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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                             ----------------------


                                    FORM 10-K/A


     [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
             EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2001
                                       OR

     [_]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
             EXCHANGE  ACT  OF  1934
                        FOR THE TRANSITION PERIOD FROM TO
                        COMMISSION FILE NUMBER: 000-31155

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

                   DELAWARE                               94-3219745
        (State or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)               Identification No.)

    1400 65TH STREET, SUITE 100, EMERYVILLE, CA             94608
      (Address of principal executive offices)            (Zip Code)

    Registrant's telephone number, including area code: (510) 428-6000

        Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001
                                    par value

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

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

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


     The  aggregate  market  value  of  the  voting  common  stock  held  by
non-affiliates  of  the  registrant  as of September 27, 2001, was approximately
$8,058,342  based  upon  the  closing  sale  price reported for that date on the
NASDAQ  National  Market.  Shares  of  common  stock  held  by  each officer and
director  and  by  each  person who owns more than 5% or more of the outstanding
common  stock  have  been  excluded  because  such  persons  may be deemed to be
affiliates.  This  determination  of  affiliate  status  is  not  necessarily
conclusive  for  other  purposes.

     The  number  of  shares  outstanding of the registrant's common stock as of
September  27,  2001,  was  40,836,547.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of  the  Proxy  Statement  for  registrant's  2001  Annual  Meeting of
Stockholders  to  be  held  in  November  2001  are incorporated by reference in
Part  III  of  this  Annual  Report  on  Form  10-K.
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                                       EVOLVE SOFTWARE, INC.

                                             FORM 10-K
                              FOR THE FISCAL YEAR ENDED JUNE 30, 2001
                                         TABLE OF CONTENTS

                                                                                       PAGE
                                                                                       ----
                                           PART I
<S>       <C>                                                                          <C>
Item 1.   Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1
Item 2.   Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   20
Item 3.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .   20
Item 4.   Submission of Matters to a Vote of Security Holders. . . . . . . . . . . .   20

                                          PART II
Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters. . .   21
Item 6.   Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . .   22
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   23
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk                   32
Item 8.   Financial Statements and Supplementary Data. . . . . . . . . . . . . . . .   33
Item 9.   Changes In and Disagreements With Accountants on Accounting and Financial
          Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   33

                                           PART III
Item 10.  Directors and Executive Officers of the Registrant . . . . . . . . . . . .   33
Item 11.  Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . .   33
Item 12.  Security Ownership of Certain Beneficial Owners and Management . . . . . .   33
Item 13.  Certain Relationships and Related Transactions . . . . . . . . . . . . . .   33

                                           PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . .   33
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   36
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-1
</TABLE>


This  amended  Annual  Report on Form 10-K/A contains forward-looking statements
within  the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. A word such as "expects," "anticipates,"
"intends," "believes" or similar language identifies forward-looking statements.
These  forward-looking  statements include, among other things, statements about
our  anticipated  growth  strategies,  the trends we see in our business and the
markets in which we operate, the features and functionality of our products, our
expectations  for  our  future  performance  and  the  market  acceptance of our
products, and the status of evolving technologies and software architectures and
their  growth  potential.  Forward-looking  statements  involve  risks  and
uncertainties.  Our actual results may differ materially from those contemplated
by  the  forward-looking  statements.  Factors that might cause or contribute to
these  differences  include,  but  are  not  limited  to, those discussed in the
section entitled "Item 1. Business, Factors That May Affect Future Results." You
are  cautioned  not  to  place undue reliance on the forward-looking statements,
which  speak  only  as of the date of this report. We undertake no obligation to
publicly  revise  or  update any forward-looking statements to reflect events or
circumstances  after  the  date  of  this  report.


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                                     PART I

ITEM  1.     BUSINESS

OVERVIEW

We  are  a  leading  provider  of  integrated Internet-based strategic workforce
optimization  software  for  automating people-driven service organizations like
professional  services firms and corporate information technology ("IT") groups.
Our  Evolve  4 software suite integrates and streamlines the core processes that
are  critical  to  services-oriented  organizations which center around managing
project  portfolios,  project  opportunities,  professional resources (including
contract  workers)  and  service  delivery. Our solution combines the efficiency
gains  of  automating  core  business  processes  with  the  benefits  of online
inter-company  collaboration,  creating  a  Strategic  Workforce  Optimization
Platform  for  a  variety  of  project-driven  services  organizations.

We  have  licensed  our  solution  to  over  100 customers who have collectively
purchased  it  to  manage  over  82,000  professionals.  Our  customers  include
professional  services  firms such as EDS and Icon Media Lab, high tech services
organizations  at  companies  such  as Sun Microsystems, Novell and Autodesk and
Corporate  IT organizations in companies such as CSFBdirect and Fleet Financial.

INDUSTRY  BACKGROUND

Organizations  have  invested  in  enterprise  software applications to automate
back-office  business  processes  such  as  benefits  management,  payroll
administration  and  general  ledger  accounting.  However, they have found that
traditional  enterprise  applications  are  difficult to adapt to their specific
requirements  for  managing  and  optimizing  strategic  workforces,  and cannot
capture the unique and changing characteristics of the professionals that are an
organization's  core  resource.  Traditional applications can manage and execute
simple  purchase  and  sale  transactions,  but  cannot  support  the inherently
collaborative  nature of project definition and delivery.  Moreover, traditional
applications  have  not  been  designed  to  address the complex and distributed
processes  that  connect  managers,  employees  and  contractors  within today's
project-driven  services  organizations.

As  a result, these basic processes generally continue to be performed manually,
with  spreadsheets,  phones  and  email  being  the  principal tools used.  Some
organizations  have  attempted  to  internally  develop  systems  to  manage the
complexities  of  their  operations.  While  providing  modest efficiency gains,
these  nonintegrated,  function-specific  systems  have often failed to meet the
challenges  of  large  and  growing  organizations  with  diverse,  dynamic, and
distributed  business  process  needs.  These  systems  are often cumbersome and
inflexible  and  are  only  capable of managing isolated processes.  The lack of
effective  process automation solutions often results in misallocated resources,
high  overhead  costs,  missed  revenue  opportunities and dissatisfaction among
clients,  partners  and  employees.

A  new  breed  of  end-to-end  Internet-based  business  solutions  has emerged,
combining the efficiency gains of business process automation solutions with the
capabilities of online collaborative networks.  Because they integrate disparate
and  disconnected  processes both within and between businesses, these solutions
attempt  to  address the challenges of industries with highly customized product
and  service  requirements,  complex  business  processes, collaborative design,
production  and fulfillment workflows, and significant dependence on information
exchange.

Strategic Workforce Optimization ("SWO") platforms are the next wave of critical
corporate applications that focus on a key corporate asset: the workforce. While
Professional  Services  Automation  ("PSA")  solutions,  which Evolve pioneered,
provide  tools to help professional services firms better manage their resources
to  increase  utilization,  utilization  is just one component of resource-value
realization,  i.e.,  the  impact  resources  have  on  profitability  and
competitiveness.  Evolve  continues  to provide PSA functionality to address the
resource  staffing  and utilization challenges faced by services firms, however,
Evolve  delivers  a broader, more comprehensive SWO platform that can be applied
to  a  range of markets where the workforce is a key component of value creation
and  the  work  is  inherently  project-oriented.

Evolve  currently  targets  three market opportunities directly: Global Services
Companies,  Services  divisions  of  technology  companies  and  Corporate  IT
organizations  in Global 2000 companies. These three market opportunities can be
further  divided  into  vertical  markets,  including  information  technology,
management  consulting,  advertising,  media,  public  relations,  architecture,
construction, engineering, financial services, law, tax, audit, and health care.


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We  believe that businesses where people are the key creators of strategic value
are  under  increasing competitive and operational pressure due to the following
trends:

     -    growing  complexity  of  professional  service  projects;
     -    increasingly  sophisticated,  more  demanding  services  acquirers;
     -    an  increasingly competitive market for skilled service professionals;
     -    a  growing  need  to  reduce  staff  without  affecting  key  business
          initiatives;
     -    increased  acceptance  of  project  outsourcing;  and
     -    economic  globalization.

We  believe that project-driven services organizations are unique in a number of
ways.  Unlike  product-oriented  industries producing homogeneous products using
standard  components and processes, project-driven services organizations create
information-based  deliverables using human resources ("strategic workers") with
unique  knowledge,  skills,  abilities  and  availability.  These  project-based
services  organizations  require  extensive  collaboration  between  services
providers  and  clients  in the definition of project needs and in the sourcing,
delivery and acceptance of services and deliverables.  Perhaps most importantly,
project-driven  services organizations are increasingly "virtual" organizations,
delivering  services  through  a  complex,  dynamic  network  of  resources  and
providers.

We  believe  that the unique nature of project-driven services organizations has
created  an  opportunity  for  a  solution specifically designed to optimize the
strategic  workforce.  By  automating  and  connecting the business processes of
project-driven  services  organizations  and  their  customers,  integrated  SWO
platforms  can  enable  these  organizations  to  better prioritize their needs,
thereby  ensuring  that human resources are allocated to the most strategic work
and  the  highest  ROI  projects.

The  professional services market is especially suited for SWO solutions because
consulting  firms and professional services organizations within companies share
many  identical  core  business  processes  for  managing service opportunities,
resources  and  delivery.  As  Corporate  IT  is looking to transition to a more
services-oriented model, they too need to focus on value realization to succeed.
Both  Corporate  IT  and  consulting firms are challenged by the need to balance
project  demand  against  resource availability, to manage internal and external
services  resources,  and to accurately assess the financial impact of projects.
The  similarity  in  the  processes of both internal and external project-driven
services  providers  creates  a  significant  opportunity  for an integrated SWO
solution  to  automate the entire value chain and successfully meet the needs of
all  market  participants.

We  believe  that  an  effective  SWO  platform  for  project-driven  services
organizations  must  provide:

     -    an  architecture  that  is designed to capture the inherently virtual,
          collaborative,  project-oriented and people-centric characteristics of
          the  project-driven  services  organizations;
     -    a  set  of  application  modules  integrating core business processes;
     -    an  ability  to  rapidly  deploy  the  solution across the enterprise;
     -    an  integration  with  existing  back-office  information  systems;
     -    an ability for a highly distributed and mobile workforce to access the
          platform locally or remotely through multiple Internet access devices;
     -    online  inter-company  collaboration  capabilities  that  facilitate
          efficient  interaction  across  the  organization;
     -    an  ability  to  deploy  in  either  self-hosted  or  remotely  hosted
          application  service  provider  (ASP)  models;  and
     -    a  scalable  solution  that  can  be  distributed  globally across the
          enterprise.


THE  EVOLVE  SOLUTION

We  are  a  leading  provider  of  integrated  Internet-based  SWO platforms for
automating  project-driven services organizations like professional services and
corporate  IT.  Our  solution,  Evolve  4,  integrates  and streamlines the core
processes  that  are  critical to project-based services organizations: managing
project  opportunities,  strategic  workers and service delivery. By integrating
these  processes,  Evolve 4 provides enhanced visibility of business performance
throughout  the enterprise, allowing businesses to more effectively identify and
pursue  revenue  opportunities, prioritize their internal and external projects,
increase  their  operational  efficiency  and  improve the productivity of their


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professionals.  We  enable  organizations  to  integrate  the  internal business
processes  of  service  providers,  partners  and  acquirers  in  an  efficient,
collaborative  environment.

We  believe  our  Evolve  4  SWO  platform  provides  the  following benefits to
project-driven  services  organizations  seeking  to  optimize  their  strategic
workforce:

Increased  Operational  Efficiency.  Evolve 4 is designed to allow our customers
to  achieve  significant  cost savings and productivity enhancements by offering
the  ability  to view and manage all of the core processes involved in providing
services  across  an  entire  organization.  Our  solution  is  accessible  to
professionals  and  managers  throughout a project-driven services organization,
allowing  them  to  communicate and collaborate throughout a project.  Using our
solution,  services  providers  can  rapidly  match  service  professionals with
projects  to  balance  supply  and  demand  for  personnel  resources within the
extended  enterprise.  Services  providers  can  also  quickly  identify  low
utilization  personnel and lower priority projects to intelligently downsize the
organization.  Our  Evolve  4  technology  also  automates and improves workflow
processes  and  monitors  key  project parameters, allowing business managers to
analyze  and  improve  performance  throughout  the  enterprise.

Real-time  Communication and Collaboration Across the Virtual Organization.  Our
solution  allows for the real-time, collaborative sale, management, and delivery
of  services  through  a dynamic and complex network of resources and providers.
By  connecting not only service professionals within an organization but also to
external  services  providers,  we allow our customers to employ the Internet to
communicate  in  real-time  about  changes  in  project requirements and timing,
resource  characteristics,  availability  and  actual  time  and  expense.

Improved  Retention  of  Service  Professionals.  By  enabling  professionals to
access  and  revise  their  skill  profiles, staffing preferences and assignment
schedules  in  real  time,  Evolve  4  helps  close the gap between professional
development  and project staffing needs, improving service professionals' levels
of  satisfaction  and  retention.  Improving  retention of service professionals
reduces recruitment and training expenses, protects key knowledge assets and can
have  a  significant  impact  on  operating  results  of  services  providers.

Stringently  Qualifying  Opportunities.  We believe our SWO platform enables our
customers  to  stringently  qualify  their project opportunities by prioritizing
projects  and  enhancing the visibility of demand for services within a project,
thereby  allowing  them  to  match  their  available  resources  to  project
opportunities.  Our  SWO  platform  provides tools that significantly reduce the
complexity  inherent  in  assessing  and  matching  resource  capabilities  and
available  revenue  opportunities  on  a  global basis and across organizational
boundaries.  This  helps  companies  focus  on  selecting  the most valuable and
strategic  opportunities  based  on  a  limited  and/or  shrinking  workforce.

Enhanced Client Satisfaction.  Our solution improves client satisfaction by more
effectively  matching  client  needs with the most knowledgeable and experienced
available resources for their project.  In addition, Evolve 4 facilitates timely
completion  of  projects  by  enabling  project managers to collaborate with the
service provider team and the client and make better decisions more quickly.  We
believe  that  collaborative  management  is  essential  to  increasing  client
satisfaction  and  generating  repeat  business.

THE  EVOLVE  STRATEGY

Our  objective is to become the leading SWO platform provider for automating the
strategic  worker in external and internal services organizations.  We intend to
achieve  our goal by gaining broad market acceptance for our SWO platform and by
enabling  our  customers  to collaborate online with their services partners and
customers.  Key  elements  of  our  strategy  include:

Extend  Market  Position Among IT Services Organizations and Leverage Leadership
into  Other  Markets.  Historically,  we have targeted our solution primarily at
professional  services organizations specializing in IT consulting.  We chose to
initially target the IT services market because of its large size and because IT
services professionals face particularly complex collaboration and transactional
processes in selling, managing, and delivering their services.  We are now using
our growing portfolio of customer references to penetrate services organizations
in  the  technology sector and Global 2000 Corporate IT organizations.  Building
on  our  experience and understanding of professional services organizations, we
have  taken  their  best  practices and incorporated them into our SWO platform,
which  we  believe  will help us expand into other professional services sectors
such  as  management  consulting  and  advertising.


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Capitalize  on  Technology  Leadership  and  Expand  Product  Offerings. We have
acquired  substantial  domain  expertise  in developing solutions addressing the
core  business  process automation needs of the services organizations.  We have
implemented  a  technical  architecture  that  meets  the  needs  of  services
organizations  for  flexible  solutions  that  can rapidly be configured to meet
their  individual  requirements  and  can  be  expanded  or  "scaled"  as  their
organizations  grow.  The  Evolve  4  architecture  is  designed  for  rapid and
cost-effective  implementation and configuration without requiring modifications
to  the  application's  source code.  We will continue to enhance our technology
and expand our service offerings to meet the evolving needs of our customers and
promote  broad market adoption and increased usage of our SWO platform solution.
We  expect to devote significant resources to building, expanding and continuing
to  tightly  integrate  our  SWO  platform  functionality,  as well as enhancing
integration  with  complementary  systems.

Encourage  Continued  Adoption of Our SWO Platform Through Expanded Acquisition,
Deployment and Pricing Options. We make our platform accessible to a broad range
of  businesses  by  providing a range of acquisition and deployment options, all
based  on  the  same technology platform and using our value-based pricing model
which  charges  customers  based  on  the  number  of resources managed with our
software.

Take  Advantage  of  Our  Installed  Base  to  Increased  Sales of Complementary
Services  and  Increase  Penetration  of  Customer  Organizations.  We intend to
capitalize  on  the  success  of  existing  deployments to encourage adoption of
Evolve  4  across  additional  workgroups  and  divisions  within our customers'
organizations.  We  also  will  continue  to  encourage  customers  to  deploy
additional  software  modules.

PRODUCTS  AND  SERVICES

Our  SWO solution helps external and internal services organizations improve the
effectiveness  of  their operations and connects them to their clients, partners
and  suppliers.  Our  products  capture  the  inherently virtual, collaborative,
project-oriented and people-centric characteristics of services organizations by
employing  the  universal accessibility of the Internet, an intuitive interface,
and  applications  functionality  encapsulating  our extensive domain expertise.
Our  highly  configurable  rules  engine allows the platform to be deployed by a
wide variety of customers supporting different business practices with no source
code  changes.  This enables us to address the different needs of a diverse base
of  customers  ranging from small emerging service firms to large complex global
services  organizations  across  a  variety  of  markets.

This  graphic  is  entitled  "Evolve  Strategic  Workforce  Optimization."

Description  of  graphic:  The Strategic Workforce Optimization diagram consists
of  six  boxes  aligned  around  an X and Y axis.  An X and Y axis are drawn and
three  boxes  are  placed along each axis with a box in the center where the X/Y
axis meet.  A circular line is then drawn around the outside, connecting five of
the  boxes.  Starting  left  along the X axis is a box called PLAN.  Next moving
into  the center is a box called ENGAGE.  On the far right of the diagram is the
final  box  of  the  X  axis called DELIVER.  Starting at the top of the Y axis,
above  the  box  in the center, is a box called SOURCE and the last box is below
the  center  box,  which  is  called  ENABLE.

Evolve believes that an integrated solution is required to address the following
needs:

     -    Plan: Tackle new projects intelligently and align your operations with
          corporate  goals
     -    Source:  Find  the  skilled  workers  you  need,  just  in time, while
          reducing  hiring  costs
     -    Engage: Deploy the right mix of people for each project and keep teams
          on  track
     -    Enable:  Accelerate  project delivery with online knowledge management
          and  collaboration  tools
     -    Deliver:  Stick  to  budgets  and  save

EVOLVE  4
Evolve  4,  our  flagship  product  suite, is an enterprise software application
system  that  is  deployed  by  project-driven  services  organizations  on  a


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distributed  basis  across  their  computer  networks or accessed remotely on an
application  service  provider  (ASP)  basis.  Evolve  4  is a proven end-to-end
solution  that can expand to address the needs of rapidly growing organizations.
Evolve  4  automates  and  integrates the key processes that are critical to the
operational  effectiveness  of  project-driven  services organizations. Evolve 4
also  enables  collaboration  with outside organizations in the areas of project
management, external sourcing of staff and invoicing. The Evolve 4 product suite
consists of seven applications or "modules", which can be deployed individually,
or can be used together to form a comprehensive SWO solution. These modules are:

Opportunity  Manager:  Evolve  Opportunity  Manager  automates  key  front-end
activities,  from tracking new projects and business opportunities to budgeting,
pricing,  and  capacity  planning.

Resource  Manager:  Evolve  Resource  Manager  is  a  full-visibility enterprise
scheduling  and  workflow  system  that  manages  resource  assignment,  project
staffing,  and  matching  the  right strategic worker with the right projects in
minutes.

Time  &  Expense Manager: Evolve Time and Expense Manager enables fast, accurate
time  and  expense  entry  and tracking based on project assignments and enables
customer  billing  or  chargebacks  to  corporate  business  units.

Delivery  Manager:  Evolve  Delivery  Manager  features powerful online tools to
enable complete control over project budgets and financial performance. Delivery
Manager  connects  seamlessly  with  Evolve  Time  &  Expense Manager so project
financial  data  displays  without  manual  re-entry.

Contractor  Manager:  Evolve  Contractor Manager, automates the business process
and  workflow  for  sourcing,  reviewing,  negotiating,  paying  and  procuring
contingent  workers  such  as  outside consultants, freelancers and contractors.

Portfolio  Manager:  Evolve  Portfolio  Manager  provides  a powerful, real-time
executive  dashboard  for  tracking  project  risk, value, and performance which
helps  align  projects'  portfolios  with  corporate  strategy.

Knowledge  Collaboration:  Evolve  Knowledge  Collaboration  system  provides
convenient  online  workspaces  and  knowledge  management tools to help project
teams  boost  quality,  accelerate  project  delivery,  and  fully  leverage the
organization's  intellectual  assets.


We  depend  on  certain third-party hosting service providers to manage and host
the  systems  underlying our application service provider (ASP) service offering
and  our   internal   information   systems.   These  providers  include  Exodus
Communications   and   COLO.COM,   each   of  which  has  experienced  financial
difficulties  and  is  currently  in  bankruptcy  reorganization.  To  date,  no
disruption of our ASP service or our internal operations has occurred.  However,
should  such disruptions occur,  we may be required to expend significant effort
and  resources  to  move  our  systems to alternative network service providers.


CUSTOMERS

Our  current customers include eBusiness consultants, the services organizations
of traditional software and hardware companies and the internal IT organizations
within  Global  2000  companies.  The  following are case studies of a sample of
Evolve  customers  who  have  purchased  our  solution:

ERICSSON

Ericsson  has  operations in 140 countries and can claim more customers than any
other  telecommunications  supplier  in the world.  Four out of every ten mobile
calls  are  handled  by  Ericsson  equipment.  Ericsson  chose to optimize their
professional teams using Evolve's workforce optimization solution.  Ericsson can


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see  how its services professionals are deployed in real time, gain insight into
the  future  demand  for  services  and  integrate  employees  into  worldwide
collaborative  business  processes.

RYDER  LOGISTICS  &  TRANSPORTATION  SOLUTIONS  WORLDWIDE

Consistently  ranked  as one of the most admired companies in the transportation
industry,  Ryder System, Inc. is a global leader in logistics and transportation
management  solutions.  Evolve  was  Ryder's  top  choice  for  automating their
Solution  Design,  Implementation  and  Operations  unit. Evolve allows Ryder to
better  manage  its  professional  resources and represents a major step towards
achieving  the  operational  efficiencies  needed  to  run  the value-generating
processes  at  Ryder. With Evolve, executives gain real-time visibility into how
each  operation  is performing, and get instant updates on sales, budgets, staff
availability,  and revenue projections. With global visibility and sophisticated
performance-analysis  tools  from  Evolve  4,  Ryder  can  deploy  people  more
efficiently,  cut  costs,  and  build  profitable  growth  strategies.

In  the  past, a small number of customers has contributed a substantial portion
of  our revenues in each fiscal period.  For instance, for the fiscal year ended
June  30,  2001,  sales to one customer accounted for 14% of our total revenues,
and  for  the  fiscal year ended June 30, 2000, sales to two customers accounted
for 19% and 13% of our total revenues.  We expect this concentration of customer
sales  to continue in the future.  Accordingly, the loss of a single customer or
customer  prospect  may have a substantial impact on our operating results if we
depended  on  the  sale  of  our products to that customer to meet our financial
performance  targets during a given fiscal period.  Our agreements with existing
customers  often do not include long-term commitments from customers to continue
to  purchase  our  products.


TECHNOLOGY

At  the  core  of our SWO solution is a highly adaptable, expandable (scalable),
multi-tier,  distributed,  Internet-based  architecture.  Our  SWO  platform
architecture  provides  a  common  foundation  on  which all Evolve products and
services are built, including the various components of the Evolve 4 application
suite.  Our  architecture  includes  the  following  components:

Evolve  4  Server
Some  of the key features of our Java-based Evolve 4 application server include:

     -    the  option  of  running  multiple  application  servers  to  provide
          scalability  for  large  sophisticated  organizations;
     -    patent-pending  resource  matching  algorithms  that  reduce  the time
          required  to  staff  projects;
     -    a  flexible  object-based  design  allowing rapid incorporation of new
          features  and  functionality;
     -    java-based  portability  that provides flexibility to support multiple
          operating  environments;  and
     -    Presentation  Interface.

We  have  the flexibility to provide access to a broad set of users by employing
different  presentation  interfaces:

     -    Internet  Browser  -  an  ease-of-use  interface  that allows services
          organizations  to  manage  and  share  information  through  a  secure
          intranet  or  Internet  connection;  and
     -    Handheld  Devices - an interface for mobile access to time and expense
          entry  through  popular  personal  digital  assistants  such  as  Palm
          devices.

Our  architecture  is  designed to allow us to quickly develop and introduce new
presentation  interfaces  that  leverage  new  and emerging access technologies.


                                        6
<PAGE>
sXML
Our SWO platform employs XML (eXtensible Mark-up Language), a common information
exchange  standard for electronic commerce.  We are in the process of developing
Services  XML  (sXML),  an  advanced  version  of the XML standard optimized for
exchanging  information  on  service  opportunities,  resources  and  delivery.

Analytics  Engine
We  have  the  ability  to  report on key data through a sophisticated analytics
engine.  These  reports are available through our browser-based reporting tools,
which  provides views of the entire value chain, such as opportunity and revenue
pipelines,  utilization  and  profitability  analysis,  and  resource supply and
demand  planning.

Application  Connectors
Our  system  provides  connectors  that  support  common  industry standards and
technologies  such  as  JDBC  (Java  DataBase Connectivity), ODBC (Open DataBase
Connectivity), SQL (Structured Query Language) and Java.  These connectors allow
for  integration  with:

     -    external  databases;
     -    third party reporting tools that complement our built-in browser-based
          report  center  capabilities;  and
     -    other  enterprise  applications  such as financial, human resource and
          sales  force  automation  systems.

Business  Rules  Repository
Our  SWO  platform  is designed to capture and store business information, rules
and  standards  in  a single, centralized repository that can be accessed by all
functional  modules.  This  centralized  information  structure allows for rapid
initial  deployment and also facilitates adaptation to changes in the customer's
organization  and  processes without source code modifications.  We also believe
this  architecture  will  allow  us  to more easily extend our solution to other
industries  beyond  information  technology  services.

Security  Controller
Our  integrated  security  and administration features store profiles and access
rules  within a centralized repository.  Customers can specify individual access
rules  for  employees based on their position within their organization, as well
as  for customers, partners and other external parties.  Our systems support the
Lightweight  Directory  Access  Protocol  (LDAP) security standard for universal
sign-on  and  authentication  functions.

Collaboration  and  Workflow  Manager
Our  platform  provides  sophisticated  management  of  structured  knowledge by
capturing  organizational  processes  and data in a notification-driven workflow
management  system.  Our  platform  incorporates  an integrated messaging system
that  notifies  users when actions, information or approvals are required.  This
system  helps to streamline approval processes, monitor resources and facilitate
collaboration  among  project  team  participants.

RESEARCH  AND  DEVELOPMENT

Since  our  inception  in 1995, we have made substantial investments in research
and  product  development.  We believe that our introduction of new and enhanced
products will be a key factor for our future success.  As part of our efforts to
generate  ideas for enhancing our existing products and for developing new ones,
we  maintain an ongoing dialogue with our customers who are facing new workforce
optimization  challenges.  We  have  devoted  and  expect  to continue to devote
significant  resources  to  developing  new and enhanced products, including new
releases  of  our  Evolve  4  platform.

In  January  2000  we  opened  a  new engineering development center in Chennai,
India.  Our  India  development  center is designed to accommodate 50 engineers.

Our  research and development expenses were $19.5 million in 2001, $10.4 million
in  2000  and  $5.1 million in 1999, excluding stock-based compensation charges.
We  anticipate we will continue to commit  substantial resources to research and
development  as  we  continue  to respond quickly to rapid technological change,
changing  customer  needs,  frequent product introductions and evolving industry
standards that may render existing products and services obsolete.  We currently
have  a  number  of  product  development initiatives underway, but we cannot be
certain  that  existing  or  new  customers  will  embrace  any  enhanced or new
products.


                                        7
<PAGE>
SALES  AND  MARKETING

We  sell  our  solutions  through  our  direct  sales organization in both North
America  and the United Kingdom. To date, international sales have accounted for
less  than five percent of our revenue.  In the future, we intend to enhance our
market presence through alliances with systems integrators and service partners.

In  selling  our  products,  we  typically  approach  both  business  users  and
information  technology professionals with an integrated team from our sales and
professional services organizations.  Initial sales activities typically include
a  demonstration  of  our  product capabilities followed by one or more detailed
technical  reviews.  Our  sales  process  requires  that  we  work  closely with
targeted  customers  to  identify  short-term  workforce  optimization needs and
long-term  goals.  Our  sales  team,  which  includes  both  sales and technical
professionals,  then  works  with  the customer to develop a proposal to address
these  needs.  In  many  cases,  we  collaborate  with  our  customers'  senior
management  team,  including  the  chief  executive  officer,  chief information
officer,  chief  operating  officer  and  chief financial officer.  The level of
customer  analysis  and  financial  commitment  required for many of our product
implementations  has  caused our sales cycle to range from two to twelve months.

We use a variety of marketing programs to build market awareness of our company,
our  brand  name  and  our  products, as well as to attract potential customers.
These  programs  include  advertising,  market  research,  product  and strategy
updates  with  industry  analysts,  public  relations  activities,  direct  mail
programs,  telemarketing  and  telesales,  seminars,  trade  shows,  speaking
engagements  and  Web-based marketing.  Our marketing organization also produces
marketing  materials  in  support of sales to prospective customers that include
brochures,  data  sheets,  white  papers,  presentations  and  demonstrations.

