be
successful in marketing its products to electric  utilities.  Because  increased
penetration of the electric  utility market is important to the Company's future
success,  the failure of the Company to achieve such market  penetration  due to
these and other  factors could have a material  adverse  effect on the Company's
business or operating results.

Dependence on PASSPORT Software Solutions

     The  Company  currently  derives  substantially  all of its  revenues  from
licenses of its PassPort  Software  Solutions and from services related to those
products.  The Company is particularly  dependent on its Work Management Systems
and Materials & Procurement  Systems  applications,  both as a source of revenue
and as a means of  establishing  a presence  with  customers to  facilitate  the
licensing of additional  products.  Any developments that adversely affect sales
of the Company's PassPort applications  generally or its Work Management Systems
and Materials & Procurement  Systems  applications  in  particular,  such as the
success of  competitive  products,  would have a material  adverse effect on the
Company's business or results of operations.

Management of Changing Business

     The  Company's  business has grown  rapidly in recent  periods,  with total
revenues  increasing  from $27.5  million  in 1993 to $30.6  million in 1994 and
$53.8 million in 1995. The growth of the Company's business and expansion of the
Company's  customer  base has placed a strain on the  Company's  management  and
operations.  The Company's  recent  expansion  has also resulted in  substantial
growth in the number of its employees,  the scope of its operating and financial
systems  and the  geographic  area of its  operations,  resulting  in  increased
responsibility  for management  personnel.  The Company's ability to support any
future growth of its business  will be  substantially  dependent  upon having in
place highly trained  employees to conduct research and  development,  pre-sales
activity and product implementation,  assist with business process reengineering
and provide other

                                       12
<PAGE>
customer support services. The Company's future operating results will depend on
the ability of its officers and other key employees to continue to implement its
operational, customer support and financial control systems and to expand, train
and manage its employee base. There can be no assurance that the Company will be
able to manage any future  expansion  successfully,  and any  inability to do so
would have a material  adverse  effect on the  Company's  business or results of
operations.

Dependence on Key Personnel

     The Company's success depends to a significant  extent upon a number of key
employees and other members of senior management of the Company, none of whom is
bound by an  employment  agreement.  The loss of the services of one or more key
employees  could have a material  adverse  effect on the  Company's  business or
results of operations. In addition, the Company believes that its future success
will also  depend in large part upon its  ability to  attract,  train and retain
highly skilled technical, management, sales and marketing personnel. Competition
for such personnel in the computer software industry is intense. The Company has
from time to time experienced difficulty in locating candidates with appropriate
qualifications. There can be no assurance that the Company will be successful in
attracting  or retaining  such  personnel,  and the failure to attract or retain
such personnel could have a material adverse effect on the Company's business or
results of operations.

Competition

     The enterprise  management software solutions market is highly competitive,
rapidly changing and  significantly  affected by new product  introductions  and
other  market  activities  of  industry  participants.   The  Company's  primary
competition stems from companies offering enterprise software solutions, vendors
offering  partial  solutions and suppliers of  departmental  systems  (primarily
LAN-based).  The Company's competitors include SAP  Aktiengesellschaft  ("SAP"),
the  Company's  principal  competitor,  and other  software  vendors such as TSW
International,  Marcam Corp.,  and Project  Software & Development,  Inc. In the
future, the Company may also face competition from its Alliance Partners. In the
electric utility market,  the Company faces competition from suppliers of energy
delivery  applications,   including  Severn  Trent  Systems  and  Synercrom.  In
addition,   the  Company   faces   indirect   competition   from   suppliers  of
custom-developed  business application software,  such as the systems consulting
groups of major accounting firms and systems integrators. The Company also faces
indirect  competition from systems  developed by the internal MIS departments of
large organizations.

     Many of the Company's  competitors  and potential  competitors  have longer
operating histories,  significantly greater financial,  technical, marketing and
other  resources,  greater  name  recognition,  and a larger  installed  base of
customers than the Company.  In addition,  certain  competitors,  including SAP,
have  well-established  relationships  with  customers  of the  Company and with
accounting  and  consulting  firms that may have an incentive to recommend  such
competitors over the Company. Furthermore, as the enterprise management software
solutions market for process  industries  expands,  companies with significantly
greater  resources  than the Company could attempt to increase their presence in
this market by acquiring or forming strategic  alliances with competitors of the
Company.

