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



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FORM 10-KSB

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  |  | For the fiscal year ended December 31, 2001                                             
|  |  | OR                                                                                      
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ______________

Commission File Number 0-27574

PowerCerv Corporation
(Name of small business issuer as specified in its charter)

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

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

(813) 226-2600
(Issuer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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or any
amendment to this Form 10- KSB.  o

The revenue of the registrant for the fiscal year ended December 31, 2001 was
$6,106,762.

The aggregate market value of the registrants voting stock held by
non-affiliates as of April  8, 2002 was approximately
$607,028. There were 1,313,000 shares of the registrants common stock,
par value $.001 per share, outstanding on April 8, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

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





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TABLE OF CONTENTS



|                       |                                                                                                                         |  |  |  |  |  |  | 
|---------------------- | ----------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                
|                       | Item 1. Description of Business                                                                                        
|                       | Item 2. Description of Property                                                                                        
|                       | Item 3. Legal Proceedings                                                                                              
|                       | Item 4. Submission of Matters to a Vote of Security Holders                                                            
|PART II               
|                       | Item 5. Market For Common Equity and Related Stockholder Matters                                                       
|                       | Item 6. Managements Discussion and Analysis or Plan of Operation                                                      
|                       | Item 7. Financial Statements                                                                                           
|                       | Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                           
|PART III              
|                       | Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act
|                       | Item 10. Executive Compensation                                                                                        
|                       | Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                
|                       | Item 12. Certain Relationships and Related Transactions                                                                
|                       | Item 13. Exhibits and Reports on Form 8-K                                                                              
|SIGNATURES            
|Grant Thornton Consent



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POWERCERV CORPORATION

Form 10-KSB Annual Report

TABLE OF CONTENTS

|           |  |                                                                                                                  |             |    |  | 
|---------- |  | ---------------------------------------------------------------------------------------------------------------- | ----------- | -- |  | 
|           |  |                                                                                                                  | Page Number |    | 
|           |  |                                                                                                                  |             |    | 
|PART I     |  |                                                                                                                  |             |    |  | 
|Item 1     |  | Description of Business                                                                                          |             | 3  |  | 
|Item 2     |  | Description of Property                                                                                          |             | 11 |  | 
|Item 3     |  | Legal Proceedings                                                                                                |             | 11 |  | 
|Item 4     |  | Submission of Matters to a Vote of Security Holders                                                              |             | 11 |  | 
|           |  |                                                                                                                  |             |    |  | 
|PART II    |  |                                                                                                                  |             |    |  | 
|Item 5     |  | Market For Common Equity and Related Stockholder Matters                                                         |             | 12 |  | 
|Item 6     |  | Managements Discussion and Analysis or Plan of Operation                                                        |             | 12 |  | 
|Item 7     |  | Financial Statements                                                                                             |             | 24 |  | 
|Item 8     |  | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure                             |             | 24 |  | 
|           |  |                                                                                                                  |             |    |  | 
|PART III   |  |                                                                                                                  |             |    |  | 
|Item 9     |  | Directors, Executive Officers, Promoters and Control Persons, Compliance with
Section 16 (a) of the Exchange Act |             | 25 |  | 
|Item 10    |  | Executive Compensation                                                                                           |             | 25 |  | 
|Item 11    |  | Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters                   |             | 25
|Item 12    |  | Certain Relationships and Related Transactions                                                                   |             | 25 |  | 
|Item 13    |  | Exhibits and Reports on Form 8-K                                                                                 |             | 25 |  | 
|Signatures |  |                                                                                                                  |             | 47 |  | 

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PART I

This Annual Report on Form 10-KSB 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 as discussed in Managements Discussion and Analysis or
Plan 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. Description of Business

General

The Company is focused on delivering enterprise commerce management
solutions to small and medium size discrete manufacturing companies with annual
revenues between $5 million and $250 million. The Company utilizes its own
direct sales and professional service organization to serve customers in North
America, while using 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). The most
recent addition to the Companys line of enterprise application software
solutions, eSeries consists of five Web-based software modules: eView, eOrder,
eCRM, eDashboard and eConfigure.

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 sales 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.

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(business process mapping software), PowerCerv Intelligence
(business intelligence/on-line analytical processing (OLAP) reporting
software), remote synchronization software for SFA Plusand the PowerCerv
Software Development Kit (SDK).

The Company also provides 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.

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 http://www.powercerv.com. Information
contained in the Website is not a part of this Annual Report on Form 10-KSB.

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Products

Products and Services

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 Plus and 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 provides integrated Web-based product
configuration, and is designed to enable users to configure items over the Web
or from within the ERP Plus Distribution 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.

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 Plus and 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 Plus provides marketing campaign
management, sales activity planning and
management, quoting and pipeline management
as well as comprehensive contact
management.                                                                                             

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|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Support Plus           |  | Support Plus provides 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.                                                                                                                                                                                                                    
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|eView                  |  | eView is designed to allow users to remotely
view the status of an item in the value
chain, anytime from remote computers.                                                                                                                                                                                                                                                                                                                                                                                                                        
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|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, which was released in 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 Plus Distribution
Order Entry and Quote processes.
PowerCerv Intelligence provides 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
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|PowerCerv
Intelligence |  | 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 services consist of the following:

Consulting Services. The Company provides a range of professional
technical and business consulting services for the Companys ERP Plus and web
enabled application 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.

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The Companys services are provided to 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). 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 on the 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 its corporate office. In addition, training courses are
frequently provided at customer sites, using customer facilities and equipment,
with the Company 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. Maintenance services are generally provided
pursuant to maintenance agreements between the Company and its 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

The Companys current customers include, but are not limited to,
Chatsworth Products, Inc., Textron E-Z-GO, Jetson Direct Mail Services, Inc.,
Lakeshore Cryotronics, Quorum International, Visioneering, Norris Rods, Big Sky
Carvers, Luck Stone Corporation, National Partitions, Advanced Flexible
Composites and TIPCO. The Company continues to focus its marketing and sales
efforts primarily on small and medium size discrete manufacturing companies
with annual revenues between $5 and $250 million.

Marketing, Sales and Distribution

The Companys application products are sold through a direct sales force
and 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 April 8, 2002, the Companys sales and marketing organizations
had 4 full-time employees.

The Company believes that it has maintained its most experienced and
knowledgeable sales personnel and expects them to be able to effectively resell
into the customer base while pursuing a select group of targeted new customers.
Over the next 6 months, the Company expects to be able to rehire some of its
sales personnel if needed; however, there can be no assurance that the Company
will be able to rehire these individuals or that its existing sales staff will
be able to achieve the Companys sales objectives.

The Company utilizes a direct sales force to sell its enterprise
application software solutions. 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 and identify resell opportunities with
the Companys existing customer base. The Companys sales force
uses a structured sales methodology to maximize the efficiency of its
sales resources and maximize its competitiveness.

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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.

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 on
Form 10-KSB) 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 2001, the Company made 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 April 8, 2002,
the Company had 7 full-time employees in its product development group but
supplements it when needed with outside consultants. The Company believes that
it has maintained an experienced and knowledgeable product development group
and expects them to be able to effectively maintain and enhance its current
product line. However, there can be no assurance that outside consultants will
continue to be available or that its existing product development staff will be
able to effectively maintain and enhance its current product line on a timely
basis. 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 $2.0
million in 2001 and $4.1 million in 2000.

In April 2001, the Company released version 9.0.02 of its ERP Plus
application products on schedule and as planned. The new release added
features to the Companys application products. Version 9.0.02 also included
the newest addition to the eSeries suite of eBusiness applications -
eConfigure. Technology upgrades to the latest versions of operating systems,
development tools, and database platforms were also included in Version 9.0.02
of the Companys ERP Plusapplication products.

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The Company plans to continue to enhance its ERP Plus and eSeries
application products to address the evolving needs of small and medium size
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 such as 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 product features that may 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, in part, 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.

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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

8



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| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                           
| 
| |  | Kewill E Commerce- The Company has signed an agreement with Kewill E
Commerce, Inc. Under the agreement, PowerCerv offers Clippership 32®,
Kewills award-winning, 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. 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.

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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, IFS, Epicor, Mapics,
Made2Manage, Frontstep, Lilly Software, Microsoft, 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 or Plan of Operation  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
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.

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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, 2001, the Company had 38 full-time employees. These
employees included 8 in sales, marketing and related activities, 10 in research
and development, 15 in customer support, training, and consulting services, and
5 in information technology, finance, administration and human resources.
Subsequent to December 31, 2001, the Company reduced its overall staff. As of
April 8, 2002, the Company had 25 full-time employees consisting of 4 in sales
and marketing, 7 in product development, 9 in customer support, training and
consulting services, and 5 in information technology, finance, administration
and human resources. See further discussion in Managements Discussion and
Analysis or Plan of Operation. 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
and that it has retained some of its more experienced and knowledgeable staff.
The further 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 future business and operations.




Item 2. Description of Property

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 on August 31, 2002. The Company is
in the process of negotiating an extension for its corporate headquarters. The
lease expires on August 31, 2002 and includes a three year renewal option.




Item 3. Legal Proceedings

Lifsey v. Ross, et. al.:A complaint was filed on July 24, 1997, in the
United States District Court for the Middle District of Florida, captioned J.
Conrad Lifsey vs. Harold R. Ross, Gerald R. 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 II, L.P., and Summit Ventures 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 parties have agreed to a settlement and have
filed with the Court a Memorandum of Understanding. The Parties are currently
drafting the terms of the settlement.




