TABLE OF CONTENTS




|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1                                           
|                                                  | Item 1. Business                                                                             
|                                                  | Item 2. Properties                                                                           
|                                                  | Item 3. Legal Proceedings                                                                    
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                          
|                                                  | Item 5. Market Value of the Registrants Common Stock                                        
|                                                  | Item 6. Selected Consolidated Financial Data                                                 
|                                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | Item 7A. Quantitative And Qualitative Disclosures About Market Risk                          
|                                                  | Item 8. Financial Statements and Supplementary Data                                          
|                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 
|PART III                                         
|                                                  | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                  | Item 11. Executive Compensation                                                              
|                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                  | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                          
|                                                  | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                                       
|Executive Employment Agreement with John Montague
|Executive Employment Agreement with Ira Herman   
|Consent of Grant Thornton LLP                    
|Consent of Ernst & Young LLP                     



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



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FORM 10-K

|                                            |  |                                                     
|------------------------------------------- |  | ----------------------------------------------------
|(BOX WITH A CHECKMARK)                      |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF    
|                                            |  | THE SECURITIES EXCHANGE ACT OF 1934                 
|                                           
|For the fiscal year ended December 31, 2000
|                                           
|OR                                         
|                                           
|(EMPTY BALLOT BOX)                          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|                                            |  | THE SECURITIES EXCHANGE ACT OF 1934                 

For the transition period from ____________ to ______________

Commission File Number 0-27574

PowerCerv Corporation
(Exact name of registrant as specified in its charter)

|                                |  |                    
|------------------------------- |  | -------------------
|Florida                         |  | 59-3350778         
|                               
|                               
|                               
|                               
|(State or other jurisdiction of |  | (I.R.S. Employer   
|                               
|                               
|                               
|                               
|incorporation or organization)  |  | Identification No.)

400 North Ashley Drive, Suite 2700, Tampa, Florida 33602
(Address of principal executive offices, including zip code)

(813) 226-2600
(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, par value $.001 per share

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

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

The aggregate market value of the registrants voting stock held by
non-affiliates as of March 15, 2001 was approximately
$2,183,050. There were 13,811,210 shares of the registrants common stock,
par value $.001 per share, outstanding on March 30, 2001.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive Proxy Statement for its 2001 Annual
Meeting of Shareholders, scheduled to be held on June 1, 2001, which Proxy
Statement will be filed no later than 120 days after the close of the
registrants fiscal year ended December 31, 2000, are incorporated by reference
in Part III of this Annual Report on Form 10-K.

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##### Table of Contents



POWERCERV CORPORATION

Form 10-K Annual Report

TABLE OF CONTENTS

|           |  |                                                                                       |  |             |    | 
|---------- |  | ------------------------------------------------------------------------------------- |  | ----------- | -- | 
|           |  |                                                                                       |  | Page Number
|           |  |                                                                                       |  |            
|PART I    
|          
|          
|          
|          
|Item 1     |  | Business                                                                              |  |             | 3 
|          
|          
|          
|          
|Item 2     |  | Properties                                                                            |  |             | 14
|          
|          
|          
|          
|Item 3     |  | Legal Proceedings                                                                     |  |             | 15
|          
|          
|          
|          
|Item 4     |  | Submission of Matters to a Vote of Security Holders                                   |  |             | 15
|          
|          
|          
|          
|PART II   
|          
|          
|          
|          
|Item 5     |  | Market Value of the Registrants Common Stock                                         |  |             | 16
|          
|          
|          
|          
|Item 6     |  | Selected Consolidated Financial Data                                                  |  |             | 16
|          
|          
|          
|          
|Item 7     |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations |  |             | 18
|          
|          
|          
|          
|Item 7A    |  | Quantitative And Qualitative Disclosures About Market Risk                            |  |             | 30
|          
|          
|          
|          
|Item 8     |  | Financial Statements and Supplementary Data                                           |  |             | 30
|          
|          
|          
|          
|Item 9     |  | Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure  |  |             | 30
|          
|          
|          
|          
|PART III  
|          
|          
|          
|          
|Item 10    |  | Directors and Executive Officers of the Registrant                                    |  |             | 31
|          
|          
|          
|          
|Item 11    |  | Executive Compensation                                                                |  |             | 31
|          
|          
|          
|          
|Item 12    |  | Security Ownership of Certain Beneficial Owners and Management                        |  |             | 31
|          
|          
|          
|          
|Item 13    |  | Certain Relationships and Related Transactions                                        |  |             | 31
|          
|          
|          
|          
|PART IV   
|          
|          
|          
|          
|Item 14    |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |             | 32
|          
|          
|          
|          
|Signatures |  |                                                                                       |  |             | 57

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PART 1

This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about PowerCerv Corporations (the Company, as further defined
below) industry, managements beliefs and certain assumptions made by the
Companys management. Words such as anticipates, expects, intends,
plans, believes, seeks, estimates, variations of such words and similar
expressions are intended to identify such. These statements are not guarantees
of future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict; therefore, actual results may differ
materially from those expressed or forecasted in any such forward-looking
statements. Forward-looking statements include, without limitation, statements
regarding the extent and timing of future revenues and expenses and customer
demand for the Companys products and services discussed in Managements
Discussion and Analysis of Financial Condition and Results of Operations. It
is important to note that the Companys actual results could differ materially
from those in such forward-looking statements.







Item 1. Business

The Company is focused on delivering open, modifiable Integrated
Enterprise Response Software solutions with innovative e-commerce capabilities
to mid-size U.S. companies with annual revenues between $25 million and $750
million. The Company utilizes distributors and channel partners to sell and
support its products internationally. Management believes that PowerCerv is
one of the first enterprise application vendors to develop, promote and license
an integrated enterprise application software solution featuring integrated
e-business, Customer Relationship Management (CRM) and Enterprise Resource
Planning (ERP) applications. The Company refers to its full suite of
integrated CRM and ERP enterprise application software products as ERP
Plus, and it consists of front-office CRM software (SFA
Plusand Support Plus) and back-office ERP solutions
(Financials Plus, Distribution Plusand Manufacturing
Plus) that are integrated with PowerCervs e-business applications
(eSeries). A recent addition to the Companys line of enterprise application
software solutions, the eSeries consists of five Web-based software modules:
eView, eOrder, eCRM, eDashboard and eConfigure (eConfigure is scheduled for
release in the first half of 2001). PowerCerv eSeries applications are designed
to enable users to extend their enterprise operations via the Internet to
successfully respond to customers, suppliers and partners around the world, 24
hours a day. The Companys front-office CRM application products have the
ability to increase the effectiveness of sales organizations and customer
support centers in primarily two ways. First, SFA Plusprovides opportunity
management for maximum sales efficiency. Second, Support Plusprovides
solutions for tracking customer problems and issue resolution management.
PowerCervs back-office ERP application products facilitate the management of
resources and information to allow companies to reduce order fulfillment times,
improve operating efficiencies and measure critical company performance against
defined objectives. All PowerCerv e-business, CRM and ERP solutions are
integrated to facilitate a seamless front-office/back-office solution.
PowerCerv refers to this integrated approach to enterprise application software
solutions as Integrated Enterprise Response. In addition, the PowerCerv
solution is built upon a common technical architecture, common look and feel,
all based on a full 32 bit object-oriented toolset that is Microsoft and
Sybase-centric. The Company leverages available software development tool
technology from Microsoft Corporation and Sybase, Inc. The Companys research
and development efforts are directed primarily toward new features in its
application products. The Company has additional applications and tools that it
sells to expand the transaction intensive solutions mentioned above. These
additional applications and tools include PowerCerv Vision,
PowerCerv Intelligence (data warehouse/on-line analytical processing
(OLAP) reporting software), remote synchronization software for SFA Plusand
the PowerCerv Software Development Kit (SDK).

The Company historically has provided a wide range of professional
technical and business consulting services, including application analysis,
design, development, modification, integration programming, training and
deployment for its application products.

The Company was incorporated in Florida in January 1995 as a holding
company for its operating subsidiary, which was incorporated in Florida in
April 1992. Unless otherwise specified, references herein to PowerCerv and
the Company mean PowerCerv Corporation and its subsidiary.

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The Companys principal offices are located at 400 North Ashley Drive,
Suite 2700, Tampa, Florida 33602, and its telephone number is (813) 226-2600.
PowerCervs Website is located at www.powercerv.com. Information contained in
the Website is not a part of this Annual Report on Form 10-K.

Industry Background

The computer revolution has evolved from the air-conditioned, seven-figure
plus mainframe computers running back-office operations, such as payroll and
human resource systems, to distributed, network-based systems with an
affordable computer on every knowledge-workers desk. All this has occurred in
less than 40 years. Contrasted to other industries such as transportation,
medicine, telecommunications or automotive, no other industry has grown as
rapidly. In addition, no other industry has impacted everyone from the chief
executive officer to the accounting clerk to the schoolteacher as much as the
information industry. This revolution is now recognized as the information
revolution, not the computer revolution.

The rapid acceptance of 2-tier, 3-tier and n-tier applications gave
birth to the next generation of application software packages. For many years,
application software vendors sold products that were developed with programming
languages such as Cobol, and they were implemented on mainframe and
mini-computers generally characterized as proprietary. Each software vendor
was forced to port their applications to support the most popular hardware
platforms such as IBM Corporation, Digital Equipment Corporation and others.
The client/server revolution changed that for application software vendors.
The industry went from single vendor, proprietary architecture and closed
systems to open architecture, multi-vendor, truly open systems. This was a
fundamental shift in the industry and created opportunities for entrepreneurs
in the application sector.

The first wave of client/server application software products introduced
to the market was conventional back-office software for accounting, human
resources, manufacturing and order processing. Vendors such as McCormack &
Dodge, Management Sciences of America, IBM, SSA, Oracle and SAP enjoyed rapid
market acceptance with their back-office software packages. During the 1980s
and the 1990s, many vendors rose and fell in this competitive landscape. ASK,
SSA, MSA and McCormack & Dodge, each of them a one-time industry leader, all
fell victim to this competitive market. By 1996, SAP, PeopleSoft, Oracle and
Baan had emerged on the scene as potential leaders for enterprise applications.
The vast majority of the leading global 2000 companies were all looking for
ways to control their businesses and gain competitive advantage by implementing
enterprise applications in their businesses. This enterprise space quickly
became dominated by SAP, Oracle, Baan, J.D. Edwards and Peoplesoft. During
this time, a trend started to emerge of smaller companies wanting to realize
the same business benefits as larger companies in implementing enterprise
application software. This emerging market, rapidly coined the mid-market,
emerged as a growth opportunity or an entrance opportunity for enterprising
companies having the ability to deliver application software that had the price
performance metrics necessary to be successful in the mid-market. This middle
market is where the Company focuses its solutions. In 2000, the market for ERP
application software was estimated by AMR Research to be over $20 billion in
license revenues alone.

The PowerCerv Approach

The Companys heritage is rooted in designing, developing and delivering
application solutions for its customers. Early in its history, PowerCerv became
involved in developing applications for customers for both the front-office CRM
and the back-office ERP operations of the enterprise. PowerCerv leveraged its
expertise in the design and development of n-tier application systems driven by
real-world requirements. During 1995, the Company was a relative newcomer to
the enterprise application software market and sold its software products as
independent software modules primarily on a best-of-breed basis to companies
of all sizes across all industries. By early 1996, many of the Companys
competitors had application products that were either back-office or
front-office  but not both. Management of the Company believed that the
enterprise application software market would evolve to demand an integrated ERP
and CRM software solution from a single vendor. In order for most vendors to
achieve this strategy, they were forced to acquire or merge with other vendors
whose products complemented theirs and then attempt to integrate those products
under a common architecture.

PowerCerv made a strategic decision to be the first enterprise application
software vendor to offer an integrated CRM (sales force automation, customer
support) and ERP (manufacturing, distribution, financials) application software
solution. When a user logs into one application product of the Company where
multiple PowerCerv applications are running, he or she has logged into all of
the application products (depending on

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access/security privileges). That user
can use all of the Companys application products as defined by their business
requirements. In other words, PowerCerv application products permit its
customers to achieve meaningful business value through integration well beyond
the individual benefits of other individually implemented systems. The Company
believes this suite of application products was the first in the industry to
provide integrated n-tier solutions for both back-office ERP and front-office
CRM systems from one vendor with a consistent development methodology, under a
common technical architecture and with a common look-and-feel. The Company
believes that its suite of application products, which provides an integrated
enterprise solution, was the first of its kind in the industry and represents a
competitive advantage for the Company.

The Company refers to its full suite of integrated front-office CRM and
back-office ERP enterprise application software products as its ERP Plus
product line. The Companys ERP Plusapplication products consist of SFA Plus,
Support Plus,Manufacturing Plus, Distribution Plusand Financials Plus. Many
of the Companys customers license the Companys enterprise application
products as an integrated suite. Additionally, each PowerCerv application
product can be licensed as a standalone solution.

In March 2000, the Company launched the PowerCerv eSeries of Web-based
applications designed to extend the users enterprise operations beyond their
four walls and across the entire virtual supply chain. eSeries is integrated
with ERP Plusand consists of the following modules: eView, eOrder, eCRM,
eDashboard and eConfigure. eView is designed to allow users to remotely view
the status of an item in the value chain, anytime from remote computers.
eOrder is designed to deliver online business-to-business (B2B) order taking
and processing capabilities. eCRM is designed to allow companies to initiate
B2B CRM activities such as lead capture, campaign management, case entry, case
diagnostics and case tracking via the Web. eDashboard is designed to deliver
critical business performance and status information to executive-level
personnel via the Web. eConfigure, expected to be released in the first half
of 2001, extends PowerCervs existing e-business offerings to include
integrated Web-based product configuration, and is designed to enable users to
configure items over the Web or from within the ERP PlusDistribution Order
Entry and Quote processes.

In addition to promoting and licensing its enterprise application
products, the Company provides a full complement of professional consulting
services that allow the Companys license customers to maximize the benefits of
its application products. These consulting services include requirements
analysis, application analysis, detailed pre-implementation consulting, project
management, data migration planning, application customization and
modification, integration programming, system implementation and deployment.
In addition to the consulting services described above, the Company offers
education and training services on its enterprise application products that
provide licensed customers with formalized programs to assist them in using the
products in an efficient and cost effective manner. The Company also provides
timely, high-quality technical support and maintenance on its enterprise
application products.

PowerCervs Strategy

The Companys objective is to become the mid-market leader in enterprise
application software solutions with truly integrated e-business, CRM and ERP
applications. According to a 2001 report from AMR Research, entitled Know Your
Market, Even in the era of externally focused e-business, the prime motivating
factor is improving internal operations. . . Many companies now
recognize the necessity of effective operating processes before exposing them
to Web visibility. The PowerCerv Integrated Enterprise Response strategy is
based on the assertion that truly effective e-business cannot be conducted
without tight, seamless integration between a companys e-business and
enterprise application software solutions.

The Company believes that the mid-size U.S. (or middle) market is
represented by companies with annual revenues between $25 million and $750
million. In general, revenue is not a very reliable metric for targeting an
application software solution; however, as it has become industry standard to
do so, this middle market as defined above best describes our target market.
The Companys strategy to achieve this objective in this market includes the
following key components:



| |  | Focus on integrated CRM and ERP to provide Integrated Enterprise
Response. The Company announced its Integrated Enterprise Response
initiative in March 2000. This initiative is a concerted effort by
the Company to provide solutions that focus on providing tools that
enable our customers to respond to their changing business
environments. Specifically, the software solutions that the Company
provides focus on allowing the
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|  |  | Companys customers to respond to their
customers, suppliers, strategic partners and their own employees.
Response time is becoming a significant factor in todays accelerated
e-business world. This focus will allow the Companys customers to
better manage and respond to their virtual supply chain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Increase license revenue and market share. The Companys primary
objective is to increase its license revenues and market share in the
middle market. The Company believes that its integrated suite of CRM
and ERP application products effectively meets the needs of mid-size
companies based on technology platforms, functionality, agility and
integration capabilities. The Company also believes that the market
for enterprise application vendors is growing significantly based on,
among other factors, the continuing acceptance of enterprise
application software technology as a tool to gain a competitive
advantage, the migration from mini and mainframe computers and even,
at this late date, first-time implementations. The Company is focused
on trying to successfully increase its license revenues while closely
managing its operating costs. If these objectives are achieved, this
will result in improved earnings performance. To achieve the
Companys strategy to increase license revenue and market share, the
Company will have to continue to enhance its products, recruit and
train additional qualified application consulting professionals and
recruit and train sales and marketing professionals. There can be no
assurance that the Company will be able to achieve this strategy and
successfully compete against current and future competitors. See also
Business  Competition and Managements Discussion and Analysis of
Financial Condition and Results of Operations  Fluctuations in
Quarterly Activities and Results of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| 
| |  | Continue to deliver e-business solutions.In December of 1999, the
Company announced its strategy for delivering e-business solutions
integrated into its flagship ERP Plusproduct line. The suite, called
the eSeries, is an e-business software suite that includes eView,
eOrder, eCRM, eDashboardand eConfigure.eConfigure is expected to
be released in the first half of 2001. The eSeries suite is designed
to help mid-size companies conduct more competitive, efficient
e-business. The eSeries is integrated with the PowerCerv ERP Plus
software suite to enable e-Commerce by delivering enterprise
information to remote employees, suppliers and customers via the
Internet. The Company shipped the first component of the eSeries,
eView, in December of 1999. eViewis designed to allow users to
remotely view the status of an item in the value chain, anytime, from
remote computers. With eView, users can query and view enterprise
information, including customer invoices, credit memos, on-account
transactions and open-order status. eView also provides customers the
opportunity to access detailed inventory information with
point-in-time product availability. eOrderis designed to deliver
online business-to-business (B2B) order taking and processing
capabilities. It enables users to access the Web to create and enter
sales orders and quotes using the shopping carttool, view
customer-specific pricing information, and retrieve tax and freight
costs. Additional eOrder features include automatic transmission of
sales order acknowledgements via e-mail or fax, credit card processing
capabilities, and Web-based revenue reporting functionality. Security
measures also are included, allowing companies to view and enter
orders and information for all customers while their customers may
only enter orders and view data for their specific companies. eCRMis
designed to allow companies to initiate B2B CRM activities such as
lead capture, campaign management, case entry, case diagnostics and
case tracking via the Web. With eCRM, companies enable their customers
to request information via a Web site, creating an immediate sales
lead with complete customer information that is automatically captured
and passed to sales personnel. Companies also can setup self-service
capabilities at their Web sites and allow their customers to go online
to search diagnostic data and find information they need  on their
own time, regardless of office hours. eDashboardis designed to
deliver critical business performance and status information to
executive-level personnel via the Web. Executives can logon to the Web
via any common browser and access eDashboards status reports and
graphical views of key business indicators including customer service,
financials, operations and sales and marketing. All reports feature
intuitive graphical presentations with powerful filtering and online
analytical capabilities. Drill-anywhere capabilities allow users to
access high-level overview charts and graphs and then click on
particular portions of those reports to drill into more specific
detail. eConfigure, scheduled for release in the first half of 2001,
extends PowerCervs existing e-business offering to include integrated
Web-based product configuration. eConfigure is designed to enable
users to configure items over the Web or from within the ERP Plus
Distribution Order Entry and Quote processes. Past Internet
functionality of eSeries regarding order placement was limited to
ordering only non-configurable items. This solution enables the
ordering of configurable items over the Web by customers, and it also
provides the ability for PowerCerv ERP Plususers to setup
configurations over the Web. There can be no assurance that the
Company will be able to achieve this strategy and successfully compete
against current and future competitors.

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| |  | Focused market strategy. The Company is focused on delivering open,
modifiable front-office (CRM) and back-office (ERP) enterprise
application software with e-commerce capability solutions to mid-size
U.S. companies with annual revenues between $25 million and $750
million. The Company has focused its resources, including product
development, marketing and sales, on the needs and requirements of
companies in this market. A significant portion of the Companys
ongoing product development efforts will focus on building new
features and functionality that address the particular needs and
requirements of mid-size U.S. companies. The Company intends to
leverage its expertise in this area and continues to expect this
expertise will provide the Company with a competitive advantage.                                                                                                                                                                                                                                                                                                                                            
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Increase the base of referable customers. Based on its experience,
the Company believes companies selecting enterprise application
software systems rely heavily on customer references. The Company is
focused on increasing its reference base in order to accelerate its
license revenues. Several customers of the Company are in the process
of implementing the Companys enterprise application products. Many
of the Companys other customers; however, have only implemented one
or more of the Companys application products. As customers implement
more of the Companys application products and those products become
fully installed and operational, the Company believes that those
customers will be available as sales references for the use of all of
the Companys products. There is no guarantee; however, that
customers will serve as references or that they will be able to assist
the Company with this objective.                                                                                                                                                                                                            
| 
| |  | Achieve high level of customer satisfaction. The Company is committed
to consistently achieving a high level of customer satisfaction with
all of its products and services. The Company focuses on delivering
high-quality products that address specific business requirements, are
easy to implement, and enable increased productivity for the customer.
In addition, the Company has a technical support center staffed with
subject matter experts to assist customers on an on-going basis after
the sale. However, there can be no assurances the Company will
achieve this objective.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| 
| |  | Streamlined implementation methodology.The Company continues to put
significant resources into its professional services organization with
a focus on continuing to streamline the implementation process of its
enterprise application products. The Company has had success
implementing its products in a three-to-six month time period, on
average. Management believes that as the Company continues to refine
its implementation processes, this will give the Company a competitive
advantage. These implementation processes; however, involve complex
application software products, require the involvement of significant
customer resources, and can result in significant risks. Delays in
implementation by the Company may result in customer dissatisfaction
or damage to the Companys reputation. There can be no assurance that
the Company will be able to achieve its streamlined implementation
methodology and successfully implement its enterprise application
products within this strategy. If unsuccessful, this could result in
a material adverse effect on the Companys business, operating results
and financial condition.
| 
| |  | Provide a single-source full implementation solution. The Company
believes that mid-size companies are less willing to hire multiple
vendors for the implementation of one solution due to the costs, time
factors and project coordination involved in the implementation and
training. A team of professional service providers is generally
required to implement enterprise application software solutions. The
Companys application consulting organization offers a full complement
of services that allow the Companys license customers to maximize the
benefits of the Companys enterprise application software products.
These services include detailed pre-implementation consulting, project
management, system implementation, deployment and integration
programming, application customization, modification and enhancement
services, and application education and training services. Therefore,
customers of the Company can rely on one vendor for the full
implementation solution.                                                                                                                                                  
| 
| |  | Provide products that use open, industry-standard technology. The
Company designs its application products and development tools to
adhere to industry-standard development platforms in order to meet
customers demands for open solutions. The Companys products have an
open architecture, are flexible and modifiable, and operate with
several popular operating systems, relational databases and
communication protocols. All of the Companys application products
operate on Microsoft Windows NT, UNIX as well as Linux operating
system platforms for the server operating system. In addition they
utilize Microsoft SQL/Server and Sybase SQL/Server relational database
management systems. The Company believes that its open systems/open                                                                                                                                                                                                                                                                                                                                                                                                  

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|  |  | architecture approach represents a competitive advantage over other
pre-written application products that are written with proprietary
development tool sets, for a proprietary database, on outdated
operating systems and that may, in fact, be ports of older systems
with significant limitations.                                                                                                                                         
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Additional products, technologies and solutions. The Company is
regularly engaged in product marketing and business development
activities designed to enhance the Companys current product
offerings. From time to time, this may include the Company exploring
strategic alliances or other forms of business relationships with
third party technology firms having complementary products,
technologies or marketing and sales strategies.