     In order to be  successful  in the  future,  the Company  must  continue to
respond promptly and effectively to the challenges of  technological  change and
its competitors' innovations by continually enhancing its own product offerings.
There can be no assurance, however, that the Company's products will continue to
compete  favorably  or that  the  Company  will  be  successful  in the  face of
increasing competition from new products and enhancements introduced by existing
competitors or new companies entering this market.

International Operations

     International  sales  represented  approximately  17%,  15%  and 17% of the
Company's  total  revenues  in 1994,  1995 and 1996,  respectively.  The Company
established a sales and support office near London, England in 1993. The Company
believes that its ability to achieve  continued  growth and  profitability  will
require further  expansion of its international  operations.  In order to expand
international sales in subsequent periods, the Company must establish additional
foreign operations and hire additional personnel.  This will require significant
management  attention and financial  resources  and could  materially  adversely
affect the Company's business or results of operations.  In addition,  there can
be no  assurance  that  the  Company  will  be  able  to  maintain  or  increase
international   market  demand  for  the  Company's   products.   The  Company's
international  sales are currently  denominated in U.S. dollars.  An increase in
the value of the U.S.  dollar  relative  to  foreign  currencies  could make the
Company's products more expensive and,  therefore,  potentially less competitive
in those  markets.  Currently,  the  Company  does not employ  currency  hedging
strategies to reduce this risk. In some markets,  localization  of the Company's
products is essential to achieve market penetration.  Although  historically the
Company's  business  partners  have borne the costs of  localizing  the  Company
products, the Company

                                       13
<PAGE>

may incur  substantial costs and experience delays in localizing its products in
the future,  and there can be no assurance that any localized  product will ever
generate  significant  revenues.  Additional  risks  inherent  in the  Company's
international  business  activities  generally  include  unexpected  changes  in
regulatory  requirements,  tariffs and other  trade  barriers,  longer  accounts
receivable payment cycles,  difficulties in managing  international  operations,
potentially adverse tax consequences  including restrictions on the repatriation
of earnings  and the burdens of complying  with a wide variety of foreign  laws.
There can be no assurance  that such  factors  will not have a material  adverse
effect on the Company's future  international  sales and,  consequently,  on the
Company's business or results of operations.


Risk of Product Defects

     As a  result  of the  complexities  inherent  in  RDBMS  and  client/server
technologies and the broad product functionality and performance demanded by the
Company's customers, major new product enhancements and new products can require
long development and testing periods to achieve market acceptance.  In addition,
software as complex as that offered by the Company may contain undetected errors
or "bugs" when first  introduced or as new versions are released  that,  despite
testing by the Company,  are discovered  only after a product has been installed
and used by customers.  To date, the Company's  business has not been materially
adversely affected by the release of products  containing errors.  However,  the
Company is currently  attempting to accelerate the development and  introduction
cycle for new  products  and product  enhancements  and this could  increase the
potential for errors. There can be no assurance that errors will not be found in
future  releases  of the  Company's  software,  or that any such errors will not
impair the market  acceptance of these products and adversely  affect  operating
results.  Difficulties  encountered by customers installing and implementing new
releases or problems with the performance of the Company's products could have a
material adverse effect on the Company's business or results of operations.


Dependence on Proprietary Technology

     The Company's success is heavily dependent on its proprietary software. The
Company relies on a combination  of the  protections  provided under  applicable
copyright,  trademark  and  trade  secret  laws,  as well as on  confidentiality
procedures  and licensing  arrangements,  to establish and protect its rights in
its software. Despite the Company's efforts, it may be possible for unauthorized
third parties to copy certain  portions of the Company's  products or to reverse
engineer or obtain and use information  that the Company regards as proprietary.
Moreover, the laws of certain countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States. Furthermore,  the
Company  has no  patents,  and  existing  copyright  laws  afford  only  limited
protection. Accordingly, there can be no assurance that the Company will be able
to protect its proprietary software against unauthorized  third-party copying or
use, which could adversely affect the Company's competitive position.