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, 2001.

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PART II




Item 5. Market For Common Equity and Related Stockholder Matters

The Companys common stock had been listed on the Nasdaq SmallCap Market
until August 2001, when it was delisted for failure to meet the continued
listing requirements. Therefore the Companys common stock now trades in the
over-the-counter market on the OTC Bulletin Board or through the pink sheets.
The Companys shareholders may find it more difficult to obtain a price
quotation for or sell the Companys common stock. The delisting of the
Companys common stock from the Nasdaq SmallCap Market therefore may have an
adverse impact on the market price and liquidity of the Companys common stock.

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.

|            |  |      |        |     |  |   |        | 
|----------- |  | ---- | ------ | --- |  | - | ------ | 
|2000        |  | High |        | Low
|            |  |      |        |    
|1st Quarter |  | $    | 77.625 |     |  | $ | 31.500 | 
|2nd Quarter |  |      | 36.000 |     |  |   | 10.125 | 
|3rd Quarter |  |      | 13.779 |     |  |   | 5.625  | 
|4th Quarter |  |      | 11.250 |     |  |   | 1.692  | 

|            |  |      |       |     |  |   |       | 
|----------- |  | ---- | ----- | --- |  | - | ----- | 
|2001        |  | High |       | Low
|            |  |      |       |    
|1st Quarter |  | $    | 9.000 |     |  | $ | 1.690 | 
|2nd Quarter |  |      | 3.510 |     |  |   | 1.000 | 
|3rd Quarter |  |      | 3.450 |     |  |   | .600  | 
|4th Quarter |  |      | 1.280 |     |  |   | .600  | 

As of December 31, 2001, the Company had approximately 140 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 2001 and 2000. The Company intends to retain any earnings for
use in the business for the foreseeable future.




Item 6. Managements Discussion and Analysis or Plan of Operation

Overview

The Company has focused its resources, including product development,
marketing and sales efforts, on the needs and requirements of small and medium
size discrete manufacturing companies with annual revenues between $5 million
and $250 million 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. 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.

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.

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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 2000 (the buyers merger with
another business and establishment of a stronger management team) the
collectibility of the note is reasonably assured. During 2001, all scheduled
payments were received under this note, including interest of $34,529.

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.

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
the year beginning January 1, 2002; however certain provisions of that
Statement apply to goodwill and other intangible assets acquired between July
1, 2001, and the effective date of SFAS 142. The Company does not anticipate
that the adoption of this Statement will have a significant effect on its
results of operations or financial position.

In July 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement applies to
all entities. It applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset, except for
certain obligations of lessees. This Statement is for financial statements
issued for fiscal years beginning after June 15, 2002. The Company is
evaluating the impact of the adoption of this standard and has not yet
determined the effect of adoption on its financial position and results of
operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The provisions
of the statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.

During 2001, the
Company issued 1,022,222 shares of
convertible Preferred Stock. The Preferred Stock is convertible to Common
Stock at a conversion rate of one share of Common Stock for each share of
Preferred Stock being converted. The Preferred Stock carries no dividend or
coupons and will be redeemable at the option of the Company after five years.
In consideration for the Preferred Stock, the Company received cash
of $600,000,
notes receivable of $200,000 ($100,000 for a director of the Company)
and 222,222 shares of its common stock valued at $222,222. The
Company incurred financing costs of approximately
$38,000. The 222,222 shares of common stock were formerly owned by a
past director and were sold to a current director under the condition
that they could be exchanged for preferred stock on a one-for-one
basis. Subsequent to December 31, 2001, the Company received payment on one
of the notes at a discounted rate of $85,000. The remaining note receivable is
included as a reduction of shareholders equity at year-end.

The Companys primary focus in 2001 and 2000 was to expand its eSeries
product 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 further workforce
reductions in 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 2002.

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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 Operation

The Company incurred net losses of $4,140,468 and $8,407,577 in 2001 and
2000, respectively, and while management has taken steps that it believes will
improve net losses in 2002, the Company expects to incur a net loss from
operations during 2002. Management has taken steps that it believes will
improve the overall operations and financial condition. These steps include
restructuring initiatives that commenced in 2000, continuing in 2001, as well
as strategies and actions initiated or planned for 2002. The Company was able
to reduce certain expenses in 2001 through negotiations with some of its
vendors and will continue these efforts in 2002. The Company is in the process
of negotiating a lease period extension for its corporate headquarters. The lease expires
on August 31, 2002 and includes a three-year renewal option. The Company
implemented flexible work arrangements with certain employees that transformed
otherwise fixed costs into variable costs. Management reduced overall wages
through workforce reductions in 2001. During 2002, the Company further reduced
its workforce and implemented a uniform salary reduction. Management believes
that its current employee capacity is adequate to reach targeted services
revenue targets. The Company will use its best efforts to seek accelerated
cash conversion of notes receivable and accounts receivable to improve its
working capital and available cash and will further seek to settle commitments
with non-cash resources. Management will use its 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 its 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. During 2002, the Company obtained a
commitment from a bank to provide a $100,000 line of credit, secured
by certain assets of the Company and guaranteed by an officer and
board member of the Company.
The line of credit is available to finance working capital needs
through 2002; however, loans will be reviewed by the bank six months from issuance. The Company will also
seek third party financing alternatives in amounts sufficient to meet its
working capital needs.

While management believes the aforementioned steps and planned actions
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 affect 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 and
service fees:

|                            |  |                                  |       |        |  |      |     |    |  |   |       |  
|--------------------------- |  | -------------------------------- | ----- | ------ |  | ---- | --- | -- |  | - | ----- | -
|Revenue:                    |  | For the years ended December 31,
|                            |  |                                 
|                            |  | ($ in thousands)                
|                            |  | 2001                             |       | Change |  | 2000
|                            |  |                                  |       |        |  |     
|License fees                |  | $                                | 1,232 |        |  |      | (65 | )% |  | $ | 3,523 |  
|Percentage of total revenue |  |                                  | 20    | %      |  |      |     |    |  |   | 28    | %
|                            |  |                                  |       |        |  |      |     |    |  |   |       |  
|Service fees                |  | $                                | 4,875 |        |  |      | (47 | )% |  | $ | 9,147 |  
|Percentage of total revenue |  |                                  | 80    | %      |  |      |     |    |  |   | 72    | %
|                            |  |                                  |       |        |  |      |     |    |  |   |       |  

License Fees. The Companys license fees are derived from licensing the
Companys application products. 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.

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License fees decreased 65% from 2000 to 2001. The decrease was due to
fewer license deals in the current year partly due to a significant slowdown in
the economy and delayed recovery. Due to these conditions, the Company
initiated restructuring measures that included work force reduction plans and
office closings beginning in the second quarter of 2000 and continued these
plans in 2001, completing restructurings in January, April, and December 2001.
There can be no assurance that the Companys marketing efforts will increase
the Companys license revenues in accordance with managements expectations, if
at all.

Service Fees. The Companys service fees consist of revenue from consulting,
education and support and maintenance services for the Companys application
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 are based on a percentage of related license
fees.

Service fees decreased 47% from 2000 to 2001. Management believes that the
decrease in service revenue resulted from fewer new license deals closed in
previous quarters of 2000 and 2001. Generally, the Company believes that as
revenue from licensing its application products increases, the demand for
application consulting services (and related revenue) over subsequent quarters
may also 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,
and services:

|                        |  |                                  |       |        |  |      |     |    |  |   |       |  
|----------------------- |  | -------------------------------- | ----- | ------ |  | ---- | --- | -- |  | - | ----- | -
|Cost of revenue:        |  | For the years ended December 31,
|                        |  |                                 
|                        |  | ($ in thousands)                
|                        |  | 2001                             |       | Change |  | 2000
|Cost of licenses        |  | $                                | 266   |        |  |      | (69 | )% |  | $ | 846   |  
|Gross profit percentage |  |                                  | 78    | %      |  |      |     |    |  |   | 76    | %
|                        |  |                                  |       |        |  |      |     |    |  |   |       |  
|Cost of services        |  | $                                | 3,466 |        |  |      | (48 | )% |  | $ | 6,701 |  
|Gross profit percentage |  |                                  | 29    | %      |  |      |     |    |  |   | 27    | %
|                        |  |                                  |       |        |  |      |     |    |  |   |       |  

Cost of Licenses. The cost of licenses consists primarily of production
costs, royalties associated with certain modules of the Companys application
products and the amortization of intangible assets. The cost of license
decreased 69% from 2000 to 2001 resulting from lower license revenue in the
current year and fewer third party fees on licenses sold offset by higher
amortization expense.

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 decreased
48% from 2000 to 2001 primarily due to a lower compensation expense and
operating costs for the periods. The Company completed work force reductions
in 2001. Management believes that these reductions have resulted in lower
expenses and increased utilization of remaining service personnel; however,
there can be no assurance that the Company will return to profitability as a
result of these actions.