We  also  seek  to  establish  relationships  and  alliances with major industry
vendors  that  will  add  value to our products and enhance our market presence.
The  goal  of  our  efforts  is  to  form  alliances  with partners who can help
introduce  our  solutions to their customer base, and to be able to offer to our
own  customers  additional  software  applications  and  consulting  and support
services  from  which  they  are  likely  to  benefit.

PROFESSIONAL  SERVICES

We  provide implementation consulting, technical support, end-user training, and
change  management to ensure our customers receive the guidance and support they
need  to  implement  and  operate  our  SWO solution.  Our professional services
organization has developed implementation methodologies that allow our customers
to  rapidly  configure  and  deploy  our  SWO  platform  to support their unique
business  practices.

In  addition  to  professional  services,  we  offer  product maintenance to our
customers.  Maintenance  services  are typically subject to an annual, renewable
contract  and  are typically priced as a percentage of product license fees.  We
bundle maintenance services with our application service provider (ASP) offering
in  a single monthly subscription fee.  Customers receiving maintenance services
also  receive  product  upgrades as they are released throughout the life of the
maintenance  contracts.

COMPETITION

Competition  could  seriously  harm  our  ability  to  sell  additional software
solutions  and  subscriptions  on prices and terms favorable to us.  The markets
for  our  products  are  intensely  competitive  and subject to rapidly changing
technology.  We  currently  compete  against providers of enterprise application
software  such  as Peoplesoft, Siebel and SAP.  Companies in each of these areas
may  expand their technologies or acquire companies to support greater workforce
optimization  functionality and capability.  In addition, "in house" information
technology  departments  of  potential  customers  have developed or may develop
systems  that  substitute  for  some  of  the functionality of our SWO platform.

Some  of  our  competitors'  products may be more effective than our products at
performing  particular  functions  or  be  more customized for particular needs.
Even  if  these  functions are more limited than those provided by our products,
our  competitors'  software  products  could discourage potential customers from
purchasing our products.  A software product that provides some of the functions
of  our  solutions,  but  also  performs  other  tasks, may be appealing to some
customers  because  it  would  reduce  the number of different types of software
necessary  to effectively run their businesses.  Further, our competitors may be
able  to  respond  more quickly than we can to changes in customer requirements.


                                        8
<PAGE>
Some  of  our competitors have longer operating histories, significantly greater
financial,  technical, marketing or other resources, or greater name recognition
than  we do.  Our competitors may be able to respond more quickly than we can to
new  or  emerging  technologies  and  changes  in  customer  requirements.  Our
competitors  have  made  and may also continue to make strategic acquisitions or
establish  cooperative  relationships  among  themselves  or with other software
vendors.  They  may  also establish or strengthen cooperative relationships with
our  current  or  future  partners,  thereby limiting our ability to promote our
products through these partners and limiting the number of consultants available
to  implement  our  software.

We  believe  that  the  primary  competitive  factors  in  our  market  include:

     -    a  critical  mass  of  prominent  customers  that  have  successfully
          implemented  the  solutions;
     -    an  underlying  software  infrastructure  that  fully encapsulates the
          virtual,  collaborative,  and  people-centric  characteristics  of the
          services  organizations;
     -    inter-company  collaboration  capabilities  that  facilitate efficient
          business  processes  among  services  organizations;
     -    product  quality, performance, features, functionality, and usability;
     -    customer  service  and  support;  and
     -    ease  of  integration  with  customers'  business  processes.

We believe our current products compete favorably with respect to these factors,
although  our market is relatively new and evolving rapidly.  We may not be able
to  maintain  our  competitiveness  in  the  face  of  significant  competition.

INTELLECTUAL  PROPERTY

Our  success  is dependent on our ability to develop and protect our proprietary
technology  and  intellectual property rights.  We seek to protect our software,
documentation  and  other  written  materials primarily through a combination of
patent,  trade  secret, trademark and copyright laws, confidentiality procedures
and  contractual  provisions.  For  example,  we  license  rather  than sell our
software  and  require  licensees  to  enter into license agreements that impose
certain  restrictions  on  the  licensees'  ability to utilize the software.  In
addition,  we  seek  to  avoid  disclosure  of our trade secrets by, among other
things,  requiring persons with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source code.

We  have  been  issued  a patent in the United States covering the enablement of
dynamically  configurable  software  systems  by our Evolve software server.  We
also  have  two patent applications pending in the United States with respect to
the "Team Builder" functionality in our Resource Manager module and the time and
expense functionality of our Time and Expense module.  There can be no assurance
that  either  of  these  two applications would survive a legal challenge to its
validity  or  provide  significant  protection  to  us.  Despite  our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of  our  products  or  obtain and use information that we regard as proprietary.
Policing  unauthorized use of our products is difficult.  While we are unable to
determine  the  extent to which piracy of our software products exists, software
piracy  can  be  expected  to  be  a persistent problem, particularly in foreign
countries  where  the laws may not protect proprietary rights as fully as in the
United  States.  We  can  offer  no  assurance  that our means of protecting its
proprietary  rights  will  be  adequate or that our competitors will not reverse
engineer  or  independently  develop  similar  technology.

It  is  also possible that third-parties will claim that we have infringed their
current  or  future  products  or  technologies.  We  expect  that  enterprise
application  software  developers  will  increasingly be subject to infringement
claims  as  the  number of products in different industry segments overlap.  Any
claims,  with  or  without  merit,  could  be  time-consuming,  result in costly
litigation,  prevent product shipment, cause delays, or require us to enter into
royalty  or  licensing agreements, any of which could harm our business.  Patent
litigation  in  particular  has  complex  technical  issues  and  inherent
uncertainties.  In the event an infringement claim against us was successful and
we  could  not  obtain  a  license  on  acceptable terms or license a substitute
technology  or  redesign  to  avoid  infringement, our business could be harmed.

We  rely  on  software  that  we  have  licensed  from  third parties, including
Inprise/Borland,  ProSight,  Actuate,  Intraspect  and  Allaire,  to perform key
functions of our Evolve solution and we rely on these and other third parties to
support  their  products  for  our  development and customer support efforts. We
embed  into  our  software the products that we license from Inprise/Borland and
Allaire.  Our agreement with Allaire renews automatically each year, with either
party  able  to  terminate  the agreement upon sixty days written notice. We pay
Allaire a royalty every time a customer licenses our software, and the agreement
specifies  that  the  parties  can  reevaluate the royalty pricing every time we
release a new version of our software. Our agreement with Inprise/Borland renews
each  year  for up to five years provided that we pay the annual renewal fee. We
pay  Inprise/Borland  a  royalty every time a customer licenses our software. We


                                        9
<PAGE>
resell  products  that  we  license from Actuate, ProSight, and Intraspect These
products  are  ancillary  to  our core products, and provide enhanced reporting,
portfolio  management  and  knowledge  management capabilities respectively. Our
agreement  with Actuate runs through 2002 with the right to renew for successive
one  year  terms  by  mutual consent; our agreement with Prosight has an initial
18-month  term  with  a  right to renew for another year; and our agreement with
Intrapsect has an initial 14-month term and may be renewed is for additional one
year  terms provided that neither party is in breach of the agreement. The terms
of our agreements with each of these three vendors require that we pay a royalty
each  time  we  license  their  software to our customers. These companies could
terminate  our  licenses  if  we  breach our agreements with them, or they could
discontinue  support  of the products we license from them. This could result in
delays or reductions of sales or shipments of our SWO platform until alternative
software  can  be  developed  or  licensed.


We  indemnify  some  of  our customers against claims that our products infringe
upon  the  intellectual  property  rights of others.  We could incur substantial
costs  in  defending  our company and our customers against infringement claims.
In  the  event of a claim of infringement, we, or our customers, may be required
to  obtain  one  or more licenses from third parties.  We cannot assure you that
such  licenses  could be obtained from third parties at a reasonable cost, or at
all.  Defense  of  any  lawsuit  or  failure to obtain any such required license
could  have  a  material  adverse  effect  on  our  business.

EMPLOYEES

As of June 30, 2001, we had a total of 258 full-time employees, including 109 in
research and development, 72 in sales, marketing and business development, 48 in
professional  services  and  29  in  finance  and  administration.  None  of our
employees  is  subject  to  a  collective bargaining agreement.  We consider our
employee  relations  to  be  good.

FACTORS  THAT  MAY  AFFECT  FUTURE  RESULTS

OUR  BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED.

It  is  difficult to evaluate our business and our prospects because our revenue
and  income  potential are unproven.  We commenced recognizing sales revenues in
March  of  1999.  Because  of our limited operating history, there may not be an
adequate  basis  for  forecasts  of  future  operating results, and we have only
limited  insight  into the trends that may emerge in our business and affect our
financial  performance.

WE  HAVE  INCURRED  LOSSES  SINCE  INCEPTION,  AND WE MAY NOT BE ABLE TO ACHIEVE
PROFITABILITY.

We  have  incurred  net losses and losses from operations since our inception in
1995,  and we may not be able to achieve profitability in the future. As of June
30,  2001,  we had an accumulated deficit of approximately $215.8 million. Since
inception,  we have funded our business primarily from the sale of our stock and
by borrowing funds, not from cash generated by our business. Despite recent cost
reductions,  we  expect  to  continue  to incur significant sales and marketing,
research  and  development,  and  general and administrative expenses. As is the
case  with  many enterprise software companies, we have experienced a sequential
quarterly  decline  in  revenue  for  the  quarter ending June 30, 2001, and may
experience  a  further decline in the current quarter. As a result, we expect to
experience  continued  losses  and negative cash flows from operations. If we do
achieve  profitability,  we may not be able to sustain or increase profitability
on  a  quarterly  or  annual  basis  in  the  future.

OUR FUTURE OPERATING RESULTS MAY NOT FOLLOW PAST TRENDS DUE TO MANY FACTORS, AND
ANY  OF  THESE  COULD  CAUSE  OUR  STOCK  PRICE  TO  FALL.

We  believe  that  year-over-year comparisons of our operating results are not a
good  indication  of  future  performance.  Although  our operating results have
generally  improved  from  year to year in the recent past, our future operating
results  may not follow past trends.  It is likely that in some future years our
operating  results  may  be below the expectations of public market analysts and
investors  due  to factors beyond our control and, as a result, the price of our
common  stock  may  fall.

Factors that may cause our future operating results to be below expectations and
cause  our  stock  price  to  fall  include:

     -    the  lack  of  demand  for  and  acceptance  of  our products, product
          enhancements  and  services;  for  instance,  as  we expand our target
          customer focus beyond the information technology service consultancies


                                       10
<PAGE>
          and  into  internal  information  technology of corporate customers as
          well  as  into overseas markets, we may encounter increased resistance
          to  adoption  of  our  business  process  automation  solutions;
     -    unexpected  changes  in  the  development,  introduction,  timing  and
          competitive  pricing  of  our  products  and  services or those of our
          competitors;
     -    any  inability to expand our direct sales force and indirect marketing
          channels  both  domestically  and  internationally;
     -    difficulties  in  recruiting  and  retaining  key  personnel;
     -    unforeseen  reductions  or reallocations of our customers' information
          technology  infrastructure  budgets;  and
     -    any  delays  or  unforeseen costs incurred in integrating technologies
          and  businesses  we  may  acquire.

We plan to aggressively and prudently manage our operating expenses with a focus
on  our  research  and development organization and our direct sales group.  Our
operating  expenses  are  based  on  our expectations of future revenues and are
relatively  fixed in the short-term.  If revenues fall below our expectations in
any quarter, and we are not able to quickly reduce our spending in response, our
operating  results  for that quarter would be lower than expected, and our stock
price  may  fall.


WE MAY NEED SUBSTANTIAL ADDITIONAL CAPITAL TO FUND CONTINUED BUSINESS OPERATIONS
AT  THEIR  CURRENT  LEVELS IN FISCAL 2002 AND 2003 AND SUCH FINANCING MAY NOT BE
AVAILABLE  ON  FAVORABLE  TERMS,  IF  AT  ALL.

We  require substantial amounts of capital to fund our business operations.  The
rate  at  which  our  capital  is utilized is affected by the level of our fixed
expenses  (including  employee  related  expenses  and expenses relating to real
estate)  and  variable  expenses.  Substantial capital has been used to fund our
operating  losses.  Since inception, we have experienced negative cash flow from
operations  and  expect  to  experience  significant  negative  cash  flow  from
operations for the foreseeable future.  In September 2001 we signed a definitive
agreement  for  a  private  placement  of our Series A Preferred Stock, which is
expected  to  result  in  proceeds  of  at  least  $13 million.  This financing,
combined  with  the  cost  reductions we are undertaking and our existing credit
facilities,  are  expected  to  be  sufficient  to  meet  our  working  capital
requirements  through the end of the fiscal year ending June 30, 2002.  However,
we  may  require  additional  capital  prior  to that time if one or more of the
following  occur:

     -    Our  revenues from the sale of our products may fall below our current
          expectations  because  of  the current economic slowdown or otherwise.
     -    Forecasted  cash collections from customers may decline if some of our
          customers  become  insolvent  or  encounter  financial  difficulties.
     -    We  may  be  unable to reduce our operating expenses as rapidly and as
          extensively  as  we hope. For instance, we may discover that we cannot
          reduce our employee headcount as rapidly as we would like in the event
          that we are unable to secure commitments from third parties to provide
          integration and support services to our customers in lieu of providing
          these  services  ourselves.
     -    We  may  be  unable  to  comply with the financial and other covenants
          required  under  our  existing  credit  facilities,  and  these credit
          facilities  may  be  withdrawn  as  a  result.
     -    We may encounter opportunities that we wish to pursue to acquire other
          businesses  or  technologies  for  cash  consideration.

Accordingly,  we may require or seek to raise additional capital during the 2002
fiscal  year.  We  cannot be certain that additional financing will be available
on  favorable  terms,  if  at  all.

The  investors  participating in the private placement of our Series A Preferred
Stock  hold  warrants  to  purchase  additional shares of our Series A Preferred
Stock  and  common stock which, if exercised in full, would result in additional
proceeds  to  us  of  $26  million.  However,  these warrants are exercisable at
prices  in excess of the current market price of our common stock, and we cannot
predict  whether  they  will be exercised.  We have not commenced any efforts to
secure  additional  financing.

Further,  the  additional  shares  of our capital stock we may issue in any such
financings  may  result in additional dilution, which may be substantial.  If we
need  additional  funds and cannot raise them on acceptable terms, we may not be
able  to  continue  our  operations  at  the  current  level  or  at  all.



                                       11
<PAGE>
WE  MAY LOSE EXISTING CUSTOMERS, OR BE UNABLE TO ATTRACT NEW CUSTOMERS, IF WE DO
NOT  DEVELOP  NEW  PRODUCTS  OR  ENHANCE  OUR  EXISTING  PRODUCTS.

If  we  are  not  able  to maintain and improve our product-line and develop new
products,  we may lose existing customers or be unable to attract new customers.
We may not be successful in developing and marketing product enhancements or new
products on a timely or cost-effective basis.  These products, if developed, may
not  achieve  market  acceptance.

A limited number of our customers expect us to develop product enhancements that
may address their specific needs.  For instance, we have shared with some of our
customers  our  internal  product  roadmap  that  includes  descriptions  of new
functional  enhancements such as improved time and expense management for future
releases  of our software.  If we fail to deliver these enhancements on a timely
basis,  we  risk  damaging  our  relationship  with  these  customers.  We  have
experienced  delays  in  the  past  in  releasing  new  products  and  product
enhancements  and  may experience similar delays in the future.  These delays or
problems  in  the  installation  or implementation of our new releases may cause
some  of  these  customers  to forego additional purchases of our products or to
purchase  those  of  our  competitors.

WE MUST DIVERSIFY OUR CUSTOMER BASE IN ORDER TO ENHANCE OUR REVENUE AND MEET OUR
GROWTH  TARGETS.

We have historically derived a substantial percentage of our revenues from sales
of  our  products  and  services  to  firms  that  provide  technology-oriented
consulting,  design  and  integration  services,  including  a  number  of firms
specializing  in  Website design and e-commerce application development.  Growth
among  these  "e-business"  consultancies  has recently slowed dramatically, and
many  such  firms  have  ceased  operations  or  have  encountered  substantial
difficulties  in  raising  capital to fund their operations.  In anticipation of
these  developments, we commenced a program to aggressively diversify our client
base,  targeting  both  established  consulting  services companies and in-house
service  departments  of large corporations.  While we have recorded a number of
significant  customer  wins  in  these  areas,  we  may  in the future encounter
significant challenges in further expanding our customer base.  More established
corporations  are  often  more  reluctant  to  implement  innovative  enterprise
technologies  such  as  ours,  in  part because they often have made substantial
investments  in  legacy  applications  and  information  systems.  We  may  also
encounter  extended  sales  cycles  with  such prospective customers, and slower
rates of adoption of our solutions within their organizations.  As we reduce our
sales  force  headcount  in  order  to  reduce  expenses,  our sales capacity is
diminished  which may impact our ability to diversify our customer base.  All of
these factors may adversely affect our ability to sustain our revenue growth and
attain  profitable  operations.

FINANCIAL  DIFFICULTIES  OF  SOME  OF  OUR  CUSTOMERS  MAY  ADVERSELY AFFECT OUR
OPERATING  RESULTS.

As discussed above, a substantial portion of our early customers were e-business
consultancies focusing on Web development and e-commerce integration.  As public
valuations  for  many  such  businesses  have  declined  substantially in recent
months,  some of our customers may encounter difficulties in securing additional
financing  to  meet  their  obligations,  or  may  seek to limit expenditures to
conserve  their  cash  resources.  As a result, we may encounter difficulties in
securing  payment of certain customer obligations when due, and may be compelled
to  increase our bad debt reserves.  Any difficulties encountered in collections
from  customers  would  also adversely affect our cash flow, and would adversely
impact  our  operating  results.


WE  REDUCED OUR WORKFORCE DURING THE SECOND HALF OF THE YEAR, AND, IF WE FAIL TO
MANAGE THIS REDUCTION IN WORKFORCE, OUR ABILITY TO GENERATE NEW REVENUE, ACHIEVE
PROFITABILITY  AND  SATISFY  OUR  CUSTOMERS  COULD  BE  HARMED.

We  reduced  our  workforce  during  the  second half of this year after growing
significantly the first half of this year and in previous years.  Any failure to
manage this reduction in workforce could impede our ability to increase revenues
and  achieve profitability.  We reduced our number of employees from 326 at June
30,  2000,  to  258 as of June 30, 2001, and further reduced our headcount by 49
persons  in  August  2001.

As  we  reduce  our sales force headcount in order to reduce expenses, our sales
capacity  is  reduced  which  may  impact  our revenue growth.  As we reduce our
service  employee  headcount,  including  our  consulting services, training and
technical  support  personnel,  we  may not be able to provide the same level of
customer  responsiveness or expertise, and customer satisfaction may be impacted
as  a  result.

In  order  to  manage  our  reduced  workforce,  we  must:

     -    hire,  train  and  integrate  new  personnel in response to attrition;
     -    continue  to  augment  our  management  information  systems;


                                       12
<PAGE>
     -    manage  our  sales  and  services  operations,  which  are  in several
          locations;  and
     -    expand  and  improve  our  systems  and  facilities.


IF  THE  MARKET  FOR  PROCESS  AUTOMATION  SOLUTIONS  FOR  PROFESSIONAL SERVICES
ORGANIZATIONS  AND  OTHER  STRATEGIC  WORKFORCES  DOES NOT CONTINUE TO GROW, THE
GROWTH  OF  OUR  BUSINESS  WILL  NOT  BE  SUSTAINABLE.

The  future  growth  and  success  of  our  business  is  contingent  on growing
acceptance  of,  and  demand  for,  business  process  automation  solutions for
professional  services  organizations  and  other  strategic  workforces.
Substantially  all of our historical revenues have been attributable to the sale
of  automation  solutions  for  professional  services organizations.  This is a
relatively  new  enterprise  application  solution category, and it is uncertain
whether  major  services  organizations  and  service  departments  of  major
corporations  will  choose  to  adopt process automation systems.  While we have
devoted  significant resources to promoting market awareness of our products and
the  problems our products address, we do not know whether these efforts will be
sufficient  to  support  significant growth in the market for process automation
products.  Accordingly, the market for our products may not continue to grow or,
even  if  the  market  does  grow  in the immediate term, that growth may not be
sustainable.

REDUCTIONS  IN  CAPITAL  SPENDING  BY  CORPORATIONS  COULD REDUCE DEMAND FOR OUR
PRODUCTS.

Historically,  corporations  and  other  organizations  have tended to reduce or
defer  major  capital  expenditures  in  response  to  slower economic growth or
recession.  Market  analysts have observed a significant reduction in the growth
of  corporate  spending  on  information  technology projects in response to the
current  economic  slowdown.  To  the  extent  that current economic uncertainty
persists,  some of the prospective customers in our current sales pipeline could
choose  to postpone or reduce orders for our products, or may delay implementing
our  solutions  within  their  organizations.  In  addition,  existing customers
seeking  to  reduce  capital expenditures may cancel or postpone plans to expand
use  of  our  products  in additional operating divisions, or may defer plans to
purchase  additional  modules of our solutions.  Any of the foregoing would have
an adverse impact on our revenues and our operating results, particularly if the
current  period  of  volatility  in  the stock market and the general economy is
prolonged.


ANY  INABILITY  TO  ATTRACT  AND RETAIN SENIOR EXECUTIVE OFFICERS AND ADDITIONAL
PERSONNEL  COULD  AFFECT  OUR  ABILITY  TO  SUCCESSFULLY  GROW  OUR  BUSINESS.

We  recently  initiated  an  executive search for a new Chief Executive Officer.
Our  future  performance  will  depend  in significant measure on our ability to
recruit  a  highly  qualified  individual  to  serve  in such a position and the
ability  of  the new CEO to work effectively with other members of our executive
staff  and key employees, customers and partners.  In addition, if we are unable
to  hire  and retain a sufficient number of qualified personnel, particularly in
sales, marketing, research and development, services and support, our ability to
grow  our  business  could  be  affected.  The  loss  of the services of our key
engineering,  sales,  services or marketing personnel would harm our operations.
For  instance, loss of sales and customer service representatives could harm our
relationship  with  the  customers they serve, loss of engineers and development
personnel  could impede the development of product releases and enhancements and
decrease our competitiveness, and departure of senior management personnel could
result  in  a  loss  of  confidence  in  our company by customers, suppliers and
partners.  None of our key personnel is bound by an employment agreement, and we
do  not maintain key person insurance on any of our employees.  Because we, like
many  other  technology  companies,  rely on stock options as a component of our
employee  compensation,  if  the  market  price of our common stock decreases or
increases  substantially,  some  current or potential employees may perceive our
equity  incentives as less attractive.  In that case, our ability to attract and
retain  employees  may  be  adversely  affected.


IF  WE  FAIL  TO  EXPAND  OUR  RELATIONSHIPS  WITH  THIRD-PARTY  RESELLERS  AND
INTEGRATORS,  OUR  ABILITY  TO  GROW  REVENUES  COULD  BE  HARMED.

In  order  to  grow  our  business,  we  must establish, maintain and strengthen
relationships  with  third-parties,  such  as  information  technology  ("IT")
consultants and systems integrators as implementation partners, and hardware and
software  vendors  as  marketing  partners.  If  these  parties  do  not provide
sufficient,  high-quality  service  or  integrate  and  support  our  software
correctly,  our  revenues  may  be harmed.  In addition, these parties may offer
products  of other companies, including products that compete with our products.
Our  contracts  with third-parties may not require these third-parties to devote
resources to promoting, selling and supporting our solutions.  Therefore, we may
have  little control over these third-parties.  We cannot assure you that we can
generate  and maintain relationships that offset the significant time and effort
that  are necessary to develop these relationships, or that, even if we are able
to  develop  such  relationships,  these  third-parties will perform adequately.


                                       13
<PAGE>
WE  MAY  NOT  BE  ABLE  TO  REDUCE OUR OPERATING EXPENDITURES AS AGGRESSIVELY AS
PLANNED  AND  WE  MAY  NEED  TO  IMPLEMENT  ADDITIONAL RESTRUCTURING ACTIVITIES.

In  response to the current uncertain economic environment and volatility in the
public  equity markets, we recently implemented significant measures designed to
reduce  our  operating  expenses  and  enhance  our  ability to attain operating
profitability. For example, from July 1, 2000, through June 30, 2001, we reduced
our employee headcount by 133 persons, with reductions in virtually all areas of
operations.  We  further  reduced our headcount by 49 persons in August 2001. We
expect that our workforce reductions and other expense containment measures will
allow  us  to  continue  operations  into  the  foreseeable  future.

In order to achieve operating profitability, we will need to achieve significant
additional  cost  savings  in  future  quarters, without adversely affecting our
revenue growth.  Numerous factors could impede our ability to further reduce our
operating  expenses.  For  instance,  we currently expect to achieve significant
expense  reductions  by  limiting  the  headcount  of our services organization;
however,  we  may not be able to achieve the desired savings if we cannot engage
and  qualify third-party integration and support partners as rapidly as we hope.
In  addition,  if  our revenue growth fails to meet our current expectations, we
would be forced to seek expense reductions in excess of our current plans, which
may  not  be  achievable.  Any of these developments could impede our ability to
achieve  profitable  operations  in  accordance  with  current  expectations.


THE  LENGTHY  AND  UNPREDICTABLE SALES CYCLES FOR OUR PRODUCTS AND RESISTANCE TO
ADOPTION  OF  OUR  SOFTWARE  COULD  CAUSE  OUR  OPERATING  RESULTS TO FALL BELOW
EXPECTATIONS.

Our  operating results for future periods could be adversely affected because of
unpredictable  increases  in  our  sales cycles.  Our products and services have
lengthy and unpredictable sales cycles varying from as little as three months to
as  much as nine months, which could cause our operating results to be below the
expectations  of analysts and investors.  Since we are unable to control many of
the factors that will influence our customers' buying decisions, it is difficult
for  us  to  forecast  the  timing and recognition of revenues from sales of our
solutions.

Customers  in  our  target  market  often  take  an extended time evaluating our
products  before  purchasing  them.  Our  products may have an even longer sales
cycle  in  international  markets.  During  the  evaluation period, a variety of
factors, including the introduction of new products or aggressive discounting by
competitors and changes in our customers' budgets and purchasing priorities, may
lead  customers  to  not  purchase  or  to  scale  down orders for our products.

As  we target industry sectors and types of organizations beyond our core market
of  IT  services  consultancies, we may encounter increased resistance to use of
business  process automation solutions, which may further increase the length of
our sales cycles, increase our marketing costs and reduce our revenues.  Because
we are pioneering a new solution category, we often must educate our prospective
customers  on  the  use and benefit of our solutions, which may cause additional
delays  during  the  evaluation  process.  These  companies  may be reluctant to
abandon  investments  they  have made in other systems in favor of our solution.
In  addition,  IT  departments  of potential customers may resist purchasing our
solutions  for  a  variety  of  other  reasons,  particularly  the  potential
displacement  of  their  historical  role  in creating and running software, and
concerns  that  packaged software products are not sufficiently customizable for
their  enterprises.


OUR  SERVICES  REVENUES  HAVE  A  SUBSTANTIALLY  LOWER  MARGIN THAN OUR SOFTWARE
LICENSE  REVENUES,  AND  AN  INCREASE  IN  SERVICES REVENUES RELATIVE TO LICENSE
REVENUES  COULD  HARM  OUR  GROSS  MARGINS.

A  significant  shift  in  our revenue mix away from license revenues to service
revenues  would  adversely  affect our gross margins.  Revenues derived from the
services  we  provide  have  substantially  lower gross margins than revenues we
derive  from  licensing  our software.  The relative contribution of services we
provide to our overall revenues is subject to significant variation based on the
structure  and  pricing  of  arrangements  we  enter  into with customers in the
future,  and  the  extent  to  which  our  partners  provide  implementation,
integration,  training  and  maintenance services required by our customers.  An
increase  in  the  percentage  of  total  revenues  generated by the services we
provide  could  adversely  affect  our  overall  gross  margins.

DIFFICULTIES  WITH  THIRD-PARTY  SERVICES  AND  TECHNOLOGIES,  AS  WELL AS POWER
INTERRUPTIONS,  COULD  DISRUPT  OUR  BUSINESS, AND MANY OF OUR COMMUNICATION AND
HOSTING  SYSTEMS  DO  NOT  HAVE  BACKUP  SYSTEMS.

Many  of  our  communications  and  hosting  systems  do not have backup systems
capable  of  mitigating  the  effect  of  service  disruptions.  Our  success in
attracting  and  retaining customers for our Evolve application service provider


                                       14
<PAGE>
("ASP") offering and convincing them to increase their reliance on this solution
depends  on  our  ability  to  offer  customers  reliable, secure and continuous
service.  This  requires that we provide continuous and error-free access to our
systems  and  network  infrastructure.  We  rely on third-parties to provide key
components  of  our  networks and systems.  For instance, we rely on third-party
Internet  service  providers to host applications for customers who purchase our
solutions  on an ASP basis.  We also rely on third-party communications services
providers  for  the  high-speed connections that link our Web servers and office
systems  to  the  Internet.  Any  Internet  or communications systems failure or
interruption  could result in disruption of our service or loss or compromise of
customer  orders  and data.  These failures, especially if they are prolonged or
repeated,  would  make our services less attractive to customers and tarnish our
reputation.