     There can be no  assurance  that a third  party  will not  assert  that the
Company's  technology  violates  its  patents  in the  future.  As the number of
software  products in the  industry  increases  and the  functionality  of these
products  further  overlap,  the Company  believes that software  developers may
become  increasingly  subject to infringement  claims. Any such claims,  with or
without  merit,  can be time  consuming and expensive to defend or could require
the Company to enter into royalty and licensing agreements.  Such agreements, if
required, may not be available on terms acceptable to the Company, or at all.


Product Liability

     The sale and support of PassPort applications by the Company may entail the
risk of product  liability  claims.  The Company's  license  agreements with its
customers  typically contain provisions designed to limit the Company's exposure
to  potential  product  liability  claims.  It is  possible,  however,  that the
limitation of liability provisions contained in the Company's license agreements
may not be effective as a result of federal,  state or local laws or  ordinances
or unfavorable judicial decisions.  A successful product liability claim brought
against  the Company  could have a material  adverse  effect upon the  Company's
business or results of operations.


Anti-takeover Effect of Certain Charter Provisions

     The  Company's  Board of Directors  has  authority to issue up to 5,000,000
shares of  Preferred  Stock and to  determine  the price,  rights,  preferences,
privileges and restrictions, including voting rights of such shares, without any
further vote or action by the Company's shareholders.  The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the rights
of the  holders of any  Preferred  Stock that may be issued in the  future.  The
issuance of Preferred  Stock,  while  providing  flexibility in connection  with
possible  acquisitions  and other corporate  purposes,  could have the effect of
making it more difficult

                                       14


<PAGE>

for a third party to acquire a majority of the  outstanding  voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock.

Possible Volatility of Stock Price

      The trading price of the  Company's  Common Stock could be subject to wide
fluctuations  in  response  to  quarterly   variations  in  operating   results,
announcements of technological innovations or new products by the Company or its
competitors,  as well as other events or factors. In addition,  the stock market
has from time to time experienced  extreme price and volume  fluctuations  which
have  particularly  affected  the  market  prices  of the  stocks  of many  high
technology  companies  and which  often  have been  unrelated  to the  operating
performance of these  companies.  These broad market  fluctuations may adversely
affect the market price of the Company's Common Stock.

ITEM 2.  PROPERTIES

The Company currently  maintains offices comprising 115,000 square feet of which
its headquarters  facility in San Francisco,  California  occupies 67,000 square
feet, under a lease which expires in May, 2001. The Company conducts its product
development,  customer project  operations,  customer training and all financial
services at its corporate headquarters location. Customer project operations and
training  are also  conducted  at  regional  facilities  located in  Pittsburgh,
Philadelphia,   Portland,  Dallas  and  London.  Management  believes  that  its
facilities  are  adequate to meet the needs  through  1997 and that if required,
suitable  additional  space will be  available to  accommodate  expansion of the
Company's  operations  on  commercially   reasonable  terms.  The  Company  owns
substantially all equipment used in its facilities.

                                       15


<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

There are no material pending legal  proceedings to which the Company is a party
or of which any of its property is subject.

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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of fiscal year 1996.

                                     PART II

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

The Indus Group,  Inc.'s Common Stock,  $.001 par value, is traded on the Nasdaq
National Market. The tables present its high and low market prices, and dividend
information.  Quarterly  common  stock price  ranges are not  available  for the
Company  prior to its initial  public  offering  date of February 29, 1996 since
there was no public market for the Common Stock of the Company.

Quarterly Common Stock Prices Ranges

                           1996
---------------------------------------------
Quarter       High         Low       Dividend
-------       ----         ---       --------
1st           22-3/4       18        none
2nd           21-1/2       17        none
3rd           21-1/4       15-3/4    none
4th           25-3/4       18-7/8    none

Prior to its initial  public  offering in February,  1996,  the Company was an S
Corporation and from time to time made  substantial  cash  distributions  to its
shareholders.  The Company anticipates that any future earnings will be retained
to finance  the  continuing  development  of its  business.  The Company has not
declared or paid any cash dividends on its Common Stock since the termination of
its S Corporation  status and does not  anticipate  paying cash dividends in the
foreseeable future.