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)                 |       |        |  |     
|                                   |  | 2001                             |       | Change |  | 2000
|                                   |  |                                  |       |        |  |     
|General and administrative         |  | $                                | 2,580 |        |  |      | (38 | )% |  | $ | 4,187 |  
|Percentage of total revenue        |  |                                  | 42    | %      |  |      |     |    |  |   | 33    | %
|                                   |  |                                  |       |        |  |      |     |    |  |   |       |  
|Sales and marketing                |  | $                                | 1,712 |        |  |      | (66 | )% |  | $ | 5,010 |  
|Percentage of total revenue        |  |                                  | 28    | %      |  |      |     |    |  |   | 40    | %
|                                   |  |                                  |       |        |  |      |     |    |  |   |       |  
|Research and development           |  | $                                | 1,963 |        |  |      | (52 | )% |  | $ | 4,096 |  
|Percentage of license fees revenue |  |                                  | 159   | %      |  |      |     |    |  |   | 116   | %
|                                   |  |                                  |       |        |  |      |     |    |  |   |       |  

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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 decrease in G&A expenses from 2000 to 2001 primarily
resulted from lower compensation, bad debt and other operating costs. G&A costs
as a percentage of total revenue increased from 33% in 2000 to 42% in 2001 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. Sales
and marketing expense decreased 66% from 2000 to 2001 primarily as a result of
lower compensation in the current periods. The Companys January 2001 work
force reduction resulted in the elimination of approximately four sales and
marketing positions. A minor work force reduction was also implemented in the
second quarter of 2001 resulting in the elimination of three additional sales
and marketing positions. The December 2001 restructuring resulted in the
elimination of five sales and marketing positions. Further, certain
non-critical costs were discontinued or deferred until revenue increases to
adequate levels. The Company believes that these reductions have resulted in
lower expenses and increased utilization of remaining sales and marketing
personnel; however, there can be no assurance that the Company will return to
profitability or that there will not be any further negative impact as a result
of these actions. Sales and marketing expense as a percentage of total revenue
decreased due to substantial cost cutting measures implemented by the Company
in 2000 and 2001.

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. R&D costs decreased 52% from 2000 to 2001 primarily due to
decreased personnel costs. The Companys January 2001 work force reduction
resulted in the elimination of approximately 17 R&D positions. The Company
expects to realize gross annual savings of approximately $1.3 million as a
result of these terminations. A minor work force reduction was also implemented
in the second quarter of 2001 resulting in the elimination of two additional R
& D positions. The Company believes that these reductions have resulted in
lower expenses and increased utilization of remaining R&D personnel; however,
there can be no assurance that the Company will return to profitability or that
there will not be any further negative impact as a result of these actions.
The increase in R&D costs as a percentage of license fees increased from 116%
in 2000 to 159% in 2001 due to significantly lower license fee revenue for 2000
and 2001.

Work Force Reduction and Other Charges

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, 2001, approximately $169,000 remains in accrued liabilities for payments to
be made over the next 15 months. As part of the restructuring plan, the
Companys Chairman 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 July 2002.

During the first quarter of 2001, the Company announced and completed a
work force reduction in line with its objective to streamline operations and
improve financial condition. The Company recorded a restructuring charge of
$169,000 related to severance costs for approximately 30 employees (1
senior-level staff and 29 non senior-level employees primarily in research and
development and services). As of December 31, 2001, approximately $33,000
remains in accrued liabilities for severance payments in connection with the
restructuring.

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During the second quarter of 2001, the Company implemented a minor
workforce reduction resulting in the elimination of approximately nine
positions throughout the Company. The Company recorded a restructuring charge
of $24,000 related to severance costs associated with the terminations. As of
December 31, 2001, these costs have been substantially paid.

During the fourth quarter of 2001, the Company implemented a further
workforce reduction resulting in the elimination of approximately 19 positions
primarily in the services, sales and marketing and G&A departments. The
Company recorded a restructuring charge of $133,000 primarily related to
severance costs associated with the terminations. As of December 31, 2001,
approximately $133,000 remains in accrued liabilities for payments related to
this restructuring.

These restructuring are in line with the Companys objective to return to
profitability. The Company believes that its 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, 2001, the Company has a deferred tax asset of $13.9
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, 2001 and 2000, the Company had available cash and cash
equivalents of $0.6 million and $2.1 million, respectively, and working capital
(deficit) of $(0.7) million and $1.6 million, respectively.

Net cash used in operating activities for the years ended December 31,
2001 and 2000 was $(2.0) million and $(5.2) million, respectively. The cash
used in 2001 and 2000 was principally the result of the operating losses in
those years.

Net cash (used in) provided by investing activities for the years ended
December 31, 2001 and 2000 totaled $(0.02) million and $0.2 million,
respectively. In 2000, the net cash provided included $0.5 million received as
a result of the Company exercising a put option related to a $1.5 million
investment made in 1996 partially offset by $0.3 million used for the purchase
of an intangible asset. In 2001, the net cash used was $0.02 for purchases of
communication and computer equipment.

Net cash provided by financing activities for the years ended December 31,
2001 and 2000 totaled $0.6 million and $0.9 million, respectively. The amounts
generated in 2001 relate to a private equity offering of preferred stock. For
2000, these amounts generally relate to the exercise of options and warrants to
purchase common stock.

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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. In 2001, the Company took further
restructuring actions involving additional workforce reductions and office
closures; 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 2002.

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 during the year 2002 could be materially adversely affected. However,
as a result of the Companys 2000 and 2001 restructuring decisions, the amount
of cash used in operations decreased substantially from 2000 to 2001. During
2002, the Company obtained a commitment from a bank to provide a $100,000 line of credit secured by
certain assets of the Company and guaranteed by an officer and a
director of the Company. The Company is currently in negotiations with a
third party to raise capital from a strategic operating agreements, which may
also involve the sale of equity securities, but no definitive agreement has
been reached. As more fully discussed in Plan of Operations above and Note 3
to the consolidated financial statements and the going concern
uncertainty explanatory paragraph in the
related Report of Independent Certified Public Accountants included elsewhere
in this Form 10-KSB, the Company has implemented, or is in the process of
initiating, further cost cutting measures and other actions that management
currently believes will provide adequate working capital for at least twelve
months. 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. Additionally, the Company will be
required to further re-examine its current business plans. Accordingly, there
can be no assurance that the Company will be able to raise additional capital
or that the other proposed actions will provide such adequate working capital.

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.

Forward-Looking Statements and Associated Considerations

This Annual Report on Form 10-KSB 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:

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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 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.

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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 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.Beginning in 1997 and through 2001, 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, to 102 as of December 31, 2000, and
to 38 as of December 31, 2001. 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 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, 2001, 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.

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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. 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. In 2001, the Company took further actions to reduce its work
force and decrease operating costs. The Company recorded a restructuring
charge of $326. 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.

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, 2001, the Companys cash and cash equivalents
were $0.6 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 during the year 2002 could be materially adversely
affected. 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.

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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® 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 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.

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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 1998, 1999, 2000 and 2001 and the Company continues to dedicate resources
and time 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 applications. The failure to retain its VARs, OEMs,
channel partners 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.

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Voting Control by Management.The executive officers and directors of the
Company beneficially own approximately 42% of the outstanding Common Stock as
of March 1, 2002. 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, Heyward Galloway, who is responsible for
R&D, marketing, 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.

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 affected and may continue to adversely
affect the market price of the Companys Common Stock.




Item 7. Financial Statements

The Companys Consolidated Financial Statements and Notes thereto and the
report of Grant Thornton LLP, the Companys independent certified public
accountants, are set forth on the pages indicated in Item 13.




Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no disagreements with respect to the Companys independent
accountants during 2001.

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##### Table of Contents






PART III

Certain information required by Part III is omitted from this Report on
Form 10-KSB since the Company intends to file a definitive Proxy Statement for
its Annual Meeting of Shareholders not later than 120 days after the end of the
year covered by this Report. Certain information to be included in the Proxy
Statement is incorporated herein by reference. If the Proxy Statement is not
filed by the date indicated above, then this Form 10-KSB will be amended to
include the information required by Part III.




Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act

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




Item 10. Executive Compensation

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




Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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 12. 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.




Item 13. Exhibits 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                                              |  | 26  
|   |  | Consolidated Balance Sheets as of December 31, 2001 and 2000                                                         |  | 27  
|   |  | Consolidated Statements of Operations for each of the years in the
two-year period ended December 31, 2001           |  | 28  
|   |  | Consolidated Statements of Shareholders Equity for each of
the years in the two-year period ended December 31, 2001 |  | 29  
|   |  | Consolidated Statements of Cash Flows for each of the years in the
two-year period ended December 31, 2001           |  | 30  
|   |  | Notes to Consolidated Financial Statements                                                                           |  | 31  
|2. |  | 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 sheets of PowerCerv
Corporation as of December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholders equity, and cash flows for each of the
years 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 audits.