In  addition,  California  has  recently been experiencing electric power supply
shortages that has resulted in intermittent loss of power in the form of rolling
blackouts.  While  neither  we nor our third-party Internet service providers or
communications  services  providers  have experienced any power failures to date
that  have  prevented  us  from  continuing  our  operations,  the recurrence of
blackouts  may  affect  our  ability  to  operate  our  business.

Finally,  our  third-party  Internet  and communications services providers have
been  and may continue to experience serious financial difficulties, which could
result  in  the  disruption  of  our  ASP  offering  to our customers as well as
potentially  affecting  our  ability  to  operate  our  business.  The financial
difficulties  of  these third-party providers, especially if they go unresolved,
would make our ASP offering less attractive to prospective and current customers
and  could  tarnish  our  reputation.

OUR  MARKETS  ARE  HIGHLY COMPETITIVE, AND COMPETITION COULD HARM OUR ABILITY TO
SELL  PRODUCTS  AND  SERVICES  AND  REDUCE  OUR  MARKET  SHARE.

Competition  could  seriously  harm  our  ability  to  sell  additional software
solutions  and  subscriptions  on prices and terms favorable to us.  The markets
for  our  products  are  intensely  competitive  and subject to rapidly changing
technology.  We  currently compete against providers of automation solutions for
professional  services  organizations,  such  as Peoplesoft, Siebel and SAP.  In
addition,  we  may, in the future, face competition from providers of enterprise
application  software  or  electronic  marketplaces.  Companies in each of these
areas  may  expand  their  technologies  or acquire companies to support greater
professional  services  automation functionality and capabilities.  In addition,
"in-house"  information  technology  departments  of  potential  customers  have
developed  or  may develop systems that substitute for some of the functionality
of  our  product  line.

Some  of  our  competitors'  products may be more effective than our products at
performing  particular  functions  or be more customized for particular customer
needs.  Even  if  these  functions  are  more limited than those provided by our
products,  our  competitors'  software  products  could  discourage  potential
customers  from  purchasing our products.  A software product that provides some
of the functions of our software solutions, but also performs other tasks may be
appealing  to  these  vendors'  customers  because it would reduce the number of
different  types  of  software  necessary  to  effectively run their businesses.
Further, many of our competitors may be able to respond more quickly than we can
to  changes  in  customer  requirements.

Some  of  our competitors have longer operating histories, significantly greater
financial,  technical, marketing or other resources, or greater name recognition
than  we do.  Our competitors may be able to respond more quickly than we can to
new  or  emerging  technologies  and  changes  in  customer  requirements.  Our
competitors  have  made  and may also continue to make strategic acquisitions or
establish  cooperative  relationships  among  themselves  or with other software
vendors.  They  may  also establish or strengthen cooperative relationships with
our  current  or  future  partners, limiting our ability to promote our products
through  these  partners  and  limiting  the  number of consultants available to
implement  our  software.


OUR  REVENUES  DEPEND ON ORDERS FROM OUR TOP CUSTOMERS, AND IF WE FAIL TO SECURE
ONE  OR  MORE  ORDERS,  OUR  REVENUES  WILL  BE  REDUCED.

Historically,  we  have  received  a significant portion of our revenues in each
fiscal  period  from  a  small  number of customers.  Accordingly, the loss of a
single  customer  or  customer  prospect  may  have  a substantial impact on our
operating results if we depended on the sale of our products to that customer to
meet  our  financial  performance  targets  during  a  given fiscal period.  Our
agreements  with  existing  customers often do not include long-term commitments
from  customers  to  continue to purchase our products.  Moreover, a substantial
percentage  of new customer contracts are typically signed in the last few weeks
of each fiscal quarter, and prospects we are pursuing have often made a decision
not  to  purchase  our  products  in  the  final  stages  of  the  sales  cycle.
Accordingly, our ability to meet our financial targets during each fiscal period


                                       15
<PAGE>
is subject to substantial variation and uncertainty, and the loss of one or more
customers  or  customer  prospects can cause our operating results to fall below
the expectations of investors and analysts and adversely affect our stock price.


IF  OUR  PRODUCTS DO NOT STAY COMPATIBLE WITH WIDELY USED SOFTWARE PROGRAMS, OUR
REVENUES  MAY  BE  ADVERSELY  AFFECTED.

Our  software  products  must work with widely used software programs.  If these
software programs and operating environments do not remain widely used, or we do
not  update  our software to be compatible with newer versions of these programs
and  systems,  we  may  lose  customers.

Our  software  operates  only  on  a  computer server running both the Microsoft
Windows  NT or Sun Solaris operating system and database software from Microsoft
or  Oracle.  In order to increase the flexibility of our solution and expand our
client  base,  we  must  be  able  to  successfully  adapt it to work with other
applications  and operating systems.  For example, we are in the early stages of
customer  deployment  on  the  Sun  Solaris  operating  system.  Because  this
development  effort  is  not  complete,  we cannot be certain that we will avoid
significant technical difficulties that could delay or prevent completion of the
development  effort.

Our software connects to and uses data from a variety of our customers' existing
software  systems, including systems from Oracle and SAP.  If we fail to enhance
our  software  to connect to and use data from new systems of these products, we
may  lose  potential  customers.

THE  COST AND DIFFICULTIES OF IMPLEMENTING OUR PRODUCTS COULD SIGNIFICANTLY HARM
OUR  REPUTATION  WITH  CUSTOMERS  AND  HARM  OUR  FUTURE  SALES.

If  our  customers  encounter unforeseen difficulties or delays in deploying our
products  and  integrating them with their other systems, they may reverse their
decision  to  use  our  solutions, which would reduce our future revenues, could
impact  the  collection  of  outstanding receivables, and potentially damage our
reputation.  Factors that could delay or complicate the process of deploying our
solutions  include:

     -    customers may need to modify significant elements of their existing IT
          systems  in  order  to  effectively integrate them with our solutions;
     -    customers  may  need  to  establish  and  implement  internal business
          processes  within  their  organizations before they can make effective
          use  of  our  software;
     -    customers  may  need  to  purchase  and  deploy significant additional
          hardware  and  software  resources  and  may  need to make significant
          investments  in  consulting  and  training  services;  and
     -    customers  may  rely on third-party systems integrators to perform all
          or a portion of the deployment and integration work, which reduces the
          control  we  have  over  the implementation process and the quality of
          customer  service  provided  to  the  customer.

OUR  SALES  ARE CONCENTRATED IN THE IT SERVICES CONSULTING INDUSTRY, AND, IF OUR
CUSTOMERS  IN THIS INDUSTRY DECREASE THEIR INFRASTRUCTURE SPENDING OR WE FAIL TO
PENETRATE  OTHER  INDUSTRIES,  OUR  REVENUES  MAY  DECLINE.


Sales  to customers in the IT services consulting industry accounted for 65% and
40%  of  our  revenues  in  fiscal  2000 and 2001, respectively.  Given the high
degree  of  competition  and  the rapidly changing environment in this industry,
there is no assurance that we will be able to continue sales in this industry at
current  levels.  Many  of  our  customers  and  potential  customers  in the IT
services  consultancy  industry  have  witnessed drastic declines in their stock
prices,  which  could  limit  our  current  customers from purchasing additional
licenses  of our software, and could prevent potential customers from making the
kinds  of  infrastructure  investments  that  would  allow  them to purchase our
software  in  the first place.  In addition, we intend to market our products to
professional  services  departments  of large organizations in other industries.
Customers  in these new industries are likely to have different requirements and
may  require us to change our product design or features, sales methods, support
capabilities  or pricing policies.  If we fail to successfully address the needs
of  these  customers,  we  may  experience  decreased  sales  in future periods.


IF OUR PRODUCTS CONTAIN SIGNIFICANT DEFECTS OR OUR SERVICES ARE NOT PERCEIVED AS
HIGH  QUALITY,  WE  COULD  LOSE  POTENTIAL  CUSTOMERS  OR BE SUBJECT TO DAMAGES.

Our  products  are  complex  and  may contain currently unknown errors, defects,
integration problems or other types of failures, particularly since new versions
are frequently released.  In the past we have discovered software errors in some
of  our  products  after introduction.  We may not be able to detect and correct
errors  before  releasing our products commercially.  If our commercial products
contain  errors,  we  may:


                                       16
<PAGE>
     -    need to expend significant resources to locate and correct the errors;
     -    be  required  to  delay  introduction  of  new  products or commercial
          shipment  of  products;  or
     -    experience  reduced sales and harm to our reputation from dissatisfied
          customers.

Our  customers  also may encounter system configuration problems that require us
to  spend  additional consulting or support resources to resolve these problems.

Some  of  our  customers  have  indicated  to  us  that  they  want a completely
integrated  solution,  including  a  single  user  interface and single database
platform.  While  our product roadmap calls for such an integrated solution, any
delays  in  delivering  such  a  solution  to  our  customers  may cause them to
downgrade  their  opinion  of  our  software  or  to  abandon  our  software.

Because  our  customers  use  our software products for critical operational and
decision-making  processes,  product  defects  may  also  give  rise  to product
liability  claims.  Although  our  license  agreements  with customers typically
contain  provisions  designed to limit our exposure, some courts may not enforce
all  or part of these limitations.  Although we have not experienced any product
liability  claims to date, we may encounter these claims in the future.  Product
liability  claims,  whether  or  not  they  have  merit,  could:

     -    divert  the  attention  of  our  management and key personnel from our
          business;
     -    be  expensive  to  defend;  and
     -    result  in  large  damage  awards.

We  do  not  have  product  liability  insurance,  and even if we obtain product
liability  insurance,  it  may  not  be  adequate  to  cover all of the expenses
resulting  from  such  a  claim.

OUR BUSINESS MAY SUFFER IF WE ARE NOT ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.

Our  success  is dependent on our ability to develop and protect our proprietary
technology  and  intellectual property rights.  We seek to protect our software,
documentation  and  other  written  materials primarily through a combination of
patent,  trade  secret, trademark and copyright laws, confidentiality procedures
and  contractual  provisions.  While we have attempted to safeguard and maintain
our  proprietary  rights,  we  do  not  know  whether  we  have  been or will be
completely  successful  in doing so.  Further, our competitors may independently
develop  or patent technologies that are substantially equivalent or superior to
ours.

We  have  been  issued  a patent in the United States covering the enablement of
dynamically  configurable  software  systems  by our Evolve software server.  We
also  have  two patent applications pending in the United States with respect to
the "Team Builder" functionality in our Resource Manager module and the time and
expense functionality of our Time and Expense module.  There can be no assurance
that  either  of  these  two applications would survive a legal challenge to its
validity  or  provide  significant  protection  to  us.  Despite  our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of  our  products  or  obtain and use information that we regard as proprietary.
Policing  unauthorized use of our products is difficult.  While we are unable to
determine  the  extent to which piracy of our software products exists, software
piracy  can  be  expected  to  be  a persistent problem, particularly in foreign
countries  where  the laws may not protect proprietary rights as fully as in the
United  States.  We  can  offer  no  assurance  that our means of protecting its
proprietary  rights  will  be  adequate or that our competitors will not reverse
engineer  or  independently  develop  similar  technology.

IF  OTHERS  CLAIM  THAT  WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, WE COULD
INCUR  SIGNIFICANT  EXPENSES  OR  BE  PREVENTED  FROM  SELLING  OUR  PRODUCTS.

We  cannot  provide  assurance that others will not claim that we are infringing
their  intellectual  property  rights  or  that we do not in fact infringe those
intellectual  property  rights.  We  have  not  conducted  a search for existing
intellectual  property  registrations,  and  we  may  be unaware of intellectual
property  rights  of  others  that  may  cover  some  of  our  technology.

Any  litigation  regarding  intellectual  property  rights  could  be costly and
time-consuming and divert the attention of our management and key personnel from
our  business  operations.  The  complexity  of  the technology involved and the
uncertainty  of  intellectual property litigation increases these risks.  Claims
of intellectual property infringement might also require us to enter into costly
royalty  or  license  agreements.


                                       17
<PAGE>
We  may  not be able to obtain royalty or license agreements on terms acceptable
to  us,  or  at  all.  We  also  may  be  subject  to  significant damages or an
injunction  against  use of our products.  A successful claim of patent or other
intellectual  property  infringement against us would have an immediate material
adverse  effect  on  our  business  and  financial  condition.


WE  CONTINUE  TO  OPERATE  INTERNATIONALLY,  BUT  WE  MAY  ENCOUNTER A NUMBER OF
PROBLEMS  IN  DOING  SO  WHICH  COULD  LIMIT  OUR  FUTURE  GROWTH.

We  may  not  be  able  to  successfully  market,  sell, deliver and support our
products  and  services  internationally.  Any  failure  to  build  and  manage
effective  international  operations  could  limit  the  future  growth  of  our
business.  Expansion  into  international  markets  will  require  significant
management  attention  and  financial resources to open additional international
offices  and  hire  international  sales  and support personnel.  Localizing our
products  is  difficult  and  may  take  longer  than  we  anticipate because of
difficulties  in  translation  and  delays  we  may experience in recruiting and
training  international  staff.  We  currently  have no experience in developing
local versions of our products, and limited experience in marketing, selling and
supporting  our  products and services overseas.  Doing business internationally
involves  greater  expense  and  many  additional  risks,  particularly:

     -    differences  and unexpected changes in regulatory requirements, taxes,
          trade  laws,  tariffs,  intellectual  property  rights  and  labor
          regulations;
     -    changes  in  a  specific  country's  or region's political or economic
          conditions;
     -    greater  difficulty  in  establishing,  staffing  and managing foreign
          operations;  and
     -    fluctuating  exchange  rates.

SECURITY  CONCERNS,  PARTICULARLY  RELATED  TO  THE  USE  OF OUR SOFTWARE ON THE
INTERNET, MAY LIMIT THE EFFECTIVENESS OF AND REDUCE THE DEMAND FOR OUR PRODUCTS.

Despite  our  efforts to protect the confidential and proprietary information of
our customers stored on our Evolve ASP solution via virtual private networks and
other  security devices, there is a risk that this information will be disclosed
to  unintended  third-party  recipients.  To the extent our ability to implement
secure  private  networks,  on  our Evolve ASP service, is impaired by technical
problems,  or by improper or incomplete procedural diligence by either ourselves
or  our  customers,  sensitive  information  could  be  exposed to inappropriate
third-parties  such as competitors of our customers, which may in turn expose us
to  liability  and  detrimentally  impact  our  customers' confidence in our ASP
service.

RESISTANCE  TO  ONLINE  USE  OF  PERSONAL  INFORMATION  REGARDING  EMPLOYEES AND
CONSULTANTS  MAY  HINDER THE EFFECTIVENESS OF AND REDUCE DEMAND FOR OUR PRODUCTS
AND  SERVICES.

Companies  store  information on our ASP offering and on online networks created
by  our  customers,  which  may include personal information of their employees,
including  employee backgrounds, skills, and other details.  These employees may
object  to online compilation, transmission and storage of such information, or,
despite  our  efforts to keep such personal information secure, this information
may  be  delivered  unintentionally  to  inappropriate  third-parties  such  as
recruiters.  Enterprise  applications  like  Evolve  have  always  run on secure
company  intranets.  The  information  contained  in  Evolve  databases  will be
exposed  to  the  unpredictable  security  of  the  Internet,  which  may create
unforeseen  liabilities  for  us.  Evolve is currently targeted primarily to the
North  American  market, but to the extent that European companies and customers
will  have  access  to  it (given the global nature of the Internet), and to the
extent  that  our  services  are utilized by Europeans, legal action grounded in
European  privacy  laws  could  prevent  our  ASP service from succeeding in the
European  market.

POTENTIAL  IMPOSITION  OF  GOVERNMENTAL  REGULATION  OR  TAXATION  ON ELECTRONIC
COMMERCE  COULD  LIMIT  OUR  GROWTH.

The  adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease the
demand  for our solutions, increase our cost of doing business or otherwise have
a  material  adverse  impact on our business.  Few laws or regulations currently
directly  apply  to  access commerce on the Internet.  Federal, state, local and
foreign  governments  are  considering  a  number  of legislative and regulatory
proposals  relating  to  Internet  commerce.  As  a  result, a number of laws or
regulations  may  be adopted regarding Internet user privacy, taxation, pricing,
quality  of  products  and  services  and  intellectual property ownership.  How
existing  laws  will  be  applied  to  the  Internet  in  areas such as property
ownership,  copyright, trademark, trade secret and defamation is uncertain.  The
recent  growth  of  Internet commerce has been attributed by some to the lack of
sales  and  value-added taxes on interstate sales of goods and services over the
Internet.  Numerous  state  and  local  authorities  have  expressed a desire to
impose  such  taxes on sales to businesses in their jurisdictions.  The Internet


                                       18
<PAGE>
Tax  Freedom Act of 1998 prevents imposition of such taxes through October 2001.
If  the  federal  moratorium  on  state and local taxes on Internet sales is not
renewed,  or  if  it  is  terminated  before  its expiration, sales of goods and
services over the Internet could be subject to multiple overlapping tax schemes,
which  could  substantially  hinder  the  growth  of  Internet-based  commerce.


RISKS  RELATED  TO  OUR  STOCK

OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES HAVE SIGNIFICANT CONTROL OVER US
AND  MAY  APPROVE  OR  REJECT  MATTERS  CONTRARY  TO  YOUR  VOTE  OR  INTERESTS.

Our executive officers and directors together with their affiliates beneficially
own,  or  have  rights  to  acquire,  an aggregate of approximately 57.5% of our
outstanding  common  stock. These stockholders, if acting together, will be able
to  significantly  influence all matters requiring approval by our stockholders,
including  the  election  of  directors  and  the approval of mergers or similar
transactions,  even  if  other  stockholders  disagree.  In  particular, Warburg
Pincus  Private  Equity  VIII, L.P. ("Warburg") owns or has the right to acquire
securities  with  voting  power  equivalent  to 55.0% of our outstanding capital
stock.  Furthermore,  certain  actions that we may wish to undertake require the
consent of holders of a majority of our outstanding shares of Series A Preferred
Stock, voting as a separate class.  These actions include authorization and sale
of certain senior securities, certain transactions involving a change of control
of  Evolve,  the  incurrence  of  significant  indebtedness  and  the payment of
dividends.  With  respect  to  these  and  other  matters,  the interests of the
holders  of  our  Series  A Preferred Stock will not necessarily be identical to
those  of  holders  of  our common stock.  For instance, in the event of certain
change  of  control  transactions,  the  holders of Series A Preferred Stock are
entitled  to  payment  of  a  liquidation  preference  prior  to  payment of any
consideration to the holders of our common stock.  This may cause the holders of
Series  A  Preferred  Stock  generally,  and  Warburg in particular, to favor or
oppose a merger or sale of the Company or its assets in circumstances where many
holders  of  common  stock  have  a  contrary  desire.  In such an instance, the
Company  may  not  be  able  to pursue the transaction in question even if it is
supported  by  many  or  most  holders  of  our  common  stock.


THE  SALE  OF  A  SUBSTANTIAL  NUMBER  OF SHARES OF COMMON STOCK COULD CAUSE THE
MARKET  PRICE  OF  OUR  COMMON  STOCK  TO  DECLINE.

Sales  of  a  substantial  number  of  shares  of our common stock in the public
market,  or  the  appearance  that  such  shares  are  available for sale, could
adversely affect the market price for our common stock.  The market price of our
stock  could also decline if one or more of our significant stockholders decided
for  any  reason  to sell substantial amounts of our stock in the public market.
As of August 31, 2001, we had 40,166,616 shares of common stock outstanding.  Of
these  shares,  35,325,418  were  freely  tradable  in the public market, either
without restriction or subject, in some cases, only to S-3 or S-8/S-3 prospectus
delivery  requirements,  and,  in  some  cases,  only  to either manner of sale,
volume,  or notice requirements of Rule 144 under the Securities Act of 1933, as
amended.  An  additional 3,287,944 shares will become eligible for sale, subject
only  to the manner of sale requirements of Rule 144, as our right to repurchase
these  shares  lapses over time with the continued employment by Evolve of these
stockholders.  The remaining 1,553,254 shares that were outstanding as of August
31,  2001,  will  be  freely  tradable,  subject  only  to  Form  S-3  delivery
requirements, upon the effectiveness of the Form S-3 that was filed in September
2001  and  that  is  expected  to  be amended in October 2001 (as will a further
663,495 shares which were issued on September 19, 2001, and which are subject to
increase  or  decrease based on Evolve's stock price as of the date the Form S-3
becomes  effective).

As  of  August  31,  2001,  we  also had 5,092,616 shares subject to outstanding
options  under  our stock option plans (plus 224,167 options and warrants issued
outside  of  any  plan),  and 2,533,725 shares are available for future issuance
under  these  plans.  We  have  registered the shares of common stock subject to
outstanding  options  and reserved for issuance under our stock option plans and
1,885,340  remaining  shares of common stock are reserved for issuance under our
2000  Employee  Stock  Purchase  Plan.  Accordingly,  shares  underlying  vested
options  will  be  eligible  for resale in the public market as soon as they are
purchased.


                                       19
<PAGE>

NASDAQ  LISTING  MAY  BE  AT  RISK.


We failed to maintain the minimum closing bid price of $1.00 over 30 consecutive
trading  days  as  required  by the Nasdaq National Market. Nasdaq has suspended
this  minimum  bid price requirement through January 2, 2002. If the minimum bid
price  requirement  is  reinstated  after  that  date  and  if  we are unable to
demonstrate  compliance  with  any Nasdaq requirement, the Nasdaq staff may take
further action with respect to a potential delisting of our stock. We may appeal
any  such  decision  by  the  Nasdaq  staff to the Nasdaq Listing Qualifications
Panel.

ITEM  2.  PROPERTIES

Our  facilities  consist  of approximately 72,000 square feet of office space in
Emeryville, California, leased to us until 2007.  We estimate that approximately
37,000  square  feet  of  this space is in excess of our needs and are currently
seeking  tenants  for  a  sublease.  Our  excess  facilities are covered in more
detail  in  "Item 7. Management's Discussion and Analysis of Financial Condition
and  Results  of  Operations."  We  also maintain sales organizations in various
locations  around  the  United  States  and  the  United  Kingdom and a research
facility  in  India,  none  of  which  is  significant  individually  or in the
aggregate.

ITEM  3.  LEGAL  PROCEEDINGS

From  time  to  time,  the Company may become involved in litigation relating to
claims arising from the ordinary course of business. In February 2001 one of the
Company's  early customers, a technology consulting firm, filed an action in the
United  States  District Court for the District of Massachusetts alleging claims
that  certain  software  and services purchased from the Company did not satisfy
certain  contractual  obligations.  The lawsuit further alleges that the Company
engaged in unfair or deceptive practices in violation of Massachusetts state law
and  is  seeking  treble damages based on this claim.  The claimant's prayer for
relief  includes  award  damages  in  excess  of  $75,000,  interest,  costs and
attorneys  fees.  As  the  claim  is in the early stage of litigation, it is not
possible  to estimate the outcome of this contingency.


We  believe  that  there  are  no  other claims or actions pending or threatened
against  us,  the  ultimate  disposition  of which would have a material adverse
effect  on  us.

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

No  matters  were  submitted  to  a  vote  of security holders during the fourth
quarter  of  fiscal  year  2001.


                                       20
<PAGE>
                                     PART II

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

Our  common  stock  is  listed  on  the  Nasdaq National Market under the symbol
"EVLV."    The price range per share reflected in the table below represents the
highest  and lowest sale prices for our stock as reported by the Nasdaq National
Market  during  each quarter the stock has been publicly traded since August 10,
2000,  the  date  of  our  initial  public  offering:

                                                 High          Low

Quarter ended September 30, 2000               $ 28.75       $  9.00
Quarter  ended December 31, 2000               $ 24.63       $  4.38
Quarter  ended  March  31, 2001                $  9.23       $  2.00
Quarter  ended  June  30,  2001                $  2.84       $  0.51

The  number of holders of record of the shares of our common stock was 784 as of
August  31, 2001.  There are approximately 3,100 additional beneficial owners of
our  common  stock.

We have not paid any cash dividends on our capital stock. We currently intend to
retain  any  earnings  to  fund  the development and growth of our business and,
therefore, do not anticipate paying any cash dividends in the foreseeable future
as  our  bank credit agreements prohibit payment of cash dividends. See "Item 7.
Management's  Discussion  and  Analysis  of  Financial  Condition and Results of
Operations-Liquidity  and  Capital  Resources."

RECENT  SALES  OF  UNREGISTERED  SECURITIES

On June 29, 2001, we issued and sold 1,553,254 shares of common stock to Vivant!
Corporation  pursuant  to  an Asset Acquisition Agreement dated May 22, 2001, as
partial  consideration  for  the  assets  acquired.

USE  OF  PROCEEDS  OF  REGISTERED  SECURITIES

There  has been no change to the disclosure contained in our report on Form 10-Q
for the quarter ended March 31, 2001, regarding the use of proceeds generated by
our  initial  public  offering.


                                       21
<PAGE>
ITEM  6.  SELECTED  CONSOLIDATED  FINANCIAL  DATA

The  selected  consolidated  financial  data  presented  below should be read in
conjunction  with  the  "Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations"  presented  in Item 7 and more detailed
financial statements presented in Item 14(1) of this Form 10-K. The consolidated
financial data for periods prior to the financial statements presented in Item 8
of this Form 10-K are derived from audited consolidated financial statements not
included  herein.  Historical  results are not necessarily indicative of results
that  may  be  expected  for  any  future  period.

<TABLE>
<CAPTION>
                                      SUMMARY  CONSOLIDATED  FINANCIAL  DATA
                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                                             YEAR ENDED JUNE 30,
                                                           ------------------------------------------------------
                                                              2001       2000       1999       1998       1997
                                                           ----------  ---------  ---------  ---------  ---------
<S>                                                        <C>         <C>        <C>        <C>        <C>
Revenues:
    Solutions                                              $  25,398   $  7,157   $    150   $      -   $      -
    Subscriptions                                              9,549      3,386        367          -          -
                                                           ----------  ---------  ---------  ---------  ---------
        Total revenues                                     $  34,947   $ 10,543   $    517   $      -   $      -
                                                           ==========  =========  =========  =========  =========

Gross profit (loss)                                           17,576      3,373       (124)         -          -
Operating loss                                              (107,926)   (61,063)   (11,126)    (9,225)    (7,907)

Net loss attributable to common stockholders                (111,367)   (69,374)   (11,471)   (10,582)    (8,093)
    Basic and diluted net loss per common share            $   (3.63)  $ (22.83)  $  (7.21)  $  (9.27)  $ (12.12)
    Shares used in computing basic and diluted net
      loss per common share (1)                               30,643      3,039      1,591      1,141        668


                                                                                   JUNE 30,
                                                           ------------------------------------------------------
                                                              2001       2000       1999       1998       1997
                                                           ----------  ---------  ---------  ---------  ---------
CONSOLIDATED BALANCE SHEET DATA:
    Cash, cash equivalents and short-term investments      $  22,754   $ 18,660   $  2,840   $  2,076   $ 10,702
    Working capital                                            7,126      4,598      1,000      1,180      9,997
    Restricted cash                                                -      2,000          -          -          -
    Total assets                                              47,621     63,979      4,087      3,075     12,673
    Long-term debt and capital lease obligations               2,769      4,810      3,899     14,235     13,384
    Redeemable convertible preferred stock                         -     79,514     31,579     11,393     11,393
    Total stockholders' (deficit) equity                   $  15,343   $(40,632)  $(34,734)  $(23,587)  $(12,919)
<FN>

(1)  See  Note  3  of  Notes to Consolidated Financial Statements for an explanation of the determination of the
     number  of  shares  used  in  computing  basic  and  diluted  net  loss  per  common  share  data.
</TABLE>


                                       22
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS

The  following  discussion  should  be read in conjunction with the consolidated
financial  statements  and  notes  included  elsewhere  in  this  report.

Certain  statements  contained  in  this  Annual Report on Form 10-K, including,
without  limitation,  statements containing the words "believes," "anticipates,"
"estimates,"  "expects,"  "projections," and words of similar import, constitute
"forward-looking  statements."  You  should  not  place  undue reliance on these
forward-looking  statements.  Our  actual  results  could differ materially from
those  anticipated  in  these  forward-looking  statements  for  many  reasons,
including  risks faced by us described in this Report, including those set forth
under  the section entitled "Risk Factors" in Item 1, and the other documents we
file  with  the  Securities  and Exchange Commission ("SEC"), including our most
recent  reports  on  Form 10-K, Form 8-K, Form S-1 and Form 10-Q, and amendments
thereto.

OVERVIEW

Evolve  is  a  leading  provider  of  solutions that optimize the way high-value
workers  deliver  high-value work.  The Evolve solution enables organizations to
optimize  their strategic workforces by integrating and automating key processes
that lie at the intersection of people and projects.  Project- and people-driven
organizations  can  maximize  business performance by optimizing their workforce
planning,  development,  deployment  and  delivery  through the Evolve solution.

Evolve  was  founded in February 1995.  From our inception through December 1998
our activities, funded by the capital we raised, consisted primarily of building
our  business  infrastructure,  recruiting personnel and developing our software
and  service  offerings.  Our  Evolve  4  ePlatform  was first made commercially
available  in  March  1999.  We  recognized our first revenues from our Evolve 4
ePlatform during the quarter ended March 31, 1999.  We have incurred substantial
losses  since  inception  and  we  anticipate  that  we  will  continue to incur
operating  losses as we make the investments necessary to run our business.  Our
accumulated  deficit  at  June  30,  2001,  was  $215.8  million.