Products and Services

The Companys application products and services are designed to enable the
Companys customers to design, deploy and maintain enterprise application
systems.

The following table summarizes certain information about the Companys
products:

|                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                
|----------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PRODUCT                                   |  | PRODUCTDESCRIPTION                                                                                                                                                                                                                                                                                                                                                                             
|                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                
|                                         
|PowerCerv Enterprise
Application Products
|                                         
|ERP Plus                                  |  | A comprehensive suite of CRM and
ERP applications. ERP Plus
consists of SFA Plus, Support
Plus, Manufacturing Plus,
Distribution Plusand Financials
Plus all developed by PowerCerv
for a consistent look-and-feel and
enhanced implementation and
maintenance.                                                                                                                               
|                                         
|Manufacturing Plus                        |  | Multiple modules that address
manufacturing resource planning,
scheduling, purchasing, shop floor
control, configuration management
and performance management.                                                                                                                                                                                                                                
|                                         
|Distribution Plus                         |  | Multiple modules that address
order processing, returned goods
processing, quotation processing,
customer profiling, marketing and
sales, pricing, shipping, freight,
invoicing and inventory/warehouse
management.                                                                                                                                                                            
|                                         
|Financials Plus                           |  | Multiple modules that address
accounting, financial and business
management needs including general
ledger, accounts payable, accounts
receivable, project accounting,
order processing and inventory.                                                                                                                                                                                         
|                                         
|SFA Plus                                  |  | SFA Plusprovides marketing
campaign management, sales
activity planning and management,
quoting and pipeline management as
well as comprehensive contact
management.                                                                                                                                                                                                                           
|                                         
|Support Plus                              |  | Support Plusprovides case
management, item registration,
serial/lot tracking of registered
products, repair information,
warranty tracking, diagnostic
tracking, problem management, case
logs, case history, repair
history, returned material
authorization processing and
tracking, and depot repair.                                                                                       
|                                         
|PowerCerv eSeries                         |  | eSeries consists of eView, eOrder,
eCRM, eDashboard and eConfigure,
which are self-service Web-based
applications that help companies
touch their virtual supply chains
in a variety of methods. These new
modules deliver benefits to online
customers by increasing the number
of touch-points and adding value
via the Web. eConfigure is
expected to be released in the
first half of 2001.
|                                         
|eView                                     |  | eView is designed to allow users
to remotely view the status of an
item in the value chain, anytime
from remote computers.                                                                                                                                                                                                                                                                     

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|                       |  |                                                                                                                                                                                                                                                                                                                                                        
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PRODUCT                |  | PRODUCT DESCRIPTION                                                                                                                                                                                                                                                                                                                                    
|                       |  |                                                                                                                                                                                                                                                                                                                                                        
|                      
|eOrder                 |  | eOrder is designed to deliver
online business-to-business (B2B)
order taking and processing
capabilities.                                                                                                                                                                                                                                              
|                      
|eCRM                   |  | eCRM is designed to allow
companies to initiate B2B CRM
activities such as lead capture,
campaign management, case entry,
case diagnostics and case tracking
via the Web.                                                                                                                                                                              
|                      
|eDashboard             |  | eDashboard is designed to deliver
critical business performance and
status information to
executive-level personnel via the
Web.                                                                                                                                                                                                                       
|                      
|eConfigure             |  | eConfigure, expected to be
released in the first half of 2001,
extends PowerCervs existing
e-business offerings to include
integrated Web-based product
configuration. It is designed to
enable users to configure items
over the Web or from within the
ERP PlusDistribution Order Entry
and Quote processes.                                        
|                      
|PowerCerv Intelligence |  | PowerCerv Intelligenceprovides
the tools necessary to turn all
the data in your enterprise
application into useful business
information. Comprehensive report
writing as well as on line
analytical processing (OLAP)
reporting and integrated internet
reporting and distribution
utilizing both push and pull
technology.                            
|                      
|PowerCerv Vision       |  | Comprised of four distinct
components  Business Processes,
Implementation Methodology, Total
Enterprise Training and Data
Migration  PowerCerv Vision helps
companies document their internal
processes, facilitates faster
system installations and teaches
users how to maximize the
potential of their PowerCerv
enterprise application solutions.

Services

The Companys service offerings from its Professional Services
Organization consist of the following:

Consulting Services. The Company provides a wide range of professional
technical and business consulting services for the Companys ERP Plusand web
enabled application products. Application product services include a full
complement of services that allow the Companys customers to maximize the
benefits of the Companys enterprise application software products. These
services include application analysis, detailed pre-implementation consulting,
project management, application customization and modification, integration
programming, system implementation and deployment, and application education
and training services. PowerCerv consulting services are not included in the
price of its software licensing fees.

The Companys services are provided to end-user customers pursuant to
written service agreements and statements of work. These agreements detail
the scope of the consulting services to be provided and the applicable hourly
billing rates, indicate payment and warranty terms, require separately executed
change orders for any statement of work modifications, identify project
management personnel responsible, and require weekly and/or monthly status
meetings between PowerCerv and its customers. PowerCerv consulting services
are generally billed on a time and materials basis. Additionally, travel and living expenses incurred as a result of the consulting are billed separately.

Prior to March 31, 1999, the Company had a general consulting/general
education business. On this date, the Company sold the net assets of this
business to R.O.I. Consulting, Inc. (the ROI Transaction). See Managements
Discussion and Analysis of Financial Condition and Results of Operations. In
connection with the ROI Transaction, the Company agreed not to engage in
general consulting and/or general education services unrelated to its
application products and those of its partners for a period of two years.

Education Services. Education services consist of end-user education on
the Companys enterprise application software products. End-user education
involves providing comprehensive education and training classes for end-users
on the implementation and use of the PowerCerv application products in an
efficient and cost-effective manner. Customized education and training
programs are also available to meet the end-user customers specific
requirements. The Company provides its customers classroom training in the R&D
facility. In addition, training courses are frequently provided at customer
sites, using customer facilities and equipment, with the Company

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providing the
instructor, class materials and in some cases, equipment. Some classes are
offered on a per-student basis and other classes are offered on a negotiated
fixed-fee basis.

Maintenance Services. PowerCerv is committed to providing timely,
high-quality support and maintenance on its ERP Plusand web enabled
application products. Maintenance services are generally provided pursuant to
maintenance agreements between the Company and its end-user customers. These
agreements entitle customers to hotline telephone support during extended
business hours, notification of product enhancements and upgrades, the
enhancements and upgrades, functional releases and maintenance releases,
technical bulletins, replacement of damaged products and access to the
Companys World Wide Web site (http://www.powercerv.com) and electronic
bulletin board. The Company currently charges a percentage of its then current
product license fee for renewable one-year maintenance agreements. Maintenance
fees are generally billed annually in advance.

Customers

Since its inception, the Company has had more than 3,000 customers
worldwide for its products and services. The Companys current customers
include, but are not limited to, Honeywell f/k/a Allied Signal Corporation, CTI
PET Systems, Inc., Chatsworth Products, Inc., Compaq Computer Corporation,
Dolch Computer, Reliance Electric, Ltd., Rockwell/Dodge Automation Inc.,
Textron Financials, Textron E-Z-GO, Jetson Direct Mail, Lakshore Cryotronics,
Quorum, Visioneering, Ellett Brothers, Wellington, JB Industries, Sport Court,
Advanced Flexible Composites, Fitlinxx, TIPCO, Vera Bradley and Luckstone. The
Company continues to focus its marketing and sales efforts primarily on
mid-size U.S. companies with annual revenues between $25 and $750 million.

Marketing, Sales and Distribution

The Company markets and sells its full suite of open, modifiable
front-office CRM and back-office ERP enterprise application software solutions
to mid-size U.S. companies with annual revenues between $25 million and $750
million. The Companys application products are primarily sold through a
direct sales force and, to a lesser extent, through a select network of Value
Added Resellers (VARs), distributors and partners who generally serve in their
respective capacities on a nonexclusive basis. As of December 31, 2000, the
Companys sales and marketing organizations had 15 full-time employees.

The Company primarily utilizes a direct sales force to sell its enterprise
application software solutions. The sales force is geographically dispersed
across the United States. The strategy of the Companys direct sales force is
to identify companies in the target market and engage those accounts in a sales
campaign once a target company has acknowledged its interest in the Companys
enterprise software solutions. The Companys sales force uses a structured
sales methodology to maximize the efficiency of its sales resources and
maximize its competitiveness.

In the United States, the Company also utilizes select indirect channels.
These indirect channels consist of strategic implementation partners, VARs and
affiliate channel partners. Strategic implementation partners are consulting
organizations that generally do not sell software but may assist organizations
with selection criteria and possibly provide implementation assistance. VARs
are authorized channel partners who generally sell the Companys application
products to manufacturing companies (generally with annual revenues below $25
million) or into other market segments on which the Company does not directly
focus. Affiliate channel partners generally identify qualified sales
opportunities for the Companys direct sales organization to address and close,
but generally do not directly participate in the sales process.
Internationally, the Company utilizes distributors and channel partners to sell
and support its products. VARs, distributors and channel partners typically
have expertise in particular vertical markets and geographic ties to their
target markets. Additionally, the Companys VARs, channel partners and
international distributors receive training and support in the Companys
enterprise application software solutions.

The Company employs application consultants to assist the direct sales
force as may be necessary in competitive sales opportunities, though these
consultants primary functions are to provide customers with implementation
services related to installing, customizing, supporting and maintaining its
products. The Company employs application consultants that are experienced
professionals with in-depth knowledge of their particular field of expertise.

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The Company actively and regularly conducts marketing activities designed
to increase its market awareness. These marketing activities include direct
marketing, telemarketing, virtual seminar marketing, advertising, and public
relations activities to generate leads and gain valuable market exposure.
Additionally, the Company updates industry analysts regularly with
announcements including new customers and updated product features. The
Company maintains a World Wide Web site at http://www.powercerv.com
(information contained in the Web site is not a part of this Annual Report or
Form 10-K) that serves as a marketing communications vehicle. The Company also
publishes all of its product and service information on its World Wide Web
site, including a full color version of its product literature, recent press
releases, selected reprinted press coverage, the Companys training schedule
and other relevant information pertaining to its full suite of products and
services.

Products are generally shipped as orders are received and, accordingly,
the Company has historically operated with little or no backlog. Because of
the generally short cycle between order and shipment, the Company does not
believe that its backlog as of any particular date is meaningful.

Product Development

During 2000, the Company made substantial investments in internal research
and development as well as technology advancements. The Companys product
development efforts are focused primarily on continued enhancement of its ERP
Plusand eSeries application products to meet the needs and requirements of
mid-size companies. The Company believes its future performance will depend,
in large part, on its ability to maintain and enhance its current product line
to meet the needs of this target market, its development of new application
products, as well as exploiting emerging technologies. As of December 31,
2000, the Company had 33 full-time employees in its product development group.
Presently, the Company has 16 full-time employees in this group but
supplements it when needed with outside consultants. Research and development
expenses consist primarily of salaries for employees in the product development
group and a portion of the related overhead. Research and development expenses
are charged to operations as incurred. Research and development expenditures
were approximately $4.0 million in 2000 and $4.5 million in 1999.

In March 2000, the Company released version 9.0 of its ERP Plus
application products on schedule and as planned. The new release added
functionality and features to the Companys application products. Version 9.0
also further improved the integration among the Companys ERP and CRM
application products and delivered totally re-written user manuals and on-line
documentation. Technology upgrades to the latest versions of operating
systems, development tools, and database platforms were also included in
Version 9.0 of the Companys ERP Plusapplication products.

The Company plans to continue to enhance its ERP Plus and eSeries
application products to address the evolving needs of mid-sized companies in
its target market. In particular, the Company intends to continue pursuing
improved functionality on its existing application products and to make changes
to the base products to suit customer requirements. The objectives of the
product development group include taking advantage of features in the Companys
underlying core technologies. These features include multiple hardware
platform support, database independence, multiple network support and support
for various operating systems (Microsoft Windows, Microsoft Windows NT, Linux
and various versions of UNIX), while offering a broad and robust product
function and feature set that may be extended and modified as needed by the
customer.

The enterprise application and e-commerce software application markets are
highly influenced by rapid technological change, adoption of new industry
standards, frequent new product introductions, and changing customer demands
that can render existing products unmarketable and obsolete. The Companys
future success will depend upon its ability to enhance its current products and
develop and introduce new products that keep pace with technological
developments, respond to evolving customer requirements, and achieve market
acceptance. In particular, the Company believes it must continue to respond
quickly to its customers needs for functionality. In the past, the Company
has experienced delays in the introduction of new products and product
enhancements. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements, addressing
changing customer demands or the adoption of new industry standards, or that
the Company will not experience significant delays in the introduction of new
products or product enhancements in the future, any of which could have a
material adverse effect on the Companys results of operations.

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Strategic Alliances

An element of the Companys strategy is the continued creation and
development of strategic alliances with notable industry participants. The
Companys goals in establishing these relationships are to create marketing
alliances that will endorse and promote the Companys products to a larger
potential customer base than can be reached through the Companys direct
marketing efforts, to assist the Company in developing a supply of aftermarket
service providers who will train personnel to implement the Companys products,
thereby leveraging the Companys resources and reach, and to enhance the
underlying products. The Company seeks strategic alliances with companies that
have maximum penetration and leading reputations for quality with the Companys
target customers. Generally, existing agreements outlining the Companys
alliances do not impose significant financial obligations or liabilities on
either party and have terms no longer than one year. There can be no assurance
that these relationships will successfully develop to the extent that they will
contribute materially to the Companys financial results in the future.

To date, the Companys significant alliances include the following
organizations:



| |  | Microsoft Corporation.The Company has entered into an agreement with
Microsoft that encourages the Company to integrate Microsoft products
and technologies into the Companys solutions. This designates the
Company as a Microsoft Solution Provider. In addition, the Company
receives frequent briefings on Microsofts strategic and technical
product direction, participates in joint marketing activities, and
receives early access to new software releases. The Companys entire
suite of products utilizes Microsoft SQL Server, Windows NT Server,
Windows 9x and Windows 2000. The Companys eSeries products are built
upon the Microsoft.net development tools and technology. In addition,
the Companys solution has received the important Microsoft BackOffice
certification.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | IBM Corporation.The Company has participated in marketing alliances
and activities with International Business Machines Corp.
Specifically, the Company announced that its ERP Plusproduct suite
achieved validation in the IBM NetFinity ServerProven program with
both the Linux and Windows NT operating system platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| 
| |  | Sybase, Inc. The Company has entered into a strategic marketing
relationship with Sybase. The relationship includes joint marketing
activities, press releases announcing the availability and performance
of the Companys products on Sybase platforms, publications of joint
success stories and other items of a similar nature. The Companys
products utilize the Sybase Adaptive Server Enterprise as the
foundation RDBMS of its ERP Plusproduct suite. The Companys ERP
Plus products utilize Sybase PowerBuilder as the foundation
application development tool.                                                                                                                                                                                                                        
| 
| |  | Best Software, Inc. The Company has entered into an agreement with
Best Software, a wholly owned subsidiary of The Sage Group plc., where
the Company has agreed to re-sell the Best! Imperativ Fixed Assets
product as a solution for customers that need fixed assets as part of
their financial solution. The Company has integrated the product into
the Companys Financials Plussolution for customers.                                                                                                                                                                                                                                                                                                                                                                                     
| 
| |  | Brio Technology, Inc. The Company has entered into an agreement
whereby the Company private labels the BRIO product suite as the basis
for its PowerCerv Intelligence. The Company has added functionality
to these products to integrate them into the Companys ERP Plus
product suite.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| 
| |  | The COBRE Group The Company has entered into an agreement whereby
the Company private labels Helpmate 2.0 as the basis for its PowerCerv
Visionproduct.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
| |  | Digex, Inc. The Company has signed a technology agreement with
Digex, Inc. to enable PowerCerv to offer Integrated Enterprise
Response as a service delivered via the Internet to customers around
the globe. PowerCervs solution hosted by Digex offers high-quality
service and a world-class infrastructure to clients seeking enterprise
and Web-based solutions without excessive up-front time, budget and
resource requirements.                                                                                                                                                                                                                                                                                                                                                          

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| |  | Kewill E Commerce The Company has signed an agreement with Kewill E
Commerce, Inc. Under the agreement, PowerCerv offers Clippership
32(R), Kewills award-winning, multi-carrier shipment
processing software for Windows, as an integrated optional module in
its PowerCerv ERP Plusproduct.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Sterling CommerceThe Company has entered into an agreement with
Sterling, a subsidiary of SBC Communications, Inc., where the Company
resells and implements Sterling Commerces GENTRAN business process
integration software as part of its ERP solution, PowerCerv ERP Plus.                
| 
| |  | Taylor Manufacturing System, Inc. The Company has entered into a
strategic marketing relationship with Taylor Manufacturing Systems
where the Company has integrated the Taylor TESS Advanced Planning &
Scheduling product into the Companys ERP Plusproduct suite.                         

In addition to the above-mentioned relationships, the Company will, from
time to time, enter into relationships with third parties that it deems
strategic, important and useful to furthering the efforts of the Company.

Competition could develop between the Company and certain of the parties
with which it has strategic alliances. There can be no assurance that the
Company would be able to effectively compete with any such parties in such
circumstances.

Competition

The market for enterprise software application and e-commerce products and
services is intensely competitive, rapidly changing and significantly affected
by new product offerings and other market activities. A number of companies
offer products similar to the Companys products and services, which are
targeted at mid-size companies. In addition, the Companys market has no
proprietary barriers to entry that could limit competitors from developing
similar products or selling competing products. Many of the Companys existing
competitors, as well as a number of potential competitors, have longer
operating history, more established marketing and sales organizations, greater
name recognition, larger R&D and technical organizations, significantly greater
financial and technical resources and a larger installed base of customers than
the Company. As a result, these competitors may be able to respond more
quickly to new or emerging technologies and to changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products, than can the Company. There can be no assurance that
the Company will be able to compete successfully with existing or new
competitors or that such competitors will not offer or develop products that
are superior to the Companys products or that achieve greater market
acceptance.

The Company competes in the enterprise application and e-commerce software
and services market on the following merits: A focus on the mid-size U.S.
companies; product functionality; integrated CRM, ERP and eSeries application
software solutions. In addition, the Company competes on its application
software customization capabilities, single-source implementation solution,
quicker time to benefit, open and industry standard technology platforms,
professional services and total cost of ownership. The Company currently
competes primarily with (i) other vendors of software focused on the specific
needs of mid-size U.S. companies, which include QAD, Epicor, Mapics, M2M,
Frontstep, Visual, Great Plains, Peoplesoft, J.D. Edwards and Oracle and (ii)
VARs and system integrators of the larger enterprise software companies,
including SAP AG, Peoplesoft, Inc. and Oracle Corporation, which target
mid-size and larger companies. In addition, customers who have a large
installed base of legacy systems may resist committing the time and resources
necessary to convert to an open system, client/server-based software suite of
products. Further, as the enterprise application software and services market
continues to develop, companies with significantly greater resources than the
Company may attempt to increase their presence in the target market where the
Company is focused by acquiring or forming strategic alliances with competitors
of the Company. Increased competition is likely to result in price reductions
and related reductions in gross margins and market share, any one of which
could materially adversely affect the Companys business, results of operations
and financial condition. See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Competition.

Intellectual Property and Other Proprietary Technology

The Company regards its products as proprietary trade secrets and
confidential information. The Company relies on a combination of copyright,
trademark and trade secrets laws, employee and third-party nondisclosure

13



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agreements and other industry standard methods for protecting ownership of its
products. The Company has no patents. There can be no assurance; however,
that in spite of these precautions, an unauthorized third party will not use,
copy or reverse engineer portions of the Companys products. In addition, the
laws of some foreign countries do not protect the Companys proprietary rights
to the same extent as do the laws of the United States. There can be no
assurance that the methods used by the Company to protect its products will be
adequate or that the Companys competitors will not independently develop
products that are substantially equivalent or superior to the Companys
products.

The Company licenses its application products to customers under
non-transferable, non-exclusive negotiated license agreements. The standard
form license agreement allows customers to use the Companys products solely
for internal purposes and specifies the maximum number of servers and
concurrent users that may use the products. The Company may license product
source code to enable its customers to customize the software to meet
particular requirements. The disclosure of source code increases the
likelihood of misappropriation or other misuse of the Companys proprietary
trade secrets. The Companys standard license contains confidentiality
provisions protecting the products. In the event of termination of the
license, the end-user customer remains responsible for any unpaid license fees
and the confidentiality obligations. However, there can be no assurance that
such customers will take adequate precautions to protect the Companys
proprietary trade secrets and confidential information. There can be no
assurance that the Companys means of protecting its proprietary rights and
confidential information will be adequate.

The Company believes that it has all of the necessary rights to market its
products although there can be no assurance that third parties will not assert
infringement claims against the Company in the future. The Company expects
that, as the number of products increase and the functionality of these
products further overlaps, although there have been no infringement claims, the
likelihood of third parties asserting infringement claims against the Company
may increase. Any claim, whether or not it has merit, could result in costly
litigation and require the Company to enter into royalty or other license
arrangements. Such royalty or other license arrangements, if required, may not
be available on terms acceptable to the Company or at all.

Although the Companys competitive position may be affected by its ability
to protect its proprietary rights and confidential information, the Company
believes that the rapid pace of technological change in the industry will cause
other factors, such as the technological and creative skills of the Companys
management and technical personnel, name recognition, the ability to develop,
produce, enhance and market innovative products and services, the timeliness
and quality of support services, and strategic relationships in the industry to
be more important in establishing and maintaining a leading position within the
industry than are copyright, trademark and other legal protections for
intellectual property.

Employees

As of December 31, 2000, the Company had 102 full-time employees. These
employees included 15 in sales, marketing and related activities, 33 in
research and development, 37 in customer support, training, and consulting
services, and 17 in information technology, finance, administration and human
resources. Of note, as of January 2001, the Company further reduced its
workforce and currently has a full-time employment base of 75 employees. See
further discussion in Managements Discussion and Analysis of Financial
Condition and Results of Operations. The Companys employees are not
represented by any collective bargaining organization, and the Company has
never experienced a work stoppage. The Company believes that its relations
with employees are good. The loss of certain key employees or the Companys
inability to attract and retain other qualified employees could have a material
adverse effect on the Companys business and operations.







Item 2. Properties

The Companys corporate headquarters are located in Tampa, Florida, in a
17,000 square foot facility, including office space and customer training
facilities, occupied under a lease expiring August 31, 2002, with an option to
renew for an additional three year term. The Company leases additional office
space in New Jersey and South Carolina.