The number of shareholders of record for the Company's  common stock as of March
11, 1997 was 226.

                                       16

<PAGE>

ITEM 6.  SELECTED FINANCIAL INFORMATION

The  following  selected  financial  information  of the Company is qualified by
reference to and should be read in conjunction with the financial statements and
notes thereto and other financial  information  included  elsewhere herein.  The
combined statements of operations data for the years ended December 31, 1994 and
1995 and combined balance sheet data as of December 31, 1995 of The Indus Group,
Inc. and Indus International, Inc. and the consolidated statements of operations
data for the year ended December 31, 1996 and consolidated balance sheet data as
of December  31, 1996 are derived  from and  qualified by reference to financial
statements  of the  Company  that  have  been  audited  by  Ernst &  Young  LLP,
independent  auditors,  and are included  elsewhere herein. The combined balance
sheet data as of  December  31,  1992 and 1993 and the  combined  statements  of
operations  data for the years ended December 31, 1992 and 1993 are derived from
the financial  statements of the Company that have been audited by Ernst & Young
LLP that are not included herein.
<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                               ----------------------------------------------------------
                                                                 1992        1993        1994         1995         1996
                                                               --------    --------    --------     --------     --------
                                                               (in thousands, except per share data)
Statement of Operations Data:
Revenues:
<S>                                                            <C>         <C>         <C>          <C>          <C>
Software licensing fees ....................................   $  6,112    $  6,514    $  7,547     $ 10,676     $ 16,208
Services and maintenance ...................................     16,681      20,978      23,044       43,115       59,731
                                                               --------    --------    --------     --------     --------
Total revenues .............................................     22,793      27,492      30,591       53,791       75,939
Cost of revenues ...........................................      9,127      10,395      12,798       22,578       31,790
                                                               --------    --------    --------     --------     --------
Gross margin ...............................................     13,666      17,097      17,792       31,213       44,149
                                                               --------    --------    --------     --------     --------
Operating expenses:
Research and development ...................................      4,295       6,910       7,120        8,306       12,493
Sales and marketing ........................................      1,856       3,533       4,144        5,680        9,306
General and administrative .................................      3,988       3,595       4,654        4,918        7,819
Compensation charge--stock options(1) ......................       --          --          --         18,900         --
                                                               --------    --------    --------     --------     --------
Total operating expenses ...................................     10,139      14,038      15,918       37,804       29,618
                                                               --------    --------    --------     --------     --------
Income (loss) from operations ..............................      3,527       3,059       1,874       (6,591)      14,531
Other income (expense), net ................................         83          83        (100)          96        1,251
                                                               --------    --------    --------     --------     --------
Income (loss) before income taxes ..........................      3,610       3,142       1,774       (6,495)      15,782
Provision for income taxes (state and foreign only) ........         90          55          69          325        6,554
       Cumulative effect of deferred income taxes
       provided upon January 1, 1996 conversion to
       C Corporation status(2) .............................       --          --          --           --          6,700
                                                               --------    --------    --------     --------     --------
     Net income (loss) .....................................   $  3,520    $  3,087    $  1,705     $ (6,820)    $  2,528

Pro Forma Statement of Operations Data for 1995 and 1996:
Income (loss) before income taxes, as above.................                                        $ (6,495)    $ 15,782
Add back portion of compensation charge--stock options(1)...                                          17,900           --
                                                                                                    --------     --------
Income before income taxes, as adjusted.....................                                          11,405       15,782
Provision for income taxes (federal, state and foreign)(2)..                                           5,083        6,554
                                                                                                    --------     --------
Pro forma net income........................................                                        $  6,322     $  9,228
                                                                                                    ========     ========
Pro forma net income per share(3)...........................                                        $   0.36     $   0.49
                                                                                                    ========     ========
Shares used in computing pro forma net income per share(3)..                                          17,490       18,924
                                                                                                    ========     ========