We conducted our audits 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
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, 2001 and 2000, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States
of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3, the Company
incurred a net loss during the year ended December 31, 2001, and, as of that
date, the Companys current liabilities exceeded its current assets. These
factors, among others, as discussed in Note 3 to the financial statements,
raise substantial doubt about the Companys ability to continue as a going
concern. Managements plans in regard to these matters are also described in
Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

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

Tampa, Florida
January 23, 2002, except for note 3
as to which the date is
April 11, 2002

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##### Table of Contents



POWERCERV CORPORATION

Consolidated Balance Sheets

December 31, 2001 and 2000

|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |             |           |  |  | 
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ----------- | --------- | ---- | ------- | ----------- | --------- |  |  | 
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           | 2001 |         | 2000       
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               |                                            |                                      | Assets      |           |      |         |             |           |  |  | 
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|Current assets:                                                             |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            | Cash and cash equivalents                                                                                                                                     |                                            | $                                    | 635,007     |           |      | $       | 2,135,636   |          
|                                                                            | Accounts receivable, net of allowance of $1,880,000 in 2001 and $1,831,000 in 2000                                                                            |                                            |                                      | 934,272     |           |      |         | 2,537,754   |          
|                                                                            | Inventories                                                                                                                                                   |                                            |                                      | 47,965      |           |      |         | 48,315      |          
|                                                                            | Other current assets                                                                                                                                          |                                            |                                      | 451,140     |           |      |         | 620,357     |          
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               | Total current assets                       |                                      |             | 2,068,384 |      |         |             | 5,342,062 | 
|Property and equipment, net                                                 |                                                                                                                                                               |                                            | 75,772                               |             |           |      | 511,317 |            
|Software and intangible assets, net                                         |                                                                                                                                                               |                                            | 374,521                              |             |           |      | 564,649 |            
|Notes receivable, net of allowance of $294,000 in 2001 and $192,500 in 2000 |                                                                                                                                                               |                                            | 383,151                              |             |           |      | 887,987 |            
|Deposits and other                                                          |                                                                                                                                                               |                                            | 17,843                               |             |           |      | 27,828  |            
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               | Total assets                               |                                      | $           | 2,919,671 |      |         | $           | 7,333,843 | 
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               |                                            | Liabilities and Shareholders Equity |             |           |      |         |             |           |  | 
|Current liabilities:                                                        |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            | Accounts payable                                                                                                                                              |                                            | $                                    | 580,566     |           |      | $       | 507,721     |          
|                                                                            | Accrued expenses                                                                                                                                              |                                            |                                      | 1,371,094   |           |      |         | 1,719,580   |          
|                                                                            | Deferred revenue                                                                                                                                              |                                            |                                      | 845,085     |           |      |         | 1,489,935   |          
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               | Total current liabilities                  |                                      |             | 2,796,745 |      |         |             | 3,717,236 | 
|Commitments and contingencies                                               |                                                                                                                                                               |                                            |                                     |             |           |      |        |            
|Shareholders equity:                                                       |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            | Preferred
stock, $.001 par value, 5,000,000 shares authorized; 1,022,000 and 0
shares issued and outstanding at December 31, 2001 and 2000, respectively      |                                            |                                      | 1,022       |           |      |         |            |          
|                                                                            | Common
stock, $.001 par value, 5,000,000 shares authorized; 1,313,000 and 1,535,000 shares
issued and outstanding at December 31, 2001 and 2000,
respectively |                                            |                                      | 1,313       |           |      |         | 1,535       |          
|                                                                            | Additional paid-in capital                                                                                                                                    |                                            |                                      | 51,704,944  |           |      |         | 50,958,957  |          
|                                                                            | Stock subscription receivable                                                                                                                                 |                                            |                                      | (100,000    | )         |      |         |            |          
|                                                                            | Accumulated deficit                                                                                                                                           |                                            |                                      | (51,484,353 | )         |      |         | (47,343,885 | )        
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               | Total shareholders equity                 |                                      |             | 122,926   |      |         |             | 3,616,607 | 
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            
|                                                                            |                                                                                                                                                               | Total liabilities and shareholders equity |                                      | $           | 2,919,671 |      |         | $           | 7,333,843 | 
|                                                                            |                                                                                                                                                               |                                            |                                      |             |           |      |         |            

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

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POWERCERV CORPORATION
Consolidated Statements of Operations

Years ended December 31, 2001 and 2000

|                                             |                                |                          |        |           |            |      |         |           |            |  
|-------------------------------------------- | ------------------------------ | ------------------------ | ------ | --------- | ---------- | ---- | ------- | --------- | ---------- | -
|                                             |                                |                          |        | 2001      |            | 2000
|                                             |                                |                          |        |           |            |     
|Revenue:                                     |                                |                          |        |           |            |      |         |          
|                                             | License fees                   |                          | $      | 1,231,468 |            |      | $       | 3,523,451 |           
|                                             | Service fees                   |                          |        | 4,875,294 |            |      |         | 9,147,045 |           
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                | Total revenue            |        |           | 6,106,762  |      |         |           | 12,670,496 |  
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |        |           |            |      |         |          
|Costs and expenses:                          |                                |                          |        |           |            |      |         |          
|                                             | Cost of licenses               |                          |        | 266,454   |            |      |         | 845,760   |           
|                                             | Cost of services               |                          |        | 3,465,959 |            |      |         | 6,701,047 |           
|                                             | General and administrative     |                          |        | 2,580,296 |            |      |         | 4,187,760 |           
|                                             | Sales and marketing            |                          |        | 1,711,422 |            |      |         | 5,010,882 |           
|                                             | Research and development       |                          |        | 1,962,968 |            |      |         | 4,096,492 |           
|                                             | Work force reduction and other |                          |        | 326,195   |            |      |         | 872,860   |           
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                | Total
costs and expenses |        |           | 10,313,294 |      |         |           | 21,714,801 |  
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                | Operating loss           |        |           | (4,206,532 | )    |         |           | (9,044,305 | )
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |        |           |            |      |         |          
|Other income (expense):                      |                                |                          |        |           |            |      |         |          
|                                             | Interest expense               |                          |        |          |            |      |         | (8,907    | )         
|                                             | Interest income                |                          |        | 76,405    |            |      |         | 246,768   |           
|                                             | Miscellaneous expense          |                          |        |          |            |      |         | (173,598  | )         
|                                             |                                |                          |        |           |            |      |         |          
|                                             | Total other income             |                          |        | 76,405    |            |      |         | 64,263    |           
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |        |           |            |      |         |          
|Gain on sale of business                     |                                |                          |       |           |            |      | 827,500 |          
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |       |           |            |      | 827,500 |          
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                | Loss before income taxes |        |           | (4,130,127 | )    |         |           | (8,152,542 | )
|                                             |                                |                          |        |           |            |      |         |          
|Income tax expense                           |                                |                          | 10,341 |           |            |      | 255,035 |          
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                | Net loss                 |        | $         | (4,140,468 | )    |         | $         | (8,407,577 | )
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |        |           |            |      |         |          
|Net loss per share:                          |                                |                          |        |           |            |      |         |          
|                                             |                                | Basic                    |        | $         | (2.80      | )    |         | $         | (5.50      | )
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                | Diluted                  |        | $         | (2.80      | )    |         | $         | (5.50      | )
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                |                          |        |           |            |      |         |          
|Shares used in computing net loss per share: |                                |                          |        |           |            |      |         |          
|                                             |                                | Basic                    |        |           | 1,481,000  |      |         |           | 1,530,000  |  
|                                             |                                |                          |        |           |            |      |         |          
|                                             |                                | Diluted                  |        |           | 1,481,000  |      |         |           | 1,530,000  |  
|                                             |                                |                          |        |           |            |      |         |          

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

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POWERCERV CORPORATION

Consolidated Statement of Shareholders Equity

Years ended December 31, 2001 and 2000

|                            |  |              |           |                 |  |            |       |       |  |         |           |         |  |            |       |             |  |              |            |               |  |   |             |   |  |   |          |   |  |   |            |  
|--------------------------- |  | ------------ | --------- | --------------- |  | ---------- | ----- | ----- |  | ------- | --------- | ------- |  | ---------- | ----- | ----------- |  | ------------ | ---------- | ------------- |  | - | ----------- | - |  | - | -------- | - |  | - | ---------- | -
|                            |  | Common Stock |           | Preferred Stock |  |            |       |       |  |         |           |         |  |            |       |             |  |              |            |              
|                            |  |              |           |                 |  | Additional |       |       |  |         |           | Stock   |  | Total     
|                            |  |              |           |                 |  | Par        |       |       |  |         |           | Par     |  | Paid-In    |       | Accumulated |  | Subscription |            | Shareholders'
|                            |  | Shares       |           | value           |  | Shares     |       | Value |  | Capital |           | Deficit |  | Receivable |       | Equity     
|                            |  |              |           |                 |  |            |       |       |  |         |           |         |  |            |       |            
|Balance,
December 31, 1999  |  |              | 1,492,000 |                 |  | $          | 1,492 |       |  |         |          |         |  | $          |      |             |  | $            | 50,088,031 |               |  | $ | (38,936,308 | ) |  | $ |         |   |  | $ | 11,153,215 |  
|Issuance of
common stock    |  |              | 43,000    |                 |  |            | 43    |       |  |         |          |         |  |            |      |             |  |              | 870,926    |               |  |   |            |   |  |   |         |   |  |   | 870,969    |  
|Net loss                    |  |              |          |                 |  |            |      |       |  |         |          |         |  |            |      |             |  |              |           |               |  |   | (8,407,577  | ) |  |   |         |   |  |   | (8,407,577 | )
|                            |  |              |           |                 |  |            |       |       |  |         |           |         |  |            |       |             |  |              |            |               |  |   |             |   |  |   |          |   |  |   |            |  
|Balance,
December 31, 2000  |  |              | 1,535,000 |                 |  |            | 1,535 |       |  |         |          |         |  |            |      |             |  |              | 50,958,957 |               |  |   | (47,343,885 | ) |  |   |         |   |  |   | 3,616,607  |  
|Issuance of
preferred stock |  |              | (222,222  | )               |  |            | (222  | )     |  |         | 1,022,222 |         |  |            | 1,022 |             |  |              | 745,987    |               |  |   |            |   |  |   | (100,000 | ) |  |   | 646,787    |  
|Net loss                    |  |              |          |                 |  |            |      |       |  |         |          |         |  |            |      |             |  |              |           |               |  |   | (4,140,468  | ) |  |   |         |   |  |   | (4,140,468 | )
|                            |  |              |           |                 |  |            |       |       |  |         |           |         |  |            |       |             |  |              |            |               |  |   |             |   |  |   |          |   |  |   |            |  
|Balance,
December 31, 2001  |  |              | 1,312,778 |                 |  | $          | 1,313 |       |  |         | 1,022,222 |         |  | $          | 1,022 |             |  | $            | 51,704,944 |               |  | $ | (51,484,353 | ) |  | $ | (100,000 | ) |  | $ | 122,926    |  
|                            |  |              |           |                 |  |            |       |       |  |         |           |         |  |            |       |             |  |              |            |               |  |   |             |   |  |   |          |   |  |   |            |  

The accompanying notes are an integral part of this consolidated financial statement.