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Item 3. Legal Proceedings

A complaint was filed on July 24, 1997, in the United States District
Court for the Middle District of Florida, entitled J. Conrad Lifsey v. Harold
Ross, Gerald Wicker, Marc J. Fratello, Roy E. Crippen, III, Donald B. Hebb,
Jr., Thomas S. Roberts, PowerCerv Corporation, Alex Brown & Sons, Inc.,
Robertson, Stephens & Company, ABS Capital Partners, L.P., Summit Investors
III, L.P. The complaint purports to be a class action on behalf of those
persons who purchased shares of the Companys common stock from March 1, 1996
(the date of the Companys initial public offering of its common stock (IPO))
through July 24, 1996. The complaint alleges, among other things, that the
defendants violated the Securities Act of 1933 and the Securities Exchange Act
of 1934 in connection with the Companys IPO and in its subsequent securities
filings, press releases and other public statements. The plaintiffs seek
damages of an unspecified amount, rescission of certain securities sales and
certain other remedies.

On March 19, 1998, Defendants filed their Motions to Dismiss this
Complaint. These motions were heard by oral argument on October 30, 2000, over
two and one-half years later. Approximately two and one-half months later, on
January 12, 2001, the Court dismissed the complaint holding that the complaint
was insufficient as a matter of law to state a claim under the relevant
sections of the federal securities laws. Nonetheless, the Court, harbor[ing]
substantial doubt that the plaintiffs have sufficient facts at their disposal
to properly state a claim, permitted plaintiffs an opportunity to replead.

On February 16, 2001, Plaintiffs filed an amended complaint asserting
essentially the same causes of action based on the same set of factual
circumstances. Defendants continue to deny any wrongdoing and in light of
Courts Order of January 12, 2001, intend to ask the Court to dismiss the
amended complaint.

The Company, in the normal course business, is also subject to
miscellaneous legal proceedings. The Company is defending these proceedings
and anticipates that it will be successful and/or able to resolve these matters
in a manner that will not materially effect the Companys
financial position or results of operations.







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

No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2000.

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PART II







Item 5. Market Value of the Registrants Common Stock

The Companys Common Stock, $.001 par value (Common Stock), is traded on
the Nasdaq National Market under the symbol PCRV. The Company is presently
appealing a Staff Determination Letter subjecting the Company to delisting for
failure to meet the continued listing requirements. The following table sets
forth the range of high and low sales prices on the National Market for the
Common Stock during the two previous years. Such quotations represent
inter-dealer prices without retail markup, markdown or commission and may not
necessarily represent actual transactions.

|            |  |      |       |     |  |   |       | 
|----------- |  | ---- | ----- | --- |  | - | ----- | 
|1999        |  | High |       | Low
|            |  |      |       |    
|1st Quarter |  | $    | 3.875 |     |  | $ | 1.750 | 
|           
|           
|           
|           
|2nd Quarter |  |      | 3.625 |     |  |   | 1.563 | 
|           
|           
|           
|           
|3rd Quarter |  |      | 4.250 |     |  |   | 2.250 | 
|           
|           
|           
|           
|4th Quarter |  |      | 8.375 |     |  |   | 2.250 | 

|            |  |      |       |     |  |   |       | 
|----------- |  | ---- | ----- | --- |  | - | ----- | 
|2000        |  | High |       | Low
|            |  |      |       |    
|1st Quarter |  | $    | 8.625 |     |  | $ | 3.500 | 
|           
|           
|           
|           
|2nd Quarter |  |      | 4.000 |     |  |   | 1.125 | 
|           
|           
|           
|           
|3rd Quarter |  |      | 1.531 |     |  |   | .625  | 
|           
|           
|           
|           
|4th Quarter |  |      | 1.250 |     |  |   | .188  | 

As of December 31, 2000, the Company had approximately 105 shareholders of
record, and the Company believes there are more than approximately 2,700
beneficial shareholders. The Company declared no dividends in respect of its
Common Stock in 1999 and 2000. The Company intends to retain any earnings for
use in the business for the foreseeable future.







Item 6. Selected Consolidated Financial Data

The following historical selected consolidated financial data of the
Company is qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and with Managements
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this Form 10-K. The balance sheet data set forth below
as of December 31, 2000, and the statement of operations data for the year
ended December 31, 2000, are derived from the Consolidated Financial Statements
of the Company audited by Grant Thornton LLP, independent certified public
accountants, appearing elsewhere in this report on Form 10-K. The balance
sheet data set forth below as of December 31, 1999, and the statement of
operations data for the years ended December 31, 1999 and 1998, are derived
from the Consolidated Financial Statements of the Company audited by Ernst &
Young LLP, independent certified public accountants, appearing elsewhere in
this report on Form 10-K. The statement of operations data set forth below
with respect to the year ended December 31, 1997 and 1996 and the balance sheet
data as of December 31, 1998, 1997 and 1996 are derived from audited financial
statements not included in this Form 10-K.

16



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##### Table of Contents



|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |        |        |        | 
|--------------------------------------------------------------- | ------------------ | ----------------------------------- | ------------------------ | ------ | ------------------------------------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | 
|                                                                |                    |                                     |                          |        | Years Ended                          
|                                                                |                    |                                     |                          |        | December 31,                         
|                                                                |                    |                                     |                          |        |                                      
|                                                                |                    |                                     |                          |        | 2000(1)                               |        | 1999(1) |        | 1998(1) |        | 1997(1) |        | 1996(1)
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |        
|                                                                |                    |                                     |                          |        | (In thousands, except per share data)
|Statement of Operations Data:                                  
|                                                               
|                                                               
|                                                               
|                                                               
|Revenue:                                                       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | License fees                        |                          | $      | 3,523                                 |        |         | $      | 9,257   |        |         | $      | 8,342   |        |         | $      | 6,434  |        |        | $      | 11,324 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | Technology resales                  |                          |        |                                      |        |         |        |        |        |         |        | 858     |        |         |        | 2,385  |        |        |        | 2,860  |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | Service fees                        |                          |        | 8,109                                 |        |         |        | 11,464  |        |         |        | 8,533   |        |         |        | 9,498  |        |        |        | 23,172 |       
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |        |        |       
|                                                                |                    |                                     | Total revenue            |        |                                       | 11,632 |         |        |         | 20,721 |         |        |         | 17,733 |         |        |        | 18,317 |        |        |        | 37,356 | 
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |       
|Costs and expenses:                                            
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | Cost of licenses                    |                          |        | 846                                   |        |         |        | 994     |        |         |        | 670     |        |         |        | 2,975  |        |        |        | 1,319  |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | Cost of technology resales          |                          |        |                                      |        |         |        |        |        |         |        | 592     |        |         |        | 1,871  |        |        |        | 2,337  |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | Cost of services                    |                          |        | 5,663                                 |        |         |        | 7,578   |        |         |        | 6,935   |        |         |        | 7,524  |        |        |        | 15,973 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | General and administrative          |                          |        | 4,187                                 |        |         |        | 4,476   |        |         |        | 3,886   |        |         |        | 7,687  |        |        |        | 5,256  |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | Sales and marketing                 |                          |        | 5,010                                 |        |         |        | 8,022   |        |         |        | 6,103   |        |         |        | 11,075 |        |        |        | 10,730 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | Research and development            |                          |        | 4,096                                 |        |         |        | 4,504   |        |         |        | 3,820   |        |         |        | 5,787  |        |        |        | 6,688  |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | Work force reduction and other      |                          |        | 873                                   |        |         |        | 485     |        |         |        |        |        |         |        | 1,010  |        |        |        |       |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    | In-process research and development |                          |        |                                      |        |         |        |        |        |         |        |        |        |         |        |       |        |        |        | 100    |       
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |        |        |       
|                                                                |                    |                                     | Total costs and expenses |        |                                       | 20,675 |         |        |         | 26,059 |         |        |         | 22,006 |         |        |        | 37,929 |        |        |        | 42,403 | 
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |       
|Operating loss                                                  |                    |                                     | (9,043                   | )      |                                       |        | (5,338  | )      |         |        | (4,273  | )      |         |        | (19,612 | )      |        |        | (5,047 | )     
|                                                               
|                                                               
|                                                               
|                                                               
|Other income                                                    |                    |                                     | 64                       |        |                                       |        | 260     |        |         |        | 301     |        |         |        | 578     |        |        |        | 674    |       
|                                                               
|                                                               
|                                                               
|                                                               
|Operations disposed of during 1999:                            
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Revenues           |                                     |                          |       |                                       |        |         | 2,464  |         |        |         | 12,238 |         |        |         | 14,769 |        |        |        |       |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Costs and expenses |                                     |                          |       |                                       |        |         | 2,240  |         |        |         | 10,074 |         |        |         | 12,111 |        |        |        |       |       
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |       
|                                                                |                    |                                     |                         |        |                                       |        | 224     |        |         |        | 2,164   |        |         |        | 2,658   |        |        |        |       |       
|                                                               
|                                                               
|                                                               
|                                                               
|Gain on sale of business                                        |                    |                                     | 827                      |        |                                       |        | 5,647   |        |         |        |        |        |         |        |        |        |        |        |       |       
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |       
|                                                                |                    |                                     | 827                      |        |                                       |        | 5,871   |        |         |        | 2,164   |        |         |        | 2,658   |        |        |        |       |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |       
|Income (loss) before income taxes                               |                    |                                     | (8,152                   | )      |                                       |        | 793     |        |         |        | (1,808  | )      |         |        | (16,376 | )      |        |        | (4,373 | )     
|                                                               
|                                                               
|                                                               
|                                                               
|Income tax expense (benefit)                                    |                    |                                     | 255                      |        |                                       |        |        |        |         |        |        |        |         |        | 1,711   |        |        |        | (1,658 | )     
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |       
|Net income (loss)                                               |                    | $                                   | (8,407                   | )      |                                       | $      | 793     |        |         | $      | (1,808  | )      |         | $      | (18,087 | )      |        | $      | (2,715 | )     
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |       
|Basic and diluted net income (loss) per share                   |                    | $                                   | (.61                     | )      |                                       | $      | .06     |        |         | $      | (0.13   | )      |         | $      | (1.31   | )      |        | $      | (0.21  | )     
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |       
|Shares used in computing net
income (loss) per share
     Basic |                    |                                     | 13,771                   |        |                                       |        | 13,322  |        |         |        | 13,817  |        |         |        | 13,839  |        |        |        | 12,950 |       
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |       
|                                                                | Diluted            |                                     |                          | 13,771 |                                       |        |         | 14,389 |         |        |         | 13,817 |         |        |         | 13,839 |        |        |        | 12,950 |       
|                                                                |                    |                                     |                          |        |                                       |        |         |        |         |        |         |        |         |        |         |        |        |        |        |        |        |       

|                          |  |                      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------- |  | -------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                          |  | December 31,        
|                          |  |                     
|                          |  | 2000                 |         | 1999 |  | 1998 |         | 1997 |  | 1996
|                          |  |                      |         |      |  |      |         |      |  |     
|                          |  | (Table in thousands)
|Balance Sheet Data:      
|                         
|                         
|                         
|                         
|Cash and cash equivalents |  | $                    | 2,136   |      |  | $    | 6,224   |      |  | $    | 6,594   |   |  | $ | 6,360   |   |  | $ | 14,637  |  
|                         
|                         
|                         
|                         
|Working capital           |  |                      | 1,625   |      |  |      | 8,792   |      |  |      | 7,387   |   |  |   | 7,885   |   |  |   | 21,619  |  
|                         
|                         
|                         
|                         
|Total assets              |  |                      | 7,334   |      |  |      | 16,557  |      |  |      | 15,730  |   |  |   | 18,687  |   |  |   | 36,351  |  
|                         
|                         
|                         
|                         
|Accumulated deficit       |  |                      | (47,344 | )    |  |      | (38,936 | )    |  |      | (39,729 | ) |  |   | (37,921 | ) |  |   | (19,834 | )
|                         
|                         
|                         
|                         
|Shareholders equity      |  |                      | 3,617   |      |  |      | 11,153  |      |  |      | 11,275  |   |  |   | 12,957  |   |  |   | 30,992  |  



|(1) |  | Effective March 31, 1999, the Company sold its general consulting/general
education business (consulting services other than its application-related
services) to a related party. The results of operations for 1999, 1998
and 1997 have been reclassified to conform with the current years
presentations. The Company did not segregate between application-related
services and general consulting/general education revenues prior to 1997.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17



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##### Table of Contents









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

Overview

The Company is focused on delivering open, modifiable Integrated
Enterprise Response Software Solutions with innovative e-Commerce capabilities to
mid-size U.S. companies with annual revenues between $25 million and $750
million. The Company has focused its resources, including product development,
marketing and sales efforts, on the needs and requirements of companies in this
market. The Companys revenues currently consist primarily of software license
fees and fees for services, primarily relating to the Companys applications,
including consulting, education and maintenance and support.

The Company was organized in April 1992, and through calendar year 1994 a
substantial part of the Companys revenue was derived from technology resales
and consulting and education services. The Company began selling its own
license product in the fourth quarter of 1993. Since then, the Company has
brought several additional applications to the market. Service fees remain the
Companys largest single revenue source, although the Companys strategy is to
seek to increase revenue generated from licensing its ERP Plusand web-enabled
eSeriesapplication products.

On March 31, 1999, the Company sold its general consulting and general
education business (consulting and education services other than its
application-related services) to a related party. Consideration totaled
approximately $10 million and consisted of a combination of cash, PowerCerv
common stock and notes. The gain associated with the note receivable that
matures in 2004 and has an interest rate of 4.56% was deferred at the time of
sale. In 2000, the Company recognized this gain of $827,500. Management
believes that based upon events occurring in the current year (the buyers
merger with another business and establishment of a stronger management team)
the collectibility of the note is reasonably assured.

The results of operations for 1999 and 1998 related to the Companys
general consulting and general education business have been reclassified to
conform to the current years presentations. During 1999, the Company also
finalized its 1998 strategy to discontinue technology resales of various
third-party software products.

License fees represent revenue from licensing the Companys Integrated
Enterprise Response Solutions application products and royalties earned on the
Companys Integrated Enterprise Response Solutions application products and
related intellectual properties. Service fees represent revenue from
implementing the Companys Integrated Enterprise Response Solutions application
products, consulting services, education services and maintenance and support
services.

Beginning January 1, 1998, the Company has recognized revenue in
accordance with the American Institute of Certified Public Accountants
(AICPA) Statement of Position 97-2, Software Revenue Recognition (SOP
97-2), as amended by Statement of Position 98-4 (SOP 98-4), Deferral of the
Effective Date of a Provision of SOP 97-2.Revenue is recognized from licenses
of the Companys software products when the contract has been executed, the
product(s) has been shipped, collectibility is probable and the software
license fees are fixed or determinable. In the event that the contract
provides for multiple elements (e.g., software products, post-contract customer
support, consulting services), the total fee is allocated to these elements
based on vendor-specific objective evidence of fair value. If any portion of
the license fees is subject to forfeiture, refund or other contractual
contingencies, the Company will postpone revenue recognition until these
contingencies have been removed. Historically, product returns and allowances
have been immaterial. For those periods in which the Company marketed its
development tools and third party technology resales, license revenue was
recognized following the procedures above except that these products are
generally licensed via shrinkwrap license agreements. The Company generally
accounts for consulting and education services separate from software license
fees for those multi-element arrangements where services are a separate element
and are not essential to the customers functionality requirements and there is
vendor-specific objective evidence of fair value for these services. If any
portion of the license fees is subject to forfeiture, refund or other
contractual contingencies, the Company will

18



---



##### Table of Contents



postpone revenue recognition until
these contingencies have been removed. Historically, product returns and
allowances have been immaterial. Consulting and education revenue is
recognized as the services are performed. Revenue from support and maintenance
activities is recognized ratably over the term of the maintenance period and
the unrecognized portion is recorded as deferred revenue. Prior to January 1,
1998, the Company recognized revenue in accordance with the American Institute
of Certified Public Accountants Statement of Position 91-1, Software Revenue
Recognition.

The AICPA published further guidance on applying the provisions of SOP
97-2 and SOP 98-4 in SOP 98-9 (SOP 98-9), Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions. Additionally, the
AICPA issued technical questions and answers on financial accounting and
reporting issues related to SOP 97-2 in January 1999. The Company began
applying the provisions of SOP 98-9 on a prospective basis for new software
transactions entered into beginning in the first quarter of 1999. The adoption
of this guidance did not have a material impact on the Companys financial
condition or results of operations and did not have a significant impact on its
current licensing or revenue recognition practices.

In June, 1998, the Financial Accounting Standards Board (FASB) issued
statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, which is required to be adopted in years beginning
after June 15, 2000. Because the Company does not use derivatives, management
does not anticipate that the adoption of the new statement will have a
significant effect on earnings or the financial position of the Company.

On December 3, 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements, which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. The SAB was effective for the
first quarter of the fiscal year beginning after December 15, 1999, however,
the SEC has extended the implementation date for companies whose fiscal year
ends between December 16, 1999, and March 15, 2000, to the fourth quarter of
fiscal year 2000. The Company adopted this SAB during the fourth quarter of
2000.

In June, 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment of FASB
Statement No. 133, which is effective for fiscal years beginning after June 15,
2000. PowerCerv does not anticipate that the adoption of this Statement will
have a significant effect on its results of operations or financial position.

The Companys primary focus in 2000 was to expand its eSeriesproduct
offerings and increase its current customers level of satisfaction with the
ERP Plussoftware. The Companys main objective was to enhance its Enterprise
Application Software Solutions to better enable users to leverage the power of
the Internet for business operations in the new e-economy. Early in 2000, the
Company identified a decrease in demand for traditional ERP systems. As a
result, the Company initiated actions to reduce its work force and undertook
additional cost cutting measures in line with its objective to minimize losses
and ultimately seek to return to profitability. In line with this
objective, the Company announced and completed a further workforce
reduction in January 2001. However, there can be no
assurance the Company will return to profitability as a result of these
actions, nor that further restructuring actions will not be needed in 2001.

The discussion in this report contains forward-looking statements that
involve risks and uncertainties. The Companys future actual results may
differ materially from the results discussed herein, including those in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to those risks discussed in this
section under Forward Looking Statements and Associated Considerations.

Plan of Operations

The Company incurred a net
loss in 2000 and, while management expects improvement in 2001, the
Company expects to incur a net loss from operations for the year
ended December 31, 2001. Management has taken steps to improve
the overall operations and financial condition. These steps include
restructuring initiatives that commenced in 2000 as well as
strategies and actions initiated or planned for 2001, including a
workforce reduction that was implemented in the first quarter of
2001. The Company expects to implement flexible work arrangements
with certain employees that will transform otherwise fixed costs into
variable costs. Management expects to reduce or defer overall wages
through uniform salary adjustment initiatives and through timely
workforce reductions on an as needed basis. An officer of the Company
has agreed to provide working capital on an as needed basis up to
certain amounts and has also accepted an additional deferral in base
salary. The Company will use best efforts to seek accelerated cash
conversion of notes receivable and accounts receivable to maximize
its working capital and available cash and will further seek to settle
commitments with non-cash resources. Management will use best efforts
to eliminate costs that have been evaluated as non-critical to the
success of the Companys core strategies. The Company will use
best efforts to continue to pursue revenue sources involving the
licensing of certain proprietary technology for resale by third
parties, and will utilize the proceeds from such transactions to fund
the operations of the Company. The Company will also seek third party
financing alternatives in amounts sufficient to meet its working
capital needs.

While management believes the
aforementioned steps will provide adequate working capital to the
company for at least twelve months, there can be no assurance that
these plans will be successfully implemented or that other events or
conditions will not arise that may adversely effect the financial
position and/or results of operations of the Company.

Results of Operations

The following table sets forth, for the periods indicated, certain
financial data regarding the Companys revenues derived from license fees,
technology resales, and service fees:

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##### Table of Contents



|                            |  |                                  |       |        |  |      |     |        |  |      |        |   |  |  |      |    |  |   |       |  
|--------------------------- |  | -------------------------------- | ----- | ------ |  | ---- | --- | ------ |  | ---- | ------ | - |  |  | ---- | -- |  | - | ----- | -
|Revenue:                    |  | For the years ended December 31,
|                            |  |                                 
|                            |  | ($ in thousands)                
|                            |  | 2000                             |       | Change |  | 1999 |     | Change |  | 1998
|                            |  |                                  |       |        |  |      |     |        |  |     
|License fees                |  | $                                | 3,523 |        |  |      | (62 | )%     |  | $    | 9,257  |   |  |  | 11   | %  |  | $ | 8,342 |  
|                           
|                           
|                           
|                           
|Percentage of total revenue |  |                                  | 30    | %      |  |      |     |        |  |      | 45     | % |  |  |      |    |  |   | 47    | %
|                            |  |                                  |       |        |  |      |     |        |  |      |        |   |  |  |      |    |  |   |       |  
|Technology resales          |  |                                  |      |        |  |      |    |        |  |      |       |   |  |  | (100 | )% |  | $ | 858   |  
|                           
|                           
|                           
|                           
|Percentage of total revenue |  |                                  |      |        |  |      |     |        |  |      |       |   |  |  |      |    |  |   | 5     | %
|                            |  |                                  |       |        |  |      |     |        |  |      |        |   |  |  |      |    |  |   |       |  
|Service fees                |  | $                                | 8,109 |        |  |      | (29 | )%     |  | $    | 11,464 |   |  |  | 34   | %  |  | $ | 8,533 |  
|                           
|                           
|                           
|                           
|Percentage of total revenue |  |                                  | 70    | %      |  |      |     |        |  |      | 55     | % |  |  |      |    |  |   | 48    | %
|                            |  |                                  |       |        |  |      |     |        |  |      |        |   |  |  |      |    |  |   |       |  

License Fees. The Companys license fees are derived primarily from
licensing the Companys application products, and to a lesser extent, from
licensing its development tools. In addition, any royalty fees earned are
included in license fees. The Company establishes its licensing fees using a
tiered pricing approach based on the number of concurrent servers and users.
Source code licenses are available at an additional cost.

License fees increased 11% from 1998 to 1999 primarily due to an increase
in the number of license transactions for the Companys ERP application
software products. Management believes this increase is attributable to the
Companys focused marketing and sales strategy initiated during 1998 and the
additional investment the Company made to strengthen its marketing and sales
organizations in the first quarter of 1999. The Company believes this
investment offset the decrease in demand for ERP software during 1999. During
1999, the ERP software industry was impacted by the concern regarding Year 2000
readiness. Management believes current customers and potential customers
purchasing patterns were affected in a number of ways. Many companies expended
significant resources to upgrade their systems. Those expenditures resulted in
reduced funds available for purchasing software products, such as
those the Company
offers.

License fees decreased 62% from 1999 to 2000 primarily due to overall
depressed market conditions initially resulting from customers reluctance to
make decisions early in the year after having addressed Y2K concerns in the
previous year. Management believes that depressed market conditions continued
throughout 2000 due to decreased demand for traditional enterprise software.
Customers also appear to be taking longer to make decisions regarding these
more advanced systems. Due to these conditions, the Company initiated
restructuring measures that included work force reduction plans and office
closings beginning in the second quarter. A second restructuring was announced
and completed in January 2001. Management believes that it has properly
resized the Company to minimize further losses and seek to return to
profitability once market conditions improve. Additionally, the Company has
developed a strategic plan focusing on reevaluating the Companys direction,
product positioning, market segments and distribution strategies. There can be
no assurance that these actions will increase the Companys license revenues in
accordance with managements expectations.

Technology Resales. Technology resales were derived from licensing
complementary client/server and internet development tools developed by other
independent software vendors. Due to the Companys increased focus on the
marketing and sale of its own ERP application products and increased market
competition for technology resale products, in 1999 the Company discontinued
its marketing and sales efforts for technology resale products.