                                                                                     December 31,
                                                               ----------------------------------------------------------
                                                                 1992        1993        1994         1995         1996
                                                               --------    --------    --------     --------     --------
                                                                                    (in thousands)
Balance Sheet Data:
Working capital ............................................   $ 6,789     $ 4,179      $ 4,698      $ 7,640      $46,693
Total assets ...............................................    14,914      13,080       18,063       31,075       75,514
Short-term debt ............................................     1,700       1,833        2,005        8,900           --
Long-term debt .............................................        --          --           --           --           --
Total shareholders' equity .................................     9,641       8,123        8,243       10,848       55,372

</TABLE>
                                       17
<PAGE>

(1)   Reflects  nonrecurring  expense  incurred in the third  quarter of 1995 in
      connection  with an amendment to the  Company's  1992 Stock Option Plan to
      accelerate  the  exercisability  of outstanding  stock options,  which had
      previously been contingent upon the occurrence of certain events.  The pro
      forma adjustment of $17,900,000 is to reduce 1995 compensation  expense to
      the  amount  related to  options  granted in 1995 only.  See Note 1 of the
      Notes to the Combined Financial Statements.

(2)   Prior to January 1, 1996, the Company was not subject to federal corporate
      income  taxation  because of its election to be taxed under the provisions
      of  Subchapter  S of the  Code.  Pro forma  net  income  for 1995 has been
      determined  by assuming that the Company had been taxed as a C Corporation
      for 1995.  Pro forma net income for 1996  reflects  the  elimination  of a
      nonrecurring  charge for the  cumulative  effect of deferred  income taxes
      incurred in the first quarter of 1996 in connection  with the  termination
      of the Company's S Corporation  status.  See Notes 1 and 6 of Notes to the
      Consolidated Financial Statements.

(3)   See  Note 1 of  Notes  to  Consolidated  Financial  Statements  for a more
      complete  explanation of the determination of the number of shares used in
      computing pro forma net income per share.


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

The  information  required by this Item is incorporated by reference to pages 15
through 17 of the Company's 1996 Annual Report to Shareholders.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  information  required by this Item is incorporated by reference to pages 19
through 31 of the Company's 1996 Annual Report to Shareholders.


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

Not applicable.

                                       18
<PAGE>

                                    PART III

Certain information required by Part III is omitted from this Report in that the
Registrant  will file a definitive  proxy  statement  pursuant to Regulation 14A
(the "Proxy Statement") not later that 120 days after the end of the fiscal year
covered by this Report and certain information  included therein is incorporated
herein  by  reference.   Only  those  sections  of  the  Proxy   Statement  that
specifically  address the items set forth herein are  incorporated by reference.
Such  incorporation  does not include the  Compensation  Committee Report or the
Performance Graph included in the Proxy Statement.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  concerning  the Company's  Directors  required by this Item is
incorporated  by  reference  to the  information  contained  under the  captions
"Election  of  Director-Nominees"  and  "Compliance  with  Section  16(a) of the
Securities  Exchange  Act of  1934"  in the  Proxy  Statement.  The  information
concerning  the  Company's  officers  required  by this Item is  included in the
Section in Part I hereof entitled "Executive Officers".


ITEM 11.  EXECUTIVE COMPENSATION

The information  concerning the Company's  Executive  Officers  required by this
Item is incorporated by reference to the information contained under the caption
"Executive Compensation and Other Matters" in the Proxy Statement.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information   concerning  security  ownership  required  by  this  Item  is
incorporated  by  reference  to the  information  contained  under  the  caption
"Security  Ownership  of  Management;   Principal  Shareholders"  in  the  Proxy
Statement.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by this item is  incorporated  by  reference  to the
information  contained  under the  caption  "Certain  Relationships  and Related
Transactions" in the Proxy Statement.



                                     PART IV



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

a.        The following documents are filed as a part of this Report:

1.        Financial   Statements:   The  following   Combined  and  Consolidated
          Financial  Statements  of The Indus Group,  Inc. and Report of Ernst &
          Young LLP,  Independent  Auditors,  are  incorporated  by reference to
          pages  19  through  31 of  the  Registrant's  1996  Annual  Report  to
          Shareholders.