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POWERCERV CORPORATION

Consolidated Statements of Cash Flows

Years ended December 31, 2001 and 2000

|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |            |      |          |           |            |  
|-------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------- | --------------------------------------------------- | -------- | ---------- | ---------- | ---- | -------- | --------- | ---------- | -
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          | 2001       |            | 2000
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |            |     
|Cash flows from operating activities:        |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |           
|                                             | Net loss                                                             |                                                                             | $                                    | (4,140,468                            | )                                                   |          | $          | (8,407,577 | )   
|                                             | Adjustments to reconcile net loss to net cash                        |                                                                             |                                      |                                       |                                                     |          |            |            |     
|                                             |                                                                      | Adjustments to reconcile net loss to net cash used in operating
activities: |                                      |                                       |                                                     |          |            |            |      |         
|
|                                             |                                                                      |                                                                             | Depreciation and amortization        |                                       |                                                     | 642,331  |            |            |      | 754,768  |          
|                                             |                                                                      |                                                                             | Gain on sale of business             |                                       |                                                     |         |            |            |      | (827,500 | )        
|                                             |                                                                      |                                                                             | Deferred revenue                     |                                       |                                                     | (644,850 | )          |            |      | (510,533 | )        
|                                             |                                                                      |                                                                             | Provision for uncollectible accounts |                                       |                                                     | 213,500  |            |            |      | 936,101  |          
|                                             |                                                                      |                                                                             | Changes in assets and liabilities:   |                                       |                                                     |          |            |            |      |          |          
|                                             |                                                                      |                                                                             |                                      | Accounts receivable                   |                                                     |          | 1,389,982  |            |      |          | 3,478,313 |           
|                                             |                                                                      |                                                                             |                                      | Inventories                           |                                                     |          | 350        |            |      |          | 112       |           
|                                             |                                                                      |                                                                             |                                      | Deposits and other                    |                                                     |          | 769,038    |            |      |          | (256,312  | )         
|                                             |                                                                      |                                                                             |                                      | Accounts payable and accrued expenses |                                                     |          | (275,641   | )          |      |          | (348,725  | )         
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |            |     
|                                             |                                                                      |                                                                             |                                      |                                       | Net cash used in operating activities               |          |            | (2,045,758 | )    |          |           | (5,181,353 | )
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |            |     
|Cash flows from investing activities:        |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |           
|                                             | Purchases of property and equipment, net                             |                                                                             |                                      | (16,658                               | )                                                   |          |            | (28,238    | )   
|                                             | Exercise of third-party put options                                  |                                                                             |                                      |                                      |                                                     |          |            | 500,000    |     
|                                             | Purchase of software                                                 |                                                                             |                                      |                                      |                                                     |          |            | (250,000   | )   
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |            |     
|                                             |                                                                      |                                                                             |                                      |                                       | Net cash provided by (used in) investing activities |          |            | (16,658    | )    |          |           | 221,762    |  
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |            |     
|Cash flows from financing activities:        |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |           
|                                             | Net proceeds from issuance of preferred stock, net of offering costs |                                                                             |                                      | 561,787                               |                                                     |          |            |           |     
|                                             | Net proceeds from issuance of common stock, net of offering costs    |                                                                             |                                      |                                      |                                                     |          |            | 870,969    |     
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |           
|                                             |                                                                      |                                                                             |                                      |                                       | Net cash provided by financing activities           |          |            | 561,787    |      |          |           | 870,969    |  
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |           
|Net decrease in cash and cash equivalents    |                                                                      |                                                                             | (1,500,629                           | )                                     |                                                     |          | (4,088,622 | )         
|Cash and cash equivalents, beginning of year |                                                                      |                                                                             | 2,135,636                            |                                       |                                                     |          | 6,224,258  |           
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |           
|Cash and cash equivalents, end of year       |                                                                      | $                                                                           | 635,007                              |                                       |                                                     | $        | 2,135,636  |           
|                                             |                                                                      |                                                                             |                                      |                                       |                                                     |          |            |           

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

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Organization and Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  | PowerCerv Corporation and its wholly-owned subsidiary (PowerCerv
Technologies Corporation) develop, market, license, implement and support
enterprise commerce management solutions to small and medium size
discrete manufacturing companies with annual revenues between $5 million
and $250 million. In addition, PowerCerv provides a 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) |  | Principles
of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |     |  | The Consolidated
Financial Statements include the accounts of PowerCerv Corporation
and its subsidiary. All significant intercompany balances and
transactions have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |    
| |  | (b) |  | 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, the valuation allowance relating to deferred tax
assets, and the recoverability of long term assets, including
property and equipment and intangible assets.
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | (c) |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | (d) |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | (e) |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     |  | 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. An
impairment loss is recognized to the extent that the sum of
discounted estimated future cash flows using an estimated
borrowing rate and asset life that is expected to result from the
use of the asset, is less than the carrying value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | (f) |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     |  | The Company recognizes 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. 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 postpone revenue recognition until these
contingencies have been removed. Historically, product returns and
allowances have been immaterial. Consulting and education revenue,
including related billable expenses of $451,864 and $1,038,116 in
2001 and 2000, respectively, 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.
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | (g) |  | 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
technological feasibility has been determined, additional costs
incurred in development, including coding, testing, and product
quality assurance, are capitalized when material.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     |  | 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 began amortizing these costs in 2001 over a three-year
period. The Company considers this product as an add-on to its
main product line and regularly offers this product to potential
new customers as part of its sales approach.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | 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. An impairment
loss is recognized to the extent that the sum of discounted
estimated future cash flows using an estimated borrowing rate and
asset life that is expected to result from the use of the asset,
is less than the carrying value.
| |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |  |  | Acquired software technology and its amortization are summarized
as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|     |  |      |           |         |  |              |         |             |  |  |           | 
|---- |  | ---- | --------- | ------- |  | ------------ | ------- | ----------- |  |  | --------- | 
|     |  |      |           |         |  | Amortization |         | Accumulated
|Year |  | Cost |           | expense |  | amortization
|     |  |      |           |         |  |             
|2001 |  | $    | 3,457,000 |         |  |              | 183,000 |             |  |  | 3,090,000 | 
|2000 |  |      | 3,457,000 |         |  |              |        |             |  |  | 2,907,000 | 

| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (h) |  | 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
| |  |      |      |      |  |         |         |             
| |  |      | 2001 |      |  | $       | 569,000 |              |  |              | 7,000 |             |  |  | 561,000 | 
| |  |      | 2000 |      |  |         | 569,000 |              |  |              | 7,000 |             |  |  | 554,000 | 

| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (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.

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##### Table of Contents



POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | (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 11(b))
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | (l) |  | Net Loss Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |     |  | The Company computes net 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
loss per share (EPS) for the periods indicated:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|            |                                                                          |        |       |              |           |      |       |            |           | 
|----------- | ------------------------------------------------------------------------ | ------ | ----- | ------------ | --------- | ---- | ----- | ---------- | --------- | 
|            |                                                                          |        |       | December 31,
|            |                                                                          |        |       |             
|            |                                                                          |        |       | 2001         |           | 2000
|            |                                                                          |        |       |              |           |     
|Basic:      |                                                                          |        |       |              |           |      |       |           
|            | Net loss                                                                 |        | $     | (4,140,468   | )         |      | $     | (8,407,577 | )        
|            |                                                                          |        |       |              |           |      |       |            |          
|            | Average shares outstanding                                               |        |       | 1,481,000    |           |      |       | 1,530,000  |          
|            |                                                                          |        |       |              |           |      |       |            |          
|Basic EPS   |                                                                          | $      | (2.80 | )            |           | $    | (5.50 | )         
|            |                                                                          |        |       |              |           |      |       |            |          
|Diluted:    |                                                                          |        |       |              |           |      |       |           
|            | Net loss                                                                 |        | $     | (4,140,468   | )         |      | $     | (8,407,577 | )        
|            |                                                                          |        |       |              |           |      |       |            |          
|            | Average shares outstanding                                               |        |       | 1,481,000    |           |      |       | 1,530,000  |          
|            | Net effect of dilutive stock options
based on the treasury stock method |        |       |             |           |      |       |           |          
|            |                                                                          |        |       |              |           |      |       |            |          
|            |                                                                          | Totals |       |              | 1,481,000 |      |       |            | 1,530,000 | 
|            |                                                                          |        |       |              |           |      |       |            |          
|Diluted EPS |                                                                          | $      | (2.80 | )            |           | $    | (5.50 | )         
|            |                                                                          |        |       |              |           |      |       |            |          