Service Fees. The Companys service fees consist of revenue from
consulting, education, and support and maintenance services for the Companys
applications software licenses. Consulting services are primarily provided on
a time and materials basis, education services are generally priced on a
per-student basis and annual support and maintenance service fees are based on
a percentage of the related license fees.

During 1999, service fees increased by 34% over 1998. The primary factors
contributing to this increase were productivity improvements, a broader
applications base and a higher level of customizations and multi-plant
implementations.

Service fees decreased 29% from 1999 to 2000. Management believes that
the decrease in service revenue is tied to the decline in license revenue both
of which were impacted by the overall depressed market conditions resulting
initially from Y2K concerns and then due to a shift in demand from traditional
enterprise software. Management believes that companies focused their efforts
on getting new systems running before December 31,

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1999, which resulted in
substantially lower license purchases and a general decrease in consulting
services and maintenance and support services in 2000. To the extent the
revenue from licensing its application products increases, the Company believes
the demand for application consulting services (and related revenue) will
likely increase. Service fees for maintenance and support will also likely
increase; however, there can be no assurance that license revenue will increase
or that if it does increase, revenue from service fees will increase
correspondingly.

Costs and expenses

The following table sets forth, for the periods indicated, certain
financial data regarding the Companys costs associated with its license fees,
technology resales, and services:

|                           |                                  |                  |       |        |  |      |     |        |  |      |       |   |  |  |      |    |  |   |       |  
|-------------------------- | -------------------------------- | ---------------- | ----- | ------ |  | ---- | --- | ------ |  | ---- | ----- | - |  |  | ---- | -- |  | - | ----- | -
|Cost of revenue:           | For the years ended December 31,
|                           |                                  |                 
|                           |                                  | ($ in thousands)
|                           |                                  | 2000             |       | Change |  | 1999 |     | Change |  | 1998
|                           |                                  |                  |       |        |  |      |     |        |  |     
|Cost of licenses           |                                  | $                | 846   |        |  |      | (15 | )%     |  | $    | 994   |   |  |  | 48   | %  |  | $ | 670   |  
|                          
|                          
|                          
|                          
|Gross profit percentage    |                                  |                  | 76    | %      |  |      |     |        |  |      | 89    | % |  |  |      |    |  |   | 92    | %
|                           |                                  |                  |       |        |  |      |     |        |  |      |       |   |  |  |      |    |  |   |       |  
|Cost of technology resales |                                  |                  |      |        |  |      |    |        |  |      |      |   |  |  | (100 | )% |  |   | 592   |  
|                          
|                          
|                          
|                          
|Gross profit percentage    |                                  |                  |      |        |  |      |     |        |  |      |      |   |  |  |      |    |  |   | 31    | %
|                           |                                  |                  |       |        |  |      |     |        |  |      |       |   |  |  |      |    |  |   |       |  
|Cost of services           |                                  | $                | 5,663 |        |  |      | (25 | )%     |  | $    | 7,578 |   |  |  | 9    | %  |  | $ | 6,935 |  
|                          
|                          
|                          
|                          
|Gross profit percentage    |                                  |                  | 30    | %      |  |      |     |        |  |      | 34    | % |  |  |      |    |  |   | 19    | %
|                           |                                  |                  |       |        |  |      |     |        |  |      |       |   |  |  |      |    |  |   |       |  

Cost of Licenses. The cost of licenses consists primarily of production
costs, royalties associated with modules of the Companys application products,
the cost associated with resales made by VARs and the amortization of
intangible assets. The cost of licenses increased 48% from 1998 to 1999 as a
result of higher license revenue and the higher expense associated with
increased VAR sales in 1999. The cost of license decreased 15% from 1999 to
2000 primarily due to lower amortization expense partially offset by higher
royalty fees. The gross profit margin for 2000 decreased from 1999 due to
significantly lower license fee revenue.

Cost of Technology Resales. The cost of technology resales consists
primarily of costs associated with resales of complementary client/server and
internet development tools developed by independent software vendors. The cost
of technology resales decreased in 1999 compared to the prior year because of
the discontinuance of technology resales revenue described previously in this
section.

Cost of Services. The cost of services consists primarily of compensation
and travel costs associated with providing consulting, product support and
maintenance, technical services and education. The cost of services increased
9% from 1998 to 1999 as a result of increased volume of revenue for services.
The cost of services decreased 25% from 1999 to 2000 primarily due to
decreased services revenue and lower compensation expense based on reduced
headcount and restructuring plans initiated by the Company in the second
quarter of 2000.

The increase in gross profit percentage from 19% during 1998 to 34% in
1999 was a result of higher revenue resulting in higher productivity and
efficiencies. The decrease in gross profit margin from 34% in 1999 to 30% in
2000 was a result of lower services revenue which caused lower productivity.

The following table sets forth, for the periods indicated, certain
financial data regarding the Companys operating expenses:

|                                   |  |                                  |       |        |  |      |     |        |  |      |       |   |  |  |    |   |  |   |       |  
|---------------------------------- |  | -------------------------------- | ----- | ------ |  | ---- | --- | ------ |  | ---- | ----- | - |  |  | -- | - |  | - | ----- | -
|Operating expenses                 |  | For the years ended December 31,
|                                   |  |                                 
|                                   |  | ($ in thousands)                
|                                   |  | 2000                             |       | Change |  | 1999 |     | Change |  | 1998
|                                   |  |                                  |       |        |  |      |     |        |  |     
|General and administrative         |  | $                                | 4,187 |        |  |      | (6  | )%     |  | $    | 4,476 |   |  |  | 15 | % |  | $ | 3,886 |  
|                                  
|                                  
|                                  
|                                  
|Percentage of total revenue        |  |                                  | 36    | %      |  |      |     |        |  |      | 22    | % |  |  |    |   |  |   | 22    | %
|                                   |  |                                  |       |        |  |      |     |        |  |      |       |   |  |  |    |   |  |   |       |  
|Sales and marketing                |  | $                                | 5,010 |        |  |      | (38 | )%     |  | $    | 8,022 |   |  |  | 31 | % |  | $ | 6,103 |  
|                                  
|                                  
|                                  
|                                  
|Percentage of total revenue        |  |                                  | 43    | %      |  |      |     |        |  |      | 39    | % |  |  |    |   |  |   | 34    | %
|                                   |  |                                  |       |        |  |      |     |        |  |      |       |   |  |  |    |   |  |   |       |  
|Research and development           |  | $                                | 4,096 |        |  |      | (9  | )%     |  | $    | 4,504 |   |  |  | 18 | % |  | $ | 3,820 |  
|                                  
|                                  
|                                  
|                                  
|Percentage of license fees revenue |  |                                  | 116   | %      |  |      |     |        |  |      | 49    | % |  |  |    |   |  |   | 46    | %
|                                   |  |                                  |       |        |  |      |     |        |  |      |       |   |  |  |    |   |  |   |       |  

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General and Administrative(G&A). G&A expenses include general
compensation, communications, accounting, human resources, legal and related
facilities expenses. The increase in G&A expenses from 1998 to 1999 is
primarily related to higher outside legal expenses associated with the class
action litigation as referenced in note 11(b), Commitments and Contingencies,
settlement of certain outstanding litigation matters and higher bad debt
expenses. The decrease in G&A expense from 1999 to 2000 is primarily related
to reduced legal expenses associated with the class action litigation and lower
personnel costs due to the Companys 2000 restructuring offset by higher bad
debt expense. G&A costs as a percentage of total revenue increased from 22% in
1999 to 36% in 2000 due to significantly lower license and services revenue for
the current year and the fixed nature of certain costs.

Sales and Marketing. Sales and marketing expenses primarily consist of
compensation paid to sales and marketing personnel; costs of marketing,
including direct mail and telemarketing activities; costs of public relations,
including trade shows and conferences; and related communications costs.
During 1998, the Company recruited a senior vice president of marketing and
senior vice president of direct sales, transitioned a marketing executive into
channel sales, centralized its marketing organization in the Companys Tampa
headquarters, and increased the number of U.S. regional sales offices and
regional sales vice presidents from three to six. Sales and marketing expenses
increased as a percentage of total revenue in 1999 to 39% from 34% in 1998.
This was a result of the Companys accelerated investments in its marketing and
sales organizations. These investments included hiring additional personnel in
the direct sales organization, including regional vice presidents, field sales
representatives and pre-sales specialists, a change in the Companys commission
structure designed to drive growth in ERP Plus application product sales,
investments in marketing programs focused on increasing awareness of the
Company and its products and expansion of the Companys marketing and
telemarketing organization. Sales and marketing costs decreased 38% from 1999
to 2000 primarily due to lower sales commissions earned on license revenue in
the current year and reduced personnel and office costs resulting from the
restructuring.

Research and Development(R&D). R&D costs consist primarily of
compensation and related facilities, software and equipment costs associated
with developing, maintaining and enhancing the Companys products.
Historically, the Company has not capitalized any internal R&D costs as the
costs incurred during the period between the point in time that technological
feasibility is established and that a product is released to the market have
been insignificant. During 1999 and 2000, the Company capitalized a total of
$550,000 in R&D costs paid to a third party for the conversion of certain
existing software from one architecture to another. R&D costs increased 18%
from 1998 to 1999 primarily due to increased personnel costs associated with
the development and introduction of our web-enabled eSeries product offerings.
R&D costs decreased 9% from 1999 to 2000 due to decreased personnel costs in
the third and fourth quarters of 2000 as a result of the Companys
restructuring. The increase in R&D costs as a percentage of license fees
increased from 49% in 1999 to 116% in 2000 due to significantly lower license
fees revenue for the current year.

Work Force Reduction and Other Charges

During the first quarter of 1999, the Company recorded a charge related to
a work force reduction and other related expenses totaling $485,000. This
amount included severance and related costs of $391,000 and costs of $94,000
related to office downsizing or closings. As of December 31, 2000, the
Company has paid all amounts associated with this restructuring.

During the second quarter of 2000, the Company initiated actions to reduce
its work force and undertook additional cost cutting measures. The Company
recorded a restructuring charge related to a work force reduction and other
expenses totaling $711,000 in the second quarter of 2000. Additional
restructuring charges of $162,000 were recorded in the third quarter of 2000
for a total restructuring charge of $873,000 in 2000. The total restructuring
charge includes severance and related costs of $649,000 (4 senior-level staff
and 35 non senior-level employees primarily in sales, services and research and
development) and costs of $224,000 related to office closings. As of December
31, 2000, approximately $391,000 remains in accrued liabilities for payments to
be made over the next 15 months. As part of the restructuring plan, the
Companys Chairman has assumed the role of Chief Executive Officer, and the
previous Chief Executive Officer is no longer with the Company. Office
closings were completed during the third quarter of 2000, and severance
payments will be paid during the next 15 months. The Company expects to realize
gross annual savings of approximately $6,400,000 as a result of these actions.

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In line with its objective to return to profitability, the Company
announced and completed a further workforce reduction in January 2001. These
restructurings are part of the Companys strategic plan to reevaluate the
Companys direction, product positioning, marketing segments and distribution
strategies. The Companys break even point has been substantially reduced.
However, there can be no assurance the Company will return to profitability as
a result of these actions.

Income Tax Expense (Benefit)

During the first quarter of 2000, the Company recorded a charge related to
estimated federal and state income tax and interest totaling $359,000 resulting
from an Internal Revenue Service examination of the Companys 1996 and 1995
federal income tax returns. The amounts allocated to tax expense and interest
expense were $209,000 and $150,000 respectively. The Internal Revenue Service
has rendered an unfavorable assessment resulting in the estimated exposure
amount. The Company will continue to appeal this assessment.

The Company also recorded $46,000 of income tax expense related to state
and federal income taxes and increased its deferred income tax asset valuation
allowance for the year ended December 31, 2000, to offset the tax benefit
applicable to the loss incurred during the period. The decision to fully
reserve the deferred income tax asset was primarily the result of the Companys
continued losses from operations.

As of December 31, 2000, the Company has a deferred tax asset of $12.4
million, which has been fully reserved. The decision to fully reserve the
deferred income tax asset was based on the uncertainty as to the ultimate
realization of the asset due to the Companys continued losses from operations.
Any realization of the Companys net deferred tax asset will reduce the
Companys effective tax rate in future periods.

Liquidity and Capital Resources

At December 31, 2000, 1999 and 1998, the Company had available cash and
cash equivalents of $2.1 million, $6.2 million and $6.6 million respectively,
and working capital of $1.6 million, $8.8 million and $7.4 million,
respectively.

On March 29, 1999, the Company entered into an agreement with its bank for
a $10 million credit facility (1999 Line of Credit). The 1999 Line of Credit
consists of a commitment for a revolving line of credit totaling $5 million,
with an additional $5 million of uncommitted funding. The 1999 Line of Credit
expired on May 30, 2000. The Company is currently seeking other sources of
debt or equity. There can be no assurances that such funds will be available to
the Company or, if available, would be on terms satisfactory to the Company.

Net cash provided by (used in) operating activities for the years ended
December 31, 2000, 1999 and 1998 was $(5.2) million, $(7.6) million and $0.3
million, respectively. The cash used in 2000 was principally the result of the
operating loss for 2000. The cash used in 1999 primarily resulted from the
operating loss for the year and the higher receivable at the end of the year
from the higher sales volume.

Net cash provided by (used in) investing activities for the years ended
December 31, 2000, 1999 and 1998 totaled $0.2 million, $6.5 million and $(0.2)
million, respectively. Such uses generally were for purchases of furniture,
fixtures, and communication and computer equipment. In 1998, the net cash used
was reduced by $0.5 million cash received as a result of the Company exercising
a put option related to its $1.5 million investment made in 1996. In 1999, the
net cash provided was the $6.7 million received from the sale of its general
consulting and general education business as well as $0.5 million cash
received as a result of the Company exercising a put option related to its $1.5
million investment made in 1996. In 2000, the net cash provided was $0.5
million received as a result of the Company exercising a put option related to
its $1.5 million investment made in 1996 partially offset by $0.3 million used
for the purchase of an intangible asset.

Net cash provided by financing activities for the years ended December 31,
2000, 1999, and 1998 totaled $0.9 million, $0.8 million and $0.1 million,
respectively. These amounts generally relate to the exercise of options and
warrants for common stock.

To date, inflation has not had a material effect on the Companys
financial results. There can be no assurance, however, that inflation may not
adversely affect the Companys financial results in the future.

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If the Company is not successful in achieving targeted license and service
revenues, the Company may be required to take further actions to align its
operating expenses with its revenues, such as further reductions in work force
or other cost cutting measures. The Company is dependent upon its ability to
generate cash flows from its license and service fees, as well as the
collection of its outstanding accounts receivable, to maintain its current
liquidity levels.

In June of 2000, PowerCerv recognized that revenue for the Company was not
going to rapidly return to the levels achieved in the third and fourth quarters
of 1999. The decision was made to downsize the Company in an effort to minimize
future losses, allow for sufficient time to implement its strategic plan and
ultimately seek to return to profitability. The cost of this restructuring was
approximately $873,000 of which $711,000 was reported as part of the second
quarter results and the balance of $162,000 was reported in the third quarter.
This restructuring will save the Company approximately $1,600,000 in expenses
per quarter. Additionally, the Company announced and completed a further
workforce reduction in January 2001; however, there can be no assurance that
the Company will return to profitability as a result of these actions or that
further actions will not be necessary in 2001.

If the Companys existing cash reserves and restructuring decisions prove
insufficient to fund its future cash requirements and the Company is not able
to obtain other sources of funds, the Companys ability to pursue its business
strategy beyond the year 2001 could be materially adversely effected. However,
as a result of the Companys June 2000 restructuring decision, the amount of
cash used in operations decreased substantially in the third and fourth
quarters of 2000 as compared to the second quarter. As more fully
discussed in Plan of Operations above, the Company has
implemented, or is in the process of initiating, cost cutting
measures and other actions that management believes will provide
adequate working capital for at least twelve months.

Forward-Looking Statements and Associated Considerations

This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. Words
such as anticipates, expects, intends, plans, believes, seeks,
estimates, variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict; therefore, actual results may differ
materially from those expressed or forecasted in any such forward-looking
statements. In addition, the Company may, from time to time, make oral
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise. Such statements appear in a number
of places in this report and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) trends affecting the Companys financial condition
or results of operations; (ii) the industry in which the Company operates;
(iii) the Companys business and growth strategies; and (iv) other matters.
Prospective investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those indicated in the
forward-looking statements as a result of various factors. Readers are
cautioned not to place undue reliance on these forward-looking statements.
Factors to consider in evaluating any forward-looking statements and the other
information contained herein include the following:

Fluctuations in Quarterly Activities and Results of Operations.The
Company has experienced significant fluctuations in its revenues and operating
results from quarter to quarter and anticipates that it will continue to
experience such quarterly fluctuations. Factors that may contribute to such
fluctuations include, among others, the demand for and market acceptance of the
Companys products and services, the size and timing of the Companys sales,
the level of product and price competition encountered, the length of the sales
cycle, the timing of the Companys and its competitors product releases and
enhancements, reduction in demand for existing products and shortening of
product life cycles, customer order deferrals in anticipation of new products,
changes in the Companys and its competitors pricing policies, variations in
the length of the product implementation cycle, software defects and other
product quality problems, the mix of products and services sold, changes in the
Companys sales and marketing organizations and the sales and marketing
incentives, the mix of direct versus indirect sales, reassignment of
consultants from providing billable services to research and development
positions, changes in the Companys operating expenses, personnel changes,
changes in the renewal rate of the Companys maintenance agreements, seasonal
factors that generally influence purchasing decisions of application software
products, conditions or events in our target market, budgeting cycle of the
Companys customers, and general economic conditions. Any one or more of these
or other factors could have a material adverse effect on the

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Companys
business, financial condition and results of operations. The potential
occurrence of any one or more of these factors makes the prediction of revenue
and results of operations on a quarterly basis difficult.

License revenues for the Companys application products generally reflect
a relatively high amount of revenue per order. The loss or delay of individual
orders for these products, therefore, could have a more significant impact on
the revenues and quarterly results of the Company than on those of companies
with higher sales volumes and lower revenues per order. The Companys software
products generally are shipped as orders are received (generally no significant
order backlog exists), and revenues are recognized as software products are
shipped if collection is probable and the remaining Company obligations are
insignificant. As a result, software license revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter. The
timing of license revenues derived from sales of the Companys application
products is difficult to predict because of the length of the sales cycle for
these products. In addition, the Companys license revenues occur
predominantly in the third month of each quarter and tend to be concentrated in
the last weeks or days of a quarter. Accordingly, the Companys quarterly
results of operations are difficult to predict and delays in product delivery
or in closings of license sales near the end of a quarter could cause quarterly
revenues and, to a greater degree, net income, to fall substantially short of
anticipated levels. Since the Companys operating expenses are based on
anticipated revenue trends and because a high percentage of the Companys
expenses are relatively fixed, a delay in the recognition of revenue from a
limited number of application license transactions could cause significant
variations in the Companys operating results from quarter to quarter and could
result in losses. To the extent such expenses precede, or are not subsequently
followed by, increased revenues, the Companys operating results would be
materially adversely affected. In addition, the achievement of anticipated
revenues is substantially dependent on the ability of the Company to attract,
on a timely basis, and retain skilled personnel, especially sales and service
personnel. As a result of these factors, revenues for any quarter are subject
to significant variation, and the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Fluctuations
in operating results may also result in volatility in the price of the
Companys Common Stock.

Competition.The market for enterprise software and e-commerce
application products and services is intensely competitive, rapidly changing
and significantly affected by new product offerings and other market
activities. A number of companies offer products similar to the Companys
products and services, which are targeted at mid-size U.S. companies. In
addition, the Companys market has no proprietary barriers to entry, which
would limit competitors from developing similar products or selling competing
products. Many of the Companys existing competitors, as well as a number of
potential competitors, have longer operating history, more established
marketing and sales organizations, greater name recognition, larger R&D and
technical organizations, significantly greater financial and technical
resources and a larger installed base of customers than the Company. As a
result, these competitors may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products,
than can the Company. There can be no assurance that the Company will be able
to compete successfully with existing or new competitors or that such
competitors will not offer or develop products that are superior to the
Companys products or that achieve greater market acceptance.

Economic and Market Condition Risks. Various segments of the software
industry have experienced significant economic downturns characterized by
decreased product demand, price erosion, work slowdown and layoffs. In
addition, there is increasing uncertainty in the ERP market attributed to many
factors, including global economic conditions and strong competitive forces.
Our future license fee revenue and results of operations may experience
substantial fluctuations from period to period as a consequence of these
factors and such conditions may affect the timing of orders from major
customers and other factors affecting capital spending. Although we have a
diverse client base, we have targeted a number of vertical markets. As a
result, any economic downturns in general or in our targeted vertical markets
would have a material adverse effect on our business, operating results and
financial condition.

Lengthy Sales Cycle.Customers in our target market make a significant
capital investment in purchasing our ERP application solution. Potential
customers spend significant time and resources on determining which software to
purchase. This requires us to spend substantial time, effort and money
educating and convincing prospective customers to purchase our software over
our competitors. Selling our ERP application solution requires an extensive
sales effort because the decision to license software generally involves
evaluation by a significant number of customer personnel in various functional
and geographic areas. The Company also has no control over

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which company a
customer favors or if the customer chooses to delay or forego a purchase. Due
to all of these factors, the sales cycle generally ranges from a minimum of
three (3) months up to twelve (12) months. Since the sales cycle is
unpredictable, the Company cannot precisely forecast the timing or amount of
specific license sales. Furthermore, license sales may vary from quarter to
quarter. Any delays associated with closing large license transactions could
have a material adverse effect on the Companys business, operating results and
financial condition.

Ability to Manage Change.The Company was incorporated in April 1992 and
commercially shipped its initial products in late 1993. Since inception and
through 1996, the Company experienced rapid growth in its revenue, the number
of its employees and the scope of its operations. Beginning in 1997 and
through 2000, the Company initiated restructuring and reorganization efforts
resulting in a reduction in the number of employees. The number of Company
employees, for example, has fluctuated from 372 as of December 31, 1997, to 281
as of December 31, 1998, to 193 as of December 31, 1999 and to 102 as of
December 31, 2000. The Companys rapid changes have
resulted in, and are expected to continue to create, new and increased responsibilities for
management personnel, as well as additional demands on the Companys operating
and financial systems, including addressing and reducing employee turnover.
The Companys business and future growth will depend on the efforts of key
management personnel and the Companys ability to attract and retain qualified
management personnel. The Companys business plan will also require it to
recruit additional qualified technical personnel, to enhance its managerial
systems for its operations, and to successfully integrate new employees and
systems into its existing operations. If the Company is unable to manage
change effectively, the Companys business, financial condition and results of
operations could be materially adversely effected.

The Company began operations primarily as a VAR of client/server software
development tools developed by third parties and as a provider of related
consulting services. For each quarter since that time, including the quarter
ended December 31, 2000, revenue from services has accounted for at least a
majority of the Companys revenue. The Companys strategy is to seek to
increase its revenue from the sale of the Companys open, modifiable Integrated
Enterprise Response Software Solutions and its innovative e-Commerce application
software products as a percentage of total revenue. However, selling,
distributing and supporting computer software may demand different sales,
technological and management skills than providing software consulting
services. To be successful, the Company and its management will be required to
adapt to the changing nature of the Companys business. Any failure to do so
would have a material adverse effect on the Companys business, financial
condition and results of operations.