We  increased our workforce from June 30, 1999, to June 30, 2000, from 75 to 326
employees.  This  reflected  the  results  of  our  investment in developing our
technology  and  building  a  direct  sales  force,  a  marketing  group  and  a
professional  services  organization.  Our  infrastructure  expenditures  also
increased  significantly  in  2000  and  through the third quarter of 2001 as we
expanded  our  facilities  domestically  and  internationally  and  enhanced our
information  systems.  During  the fourth quarter of 2001, in response to market
conditions,  we  reduced  our  workforce, restructured our organization and took
other  measures  to  reduce operational expenses.  As a result, our headcount at
June  30,  2001,  was  reduced  to  258  employees.

In  August  2000  we completed an initial public offering of 5,750,000 shares of
our  common  stock, resulting in proceeds of approximately $46.5 million, net of
offering  costs.

SOURCES  OF  REVENUE  AND  REVENUE  RECOGNITION

The  Company derives revenues from fees for licenses and implementation services
("Solutions  revenue")  and fees from maintenance, application service providers
and  subscription  agreements  ("Subscription revenue").  The Company recognizes
revenues  in  accordance  with the provisions of American Institute of Certified
Public  Accountants  (AICPA) Statement of Position (SOP) 97-2, "Software Revenue
Recognition."  The  Company  also  follows  the  provisions  of  the  Securities
Exchange  Commission's  Staff  Accounting  Bulletin  No.101  (SAB 101), "Revenue
Recognition  in  Financial  Statements."

Under  SOP  97-2  as  amended,  the  Company recognizes revenues when all of the
following  conditions  are  met:

     -    when  persuasive  evidence  of  an  agreement  exists;
     -    the  delivery  of  the  product  has  occurred;
     -    the  fee  is  fixed  or  determinable;  and
     -    the  Company  believes  that  collection  of  these fees is reasonably
          assured.

Generally,  the Company has vendor specific objective evidence of fair value for
the  maintenance element of software arrangements based on the renewal rates for
maintenance  in future years as specified in the contracts. In those cases where


                                       23
<PAGE>
first  year  maintenance  revenue  is  included  in the license fee, the Company
defers the fair value of the first year maintenance revenue at the outset of the
arrangement  and  recognizes  it  ratably  over  the  period  during  which  the
maintenance is to be provided, which normally commences on the date the software
is  delivered.

Historically,  the  Company  did  not have vendor specific objective evidence of
fair  value  for  services  specified  in  certain software arrangements, as the
services  were  never  sold  separately.  Accordingly,  the  remaining  software
revenue  allocated to such software licenses and services was recognized ratably
on  a  straight-line  basis  over  the  period  during  which  the services were
provided,  which was generally between six and nine months.  In October 2000 the
Company established vendor specific objective evidence of fair value for certain
services.  For  these  contracts,  which  involve  significant implementation or
other  services  which  are  essential  to the functionality of the software and
which  are  reasonably estimable, the license and services revenue is recognized
over  the  period  of  each  implementation,  primarily  using  the
percentage-of-completion  method.  Labor  hours incurred are used as the measure
of progress towards completion.  Revenue for these arrangements is classified as
Solutions  revenue.  A  provision for estimated losses on engagements is made in
the  period  in which the loss becomes probable and can be reasonably estimated.
In  cases  where  a  sale  of a license does not include implementation services
(i.e.,  a  sale  of additional seats or a sale of product to be implemented by a
third-party), revenue is recorded upon delivery with an appropriate deferral for
maintenance  services,  if  applicable,  provided  all  of  the  other  relevant
conditions  have  been  met.

The  Company  generates  revenue  from  its application service provider ("ASP")
business,  by  hosting  the  software,  and making the solution available to the
customer  via  the Internet, as well as providing maintenance and other services
to  the  customer.  In such situations, customers pay a monthly fee for the term
of  the contract in return for access to the Company's software, maintenance and
other  services  such  as implementation, training, consulting and hosting.  For
certain  ASP  software  arrangements  for which the Company does not have vendor
specific objective evidence of fair value for the elements of the contract, fees
from  such arrangements are recognized on a monthly basis as the hosting service
is  provided.  In  other  circumstances where the customer has the right to take
delivery  of the software and the Company has vendor specific objective evidence
of fair value for the hosting element of the contract, fees from the arrangement
are  allocated  between  the  elements  based  on  the vendor specific objective
evidence.  Revenue for these hosting arrangements is classified as Subscriptions
revenue.

License  revenue  includes  product licenses to companies from which the Company
has  purchased products and services under separate arrangements executed within
a  short  period  of  time  ("reciprocal  arrangements").  Products and services
purchased  in reciprocal arrangements include: 1) software licensed for internal
use,  2)  software  licensed  for  resale  or  incorporation  into the Company's
products;  and  3)  development  or  implementation  services.  For  reciprocal
arrangements,  we  consider  Accounting  Principles  Boards  or  APB  No.  29,
"Accounting  for  Nonmonetary  Transactions,"  and Emerging Issues Task Force or
EITF,  Issue  No.  86-29,  "Nonmonetary  Transactions:  Magnitude  of  Boot  and
Exceptions  to  the  Use  of Fair Value, Interpretation of Accounting Principles
Board  No. 29, Accounting for Nonmonetary Transactions" to determine whether the
arrangement  is a monetary or nonmonetary transaction. In determining these fair
values,  the  company  considers  the  recent  history of cash sales of the same
products  or  services  in similar sized transactions. Revenues recognized under
reciprocal  arrangements  were  $3.1  million,  $369,000 and $0 for the fiscal
years  ended  June 30, 2001, 2000 and 1999, respectively.


Deferred  revenue  represents fees derived from maintenance, application service
providers and subscription agreements that are being recognized ratably over the
unexpired  portion  of the underlying period of the agreements. Deferred revenue
also  represents  amounts  billed  to  customers  under  licenses  and  services
arrangements  in  excess  of  amounts  recognized  as revenue to date from those
arrangements.  As  work  progresses towards  completion on those arrangements, a
portion  of  the  deferred  revenue  will  be  recognized.

STOCK-BASED  COMPENSATION

The  Company  incurs  stock-based  compensation  in connection with stock option
grants  and  sales  of  restricted  stock  to our employees at exercise or sales
prices  below  the  deemed  fair market value of our common stock for accounting
purposes.  The  cumulative  difference  between  the  deemed  fair  value of the
underlying  stock at the date the options were granted and the exercise price of
the  granted  options  was $40.3 million as of August 9, 2000, our IPO date. The
Company  amortizes  this  amount  using  the  accelerated  method  of  FASB
Interpretation  No.  28,  "Accounting  for  Stock  Appreciation Rights and Other
Variable  or  Award  Plans,"  over  the  four-year vesting period of the granted
options.  Accordingly,  the  Company's  results  from  operations  will  include
deferred  compensation expense, at a minimum, through 2004. The Company recorded
stock-based  charges of $17.9 million, $19.3 million, and $218,000 in the fiscal
years  2001,  2000  and  1999,  respectively.


                                       24
<PAGE>
As  a  result  of the employee terminations during the year ended June 30, 2001,
the  Company  recorded  a  reduction  of additional paid-in capital and unearned
stock-based compensation of $5.6 million.  For many of the terminated employees,
the  Company  had  incurred  significant  deferred  stock-based  charges  on the
original  option  grants  in previous years.  The reversed amounts represent the
additional  paid-in capital and stock-based compensation amounts associated with
the  unvested  options  and  stock  awards.

In connection with the termination of certain executive officers in fiscal 2001,
the  Company  entered into arrangements with those executive officers to provide
consulting services.  For accounting purposes, this was deemed to be a change in
status  of  the  employee,  resulting  in a new measurement date for the amended
equity  awards  in  accordance with FIN 44, "Accounting for Certain Transactions
Involving Stock Compensation." Upon modification, the Company reduced additional
paid-in  capital,  reduced  unearned  stock-based  compensation  and  reversed
stock-based  charge  expense  of  $2.7  million,  $1.5 million and $1.2 million,
respectively,  relating  to  previously  recognized  stock-based  compensation
associated  with the unvested portion of the original award.  Under the terms of
the consulting agreements, the Company modified the remaining vesting provisions
of  the  restricted  stock  awards  for  a  total  of  177,084  shares  with  a
weighted-average exercise price of $1.03. The value of these modified awards was
determined  using  the  Black-Scholes  option  pricing  model and are subject to
revision  in  each  financial  reporting period until the shares are vested. The
related adjustment increased additional paid-in capital and unearned stock-based
compensation  by $400,000.  The related amortization during the remainder of the
year  was  $391,000.   The  restricted stock awards will continue to vest during
the  consulting  periods  ranging  from  six  to  twelve months from the date of
separation.  As a result, the charge may be subject to a substantial increase or
decrease  based  on  future changes in the market price of the our common stock.

In  addition,  in  the  case  of  other  executive officers of the Company whose
employment  was terminated in fiscal 2001 and who had purchased restricted stock
with  full  recourse  notes,  the  Company  agreed  as part of their termination
settlement  to  allow them to put back to the Company their restricted shares in
exchange  for  the value of the notes plus accrued interest during or at the end
of  individually  specific  periods  of  time ranging from 19 to 21 months.   At
June 30, 2001, none of the executive employees has exercised their option to put
the  shares  back  to  the  Company.  Upon  modification, the Company recorded a
reduction  in  additional  paid-in  capital, a reduction in unearned stock-based
compensation  and a reversal of stock-based charge expense of $6.0 million, $3.1
million  and  $2.9  million,  respectively,  relating  to  previously recognized
stock-based  compensation  associated  with the unvested portion of the original
award.  In  each  circumstance,  the  value  of the modified award has then been
accounted  for  as  a  variable  award  beginning  on  the  date  of  the  award
modification.  Accordingly,  the  value of the award will fluctuate based on the
value  of  our  common  stock.  The  Company will remeasure the value of the put
option  at the end of every reporting period.  To the extent that the fair value
of the stock exceeds the value of the stockholder note and accrued interest, the
Company  will  record  a  stock-based  compensation  charge determined using the
Black-Scholes  option  pricing  model.  And  to the extent that the value of the
stockholder  loan  and accrued interest exceeds the fair value of the stock, the
Company  will  record  the  value of the put option as an expense.   At June 30,
2001,  the  Company recorded the value of the put option since the fair value of
the  stock  is  less than the value of the stockholder loan and accrued interest
and  amortized  the  award  on  an  accelerated  method.  The related adjustment
decreased  stockholder  notes  receivable  by  $3.0  million, increased unearned
stock-based  compensation  by  $3.2 million and decreased interest receivable by
$243,000.   The related amortization on these awards during the remainder of the
year  was  $1.1  million.

RESULTS  OF  OPERATIONS

The following table sets forth certain statements of operations data in absolute
dollars  for  the periods indicated.  The data has been derived from the audited
consolidated  financial  statements  contained  in  this  report.  The operating
results  discussed below do not include the amortization of non-cash stock-based
compensation.


                                       25
<PAGE>
<TABLE>
<CAPTION>
(in thousands)                                            YEAR ENDED JUNE 30,
                                                    --------------------------------
                                                       2001        2000       1999
                                                    ----------  ---------  ---------
<S>                                                 <C>         <C>        <C>
Revenues:
    Solutions                                         $25,398   $  7,157   $    150
    Subscriptions                                       9,549      3,386        367
                                                    ----------  ---------  ---------
        Total revenues                                 34,947     10,543        517
                                                    ----------  ---------  ---------

Cost of Revenues:
    Solutions                                          13,034      5,250        251
    Subscriptions                                       4,337      1,920        390
                                                    ----------  ---------  ---------
        Total cost of revenues                         17,371      7,170        641
                                                    ----------  ---------  ---------

        Gross profit (loss)                            17,576      3,373       (124)

Operating expenses (excluding stock-based charges):
    Sales and marketing                                44,866     29,006      3,970
    Research and development                           22,594     13,716      5,115
    General and administrative                         19,712     15,779      1,917
    In-process technology write-off                         -      3,126          -
    Amortization of goodwill and other
      intangible assets                                 8,959      2,809          -
    Restructuring charges                               9,724          -          -
    Impairment of goodwill and other
      intangible assets                                19,647          -          -
                                                    ----------  ---------  ---------
        Total operating expenses                      125,502     64,436     11,002

Operating loss                                       (107,926)   (61,063)   (11,126)

Interest income                                         3,014      1,085        277
Interest expense                                         (339)      (378)      (697)
Other income (expense)                                   (139)         5         75
                                                    ----------  ---------  ---------

Net loss                                             (105,390)   (60,351)   (11,471)

Beneficial conversion feature of Series I
  redeemable convertible preferred stock.              (5,977)    (9,023)         -
                                                    ----------  ---------  ---------
Net loss attributable to common stockholders        $(111,367)  $(69,374)  $(11,471)
                                                    ==========  =========  =========
</TABLE>


REVENUES

Total  revenues were $34.9 million, $10.5 million and $517,000 in 2001, 2000 and
1999,  respectively, representing increases of 231% from 2000 to 2001 and 1,939%
from  1999  to  2000.  For  the  year ended June 30, 2001, sales to one customer
accounted for 14% of total revenues.  For the year ended June 30, 2000, sales to
two  customers  accounted for 19% and 13% of total revenues.  For the year ended
June 30, 1999, sales to three customers accounted for 58%, 32%, and 10% of total
revenues.

Solutions  revenue  principally consists of software licenses and implementation
services.  Solutions  revenues  were $25.4 million, $7.2 million and $150,000 in
2001,  2000  and 1999, respectively, representing increases of 255% from 2000 to
2001  and  4,671%  from  1999  to  2000.  The  increase  from  2000  to 2001 was
attributable  to  our  growing customer base, an increase in the average size of
the  sales contracts entered into by our customers and an increase in the amount
of  additional purchases by installed customers.  The increase from 1999 to 2000
was  attributable  primarily  to  an  increase  in  our  customer  base.

Subscriptions  revenue  principally  consists  of  applications  and maintenance
subscriptions.  Subscriptions  revenues  were  $9.5  million,  $3.4  million and
$367,000  in  2001,  2000 and 1999, respectively, representing increases of 182%
from  2000  to  2001 and 823% from 1999 to 2000.  The increase from 2000 to 2001
was attributable to an increase in the number of customers to whom we contracted
maintenance  and  ASP  services.  The  increase  from 1999 to 2000 was primarily
attributable  to  an  increased  customer  base.


                                       26
<PAGE>
COST  OF  REVENUES

Total  cost  of  revenues  was $17.4 million, $7.2 million and $641,000 in 2001,
2000  and  1999,  respectively, representing increases of 142% from 2000 to 2001
and  1,019%  from  1999  to  2000.

Cost  of  Solutions  revenues  consists principally of payroll-related costs for
employees  and  consultants  involved  in providing services for implementation,
training  and  consulting,  including  stock-based compensation. The cost of our
Solutions  revenues  also includes royalties due to third-parties for integrated
third-party  technology,  and  to  a  lesser  extent  printing  costs of product
documentation, duplication costs for software media, and shipping costs. Cost of
Solutions  revenues  were $13.0 million, $5.3 million and $251,000 in 2001, 2000
and  1999,  respectively,  representing  increases of 148% from 2000 to 2001 and
1,992%  from  1999  to  2000.  The  increases  in  both  periods  were primarily
attributable  to  increased  costs  associated  with  employees  and third-party
consultants  involved  in  providing  implementation,  training,  and consulting
services  to  our expanded customer base. As a percentage of Solutions revenues,
cost  of  Solutions  revenues  was  51%,  73%  and  167% in 2001, 2000 and 1999,
respectively.  Cost  of revenues as a percentage of license revenue may increase
over  the  current  level in the future as we incorporate additional third-party
products  in  our  offerings.

Cost of Subscriptions revenues consists principally of the payroll-related costs
for  employees  involved  in  providing  support  services  to  customers  under
maintenance  contracts  as  well  as payroll costs for employees and consultants
involved  in  providing services for implementation, training and consulting for
ASP  customers.  Cost  of  Subscriptions  also includes hosting fees required to
service  our  ASP  customers.  Cost  of Subscriptions revenues was $4.3 million,
$1.9  million  and  $390,000  in 2001, 2000 and 1999, respectively, representing
increases of 126% from 2000 to 2001 and 392% from 1999 to 2000.  The increase in
total  cost  of  Subscriptions  revenues  was primarily due to increased payroll
costs  for  employees  and third-party consultants involved in providing support
services  to  customers under maintenance and application Subscription contacts.
As  a  percentage  of  Subscription revenues, cost of subscription revenues were
45%,  57%  and  106%  in  2001,  2000  and  1999.

The  numbers  of employees in our service organization has decreased to 48 as of
June  30,  2001,  from  137  at  June  30,  2000. The average headcount for 2001
increased  to 111 from an average of 49 during 2000 and five during 1999. We are
seeking to reduce our cost of Solutions and Subscriptions revenues by having our
customers  engage  third-parties  to  provide  a  substantial  portion  of  the
implementation  services  related  to  our  applications.

OPERATING  EXPENSES

SALES  AND MARKETING. Sales and marketing expenses consist primarily of employee
salaries,  benefits,  commissions and stock-based compensation, and the costs of
advertising,  public  relations,  website  development,  trade  shows, seminars,
promotional  materials  and  other  sales  and marketing programs. Additionally,
sales  and  marketing  expenses include costs of service personnel that have not
been  treated  as  part  of  cost of revenues. Sales and marketing expenses were
$44.9  million,  $29.0  million,  and  $4.0  million during 2001, 2000 and 1999,
respectively.  The  increase  in sales and marketing expenses resulted primarily
from  building  our  domestic and international direct sales force, investing in
our sales and marketing infrastructure and increasing our marketing initiatives.
The  number of employees in our sales and marketing organization decreased to 72
as  of  June  30, 2001, from 83 at June 30, 2000. The average headcount for 2001
was  93  compared  with  an  average of 40 for 2000 and 14 for 1999. Stock-based
compensation  was  $4.6  million for 2001, $5.0 million for 2000 and $94,000 for
1999.  As  a result of the restructuring which occurred during the quarter ended
June  30, 2001, which included a significant workforce reduction, we expect that
the  level of sales and marketing expenses will decline in the next fiscal year.

RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
personnel and related costs, including stock-based compensation, associated with
our  product  development  efforts,  including  fees  paid  to third-parties for
consulting services. Research and development expenses were $22.6 million, $13.7
million, and $5.1 million during 2001, 2000 and 1999, respectively. The increase
in  research  and  development  expenses  related  primarily  to  an increase in
research  and development personnel to 109 at June 30, 2001, from 69 at June 30,
2000.  The  average headcount for 2001 was 88 compared with an average of 48 for
2000  and 35 for 1999. Fees paid to third-party consultants increased in 2001 as
specialized technical experts were utilized to accelerate the delivery of Evolve
4  and  other development initiatives. Stock-based compensation was $3.1 million
for  2001,  $3.3 million for 2000 and $58,000 for 1999. During the quarter ended
March  31,  2001,  we  opened a software development center in India that became
fully  operational  the  following quarter. We believe that an essential part of
our  future  success  is  the investment we make in our research and development
organization.  We  expect  that  the  absolute  dollar  amount  of  research and
development  expenses will decrease in the next fiscal year because of a decline
in  the  use  of  third-party consultants and cost savings associated with lower
operating  costs  in  India.


                                       27
<PAGE>

GENERAL  AND  ADMINISTRATIVE.  General  and  administrative  expenses  consist
primarily of employee salaries and expenses, including stock-based compensation,
related to executive, finance and administrative personnel, bad debt expense and
professional  service  fees.  General  and  administrative  expenses  were $19.7
million, $15.8 million and $1.9 million in 2001, 2000 and 1999.  The increase in
general  and  administrative  expenses  resulted  primarily from the addition of
executive,  finance  and  administrative  personnel to support the growth of our
business.  The number of general and administrative employees decreased to 29 at
June  30, 2001, from 37 at June 30, 2000.  The average headcount for 2001 was 38
compared  with  an  average  of  23  for  2000  and  ten for 1999.  During 2001,
litigation  with  PeopleSoft  and  a former executive resulted in an increase in
legal  fees  included  in  general  and  administrative  expenses.  Stock-based
compensation  was  $8.7  million for 2001, $9.6 million for 2000 and $60,000 for
1999.  During  2001  we  also  had  a  substantial  increase  in  finance  and
administration  services  resulting  from  our  status  as a public company, and
increased  bad  debt  expense  resulting  from  our  increased  sales.

We  increased our bad debt allowance from $125,000 at June 30, 2000, to $730,000
at June 30, 2001. This increase is due to the impact on some of our customers of
the  worsening  general  economic  situation.  We wrote-off $617,000 of accounts
receivable balances during the year ended June 30, 2001. We decided to write-off
these  balances  after  exhausting  all  normal  methods  of  collection.

As  a  result  of  our  headcount  reduction,  we  expect  that  general  and
administrative  expenses  relating to personnel will decrease in the next fiscal
year.


IN-PROCESS  TECHNOLOGY  WRITE-OFF.  In  conjunction  with  the  March  31, 2000,
acquisition  of  InfoWide, Inc., the Company acquired $3.1 million of in-process
technology  that  was immediately expensed because technological feasibility had
not  been  established and no future alternative uses of the technology existed.

The  amount allocated to the purchased in-process technology of $3.1 million was
determined  based  on an appraisal completed by an independent third-party using
established  valuation techniques.  The projects' percentages-of-completion were
estimated  to be in the range between 10% and 67%.  The value of this in-process
technology  was  determined by estimating the resulting cash flows from the sale
of  the  products  resulting  from  the completion of the in-process technology,
estimating  the  costs  to  develop  the  purchased  in-process  technology into
commercially  viable  products  and discounting the net cash flows back to their
present  value.

In  the  fourth  quarter  of fiscal 2001 management determined that the carrying
value  of  certain goodwill and purchased intangible assets were impaired due to
changes  in  circumstances  from  those  present  at  the time these assets were
acquired.  At  the  time  of  the  acquisition,  the  technology  acquired  from
InfoWide,  Inc.  was  expected  to  be  utilized  in  the  proposed Services.com
business.  As  of June 30, 2001, the current and future plans for utilization of
this  technology have diminished materially such that expected future cash flows
from  the  use  of  the  technologies  were  less than the carrying value of the
underlying  assets.  Accordingly,  an  impairment  charge  of  $18.1 million was
recognized  in the fourth quarter of fiscal 2001 to reduce the carrying value of
goodwill  and  purchased  intangible  assets  to the present value of the future
expected  cash  flows.

AMORTIZATION  OF  GOODWILL  AND OTHER INTANGIBLE ASSETS.  In connection with the
acquisition  of  InfoWide, Inc., on March 31, 2000, we recorded $32.6 million in
goodwill,  purchased technology and other intangible assets including in-process
technology  of $3.1 million.  During 2001 and 2000, we expensed $9.0 million and
$2.8  million, respectively, associated with the amortization of these and other
intangible  assets  that  were  being  amortized  over  periods  not  exceeding
thirty-six  months


RESTRUCTURING  COSTS. In the fourth quarter of fiscal 2001, we determined that a
restructuring  was necessary to bring the cost base of the Company (particularly
our  headcount  and  facilities  costs)  into  line  with  our  revised  revenue
expectations  in  response  to  the significant reductions in IT spending by our
customers  and  target  customers in general. As a result of this restructuring,
the  Company  recorded  restructuring  charges  of  $9.7  million  classified as
operating  expenses and announced a decline in forecasted revenues. In the event
corporate IT spending deteriorates further we will continue to evaluate further,
restructuring  of  our  business  to minimize the direct impact on our operating
results.

The  Company recorded a workforce reduction charge of approximately $1.6 million
relating  primarily to severance and fringe benefits of 97 terminated employees.
The  number  of  contractors  and  temporary  workers  was  also  reduced.

The  Company  recorded  a  restructuring  charge  of  $6.4  million  relating to
consolidation  of  excess  facilities at our Emeryville location.  The estimated
facility  costs  are  based  upon  current estimates to close or sub-lease these
facilities.  In  determining  the  restructuring cost associated with its leased
facilities, the Company assumed, based on discussions with realty advisers and a


                                       28
<PAGE>
review of current comparable lease rates, that it will be able to sublet part of
its  facility in April 2002 at a significantly reduced rental rate. The expected
excess commitment with respect to the space under the lease to its expiration in
July  2007  is  $8.8 million. The sublease income will defray this commitment by
$1.9 million. The net present value amount of these payments plus fees and costs
resulted  in  an  accrual  for  excess  lease facilities of $6.4 million. Should
facilities operating lease rental rates continue to decrease in these markets or
should  it take longer than expected to find a suitable tenant to sublease these
facilities,  the  actual  loss  could  exceed  this  estimate.


As  a  result  of  the workforce reduction and the facilities restructuring, the
Company  recorded  a  charge  of  $1.7 million for the disposal of fixed assets.
The  charge  consisted  principally  of  a  write-off  of  $900,000 of leasehold
improvements  and  $326,000  of  furniture  related to the excess facilities and
$468,000  of  computer  hardware  and  software and telecommunications equipment
related  to  the  workforce  reduction.

<TABLE>
<CAPTION>
                                                                     RESTRUCTURING
                                     TOTAL    NON-CASH      CASH     LIABILITIES AT
                                    CHARGES    CHARGES    PAYMENTS   JUNE 30, 2001
                                    --------  ---------  ----------  --------------
<S>                                 <C>       <C>        <C>         <C>
Workforce reduction. . . . . . . .  $  1,597  $      -   $    (817)  $          780
Consolidation of excess facilities     6,433                  (354)           6,079
Fixed assets . . . . . . . . . . .     1,694    (1,694)                           -
                                    --------  ---------  ----------  --------------
   Total . . . . . . . . . . . . .  $  9,724  $ (1,694)  $  (1,171)  $        6,859
                                    ========  =========  ==========  ==============
</TABLE>

Remaining  cash expenditures relating to workforce reductions and termination of
agreements will be paid in the first quarter of fiscal 2002.  Amounts related to
the net lease expense due to the consolidation of excess facilities will be paid
over  the  lease  term  through  fiscal  2007.


The headcount reductions represented approximately 27% of our staff and affected
all  functional  areas  of  our  business,  particularly sales and marketing and
professional services. Research and development was largely unaffected to ensure
that  we  continue  to  make  investment  in  the  area  of product research and
development.  We  have  attempted  to  effect  the  restructuring  with  minimal
disruption  to  our  business.  In  the  event  that  there is an increase in IT
spending  by  our  customers or target customers in the near term we may need to
increase  our  headcount  in  the  areas of sales and marketing and professional
services  commensurately.

The  Company expects that the restructuring carried out in the fourth quarter of
fiscal 2000 will yield annualized employee-related cost savings of approximately
$10.0  million reflecting primarily salaries and associated benefits. It is also
expected  that  annual  depreciation savings will be approximately $1.2 million,
and  rental cost  savings  will be approximately $570,000.  The employee-related
costs,  depreciation  and  rent  savings  were  effective  July  1,  2001.

IMPAIRMENT  OF  GOODWILL  AND OTHER ASSETS.  During the fourth quarter of fiscal
year  2001  Evolve  identified indicators of possible impairment of goodwill and
other  acquired  intangible  assets relating to the InfoWide, Inc.  acquisition.
These  indicators  included  the  deterioration  in the business climate, recent
changes  in  sales  and  cash flow forecasts and the decision to discontinue the
Services.com  service.  Initially,  Evolve  compared the undiscounted cash flows
associated  with  the acquired goodwill and purchased intangible assets with the
respective  carrying  amounts  and  determined  that an impairment of certain of
these  assets existed. The Company then measured the amount of the impairment as
the  amount  by  which  the  carrying  amount  exceeded the present value of the
estimated future cash flows discounted at an appropriate rate.  As a result, the
Company recorded a charge of $19.6 million related to the impairment of goodwill
and  other  intangible  assets, including $14.2 million in goodwill, $376,000 in
non-compete  agreements  and  $3.5 million in technology acquired from InfoWide,
Inc.  as  well  as  $1.5  million  relating to software used in our discontinued
Services.com  business.


OTHER  INCOME  (EXPENSE),  NET.  Other  income  (expense), net was $2.5 million,
$712,000,  and  ($345,000)  in  2001,  2000  and  1999,  respectively.

Interest  income  was $3.0 million, $1.1 million and $277,000 for 2001, 2000 and
1999,  respectively.  The  increase  during  2001  is  primarily attributable to
interest  income  derived  from  increased  cash  balances  resulting  from  the
completion  of the Company's Series I Preferred Stock issuances in June and July
2000  and  initial  public  offering  in  August 2000.  The increase during 2000
resulted  primarily  from  the  completion  of  private equity funding rounds in
September  1999  and  September  2000.


                                       29
<PAGE>
Interest expense was $339,000, $378,000 and $697,000 during 2001, 2000 and 1999.
The  decrease  during  2001 resulted from paying off outstanding non-convertible
notes  with  IPO  funds  partially offset by increased interest expense from our
bank credit facility and capital leases.  The decrease during 2000 was largely a
result  of  the  conversion of certain convertible debt instruments to preferred
stock  during  the  year  ended  June  30,  1999.

The  results  of  interest  income  and  expense, net will depend on a number of
factors,  which  include,  but  are  not limited to, the levels of cash and cash
equivalent  balances  and  the  performance  of  these  investments.

BENEFICIAL CONVERSION OF PREFERRED STOCK.  We recorded a dividend charge of $6.0
million  and  $9.0  million  for  the  years  ended  June  30,  2001  and  2000,
respectively,  in respect of a beneficial conversion feature associated with the
sale  of  approximately 2,000,000 and 3,000,000 shares of our Series I preferred
stock in fiscal 2001 and 2000, respectively, at a price of $6.00 per share.  The
deemed  fair  value  for  accounting  purposes  was  $9.00  per  share.