          Report of Ernst & Young LLP, Independent Auditors
          Combined Balance Sheet - December 31, 1995
          Consolidated Balance Sheet - December 31, 1996
          Combined Statement of Operations - Years Ended December 31, 1994 and
            1995
          Consolidated Statements of Operations - Year Ended December 31, 1996
          Combined and Consolidated Statement of Shareholders' Equity -
            Three Year Period Ended December 31, 1996
          Combined and Consolidated Statements of Cash Flows - Fiscal Years 
            Ended December 31, 1994, 1995 and 1996
          Notes to Financial Statements

                                       19

<PAGE>

2.        Financial  Statement  Schedule:   The  following  financial  statement
          schedule of The Indus  Group,  Inc.  for the years ended  December 31,
          1994, 1995 and 1996 is filed as part of this Report and should be read
          in conjunction with the Consolidated Financial Statements of The Indus
          Group, Inc.

              Schedule II       Valuation and Qualifying Accounts............S-1


          Schedules  not listed  above have been  omitted  because  they are not
          applicable or are not required or the  information  required to be set
          forth therein is included in the Consolidated  Financial Statements or
          Notes thereto.

3.        Exhibits:  The Exhibits listed on the  accompanying  index to Exhibits
          immediately  following the financial  statement schedules are filed as
          part of, or incorporated by references into, this Report.

          Exhibit

          Number     Description

          3.1        Amended  and   Restated   Articles  of   Incorporation   of
                     Registrant, incorporated herein by reference to Exhibit 3.2
                     to the Company's  Registration  Statement of Form S-1 (Reg.
                     No.  33-80573)  filed  with  the  Securities  and  Exchange
                     Commission on December 19, 1995.
          3.2        Bylaws of Registrant,  as amended,  incorporated  herein by
                     reference  to  Exhibit  3.3 to the  Company's  Registration
                     Statement on Form S-1 (Reg.  No.  33-80573)  filed with the
                     Securities and Exchange Commission on December 19, 1995.
          10.1       Form  of  Indemnification   Agreement  with  Directors  and
                     Officers,  incorporated herein by reference to Exhibit 10.1
                     to the Company's  Registration  Statement on Form S-1 (Reg.
                     No.  33-80573)  filed  with  the  Securities  and  Exchange
                     Commission on December 19, 1995.
          10.2*      1995  Stock  Plan,  incorporated  herein  by  reference  to
                     Exhibit  10.2 to the  Company's  Registration  Statement on
                     Form S-1 (Reg. No.  33-80573) filed with the Securities and
                     Exchange Commission on December 19, 1995.
          10.3*      1995 Director Option Plan, incorporated herein by reference
                     to Exhibit 10.3 to the Company's  Registration Statement on
                     Form S-1 (Reg. No.  33-80573) filed with the Securities and
                     Exchange Commission on December 19, 1995.
          10.4*      Employee  Stock  Purchase  Plan,   incorporated  herein  by
                     reference  to Exhibit  10.4 to the  Company's  Registration
                     Statement on Form S-1 (Reg.  No.  33-80573)  filed with the
                     Securities and Exchange Commission on December 19, 1995.
          10.5*      1992 Stock Option Plan, as amended,  incorporated herein by
                     reference  to Exhibit  10.5 to the  Company's  Registration
                     Statement on Form S-1 (Reg.  No.  33-80573)  filed with the
                     Securities and Exchange Commission on December 19, 1995.
          10.6*      Amendments   to   Registrant's   1992  Stock  Option  Plan,
                     incorporated  herein by reference  to Exhibit  10.02 to the
                     Company's  Quarterly Report on Form 10-Q (File No. 0-27806)
                     filed  with  the  Securities  and  Exchange  Commission  on
                     November 13, 1996.
          10.7       Form of Tax Indemnification Agreement,  incorporated herein
                     by reference to Exhibit 10.6 to the Company's  Registration
                     Statement on Form S-1 (Reg.  No.  33-80573)  filed with the
                     Securities and Exchange Commission on December 19, 1995.
          10.8       Software Master License  Agreement  between the Company and
                     Felton  Enterprises,  dated  January 2, 1990, as amended to
                     date,  incorporated  herein by reference to Exhibit 10.7 to
                     the Company's  Registration Statement on Form S-1 (Reg. No.
                     33-80573) filed with the Securities and Exchange Commission
                     on December 19, 1995.
          10.9       Conditional Assignment of Software Master License Agreement
                     and  Underlying  Software  between  the  Company and Felton
                     Enterprises dated February 24, 1996 incorporated  herein by
                     reference  to Exhibit  10.8 to the  Company's  Registration
                     Statement on Form S-1 (Reg.  No.  33-80573)  filed with the
                     Securities and Exchange Commission on December 19, 1995.
          10.10      Amended and Restated  Commercial  Loan Agreement dated June
                     30,  1995 with  Sumitomo  Bank of  California,  as  amended
                     through December 19, 1995, incorporated herein by reference
                     to Exhibit 10.9 to the Company's  Registration Statement on
                     Form S-1 (Reg. No.  33-80573) filed with the Securities and
                     Exchange Commission on December 19, 1995.