In 1997, the Company incurred an $18.1 million net loss on license
revenues of $6.4 million. In late 1997 and early 1998, the Company underwent a
reduction in work force of approximately 50 persons resulting in work force
reduction and other charges of $1.0 million. In 1998, the Company hired a new
President/COO with extensive application software company management
experience, and implemented a strategy to focus its operations on the sale of
its ERP Plus application products to mid-size U.S. discrete manufacturing
companies. Also during 1998, the Company recorded profits in its third and
fourth quarters, and reduced its loss to $1.8 million for the year. In 1999,
the Company took further measures to focus its business on the development,
marketing, sale, implementation and training of its ERP Plus application
products. On March 31, 1999, the Company sold the net assets of its general
consulting/general education business to a related party to further increase the
Companys focus on selling ERP application software solutions to its target
market. In 2000, the Company experienced a decline in total revenue primarily
due to adverse market conditions and a decline in customer demand for
traditional ERP systems resulting in substantial operating losses for the
Company. Beginning in June 2000, the Company initiated actions to reduce its
work force and undertook additional cost cutting measures in line with its
objective to return to profitability. The Company recorded a restructuring
charge related to a work force reduction of 4 senior-level staff and 35 non
senior-level employees and other expenses totaling $873,000. As part of the
restructuring plan, the Companys Chairman has assumed the role of Chief
Executive Officer, and the previous Chief Executive Officer is no longer with
the Company. The Company expects to realize gross annual savings of
approximately $6.4 million as a result of these actions. The restructuring is
part of the Companys strategic plan to reevaluate the Companys direction,
product positioning, marketing segments and distribution strategies.
Management believes that it has properly resized the Company to minimize future
losses, allow for sufficient time to implement its strategic plan and
ultimately seek to return to profitability. However, there can be no assurance
that the Company will achieve its objectives in connection with its focused
operating strategy or that further restructuring measures will not be taken in
the future.

26



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The Company has pursued, and will continue to pursue, growth opportunities
through internal development and, if appropriate opportunities arise,
acquisition of complementary enterprises and products. The Company competes
for acquisition and expansion opportunities with many entities that have
substantially greater resources. In addition, acquisitions may involve
difficulties in the retention of personnel, diversion of managements
attention, unexpected legal liabilities, and tax and accounting issues. There
can be no assurance that the Company will be able to successfully identify
suitable acquisition candidates, complete acquisitions, integrate acquired
businesses into its operations or expand into new markets. Once integrated,
acquisitions may not achieve levels of revenue, profitability or productivity
comparable to the existing business of the Company or otherwise perform as
expected. The occurrence of any of these events could have a material adverse
effect on the Companys business, financial condition and results of
operations.

Liquidity.On December 31, 2000, the Companys cash and cash equivalents
were $2.1 million. If the Companys existing cash reserves and restructuring
decision prove insufficient to fund its future cash requirements and the
Company is not able to obtain other sources of funds, the Companys ability to
pursue its business strategy beyond the year 2001 could be materially
adversely effected.
Further, there can be no assurances that such funds would be available to the
Company, or if available would be on terms satisfactory to the Company.

Availability of Consulting Personnel.The Companys application products
generally require that some level of post-sale technical consulting and
implementation services and related education and training be provided to the
end-user customer. The Companys future success will depend on its ability to
recruit, hire, train, retain and provide enough application and technical
consultants or, alternatively, to continue to develop and expand relationships
with third party organizations willing and able to provide these services.
There can be no assurance that the Company will be able to achieve these
objectives and, if it is unable to do so, this could have a material adverse
effect on the Companys business, financial condition and results of
operations.

Dependence on Product Development and Associated Risks.The ERP and
e-Commerce application software market is characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. The Companys future success will depend upon
its ability to enhance its current products, and to develop and introduce new
products on a timely basis that keep pace with technological developments,
respond to evolving customer requirements and achieve market acceptance. Any
failure by the Company to anticipate or respond adequately to technological
developments and customer requirements, or any significant delays in product
development or introduction, could result in a loss of competitiveness or
revenue. In the past, the Company has experienced unexpected delays in the
introduction of certain of its products, which has had an adverse impact on the
Companys revenue. Also, new products, when first released by the Company, may
contain undetected difficulties or defects that, despite testing by the
Company, are discovered only after they have been installed and used by
customers. There is no assurance that such difficulties will not be discovered
in the future, causing significant customer relations issues, delays in product
introduction and shipments, or requiring design modifications that could
adversely effect the Companys competitive position, business, financial
condition and results of operations. In addition, there can be no assurance
that new products or product enhancements developed by the Company will achieve
market acceptance, in which case the Companys business, financial condition
and results of operations could be adversely effected. See Business  Product
Development.

Dependence on New Products.The Companys future success will depend
heavily on sales of the Companys products including its ERP Plusapplications
products with e-Commerce capabilities, and the failure of these products to
find market acceptance would have a material adverse effect on the Companys
business, financial condition and results of operations. Also, new products,
when first released by the Company, may contain undetected difficulties or
defects that, despite testing by the Company, are discovered only after they
have been installed and used by customers. In response, the Companys support
staff provides software fixes and maintenance releases designed to correct or
work around these difficulties or defects, most of which are uncovered in the
months immediately following commercial release of a new product. There can be
no assurance that such difficulties will not be discovered in the future,
causing significant customer relations issues, delays in product introduction
and shipments, or requiring design modifications that could adversely
effect
the Companys competitive position, business, financial condition and results
of operations. See Business  Products and Services.

Dependence on PowerBuilder(R) and Others.The Company
currently derives substantially all its revenue from (i) sales of its
application products written using PowerBuilder software and various relational
database

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management software products available from Microsoft and Sybase and
(ii) consulting, education and maintenance services related to all of these
products. As a result, any factor adversely effecting demand for or use of
PowerBuilder or adversely effecting the Companys relationship with Sybase or
Microsoft could have a material adverse effect on the Companys business,
financial condition and results of operations. Moreover, any changes in or new
versions of PowerBuilder or business decisions by Sybase related to the
long-term product status of PowerBuilder that require changes to the Companys
products could materially adversely effect the Companys business, financial
condition and results of operations if the Company were not able to
successfully develop or implement such changes in a timely fashion. The
Companys future financial performance will also depend in part on the
successful development and introduction of new and enhanced versions of
PowerBuilder and other products, and customer acceptance of such new and
enhanced products. See Business  Products and Services.

Dependence on Proprietary Technology; Risks of Third-Party Claims for
Infringement.The Company regards its products as proprietary trade secrets and
confidential information. The Company relies on a combination of copyright,
trademark and trade secrets laws, employee and third-party nondisclosure
agreements and other industry standard methods for protecting ownership of its
products. There can be no assurance, however, that in spite of these
precautions, an unauthorized third party will not use, copy or reverse engineer
portions of the Companys products. In addition, the laws of some foreign
countries do not protect the Companys proprietary rights to the same extent as
do the laws of the United States. There can be no assurance that the methods
used by the Company to protect its products will be adequate or that the
Companys competitors will not independently develop products that are
substantially equivalent or superior to the Companys products.

The Company believes that it has all of the necessary rights to market its
software products and development tool products although there can be no
assurance that third parties will not assert infringement claims against the
Company in the future. The Company expects that, as the number of products
increase and the functionality of these products further overlaps, although
there have been no infringement claims, the likelihood of third parties
asserting infringement claims against the Company may increase. Any claim,
whether or not it has merit, could result in costly litigation, divert
management attention, and require the Company to enter into royalty or other
license arrangements. Such royalty or other license arrangements, if required,
may not be available on terms acceptable to the Company or at all.

There has been substantial litigation in the software industry involving
intellectual property rights. Although the Company does not believe that it is
infringing the intellectual property rights of others, there can be no
assurance that such claims will not be asserted and, if asserted, would not
have a material adverse effect on the Companys business, financial condition
and results of operations. In addition, if the Company acquires or licenses a
portion of the software included in its products from third parties, its
exposure to infringement actions may increase because the Company must rely
upon such third parties for information as to the origin and ownership of such
acquired or licensed software. Although the Company has obtained and intends
to continue to obtain representations as to the origins and ownership of such
acquired or licensed software and obtain indemnification to cover any breach of
any such representations, there can be no assurance that such representations
will be accurate or that such indemnification will provide adequate
compensation for any breach of such representations. In the future, litigation
may be necessary to enforce and protect trade secrets, copyrights and other
intellectual property rights of the Company. The Company may also be subject
to litigation to defend against claimed infringement of the rights of others or
to determine the scope and validity of the intellectual property rights of
others. Any such litigation could be costly and divert managements attention,
either of which could have a material adverse effect on the Companys business,
financial condition and results of operations. Adverse determinations in such
litigation could result in the loss of the Companys proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties or prevent the Company from selling its products,
any one of which would have a material adverse effect on the Companys
business, financial condition and results of operations. See Business -
Intellectual Property and Other Proprietary Technology.

Expansion of Indirect Channels; Potential for Channel Conflict.The
Company markets its application products and services directly through both a
direct sales force and telesales, and indirectly through marketing channels
such as VARs, OEMs, channel partners and distributors. VARs, OEMs, channel
partners and distributors accounted for a growing percentage of license revenue
in 1997, 1998, 1999 and 2000, and the Company is increasing resources dedicated
to developing and expanding indirect marketing channels. There can be no
assurance that the Company will be able to attract and retain a sufficient
number of qualified VARs, OEMs, teaming partners and distributors to market
successfully the Companys tools and applications. The failure
to retain its VARs, OEMs, Channel partners

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and distributors could have a material adverse
effect on the Companys business, financial condition and results of
operations.

Relationships with VARs, OEMs, teaming partners and distributors are
usually established through formal reseller agreements. In many cases, these
agreements may be terminated by either party at any time without cause.
Therefore, there can be no assurance that any VAR, OEM, teaming partner or
distributor will continue to represent the Companys products, and the
inability to retain certain VARs, OEMs, teaming partners or distributors could
have a material adverse effect on the Companys business, financial condition
and results of operations.

Selling through indirect channels may limit the Companys contacts with
its customers. As a result, the Companys ability to accurately forecast
sales, evaluate customer satisfaction and recognize emerging customer
requirements may be hindered. The Companys strategy of marketing its products
directly to end-users and indirectly through VARs, OEMs, teaming partners and
distributors may result in distribution channel conflicts. The Companys
direct sales efforts may compete with those of its indirect channels and, to
the extent different resellers target the same customers, resellers may also
come into conflict with each other. Although the Company has attempted to
manage its distribution channels in a manner to avoid potential conflicts,
there can be no assurance that channel conflicts will not materially adversely
effect its relationships with existing VARs, OEMs, teaming partners or
distributors or adversely effect its ability to attract new VARs, OEMs, teaming
partners and distributors. See Business  Marketing, Sales and Distribution.

Voting Control by Management.The executive officers and directors of the
Company beneficially own approximately 35% of the outstanding Common Stock as
of March 15, 2001. As a result, while there is no agreement or understanding
among these persons with respect to the voting of their Common Stock if they
vote together, they may be able to control the outcome of matters requiring a
shareholder vote, including the election of directors, adopting or amending
provisions of the Companys Articles of Incorporation and Bylaws, and approving
mergers or other similar transactions, such as sales of substantially all the
Companys assets. To the extent there is control, such control by the officers
and directors may have the effect of discouraging certain types of transactions
involving an actual or potential change of control of the Company, including
transactions in which the holders of Common Stock might otherwise receive a
premium for their shares over then-current market prices. In addition, the
possibility of such persons exercising such control may limit the price that
certain investors may be willing to pay in the future for shares of the
Companys Common Stock. Moreover, the Company is not prohibited from engaging
in transactions with its management and principal shareholders, or with
entities in which such persons have an interest. The Companys Articles of
Incorporation do not provide for cumulative voting in the election of
directors.

Dependence on Key Personnel.The Companys success depends to a
significant extent upon a number of key management and technical personnel,
including its President and Chief Executive Officer, Marc J. Fratello, and its
Senior Vice President of Operations, Ira Herman, who is responsible for R&D and
the professional services organization. The loss of one or both of these
individuals could have a material adverse effect on the Companys business,
financial condition and results of operations. The Company believes that its
future success will also depend in large part upon its ability to attract and
retain highly skilled technical, management, sales and marketing personnel.
Competition for such personnel in the computer software industry is intense,
and there can be no assurance that the Company will be successful in attracting
and retaining such personnel. Departures and additions of key personnel may be
disruptive to the Companys business and could have a material adverse effect
on the Companys business, financial condition and results of operations.

Possible Volatility of Stock Price.The Companys stock price has
fluctuated substantially since its March 1, 1996, initial public offering. The
market price of the Common Stock is subject to significant fluctuations in
response to quarterly and annual operating results of the Company, the gain or
loss of significant customer orders, announcements of technological
improvements or new products by the Company or its competitors, changes in
financial estimates by securities analysts, changes in general conditions in
the economy, the financial markets or the computer software industry, or other
developments affecting the Company, its customers or its competitors, some of
which may be unrelated to the Companys performance and beyond the Companys
control. The stock of many technology companies has experienced extreme price
and volume fluctuations unrelated to the operating performance of those
companies. These market fluctuations have adversely effected and may continue
to adversely effect the market price of the Companys Common Stock.

29



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Item 7A. Quantitative And Qualitative Disclosures About Market Risk

The Company had no holdings of derivative financial or commodity
instruments at December 31, 2000. The Company has no significant exposure to
interest rate or foreign currency exchange rate risks. An increase in interest
rates of 100 basis points would not significantly impact the Companys net
income. Generally, all of the Companys business is transacted in U.S.
dollars. Accordingly, foreign exchange rate fluctuations should not have a
significant impact on the Company.







Item 8. Financial Statements and Supplementary Data

The Companys Consolidated Financial Statements and Notes thereto and the
reports of Grant Thornton LLP and Ernst & Young LLP, the Companys independent
certified public accountants, are set forth on the pages indicated in Item 14.







Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

There were no disagreements with respect to the Companys independent
accountants during 2000. As discussed and more fully described in the
Companys Form 8-K dated September 28, 2000, the Company appointed Grant
Thornton LLP as its independent accountants and terminated its relationship
with Ernst & Young LLP during 2000.

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PART III

Certain information required by Part III is omitted from this Report on
Form 10-K since the Company will file a definitive Proxy Statement for its
Annual Meeting of Shareholders to be held on June 1, 2001, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended (the Proxy
Statement), not later than 120 days after the end of the year covered by this
Report, and certain information included in the Proxy Statement is incorporated
herein by reference.







Item 10. Directors and Executive Officers of the Registrant

The information required by this Item is incorporated by reference from
the section entitled Directors and Executive Officers in the Proxy Statement.







Item 11. Executive Compensation

The information required by this Item is incorporated by reference from
the section entitled Executive Compensation in the Proxy Statement.







Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is incorporated by reference from
the section entitled Stock Ownership of Certain Beneficial Owners and
Management in the Proxy Statement.







Item 13. Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference from
the section entitled Certain Transactions in the Proxy Statement.

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PART IV







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

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

|   |  |                                                                                                                                                                                                                                           |  |     
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|   |  |                                                                                                                                                                                                                                           |  | PAGE
|1. |  | Financial Statements                                                                                                                                                                                                                     
|  
|  
|  
|  
|   |  | Report of Independent Certified Public Accountants
 Grant Thornton LLP                                                                                                                                                                   |  | 33  
|  
|  
|  
|  
|   |  | Report of Independent Certified Public Accountants -
   Ernst & Young LLP                                                                                                                                                                 |  | 34  
|  
|  
|  
|  
|   |  | Consolidated Balance Sheets as of December 31, 2000 and 1999                                                                                                                                                                              |  | 35  
|  
|  
|  
|  
|   |  | Consolidated Statements of Operations for each of the years in the
   three-year period ended December 31, 2000                                                                                                                           |  | 36  
|  
|  
|  
|  
|   |  | Consolidated Statements of Shareholders Equity for each of
the
   years in the three-year period ended December 31, 2000                                                                                                                 |  | 37  
|  
|  
|  
|  
|   |  | Consolidated Statements of Cash Flows for each of the years in the
   three-year period ended December 31, 2000                                                                                                                           |  | 38  
|  
|  
|  
|  
|   |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                |  | 39  
|  
|2. |  | Financial Statement Schedules                                                                                                                                                                                                            
|  
|  
|  
|  
|   |  | The following consolidated financial statement schedules are included herein:                                                                                                                                                            
|  
|   |  | Report of Independent Certified Public Accountants on
Schedule II                                                                                                                                                                        
|  
|   |  | Schedule II  Schedule of Valuation and Qualifying Accounts for
    each of the years in the three-year period
ended December 31,
    2000                                                                                                |  | 55  
|  
|   |  | All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have
been omitted.
|  
|3. |  | Exhibits 
See Index to Exhibits included elsewhere in this document.                                                                                                                                                                    

(b) Reports on Form 8-K

None.

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
PowerCerv Corporation

We have audited the accompanying consolidated balance sheet of PowerCerv
Corporation as of December 31, 2000, and the related consolidated statement of
operations, shareholders equity, and cash flows for the year then ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
PowerCerv Corporation at December 31, 2000, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.



| |                       
| | ----------------------
| | /s/ Grant Thornton LLP

Tampa, Florida
January 23, 2001, except for note 3
as to which the date is
April 13, 2001

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##### Table of Contents



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
PowerCerv Corporation

We have audited the accompanying consolidated balance sheet of PowerCerv
Corporation as of December 31, 1999, and the related consolidated statements of
operations, shareholders equity, and cash flows for each of the two years in
the period ended December 31, 1999. Our audits also include the information
relating to the years ended December 31, 1999 and 1998, on the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
PowerCerv Corporation at December 31, 1999, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule for the years ended December
31, 1999 and 1998, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Tampa, Florida
January 20, 2000

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POWERCERV CORPORATION

Consolidated Balance Sheets

December 31, 2000 and 1999

|                                                                                   |                                                                                                                                                                               |                                            |                      |             |           |           |           |             |            |            |  |  |  |  | 
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------------- | ----------- | --------- | --------- | --------- | ----------- | ---------- | ---------- |  |  |  |  | 
|                                                                                   |                                                                                                                                                                               |                                            |                      |             | 2000      |           | 1999     
|                                                                                   |                                                                                                                                                                               |                                            |                      |             |           |           |          
|Assets                                                                            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Current assets:                                                                   
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Cash and cash equivalents                                                                                                                                                     |                                            | $                    | 2,135,636   |           |           | $         | 6,224,258   |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Accounts receivable, net of allowance of $1,831,000 in 2000 and $1,545,000 in 1999                                                                                            |                                            |                      | 2,537,754   |           |           |           | 6,952,168   |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Inventories                                                                                                                                                                   |                                            |                      | 48,315      |           |           |           | 48,427      |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Other current assets                                                                                                                                                          |                                            |                      | 620,357     |           |           |           | 144,044     |           
|                                                                                   |                                                                                                                                                                               |                                            |                      |             |           |           |           |            
|                                                                                   |                                                                                                                                                                               |                                            | Total current assets |             |           | 5,342,062 |           |             |            | 13,368,897 | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Property and equipment, net                                                        |                                                                                                                                                                               |                                            | 511,317              |             |           |           | 1,231,054 |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Intangible assets, net                                                             |                                                                                                                                                                               |                                            | 564,649              |             |           |           | 320,960   |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Investment in third-party                                                          |                                                                                                                                                                               |                                            |                     |             |           |           | 500,000   |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Notes receivable, net of allowance of $192,500 in 2000                             |                                                                                                                                                                               |                                            | 887,987              |             |           |           | 1,037,500 |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Deferred tax asset, net of allowance of $12,335,000 in 2000 and $9,477,000 in 1999 |                                                                                                                                                                               |                                            |                     |             |           |           |          |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Deposits and other                                                                 |                                                                                                                                                                               |                                            | 27,828               |             |           |           | 98,798    |            
|                                                                                   |                                                                                                                                                                               |                                            |                      |             |           |           |           |            
|                                                                                   |                                                                                                                                                                               |                                            | Total assets         |             | $         | 7,333,843 |           |             | $          | 16,557,209 | 
|                                                                                   |                                                                                                                                                                               |                                            |                      |             |           |           |           |            
|Liabilities and Shareholders Equity                                              
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Current liabilities:                                                              
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Accounts payable                                                                                                                                                              |                                            | $                    | 507,721     |           |           | $         | 489,034     |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Accrued expenses                                                                                                                                                              |                                            |                      | 1,719,580   |           |           |           | 2,086,992   |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Deferred revenue                                                                                                                                                              |                                            |                      | 1,489,935   |           |           |           | 2,000,468   |           
|                                                                                   |                                                                                                                                                                               |                                            |                      |             |           |           |           |            
|                                                                                   |                                                                                                                                                                               | Total current liabilities                  |                      |             | 3,717,236 |           |           |             | 4,576,494  |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Deferred gain on sale of business                                                  |                                                                                                                                                                               |                                            |                     |             |           |           | 827,500   |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Commitments, contingencies and related party transactions                         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Shareholders equity:                                                             
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Common stock, $.001 par value, 45,000,000 shares authorized; 13,811,000
shares    and 13,428,000 shares issued and outstanding at December 31, 2000 and 1999,    respectively |                                            |                      | 13,811      |           |           |           | 13,428     
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Additional paid-in capital                                                                                                                                                    |                                            |                      | 50,946,681  |           |           |           | 50,076,095  |           
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Accumulated deficit                                                                                                                                                           |                                            |                      | (47,343,885 | )         |           |           | (38,936,308 | )         
|                                                                                   |                                                                                                                                                                               |                                            |                      |             |           |           |           |            
|                                                                                   |                                                                                                                                                                               | Total shareholders equity                 |                      |             | 3,616,607 |           |           |             | 11,153,215 |           
|                                                                                   |                                                                                                                                                                               |                                            |                      |             |           |           |           |            
|                                                                                   |                                                                                                                                                                               | Total liabilities and shareholders equity |                      | $           | 7,333,843 |           |           | $           | 16,557,209 |           
|                                                                                   |                                                                                                                                                                               |                                            |                      |             |           |           |           |            

See accompanying notes to consolidated financial statements.