INCOME  TAXES.  From inception through June 30, 2001, we incurred net losses for
federal  and  state  tax  purposes  and have not recognized any tax provision or
benefit. As of June 30, 2001, we had approximately $118.4 million of federal and
$53.7  million  of  state  net  operating  loss  carry-forwards to offset future
taxable  income. The federal net operating loss carry-forwards expire on varying
dates  from  2015  through  2021  and the state net operating loss carryforwards
expire  on  varying  dates  from  2002 through 2006. Given our limited operating
history,  our  losses  incurred  to  date  and  the  difficulty  in  accurately
forecasting  our  future  results, we do not believe that the realization of the
related  deferred  income  tax  asset  meets  the criteria required by generally
accepted  accounting  principles.  Therefore,  we have recorded a 100% valuation
allowance against the deferred income tax asset. In addition, utilization of the
loss  carry-forward  may  be  subject  to  limitations  due to changes in equity
ownership.

RECENT  ACCOUNTING  PRONOUNCEMENTS

In  June  1998 the Financial Accounting Standards Board ("FASB") issued SFAS No.
133,  "Accounting  for  Derivative  Instruments  and  Hedging  Activities," that
requires  companies  to record derivative financial instruments on their balance
sheets  as  assets  or  liabilities,  measured  at  fair value.  Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending  on  the use of the derivative instrument and whether it qualifies for
hedge  accounting.  The  key  criterion for hedge accounting is that the hedging
relationship  must  be  highly effective in achieving offsetting changes in fair
value or cash flows.  In June 1999 the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," that amends SFAS No. 133 to be effective for all fiscal
quarters  of  fiscal years beginning after June 15, 2000.  In June 2000 the FASB
issued  SFAS  No.  138,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities--An  Amendment  of FASB No. 133."  SFAS 138 amends the accounting and
reporting  standards  for certain derivatives and hedging activities such as net
settlement  contracts,  foreign  currency  translations  and  intercompany
derivatives.  The  Company  does  not  currently  hold derivative instruments or
engage  in hedging activities.  Management's adoption of SFAS 133 did not have a
material  effect  on  our  consolidated  financial  statements.

In March 2000 the FASB issued FASB Interpretation No. 44 ("FIN 44"), "Accounting
for  Certain  Transactions  involving  Stock Compensation," an interpretation of
Accounting  Principles  Board  ("APB")  Opinion  No.  25.  FIN  44 clarifies the
application  of  Opinion  25  for  the  definition  of  employee for purposes of
applying  Opinion 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms  of  a  previously  fixed stock option or award, and the accounting for an
exchange  of stock compensation awards in a business combination.  FIN 44 became
effective  July  1,  2000,  but  certain  conclusions cover specific events that
occurred  after  either December 15, 1998, or January 12, 2000.  The adoption of
FIN  44 did not have a material impact on the consolidated financial statements.
The  Company  adopted  FIN  44  beginning  July  1,  2000.

In  July  2001 the Financial Accounting Standards Board ("FASB") issued SFAS No.
141  "Business  Combinations"  and  SFAS No. 142  "Goodwill and Other Intangible
Assets."  SFAS  No.  141 requires business combinations initiated after June 30,
2001,  to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separately from goodwill.  Recorded
goodwill  and  intangibles  will be evaluated against these new criteria and may
result  in  certain  intangibles being subsumed into goodwill, or alternatively,
amounts  initially  recorded  as  goodwill  may  be  separately  identified  and
recognized  apart  from  goodwill.  SFAS  No.  142  requires  the  use  of  a
non-amortization  approach  to  account  for  purchased  goodwill  and  certain
intangibles.  Under  a  non-amortization  approach,  goodwill  and  certain
intangibles  will not be amortized into results of operations, but instead would
be reviewed for impairment and written down and charged to results of operations
only  in  the  periods  in  which  the  recorded  value  of goodwill and certain
intangibles  is  more  than  its  fair  value.  Evolve will continue to amortize


                                       30
<PAGE>
goodwill  and purchased intangible assets acquired prior to June 30, 2001, until
it  adopts  SFAS  142.  For business combinations initiated after June 30, 2001,
Evolve  will  follow the non-amortization method under SFAS 142.  The provisions
of  each statement may be adopted by Evolve as early as July 1, 2001.  Evolve is
currently  assessing  SFAS  No. 141 and 142 and has not determined the impact on
Evolve's  consolidated  financial  statements.

LIQUIDITY  AND  CAPITAL  RESOURCES

Since inception, we have financed our operations primarily through private sales
of  common  and  preferred  stock, with net proceeds totaling approximately $133
million.  Included  in  the  total  is $46.5 million relating from the Company's
Initial  Public  Offering  (IPO),  net  of  offering costs of approximately $5.3
million.  We  have  also raised $12.7 million in funding through the issuance of
debt instruments.  As of June 30, 2001, all principal and interest had been paid
on these debt instruments.  We have also utilized $4.8 million of a $7.5 million
term  loan  credit facility.  As of June 30, 2001, we had $22.8 million in cash,
cash equivalents and short-term investments and $7.1 million in working capital.

The  Company  has  sustained  net losses and negative cash flows from operations
since  its  inception.  The  Company's  ability  to  meet its obligations in the
ordinary  course of business is dependent on its ability to reduce net operating
expenses  and  raise  additional  financing  through  public  or  private equity
financing  or  other  sources  of  financing  to  fund  operations.  There is no
assurance that the Company will achieve a reduction of net operating expenses or
that it will be able to raise adequate financing from other sources.  Management
believes  that  its  current  funds  and  access  to  available  capital will be
sufficient  to  enable  the  Company to meet its planned expenditures through at
least  June  30,  2002.  If  anticipated  operating  results  are  not achieved,
management  has  the  intent  and it believes that it has the ability, to reduce
expenditures  by  reductions  in  headcount  so  as  not  to  require additional
financial resources, if such resources were not available on terms acceptable to
the  Company.

For  the  year  ended  June  30, 2001, net cash used in operating activities was
$50.1  million  resulting  principally  from an operating loss of $108.0 million
offset by amortization and depreciation of $12.7 million, impairment of goodwill
of  $19.6  million,  stock-based  charges of $17.9 million and a net decrease in
assets  and  liabilities of $2.2 million.  For the year ended June 30, 2000, net
cash  used  in operating activities was $24.2 million resulting principally from
an  operating  loss  of $61.1 million offset by amortization and depreciation of
$3.8  million,  in-process  technology  write-off  of  $3.1 million, stock-based
charges  of  $19.3  million and a net decrease in assets and liabilities of $9.5
million.  For  the  year  ended  June  30,  1999,  net  cash  used  in operating
activities  was  $8.3  million  resulting  principally from an operating loss of
$11.1  million  offset  by  a  net  decrease  in  assets and liabilities of $1.9
million.



Net  cash  used  in  investing  activities  was  $10.7 million, $9.4 million and
$41,000  for  the  years  ended  June 30, 2001, 2000 and 1999.  Net cash used in
investing  activities  for  the year ended June 30, 2001, consisted primarily of
the  net purchase and maturity of short-term investments of $2.8 million and the
purchase  of property and equipment of $8.6 million.  Net cash used in investing
activities for the year ended June 30, 2000, consisted primarily of the purchase
of  property  and  equipment  of $7.4 million and of a restricted certificate of
deposit  for  $2.0  million  used  to secure a stand-by letter-of-credit for our
Emeryville  lease.

Net  cash  provided by financing activities was $61.9 million, $49.5 million and
$9.1  million  for  the  years ended June 30, 2001, 2000 and 1999, respectively.
Net  cash generated from financing activities for the years ended June 30, 2001,
consisted  primarily of the net proceeds of $46.5 million for the Company's IPO,
and  the  issuance of $12.6 million of preferred stock.  Net cash generated from
financing  activities  for  the  years  ended  June 30, 2000 and 1999, consisted
primarily  of  the net proceeds of $47.9 million and $9.5 million, respectively,
from  sales  of  preferred  stock.

In  January  2001  the  Company  entered  into  a credit arrangement providing a
line-of-credit of $7.5 million and a $7.5 million term loan credit facility with
interest  accruing  at  the  rate of the bank's prime rate plus 0.75% and 1.00%,
respectively.  As of June 30, 2001, the Company had utilized $4.8 million of the
term  loan  credit  facility.  The  loan  will be fully repaid over the next two
fiscal  years.  The minimum payments due under the term loan credit facility are
$2,178,000, $2,377,000 and $198,000 in fiscal 2002, 2003 and 2004, respectively.
Both  the line-of-credit and the term loan credit facility are collateralized by
all  of  the  Company's  assets,  including  intellectual  property,  except for
previously  leased  equipment.  The  line-of-credit also includes a $5.0 million
sublimit  to  secure  commercial  and/or standby letters-of-credit of which $2.9
million has been utilized to support letters-of-credit issued to the landlord of
the  Company's  Emeryville  facility.  Any advances on the line-of-credit mature
one  year  from  the  loan documents with interest due monthly.  Advances on the
term  loan  credit  facility  are  due twenty-eight months from the advance with
interest  only  payments  for  the  first four months and then equal payments of
interest  and  principal  amortized  over the remaining twenty-four months.  The
Company  is  required  to  maintain certain financial ratios as part of the loan
covenants.  At  June 30, 2001, the Company was in violation of a minimum revenue
covenant  (see  Recent  Developments  below).


                                       31
<PAGE>
RECENT  DEVELOPMENTS

On  September  23,  2001, the Company signed a Series A Preferred Stock Purchase
agreement with new and existing investors for a private placement of 1.3 million
shares  of convertible preferred stock for total proceeds of $13 million as well
as  warrants  to purchase 6.5 million shares of common stock at $1.00 per share.
The preferred stock accretes in kind at a rate of 8% per year and is convertible
into  common stock at a price of $.50 per share. In addition, the Company issued
warrants  to  purchase  1.3  million  additional shares of convertible preferred
stock  for additional potential proceeds of $13 million which will also include,
upon  exercise, warrants to purchase 6.5 million shares of common stock at $1.00
per share. Closing of the arrangement and receipt of the funds is expected on or
before  October  15,  2001 and is subject to customary closing conditions, which
the  Company  expects  to  be  met.

On  September 26, 2001, the Company amended its Loan and Security to restructure
the excess  credit facilities, and to obtain a  waiver of cerain  defaults under
the credit arrangement.  The Company had been in violation of banks covenants to
maintain  minimum revenue levels for the months of April through September 2001.
In connection with the loan amendment, the bank waived these covenant violations
on  September  26,  2001  and  approved  new financial covenants for the periods
commencing  October  1,  2001.  Under  the  new  covenants,  the Company will be
required to: (1) maintain at all times a minimum bank liquidity ratio of 1.50 to
1.00,  reducing  to  1.25  to 1.00 at January 31, 2002, and thereafter (the cash
component  of this ratio is required to be held at the bank); (2) beginning with
the  month  ending December 31, 2001, maintain on a monthly basis the greater of
(a)  minimum  company  liquidity  ratio  of  1.75  to 1.00 or (b) $14,000,000 in
unrestricted  cash  (unrestricted  cash will include any restricted cash held by
the  bank)  reducing  to  $8,000,000  at  January  31,  2002 and thereafter; (3)
Beginning with the month ending December 31, 2001, not exceed a leverage maximum
of  2.25  to  1.00;  and  (4)  meet  a  milestone covenant of obtaining at least
$10,000,000  in  new equity from investors acceptable to the bank by October 15,
2001.

ITEM  7A.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

The  following  discusses  our  exposure  to  market  risk related to changes in
foreign  currency  exchange  rates,  interest  rates,  and  equity  prices. This
discussion  contains  forward-looking  statements  that are subject to risks and
uncertainties.  Actual  results could vary materially as a result of a number of
factors  including  those  set  forth  in  the  risk  factors  section  of  this
prospectus.

Foreign  Currency  Exchange  Rate  Risk

To  date, all our product sales have been made in North America and to a smaller
extent,  Europe.  To  the  extent  that  our  international  operations  become
meaningful,  our  financial  results  could be affected by a variety of factors,
including changes in foreign currency exchange rates or weak economic conditions
in foreign markets. The strengthening of the U.S. dollar could make our products
less  competitive  in  foreign markets given that the vast majority of sales are
currently  made  in  U.S.  dollars.

Interest  Rate  Risk

Our  exposure  to market risk for changes in interest rates relates primarily to
our investment portfolio and outstanding debt obligations.  Declines in interest
rates  over  time  would reduce our interest income.  Interest rate fluctuations
would  also  affect  interest  paid  on  our line of credit and term loan credit
facility.  We  do  not  use  derivative financial instruments for speculative or
trading  purposes.

Funds in excess of current operating requirements are invested in obligations of
the  U.S.  government and its agencies and investment grade obligations of state
and  local  governments  and  large  corporations.  Because of the nature of our
investments, we have concluded that there is no material market risk exposure at
June  30,  2001.  Therefore,  no quantitative tabular disclosures are presented.

The  basic  objectives  of  our  investment  program  are  to  ensure:

     -    safety  and  preservation  of  capital;
     -    sufficient  liquidity  to  meet  cash  flow  requirements;
     -    attainment  of  a  consistent market rate of return on invested funds;
          and
     -    avoiding  inappropriate  concentrations  of  investments.


                                       32
<PAGE>
Equity  Risk

We do not own any marketable equity securities. Therefore, we are not subject to
any  direct  equity  price  risk.

ITEM  8.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTAL  DATA

The  report  of  Independent  Accountants, Consolidated Financial Statements and
Notes  to  Consolidated  Financial  Statements  begin  on  page  F-1 immediately
following  the  signature  page  and  are  incorporated  herein  by  reference.

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

There  have  been  none.

                                    PART III

ITEM  10.  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

See  the  information  set  forth  in  the  section  entitled "Proposal No. 1 --
Election  of  Directors" in Evolve's Proxy Statement for the 2001 Annual Meeting
of  Stockholders  to be filed with the Securities and Exchange Commission within
120  days  after the end of Evolve's fiscal year ended June 30, 2001, (the "2001
Proxy  Statement"),  which  section  is  incorporated  herein  by  reference.

ITEM  11.  EXECUTIVE  COMPENSATION

See  the  information  set forth in the section entitled "Executive Compensation
and  Related  Information"  in  the  2001  Proxy  Statement,  which  section  is
incorporated  herein  by  reference.

ITEM  12.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND  MANAGEMENT

See  the  information  set  forth  in  the  section entitled "Stock Ownership of
Certain  Beneficial  Owners  and  Management" in the 2001 Proxy Statement, which
section  is  incorporated  herein  by  reference.

ITEM  13.  CERTAIN  RELATIONSHIPS  AND  RELATED  PARTY  TRANSACTIONS

See the information set forth in the section entitled "Certain Relationships and
Related  Transactions" in the 2001 Proxy Statement, which is incorporated herein
by  reference.


                                     PART IV

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

(a)   The  following documents are filed or incorporated by reference as part of
this  Annual  Report:

      (1)  Financial  Statements
<TABLE>
<CAPTION>
                                                                                           PAGE
                                                                                           ----
<S>                                                                                        <C>
           Report of PricewaterhouseCoopers LLP, Independent Accountants                   F-1
           Consolidated Balance Sheets at June 30, 2001 and 2000                           F-2
           Consolidated Statements of Operations for the years ended June 30, 2001, 2000   F-3
           and 1999
           Consolidated Statements of Redeemable Convertible Preferred Stock and           F-4
           Stockholders' Equity (Deficit) for years ended June 30, 2001, 2000 and 1999
           Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000   F-5
           and 1999
           Notes to Consolidated Financial Statements                                      F-6
</TABLE>

      (2)  Financial  Statement  Schedules

           The  following financial statement schedule is filed herewith at page
           37.

           Schedule  II-Valuation  Account

      (3)  Exhibits


                                       33
<PAGE>


                                       34
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
  NO.                         DESCRIPTION
  ---                         -----------

<C>    <C>  <S>

  2.1    *  Asset Acquisition Agreement, dated as of May 22, 2001, by and between Evolve and
            Vivant Corporation.
  3.1   **  Amended and Restated Certificate of Incorporation of Registrant.
  3.2   **  Bylaws of the Registrant .
  4.1   **  Form of stock certificates.
 10.1   **  Form of Indemnification Agreement between the Registrant and each of its directors.
 10.2   **  Office Building Lease, 1400  65th Street, Emeryville, CA.
 10.3   +   Amended Office Building Lease, 1400 65th Street, Emeryville, CA.
 10.4   **  1995 Stock Option Plan, as amended.
 10.5   **  2000 Stock Plan.
 10.6   **  2000 Employee Stock Purchase Plan.
 10.7   **  Employment Offer Letter for John P. Bantleman.
 10.8   **  Employment Offer Letter for James J. Bozzini.
 10.9   **  Employment Offer Letter for Kurt M. Heikkinen.
10.10   **  Restricted Stock Purchase Agreements for John P. Bantleman dated January 1998,
            February 1999 and November 1999.
10.11   **  Restricted Stock Purchase Agreement for James J. Bozzini dated November 1999.
10.12   **  Restricted Stock Purchase Agreements for Kurt M. Heikkinen dated November 1999,
             February 2000 and July 2000.
10.13   **  Agreement that provides acceleration for vesting for John P. Bantleman dated
            February 1999.
10.14   **  Amended and Restated Stockholder Rights Agreement among certain investors dated
            June 2000.
10.15   **  Employment Offer Letter for Joseph A. Fuca.
10.16    *  Registration Rights Agreement, dated as of June 29, 2001, by and between Evolve and
            Vivant Corporation.
10.17   +   Subordinated Loan and Security Agreement dated January 31, 2001, by and between
            Imperial Bank and Registrant.
 21.1   +   List of Subsidiaries of the Registrant.
 23.1       Consent of PricewaterhouseCoopers LLP, Independent Accountants

<FN>

     +      Previously fled
     *      Filed  as  an exhibit to the Registrant's Periodic Report on Form 8-K filed July 17,
            2001.
     **     Filed  as  an  exhibit  to  the  Registrant's  Registration  Statement  on Form S-1
            (No.  333-32796).
</TABLE>


(b)  Reports  on  Form  8-K

     No  report  on  Form  8-K was filed during the fourth quarter of the fiscal
     year  ended  June  30,  2001.


                                       35
<PAGE>

                                   SIGNATURES

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934, the registrant has duly caused this amended Annual Report on Form
10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.

                             Evolve Software, Inc.

Date:  October 25, 2001

                             /s/         KENNETH J. BOZZINI
                             ---------------------------------------------------
                                         Kenneth J. Bozzini
                                         Chief Financial Officer, Vice President
                                         of Finance (Principal Financial and
                                         Accounting Officer)

KNOW  ALL  PERSONS  BY  THESE PRESENTS, that each person whose signature appears
below  constitutes and appoints jointly and severally, Lin Johnstone and Kenneth
J.  Bozzini, and each one of them, his or her true and lawful attorneys-in-fact,
each  with  the power of substitution, for him or her in any and all capacities,
to sign any amendments to this amended Annual Report on Form 10-K/A, and to file
the  same,  with  exhibits  thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that  each  of  said  attorneys-in-fact, or substitute or substitutes, may do or
cause  to  be  done  by  virtue  hereof.

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

<TABLE>
<CAPTION>
                 SIGNATURES                            TITLE                          DATE
         ---------------------------  ----------------------------------------  ----------------
<S>      <C>                          <C>                                       <C>
/s/      GAYLE CROWELL                Chairman of the Board                     October 25, 2001
         ---------------------------
         Gayle Crowell

/s/      LIN JOHNSTONE                Interim President and Chief Executive     October 25, 2001
         ---------------------------  Officer (Principal Executive Officer)
         Lin Johnstone

/s/      KENNETH J. BOZZINI           Chief Financial Officer, Vice President   October 25, 2001
         ---------------------------  of Finance (Principal Financial and
         Kenneth J. Bozzini           Accounting Officer)

/s/      CARY DAVIS                   Director                                  October 25, 2001
         ---------------------------
         Cary Davis

/s/      JEFFREY M. DRAZAN*           Director                                  October 25, 2001
         ---------------------------
         Jeffrey M. Drazan

/s/      JUDITH H. HAMILTON*          Director                                  October 25, 2001
         ---------------------------
         Judith H. Hamilton

/s/      NANCY MARTIN                 Director                                  October 25, 2001
         ---------------------------
         Nancy Martin

/s/      JOHN R. OLTMAN*              Director                                  October 25, 2001
         ---------------------------
         John R. Oltman

/s/      PAUL ROCHESTER*              Director                                  October 25, 2001
         ---------------------------
         Paul Rochester

(*)      By:  /s/ KENNETH J. BOZZINI  Attorney-in-fact                          October 25, 2001
         ---------------------------
         Kenneth J. Bozzini
</TABLE>



                                       36
<PAGE>
                                                                     SCHEDULE II

<TABLE>
<CAPTION>

                        EVOLVE SOFTWARE, INC. AND SUBSIDIARIES

                                  VALUATION ACCOUNT
                       YEARS ENDED JUNE 30, 2001, 2000, AND 1999
                                    (IN THOUSANDS)


                                       BALANCE AT    CHARGED
                                       BEGINNING   TO OPERATING               BALANCE AT
YEAR          DESCRIPTION               OF YEAR      EXPENSES    DEDUCTIONS   END OF YEAR
----  -------------------------------  ----------  ------------  ----------  ------------
<C>   <S>                              <C>         <C>           <C>          <C>
1999  Allowance for doubtful accounts  $        -  $          -  $        -  $          -
2000  Allowance for doubtful accounts  $        -  $      125.0  $        -  $      125.0
2001  Allowance for doubtful accounts  $    125.0  $    1,222.3  $    617.2  $      730.1
</TABLE>


                                       37
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS

To  the  Board  of  Directors  and  Stockholders  of  Evolve  Software,  Inc.

In  our  opinion,  the  consolidated  financial  statements  listed in the index
appearing  under  Item  14(a)(1),  present fairly, in all material respects, the
financial  position  of  Evolve  Software, Inc. and its subsidiaries at June 30,
2001 and 2000, and the results of their operations and their cash flows for each
of  the  three  years  in  the  period  ended  June 30, 2001, in conformity with
accounting  principles  generally  accepted  in the United States of America. In
addition,  in  our  opinion,  the financial statement schedule identified in the
accompanying  index  appearing  under  Item  14(a)(2)  presents  fairly,  in all
material  respects,  the  information set forth therein when read in conjunction
with the related consolidated financial statements. These consolidated financial
statements  and  financial  statement  schedules  are  the responsibility of the
Company's  management;  our  responsibility  is  to  express an opinion on these
financial  statements  and the financial statement schedule based on our audits.
We  conducted  our  audits  of  these  statements  in  accordance  with auditing
standards generally accepted in the United States of America, which require that
we  plan  and perform the audit to obtain reasonable assurance about whether the
financial  statements  are  free  of  material  misstatement.  An audit includes
examining,  on  a test basis, evidence supporting the amounts and disclosures in
the  financial  statements,  assessing  the  accounting  principles  used  and
significant  estimates  made by management, and evaluating the overall financial
statement  presentation.  We  believe that our audits provide a reasonable basis
for  our  opinion.

PricewaterhouseCoopers  LLP

San  Jose,  California
July  30,  2001,  except for Note 19, as to which the date is September 27, 2001


                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                                           EVOLVE SOFTWARE, INC.
                                        CONSOLIDATED BALANCE SHEETS
                            (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                                                                       JUNE 30,
                                                                                 ----------------------
                                                                                    2001        2000
                                                                                 ----------  ----------
ASSETS
<S>                                                                              <C>         <C>
Current assets:
    Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .  $  19,914   $  18,660
    Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . .      2,840           -
    Accounts receivable, net of allowance for doubtful
        accounts $730 and $125, respectively. . . . . . . . . . . . . . . . . .      6,414       3,952
    Prepaid expenses and other current assets . . . . . . . . . . . . . . . . .      2,454       2,273
    Notes receivable from related party . . . . . . . . . . . . . . . . . . . .        175           -
                                                                                 ----------  ----------
        Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . .     31,797      24,885

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . .     10,481       8,830
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          -       2,000
Deposits and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,617       1,213
Note receivable from related party. . . . . . . . . . . . . . . . . . . . . . .          -         100
Goodwill and other intangible assets, net . . . . . . . . . . . . . . . . . . .      3,726      26,951
                                                                                 ----------  ----------
        Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  47,621   $  63,979
                                                                                 ==========  ==========

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
  STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
    Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   5,670   $   6,467
    Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5,852       5,965
    Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      8,117       7,093
    Capital lease obligations, current portion. . . . . . . . . . . . . . . . .        646         762
    Restructuring accrual, current portion. . . . . . . . . . . . . . . . . . .      2,208           -
    Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2,178           -
                                                                                 ----------  ----------
        Total current liabilities . . . . . . . . . . . . . . . . . . . . . . .     24,671      20,287

Capital lease obligations, less current portion . . . . . . . . . . . . . . . .        194         852
Restructuring accrual, less current portion.. . . . . . . . . . . . . . . . . .      4,651           -
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2,575       3,958
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        187           -
                                                                                 ----------  ----------
        Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .     32,278      25,097
                                                                                 ----------  ----------

Contingencies and commitments (Note 5 and Note 9)
    Redeemable convertible preferred stock, $.001 par value, 10,000,000
      and 130,000,000 shares authorized as of June 30, 2001 and 2000,
      respectively; shares issued and outstanding:  zero and 115,541,610 as of
      June 30, 2001 and 2000. . . . . . . . . . . . . . . . . . . . . . . . . .          -      79,514

Stockholders' equity (deficit)
    Common stock, $0.001 par value; 110,000,000 and 25,000,000 shares
          authorized as of June 30, 2001 and 2000, respectively; shares
          issued and outstanding:  40,051,956 and 10,305,880 shares
          as of June 30, 2001 and 2000, respectively. . . . . . . . . . . . . .         40          10
    Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . .    250,485     113,210
    Notes receivable from stockholders. . . . . . . . . . . . . . . . . . . . .     (7,795)     (9,174)
    Unearned stock-based compensation . . . . . . . . . . . . . . . . . . . . .    (11,732)    (40,295)
    Accumulated other comprehensive income. . . . . . . . . . . . . . . . . . .         95          --
    Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (215,750)   (104,383)
                                                                                 ----------  ----------
        Total stockholder's equity (deficit). . . . . . . . . . . . . . . . . .     15,343     (40,632)
                                                                                 ----------  ----------

        Total liabilities, redeemable convertible preferred stock and
          stockholders' equity (deficit). . . . . . . . . . . . . . . . . . . .  $  47,621   $  63,979
                                                                                 ==========  ==========
</TABLE>
    The accompanying notes are an integral part of these consolidated financial
                                   statements.