                                       20
<PAGE>

          10.11      Third  Amendment to Commercial Loan Agreement dated May 29,
                     1996 with Sumitomo Bank of California,  incorporated herein
                     by reference to Exhibit  10.01 to the  Company's  Quarterly
                     Report  on Form  10-Q  (File No.  0-27806)  filed  with the
                     Securities and Exchange Commission on August 13, 1996.
          10.12      Fourth   Amendment  to  Commercial   Loan  Agreement  dated
                     September  6,  1996  with   Sumitomo   Bank  of  California
                     incorporated  herein by reference  to Exhibit  10.01 to the
                     Company's  Quarterly Report on Form 10-Q (File No. 0-27806)
                     filed  with  the  Securities  and  Exchange  Commission  on
                     November 13, 1996.
          10.13      Asset Acquisition Agreement with Indus International, Inc.,
                     incorporated  herein  by  reference  to  Exhibit  10.10  to
                     Amendment No 3 to the Company's  Registration  Statement on
                     Form S-1 (Reg. No. 33- 80573) filed with the Securities and
                     Exchange Commission on February 28, 1996.
          10.14      Lease for the  Company's  San  Francisco,  CA  headquarters
                     dated January 24, 1990, as amended,  incorporated herein by
                     reference to Exhibit  10.11 to the  Company's  Registration
                     Statement on form S-1 (Reg.  No.  33-80573)  filed with the
                     Securities and Exchange Commission on December 19, 1995.
          10.15      Lease  for  the  Company's  Pittsburgh,  PA  sales  office,
                     incorporated  herein  by  reference  to  Exhibit  10.12  to
                     Amendment No. 1 to the Company's  Registration Statement on
                     Form S-1 (Reg. No.  33-80573) filed with the Securities and
                     Exchange Commission on January 31, 1996.
          11.1       Statement of Computation of Pro Forma Net Income Per Share
          13.1       Annual Report to  Shareholders  for the year ended December
                     31, 1996 (to be deemed filed only to the extent required by
                     the instructions to exhibits for reports on Form 10-K).
          21.1       List of Subsidiaries.
          23.1       Consent of  Independent  Auditors.
          24.1       Power of Attorney (included on page 22 of this Report).
          27.1       Financial Data Schedule.

-----------
*Designates  management contracts or compensatory plan arrangements  required to
be filed as an exhibit pursuant to item 14(C) of this report on Form 10-K.

          (b) Reports on Forms 8-K.

           No  reports on Form 8-K were  filed  during  the last  quarter of the
           period covered by this report.

                                       21

<PAGE>


                                   SIGNATURES

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


                                         THE INDUS GROUP, INC.
                                         (Registrant)
                                         /s/ Robert W. Felton

                                         Robert W. Felton
                                         President, Chief Executive Officer and
                                         Director

                                         Date:  March 26, 1997


POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE  PRESENT,  that each person  whose  signature  appears
below constitutes and appoints Robert W. Felton and Frank M. Siskowski,  jointly
and severally,  his/her attorneys-in-fact,  each with the power of substitution,
for him/her in any and all capacities,  to sign any amendments to this Report on
Form 10-K, and to file the same,  with exhibits  thereto and other  documents in
connection  therewith  with  the  Securities  and  Exchange  Commission,  hereby
ratifying and  confirming  all that each of said  attorneys-in-fact,  or his/her
substitute or substitutes may do or cause to be done by virtue hereof.