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POWERCERV CORPORATION

Consolidated Statements of Operations

Years ended December 31, 2000, 1999 and 1998

|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |            |            |  
|----------------------------------------------------- | ------------------------------ | ------------------------------------------------- | ------- | --------- | ---------- | ---- | --------- | ---------- | ---------- | - | --------- | ---------- | ---------- | -
|                                                      |                                |                                                   |         | 2000      |            | 1999 |           | 1998      
|                                                      |                                |                                                   |         |           |            |      |           |           
|Revenue:                                             
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | License fees                   |                                                   | $       | 3,523,451 |            |      | $         | 9,257,199  |            |   | $         | 8,342,230  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Technology resales             |                                                   |         |          |            |      |           |           |            |   |           | 857,887    |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Service fees                   |                                                   |         | 8,108,929 |            |      |           | 11,463,838 |            |   |           | 8,532,805  |           
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |           
|                                                      |                                | Total revenue                                     |         |           | 11,632,380 |      |           |            | 20,721,037 |   |           |            | 17,732,922 |  
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |           
|Costs and expenses:                                  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cost of licenses               |                                                   |         | 845,760   |            |      |           | 993,612    |            |   |           | 670,082    |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cost of technology resales     |                                                   |         |          |            |      |           |           |            |   |           | 592,439    |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cost of services               |                                                   |         | 5,662,931 |            |      |           | 7,578,288  |            |   |           | 6,935,061  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | General and administrative     |                                                   |         | 4,187,760 |            |      |           | 4,476,042  |            |   |           | 3,886,360  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Sales and marketing            |                                                   |         | 5,010,882 |            |      |           | 8,021,833  |            |   |           | 6,102,916  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Research and development       |                                                   |         | 4,096,492 |            |      |           | 4,504,162  |            |   |           | 3,819,587  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Work force reduction and other |                                                   |         | 872,860   |            |      |           | 485,252    |            |   |           |           |           
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |            |           
|                                                      |                                | Total costs and expenses                          |         |           | 20,676,685 |      |           |            | 26,059,189 |   |           |            | 22,006,445 |  
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |           
|                                                      |                                | Operating loss                                    |         |           | (9,044,305 | )    |           |            | (5,338,152 | ) |           |            | (4,273,523 | )
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |           
|Other income (expense):                              
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest expense               |                                                   |         | (8,907    | )          |      |           | (26,811    | )          |   |           | (14,851    | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Interest income                |                                                   |         | 246,768   |            |      |           | 297,152    |            |   |           | 314,877    |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Miscellaneous expense          |                                                   |         | (173,598  | )          |      |           | (10,192    | )          |   |           | 1,346      |           
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |           
|                                                      | Total other income             |                                                   |         | 64,263    |            |      |           | 260,149    |            |   |           | 301,372    |           
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |           
|Operations disposed of during 1999:                  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Revenues                       |                                                   |         |          |            |      |           | 2,463,637  |            |   |           | 12,237,770 |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Costs and expenses             |                                                   |         |          |            |      |           | 2,239,824  |            |   |           | 10,073,504 |           
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |           
|                                                      |                                |                                                   |        |           |            |      | 223,813   |            |            |   | 2,164,266 |           
|                                                     
|                                                     
|                                                     
|                                                     
|Gain on sale of business                              |                                |                                                   | 827,500 |           |            |      | 5,646,694 |            |            |   |          |           
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |           
|                                                      |                                |                                                   | 827,500 |           |            |      | 5,870,507 |            |            |   | 2,164,266 |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                | Income (loss) before income taxes                 |         |           | (8,152,542 | )    |           |            | 792,504    |   |           |            | (1,807,885 | )
|                                                     
|                                                     
|                                                     
|                                                     
|Income tax expense (benefit)                          |                                |                                                   | 255,035 |           |            |      |          |            |            |   |          |           
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |            |           
|                                                      |                                | Net income (loss) and comprehensive income (loss) |         | $         | (8,407,577 | )    |           | $          | 792,504    |   |           | $          | (1,807,885 | )
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |           
|Net income (loss) per share:                         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                | Basic and diluted                                 |         | $         | (.61       | )    |           | $          | .06        |   |           | $          | (.13       | )
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |            |           
|Shares used in computing net income (loss) per share:
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                | Basic                                             |         |           | 13,771,000 |      |           |            | 13,322,000 |   |           |            | 13,817,000 |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                | Diluted                                           |         |           | 13,771,000 |      |           |            | 14,389,000 |   |           |            | 13,817,000 |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                |                                                   |         |           |            |      |           |            |            |   |           |            |           

See accompanying notes to consolidated financial statements.

36



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##### Table of Contents



POWERCERV CORPORATION

Consolidated Statements of Shareholders Equity

Years ended December 31, 2000, 1999 and 1998

|                                                                               |  |              |            |            |  |             |        |               |  |                  |            |   |  |   |             |   |  |   |            |  
|------------------------------------------------------------------------------ |  | ------------ | ---------- | ---------- |  | ----------- | ------ | ------------- |  | ---------------- | ---------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                                                               |  | Common stock |            | Additional |  |             |        |               |  | Total           
|                                                                               |  |              |            | paid-in    |  | Accumulated |        | shareholders'
|                                                                               |  | Shares       |            | Par value  |  | capital     |        | deficit       |  | equity (deficit)
|                                                                               |  |              |            |            |  |             |        |               |  |                 
|Balance, January 1, 1998                                                       |  |              | 13,797,000 |            |  | $           | 13,797 |               |  | $                | 50,864,262 |   |  | $ | (37,920,927 | ) |  | $ | 12,957,132 |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Issuance of common stock                                                       |  |              | 40,000     |            |  |             | 40     |               |  |                  | 125,872    |   |  |   |            |   |  |   | 125,912    |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Net loss                                                                       |  |              |           |            |  |             |       |               |  |                  |           |   |  |   | (1,807,885  | ) |  |   | (1,807,885 | )
|                                                                               |  |              |            |            |  |             |        |               |  |                  |            |   |  |   |             |   |  |   |            |  
|Balance, December 31, 1998                                                     |  |              | 13,837,000 |            |  |             | 13,837 |               |  |                  | 50,990,134 |   |  |   | (39,728,812 | ) |  |   | 11,275,159 |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Issuance of common stock                                                       |  |              | 291,000    |            |  |             | 291    |               |  |                  | 796,511    |   |  |   |            |   |  |   | 796,802    |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Stock received as consideration for sale
   of the general consulting business |  |              | (700,000   | )          |  |             | (700   | )             |  |                  | (1,836,800 | ) |  |   |            |   |  |   | (1,837,500 | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Issuance of warrant                                                            |  |              |           |            |  |             |       |               |  |                  | 126,250    |   |  |   |            |   |  |   | 126,250    |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Net income                                                                     |  |              |           |            |  |             |       |               |  |                  |           |   |  |   | 792,504     |   |  |   | 792,504    |  
|                                                                               |  |              |            |            |  |             |        |               |  |                  |            |   |  |   |             |   |  |   |            |  
|Balance, December 31, 1999                                                     |  |              | 13,428,000 |            |  |             | 13,428 |               |  |                  | 50,076,095 |   |  |   | (38,936,308 | ) |  |   | 11,153,215 |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Issuance of common stock                                                       |  |              | 383,000    |            |  |             | 383    |               |  |                  | 870,586    |   |  |   |            |   |  |   | 870,969    |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Net loss                                                                       |  |              |           |            |  |             |       |               |  |                  |           |   |  |   | (8,407,577  | ) |  |   | (8,407,577 | )
|                                                                               |  |              |            |            |  |             |        |               |  |                  |            |   |  |   |             |   |  |   |            |  
|Balance, December 31, 2000                                                     |  |              | 13,811,000 |            |  | $           | 13,811 |               |  | $                | 50,946,681 |   |  | $ | (47,343,885 | ) |  | $ | 3,616,607  |  
|                                                                               |  |              |            |            |  |             |        |               |  |                  |            |   |  |   |             |   |  |   |            |  

See accompanying notes to consolidated financial statements.

37



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##### Table of Contents



POWERCERV CORPORATION

Consolidated Statements of Cash Flows

Years ended December 31, 2000, 1999, and 1998

|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |            |            |            |   |           |            |   |  |  |  |  |  |  |  | 
|---------------------------------------------------- | ----------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | --------------------------------------------------- | - | -------- | ---------- | --------- | - | ---------- | ---------- | ---------- | - | --------- | ---------- | - |  |  |  |  |  |  |  | 
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   | 2000     |            | 1999      |   | 1998      
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |           
|Cash flows from operating activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income (loss)                                                 |                                                                                                    | $                                                                | (8,407,577                                          | ) |          | $          | 792,504   |   |            | $          | (1,807,885 | ) |           |            |   | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   | Adjustments to reconcile net
income (loss) to net cash provided by (used in) operating activities:
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    | Depreciation and amortization                                    |                                                     |   | 754,768  |            |           |   | 1,177,169  |            |            |   | 1,451,285 |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    | Gain on sale of business                                         |                                                     |   | (827,500 | )          |           |   | (5,646,694 | )          |            |   |          |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    | Deferred revenue                                                 |                                                     |   | (510,533 | )          |           |   | 272,850    |            |            |   | 371,809   |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    | Provision for uncollectible accounts                             |                                                     |   | 936,101  |            |           |   | 290,474    |            |            |   | (155,841  | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    | Changes in assets and liabilities, net of effect of divestiture:
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    |                                                                  | Accounts receivable                                 |   |          | 3,478,313  |           |   |            | (4,026,614 | )          |   |           | 2,073,928  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    |                                                                  | Inventories                                         |   |          | 112        |           |   |            | 14,956     |            |   |           | 17,534     |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    |                                                                  | Deposits and other                                  |   |          | (256,312   | )         |   |            | (240,310   | )          |   |           | 42,943     |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    |                                                                  | Accounts payable and accrued expenses               |   |          | (348,725   | )         |   |            | (285,950   | )          |   |           | (1,646,123 | )
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |            |            |           
|                                                     |                                                                   |                                                                                                    |                                                                  | Net cash provided by (used in) operating activities |   |          | (5,181,353 | )         |   |            | (7,651,615 | )          |   |           | 347,650    |  
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |            |            |           
|Cash flows from investing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of business                                                  |                                                                                                    |                                                                  |                                                    |   |          |            | 6,680,077 |   |            |            |           |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sales (purchases) of property and equipment, net                  |                                                                                                    |                                                                  | (28,238                                             | ) |          |            | (395,436  | ) |            |            | (739,381   | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Exercise of third-party put options                               |                                                                                                    |                                                                  | 500,000                                             |   |          |            | 500,000   |   |            |            | 500,000    |  
|                                                    
|                                                    
|                                                    
|                                                    
|Purchase of intangible asset                         |                                                                   |                                                                                                    | (250,000                                                         | )                                                   |   |          | (300,000   | )         |   |            |           |           
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |            |            |           
|                                                     |                                                                   |                                                                                                    |                                                                  | Net cash provided by (used in) investing activities |   |          | 221,762    |           |   |            | 6,484,641  |            |   |           | (239,381   | )
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |            |            |           
|Cash flows from financing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net proceeds from issuance of common stock, net of offering costs |                                                                                                    |                                                                  | 870,969                                             |   |          |            | 796,802   |   |            |            | 125,912    |  
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |            |            |           
|                                                     |                                                                   |                                                                                                    |                                                                  | Net cash provided by financing activities           |   |          | 870,969    |           |   |            | 796,802    |            |   |           | 125,912    |  
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |            |            |           
|Net increase (decrease) in cash and cash equivalents |                                                                   |                                                                                                    | (4,088,622                                                       | )                                                   |   |          | (370,172   | )         |   |            | 234,181    |           
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of year         |                                                                   |                                                                                                    | 6,224,258                                                        |                                                     |   |          | 6,594,430  |           |   |            | 6,360,249  |           
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |            |            |           
|Cash and cash equivalents, end of year               |                                                                   | $                                                                                                  | 2,135,636                                                        |                                                     |   | $        | 6,224,258  |           |   | $          | 6,594,430  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                   |                                                                                                    |                                                                  |                                                     |   |          |            |           |   |            |            |           

See accompanying notes to consolidated financial statements.

38



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##### Table of Contents



POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2000,1999 and 1998

(1) Organization and Operations



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | PowerCerv Corporation and its wholly-owned subsidiary (PowerCerv
Technologies Corporation) develop, market, license, implement and
support open, modifiable Integrated Enterprise Response Software
Solutions with innovative e-Commerce capabilities to mid-size U.S.
companies with annual revenues between $25 million and $750 million. In
addition, PowerCerv provides a wide range of professional and business
consulting services relating to its software applications. The Company
markets its products and services throughout the United States and also
markets its software products outside the United States through
distributors. PowerCerv Corporation and PowerCerv Technologies
Corporation are herein referred to as the Company.

(2) Summary of Significant Accounting Policies



| |                     
| | --------------------
| | (a) Use of Estimates



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. To the extent managements
estimates prove to be incorrect, financial results for future
periods may be adversely affected. Significant estimates
contained in the accompanying consolidated financial statements
include managements estimate of the allowance for uncollectible
accounts receivable, valuation allowance relating to deferred tax
assets, and the recoverability of long term assets, including
investments, property and equipment and intangible assets.



| |                              
| | -----------------------------
| | (b) Cash and Cash Equivalents



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.



| |                
| | ---------------
| | (c) Inventories



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Inventories are valued at the lower of cost (first-in, first-out
method) or market, and consist of third party products and
educational materials.



| |                           
| | --------------------------
| | (d) Property and Equipment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property and equipment are recorded at cost. Depreciation and
amortization are calculated on a straight-line basis over the
estimated useful lives of the respective assets. Upon retirement or
sale, cost and accumulated depreciation or amortization on such assets
are removed from the accounts and any gains or losses are reflected in
the consolidated statement of operations. Maintenance and repairs are
charged to expense as incurred.

39



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##### Table of Contents



POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company periodically reviews the carrying value of its property
and equipment costs and the remaining life to determine if impairment
has occurred. This review and assessment is done by comparing the net
book value of the property and equipment assets to the undiscounted
net cash flows of the related assets.



| |                        
| | -----------------------
| | (e) Revenue Recognition



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | License fees represent revenue from the licensing of the Companys
application products and, to a lesser extent, its developmental
tools. The Company licenses its application products pursuant to
non-exclusive and non-transferable license agreements. License
fees also include royalties earned on the Companys application
products and related intellectual properties. Technology resales
represent revenue from the resale of third-parties software
products. Service fees represent revenue from consulting,
education, and support and maintenance services.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Beginning January 1, 1998, the Company has recognized revenue in
accordance with the American Institute of Certified Public
Accountants Statement of Position 97-2, Software Revenue
Recognition(SOP 97-2), as amended by Statement of Position
98-4, Deferral of the Effective Date of a Provision of SOP 97-2
(SOP 98-4) and Statement of Position 98-9, Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain
Transactions(SOP 98-9). Revenue is recognized from licenses of
the Companys software products when the contract has been
executed, the product(s) has been shipped, collectibility is
probable and the software license fees are fixed or determinable.
In the event that the contract provides for multiple elements
(e.g., software products, post-contract customer support,
consulting services), the total fee is allocated to these elements
based on vendor-specific objective evidence of fair value. If
any portion of the license fees is subject to forfeiture, refund
or other contractual contingencies, the Company will postpone
revenue recognition until these contingencies have been removed.
Historically, product returns and allowances have been immaterial.
The Company generally accounts for consulting and education
services separate from software license fees for those
multi-element arrangements where services are a separate element
and are not essential to the customers functionality requirements
and there is vendor-specific objective evidence of fair value
for these services. Consulting and education revenue is recognized
as the services are performed. Revenue from support and
maintenance activities is recognized ratably over the term of the
maintenance period and the unrecognized portion is recorded as
deferred revenue.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 3, 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements, which provides guidance on
the recognition, presentation, and disclosure of revenue in
financial statements. The SAB was effective for the first quarter
of the fiscal year beginning after December 15, 1999, however, the
SEC has extended the implementation date for companies whose
fiscal year ends between December 16, 1999, and March 15, 2000, to
the fourth quarter of fiscal year 2000. The Companys adoption of
SAB 101 did not have a material impact on revenues or operating
loss.



| |                               
| | ------------------------------
| | (f) Software Development Costs



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Software development costs are accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. Costs associated with the planning and design phase of
software development, including coding and testing activities
necessary to establish technological feasibility, are classified
as research and development and expensed as incurred. Once

40



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##### Table of Contents



POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | technological feasibility has been determined, additional costs
incurred in development, including coding, testing, and product
quality assurance, are capitalized when material.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 1996 and 1995, the Company acquired certain software
technology which has been fully amortized as of December 31, 2000.
During 1999, the Company entered into an agreement with a related
party for the conversion of certain existing software from one
architecture to another. As of December 31, 2000, the Company
capitalized $550,000 in fees paid to the related party. The Company
will begin amortizing these costs upon utilization of this
technology in 2001.



| |                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company periodically reviews the carrying value of its
software development costs and the remaining life to determine if
impairment has occurred. This review and assessment is done by
comparing the net book value of the intangible assets to the
undiscounted net cash flows of the related assets.



| |                                                                             
| | ----------------------------------------------------------------------------
| | Acquired software technology and its amortization are summarized
as follows:

|     |  |      |           |              |  |              |         |  |  |  |           | 
|---- |  | ---- | --------- | ------------ |  | ------------ | ------- |  |  |  | --------- | 
|     |  |      |           | Amortization |  | Accumulated 
|Year |  | Cost |           | expense      |  | amortization
|     |  |      |           |              |  |             
|2000 |  | $    | 3,457,000 |              |  |              |        |  |  |  | 2,907,000 | 
|    
|    
|    
|    
|1999 |  |      | 3,207,000 |              |  |              | 161,000 |  |  |  | 2,907,000 | 
|    
|    
|    
|    
|1998 |  |      | 2,907,000 |              |  |              | 301,000 |  |  |  | 2,746,000 | 



| |                                         
| | ----------------------------------------
| | (g) Goodwill and Other Intangible Assets



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company amortizes goodwill and other intangible assets on a
straight-line basis over a five to seven-year period. The Company
periodically reviews the value of goodwill and other intangible
assets and their remaining life to determine if impairment has
occurred. This review and assessment compares the net book value
of the intangible assets to the undiscounted future net cash flows
of the related assets. In the event that
undiscounted future net cash flows are less than the net book value
of the intangible assets, the Company recognizes an impairment loss
for the difference between discounted cash flows using an estimated
borrowing rate and the net book value of the intangible assets.



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Goodwill and other intangible assets and amortization amounts are
summarized as follows:

|     |  |      |           |         |  |              |         |             |  |  |           | 
|---- |  | ---- | --------- | ------- |  | ------------ | ------- | ----------- |  |  | --------- | 
|     |  |      |           |         |  | Amortization |         | Accumulated
|Year |  | Cost |           | expense |  | amortization
|     |  |      |           |         |  |             
|2000 |  | $    | 569,000   |         |  |              | 7,000   |             |  |  | 554,000   | 
|    
|    
|    
|    
|1999 |  |      | 568,000   |         |  |              | 123,000 |             |  |  | 547,000   | 
|    
|    
|    
|    
|1998 |  |      | 1,458,000 |         |  |              | 123,000 |             |  |  | 1,064,000 | 



| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Amounts written off during 1999 resulted from the Companys sale of
its general consulting business and related to goodwill having an
original cost of $893,000 and accumulated depreciation of $640,000.

41



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POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| |                              
| | -----------------------------
| | (h) Investment in Third-Party



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During December 1996, the Company acquired a 5% fully-diluted
equity interest in a closely-held entity, through a $1,500,000
investment in the entitys Series B convertible preferred stock.
The cost of the investment was based upon a valuation of the
entity done for the Company by an independent firm. During the
year ended December 31, 1997, the Companys investment interest
was diluted to approximately 4% as a result of additional equity
transactions by the investee company. During December 1998, the
Company entered into an agreement that expanded its rights to
exercise its preferred stock put options and exercised its
preferred stock put option on 98,232 shares for $500,000. During
1999, the Company exercised its preferred stock put option on
98,232 shares for $500,000. During 2000, the Company exercised its
preferred stock put options on the remaining 98,447 shares of
investee stock for $500,000. The investee company develops,
markets and licenses accounting software. In a separate
transaction with this entity, the Company entered into a
partnering agreement in June 1996. Under this agreement, the
Company granted this entity original equipment manufacturer (OEM)
development and distribution rights to one of its application
products in exchange for a license fee of $2 million. In addition
to the OEM license fee, the Company was entitled to royalties
based upon future licensing of the OEM products. The partnering
agreement also provided for the entity to have value-added
reseller rights for certain of the Companys other products.
During December 1997, the Company amended the partnering agreement
by expanding the OEM license rights for a license fee of $250,000.
During 1998, the Company amended the partnering agreement twice
by expanding the OEM license rights for license fees of $825,000.
These amendments also provide evaluation license rights to other
application products of the Company and reduced the total
royalties due under the partnering agreement from $2 million to
zero. During 1999 and 2000, the Company amended the partnering
agreement by expanding the OEM license rights for license fees of
$350,000 and $250,000, respectively.



| |                 
| | ----------------
| | (i) Income Taxes



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company provides for income taxes in accordance with the
Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes(Statement 109). Statement 109 requires the
use of the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in
operations in the period that includes the enactment date. As of
December 31, 2000, the Company had a deferred tax asset of
$12,335,000 which is fully reserved.



| |                                  
| | ---------------------------------
| | (j) Concentrations of Credit Risk



| |                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts
receivable from customers. This risk, however, is limited due to
the large number of customers comprising the Companys customer
base and their dispersion.

42



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##### Table of Contents



POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| | 
| | 
|



| |                             
| | ----------------------------
| | (k) Stock Based Compensation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation(Statement 123) stipulates that
entities recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
Alternatively, Statement 123 allows entities to continue to apply
the provisions of APB 25 and provide pro forma net income and pro
forma net earnings per share disclosures for employee stock
options as if the fair-value-based method defined in Statement 123
had been applied. The Company has elected to continue to apply
the provisions of Accounting Principles Board Opinion No. 25 and
provide the pro forma disclosure information required by Statement
123 (see note 12(b)).



| |                                
| | -------------------------------
| | (l) Net Income (Loss) Per Share



| |                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company computes net income (loss) per share based upon
Statement of Financial Accounting Standards No. 128, Earnings Per
Share.The following table sets forth the computation of basic
and diluted earnings (loss) per share (EPS) for the periods
indicated:

|            |                                                                              |  |        |  |  |              |       |            |   |      |            |            |  |      |            |            |   |  |            | 
|----------- | ---------------------------------------------------------------------------- |  | ------ |  |  | ------------ | ----- | ---------- | - | ---- | ---------- | ---------- |  | ---- | ---------- | ---------- | - |  | ---------- | 
|            |                                                                              |  |        |  |  | December 31,
|            |                                                                              |  |        |  |  |              |       |            |   |     
|            |                                                                              |  |        |  |  |              |       |            |   | 2000 |            | 1999       |  | 1998
|            |                                                                              |  |        |  |  |              |       |            |   |      |            |            |  |     
|Basic:     
|           
|           
|           
|           
|            | Net income (loss)                                                            |  |        |  |  |              | $     | (8,407,577 | ) |      | $          | 792,504    |  |      | $          | (1,807,885 | )
|            |                                                                              |  |        |  |  |              |       |            |   |      |            |            | 
|            | Average shares outstanding                                                   |  |        |  |  |              |       | 13,771,000 |   |      |            | 13,322,000 |  |      |            | 13,817,000 |  
|            |                                                                              |  |        |  |  |              |       |            |   |      |            |            | 
|Basic EPS   |                                                                              |  |        |  |  | $            | (0.61 | )          |   | $    | 0.06       |            |  | $    | (0.13      | )         
|            |                                                                              |  |        |  |  |              |       |            |   |      |            |            | 
|Diluted:   
|           
|           
|           
|           
|            | Net income                                                                   |  |        |  |  |              | $     | (8,407,577 | ) |      | $          | 792,504    |  |      | $          | (1,807,885 | )
|            |                                                                              |  |        |  |  |              |       |            |   |      |            |            | 
|            | Average shares outstanding                                                   |  |        |  |  |              |       | 13,771,000 |   |      |            | 13,322,000 |  |      |            | 13,817,000 |  
|           
|           
|           
|           
|            | Net effect of dilutive stock options 
   Based on the treasury stock method |  |        |  |  |              |       |           |   |      |            | 1,067,000  |  |      |            |           |  
|            |                                                                              |  |        |  |  |              |       |            |   |      |            |            | 
|            |                                                                              |  | Totals |  |  |              |       |            |   |      | 13,771,000 |            |  |      | 14,389,000 |            |   |  | 13,817,000 | 
|            |                                                                              |  |        |  |  |              |       |            |   |      |            |            | 
|Diluted EPS |                                                                              |  |        |  |  |              | $     | (0.61      | ) |      | $          | 0.06       |  |      | $          | (0.13      | )
|            |                                                                              |  |        |  |  |              |       |            |   |      |            |            | 



| |                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Common stock equivalents in the years ended December 31, 2000 and
1998 were anti-dilutive due to the net loss sustained by the
Company during these years, thus the diluted net loss per share in
these years is the same as the basic net loss per share. During
the year ended December 31, 2000, employees exercised 383,499
stock options at an average exercise price of $2.30 per share.



| |                      
| | ---------------------
| | (m) Reclassifications



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Certain prior year amounts have been reclassified to conform with
the current years presentation.