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                               EVOLVE SOFTWARE, INC.
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                                                          YEAR ENDED JUNE 30,
                                                                                   --------------------------------
                                                                                      2001       2000       1999
                                                                                   ----------  ---------  ---------
<S>                                                                                <C>         <C>        <C>
Revenues:
    Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  25,398   $  7,157   $    150
    Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      9,549      3,386        367
                                                                                   ----------  ---------  ---------
        Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     34,947     10,543        517
                                                                                   ----------  ---------  ---------

Cost of revenues:(*)
    Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     13,034      5,250        251
    Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      4,337      1,920        390
                                                                                   ----------  ---------  ---------
        Total cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . . .     17,371      7,170        641
                                                                                   ----------  ---------  ---------

        Gross profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .     17,576      3,373       (124)

Operating expenses:(*)
    Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     44,866     29,006      3,970
    Research and development. . . . . . . . . . . . . . . . . . . . . . . . . . .     22,594     13,716      5,115
    General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . .     19,712     15,779      1,917
    In-process technology write-off . . . . . . . . . . . . . . . . . . . . . . .          -      3,126          -
    Amortization of goodwill and other intangible assets. . . . . . . . . . . . .      8,959      2,809          -
    Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .      9,724          -          -
    Impairment of goodwill and other intangible assets. . . . . . . . . . . . . .     19,647          -          -
                                                                                   ----------  ---------  ---------
        Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . .    125,502     64,436     11,002

Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (107,926)   (61,063)   (11,126)

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      3,014      1,085        277
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (339)      (378)      (697)
Other income (expense). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (139)         5         75
                                                                                   ----------  ---------  ---------

Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (105,390)   (60,351)   (11,471)

Beneficial conversion feature of Series I redeemable convertible preferred stock.     (5,977)    (9,023)         -

Net loss attributable to common stockholders. . . . . . . . . . . . . . . . . . .  $(111,367)  $(69,374)  $(11,471)
                                                                                   ==========  =========  =========

Net loss per common share -- basic and diluted. . . . . . . . . . . . . . . . . .  $   (3.63)  $ (22.83)  $  (7.21)
                                                                                   ==========  =========  =========

Shares used in net loss per common share calculation -- basic and diluted . . . .     30,643      3,039      1,591
                                                                                   ==========  =========  =========

(*)  Amounts include non-cash stock based compensation as follows:

Cost of revenues:
   Solutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   1,547   $  1,382   $      6
Operating expenses:
   Sales and marketing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      4,557      4,999         94
   Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . .      3,088      3,301         58
   General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .      8,691      9,595         60
                                                                                   ----------  ---------  ---------
      Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  17,883   $ 19,277   $    218
                                                                                   ==========  =========  =========
</TABLE>

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


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                                  EVOLVE SOFTWARE, INC.
                            CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
                                            AND STOCKHOLDERS' EQUITY (DEFICIT)
                                                     (IN THOUSANDS)


                                                         REDEEMABLE
                                                        CONVERTIBLE                                           ADDITIONAL
                                                      PREFERRED STOCK              COMMON STOCK                PAID-IN
                                                           SHARES        AMOUNTS      SHARES       AMOUNTS     CAPITAL
                                                      ----------------  ---------  -------------  ---------  ------------
<S>                                                   <C>               <C>        <C>            <C>        <C>
BALANCES, JUNE 30, 1998. . . . . . . . . . . . . . .           10,183   $ 11,393          2,113   $      2   $       632
Repurchase of common stock . . . . . . . . . . . . .                -          -           (138)         -          (222)
Issuance of common stock for notes
   receivable to related parties . . . . . . . . . .                -          -          1,996          2           778
Exercise of common stock options . . . . . . . . . .                -          -            200          -           110
Issuance of common stock options to non-employees. .                -          -              -          -            20
Preferred Series F issued upon
   conversion of promissory notes. . . . . . . . . .           16,633     10,656              -          -             -
Issuance of preferred Series G for  cash and.
   conversion of debt, net of issuance costs of $770           28,000      9,530              -          -             -
Unearned stock-based compensation. . . . . . . . . .                -          -              -          -           577
Amortization of unearned stock-based compensation. .                -          -              -          -             -
Net loss . . . . . . . . . . . . . . . . . . . . . .                -          -              -          -             -
                                                      ----------------  ---------  -------------  ---------  ------------
BALANCES, JUNE 30, 1999. . . . . . . . . . . . . . .           54,816     31,579          4,171          4         1,895
Repurchase of common stock . . . . . . . . . . . . .                -          -           (992)        (1)         (557)
Repayment of notes receivable. . . . . . . . . . . .                -          -              -          -             -
Issuance of common stock for notes receivable
    to related parties . . . . . . . . . . . . . . .                -          -          3,296          3         5,715
Exercise of common stock options . . . . . . . . . .                -          -          1,920          2         3,968
Issuance of common stock and common stock
   options to non-employees. . . . . . . . . . . . .                -          -             11          -           155
Issuance of preferred Series H for cash, net of
   issuance costs of $39 . . . . . . . . . . . . . .           35,714     24,961              -          -             -
Issuance of preferred Series I for cash, net
   of issuance costs of $23. . . . . . . . . . . . .           18,047     18,024              -          -             -
Exercise of warrants for Series G preferred stock. .            6,965      4,950              -          -             -
Exercise of warrants for common stock. . . . . . . .                -          -             67          -           800
Issuance of warrants for stock-based settlement. . .                -          -              -          -           651
Dividend relative to beneficial conversion feature
   related to issuance of Series I preferred stock .                -          -              -          -         9,023
Common stock issued for the acquisition of InfoWide.                -          -          1,833          2        32,998
Unearned stock-based compensation. . . . . . . . . .                -          -              -          -        58,562
Amortization of unearned stock-based compensation. .                -          -              -          -             -
Net loss . . . . . . . . . . . . . . . . . . . . . .                -          -              -          -             -
                                                      ----------------  ---------  -------------  ---------  ------------
BALANCES, JUNE 30, 2000. . . . . . . . . . . . . . .          115,542     79,514         10,306         10       113,210
Repurchase of common stock . . . . . . . . . . . . .                -          -           (235)         -          (835)
Repayment of notes receivable. . . . . . . . . . . .                -          -              -          -             -
Issuance of common stock for notes receivable
    to related party . . . . . . . . . . . . . . . .                -          -            416          -         2,063
Issuance of common stock under stock option
    and stock purchase plans . . . . . . . . . . . .                -          -            619          1         2,843
Issuance of preferred Series I for cash. . . . . . .           11,953     11,946              -          -             -
Exercise of warrants for common stock. . . . . . . .                -          -            233          -           500
Exercise of warrants for Series F preferred stock. .              967        632              -          -             -
Issuance of common stock in conjunction with initial
   public offering, net of issuance costs of $5,284.                -          -          5,750          6        46,469
Conversion of convertible preferred stock to
    common stock at IPO. . . . . . . . . . . . . . .         (128,462)   (92,092)        21,410         21        92,070
Common stock issued for the acquisition
    of Vivant technology . . . . . . . . . . . . . .                -          -          1,553          2         2,098
Dividend relative to beneficial conversion feature
   related to issuance of Series I preferred stock .                -          -              -          -         5,977
Reversal of unearned stock-based compensation
  associated with non-executive terminations . . . .                -          -              -          -        (5,625)
Amortization of stock-based
  compensation - non-executive . . . . . . . . . . .                -          -              -          -             -
Reversal of unvested charge associated
  with executive awards. . . . . . . . . . . . . . .                -          -              -          -        (8,685)
Modification of executive stock
  awards and remeasurement . . . . . . . . . . . . .                -          -              -          -           400
Amortization of unearned stock-based
  compensation associated with  executive awards . .                -          -              -          -             -
Foreign currency translation adjustment. . . . . . .                -          -              -          -             -
Net loss . . . . . . . . . . . . . . . . . . . . . .                -          -              -          -             -
                                                      ----------------  ---------  -------------  ---------  ------------
BALANCES, JUNE 30, 2001. . . . . . . . . . . . . . .                -   $      -         40,052   $     40   $   250,485
                                                      ================  =========  =============  =========  ============


                                                          NOTES                       ACCUMULATED                      TOTAL
                                                        RECEIVABLE       UNEARNED        OTHER                      STOCKHOLDERS'
                                                           FROM        STOCK-BASED    COMPREHENSIVE  ACCUMULATED       EQUITY
                                                       STOCKHOLDERS    COMPENSATION      INCOME        DEFICIT        (DEFICIT)
                                                      --------------  --------------  ------------  -------------  ---------------
<S>                                                   <C>             <C>             <C>           <C>            <C>
BALANCES, JUNE 30, 1998. . . . . . . . . . . . . . .  $        (683)  $           -   $          -  $    (23,538)  $      (23,587)
Repurchase of common stock . . . . . . . . . . . . .            222               -              -             -                -
Issuance of common stock for notes
   receivable to related parties . . . . . . . . . .           (780)              -              -             -                -
Exercise of common stock options . . . . . . . . . .            (24)              -              -             -               86
Issuance of common stock options to non-employees. .              -               -              -             -               20
Preferred Series F issued upon
   conversion of promissory notes. . . . . . . . . .              -               -              -             -                -
Issuance of preferred Series G for  cash and.
   conversion of debt, net of issuance costs of $770              -               -              -             -                -
Unearned stock-based compensation. . . . . . . . . .              -            (577)             -             -                -
Amortization of unearned stock-based compensation. .              -             218              -             -              218
Net loss . . . . . . . . . . . . . . . . . . . . . .              -               -              -       (11,471)         (11,471)
                                                      --------------  --------------  ------------  -------------  ---------------
BALANCES, JUNE 30, 1999. . . . . . . . . . . . . . .         (1,265)           (359)             -       (35,009)         (34,734)
Repurchase of common stock . . . . . . . . . . . . .            502               -              -             -              (56)
Repayment of notes receivable. . . . . . . . . . . .             65               -              -             -               65
Issuance of common stock for notes receivable
    to related parties . . . . . . . . . . . . . . .         (5,718)              -              -             -                -
Exercise of common stock options . . . . . . . . . .         (2,758)              -              -             -            1,212
Issuance of common stock and common stock
   options to non-employees. . . . . . . . . . . . .              -               -              -             -              155
Issuance of preferred Series H for cash, net of
   issuance costs of $39 . . . . . . . . . . . . . .              -               -              -             -                -
Issuance of preferred Series I for cash, net
   of issuance costs of $23. . . . . . . . . . . . .              -               -              -             -                -
Exercise of warrants for Series G preferred stock. .              -               -              -             -                -
Exercise of warrants for common stock. . . . . . . .              -               -              -             -              800
Issuance of warrants for stock-based settlement. . .              -               -              -             -              651
Dividend relative to beneficial conversion feature
   related to issuance of Series I preferred stock .              -               -              -        (9,023)               -
Common stock issued for the acquisition of InfoWide.              -               -              -             -           33,000
Unearned stock-based compensation. . . . . . . . . .              -         (58,562)             -             -                -
Amortization of unearned stock-based compensation. .              -          18,626              -             -           18,626
Net loss . . . . . . . . . . . . . . . . . . . . . .              -               -              -       (60,351)         (60,351)
                                                      --------------  --------------  ------------  -------------  ---------------
BALANCES, JUNE 30, 2000. . . . . . . . . . . . . . .         (9,174)        (40,295)             -      (104,383)         (40,632)
Repurchase of common stock . . . . . . . . . . . . .            609               -              -             -             (226)
Repayment of notes receivable. . . . . . . . . . . .            543               -              -             -              543
Issuance of common stock for notes receivable
    to related party . . . . . . . . . . . . . . . .         (2,063)              -              -             -                -
Issuance of common stock under stock option
    and stock purchase plans . . . . . . . . . . . .           (697)              -              -             -            2,147
Issuance of preferred Series I for cash. . . . . . .              -               -              -             -                -
Exercise of warrants for common stock. . . . . . . .              -               -              -             -              500
Exercise of warrants for Series F preferred stock. .              -               -              -             -                -
Issuance of common stock in conjunction with initial
   public offering, net of issuance costs of $5,284.              -               -              -             -           46,475
Conversion of convertible preferred stock to
    common stock at IPO. . . . . . . . . . . . . . .              -               -              -             -           92,091
Common stock issued for the acquisition
    of Vivant technology . . . . . . . . . . . . . .              -               -              -             -            2,100
Dividend relative to beneficial conversion feature
   related to issuance of Series I preferred stock .              -               -              -       ( 5,977)               -
Reversal of unearned stock-based compensation
  associated with non-executive terminations . . . .              -           5,625              -             -                -
Amortization of stock-based
  compensation - non-executive . . . . . . . . . . .              -          20,530              -             -           20,530
Reversal of unvested charge associated
  with executive awards. . . . . . . . . . . . . . .              -           8,685              -             -                -
Modification of executive stock
  awards and remeasurement . . . . . . . . . . . . .          2,987          (3,630)             -             -             (243)
Amortization of unearned stock-based
  compensation associated with  executive awards . .              -          (2,647)             -             -           (2,647)
Foreign currency translation adjustment. . . . . . .              -               -             95             -               95
Net loss . . . . . . . . . . . . . . . . . . . . . .              -               -              -      (105,390)        (105,390)
                                                      --------------  --------------  ------------  -------------  ---------------
BALANCES, JUNE 30, 2001. . . . . . . . . . . . . . .  $      (7,795)  $     (11,732)  $         95  $   (215,750)  $       15,343
                                                      ==============  ==============  ============  =============  ===============
</TABLE>

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


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                                    EVOLVE SOFTWARE, INC.
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (IN THOUSANDS)

                                                                                                        YEAR ENDED JUNE 30,
                                                                                                --------------------------------
                                                                                                   2001       2000       1999
                                                                                                ----------  ---------  ---------
<S>                                                                                             <C>         <C>        <C>
Cash flows from operating activities:
 Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $(105,390)  $(60,351)  $(11,471)
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
   Loss on disposal of fixed assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         38          -          7
   Common stock options issued to non-employees. . . . . . . . . . . . . . . . . . . . . . . .          -         23         20
   Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,095        125          -
   Depreciation and amortization - fixed assets. . . . . . . . . . . . . . . . . . . . . . . .      3,697        852        384
   Amortization of goodwill and other intangible assets. . . . . . . . . . . . . . . . . . . .      8,958      2,901          -
   In-process technology write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          -      3,126          -
   Non-cash restructuring charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,694          -          -
   Impairment of goodwill and other intangible assets. . . . . . . . . . . . . . . . . . . . .     19,647          -          -
   Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        102        298        571
   Stock-based charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     17,883     19,277        218
   Changes in assets and liabilities:
    Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (3,558)    (3,973)       (78)
    Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . . .       (198)    (1,934)      (201)
    Notes receivable from related party. . . . . . . . . . . . . . . . . . . . . . . . . . . .        (75)       (40)       (40)
    Deposits and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (647)      (925)       (42)
    Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (796)     6,143          3
    Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (434)     5,171        331
    Restructuring accrual. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      6,859          -          -
    Deferred revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,024      5,077      1,966

       NET CASH USED IN OPERATING ACTIVITIES                                                      (50,101)   (24,230)    (8,332)
                                                                                                ----------  ---------  ---------

Cash flows from investing activities:
 Purchase of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (22,430)    (2,264)         -
 Maturities of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     19,591      2,264          -
 Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (8,631)    (7,436)       (41)
 Proceeds from sale of property and equipment  . . . . . . . . . . . . . . . . . . . . . . . .         20          -          -
 Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2,000     (2,000)         -
 Purchase of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (1,225)      (300)         -
 Cash acquired upon acquisition of InfoWide. . . . . . . . . . . . . . . . . . . . . . . . . .          -        292          -

       NET CASH USED IN INVESTING ACTIVITIES                                                      (10,675)    (9,444)       (41)
                                                                                                ----------  ---------  ---------

Cash flows from financing activities:
 Payments under capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . . .       (774)      (490)      (379)
 Repayment of notes payable to related party . . . . . . . . . . . . . . . . . . . . . . . . .          -          -       (100)
 Proceeds from long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      4,753          -          -
 Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (4,060)         -          -
 Proceeds from payment on note receivable. . . . . . . . . . . . . . . . . . . . . . . . . . .        543         65          -
 Proceeds from initial public offering, net. . . . . . . . . . . . . . . . . . . . . . . . . .     46,475          -          -
 Proceeds from issuance of preferred stock, net of issuance costs. . . . . . . . . . . . . . .     12,578     47,935      9,530
 Proceeds from exercise of common stock options. . . . . . . . . . . . . . . . . . . . . . . .        866      1,240         86
 Proceeds from exercise of warrants for common stock . . . . . . . . . . . . . . . . . . . . .        500        800          -
 Proceeds from employee stock purchase plan. . . . . . . . . . . . . . . . . . . . . . . . . .      1,281          -          -
 Payments on repurchase of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .       (226)       (56)         -

       NET CASH PROVIDED BY FINANCING ACTIVITIES                                                   61,936     49,494      9,137
                                                                                                ----------  ---------  ---------

Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . .         94          -          -

Increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,254     15,820        764
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . .     18,660      2,840      2,076
                                                                                                ----------  ---------  ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . .  $  19,914   $ 18,660   $  2,840
                                                                                                ==========  =========  =========

 Supplemental disclosure of cash flow information:

  Cash paid to settle litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     290   $      -   $      -
                                                                                                ==========  =========  =========

  Cash paid during the period for interest . . . . . . . . . . . . . . . . . . . . . . . . . .  $     768   $     71   $    121
                                                                                                ==========  =========  =========

 Supplemental schedule of non-cash investing and financing activities:

  Assets acquired under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $       -   $  1,495   $    235
                                                                                                ==========  =========  =========

  Notes receivable from stockholder in exchange for common stock . . . . . . . . . . . . . . .  $   2,760   $  8,476   $    804
                                                                                                ==========  =========  =========

  Repurchase of common stock issued for notes receivable . . . . . . . . . . . . . . . . . . .  $     609   $    502   $    222
                                                                                                ==========  =========  =========

  Conversion of convertible debt into Series F preferred stock . . . . . . . . . . . . . . . .  $       -   $      -   $ 10,656
                                                                                                ==========  =========  =========

  Conversion of convertible debt into non-convertible promissory note. . . . . . . . . . . . .  $       -   $      -   $  3,500
                                                                                                ==========  =========  =========

  Acquisition of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   3,130   $ 29,448   $      -
                                                                                                ==========  =========  =========
</TABLE>

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                   STATEMENTS.


                                      F-5
<PAGE>
                              EVOLVE SOFTWARE, INC.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  1.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

THE  COMPANY

Evolve  Software,  Inc.  (the  "Company" or "Evolve") was incorporated under the
laws  of  the  state  of Delaware in February 1995 for the purpose of designing,
developing,  marketing  and supporting enterprise application software products.
The  accompanying  consolidated financial statements include the accounts of the
Company  and  its wholly-owned subsidiaries, Evolve Software Europe Ltd., Evolve
Software  (India)  Pvt.  Ltd. and Evolve Canada, Inc. which were incorporated in
May  2000,  December  2000  and  April  2001,  respectively.

LIQUIDITY

The  Company  has  sustained  net losses and negative cash flows from operations
since  its  inception.  The  Company's  ability  to  meet its obligations in the
ordinary  course of business is dependent on its ability to reduce net operating
expenses  and  raise  additional  financing  through  public  or  private equity
financing  or  other  sources  of  financing  to  fund  operations.  There is no
assurance that the Company will achieve a reduction of net operating expenses or
that it will be able to raise adequate financing from other sources.  Management
believes  that  its  current  funds  and  access  to  available  capital will be
sufficient  to  enable  the  Company to meet its planned expenditures through at
least  June  30,  2002.  If  anticipated  operating  results  are  not achieved,
management  has  the  intent  and it believes that it has the ability, to reduce
expenditures  by  reductions  in  headcount  so  as  not  to  require additional
financial resources, if such resources were not available on terms acceptable to
the  Company.

PRINCIPLES  OF  CONSOLIDATION

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

FOREIGN  CURRENCY  TRANSLATION

The  Company's  international  subsidiaries  use  their  local currency as their
functional currency.  Assets and liabilities are translated at exchange rates in
effect  at  the  balance  sheet  date,  and  revenue  and  expense  accounts are
translated  at average exchange rates during each period.  Resulting translation
adjustments  are  recorded  directly  to  a  separate component of stockholders'
equity.  Foreign  currency  transaction  gains and losses, which are recorded in
the  statement  of  operations,  have  not  been  material,  to  date.

USE  OF  ESTIMATES

The Company has prepared these financial statements in conformity with generally
accepted  accounting  principles which require the Company 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 financial
statements  and  reported  amounts of revenues and expenses during the reporting
period.  Actual  results  could  differ  from  those  estimates.

REVENUE  RECOGNITION

The  Company derives revenues from fees for licenses and implementation services
("Solutions  revenue")  and  fees from maintenance, application service provider
and  subscription  agreements  ("Subscription revenue").  The Company recognizes
revenues  in  accordance  with the provisions of American Institute of Certified
Public  Accountants  (AICPA) Statement of Position (SOP) 97-2, "Software Revenue
Recognition,"  as  amended.  The  Company  also  follows  the  provisions of the
Securities  Exchange  Commission's  Staff  Accounting Bulletin No.101 (SAB 101),
"Revenue  Recognition  in  Financial  Statements."


                                      F-6
<PAGE>
Under  SOP 97-2 as amended and SAB 101, the Company recognizes revenues when all
of  the  following  conditions  are  met:

     -    when  persuasive  evidence  of  an  agreement  exists;
     -    the  delivery  of  the  product  has  occurred;
     -    the  fee  is  fixed  or  determinable;  and
     -    the  Company  believes  that  collection  of  these fees is reasonably
          assured.

Generally,  the Company has vendor specific objective evidence of fair value for
the  maintenance element of software arrangements based on the renewal rates for
maintenance  in future years as specified in the contracts. In those cases where
first  year  maintenance  revenue  is  included  in the license fee, the Company
defers the fair value of the first year maintenance revenue at the outset of the
arrangement  and  recognizes  it  ratably  over  the  period  during  which  the
maintenance is to be provided, which normally commences on the date the software
is  delivered.

Historically,  the  Company  did  not have vendor specific objective evidence of
fair  value  for  services  specified  in  certain software arrangements, as the
services  were  never  sold  separately.  Accordingly,  the  remaining  software
revenue  allocated to such software licenses and services was recognized ratably
on  a  straight-line  basis  over  the  period  during  which  the services were
provided,  which was generally between six and nine months.  In October 2000 the
Company established vendor specific objective evidence of fair value for certain
services.  For  these  contracts,  which  involve  significant implementation or
other  services  which  are  essential  to the functionality of the software and
which  are  reasonably estimable, the license and services revenue is recognized
over  the  period  of  each  implementation,  primarily  using  the
percentage-of-completion  method.  Labor  hours incurred are used as the measure
of progress towards completion.  Revenue for these arrangements is classified as
Solutions  revenue.  A  provision for estimated losses on engagements is made in
the  period  in which the loss becomes probable and can be reasonably estimated.
In  cases  where  a  sale  of a license does not include implementation services
(i.e.,  a  sale  of additional seats or a sale of product to be implemented by a
third-party), revenue is recorded upon delivery with an appropriate deferral for
maintenance  services,  if  applicable,  provided  all  of  the  other  relevant
conditions  have  been  met.

The  Company  generates  revenue  from  its application service provider ("ASP")
business,  by  hosting  the  software,  and making the solution available to the
customer  via  the Internet, as well as providing maintenance and other services
to  the  customer.  In such situations, customers pay a monthly fee for the term
of  the contract in return for access to the Company's software, maintenance and
other  services  such  as implementation, training, consulting and hosting.  For
certain  ASP  software  arrangements  for which the Company does not have vendor
specific objective evidence of fair value for the elements of the contract, fees
from  such arrangements are recognized on a monthly basis as the hosting service
is  provided.  In  other  circumstances where the customer has the right to take
delivery  of the software and the Company has vendor specific objective evidence
of fair value for the hosting element of the contract, fees from the arrangement
are  allocated  between  the  elements  based  on  the vendor specific objective
evidence.  Revenue for these hosting arrangements is classified as Subscriptions
revenue.

License  revenue  includes  product licenses to companies from which the Company
has  purchased products and services under separate arrangements executed within
a  short  period  of  time  ("reciprocal  arrangements").  Products and services
purchased  in reciprocal arrangements include: 1) software licensed for internal
use,  2)  software  licensed  for  resale  or  incorporation  into the Company's
products;  and  3)  development  or  implementation  services.  For  reciprocal
arrangements,  we  consider  Accounting  Principles  Boards  or  APB  No.  29,
"Accounting  for  Nonmonetary  Transactions,"  and Emerging Issues Task Force or
EITF,  Issue  No.  86-29,  "Nonmonetary  Transactions:  Magnitude  of  Boot  and
Exceptions  to  the  Use  of Fair Value, Interpretation of Accounting Principles
Board  No. 29, Accounting for Nonmonetary Transactions" to determine whether the
arrangement is a monetary or nonmonetary transaction.  In determining these fair
values,  the  company  considers  the  recent  history of cash sales of the same
products  or  services in similar sized transactions.  Revenues recognized under
reciprocal  arrangements  were  $3.1 million, $369,000 and $0 for the fiscal
years  ended  June 30, 2001, 2000 and 1999, respectively.


Deferred  revenue  represents fees derived from maintenance, application service
providers and subscription agreements that are being recognized ratably over the
unexpired  portion  of the underlying period of the agreements. Deferred revenue
also  represents  amounts  billed  to  customers  under  licenses  and  services
arrangements  in  excess  of  amounts  recognized  as revenue to date from those
arrangements.  As  work  progresses  towards  completion on those arrangements a
portion  of  the  deferred  revenue  will  be  recognized.



                                      F-7
<PAGE>
CASH  AND  CASH  EQUIVALENTS

Cash  and cash equivalents consist of highly liquid investments with original or
remaining  maturities  of  three  months or less at the purchase date.  Cash and
cash  equivalents  include  money  market  funds,  commercial  paper and various
deposit  accounts.  Substantially  all  cash and cash equivalents are on deposit
with  four financial institutions.  Cash equivalents are recorded at cost, which
approximates  fair  value.

INVESTMENTS

The  Company  classifies  all  of  its  investments  as  "available for sale" in
accordance  with the provisions of Financial Accounting Standards Board ("FASB")
Statement  of  Accounting  Standards  No.  115 ("SFAS No. 115"), "Accounting for
Certain  Investments  in  Debt and Equity Securities."  Accordingly, the Company
states its investments at estimated fair value, with unrealized gains and losses
reported  in  stockholders' equity.  The cost of securities sold is based on the
specific  identification method.  Such securities are anticipated to be used for
current  operations  and  are,  therefore,  classified  as  current  assets.

FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

Carrying  amounts  of  certain of the Company's financial instruments, including
cash  and  cash  equivalents,  short-term  investments,  accounts receivable and
accounts payable, approximate fair value because of their short maturities.  The
long-term  debt  and  capital  lease  obligations  are  carried  at  cost, which
approximates  fair values due to the proximity of the implicit interest rates of
these  financial  instruments  and the prevailing rates for similar instruments.

RESTRICTED  CASH

At  June 30, 2000, cash balances of $2.0 million were restricted from withdrawal
and  held in a bank in the form of a certificate of deposit.  The certificate of
deposit  served as collateral supporting standby letters of credit issued to the
Company's landlord for the Emeryville, California facility as security deposits.

CONCENTRATIONS

Cash and cash equivalents are maintained with four major financial institutions,
with  high  credit  ratings, in the United States.  Deposits held with banks may
exceed  the  amount  of  insurance  provided on such deposits.  Generally, these
deposits  may  be  redeemed  upon  demand  and,  therefore,  bear  minimum risk.

At  June 30, 2001, the Company had one customer that represented 11% of accounts
receivable.  At  June  30,  2000, the Company had two customers that represented
15%  and  10%  of  accounts  receivable.

For  the  year  ended  June 30, 2001, sales to one customer accounted for 14% of
total  revenues.  For  the  year  ended  June  30,  2000, sales to two customers
accounted  for 19% and 13% of total revenues.  For the year ended June 30, 1999,
sales to three customers accounted for 58%, 32%, and 10%, respectively, of total
revenues.

PROPERTY  AND  EQUIPMENT

Property  and  equipment  is  recorded  at  cost  and  depreciated  using  the
straight-line method.  Computer hardware, computer software and office equipment
are  depreciated  over  three years, furniture and fixtures, telephone equipment
and  vehicles  are  depreciated  over  five years and leasehold improvements are
amortized over the lesser of seven years or the term of the related lease.  When
assets  are  sold  or retired, the cost and accumulated depreciation are removed
from  the  accounts  and  any  gain  or  loss  is  included  in the statement of
operations.

Costs  relating  to the acquisition and development of internal-use software are
capitalized  and  depreciated over their estimated useful lives, generally three
years  or  less.

GOODWILL  AND  OTHER  INTANGIBLES


Goodwill  and  other  intangibles  are  carried  at  cost  less  accumulated
amortization.  Amortization  is computed using the straight-line method over the
estimated  economic  lives  of  the respective assets, which are three years for
goodwill,  three years for purchased technologies, two years for domain name and
one  year  for  assembled  workforce.



                                      F-8
<PAGE>
LONG-LIVED  ASSETS

The  Company  assesses potential impairments to its long-lived assets, including
identifiable  intangibles  and  goodwill,  periodically,  in accordance with the
provisions  of SFAS No. 121, "Accounting for the Impairment of Long-lived Assets
and  for  Long-lived  Assets  to be Disposed of."  The Company also assesses the
impairment  of  enterprise  level goodwill, periodically, in accordance with the
provision  of  Accounting  Principles  Board  (APB)  Opinion No. 17, "Intangible
Assets."  An  impairment  review  is  performed  whenever  events  or changes in
circumstances  indicate that the carrying value may not be recoverable.  Factors
the  Company  considers  important  that  could  result  in an impairment review
include,  but  are  not  limited  to,  significant  underperformance relative to
expected  historical  or projected future operating results, significant changes
in  the  manner  of use of the acquired assets or the strategy for the Company's
overall  business,  significant  negative  industry  or  economic  trends,  a
significant decline in the Company's stock price for a sustained period of time,
and  the  Company's  market capitalization relative to net book value.  When the
Company  determines  that  the  carrying  value of a long-lived asset may not be
recoverable  based  upon the existence of one or more of the above indicators of
impairment,  the  Company  measures  any permanent impairment based on projected
discounted  cash flows using a discount rate commensurate with the risk inherent
in  the  Company's  current  business  model.

RECLASSIFICATIONS

Certain  amounts have been reclassified in the accompanying financial statements
to  conform  to  the  fiscal  2001  presentation.  There  has  been no impact on
stockholders'  equity (deficit) or net loss as a result of the reclassification.

RESEARCH  AND  DEVELOPMENT  AND  SOFTWARE  DEVELOPMENT  COSTS

Costs  incurred in the research, design and development of products for sale are
expensed  as  incurred until technological feasibility has been established.  To
date,  the  establishment of technological feasibility of the Company's products
and  general  release for sale substantially coincide.  As a result, the Company
has  not  capitalized  any software development costs, since such costs have not
been  significant.

ADVERTISING

Advertising  costs totaled $4.7 million, $7.5 million, and $275,000 in the years
ended  June  30,  2001, 2000 and 1999, respectively.  The Company expenses these
costs  as  incurred.

INCOME  TAXES

Deferred  tax  assets  and  liabilities  are  determined based on the difference
between  the financial statement and tax bases of assets and liabilities and the
net  operating loss and credit carryforwards using enacted tax rates.  Valuation
allowances  are  established when necessary to reduce deferred tax assets to the
amounts  expected  to  be  realized.

SEGMENT  INFORMATION

The Company operates in only one segment, namely workforce optimization software
and,  as  such,  uses  only  one measure of profitability for internal reporting
purposes.  To date substantially all of the Company's revenues have been derived
from  within  the  United  States.

STOCK-BASED  CHARGES

The  Company  follows  the  disclosure  provisions  of  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  123,  "Accounting  for  Stock-Based
Compensation."  The  Company  has elected to continue accounting for stock-based
compensation  issued  to  employees  using  Accounting  Principles Board ("APB")
Opinion  No.  25,  "Accounting for Stock Issued to Employees," and, accordingly,
pro  forma  disclosures  required under SFAS 123 have been presented.  Under APB
No.  25, compensation expense is based on the difference, if any, on the date of
grant,  between  the fair value of the Company's stock and the exercise price of
the  option.  Stock,  stock  options,  and  warrants  for  stock  issued  to
non-employees  have been accounted for in accordance with the provisions of SFAS
123  and  Emerging  Issue  Task  Force  Issue  No. 96-18, "Accounting for Equity
Instruments  that  are  Issued  to  Other  Than  Employees  for Acquiring, or in
Conjunction  with  Selling  Goods  or  Services."