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

          Signature                          Title                    Date
          ---------                          -----                    ----

 /s/ Robert W. Felton      President, Chief Executive Officer     March 26, 1997
-------------------------  and Chairman of the Board of Directors
(Robert W. Felton)         (Principal Executive Officer)


 /s/ Frank M.Siskowski     Senior Vice President of Finance       March 26, 1997
-------------------------  and Chief Financial Officer
 (Frank M. Siskowski)      (Principal Financial and Accounting
                           Officer)

 /s/ Richard W. MacAlmon   Senior Vice President of Marketing     March 26, 1997
-------------------------  and Director
 (Richard W. MacAlmon)   


 /s/ Michael E. Percy      Senior Vice President of Education     March 26, 1997
-------------------------  and Director
 (Michael E. Percy)      


 /s/ Katherine C. Holland  Director                               March 26, 1997
-------------------------
 (Katherine C. Holland)


 /s/ Alan G. Merten        Director                               March 26, 1997
-------------------------
 (Alan G. Merten)


 /s/ Donald F. Robertson   Director                               March 26, 1997
-------------------------
 (Donald F. Robertson)


                                       22

<PAGE>


THE INDUS GROUP, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(Amounts in Thousands)




                                                  Charged
                          Balance at  Charged to  to Other  Changes-Add  Balance
                          Beginning   Costs and   Account-   (Deduct)-   at End
Year   Description        of Year     Expenses    Describe   Describe    of Year
----   -----------        -------     --------    --------   --------    -------

1996   Allowance for
       doubtful amounts   $652                                $203(1)    $449
                          ----                                ----       ----

1995   Allowance for
       doubtful amounts   $586        $66                                $652
                          ----        ---                                ----

1994   Allowance for
       doubtful amounts   $150        $436                               $586
                          ----        ----                               ----

(1)  Bad debts written off.

                                       23
<PAGE>

Index to Exhibits

          Number     Description
          ------     -----------
          3.1*       Amended  and   Restated   Articles  of   Incorporation   of
                     Registrant.
          3.2*       Bylaws of Registrant,  as amended.
          10.1*      Form  of  Indemnification   Agreement  with  Directors  and
                     Officers.
          10.2*      1995  Stock  Plan.
          10.3*      1995 Director Option Plan.
          10.4*      Employee  Stock  Purchase  Plan.
          10.5*      1992 Stock Option Plan, as amended.
          10.6*      Amendments   to   Registrant's   1992  Stock  Option  Plan.
          10.7*      Form of Tax Indemnification Agreement.
          10.8*      Software Master License  Agreement  between the Company and
                     Felton  Enterprises,  dated  January 2, 1990, as amended to
                     date.
          10.9*      Conditional Assignment of Software Master License Agreement
                     and  Underlying  Software  between  the  Company and Felton
                     Enterprises dated February 24, 1996.
          10.10*     Amended and Restated  Commercial  Loan Agreement dated June
                     30,  1995 with  Sumitomo  Bank of  California,  as  amended
                     through December 19, 1995.
          10.11*     Third  Amendment to Commercial Loan Agreement dated May 29,
                     1996 with Sumitomo Bank of California.
          10.12*     Fourth   Amendment  to  Commercial   Loan  Agreement  dated
                     September  6,  1996  with   Sumitomo  Bank  of  California.
          10.13*     Asset Acquisition Agreement with Indus International, Inc.
          10.14*     Lease for the  Company's  San  Francisco,  CA  headquarters
                     dated January 24, 1990, as amended.
          10.15*     Lease  for  the  Company's  Pittsburgh,  PA  sales  office.
          11.1       Statement of Computation of Pro Forma Net Income Per Share
          13.1       Annual Report to  Shareholders  for the year ended December
                     31, 1996 (to be deemed filed only to the extent required by
                     the instructions to exhibits for reports on Form 10-K).
          21.1       List of Subsidiaries.
          23.1       Consent of  Independent  Auditors.
          24.1       Power of Attorney (Included on page 22 of this report).
          27.1       Financial Data Schedule.

-----------
* Previously filed.

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