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | Common stock equivalents in the years ended December 31, 2001 and
2000 were anti-dilutive due to the market price being less than
the exercise price for 326,983 common stock options and 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. Other common stock equivalents include 1,022,222
shares of preferred stock convertible on a one for one basis into
common stock and 222,222 warrants to purchase convertible preferred
stock that is convertible into common stock on a one for one basis.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  | The Company held its annual meeting of shareholders on June 1,
2001. At this meeting, the shareholders approved an amendment to
PowerCervs Articles of Incorporation to effect a reverse stock
split and authorized the Board of Directors to make the final
determination on the reverse stock split. The Board of Directors
at its June 1, 2001, meeting approved a 1-for-9 reverse stock
split effective June 4, 2001. Prior periods have been adjusted to
reflect the reverse stock split.                                                                                                               
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(m) |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  | Certain prior year amounts have been reclassified to conform to
the current years presentation to recognize revenue for
billable expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(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, 2001 and 2000, cash equivalents
totaled approximately $105,000 and $566,000, respectively.                                                                                                                                                                                                                                                                                                                                                    
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  | Cash paid for income taxes was $10,341 and $38,975 in 2001 and
2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  | During 2001, $200,000 of notes were received in exchange for
200,000 shares of preferred stock. During 2001, the Company issued
222,222 shares of preferred stock in exchange for 222,222 shares of
its common stock valued at $222,222.                                                                                                                                                                                                                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  | Interest paid during the year ended December 31, 2000 was
approximately $8,900. The Company did not pay interest in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  | During 2001, the Company received services valued at $118,000 in
lieu of cash payments on a note receivable from a related party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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##### Table of Contents



POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (p) |  | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     |  | On July 20, 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) 141,
Business Combinations, and SFAS 142, Goodwill and Intangible
Assets. SFAS 141 is effective for all business combinations
completed after June 30, 2001. SFAS 142 is effective for the year
beginning January 1, 2002; however certain provisions of that
Statement apply to goodwill and other intangible assets acquired
between July 1, 2001, and the effective date of SFAS 142. The
Company does not anticipate that the adoption of this Statement
will have a significant effect on its results of operations or
financial position. The Company recognized $7,000 of goodwill
amortization expense in 2001.                                                                                                
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     |  | In July 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset,
except for certain obligations of lessees. This Statement is for
financial statements issued for fiscal years beginning after June
15, 2002. The Company is evaluating the impact of the adoption of
this standard and has not yet determined the effect of adoption on
its financial position and results of operations.
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |     |  | In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The provisions of the
statement are effective for financial statements issued for fiscal
years beginning after December 15, 2001. The Company does not
anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial
position.                                                                                                                                                                                      

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) |  | Operating Initiatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  | The Company incurred net losses of $4,140,468 in 2001 and, while management has taken steps that it
believes will improve net losses, the Company expects to continue to
incur a net loss from operations during 2002. At December 31, 2001, the
Company also had an accumulated deficit of $51,484,353, total
shareholders equity of $122,926, and a working capital deficit of
$728,361. In view of these matters, recoverability of recorded property
and equipment, software and intangible assets and other asset amounts
shown in the accompanying financial statements is dependent upon
continued operation of the Company, which in turn is dependent upon the
Company improving its overall level of profitability. In addition, the
success of the Company could also, among other things, require obtaining
financing, including possible sales of equity securities. The Company
has been in discussions with a third party regarding a proposed
alliance involving an equity investment in the Company; however the
ultimate outcome of those discussions is not yet known. Among the
steps taken to improve the overall operations and financial condition
are restructuring initiatives that commenced in 2000 and continued in
2001. The Company has also initiated or planned similar cost reduction
initiatives in 2002. The Company implemented flexible work arrangements
with certain employees that will transform otherwise fixed costs into
variable costs. Management reduced overall wages through uniform salary
adjustment initiatives and through workforce reductions. 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.

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | Management will its 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 its 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. During
2002, the Company obtained a commitment from a bank to provide a $100,000 line of credit,
secured by certain assets of the Company and guaranteed by the chief
executive officer and by a board member. The line of credit is
available to finance working capital needs through 2002; however, loans will
be reviewed by the bank six months from issuance. The Company will also seek third
party financing alternatives in amounts sufficient to meet its working
capital needs, including the potential sale of equity securities
representing a significant voting interest in the Company.                                                                                                         
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  | 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. 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, 2001,
approximately $169,000 remains in accrued liabilities for payments to be
made over the next 15 months. As part of this restructuring, the
Companys Chairman 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 July 2002.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  | During the first quarter of 2001, the Company announced and completed an
additional work force reduction in line with its objective to streamline
operations and improve financial condition. The Company recorded a
restructuring charge of $169,000 related to severance costs for
approximately 30 employees (1 senior-level staff and 29 non senior-level
employees primarily in research and development and services). As of
December 31, 2001, approximately $33,000 remains in accrued liabilities
for severance payments in connection with this restructuring.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  | During the second quarter of 2001, the Company implemented a minor
workforce reduction resulting in the elimination of approximately nine
positions throughout the Company. The Company recorded a restructuring
charge of $24,000 related to severance costs associated with the
terminations. As of December 31, 2001, these costs have been
substantially paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |  | During the fourth quarter of 2001, the Company implemented a further
workforce reduction resulting in the elimination of approximately 19
positions primarily in the services, sales and marketing and general and
administrative departments. The Company recorded a restructuring charge
of $133,000 primarily related to severance costs associated with the
terminations. As of December 31, 2001, approximately $133,000 remains in
accrued liabilities for payments related to this restructuring.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

|    |  |                                                                                
|--- |  | -------------------------------------------------------------------------------
|(5) |  | Property and Equipment                                                         
|    |  |                                                                                
|    |  | Property and equipment consists of the following at December 31, 2001 and
2000:

|                                               |  |      |           |      |  |         |           |  |  |              |       |  
|---------------------------------------------- |  | ---- | --------- | ---- |  | ------- | --------- |  |  | ------------ | ----- | -
|                                               |  |      |           |      |  |         |           |  |  | Estimated   
|                                               |  |      |           |      |  |         |           |  |  | useful lives
|                                               |  | 2001 |           | 2000 |  | (years)
|                                               |  |      |           |      |  |        
|Leasehold improvements                         |  | $    | 443,192   |      |  | $       | 434,593   |  |  |              | 3 - 5 | *
|Furniture and fixtures                         |  |      | 662,399   |      |  |         | 662,679   |  |  |              | 5 - 7 |  
|Computer equipment                             |  |      | 3,437,486 |      |  |         | 3,429,146 |  |  |              | 2 - 7 |  
|Equipment                                      |  |      | 534,992   |      |  |         | 534,992   |  |  |              | 3 - 7 |  
|                                               |  |      |           |      |  |         |           |  |  |              |       |  
|                                               |  |      | 5,078,069 |      |  |         | 5,061,410 |  |  |              |       |  
|Less accumulated depreciation
and amortization |  |      | 5,002,297 |      |  |         | 4,550,093 |  |  |              |       |  
|                                               |  |      |           |      |  |         |           |  |  |              |       |  
|                                               |  | $    | 75,772    |      |  | $       | 511,317   |  |  |              |       |  
|                                               |  |      |           |      |  |         |           |  |  |              |       |  



|    |  |                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------
|    |  | *Or the remaining term of the lease, if shorter.                                                                                     
|    |  |                                                                                                                                      
|    |  | Depreciation and amortization expense totaled approximately $452v,204 and
$747,978 during the years ended December 31, 2001 and 2000.
|    |  |                                                                                                                                      
|(6) |  | Accrued Expenses                                                                                                                     
|    |  |                                                                                                                                      
|    |  | Accrued expenses consist of the following at December 31, 2001 and 2000:                                                             

|                            |  |      |           |      |  |   |           | 
|--------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                            |  | 2001 |           | 2000
|                            |  |      |           |     
|Compensation                |  | $    | 269,479   |      |  | $ | 427,084   | 
|Severance and related costs |  |      | 240,998   |      |  |   | 390,667   | 
|Income tax assessment       |  |      | 410,296   |      |  |   | 410,296   | 
|Other                       |  |      | 450,321   |      |  |   | 491,533   | 
|                            |  |      |           |      |  |   |           | 
|                            |  | $    | 1,371,094 |      |  | $ | 1,719,580 | 
|                            |  |      |           |      |  |   |           | 

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

|    |  |                                                                                             
|--- |  | --------------------------------------------------------------------------------------------
|(7) |  | Income Taxes                                                                                
|    |  |                                                                                             
|    |  | Income tax expense for the years ended December 31, 2001 and 2000
consists of the following:

|                         |         |   |        |        |      |   |         |         | 
|------------------------ | ------- | - | ------ | ------ | ---- | - | ------- | ------- | 
|                         |         |   | 2001   |        | 2000
|                         |         |   |        |        |     
|Current:                 |         |   |        |        |      |   |         |        
|Federal                  |         | $ |       |        |      |   | 84,340  |        
|                         | State   |   |        | 10,341 |      |   |         | 170,695 | 
|                         |         |   |        |        |      |   |         |        
|                         |         |   | 10,341 |        |      |   | 255,035 |        
|                         |         |   |        |        |      |   |         |        
|Deferred:                |         |   |        |        |      |   |         |        
|                         | Federal |   |        |       |      |   |         |        | 
|                         | State   |   |        |       |      |   |         |        | 
|                         |         |   |        |        |      |   |         |        
|                         |         |   |       |        |      |   |        |        
|                         |         |   |        |        |      |   |         |        
|Total income tax expense |         | $ | 10,341 |        |      | $ | 255,035 |        
|                         |         |   |        |        |      |   |         |        



| |  |  | Income tax expense for the years ended December 31, 2001 and 2000
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:
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               |  |   |            |   |      |   |            |   | 
|-------------------------------------------------------------- |  | - | ---------- | - | ---- | - | ---------- | - | 
|                                                               |  |   | 2001       |   | 2000
|                                                               |  |   |            |   |     
|Expected income tax benefit                                  |  | $ | (1,382,259 | ) |      | $ | (2,771,864 | )
|State, net of federal benefit                                  |  |   | (162,619   | ) |      |   | (326,102   | )
|Change in the valuation allowance
for deferred tax assets      |  |   | 1,540,975  |   |      |   | 2,858,008  |  
|Nondeductible Items                                            |  |   | 9,344      |   |      |   | 22,414     |  
|Other, net (including tax assessment related to
prior periods) |  |   | 4,900      |   |      |   | 472,579    |  
|                                                               |  |   |            |   |      |   |            |  
|                                                               |  | $ | 10,341     |   |      | $ | 255,035    |  
|                                                               |  |   |            |   |      |   |            |  