In  March 2000, the Financial Accounting Standards Board ("FASB") issued FIN 44,
"Accounting  for  Certain  Transactions  Involving  Stock  Compensation,"  an
interpretation  of  APB  No.  25.  The  implementation  of FIN 44 did not have a


                                      F-9
<PAGE>
material  impact on the Company's financial statements.  The Company adopted FIN
44  beginning  July  1,  2000.

COMPREHENSIVE  INCOME  (LOSS)

The  Company  follows  Statement  of Financial Accounting Standards ("SFAS") No.
130,  "Reporting  Comprehensive Income."  SFAS No. 130 establishes standards for
reporting  and  display  of  comprehensive income (loss) and their components in
financial  statements.  The  statement  of  comprehensive  loss  follows  (in
thousands):

                                                     YEAR ENDED JUNE 30,
                                              --------------------------------
                                                 2001       2000       1999
                                              ----------  ---------  ---------
Net loss                                      $(105,390)  $(60,351)  $(11,471)
Foreign currency translation adjustment              95          -          -
                                              ----------  ---------  ---------
Comprehensive loss                            $(105,295)  $(60,351)  $(11,471)
                                              ==========  =========  =========

RECENT  ACCOUNTING  PRONOUNCEMENTS

In  June  1998 the Financial Accounting Standards Board ("FASB") issued SFAS No.
133,  "Accounting  for  Derivative  Instruments  and  Hedging  Activities," that
requires  companies  to record derivative financial instruments on their balance
sheets  as  assets  or  liabilities,  measured  at  fair value.  Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending  on  the use of the derivative instrument and whether it qualifies for
hedge  accounting.  The  key  criterion for hedge accounting is that the hedging
relationship  must  be  highly effective in achieving offsetting changes in fair
value or cash flows.  In June 1999 the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," that amends SFAS No. 133 to be effective for all fiscal
quarters  of  fiscal years beginning after June 15, 2000.  In June 2000 the FASB
issued  SFAS  No.  138,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities--An  Amendment  of FASB No. 133."  SFAS 138 amends the accounting and
reporting  standards  for certain derivatives and hedging activities such as net
settlement  contracts,  foreign  currency  translations  and  intercompany
derivatives.  The  Company  does  not  currently  hold derivative instruments or
engage  in hedging activities.  Management's adoption of SFAS 133 did not have a
material  effect  on  our  consolidated  financial  statements.

In  July  2001 the Financial Accounting Standards Board ("FASB") issued SFAS No.
141  "Business  Combinations"  and  SFAS No. 142  "Goodwill and Other Intangible
Assets."  SFAS  No.  141 requires business combinations initiated after June 30,
2001,  to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separately from goodwill.  Recorded
goodwill  and  intangibles  will be evaluated against these new criteria and may
result  in  certain  intangibles being subsumed into goodwill, or alternatively,
amounts  initially  recorded  as  goodwill  may  be  separately  identified  and
recognized  apart  from  goodwill.  SFAS  No.  142  requires  the  use  of  a
non-amortization  approach  to  account  for  purchased  goodwill  and  certain
intangibles.  Under  a  non-amortization  approach,  goodwill  and  certain
intangibles  will not be amortized into results of operations, but instead would
be reviewed for impairment and written down and charged to results of operations
only  in  the  periods  in  which  the  recorded  value  of goodwill and certain
intangibles  is  more  than  its  fair  value.  Evolve will continue to amortize
goodwill  and purchased intangible assets acquired prior to June 30, 2001, until
it  adopts  SFAS  142.  For business combinations initiated after June 30, 2001,
Evolve  will  follow the non-amortization method under SFAS 142.  The provisions
of  each statement may be adopted by Evolve as early as July 1, 2001.  Evolve is
currently  assessing  SFAS  No. 141 and 142 and has not determined the impact on
Evolve's  consolidated  financial  statements.

NOTE  2.  ACQUISITIONS

On  June  29,  2001,  Evolve  acquired  certain  assets  of  Vivant! Corporation
("Vivant").  The total acquisition cost was approximately $3.1 million primarily
compromised  of $910,000 in cash, 1,553,254 shares of the Company's common stock
valued  at  $1.6  million,  a  future  stock  commitment  valued at a minimum of
$525,000  and  $137,000  for transaction related expenses. The Company, with the
assistance  of  an independent valuation, recorded approximately $2.2 million in
developed  technology,  $717,000  in goodwill and $187,000 in acquired workforce
upon  this  acquisition  which  was  accounted for as a purchase. The results of
Vivant's  operations have been included in the consolidated financial statements
since  and  date  of  acquisition.


The  number  of  shares  issued  to  Vivant at the closing of the acquisition is
subject  to  adjustment  (by  issuance  of  additional  shares  or redemption of
existing  shares) based on the market value of the Evolve common stock as of the
time the registration of such shares becomes effective.  In addition, Evolve has


                                      F-10
<PAGE>
agreed  to  issue  to  Vivant additional shares  of  its  common  stock  with  a
value  of  no less than $525,000 and no more than $4,425,000 at specified  times
based  on  receipts  from  the  sale  of  Vivant's  products  for the shorter of
twenty-four  months  from  the date of the agreement or eighteen months from the
Company's  first  customer  contract  that  incorporates Vivant technology.  Any
additional  increases  to  the purchase price arising from the issuance of these
contingent  shares  will  result  in  a  corresponding increase in the amount of
goodwill.  The  value  of  the contingent shares will be determined at issuance.
The Company is still refining its purchase price allocation, which may result in
adjustments  in  future  periods.


On  March  31, 2000, the Company acquired all the common stock of InfoWide, Inc.
for  a  total  consideration  of  1.8  million  shares  of  common  stock  and
approximately  $70,000  of  related  expenses.  The  acquisition  consideration,
together  with  transaction expenses, was valued at $33.0 million.  InfoWide was
incorporated  on  April  15,  1998,  under  the  laws  of the state of Delaware.
InfoWide  provided  a  web-hosted,  financial  management  package  designed for
professional  services  organizations.  The  acquisition  was accounted for as a
purchase  and  the  results  of operations of InfoWide have been included in the
consolidated  financial statements from the date of acquisition.  At the date of
the  acquisition,  InfoWide's  assets  less  liabilities  totaled $496,000.  The
Company  recorded  approximately  $22.6  million  in  goodwill,  $5.8 million in
developed  technology,  $3.1  million  in  in-process technology and $990,000 in
other  intangibles.

The  Company  amortizes  goodwill  and  other  intangible assets over periods of
between  one  and  three  years.  Amortization  of the intangible assets will be
determined after the Company reviews SFAS No. 142 "Goodwill and Other Intangible
Assets."

The  amount allocated to the purchased technology of $3.1 million was determined
based  on an appraisal completed by an independent third-party using established
valuation  techniques  and  was expensed upon acquisition, because technological
feasibility  had  not  been  established and no future alternative uses existed.
The  projects'  percentages  of  completion  were  estimated  to be in the range
between  10% and 67%.  The value of this in-process technology was determined by
estimating the resulting cash flows from the sale of the products resulting from
the completion of the in-process technology, estimating the costs to develop the
purchased  in-process  technology  into  commercially  viable  products  and
discounting  the  net  cash  flows  back  to  their  present  value.

In  the  fourth  quarter  of fiscal 2001 management determined that the carrying
value  of  certain goodwill and purchased intangible assets were impaired due to
changes  in  circumstances  from  those  present  at  the time these assets were
acquired.  At  the  time  of  the  acquisition,  the  technology  acquired  from
InfoWide,  Inc.  was  expected  to  be  utilized  in  the  proposed Services.com
business.  As  of June 30, 2001, the current and future plans for utilization of
this  technology have diminished materially such that expected future cash flows
from  the  use  of  the  technologies  were  less than the carrying value of the
underlying  assets.  Accordingly,  an  impairment  charge  of  $18.1 million was
recognized  in the fourth quarter of fiscal 2001 to reduce the carrying value of
goodwill  and  purchased  intangible  assets  to the present value of the future
expected cash flows.  See also "Note 14.  Restructuring and Impairment Charges."

The  following  unaudited  pro forma consolidated financial information presents
the  combined  results  of  the Company with InfoWide, Inc. and Vivant as if the
acquisitions  had  occurred  on  July  1,  1998,  after giving effect to certain
adjustments,  principally the elimination of in-process technology write-off and
amortization  of  goodwill and other intangible assets. This unaudited pro forma
consolidated  financial  information does not necessarily reflect the results of
operations  that would have occurred had the acquisitions been completed on July
1,  1998  (in  thousands  except  loss  per  share  amounts).

                                             YEAR ENDED JUNE 30,
                                      --------------------------------
                                         2001       2000       1999
                                      ----------  ---------  ---------
Revenues                              $  35,122   $ 10,604   $    517
                                      ==========  =========  =========
Net loss                              $(122,999)  $(81,268)  $(25,212)
                                      ==========  =========  =========
Basic and diluted net loss per share  $   (3.69)  $ (14.29)  $  (5.94)
                                      ==========  =========  =========


NOTE  3.  NET  LOSS  PER  SHARE

Basic  and  diluted  net  loss  per share is computed using the weighted average
number  of  common  shares  outstanding during each period.  Since we have a net
loss  for  all  periods  presented,  net  loss  per  share on a diluted basis is
equivalent to basic net loss per share.  Common shares issuable upon exercise of
stock  options  and  warrants and upon conversion of convertible preferred stock


                                      F-11
<PAGE>
are excluded because the effect would be anti-dilutive.  A reconciliation of the
numerator  and  denominator (both in thousands) used in the calculation of basic
and  diluted  net  loss  per  share  follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED JUNE 30,
                                                        --------------------------------
                                                           2001       2000       1999
                                                        ----------  ---------  ---------
<S>                                                     <C>         <C>        <C>
Numerator
  Net loss                                              $(105,390)  $(60,351)  $(11,471)
  Beneficial conversion feature of Series I redeemable
    Convertible preferred stock                            (5,977)    (9,023)         -
                                                        ----------  ---------  ---------
Net loss attributable to common stockholders            $(111,367)  $(69,374)  $(11,471)
                                                        ==========  =========  =========

Denominator
  Weighted average common shares                           35,637      7,007      2,899
  Weighted average common shares subject to repurchase     (4,994)    (3,968)    (1,308)
                                                        ----------  ---------  ---------
Denominator for basic and diluted calculation              30,643      3,039      1,591
                                                        ==========  =========  =========
</TABLE>

The following table summarizes common stock equivalents that are not included in
the  denominator  used  in  the  diluted  net  loss per common share calculation
because to do so would be antidilutive for the periods indicated (in thousands):

                                                          JUNE 30,
                                                    ---------------------
                                                    2001    2000    1999
                                                    -----  ------  ------
Shares issuable under stock options                 5,806   2,070     928
Shares of unvested stock subject to repurchase      3,573   5,250   2,261
Shares issuable pursuant to warrants to purchase
   common and convertible preferred stock               9     414   1,641
Shares of convertible preferred stock on an "as if
   converted" basis                                     -  19,258   9,137
                                                    -----  ------  ------
                                                    9,388  26,992  13,967
                                                    =====  ======  ======

NOTE  4.  ISSUANCE  OF  DEBT

In  January  2001  the  Company  entered  into  a credit arrangement providing a
line-of-credit of $7.5 million and a $7.5 million term loan credit facility with
interest  accruing  at  the  rate of the bank's prime rate plus 0.75% and 1.00%,
respectively.  At  June 30, 2001, these rates were 7.75% and 8.0%, respectively.
As  of  June  30,  2001,  the Company had utilized $4.8 million of the term loan
credit  facility.  The loan will be fully repaid over the next two fiscal years.
Both  the line-of-credit and the term loan credit facility are collateralized by
all  of  the  Company's  assets,  including  intellectual  property,  except for
previously  leased  equipment.  The  line-of-credit also includes a $5.0 million
sublimit  to  secure  commercial  and/or standby letters-of-credit of which $2.9
million has been utilized to support letters-of-credit issued to the landlord of
the Company's Emeryville facility. Any advances on the line-of-credit mature one
year  from  the  loan  documents with interest due monthly. Advances on the term
loan  credit facility are due twenty-eight months from the advance with interest
only  payments for the first four months and then equal payments of interest and
principal  amortized  over  the  remaining  twenty-four  months.  The Company is
required  to maintain certain financial ratios as part of the loan covenants. At
June  30,  2001, the Company was in violation of a minimum revenue covenant (see
Note  19.  Subsequent  Events).


                                      F-12
<PAGE>
Principal  payments  due under the term loan and the line-of-credit facility are
as  follows  (in  thousands):

Year ended June 30,
2002                  $  2,178
2003                     2,377
2004                       198
                      ---------
Total                 $  4,753
                      =========
Current portion       $  2,178
                      =========
Long term portion     $  2,575
                      =========

NOTE  5.  CONTINGENCIES

From  time  to  time,  the Company may become involved in litigation relating to
claims  arising  from  the ordinary course of business.  In February 2001 one of
the  Company's  early  customers  filed  an action in the United States District
Court  alleging  claims  that  certain  software and services purchased from the
Company  did  not  satisfy certain contractual obligations.  The lawsuit further
alleges  that  the Company engaged in unfair or deceptive practices in violation
of  state law and is seeking treble damages.  As the claim is in the early stage
of  litigation,  it is not possible to estimate the outcome of this contingency.

The  Company  believes  that  there  are  no  other claims or actions pending or
threatened  against  it, the ultimate disposition of which would have a material
adverse  effect  on  the  Company.

NOTE  6.  CASH  AND  CASH  EQUIVALENTS  AND  SHORT-TERM  INVESTMENTS

Cash  equivalents  and  short-term  investments  consisted  of the following (in
thousands):

                                                     JUNE 30,
                                                 ----------------
                                                  2001     2000
                                                 -------  -------
Checking balances                                $ 4,410  $18,104
Money market funds                                 9,601       57
Commercial paper                                   4,310      499
Government agencies                                4,343        -
Certificates of deposit                               90        -
                                                 -------  -------
   Total                                         $22,754  $18,660
                                                 -------  -------

Included in cash and cash equivalents            $19,914  $18,660
Included in short-term investments                 2,840        -
                                                 -------  -------
   Total                                         $22,754  $18,660
                                                 =======  =======

The  estimated  fair value of all cash equivalents and short-term investments is
equal  to  their  cost.


                                      F-13
<PAGE>
NOTE  7.  PROPERTY  AND  EQUIPMENT

Property  and  equipment  consisted  of  the  following  (in  thousands):

                                                      JUNE 30,
                                                 ------------------
                                                   2001      2000
                                                 --------  --------
Computer hardware                                $ 6,091   $ 5,121
Computer software                                  2,585     1,972
Furniture and fixtures and office equipment        2,062     1,831
Leasehold improvements                             2,725     1,260
Vehicles                                              78         -
Software developed for internal use                    -       718
                                                 --------  --------
                                                  13,541    10,902
Less: Accumulated depreciation and amortization   (3,060)   (2,072)
                                                 --------  --------
Property and equipment, net                      $10,481   $ 8,830
                                                 ========  ========

The  Company  leases  certain  computer hardware and software, and furniture and
fixtures  under  capital leases.  The total cost and accumulated amortization of
these  assets  as  of  June  30,  2001  and  2000 are as follows (in thousands):

                                                     JUNE 30,
                                                 -----------------
                                                  2001      2000
                                                 -------  --------
Computer hardware                                $1,564   $ 2,684
                                                 -------  --------
Computer software                                   167       214
Furniture and fixtures                                -       216
                                                  1,731     3,114
Less: Accumulated depreciation and amortization    (326)   (1,502)
                                                 -------  --------
Property and equipment, net                      $1,405   $ 1,612
                                                 =======  ========

NOTE  8.  GOODWILL  AND  OTHER  INTANGIBLE  ASSETS


(in thousands)                JUNE 30,
                          ----------------
                           2001      2000
                          -------  -------
Goodwill                  $  718   $22,580
                          -------  --------
Purchased technologies     2,925     5,877
Domain name                  405       405
Assembled workforce          187       990
                          -------  --------
                           4,235    29,852
Accumulated amortization    (509)   (2,901)
                          -------  --------
                          $3,726   $26,951
                          =======  ========


                                      F-14
<PAGE>
NOTE  9.  COMMITMENTS

Capital  leases

Future  minimum  lease payments under capital leases as of June 30, 2001, are as
follows  (in  thousands):

                                                    JUNE 30, 2001
                                                   ===============
2002                                               $          685
2003                                                          234
                                                   ---------------
Total minimum lease payments                                  919
Less amount representing interest                             (79)
                                                   ---------------
Present value of minimum lease payments                       840

Less current portion of capital lease obligations            (646)
                                                   ---------------
Long-term portion of capital lease obligations     $          194
                                                   ===============

Operating  leases

The Company leases its office facilities under operating leases expiring through
July  2007.  Future  minimum obligations under noncancelable operating leases at
June  30,  2001,  are  as  follows  (in  thousands):

            JUNE 30, 2001
            --------------
2002        $        3,395
2003                 2,973
2004                 2,976
2005                 2,849
2006                 2,597
Thereafter           2,816
            --------------
            $       17,606
            ==============

Rent  expense under operating leases for the years ended June 30, 2001, 2000 and
1999  was  $2.7  million,  $747,000  and  $483,000,  respectively.

NOTE  10.  ACCRUED  LIABILITIES

(in thousands)                                 JUNE 30,
                                           --------------
                                            2001    2000
                                           ------  ------
Accrued compensation and related expenses  $2,915  $3,914
Professional fees                             948   1,141
Other                                       1,989     910
                                           ------  ------
   Total                                   $5,852  $5,965
                                           ======  ======


                                      F-15
<PAGE>
NOTE  11.  STOCK-BASED  CHARGES

In  connection with stock option grants, issuance of restricted stock subject to
vesting  rights  and  modifications  of  option awards, the Company has recorded
stock-based  charges of  $17.9 million, $19.3 million and $218,000 for the years
ended  June  30,  2001,  2000  and  1999,  respectively.  Stock-based  charges,
allocated  across  functional  areas,  affected  the  following  items  in  the
consolidated  statements  of  operations  (in  thousands):

                                 YEAR ENDED JUNE 30,
                               =======================
                                2001     2000    1999
                               -------  ------  ------
Cost of revenues:
   Solutions                   $ 1,547  $ 1,382  $   6

Operating expenses:
   Sales and marketing           4,557    4,999     94
   Research and development      3,088    3,301     58
   General and administrative    8,691    9,595     60
                               -------  ------  ------
      Total                    $17,883  $19,277  $ 218
                               =======  =======  =====


As  a  result  of the employee terminations during the year ended June 30, 2001,
the  Company  recorded  a  reduction  of additional paid-in capital and unearned
stock-based compensation of $5.6 million.  For many of the terminated employees,
the  Company  had  incurred  significant  deferred  stock-based  charges  on the
original  option  grants  in previous years.  The reversed amounts represent the
additional  paid-in capital and stock-based compensation amounts associated with
the  unvested  options  and  stock  awards.

In connection with the termination of certain executive officers in fiscal 2001,
the  Company  entered into arrangements with those executive officers to provide
consulting services.  For accounting purposes, this was deemed to be a change in
status  of  the  employee,  resulting  in a new measurement date for the amended
equity  awards  in  accordance with FIN 44, "Accounting for Certain Transactions
Involving Stock Compensation." Upon modification, the Company reduced additional
paid-in  capital,  reduced  unearned  stock-based  compensation  and  reversed
stock-based  charge  expense  of  $2.7  million,  $1.5 million and $1.2 million,
respectively,  relating  to  previously  recognized  stock-based  compensation
associated  with the unvested portion of the original award.  Under the terms of
the consulting agreements, the Company modified the remaining vesting provisions
of  the  restricted  stock  awards  for  a  total  of  177,084  shares  with  a
weighted-average exercise price of $1.03. The value of these modified awards was
determined  using  the  Black-Scholes  option  pricing  model and are subject to
revision  in  each  financial  reporting period until the shares are vested. The
related adjustment increased additional paid-in capital and unearned stock-based
compensation  by $400,000.  The related amortization during the remainder of the
year  was  $391,000.   The  restricted stock awards will continue to vest during
the  consulting  periods  ranging  from  six  to  twelve months from the date of
separation.  As a result, the charge may be subject to a substantial increase or
decrease  based  on  future changes in the market price of the our common stock.

In  addition,  in  the  case  of  other  executive officers of the Company whose
employment  was terminated in fiscal 2001 and who had purchased restricted stock
with  full  recourse  notes,  the  Company  agreed  as part of their termination
settlement  to  allow them to put back to the Company their restricted shares in
exchange  for  the value of the notes plus accrued interest during or at the end
of  individually  specific  periods  of  time ranging from 19 to 21 months.   At
June 30, 2001, none of the executive employees has exercised their option to put
the  shares  back  to  the  Company.  Upon  modification, the Company recorded a
reduction  in  additional  paid-in  capital, a reduction in unearned stock-based
compensation  and a reversal of stock-based charge expense of $6.0 million, $3.1
million  and  $2.9  million,  respectively,  relating  to  previously recognized
stock-based  compensation  associated  with the unvested portion of the original
award.  In  each  circumstance,  the  value  of the modified award has then been
accounted  for  as  a  variable  award  beginning  on  the  date  of  the  award
modification.  Accordingly,  the  value of the award will fluctuate based on the
value  of  our  common  stock.  The  Company will remeasure the value of the put
option  at the end of every reporting period.  To the extent that the fair value
of the stock exceeds the value of the stockholder note and accrued interest, the
Company  will  record  a  stock-based  compensation  charge determined using the
Black-Scholes  option  pricing  model.  And  to the extent that the value of the
stockholder  loan  and accrued interest exceeds the fair value of the stock, the
Company  will  record  the  value of the put option as an expense.  At  June 30,
2001,  the  Company recorded the value of the put option since the fair value of
the  stock  is  less than the value of the stockholder loan and accrued interest
and  amortized  the  award  on  an  accelerated  method.  The related adjustment


                                      F-16
<PAGE>
decreased  stockholder  notes  receivable  by  $3.0  million, increased unearned
stock-based  compensation  by  $3.2 million and decreased interest receivable by
$243,000.   The related amortization on these awards during the remainder of the
year  was  $1.1  million.


NOTE  12.  INCOME  TAXES

The  tax effects of temporary differences that give rise to significant portions
of  deferred  tax  assets  are  as  follows  (in  thousands):

                                               JUNE 30,
                                    -------------------------------
                                      2001       2000       1999
                                    ---------  ---------  ---------
Net operating loss carryforwards    $ 43,385   $ 23,909   $ 11,309
Restructuring reserve                  2,421          -          -
Capitalized research & development     1,554          -          -
Depreciation                             491       (203)        77
Capitalized start-up costs - net         872      1,416      1,945
Accrued liabilities                      843      1,523        121
InfoWide acquisition liability             -     (2,735)         -
Research and development credit        2,952      1,866      1,823
                                    ---------  ---------  ---------
   Total deferred assets              52,518     25,776     15,275
Less valuation allowance             (52,518)   (25,776)   (15,275)
                                    ---------  ---------  ---------
                                    $      -   $      -   $      -
                                    =========  =========  =========

Due  to  the  uncertainty  surrounding  the  realization  of  the  favorable tax
attributes  in  future tax returns, the Company has placed a valuation allowance
against  its  deferred  tax assets.  At such time as it is determined that it is
more  likely than not that the deferred tax assets are realizable, the valuation
allowance  will  be  reduced.

At  June  30,  2001,  the  Company  had  federal  and  state  net operating loss
carryforwards  of  approximately $118.4 million and $53.7 million, respectively,
available  to  reduce future taxable income.  These carryforwards expire through
2021  and  2006,  respectively.  In  addition,  the  Company  has  research  and
development  tax  credit  carryforwards  of  approximately $2.1 million and $1.2
respectively,  for  federal and state income tax purposes at June 30, 2001.  The
research  and  development  tax  credit  carryforwards  expire  in  2021.

The  Company's ability to utilize its net operating loss carryforwards to offset
future  taxable  income  may  be  subject to restrictions attributable to equity
transactions that result in change in ownership as defined in the Tax Reform Act
of  1986.  These  restrictions may limit on an annual basis the Company's future
use  of  its  net  operating loss carryforwards and research and development tax
credit.

NOTE  13.  EMPLOYEE  SAVINGS  AND  INVESTMENT

401(K)  PLAN

The Company has a savings plan (the "Savings Plan") that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue Code.  Under the
Savings  Plan, participating employees may defer a percentage (not to exceed 15%
or $10,500) of their eligible pretax earnings.  All employees of the Company are
eligible  to  participate  in  the Savings Plan.  The Company is not required to
contribute to the Savings Plan and has made no contributions since the inception
of  the  Savings  Plan.

EMPLOYEE  STOCK  PURCHASE  PLAN

The  Company's  2000  Employee  Stock  Purchase  Plan  (the "Purchase Plan") was
adopted by the board of directors and stockholders of the Company in August 2000
and  became effective upon the closing of the IPO in August of 2000.  A total of
2,000,000  shares  have been reserved for issuance under the Purchase Plan.  The
Purchase  Plan  provides  for automatic annual increases in the number of shares
reserved  for issuance under the plan in an amount equal to the lesser of 1) the
number of shares issued pursuant to this plan during the proceeding fiscal year,
2)  1,000,000 shares, or 3) such lesser amount as may be determined by the Board
of  Directors.  Under  the Purchase Plan, eligible employees may purchase common
stock  in  an amount not to exceed 15% of the employee's cash compensation.  The
purchase  price  will  be  85%  of  the  common stock fair value at the lower of
certain plan-defined dates.  As of June 30, 2001, there have been 207,882 shares
issued,  at  a  price  of  $6.16,  and  1,792,118  reserved for future issuance.


                                      F-17
<PAGE>
NOTE  14.  RESTRUCTURING  AND  IMPAIRMENT  CHARGES

During  the  quarter  ended  June 30, 2001, the Company recorded a restructuring
charge  of  $9.7  million to account for charges designed to reduce future costs
and  strengthen  the  Company's  position  to  execute  its  strategy.  The
restructuring  charges  included  $1.6 million of severance related costs, which
resulted  from  the  involuntary  termination  of  97  employees  or  27% of its
workforce.  These  employees  were  primarily  in  the  Company's  United States
operations.  Of  these  severance  related  costs,  $780,000  are payable during
fiscal  2002.  Facilities  related  restructuring  charges,  resulting  from the
consolidation of excess facilities, totaled $6.4 million.  At June 30, 2001, the
remaining  balance  totaled  $6.1  million  of which $1.4 million is included in
short-term  liabilities  and  $4.7  is  included  in long-term liabilities.  The
future  obligation  of  the  facilities restructuring charges is included in the
future  minimum  lease payments payable under non-cancelable operating leases at
June  30,  2001.  As  a  result  of  the  workforce reduction and the facilities
restructuring,  the  Company  recorded a non-cash charge of $1.7 million for the
disposal  of  excess  fixed  assets.  This  charge consisted principally of $1.2
million  for  leasehold  improvements  and  furniture  related  to  the  excess
facilities  and  $468,000  for  computer  hardware  and  software  and
telecommunications  equipment  related  to  the  workforce  reduction.

<TABLE>
<CAPTION>
(in thousands)                         SEVERANCE    ACCRUAL OF      FIXED
                                      AND RELATED     LEASE         ASSET
                                        CHARGES    COMMITMENTS    WRITE-OFF    TOTALS
                                      -----------  -------------  ----------  --------
<S>                                   <C>          <C>            <C>          <C>
Total restructuring charges           $    1,597   $      6,433   $   1,694   $ 9,724
Amount paid                                 (817)          (354)          -    (1,171)
Non-cash charges                               -              -      (1,694)   (1,694)
                                      -----------  -------------  ----------  --------
Accrued liabilities at June 30, 2001  $      780   $      6,079   $       -   $ 6,859
                                      ===========  =============  ==========  ========

Short-term                            $      780   $      1,428   $       -   $ 2,208
Long-term                             $        -   $      4,651   $       -   $ 4,651
</TABLE>


In determining the restructuring cost associated with its leased facilities, the
Company  assumed,  based  on  discussions  with  realty advisers and a review of
current  comparable  lease  rates,  that  it  will be able to sublet part of its
facility  in  April  2002  at  a significantly reduced rental rate. The expected
excess commitment with respect to the space under the lease to its expiration in
July  2007  is  $8.8 million. The sublease income will defray this commitment by
$1.9 million. The net present value amount of these payments plus fees and costs
resulted  in  an  accrual  for  excess  lease  facilities  of  $6.4  million.

During  the  fourth  quarter of fiscal year 2001 Evolve identified indicators of
possible impairment of goodwill and other acquired intangible assets relating to
the InfoWide, Inc.  acquisition.  These indicators included the deterioration in
the  business  climate,  recent changes in sales and cash flow forecasts and the
decision  to  discontinue  the Services.com service.  Initially, Evolve compared
the  undiscounted cash flows associated with the acquired goodwill and purchased
intangible  assets  with  the respective carrying amounts and determined that an
impairment  of  certain  of these assets existed.  The Company then measured the
amount of the impairment as the amount by which the carrying amount exceeded the
present  value  of the estimated future cash flows, discounted at an appropriate
rate. As a result, the Company recorded a charge of $19.6 million related to the
impairment  of  goodwill and other intangible assets, including $14.2 million in
goodwill,  $376,000  in  non-compete  agreements  and $3.5 million in technology
acquired  from  InfoWide, Inc. as well as $1.5 million relating to software used
in  our  discontinued  Services.com  business.