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##### Table of Contents



POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| |                                        
| | ---------------------------------------
| | (n) Fair Value of Financial Instruments



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at their carrying amount which
approximates fair value because of the short-term maturity of those
instruments. The carrying amount of notes receivable is assumed to
approximate fair value because there have not been any significant
changes in market conditions or specific circumstances since the
instrument was recorded at fair value.



| |                                       
| | --------------------------------------
| | (o) Supplemental Cash Flow Information



| |                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company considers all highly liquid investments with maturity
dates of three months or less at the time of purchase to be cash
equivalents. At December 31, 2000 and 1999, cash equivalents
totaled approximately $566,000 and $2,500,000, respectively.



| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In March 1999, the Company received 700,000 shares of the Companys
common stock (valued at $2.63 per share) as consideration for the sale
of the Companys general consulting business.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Interest paid during the years ended December 31, 2000, 1999 and
1998 was approximately $8,900, $26,800 and $14,800, respectively.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Income tax refunds totaled approximately $14,000 during the year
ended December 31, 1998.

(3) Operating Initiatives



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company incurred a net loss in 2000 and, while
management expects improvement in 2001, the Company expects to incur
a net loss from operations for the year ended December 31, 2001.
Management has taken steps to improve the overall operations and
financial condition. These steps include restructuring initiatives
that commenced in 2000 as well as strategies and actions initiated or
planned for 2001, including a workforce reduction that was
implemented in the first quarter of 2001. The Company expects to
implement flexible work arrangements with certain employees that will
transform otherwise fixed costs into variable costs. Management
expects to reduce or defer overall wages through uniform salary
adjustment initiatives and through timely workforce reductions on an
as needed basis. An officer of the Company has agreed to provide
working capital on an as needed basis up to certain amounts and has
also accepted an additional deferral in base salary. The Company will
use best efforts to seek accelerated cash conversion of notes
receivable and accounts receivable to maximize its working capital
and available cash and will further seek to settle commitments with
non-cash resources. Management will use best efforts to eliminate
costs that have been evaluated as non-critical to the success of the
Companys core strategies. The Company will use best efforts to
continue to pursue revenue sources involving the licensing of certain
proprietary technology for resale by third parties, and will utilize
the proceeds from such transactions to fund the operations of the
Company. The Company will also seek third party financing
alternatives in amounts sufficient to meet its working capital needs.



| |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | While management believes the aforementioned steps will
provide adequate working capital to the company for at least twelve
months, there can be no assurance that these plans will be
successfully implemented or that other events or conditions will not
arise that may adversely effect the financial position and/or
results of operations of the Company.

(4) Work Force Reduction and Other Charge



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the second quarter of 2000, the Company initiated actions to reduce
its work force and undertook additional cost cutting measures in line with
its objective to return to profitability. The Company recorded a
restructuring charge related to a work force reduction and other expenses
totaling $873,000 of which $711,000 was recorded in the second quarter and
$162,000 was recorded in the third quarter. The total restructuring charge
includes severance and related costs of $649,000 (4 senior-level staff and
35 non senior-level employees primarily in sales, services and research and
development) and costs of $224,000 related to office closings. As of
December 31, 2000, approximately $391,000 remains in accrued liabilities
for payments to be made over the next 15 months. As part of the
restructuring plan, the Companys Chairman has assumed the role of Chief
Executive Officer, and the previous Chief Executive Officer is no longer
with the Company. Office closings were completed during the third quarter
of 2000, and severance payments will be paid through April 2002.



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the first quarter of 1999, the Company recorded a charge related to
a work force reduction and other related expenses totaling $485,000. This
amount included severance and related costs of $391,000 (11 employees,
primarily management level) and costs of $94,000 related to office
downsizings or closings. As of December 31, 2000, the Company had paid all
amounts associated with this restructuring.

(5) Operations disposed of in 1999



| |                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective March 31, 1999, the Company sold its general consulting
business (i.e., consulting services other than its application-related
services) to a related party (an entity partly owned and managed by a
member of the Companys board of directors). Consideration totaled
approximately $10 million and consisted of a combination of cash,
PowerCerv common stock, and notes. The Company recognized a

44



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##### Table of Contents



POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | $5,646,694 gain on the sale of the consulting business during 1999. The
$827,500 gain associated with the note receivable that matures in
2004 bearing
an interest rate of 4.56% was deferred at the time of sale. In 2000,
the Company recognized this gain of $827,500. Management believes that
based upon events occurring in the current year (the buyers merger
with another business and establishment of a stronger management team)
the collectibility of the note is reasonably assured.



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Operating results from the general consulting business for 1999 and
1998 have been reclassified in the accompanying statement of operations
as operations disposed of during 1999.



| |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Additional transactions with this related party in 2000 included a
license agreement whereby the Company received $350,000 in license fees
revenue and a service agreement whereby the Company paid $150,000 in
service fees. The Company also charged the related party for its
portion of shared operating expenses and other costs totaling 282,000
in 2000.

(6) Property and Equipment



| |                                                                                
| | -------------------------------------------------------------------------------
| | Property and equipment consists of the following at December 31, 2000 and
1999:

|                                               |  |      |           |      |  |         |           |  |  |              |        | 
|---------------------------------------------- |  | ---- | --------- | ---- |  | ------- | --------- |  |  | ------------ | ------ | 
|                                               |  |      |           |      |  |         |           |  |  | Estimated   
|                                               |  |      |           |      |  |         |           |  |  | useful lives
|                                               |  | 2000 |           | 1999 |  | (years)
|                                               |  |      |           |      |  |        
|Leasehold improvements                         |  | $    | 434,593   |      |  | $       | 438,781   |  |  |              | 3 - 5* | 
|                                              
|                                              
|                                              
|                                              
|Furniture and fixtures                         |  |      | 662,679   |      |  |         | 745,638   |  |  |              | 5 - 7  | 
|                                              
|                                              
|                                              
|                                              
|Computer equipment                             |  |      | 3,429,146 |      |  |         | 3,603,821 |  |  |              | 2 - 7  | 
|                                              
|                                              
|                                              
|                                              
|Equipment                                      |  |      | 534,992   |      |  |         | 507,213   |  |  |              | 3 - 7  | 
|                                               |  |      |           |      |  |         |           | 
|                                               |  |      | 5,061,410 |      |  |         | 5,295,453 | 
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation
and amortization |  |      | 4,550,093 |      |  |         | 4,064,399 | 
|                                               |  |      |           |      |  |         |           | 
|                                               |  | $    | 511,317   |      |  | $       | 1,231,054 | 
|                                               |  |      |           |      |  |         |           | 

*Or the remaining term of the lease, if shorter.



| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Depreciation and amortization expense totaled approximately $747,978,
$892,256, and $1,027,000 during the years ended December 31, 2000, 1999,
and 1998, respectively.

(7) Lines of Credit and Notes Payable



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The company had a $5 million unsecured revolving line of credit that
expired on February 15, 1999. On March 29, 1999, the Company entered into
an agreement with its bank for a $10 million credit facility. The credit
facility consists of a commitment for a revolving line of credit totaling
$5 million, with an additional $5 million of uncommitted funding. The
agreement expired on May 31, 2000. There were no outstanding balances on
the line of credit as of December 31, 1999.

(8) Accrued Expenses



| |                                                                         
| | ------------------------------------------------------------------------
| | Accrued expenses consist of the following at December 31, 2000 and 1999:

45



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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

|                            |  |      |           |      |  |   |           | 
|--------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                            |  | 2000 |           | 1999
|                            |  |      |           |     
|Compensation                |  | $    | 427,084   |      |  | $ | 1,139,308 | 
|                           
|                           
|                           
|                           
|Severance and related costs |  |      | 390,667   |      |  |   | 45,072    | 
|                           
|                           
|                           
|                           
|Other                       |  |      | 901,829   |      |  |   | 902,612   | 
|                            |  |      |           |      |  |   |           | 
|                            |  | $    | 1,719,580 |      |  | $ | 2,086,992 | 
|                            |  |      |           |      |  |   |           | 

(9) Income Taxes



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Income tax expense for the years ended December 31, 2000, 1999 and 1998
consists of the following:

|                         |         |   |         |         |      |  |      |   |  |  |   |   | 
|------------------------ | ------- | - | ------- | ------- | ---- |  | ---- | - |  |  | - | - | 
|                         |         |   | 2000    |         | 1999 |  | 1998
|                         |         |   |         |         |      |  |     
|Current:                
|                        
|                        
|                        
|                        
|                         | Federal |   | $       | 84,340  |      |  | $    |  |  |  | $ |  | 
|                        
|                        
|                        
|                        
|                         | State   |   |         | 170,695 |      |  |      |  |  |  |   |  | 
|                         |         |   |         |         |      |  |      |   |  |  |   |  
|                         |         |   | 255,035 |         |      |  |     |   |  |  |  |  
|                         |         |   |         |         |      |  |      |   |  |  |   |  
|Deferred:               
|                        
|                        
|                        
|                        
|                         | Federal |   |         |        |      |  |      |  |  |  |   |  | 
|                        
|                        
|                        
|                        
|                         | State   |   |         |        |      |  |      |  |  |  |   |  | 
|                         |         |   |         |         |      |  |      |   |  |  |   |  
|                         |         |   |        |         |      |  |     |   |  |  |  |  
|                         |         |   |         |         |      |  |      |   |  |  |   |  
|Total income tax expense |         | $ | 255,035 |         |      |  |     |   |  |  |  |  
|                         |         |   |         |         |      |  |      |   |  |  |   |  



| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Income tax expense (benefit) for the years ended December 31, 2000, 1999,
and 1998 differed from the amount computed by applying the U.S. federal
income tax rate of 34 percent to income (loss) before income taxes as a
result of the following:

|                                                               |  |      |            |      |  |      |          |   |  |  |          |  
|-------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                               |  | 2000 |            | 1999 |  | 1998
|                                                               |  |      |            |      |  |     
|Expected income tax expense (benefit)                        |  | $    | (2,771,864 | )    |  |      | 269,000  |   |  |  | (615,000 | )
|                                                              
|                                                              
|                                                              
|                                                              
|State, net of federal benefit                                  |  |      | (326,102   | )    |  |      | 38,000   |   |  |  | (72,000  | )
|                                                              
|                                                              
|                                                              
|                                                              
|Change in the valuation allowance
for deferred tax assets      |  |      | 2,858,008  |      |  |      | (441,000 | ) |  |  | 687,000  |  
|                                                              
|                                                              
|                                                              
|                                                              
|Nondeductible Items                                            |  |      | 22,414     |      |  |      | 134,000  |   |  |  |         |  
|                                                              
|                                                              
|                                                              
|                                                              
|Other, net (including tax assessment related to
prior periods) |  |      | 472,579    |      |  |      |         |   |  |  |         |  
|                                                               |  |      |            |      |  |      |          |   |  |  |          |  
|                                                               |  | $    | 255,035    |      |  |      |         |   |  |  |         |  
|                                                               |  |      |            |      |  |      |          |   |  |  |          |  

46



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POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and deferred tax liabilities at
December 31, 2000 and 1999 are presented below:

|                          |                                                         |  |                                |                                 |  |         |             |           |  |        |            |  
|------------------------- | ------------------------------------------------------- |  | ------------------------------ | ------------------------------- |  | ------- | ----------- | --------- |  | ------ | ---------- | -
|                          |                                                         |  |                                |                                 |  | 2000    |             | 1999     
|                          |                                                         |  |                                |                                 |  |         |             |          
|Deferred tax assets:     
|                         
|                         
|                         
|                         
|                          | Provision for uncollectible accounts                    |  | $                              | 578,835                         |  |         |             | 207,000   | 
|                         
|                         
|                         
|                         
|                          | Accrued expenses and work force reduction               |  |                                | 41,838                          |  |         |             | 100,000   | 
|                         
|                         
|                         
|                         
|                          | Deferred gain on sale                                   |  |                                |                                |  |         |             | 314,000   | 
|                         
|                         
|                         
|                         
|                          | Operating losses                                        |  |                                | 9,159,308                       |  |         |             | 6,034,000 | 
|                         
|                         
|                         
|                         
|                          | Intangible assets                                       |  |                                | 2,785,846                       |  |         |             | 2,900,000 | 
|                          |                                                         |  |                                |                                 |  |         |             |           |  |        |            |  
|                          |                                                         |  |                                | Total gross deferred tax assets |  |         | 12,565,827  |           |  |        | 9,555,000  |  
|                         
|                         
|                         
|                         
|                          |                                                         |  |                                | Less valuation allowance        |  |         | (12,335,008 | )         |  |        | (9,477,000 | )
|                          |                                                         |  |                                |                                 |  |         |             |           |  |        |            |  
|                          |                                                         |  |                                | Net deferred tax assets         |  |         | 230,819     |           |  |        | 78,000     |  
|                          |                                                         |  |                                |                                 |  |         |             |           |  |        |            |  
|Deferred tax liabilities:
|                         
|                         
|                         
|                         
|                          | Depreciation and amortization of property and equipment |  |                                | 30,612                          |  |         |             | 78,000    | 
|                         
|                         
|                         
|                         
|Deferred gain on sale     |                                                         |  | 200,207                        |                                 |  |         |            |          
|                          |                                                         |  |                                |                                 |  |         |             |           |  |        |            |  
|                          |                                                         |  | Gross deferred tax liabilities |                                 |  | 230,819 |             |           |  | 78,000 |           
|                          |                                                         |  |                                |                                 |  |         |             |           |  |        |            |  
|                          | Total net deferred tax assets                           |  | $                              |                                |  |         | $           |          | 
|                          |                                                         |  |                                |                                 |  |         |             |           |  |        |            |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company increased its deferred income tax asset valuation allowance by
$2,858,000 during the year ended December 31, 2000. The decision to
continue to fully reserve the deferred income tax asset was primarily the
result of the Companys continued losses from operations. At December 31,
2000, the Company has net operating loss carry forwards of approximately
$24,103,000 for federal income tax purposes that expire at various times
from years 2010 to 2020.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys federal income tax returns for the years ended December 31,
1996 and 1995 were subject to a routine examination by the Internal Revenue
Service that resulted in an assessment of $66,000 of federal tax, $143,000
of state tax and approximately $150,000 of interest. The Company recorded
a charge for this exposure upon receiving the notice of assessment in 2000,
but is currently in the process of appealing this assessment.

(10) Shareholders Equity



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 1999, the Company granted a warrant to a third party to purchase
125,000 shares of the Companys common stock in consideration for
professional services. The warrant, which expires the earlier of December
31, 2000, or the termination of their relationship, has an exercise price
equal to $1.75 per share, the fair market value of the Companys common
stock on the date of grant. The Company recorded expense of $126,250
related to this grant during 1999. The warrant was exercised on January
10, 2000, and the Company received approximately $218,750 in proceeds.

47



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POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| |                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 1999, the Company purchased an option to acquire up to 2,000,000
shares of its common stock from a former officer and director. The former
officer agreed not to engage in any further trading of his common stock of
the Company during the option period. The Company assigned this option to
a third party during the 120-day option period.

(11) Comprehensive Income (Loss)



| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the years ended December 31, 2000, 1999 and 1998, the Company did not
have any comprehensive income (loss) other than the net income (loss)
reported on the Consolidated Statements of Operations.

(12) Commitments and Contingencies



| |           
| | ----------
| | (a) Leases



| |                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company conducts its operations in leased facilities. The
lease terms range from one month to five years. Rental expenses
under operating leases approximated $577,000, $834,000, and
$1,080,000, during the years ended December 31, 2000, 1999 and
1998, respectively.
|
| | Future minimum lease payments under non-cancelable operating lease
agreements during the years following December 31, 2000, are as
follows:                                                                                                                                 

|             |            |            |         |         | 
|------------ | ---------- | ---------- | ------- | ------- | 
|Year ending 
|December 31, |            | Commitment
|             |            |           
|             | 2001       |            | $       | 440,726 | 
|            
|            
|            
|            
|             | 2002       |            |         | 304,424 | 
|            
|            
|            
|            
|             | 2003       |            |         | 38,787  | 
|            
|            
|            
|            
|             | 2004       |            |         |        | 
|            
|            
|            
|            
|             | 2005       |            |         |        | 
|            
|            
|            
|            
|             | Thereafter |            |         |        | 
|             |            |            |         |        
|             |            | $          | 783,937 |        
|             |            |            |         |        



| |               
| | --------------
| | (b) Litigation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A complaint was filed on July 24, 1997, in the United States District
Court for the Middle District of Florida, entitled J. Conrad Lifsey v.
Harold Ross, Gerald Wicker, Marc J. Fratello, Roy E. Crippen, III,
Donald B. Hebb, Jr., Thomas S. Roberts, PowerCerv Corporation, Alex
Brown & Sons, Inc., Robertson, Stephens & Company, ABS Capital
Partners, L.P., Summit Investors III, L.P. The complaint purports to
be a class action on behalf of those persons who purchased shares of
the Companys common stock from March 1, 1996 (the date of the
Companys initial public offering of its common stock (IPO)) through
July 24, 1996. The complaint alleges, among other things, that the
defendants violated the Securities Act of 1933 and the Securities
Exchange Act of 1934 in connection with the Companys IPO and in its
subsequent securities filings, press releases and other public
statements. The plaintiffs seek damages of an unspecified amount,
rescission of certain securities sales and certain other remedies.

48



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POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On March 19, 1998, Defendants filed their Motions to Dismiss this
Complaint. These motions were heard by oral argument on October 30,
2000, over two and one-half years later. Approximately two and
one-half months later, on January 12, 2001, the Court dismissed the
complaint holding that the complaint was insufficient as a matter of
law to state a claim under the relevant sections of the federal
securities laws. Nonetheless, the Court, harbor[ing] substantial
doubt that the plaintiffs have sufficient facts at their disposal to
properly state a claim, permitted plaintiffs an opportunity to
replead.
|
| | On February 16, 2001, Plaintiffs filed an amended complaint asserting
essentially the same causes of action based on the same set of factual
circumstances. Defendants continue to deny any wrongdoing and in
light of the Courts Order of January 12, 2001, intend to ask the
Court to dismiss the amended complaint.                                                                                                                                                                                                                                                                                                     
|
| | The Company, in the normal course of business, is also subject to
miscellaneous legal proceedings. The Company is defending these
proceedings and anticipates that it will be successful and/or able to
resolve these matters in a manner that will not materially effect the
Companys financial position or results of operations.                                                                                                                                                                                                                                                                                         



| |                          
| | -------------------------
| | (c) Employment Agreements



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company is party to employment agreements with several of its
officers that provide for annual base salaries, target bonus
levels, severance pay under certain conditions, and certain other
benefits.

(13) Employee Benefit Plans



| |                              
| | -----------------------------
| | (a) Defined Contribution Plan



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has a 401(k) plan covering employees who meet
established eligibility requirements. Under the plan provisions,
the Company may match participant contributions. During 2000 and
1999, the Company matched 30% of participant contributions to a
maximum matching amount of 6% of participant base compensation.
Total Company contributions were approximately $118,000, $155,000
and $145,000, during the years ended December 31, 2000, 1999 and
1998, respectively. During the years ended December 31, 2000,
1999 and 1998, this match occurred in the form of Company common
stock purchased in the open market. During 1999 and part of 2000,
Plan forfeitures funded the Company matching amounts.



| |                      
| | ---------------------
| | (b) Stock Option Plan



| |                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In June 1995, the Company established a stock option plan, which
provides for the granting of both incentive stock options and
non-statutory stock options. Only employees are eligible to
receive grants of incentive stock options.                                                                               
|
| | Generally, options granted under this stock option plan expire 10
years after the date of grant, are exercisable at various times up
to four years from the date of grant and are granted at fair
market value on the date of the grant. A total of 4,675,000
shares have been reserved for issuance under the plan.