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and deferred tax liabilities at
December 31, 2001 and 2000 are presented below:

|                          |                       |                                                                  |                                |                                 |            |         |             |         |           |         |             |  
|------------------------- | --------------------- | ---------------------------------------------------------------- | ------------------------------ | ------------------------------- | ---------- | ------- | ----------- | ------- | --------- | ------- | ----------- | -
|                          |                       |                                                                  |                                |                                 |            | 2001    |             | 2000   
|                          |                       |                                                                  |                                |                                 |            |         |             |        
|Deferred tax assets:      |                       |                                                                  |                                |                                 |            |         |             |        
|                          |                       | Provision for uncollectible accounts                             |                                | $                               | 826,217    |         |             | $       | 578,835   |        
|                          |                       | Accrued expenses and work force reduction                        |                                |                                 |           |         |             |         | 41,838    |        
|                          |                       | Depreciation and amortization property of property
and equipment |                                |                                 | 16,116     |         |             |         |          |        
|                          |                       | Operating losses                                                 |                                |                                 | 10,675,124 |         |             |         | 9,159,308 |        
|                          |                       | Intangible assets                                                |                                |                                 | 2,469,137  |         |             |         | 2,785,846 |        
|                          |                       |                                                                  |                                |                                 |            |         |             |        
|                          |                       |                                                                  |                                | Total gross deferred tax assets |            |         | 13,986,594  |         |           |         | 12,565,827  |  
|                          |                       |                                                                  |                                | Less valuation allowance        |            |         | (13,875,983 | )       |           |         | (12,335,008 | )
|                          |                       |                                                                  |                                |                                 |            |         |             |        
|                          |                       |                                                                  |                                | Net deferred tax assets         |            |         | 110,611     |         |           |         | 230,819     |  
|                          |                       |                                                                  |                                |                                 |            |         |             |        
|Deferred tax liabilities: |                       |                                                                  |                                |                                 |            |         |             |        
|                          |                       | Depreciation and amortization of property and equipment          |                                |                                 |           |         |             |         | 30,612    |        
|                          | Deferred gain on sale |                                                                  |                                | 110,611                         |            |         |             | 200,207 |          
|                          |                       |                                                                  |                                |                                 |            |         |             |        
|                          |                       |                                                                  | Gross deferred tax liabilities |                                 |            | 110,611 |             |         |           | 230,819 |            
|                          |                       |                                                                  |                                |                                 |            |         |             |        
|                          |                       | Total net deferred tax assets                                    |                                | $                               |           |         |             | $       |          |        
|                          |                       |                                                                  |                                |                                 |            |         |             |        

The Company increased its deferred income tax asset valuation allowance
by $1,540,975 and $2,858,000 during the year ended December 31, 2001 and
2000, respectively. 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, 2001 and 2000, the
Company has net operating loss carry forwards of approximately
$28,000,000 and $24,000,000, respectively for federal income tax purposes
that expire at various times from years 2010 to 2021.

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.

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8)  |  | Shareholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |  | During 2001, the Company issued 1,022,222 shares of
convertible Preferred Stock. The Preferred Stock is convertible to Common
Stock at a conversion rate of one share of Common Stock for each share of
Preferred Stock being converted. The Preferred Stock carries no dividend
or coupons and will be redeemable at the option of the Company after five
years. In consideration for the Preferred Stock, the Company received
cash of $600,000, notes receivable of $200,000 ($100,000 from a
director of the Company) and 222,222 shares of its Common Stock
valued at $222,222. The Company incurred financing costs of approximately
$38,000. The 222,222 Shares of Common Stock were formerly owned
by a past director and were sold to a current director under the
condition that they could be exchanged for preferred stock on a one
for one basis.
Subsequent to December 31, 2001, the Company received payment on
one of the notes at a discounted rate of $85,000. The remaining note
receivable is included as a reduction of shareholders equity at year-end.
Shares totaling 425,000 were sold to officers and directors of the
Company. In connection with the sale of these securities, warrants to
purchase 222,222 shares of Preferred Stock at an exercise price of $1.00
per share were granted. These warrants expire in August 2002. The
fair value of these warrants was considered in the cost of the
Preferred Stock issued.
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |  | During 1999, the Company granted a warrant to a third party to purchase
13,889 shares of the Companys common stock in consideration for
professional services. The warrant, which had an exercise price equal to
$15.75 per share, the fair market value of the Companys common stock on
the date of grant; was exercised on January 10, 2000, and the Company
received approximately $218,750 in proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(9)  |  | Comprehensive Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |  | For the years ended December 31, 2001 and 2000, the Company did not have
any comprehensive income (loss) other than the net income (loss) reported
on the Consolidated Statements of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(10) |  | 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 $402,000 and $577,000 during
the years ended December 31, 2001 and 2000, respectively. The
Company is in the process of negotiating an extension for its
corporate headquarters. The lease expires on August 31, 2002 and
includes a three-year renewal option.
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |     |  | Future minimum lease payments under non-cancelable operating lease
agreements during the years following December 31, 2001, are as follows:                                                                                                                                                                                                                                                                                      

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

|             |      |            |   |         | 
|------------ | ---- | ---------- | - | ------- | 
|Year ending  |      |            |   |        
|December 31, |      | Commitment
|             |      |           
|             | 2002 |            | $ | 221,000 | 
|             | 2003 |            |   | 18,000  | 
|             | 2004 |            |   |        | 
|             | 2005 |            |   |        | 
|             |      |            |   |        
|             |      |            | $ | 239,000 | 
|             |      |            |   |        

| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (b) |  | Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     |  | Lifsey V. Ross, et. al.:A complaint was filed on July 24, 1997, in the
United States District Court for the Middle District of Florida,
captioned J. Conrad Lifsey vs. Harold R. Ross, Gerald R. 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 II,
L.P., and Summit Ventures 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
parties have agreed to a settlement (for which the Company is insured)
and have filed with the Court a Memorandum of Understanding. The
Parties are currently drafting the terms of the settlement.
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |     |  | The Company, in the normal course of business, is also subject to
miscellaneous legal proceedings. The Company is defending these
proceedings and currently 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

|     |  |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- |  | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(11) |  | 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 2001 and
2000, the Company matched 30% of participant contributions to a
maximum matching amount of 6% of participant base compensation.
Total Company contributions were approximately $60,000 and
$118,000 during the years ended December 31, 2001 and 2000,
respectively. During the years ended December 31, 2001 and 2000,
this match occurred in the form of Company common stock purchased
in the open market. During 2001 and 2000, Plan forfeitures funded
a portion of 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 519,444 shares
have been reserved for issuance under the plan.                                                                                                                                                                                                                                                                                                                                                                                
|     |  |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |  |                        |  | Activity with respect to all stock options is summarized as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                             |                   |  |                     |          |       |   |                  |       | 
|---------------------------- | ----------------- |  | ------------------- | -------- | ----- | - | ---------------- | ----- | 
|                             |                   |  | Options outstanding
|                             |                   |  |                    
|                             |                   |  |                     |          |       |   | Weighted-average
|                             |                   |  |                     |          |       |   | option          
|                             |                   |  |                     |          |       |   | price per       
|                             |                   |  | Shares              |          | share
|                             |                   |  |                     |          |      
|Balance at December 31, 1999 |                   |  | 648,182             |          |       | $ | 26.55            |      
|                             | Options granted   |  |                     | 233,297  |       |   | $                | 9.99  | 
|                             | Options exercised |  |                     | (42,611  | )     |   | $                | 20.70 | 
|                             | Options canceled  |  |                     | (372,362 | )     |   | $                | 21.06 | 
|                             |                   |  |                     |          |       |   |                  |      

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

|                             |                   |  |  |  |  |  |                     |          |       |   |                  |       | 
|---------------------------- | ----------------- |  |  |  |  |  | ------------------- | -------- | ----- | - | ---------------- | ----- | 
|                             |                   |  |  |  |  |  | Options outstanding
|                             |                   |  |  |  |  |  |                    
|                             |                   |  |  |  |  |  |                     |          |       |   | Weighted-average
|                             |                   |  |  |  |  |  |                     |          |       |   | option          
|                             |                   |  |  |  |  |  |                     |          |       |   | price per       
|                             |                   |  |  |  |  |  | Shares              |          | share
|                             |                   |  |  |  |  |  |                     |          |      
|Balance at December 31, 2000 |                   |  |  |  |  |  | 466,506             |          |       | $ | 18.18            |      
|                             | Options granted   |  |  |  |  |  |                     | 96,335   |       |   | $                | 2.93  | 
|                             | Options exercised |  |  |  |  |  |                     |         |       |   |                  |      | 
|                             | Options canceled  |  |  |  |  |  |                     | (235,858 | )     |   | $                | 15.26 | 
|                             |                   |  |  |  |  |  |                     |          |       |   |                  |      
|Balance at December 31, 2001 |                   |  |  |  |  |  | 326,983             |          |       | $ | 15.81            |      
|                             |                   |  |  |  |  |  |                     |          |       |   |                  |      