NOTE  15.  STOCKHOLDER'S  EQUITY

COMMON  AND  PREFERRED  STOCK

In  fiscal 2001 the Company increased its authorized common stock to 110,000,000
shares  and  reduced  its  authorized preferred stock to 10,000,000 shares.  Par
value  on  both  classes  of  stock was reduced from $.01 per share to $.001 per
share.  Each  share  of  common  stock  is entitled to one vote.  The holders of
common  stock  are also entitled to receive dividends whenever funds are legally
available  and  when  declared  by  the Board of Directors, subject to the prior
rights of holders of all classes of preferred stock outstanding.  As of June 30,
2001, no dividends have been declared.  At June 30, 2001 and 2000, 3,572,847 and
5,266,253  unvested  shares  of  common  stock,  respectively,  were  subject to
repurchase  at  the  original  purchase  price.


                                      F-18
<PAGE>
Under  the  Company's Certificate of Incorporation, as amended in June 2000, the
Company  was  authorized  to  issue  130,000,000 shares of preferred stock. From
inception  through June 30, 2001, the Company issued preferred stock as follows:

<TABLE>
<CAPTION>
                                 AMOUNT
                                 NET OF                                 PAR    LIQUIDATION     COMMON
                 ORIGINAL      ISSUANCE        SHARES     ISSUED AND   VALUE   PREFERENCE      STOCK
               ISSUE  PRICE   COSTS ($000)   AUTHORIZED   OUTSTANDING  AMOUNT    ($000)     EQUIVALENTS
               ------------  -------------  -----------  -----------  -------  -----------  -----------
<S>       <C>  <C>           <C>            <C>          <C>          <C>      <C>          <C>
Series    A    $       0.40  $         452    1,167,500    1,167,500  $  0.01  $       467      194,583
Series    B    $       1.00          3,030    3,125,000    3,075,000     0.01        3,075      512,500
Series    C    $       1.00            988    1,000,000    1,000,000     0.01        1,000      166,667
Series    D    $       1.00          2,905    2,940,000    2,940,000     0.01        2,940      490,000
Series    E    $       2.00          4,018    2,030,000    2,000,000     0.01        4,000      333,333
Series    F    $       0.65         11,288   17,600,000   17,600,000     0.01       11,578    2,933,334
Series    G    $ 0.36-$0.71         14,480   35,000,000   34,965,000     0.01       14,975    5,827,500
Series    H    $       0.70         24,961   35,715,000   35,714,289     0.01       25,000    5,952,382
Series    I    $       1.00         29,970   30,000,000   30,000,000     0.01       30,000    4,999,999
                             -------------  -----------  -----------           -----------  -----------
   Total                     $      92,092  128,577,500  128,461,789           $    93,035   21,410,298
                             =============  ===========  ===========           ===========  ===========
</TABLE>


On  August 9, 2000, the Company completed its initial public offering ("IPO") of
5,750,040 shares of common stock at an initial offering price of $9.00 per share
for  net  proceeds  of  $46.5  million.  All  preferred stock was converted into
21,410,298  shares  of  common stock on the effective date of the Company's IPO.
The  preferred  stock was converted at the common stock equivalents shown in the
chart  above.

WARRANTS

In  October  1995,  in connection with an equipment lease agreement, the Company
granted  the  lessor  warrants  to  purchase 25,000 shares of Series B preferred
stock  at  an  exercise  price  equal  to  $1.00  per share.  These warrants are
exercisable  through October 6, 2005, and, if fully exercised, will convert into
4,166  shares  of common stock.  As of June 30, 2001, all of the warrants remain
outstanding.  The  value  of these warrants was not significant to the financial
statements.

In  November  1995,  in  connection with a lease agreement for office space, the
Company  granted the lessor a warrant for 200,000 shares of the Company's Series
B  preferred  stock at an exercise price of $1.00 per share, exercisable through
May  31, 1996, and 25,000 shares of the Company's Series B preferred stock at an
exercise  price  of $1.00 per share, exercisable through January 1, 2001.  As of
June  30,  2001,  75,000  of  these warrants were exercised in prior periods and
150,000  had  expired.

In  February  1997,  the Company granted an investor warrants to purchase 30,000
shares  of  Series  E  preferred  stock at an exercise price of $2.00 per share,
exercisable  through  February  2002.  As  of June 30, 2001, all of the warrants
remain  outstanding.  If fully exercised, these warrants will convert into 5,000
shares  of common stock.  The value of these warrants was not significant to the
financial  statements.

In  March  and  April  1997, in conjunction with the issuance of the 8.5% Senior
Subordinated  Convertible Notes, the Company issued warrants to purchase 211,250
shares  of common stock to noteholders and warrants to purchase 10,600 shares of
common  stock  to  the  managers of the offering.  All of these warrants were to
purchase  the  shares at the lesser of $12.00 per share or the conversion price.
The  value of these warrants was $903,000 and represented a discount to the face
value  of the debt.  In December 1998, in conjunction with the conversion of the
8.5%  Senior  Subordinated  Convertible  Notes  into Series F preferred stock at
$0.6534  per share, the remaining unamortized discount of $285,000 was offset to
equity  and  the  common  stock  warrants  were canceled.  At the same time, the


                                      F-19
<PAGE>
Company issued 16,633,169 shares of Series F preferred stock and $3.5 million of
non-convertible  promissory  notes with interest at 8.5% per annum to holders of
the  notes, and a warrant to purchase 966,831 shares of Series F preferred stock
to  the  managers  of the offering.  During the year ended June 30, 2001, all of
these  warrants  were  exercised.

In  November  1998,  the  Company  granted  seven investors warrants to purchase
7,000,000  of Series G preferred stock valued at $770,000 at a purchase price of
$0.7143  per  share.  The  warrants terminated on the earlier of five years from
the  date  of  issuance  or upon the initial public offering of the Company with
gross  proceeds  from  the  offering of $10.0 million and per share price to the
public  of  no  less than $1.00 per share.  During the year ended June 30, 2000,
warrants  for  6,965,000  shares  of  Series  G  preferred stock were exercised.
During  the  year  ended  June  30, 2001, the remaining 35,000 warrants expired.

In  December 1998, in connection with a Company's license and service agreement,
the  Company  granted  a  licensee  warrants  to  purchase  66,667 shares of the
Company's  common  stock  at  an exercise price of $12.00 per share, exercisable
upon  the  payment  of  $4.0  million  in  program  license  fees.  The warrants
terminated  on  the  earlier of five years from the date of issuance or upon the
initial  public  offering  of the Company.  During the year ended June 30, 2000,
all  of  the  warrants  for  shares  of  common  stock  were  exercised.

In September 1999 the Company granted an investor warrants valued at $651,000 to
purchase  233,333 shares of common stock at a purchase price of $2.14 per share.
The  warrants terminated on the earlier of seven years from the date of issuance
or  upon the initial public offering of the Company.  During the year ended June
30,  2001,  all  the  warrants  for  shares  of  common  stock  were  exercised.

In  all  cases,  the  fair  value  of  the  warrants  was  estimated  using  the
Black-Scholes  option-pricing  model.  The estimates were made based on the full
contractual  terms  of  the  warrants  at  their appropriate ranges of risk-free
interest  rates,  expected  volatility  and  expected  lives,  and a zero annual
dividend  yield.

NOTE  16.  STOCK  OPTIONS

1995  STOCK  OPTION  PLAN

Under  the  terms  of  the  1995  Stock  Option Plan (the "1995 Plan"), eligible
employees,  directors  and consultants can receive options to purchase shares of
the  Company's  common  stock  at a price not less than 100% and 85% of the fair
value  on  the  grant  date  for  incentive stock options and nonqualified stock
options,  respectively.  The  Company  originally  authorized  416,667 shares of
common  stock for issuance under the 1995 Plan, but with various amendments over
the  years  the  Company  increased the number of shares issuable under the 1995
Plan to 5,583,333.  The options granted under the 1995 Plan are exercisable over
a  maximum  term  of  ten years from the date of grant and generally vest over a
four  to five year period.  Options are exercisable immediately but have a right
of  repurchase, which generally lapses ratably over four to five years.  In some
instances,  fully  vested  options  are granted.  Options granted under the 1995
Plan  are subject to the right of first refusal by the Company.  Concurrent with
the  Company's  IPO  and its adoption of the 2000 Stock Plan during August 2000,
the  1995  Plan  was  rendered inactive and no new options have been nor will be
granted  out  of the 1995 Plan.  There still are stock options outstanding under
the  1995 Plan, and those options remain governed by the terms of the 1995 Plan.
At  the  time  of  the IPO, all of the shares underlying the outstanding options
under  the  1995  Plan  were  registered  with  the  SEC  on  Form  S-8.

2000  STOCK  OPTION  PLAN

During  August  2000  the  board  of  directors  and shareholders of the Company
approved the 2000 Stock Plan.  Under the terms of the 2000 Stock Plan (the "2000
Plan"),  eligible  employees,  directors  and consultants can receive options to
purchase  shares  of the Company's common stock at a price not less than 100% of
the  fair  value  on  the  grant date for incentive stock options and at a price
determined  by the Administrator for nonqualified stock options.  Stock Purchase
Rights  may  also  be  granted  under  the  2000  Plan.  The  Company originally
authorized  4,000,000  shares  of common stock for issuance under the 2000 Plan,
plus  an  annual  increase  to be added on the first day of the Company's fiscal
year  beginning  in  fiscal 2002 equal to the lesser of (i) the number of shares
subject  to options or Stock Purchase Rights granted during the preceding fiscal
year, (ii) 2,000,000 Shares, or (iii) a lesser amount determined by the Board of
Directors.  The  options  granted  under  the  2000  Plan are exercisable over a
maximum  term of ten years from the date of grant and generally vest over a four
year  period,  with a one-year cliff followed by three years of monthly vesting.
In  some  instances,  fully  vested  options  are  granted.  Concurrent with the
Company's  IPO  during August 2000 all of the shares reserved for under the 2000
Plan  were  registered  with  the  SEC  on  Form  S-8.


                                      F-20
<PAGE>
OUT-OF-PLAN  OPTIONS

During  fiscal  year  2001 the Company issued four nonqualified stock options to
purchase  215,000  shares  of  common  stock  to employees of its UK subsidiary.
Although  these  options were issued outside of any plan, they conform to almost
all  of  the  requirements  of  the  2000  Stock  Plan.

A summary of the combined activity under the 1995 and 2000 plans, as well as the
out-of-plan  option  grants  is  set  forth  below:

<TABLE>
<CAPTION>
                                                           OUTSTANDING OPTIONS
                                             -------------------------------------------------
                                                                                     WEIGHTED
                                SHARES       NUMBER        EXERCISE      AGGREGATE    AVERAGE
                               AVAILABLE       OF          PRICE PER       PRICE     EXERCISE
                               FOR GRANT     SHARES          SHARE         ($000)      PRICE
                              -----------  -----------  ---------------  ----------  ---------
<S>                           <C>          <C>          <C>              <C>         <C>
Balances, June 30, 1998          (16,102)     447,492   $  0.30 - $1.80        521   $    1.16

Additional shares authorized   1,083,333            -                 -
Options granted                 (885,382)     885,382   $  0.30 - $1.80        363        0.42
Options exercised                      -     (200,584)  $  0.30 - $1.80       (109)       0.54
Options cancelled                204,144     (204,144)  $  0.30 - $1.80       (202)       0.96
                              -----------  -----------                   ----------
Balances, June 30, 1999          385,993      928,146   $  0.30 - $1.80        573        0.60

Additional shares authorized   3,333,333            -                 -
Options granted               (3,471,353)   3,471,353   $  0.30 - $7.50     13,466        3.86
Options exercised                      -   (1,919,596)  $  0.30 - $7.50     (3,917)       1.92
Options cancelled                402,006     (402,006)  $  0.30 - $7.50       (540)       1.38
                              -----------  -----------                   ----------
Balances, June 30, 2000          649,979    2,077,897   $  0.30 - $7.50      9,582        4.62

Additional shares authorized     798,333            -                 -
2000 Stock Plan                4,000,000            -                 -
Options granted               (5,926,824)   5,926,824   $ 1.15 - $25.31     24,334        4.12
Options exercised                      -     (521,410)  $ 0.30 - $ 9.00     (2,234)       4.28
Options cancelled                623,483     (623,483)  $ 1.20 - $25.31     (4,672)       7.49
Options cancelled & retired            -   (1,053,506)  $ 0.30 - $25.31     (5,394)       5.12
                              -----------  -----------                   ----------

Balances, June 30, 2001          144,971    5,806,322   $ 0.30 - $25.31     21,616   $    3.72
                              ===========  ===========                   ==========
</TABLE>


Vested  options  exercisable  without the right of repurchase by the Company (in
the  event  of termination of an employee) at June 30, 2001, 2000, and 1999 were
801,273,  116,594  and  280,692,  respectively.  Under  the Company's 1995 Stock
Option  Plan,  options  generally  can  be  exercised  in full prior to vesting;
however,  unvested shares remain subject to the Company's right of repurchase in
the  event  of  termination  of  the  employee.


                                      F-21
<PAGE>
The  following  table  summarizes  information  with  respect  to  stock options
outstanding  at  June  30,  2001:


<TABLE>
<CAPTION>
                             OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                  ----------------------------------------  ----------------------
                                  WEIGHTED        WEIGHTED                WEIGHTED
                                  AVERAGE         AVERAGE                 AVERAGE
   RANGE OF         NUMBER        REMAINING       EXERCISE     NUMBER     EXERCISE
EXERCISE PRICES   OUTSTANDING  CONTRACTUAL LIFE    PRICE    EXERCISABLE    PRICE
----------------  -----------  ----------------  ---------  -----------  ---------
<S>               <C>          <C>               <C>        <C>          <C>

0.30 - $1.15         583,557              9.35   $   1.03       55,195   $   0.30
1.20 - $1.20       1,786,322              9.72       1.20       80,561       1.20
1.50 - $1.50           8,332              8.57       1.50            -          -
1.56 - $1.56         970,536              9.82       1.56       73,240       1.56
1.80 - $4.88         663,011              8.92       4.08      172,306       3.80
5.91 - $7.06         580,508              9.06       6.20      219,987       6.00
7.50 - $7.50         298,551              8.83       7.50      101,848       7.50
9.00 - $9.00         796,835              9.11       9.00       92,882       9.00
10.25 - $14.50       100,670              9.37      11.67        5,254      14.50
25.31 - $25.31        18,000              9.22      25.31            -          -
                  -----------                               -----------
0.30 - $25.31      5,806,322              9.40   $   3.72      801,273   $   7.97
</TABLE>

The following information concerning the Company's stock option plan is provided
in  accordance  with  Statement  of  Financial  Accounting  Standard  No.  123,
Accounting  for  Stock-Based  Compensation  ("SFAS  No.  123").  The Company has
continued  to  account  for  its  plan  in  accordance  with  APB  No.  25.

The  weighted  average fair value per share of the options granted for the years
ended  June  30,  2001,  2000, and 1999 is $2.25, $1.32 and $0.10, respectively.
The  fair value of each stock option is estimated on the date of grant using the
Black-Scholes  option-pricing  model  with  the  following  weighted  average
assumptions:

                            YEARS ENDED JUNE 30,
                          -----------------------
                           2001    2000    1999
                          ------  ------  ------
Risk-free interest rate    5.23%   6.25%   5.81%
Expected life (in years)      5       5       5
Dividends                     -       -       -

Because  the  Company  was not publicly traded until August 9, 2000, the date of
the  initial  public  offering,  the  minimum  value  method,  which  excludes
volatility,  was  used  in  the determination of the value of options granted to
employees  in  1999  and  2000.  For  the  year  2001  volatility  was  143%.

The  following  pro  forma  net loss information has been provided following the
provisions  of  SFAS  123  (in  thousands,  except  per  share  data):

                                                     YEARS ENDED JUNE 30,
                                              --------------------------------
                                                 2001       2000       1999
                                              ----------  ---------  ---------
Net loss attributable to common stockholders:
     As reported                              $(111,367)  $(69,374)  $(11,471)
     Pro forma                                $(114,112)  $(74,192)  $(11,561)

Net loss per common share-basic and diluted:
     As reported                              $   (3.63)  $ (22.83)  $  (7.21)
     Pro forma                                $   (3.72)  $ (24.41)  $  (7.27)


In  connection with the granting of stock options and the issuance of restricted
stock  to  our employees and the granting of equity instruments to non-employees
for  services  rendered,  we  recorded  deferred  stock-based  charges (credits)
totaling approximately ($10.7) million and $59.0 million as of June 30, 2001 and
2000.  As  a  result  of the employee and executive terminations during the year
ended  June  30,  2001, the Company recorded a reduction of unearned stock-based
compensation  of  $11.1 million and additional paid-in capital of $14.3 million.


                                      F-22
<PAGE>
For  many  of  the terminated employees and executives, the Company had incurred
significant  deferred  stock-based  charges  on  the  original  option grants in
previous years. The revised amounts represent the additional paid-in capital and
stock-based  compensation  amounts associated with the unvested option and stock
awards.  The  deferred  stock-based charge represents the difference between the
exercise  or  purchase  price  at  which  the  stock options were granted or the
restricted  stock  was issued, and the deemed fair value of our common stock for
accounting purposes on the date of grant or issuance. This amount is included as
a component of stockholders' equity and, in accordance with the method described
in  Financial  Accounting  Standards  Board  Interpretation  No.  28,  is  being
amortized  on  an  accelerated  basis  by charges to operations over the vesting
period  of the options and restricted stock, which is generally four years. This
resulted in an expense of $17.9 million for the year ended June 30, 2001, and an
expense  of  $19.3  million  for  the  year  ended  June  30, 2000. The deferred
stock-based  credit  of  $10.7  million represents primarily the reversal of the
unamortized  portion  of these deferred stock-based charges on the option grants
for  those  employees  that  have  been  terminated.  For  many of the employees
terminated,  we  had  incurred  significant  deferred stock-based charges on the
option  grants.


NOTE  17.  CERTAIN  RELATIONSHIPS  AND  RELATED  PARTY  TRANSACTIONS

During  the year ended June 30, 1998, the Company loaned two of its officers and
directors an aggregate of $450,000.  Each of the full recourse loans is due five
years  from the date of issuance, relates to the purchase of common stock of the
Company.  In  addition,  the  loans  may  be  prepaid in part or in full without
notice or penalty, and are represented by a promissory note which bears interest
at  the  applicable  federal rate at the date of issuance (ranging from 5.69% to
6.39%  per  annum).  Interest  on  these  notes  is  due  on  maturity.

On  June  30,  1998,  the Company loaned a stockholder, who is also an executive
officer of the Company, $19,691.  The loan was due on December 31, 1998, and was
represented by a promissory note bearing interest of 7% per annum.  Interest was
due  upon  maturity  of  the  note.  The loan was repaid during fiscal 1999.  On
March  9,  1999,  June  30,  1999,  and  September  30, 1999, the Company issued
additional  loans  to  the  stockholder  for  $20,000,  $40,000  and  $40,000,
respectively,  with  interest  bearing at a rate of 6% per annum.  The principal
and accrued interest were due on the earlier of June 30, 2001, thirty days after
termination  other  than  for death or disability, or one year after termination
for  death  or  disability.  The  loans  are  represented by three full recourse
promissory  notes  and  are collateralized by all shares of the Company's common
stock  held  by the borrower.  On June 30, 2001, the due date on all these notes
was  extended  to  October  19,  2001.  On  June 19, 2001, the Company issued an
additional  loan  to the stockholder for $75,000 with interest bearing at a rate
of  7.5%  per  annum.  The principal and accrued interest are due on October 19,
2001.  The  loan  is  represented  by  a  full  recourse  promissory note and is
collateralized by all shares of the Company's common stock held by the borrower.

During  the  year  ended June 30, 1999, the Company loaned seven of its officers
and  directors  an  aggregate  of  $780,025 under the Company's Restricted Stock
Purchase agreements with the officers and directors.  All of the loans relate to
the purchase of common stock of the Company and are collateralized by the pledge
of  common  stock of the Company.  In addition, the loans may be prepaid in part
or  in  full  without  notice  or  penalty, and are represented by full recourse
promissory  notes, which bear interest ranging from 5% to 7%.  The notes are due
four  to  five  years  from  date  of  issuance.

During  the  year  ended  June  30,  2000,  the  Company loaned seventeen of its
officers,  directors,  employees,  investors  and  vendors  an aggregate of $5.7
million  under  the  Company's Restricted Stock Purchase agreements.  All of the
full  recourse  loans relate to the purchase of common stock of the Company.  In
addition, the loans may be prepaid in part or in full without notice or penalty,
and  are represented by promissory notes, which bear interest ranging from 6% to
7%.  The  notes  are  due  three  to  five  years  from  date  of  issuance.

During  the  year  ended  June  30,  2000,  the  Company  exercised its right to
repurchase  924,306  shares of unvested common stock from six stockholders under
the  right  to  repurchase  option  of  the Restricted Stock Purchase agreements
entered  into  by  the Company and the six stockholders.  In connection with the
repurchase  of common stock, the Company cancelled the related stockholder loans
for  an  aggregate  amount  of  $502,292.

During the year ended June 30, 2001, the Company loaned four of its officers and
two  of  its  directors,  an  aggregate  of  $2.1 million in connection with the
purchase  of  common  stock of the company.  All of the loans are full recourse.
In  addition,  the  loans  may  be  prepaid in part or in full without notice or
penalty,  and  are  represented by promissory notes, which bear interest ranging
from  6%  to  7%.  The  notes are due three to five years from date of issuance.


                                      F-23
<PAGE>
NOTE  18.  SELECTED  QUARTERLY  FINANCIAL  DATA  (UNAUDITED)

The  following  is unaudited quarterly financial data for 2000 and 2001 (amounts
in  thousands,  except  for  per  share  amounts).

<TABLE>
<CAPTION>
                                                        2000                                       2001
                                       ----------------------------------------  ------------------------------------------
                                          Q1        Q2        Q3         Q4         Q1         Q2         Q3         Q4
                                       --------  --------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                    <C>       <C>       <C>        <C>        <C>        <C>        <C>        <C>
Revenues
   Solutions                           $   338   $ 1,079   $  2,331   $  3,409   $  5,047   $  6,440   $  8,846   $  5,065
   Subscriptions                           195       475      1,178      1,538      1,912      2,815      2,417      2,405
                                       --------  --------  ---------  ---------  ---------  ---------  ---------  ---------
      Total revenues                       533     1,554      3,509      4,947      6,959      9,255     11,263      7,470
Gross profit (loss)                       (113)      698      1,406      1,382      2,261      4,109      6,276      4,930

Net loss attributable to
   common stockholders                  (5,253)   (7,608)   (19,701)   (36,812)   (31,252)   (22,368)   (19,902)   (37,845)

Basic and diluted net loss per share   $ (2.58)  $ (3.15)  $  (7.04)  $  (7.48)  $  (1.50)  $  (0.67)  $  (0.59)  $  (1.09)
</TABLE>

NOTE  19.  SUBSEQUENT  EVENTS

PRIVATE  PLACEMENT

On  September 23, 2001, the Company signed a definitive Series A Preferred Stock
Purchase  agreement  with  new and existing investors for a private placement of
1.3  million  shares of convertible preferred stock at $10.00 for total proceeds
of  $13  million  as  well  as warrants to purchase 6.5 million shares of common
stock  at  $1.00 per share. In addition, the Company issued warrants to purchase
1.3  million  additional  shares  of  convertible preferred stock for additional
potential proceeds of $13 million which will also include upon exercise warrants
to  purchase  6.5 million shares of common stock at $1.00 per share.  Closing of
the  arrangement  and  receipt of the funds is expected on or before October 15,
2001,  and is subject to customary closing conditions, which the Company expects
to  be  met.

SERIES  A  CONVERTIBLE  PREFERRED  STOCK

Voting  Rights. The Series A convertible preferred stockholders will have voting
rights on an as-if converted to common stock basis based on the conversion ratio
as  of  the  closing date. So long as no less than 75% of the preferred stock is
outstanding,  the  Series  A  convertible  preferred stockholders will vote as a
separate class to elect three directors to the Board of Directors. The number of
directors  may  decrease  to two based on the number of preferred stock warrants
which  are  exercised  and may be further reduced upon partial conversion of the
Series  A  convertible  preferred.

Conversion.  Shares of the convertible preferred stock may, at the option of the
holder,  be  converted at any time into common stock by dividing the liquidation
preference  per  share  of  Series  A Preferred Stock by the conversion price of
$0.50  per  share,  subject  to  adjustment  based  on anti-dilution provisions,
including  the  expected  issuance of additional common stock in connection with
the  Vivant acquisition and certain litigation settlements, if any, in excess of
$1  million.  The  convertible  preferred  stock will automatically convert into
common  stock  after  five  years  from the date of issuance if the common stock
price  exceeds  $5.00  for  30  consecutive  trading  days.

Dividends.  The Series A convertible preferred stock will share in all dividends
declared  on  the  common  stock  on  an  as  converted  basis.

Liquidation  Preferences.  The  stated liquidation preference of the convertible
preferred  stock  is  equal  to  the  original  sales  price  ($13 million) plus
accretion from the date of issuance of 8% per annum compounded quarterly. In the
event  of  a  change  or  control,  the  convertible  preferred stockholders are
entitled  to  receive the greater of a) the amount of the liquidation preference
that  would  be  accreted over five years once more senior obligations have been
satisfied or b) the amount which the convertible preferred stockholders would be
entitled  to  if the convertible preferred stock were converted to common stock.

The  Board  of  Directors  has  approved a resolution to increase the authorized
common  stock to accommodate the issuance of the convertible preferred stock and
the  effect  of  these  potential  conversions, subject to stockholder approval.


                                      F-24
<PAGE>
WARRANT

Preferred  Stock  Warrants. The Company issued Form A and Form B preferred stock
warrants  to  purchase  a  total  of  1.3 million shares of Series A Convertible
Preferred Stock at $10.00 per share. These warrants are exercisable for a period
of up to one year from the issuance date subject to certain acceleration events.
Upon  exercise  of  the  convertible  preferred  stock  warrants  in  full,  the
shareholders  will receive additional warrants to purchase 6.5 million shares of
common  stock.

Common  Stock Warrants. The Company issued common stock warrants to purchase 6.5
million  shares  of  common  stock at $1.00 per share. The common stock warrants
expire  on  the  seventh  anniversary  of  the  initial  closing  and  include
anti-dilution  provisions.  In  the event of a change of control, the holders of
the  common  stock warrants are entitled to receive the value of any unexercised
portion of the warrants based on a Black-Scholes calculation. At the election of
the  Company,  this  may be paid either in cash or stock provided that the stock
received is freely tradable. Upon issuance the Company will measure the value of
the  warrants  using  the  Black-Scholes  option pricing model. The value of the
common  stock  warrants  will fluctuate with the price and volatility measure of
the  Company's  common  stock.

IMPERIAL  BANK

On  September 26, 2001, the Company amended its Loan and Security to restructure
the  excess  credit facilities, and to obtain a waiver of certain defaults under
the  Agreement.

Restructuring  of  Credit  Facilities.  The revolving line of credit was reduced
from  $7,500,000  to  $3,000,000,  with  the  standby  letter of credit sublimit
correspondingly  reduced  to  $3,000,000  of which $2,901,127 was outstanding at
August  31,  2001  .  The  term  loan  facility  was  reduced from $7,500,000 to
$4,356,718,  the  balance  of  the Company's term loan as of August 31, 2001. In
addition,  the  interest rate charged on the term loan increased 50 basis points
to  the bank's prime rate plus 1.50% per annum. Under the amended agreement, the
line of credit is now due on March 31, 2002 rather than January 31, 2002 and the
term  loan continues to be repaid in monthly installments through July 31, 2003.
The  Company  also  agreed  to  pay  $7,500 in waiver and restructuring fees, to
transfer  $7,500,000  in  cash  to  the  bank and to sign a compensating balance
agreement under which the cash balances held at the bank would be collateral for
the  balances  outstanding under the line of credit and term loans. On September
27,  2001  the  Company  paid  the  fees  and  transferred  funds  to  the bank.

Waiver  of  Covenant  Violations.  The  Company  had  been in violation of banks
covenants  to  maintain  minimum  revenue levels for the months of April through
September  2001.  In  connection  with the loan amendment, the bank waived these
covenant  violations  on September 26, 2001 and approved new financial covenants
for the periods commencing October 1, 2001. Under the new covenants, the Company
will be required to: (1) maintain at all times a minimum bank liquidity ratio of
1.50  to  1.00, reducing to 1.25 to 1.00 at January 31, 2002 and thereafter (the
cash  component of this ratio is required to be held at the bank); (2) beginning
with the month ending December 31, 2001, maintain on a monthly basis the greater
of  (a)  minimum  company  liquidity ratio of 1.75 to 1.00 or (b) $14,000,000 in
unrestricted  cash  (unrestricted  cash will include any restricted cash held by
the  bank)  reducing  to  $8,000,000  at  January  31,  2002 and thereafter; (3)
beginning with the month ending December 31, 2001, not exceed a leverage maximum
of  2.25  to  1.00;  and  (4)  meet  a  milestone covenant of obtaining at least
$10,000,000  in  new equity from investors acceptable to the bank by October 15,
2001.


                                      F-25
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