49



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POWERCERV CORPORATION

Notes to Consolidated Financial Statements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 1998, the Company issued 1,815,000 non-qualified stock
options to certain new members of its senior management. These
options were granted at fair market value on the date of the
grant, are vested based upon specific dates through December 2001
and expire 10 years after the date of grant. Since the date of
issuance, some options remain outstanding while some have been
exercised or cancelled due to terminations.



| |                                                                     
| | --------------------------------------------------------------------
| | Activity with respect to all stock options is summarized as
follows:

|                             |                   |  |                     |            |       |   |                  |      | 
|---------------------------- | ----------------- |  | ------------------- | ---------- | ----- | - | ---------------- | ---- | 
|                             |                   |  | Options outstanding
|                             |                   |  |                    
|                             |                   |  |                     |            |       |   | Weighted-average
|                             |                   |  |                     |            |       |   | option          
|                             |                   |  |                     |            |       |   | price per       
|                             |                   |  | Shares              |            | share
|                             |                   |  |                     |            |      
|Balance at December 31, 1997 |                   |  | 1,302,402           |            |       | $ | 3.86             |     
|                            
|                            
|                            
|                            
|                             | Options granted   |  |                     | 4,888,506  |       |   | $                | 2.83 | 
|                            
|                            
|                            
|                            
|                             | Options exercised |  |                     | (40,191    | )     |   | $                | 3.13 | 
|                            
|                            
|                            
|                            
|                             | Options canceled  |  |                     | (728,277   | )     |   | $                | 3.74 | 
|                             |                   |  |                     |           
|Balance at December 31, 1998 |                   |  | 5,422,440           |            |       | $ | 2.95             |     
|                            
|                            
|                            
|                            
|                             | Options granted   |  |                     | 3,325,003  |       |   | $                | 1.92 | 
|                            
|                            
|                            
|                            
|                             | Options exercised |  |                     | (290,755   | )     |   | $                | 2.73 | 
|                            
|                            
|                            
|                            
|                             | Options canceled  |  |                     | (2,623,054 | )     |   | $                | 3.36 | 
|                             |                   |  |                     |           
|Balance at December 31, 1999 |                   |  | 5,833,634           |            |       | $ | 2.95             |     
|                             | Options granted   |  |                     | 2,099,669  |       |   | $                | 1.11 | 
|                            
|                            
|                            
|                            
|                             | Options exercised |  |                     | (383,499   | )     |   | $                | 2.30 | 
|                            
|                            
|                            
|                            
|                             | Options canceled  |  |                     | (3,351,248 | )     |   | $                | 2.34 | 
|                             |                   |  |                     |           
|Balance at December 31, 2000 |                   |  | 4,198,556           |            |       | $ | 2.02             |     
|                             |                   |  |                     |           



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The range of exercise prices, shares, weighted-average contractual
life and weighted-average exercise price for the options
outstanding at December 31, 2000 is presented below:

50



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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

|                |               |        |  |                  |  |                  |  |                  |  |  |   |       | 
|--------------- | ------------- | ------ |  | ---------------- |  | ---------------- |  | ---------------- |  |  | - | ----- | 
|Range of        |               |        |  |                  |  | Weighted-average |  | Weighted-average
|exercise prices |               | Shares |  | contractual life |  | exercise price  
|                |               |        |  |                  |  |                 
|$               | 0.26  1.67   |        |  | 2,029,851        |  |                  |  | 5 years          |  |  | $ | 1.18  | 
|               
|               
|               
|               
|                | 1.68  3.35   |        |  | 1,712,591        |  |                  |  | 6 years          |  |  |   | 2.41  | 
|               
|               
|               
|               
|                | 3.36  5.02   |        |  | 402,453          |  |                  |  | 6 years          |  |  |   | 4.07  | 
|               
|               
|               
|               
|                | 5.03  6.7    |        |  | 44,036           |  |                  |  | 6 years          |  |  |   | 5.26  | 
|               
|               
|               
|               
|                | 8.38  10.05  |        |  | 9,325            |  |                  |  | 4 years          |  |  |   | 9.92  | 
|               
|               
|               
|               
|                | 13.40  15.08 |        |  | 300              |  |                  |  | 5 years          |  |  |   | 13.58 | 
|                |               |        |  |                 
|                | 0.26  15.08  |        |  | 4,198,556        |  |                  |  | 6 years          |  |  |   | 2.02  | 
|                |               |        |  |                 



| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | The range of exercise prices, shares and weighted-average exercise
price for the options exercisable at December 31, 2000, are
presented below:

|                |               |             |  |                  |  |  |   |       | 
|--------------- | ------------- | ----------- |  | ---------------- |  |  | - | ----- | 
|Range of        |               | Shares      |  | Weighted-average
|Exercise prices |               | Exercisable |  | Exercise price  
|                |               |             |  |                 
|$               | 0.26  1.67   |             |  | 969,463          |  |  | $ | 1.55  | 
|               
|               
|               
|               
|                | 1.68  3.35   |             |  | 1,013,583        |  |  |   | 2.31  | 
|               
|               
|               
|               
|                | 3.36  5.02   |             |  | 269,490          |  |  |   | 3.97  | 
|               
|               
|               
|               
|                | 5.03  6.70   |             |  | 35,151           |  |  |   | 5.23  | 
|               
|               
|               
|               
|                | 8.38  10.05  |             |  | 9,325            |  |  |   | 9.92  | 
|               
|               
|               
|               
|                | 13.40  15.08 |             |  | 300              |  |  |   | 13.58 | 
|                |               |             |  |                 
|                | 0.26  15.08  |             |  | 2,297,312        |  |  |   | 2.26  | 
|                |               |             |  |                 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The per share weighted-average fair value of stock options granted
during 2000, 1999 and 1998 was $1.78, $2.94 and $1.63,
respectively on the date of grant using the Black Scholes
option-pricing model with the following weighted-average
assumptions: 2000  expected dividend yield of 0%, risk free
interest rate averaging 5.5%, expected volatility rate of 143%,
and an expected life of 2.6 years 1999  expected dividend yield
of 0%, risk free interest rate averaging 5.5%, expected volatility
rate of 109%, and an expected life of 4 years; 1998  expected
dividend yield of 0%, risk-free interest rate of 4.7%, expected
volatility rate of 157%, and an expected life of 3.5 years.



| |                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company applies APB 25 in accounting for its stock
options and, accordingly, no compensation cost has been recognized
for its stock options in the consolidated financial statements.
Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under Statement 123,
the Companys net loss would have been as follows:

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

|                                       |  |      |             |          |  |        |       |            |  |            |            |          |  |   |       |     |  |   |            |   |  |   |       |   |  |  |  |  |  |  |  | 
|-------------------------------------- |  | ---- | ----------- | -------- |  | ------ | ----- | ---------- |  | ---------- | ---------- | -------- |  | - | ----- | --- |  | - | ---------- | - |  | - | ----- | - |  |  |  |  |  |  |  | 
|                                       |  | 2000 |             | 1999     |  | 1998  
|                                       |  |      |             |          |  |       
|                                       |  |      |             |          |  | Net    |       | Net        |  | Net income |            |          |  |   |       | Net
|                                       |  | Net  |             | loss per |  | income |       | (loss) per |  | Net        |            | loss per
|                                       |  | loss |             | share    |  | (loss) |       | share      |  | loss       |            | share   
|                                       |  |      |             |          |  |        |       |            |  |            |            |         
|As reported                            |  | $    | (8,407,577  | )        |  | $      | (0.61 | )          |  | $          | 792,504    |          |  | $ | 0.06  |     |  | $ | (1,807,885 | ) |  | $ | (.13  | )
|                                      
|                                      
|                                      
|                                      
|Statement 123
compensation, net of tax |  |      | (2,490,099  | )        |  |        | (.18  | )          |  |            | (1,431,022 | )        |  |   | (0.11 | )   |  |   | (1,407,000 | ) |  |   | (0.10 | )
|                                       |  |      |             |          |  |        |       |            |  |            |            |          |  |   |       |     |  |   |            |   |  |   |       |   |  |  | 
|Pro forma disclosure                   |  | $    | (10,897,676 | )        |  | $      | (.79  | )          |  | $          | (638,518   | )        |  | $ | (0.05 | )   |  | $ | (3,214,885 | ) |  | $ | (0.23 | )
|                                       |  |      |             |          |  |        |       |            |  |            |            |          |  |   |       |     |  |   |            |   |  |   |       |   |  |  | 

(14) Segment Reporting



| |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has identified its operating segments as its services and
license product segments. In 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information.The services segment provides
consulting, education and maintenance services and the license product
segment provides application, tools and technology resale products.



|                                 |  |                                      |           |          |  |             |            |       |  |   |            |   |  |   |            |  
|-------------------------------- |  | ------------------------------------ | --------- | -------- |  | ----------- | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | -
|                                 |  | For the year ended December 31, 2000
|                                 |  |                                     
|                                 |  |                                      |           |          |  | Licenses   
|                                 |  | Services                             |           | Products |  | Unallocated |            | Total
|                                 |  |                                      |           |          |  |             |            |      
|Revenues from
external customers |  | $                                    | 8,108,929 |          |  | $           | 3,523,451  |       |  | $ |           |   |  | $ | 11,632,380 |  
|                                
|                                
|                                
|                                
|Segment profit or loss           |  | $                                    | 2,445,998 |          |  | $           | (6,429,683 | )     |  | $ | (4,423,892 | ) |  | $ | (8,407,577 | )

|                                 |  |                                      |            |          |  |             |            |       |  |   |           |  |  |   |            | 
|-------------------------------- |  | ------------------------------------ | ---------- | -------- |  | ----------- | ---------- | ----- |  | - | --------- |  |  | - | ---------- | 
|                                 |  | For the year ended December 31, 1999
|                                 |  |                                     
|                                 |  |                                      |            |          |  | Licenses   
|                                 |  | Services                             |            | Products |  | Unallocated |            | Total
|                                 |  |                                      |            |          |  |             |            |      
|Revenues from
external customers |  | $                                    | 11,463,838 |          |  | $           | 9,257,199  |       |  | $ |          |  |  | $ | 20,721,037 | 
|                                
|                                
|                                
|                                
|Segment profit or loss           |  | $                                    | 3,885,550  |          |  | $           | (4,262,408 | )     |  | $ | 1,169,362 |  |  | $ | 792,504    | 

|                                 |  |                                      |           |          |  |             |            |       |  |   |            |   |  |   |            |  
|-------------------------------- |  | ------------------------------------ | --------- | -------- |  | ----------- | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | -
|                                 |  | For the year ended December 31, 1998
|                                 |  |                                     
|                                 |  |                                      |           |          |  | Licenses   
|                                 |  | Services                             |           | Products |  | Unallocated |            | Total
|                                 |  |                                      |           |          |  |             |            |      
|Revenues from
external customers |  | $                                    | 8,532,805 |          |  | $           | 9,200,117  |       |  | $ |           |   |  | $ | 17,732,922 |  
|                                
|                                
|                                
|                                
|Segment profit or loss           |  | $                                    | 1,437,995 |          |  | $           | (1,825,158 | )     |  | $ | (1,420,722 | ) |  | $ | (1,807,885 | )



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | There were no transactions between segments. The unallocated amounts are
made up of the following items:

52



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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

|                                 |  |                                 |            |      |  |      |            |   |  |   |            |  
|-------------------------------- |  | ------------------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                 |  | For the year ended December 31,
|                                 |  |                                
|                                 |  | 2000                            |            | 1999 |  | 1998
|                                 |  |                                 |            |      |  |     
|General and administrative costs |  | $                               | (4,187,760 | )    |  | $    | (4,476,042 | ) |  | $ | (3,886,360 | )
|                                
|                                
|                                
|                                
|Work force reduction             |  |                                 | (872,860   | )    |  |      | (485,252   | ) |  |   |           |  
|                                
|                                
|                                
|                                
|Interest and other income        |  |                                 | 64,263     |      |  |      | 260,149    |   |  |   | 301,372    |  
|                                
|                                
|                                
|                                
|Operations disposed of in 1999   |  |                                 |           |      |  |      | 223,813    |   |  |   | 2,164,266  |  
|                                
|                                
|                                
|                                
|Gain on sale of business         |  |                                 | 827,500    |      |  |      | 5,646,694  |   |  |   |           |  
|                                
|                                
|                                
|                                
|Income tax expense               |  |                                 | (255,035   | )    |  |      |           |   |  |   |           |  
|                                 |  |                                 |            |      |  |      |            |   |  |   |            |  
|                                 |  | $                               | (4,423,892 | )    |  | $    | 1,169,362  |   |  | $ | (1,420,722 | )
|                                 |  |                                 |            |      |  |      |            |   |  |   |            |  



| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The Company does not use assets as a measure of the segments
performance, thus no assets are disclosed by segment in the table
above.

(15) Related Party Transactions



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Material related party transactions that have been entered into by the
Company that are not otherwise in these notes are summarized below.



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has used the services of an entity formerly owned by the
Companys founders to recruit sales and consulting personnel for the
Company. During 1999, the owners sold the entity to a third party. For
1999 and 1998, expense totaled approximately $93,000 and $169,000,
respectively.



| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the year ended December 31, 1996, an officer of the Company was
appointed to the Board of Directors of the investee company discussed in
Note 2(h).

(16) Preferred Stock



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys Articles of Incorporation authorize and permit the Companys
Board of Directors to issue up to 5,000,000 shares of preferred stock (par
value of $.001 per share) in one or more series, and to fix the relative
rights, preferences and limitations of each series. As of December 31,
2000, there were no preferred shares outstanding.

53



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##### Table of Contents



POWERCERV CORPORATION

Notes to Consolidated Financial Statements

(17) Supplemental Selected Quarterly Financial Data (Unaudited)



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | The following is a summary of the quarterly results of operations for the
quarterly periods of 2000 and 1999 (in thousands except per share data):

|                                               |  |          |        |         |  |              |        |             |  |   |       |   |  |   |        |   |  |  |  | 
|---------------------------------------------- |  | -------- | ------ | ------- |  | ------------ | ------ | ----------- |  | - | ----- | - |  | - | ------ | - |  |  |  | 
|                                               |  | March 31 |        | June 30 |  | September 30 |        | December 31
|                                               |  |          |        |         |  |              |        |            
|Three Months Ended 2000                       
|                                              
|                                              
|                                              
|                                              
|Total revenue                                  |  | $        | 2,506  |         |  | $            | 3,325  |             |  | $ | 3,599 |   |  | $ | 2,202  |  
|                                              
|                                              
|                                              
|                                              
|Gross Profit                                   |  |          | 674    |         |  |              | 1,528  |             |  |   | 2,004 |   |  |   | 917    |  
|                                              
|                                              
|                                              
|                                              
|Operating loss                                 |  |          | (3,562 | )       |  |              | (3,152 | )           |  |   | (782  | ) |  |   | (1,547 | )
|                                              
|                                              
|                                              
|                                              
|Net loss                                       |  |          | (3,901 | )       |  |              | (3,134 | )           |  |   | (752  | ) |  |   | (620   | )
|                                              
|                                              
|                                              
|                                              
|Net loss per common share  basic              |  | $        | (0.29  | )       |  | $            | (0.23  | )           |  | $ | (0.05 | ) |  | $ | (0.04  | )
|                                              
|                                              
|                                              
|                                              
|Net loss per common share  diluted            |  | $        | (0.29  | )       |  | $            | (0.23  | )           |  | $ | (0.05 | ) |  | $ | (0.04  | )
|                                              
|                                              
|                                              
|                                              
|Three Months Ended 1999                       
|                                              
|                                              
|                                              
|                                              
|Total revenue                                  |  | $        | 4,180  |         |  | $            | 4,483  |             |  | $ | 5,895 |   |  | $ | 6,163  |  
|                                              
|                                              
|                                              
|                                              
|Gross Profit                                   |  |          | 2,012  |         |  |              | 2,314  |             |  |   | 3,647 |   |  |   | 4,176  |  
|                                              
|                                              
|                                              
|                                              
|Operating profit (loss)                        |  |          | (3,012 | )       |  |              | (2,121 | )           |  |   | (383  | ) |  |   | 178    |  
|                                              
|                                              
|                                              
|                                              
|Net earnings (loss)                            |  |          | 258    |         |  |              | 624    |             |  |   | (321  | ) |  |   | 232    |  
|                                              
|                                              
|                                              
|                                              
|Net earnings (loss) per common share  basic   |  | $        | 0.02   |         |  | $            | 0.05   |             |  | $ | (0.02 | ) |  | $ | 0.01   |  
|                                              
|                                              
|                                              
|                                              
|Net earnings (loss) per common share  diluted |  | $        | 0.02   |         |  | $            | 0.05   |             |  | $ | (0.02 | ) |  | $ | 0.01   |  

54



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##### Table of Contents



Report of Independent Certified Public Accountants on Schedule

Board of Directors
PowerCerv Corporation

In connection with our audit of the consolidated financial statements of
PowerCerv Corporation, referred to in our report dated January 23, 2001, which
is included in this Annual Report on SEC Form 10-K for the year ended December
31, 2000, we have also audited Schedule II for the year then ended. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.

/s/ Grant Thornton LLP

Tampa, Florida
January 23, 2001





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##### Table of Contents



Schedule II

SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

|                                     |                              |  |                |       |            |  |            |      |        |  |            |      |      |  |   |       | 
|------------------------------------ | ---------------------------- |  | -------------- | ----- | ---------- |  | ---------- | ---- | ------ |  | ---------- | ---- | ---- |  | - | ----- | 
|                                     |                              |  |                |       |            |  | ADDITIONS 
|                                     |                              |  | BALANCE AT     |       | CHARGED TO |  |            |      |        |  | BALANCE AT
|                                     |                              |  | BEGINNING OF   |       | COST AND   |  | CHARGED TO |      | END OF
|                                     |                              |  | YEAR           |       | EXPENSES   |  | DEDUCTIONS |      | YEAR  
|                                     |                              |  |                |       |            |  |            |      |       
|                                     |                              |  | (In Thousands)
|Allowance For Uncollectible
Accounts
|                                     | Year ended December 31, 2000 |  | $              | 1,545 |            |  | $          | 936  |        |  | $          | (650 | )(1) |  | $ | 1,831 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Year ended December 31, 1999 |  | $              | 1,480 |            |  | $          | 290  |        |  | $          | (225 | )(1) |  | $ | 1,545 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Year ended December 31, 1998 |  | $              | 2,000 |            |  | $          | (156 | )      |  | $          | (364 | )(1) |  | $ | 1,480 | 
|                                    
|                                    
|                                    
|                                    
|Restructuring Reserve               
|                                     | Year ended December 31, 2000 |  | $              | 45    |            |  | $          | 873  |        |  | $          | (527 | )(2) |  | $ | 391   | 
|                                    
|                                    
|                                    
|                                    
|                                     | Year ended December 31, 1999 |  | $              | 57    |            |  | $          | 485  |        |  | $          | (497 | )(2) |  | $ | 45    | 
|                                    
|                                    
|                                    
|                                    
|                                     | Year ended December 31, 1998 |  | $              | 411   |            |  | $          |     |        |  | $          | (354 | )(2) |  | $ | 57    | 
|                                    
|                                    
|                                    
|                                    

(1)     Uncollectible accounts written off,
net of recoveries.
(2)     Amounts represent payments and other
reductions.

55



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##### Table of Contents









SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Tampa, State of Florida, on April 17, 2001.

| |  |  |  |     |  |                                                             
| |  |  |  | --- |  | ------------------------------------------------------------
| |  |  |  |     |  | POWERCERV CORPORATION                                       
|
| |  |  |  | By: |  | /s/ Marc J. Fratello                                        
| |  |  |  |     |  |                                                             
| |  |  |  |     |  | Marc J. Fratello                                            
|
|
|
|
| |  |  |  |     |  | President, Chief Executive Officer
And Chairman of the Board

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

|                                             |  |                                                              |  |               
|-------------------------------------------- |  | ------------------------------------------------------------ |  | --------------
|Signature                                    |  | Title                                                        |  | Date          
|                                             |  |                                                              |  |               
|/s/  Marc J. Fratello
MARC J. FRATELLO       |  | President, Chief Executive Officer
and Chairman of the Board |  | April 17, 2001
|                                            
|/s/ Lawrence J. Alves
LAWRENCE J. ALVES      |  | Chief Financial Officer
(Principal Financial Officer)        |  | April 17, 2001
|                                            
|/s/  Roy E. Crippen, III
ROY E. CRIPPEN, III |  | Director                                                     |  | April 17, 2001
|                                            
|/s/  O.G. Greene
O.G. GREENE                 |  | Director                                                     |  | April 17, 2001
|                                            
|/s/  Robert Davies
ROBERT DAVIES             |  | Director                                                     |  | April 17, 2001
|                                            
|/s/  Shawn Severson
SHAWN SEVERSON           |  | Director                                                     |  | April 17, 2001

56



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##### Table of Contents



EXHIBIT INDEX

|        |  |     |  |                                                                                                                                                                                                                                                                                                                                                      
|------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  |     |  | Description                                                                                                                                                                                                                                                                                                                                          
|        |  |     |  |                                                                                                                                                                                                                                                                                                                                                      
|3.1     |  | --- |  | Articles of Incorporation of the Company effective as of
January 1, 1996, as amended by the Articles of Amendment
dated as of January 9, 1996 (incorporated herein by
reference to Exhibit Number 3.1 to the Companys
Registration Statement on Form S-1 (File No. 333-00250)).                                                                     
|       
|       
|       
|       
|3.2     |  | --- |  | Bylaws of the Company (incorporated herein by reference
to Exhibit Number 3.2 to the Companys Registration
Statement on Form S-1 (File No. 333-00250)).                                                                                                                                                                                             
|       
|       
|       
|       
|10.1    |  | --- |  | Loan Agreement and related promissory note, security agreements and
guarantees, each dated October 31, 1996, among NationsBank, N.A.
(South) and the Company, for a $5,000,000 revolving line of credit
(incorporated herein by reference from Exhibit Number 10.3 to the
Companys Annual Report on Form 10-K for the year ended December 31,
1996).
|       
|       
|       
|       
|10.2    |  | --- |  | NationsBank Commitment Letter dated October 9, 1997, and related
promissory note dated October 22, 1997, extending the maturity of the
Companys $5,000,000 revolving line of credit (incorporated herein by
reference from Exhibit Number 10.3 to the Companys Annual Report on
Form 10-K for the year ended December 31, 1997).                   
|       
|       
|       
|       
|10.3    |  | --- |  | Amendment to Loan Agreement, dated January 26, 1998, among
NationsBank, N.A. and the Company, related to the Companys $5,000,000
revolving line of credit (incorporated herein by reference from Exhibit
Number 10.4 to the Companys Annual Report on Form 10-K for the year
ended December 31, 1997).                                             
|       
|       
|       
|       
|10.4    |  | --- |  | Loan Agreement and related promissory note, dated March 29, 1999,
among NationsBank, N.A. and the Company, related to the Companys
$10,000,000 credit facility (incorporated herein by reference from
Exhibit Number 10.4 to the Companys Annual Report on Form 10-K for the
year ended December 31, 1998).                                        
|       
|       
|       
|       
|10.5    |  | --- |  | Employment, Noncompetition, Development and Confidentiality
Agreement, dated April 10, 1997, between the Company and Marc J.
Fratello (incorporated herein by reference from Exhibit Number 10.2 to
the Companys Quarterly Report on Form 10-Q for the calendar quarter
ended March 31, 1997).                                                      
|       
|       
|       
|       
|10.6    |  | --- |  | Employment, Noncompetition, Development and Confidentiality
Agreement, dated April 10, 1997, between the Company and Roy E. Crippen,
III (incorporated herein by reference from Exhibit Number 10.3 to the
Companys Quarterly Report on Form 10-Q for the calendar quarter ended
March 31, 1997).                                                   
|       
|       
|       
|       
|10.7    |  | --- |  | Executive Employment Agreement, dated February 19, 1998, between
the Company and Michael J. Simmons (incorporated herein by reference
from Exhibit Number 10.2 to the Companys Quarterly Report on Form 10-Q
for the calendar quarter ended June 30, 1998).                                                                                         
|       
|       
|       
|       
|10.8    |  | --- |  | Asset Purchase Agreement, dated March 30, 1999, by and between
the Company and R.O.I Consulting, Inc. (incorporated herein by reference
from Exhibit Number 2 to the Companys Current Report on Form 8-K filed
on April 13, 1999).                                                                                                                  
|       
|       
|       
|       
|10.9    |  | --- |  | Executive Termination Agreement, dated July 27, 2000, between the
Company and Michael J. Simmons (incorporated herein by reference from
Exhibit Number 10.2 to the Companys Quarterly Report on Form 10-Q for
the calendar quarter ended September 30, 2000).                                                                                       
|       
|       
|       
|       
|10.10*  |  | --- |  | Executive Employment Agreement, dated March 23, 1998, between the
Company and John Montague.                                                                                                                                                                                                                                                         
|       
|       
|       
|       
|10.11*  |  | --- |  | Executive Employment Agreement, dated April 7, 1998, between the
Company and Ira Herman.                                                                                                                                                                                                                                                             
|       
|       
|       
|       
|22      |  | --- |  | Subsidiary of the Registrant (incorporated herein by reference
from Exhibit Number 21 to the Companys Registration Statement on Form
S-1 (File No. 333-00250)).                                                                                                                                                                                     
|       
|       
|       
|       
|23.1*   |  | --- |  | Consent of Independent Certified Public AccountantsGrant Thornton LLP                                                                                                                                                                                                                                                                               
|       
|       
|       
|       
|23.2*   |  | --- |  | Consent of
Independent Certified Public AccountantsErnst & Young LLP                                                                                                                                                                                                                                                                                




|  |                
|- | ---------------
|* | Filed herewith.

57