The range of exercise prices, shares, weighted-average contractual
lives and weighted-average exercise prices for the options
outstanding at December 31, 2001 is presented below:

|                |               |        |    |                  |  |                  |         |                  |        |       |  |  | 
|--------------- | ------------- | ------ | -- | ---------------- |  | ---------------- | ------- | ---------------- | ------ | ----- |  |  | 
|Range of        |               |        |    |                  |  | Weighted-average |         | Weighted-average
|Exercise prices |               | Shares |    | contractual life |  | exercise price  
|                |               |        |    |                  |  |                 
|                | $1.83 - 15.07 |        |    | 156,742          |  |                  | 7 years |                  | $      | 5.75  | 
|                | 15.07 - 30.15 |        |    | 132,741          |  |                  | 5 years |                  |        | 21.27 | 
|                | 30.15 - 45.22 |        |    | 33,238           |  |                  | 3 years |                  |        | 36.41 | 
|                | 45.22 - 60.30 |        |    | 3,495            |  |                  | 4 years |                  |        | 46.92 | 
|                | 75.37 - 90.45 |        |    | 734              |  |                  | 4 years |                  |        | 90.00 | 
|120.60 - 135.66 |               |        | 33 |                  |  | .1 years         |         |                  | 122.22 |      
|                |               |        |    |                  |  |                  |         |                  |        |       |  |  | 
|                | 1.83 - 135.66 |        |    | 326,983          |  |                  | 6 years |                  |        | 15.81 | 
|                |               |        |    |                  |  |                  |         |                  |        |       |  | 

The range of exercise prices, shares and weighted-average exercise
prices for the options exercisable at December 31, 2001, are presented below:

|                |               |             |    |                  |  |  |        |       | 
|--------------- | ------------- | ----------- | -- | ---------------- |  |  | ------ | ----- | 
|Range of        |               | Shares      |    | Weighted-average
|Exercise prices |               | Exercisable |    | Exercise price  
|                |               |             |    |                 
|                | $1.83 - 15.07 |             |    | 88,289           |  |  | $      | 6.59  | 
|                | 15.07 - 30.15 |             |    | 120,206          |  |  |        | 20.95 | 
|                | 30.15 - 45.22 |             |    | 28,954           |  |  |        | 36.05 | 
|                | 45.22 - 60.30 |             |    | 3,411            |  |  |        | 46.83 | 
|                | 75.37 - 90.45 |             |    | 734              |  |  |        | 90.00 | 
|120.60 - 135.66 |               |             | 33 |                  |  |  | 122.22 |      
|                |               |             |    |                  |  |  |        |      
|                | 1.83 - 135.66 |             |    | 241,627          |  |  |        | 18.10 | 
|                |               |             |    |                  |  |  |        |      

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The per share weighted-average fair value of stock options granted
during 2001 and 2000 were $2.28 and $1.78, respectively, on the
dates of grant using the Black Scholes option-pricing model with
the following weighted-average assumptions: 2001  expected
dividend yield of 0%, risk free interest rate averaging 5.5%,
expected volatility rate of 168%, and an expected life of 2.0
years; 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.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | 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:                                                                                                                                                                       

|                                       |  |      |            |          |  |      |       |          |  |   |             |     |  |   |       |  
|-------------------------------------- |  | ---- | ---------- | -------- |  | ---- | ----- | -------- |  | - | ----------- | --- |  | - | ----- | -
|                                       |  | 2001 |            | 2000    
|                                       |  |      |            |         
|                                       |  |      |            |          |  | Net  |       |          |  |   |             | Net
|                                       |  | Net  |            | loss per |  | Net  |       | loss per
|                                       |  | loss |            | share    |  | loss |       | share   
|                                       |  |      |            |          |  |      |       |         
|As reported                            |  | $    | (4,140,468 | )        |  | $    | (2.80 | )        |  | $ | (8,407,577  | )   |  | $ | (5.50 | )
|Statement 123
compensation, net of tax |  |      | (2,472,772 | )        |  |      | (1.67 | )        |  |   | (2,490,099  | )   |  |   | (1.63 | )
|                                       |  |      |            |          |  |      |       |          |  |   |             |     |  |   |       |  
|Pro forma disclosure                   |  | $    | (6,613,240 | )        |  | $    | (4.47 | )        |  | $ | (10,897,676 | )   |  | $ | (7.13 | )

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) |  | 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, 2001
|                                 |  |                                     
|                                 |  |                                      |           |         |  | License     |            |       |  |   |            |   |  |  
|                                 |  | Services                             |           | Product |  | Unallocated |            | Total
|                                 |  |                                      |           |         |  |             |            |      
|Revenues from
external customers |  | $                                    | 4,875,294 |         |  | $           | 1,231,468  |       |  | $ |           |   |  | $ | 6,106,762  |  
|Segment profit or loss           |  | $                                    | 1,409,335 |         |  | $           | (2,709,376 | )     |  | $ | (2,840,427 | ) |  | $ | (4,140,468 | )

|                                 |  |                                      |           |         |  |             |            |       |  |   |            |   |  |   |            |  
|-------------------------------- |  | ------------------------------------ | --------- | ------- |  | ----------- | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | -
|                                 |  | For the year ended December 31, 2000
|                                 |  |                                     
|                                 |  |                                      |           |         |  | License     |            |       |  |   |            |   |  |  
|                                 |  | Services                             |           | Product |  | Unallocated |            | Total
|                                 |  |                                      |           |         |  |             |            |      
|Revenues from
external customers |  | $                                    | 9,147,045 |         |  | $           | 3,523,451  |       |  | $ |           |   |  | $ | 12,670,496 |  
|Segment profit or loss           |  | $                                    | 2,445,998 |         |  | $           | (6,429,683 | )     |  | $ | (4,423,892 | ) |  | $ | (8,407,577 | )

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POWERCERV CORPORATION

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

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

|                                 |  |                                 |            |      |  |   |            |  
|-------------------------------- |  | ------------------------------- | ---------- | ---- |  | - | ---------- | -
|                                 |  | For the year ended December 31,
|                                 |  |                                
|                                 |  | 2001                            |            | 2000
|                                 |  |                                 |            |     
|General and administrative costs |  | $                               | (2,580,296 | )    |  | $ | (4,187,760 | )
|Work force reduction             |  |                                 | (326,195   | )    |  |   | (872,860   | )
|Interest and other income        |  |                                 | 76,405     |      |  |   | 64,263     |  
|Gain on sale of business         |  |                                 |           |      |  |   | 827,500    |  
|Income tax expense               |  |                                 | (10,341    | )    |  |   | (255,035   | )
|                                 |  |                                 |            |      |  |   |            |  
|                                 |  | $                               | (2,840,427 | )    |  | $ | (4,423,892 | )
|                                 |  |                                 |            |      |  |   |            |  

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(13) |  | 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 notes receivable from officers totaling $42,500 at
December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |  | 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 2000
(the buyers merger with another business and establishment of a stronger
management team) the collectibility of the note is reasonably assured.
During 2001, all scheduled payments were received under this note,
including interest of $34,529.
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(14) |  | 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, 2001, there were 1,022,000 preferred shares outstanding. The
Preferred Stock is convertible to Common Stock at a conversion rate of
one share of Common Stock for each share of Preferred Stock being
converted. The Preferred Stock carries no dividend or coupons and will be
redeemable at the option of the Company after five years.                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized on April 16, 2002.

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

In accordance with the Exchange Act, 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. FratelloMARC J. FRATELLO       |  | President, Chief Executive Officer
and Chairman of the Board |  | April 16, 2002
|                                           
|                                            |  |                                                              |  |               
|                                           
|/s/ Aria L. SiplinARIA L. SIPLIN            |  | Chief Financial Officer
(Principal Financial Officer)        |  | April 16, 2002
|                                           
|                                            |  |                                                              |  |               
|                                           
|/s/  John S. McMullenJOHN S. MCMULLEN       |  | Director                                                     |  | April 16, 2002
|                                           
|                                            |  |                                                              |  |               
|                                           
|/s/  Roy E. Crippen, IIIROY E. CRIPPEN, III |  | Director                                                     |  | April 16, 2002
|                                           
|                                            |  |                                                              |  |               
|                                           
|/s/  O.G. GreeneO.G. GREENE                 |  | Director                                                     |  | April 16, 2002

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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)                                                                                       

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|       |  |   |  |                                                                                                                                                                                                                      
|------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10* |  |  |  | Executive Employment Agreement, dated March 23, 1998, between the
Company and John Montague (incorporated herein by reference from
exhibit 10.10 to the Companys Annual Report on Form 10-K filed on
April 17, 2001)
|      
|10.11* |  |  |  | Executive Employment Agreement, dated April 7, 1998, between the
Company and Ira Herman (incorporated herein by reference from
exhibit 10.11 to the Companys Annual Report on Form 10-K filed on
April 17, 2001)    

|       |  |   |  |                                                                                                                                                                
|------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|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                                                                                         



---

|*  |  | Management contract or compensatory plan, contract or arrangement.
|-- |  | ------------------------------------------------------------------
|  
|** |  | Filed herewith.                                                   

49