SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-K [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the
Fiscal Year Ended December 31, 2000 [  ]      TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the
transaction period from _______________ to ______________. Commission
File Number:  0-21992 FOURTH SHIFT CORPORATION(Exact name of registrant as specified in its charter) Minnesota
  41-1437794(State
  or other jurisdiction of
  incorporation or organization)
  (I.R.S.
  Employer Identification Number)
 Suite
800
Two Meridian Crossings
Minneapolis, Minnesota 55423
(Address of principal executive office)
(612) 851-1500
(Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b)
of the Act:  None Securities registered pursuant to Section 12(g)
of the Act:  Common  Stock, $.01 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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K.  [ X ] As of March 1, 2001, the aggregate market value
of the registrant's Common Stock, $.01 par value, held by nonaffiliates of the
registrant was $38,564,351 (based on the closing sale price of common stock as
of March 1, 2001 as quoted on the Nasdaq National Market). As of March 1, 2001, there were 10,825,081
shares of the registrant's Common Stock, $.01 par value, issued and outstanding.  PART
I

ITEM 1.  BUSINESS.

General

Fourth Shift
Corporation (the Company) develops and markets internet-enabled,
enterprise-wide business software.  Our
principal product, the Fourth ShiftâSoftware
System (FOURTH SHIFT, formerly known as MSS for OBJECTS), includes
integrated manufacturing, financial, and e-business applications.  Fourth Shift also markets business
relationship and human resources management systems acquired on a private label
OEM basis.  Fourth Shift combines its
enterprise business applications, professional services, customer support, and
on-going personal management of the customer to deliver Complete Care by Fourth
Shift.  Our software system, which
operates in the computing environments most accepted in the business community,
including Windows and Windows NT, was one of the first enterprise resource
planning (ERP) systems to facilitate access of employees, customers, and
suppliers to essential business data over the Internet.

The 2000
fiscal year was a difficult one for ERP software vendors, and Fourth Shift was
no exception.  The slowdown in the
demand for ERP software solutions we believe had at its root two causes.  The first was the diversion of resources in
the previous two years to address year 2000 fears.  The second was the increasing uncertainty in the mid-range
manufacturing market regarding e-Business strategy and applications.  This hesitancy on the part of our market to
commit to new ERP systems affected all of our revenue sources, license revenue
in particular.  In response, on two
separate occasions we initiated expense reduction plans, which involved
reductions in both personnel and facilities.  
Despite this challenging market environment, we were able to lay the
groundwork for future growth.  During
2000, we introduced our web-enabled My Fourth Shift Workplaceâuser
interface, as well as the first part of our e-Business suite, Customer Centerâ.

The downturn
in 2000 follows years of growth.  In
1995 and 1996, sales grew rapidly due to further market penetration both
domestically and internationally, as well as the further expansion of the
breadth of our FOURTH SHIFT product line. Our revenue expanded at a slower rate
during 1997, as Asian operations began to show the effects of an economic
slowdown.  We also instituted a
restructuring plan in December 1997, under which the development operations for
a new software system (OBJECTS) were combined with continued development on the
FOURTH SHIFT system, reducing overall product development costs.  The charges recorded in connection with this
restructuring plan caused us to record a loss in 1997.  In 1998, we returned to profitability,
generating more than $3,250,000 in operating income with total revenue growth
of 30%.  We introduced eight new
releases of FOURTH SHIFT in 1998, as well as support for Microsoft SQL Server,
which opened new markets.

In
1999, despite a worldwide decline in the market forERP software
solutions, we were able to continue to be profitable, maintain revenues, and
expand our product line.  We acquired a
Colorado-based company that had developed e-commerce applications specifically
for compatibility with our software systems, formed strategic OEM partnerships
with a leading Business Relationship Management software vendor and Human
Resource Management software vendor, and released a true 32-bit version of
FOURTH SHIFT.

Recent Developments

On
February 26, 2001, FOURTH SHIFT and AremisSoft Corporation executed a Merger
Agreement which provides that, subject to the conditions contained therein, a
subsidiary of AremisSoft will be merged with and into FOURTH SHIFT, all of the
outstanding shares of common stock of FOURTH SHIFT will become the right to
receive $3.70 cash, and FOURTH SHIFT will become a wholly owned subsidiary of
AremisSoft.  The merger is conditioned,
among other things, on approval of the holders of a majority of the outstanding
shares of FOURTH SHIFT common stock at a special meeting that FOURTH SHIFT
currently anticipates will be held on April 27, 2001.

Products  FOURTH SHIFT

Our products
cover the entire spectrum of capabilities required by mid-sized manufacturers
utilizing e-business.  Fourth Shift
e-business solutions can tap into every segment of an enterprise from
customers, to suppliers, to employees.

We provide
unique software and services to manufacturers marketed as Complete Care.  The elements of Complete Care include:

e-ERP
Backbone

The
e-ERP backbone is the core of our product, supporting all of our customers
critical business systems.  The rich
functionality of our e-ERP backbone incorporates the latest 32-bit Microsoft
technologies, providing seamless connectivity between all areas of our
customers business including, manufacturing, order-entry, product
configuration, and financials.

Customer Care

We
believe nothing is more important than taking care of our customers.  Our Customer Care means expanding our
customers front office to the virtual enterprise and beyond.  Our customers build enduring relationships
with their customers via the Internet by enabling interactive collaboration and
contact between their employees, their business partners and their customers.

Supplier Care

Customer
satisfaction is critical, but customers cant be satisfied without a solid
supply chain.  In todays increasingly
complex business environment, the supply chain is getting longer and involving
a greater number of suppliers.  Fourth
Shift Supplier Care means involving and monitoring all key points along our
customers supply chain.

Employee Care

Employees
are one of every businesss most vital assets. 
Because of todays competitive labor market and more mobile workforce,
attracting, hiring and training new employees is more expensive than ever.  Employee Care takes control and simplifies
human resource and payroll functions to provide employees with the tools and
services they need and appreciate.

We
believe that FOURTH SHIFT can be distinguished from competing products because:


  FOURTH
  SHIFT is an integrated (rather than interfaced) system designed to allow
  fast, multi-user access to data;
  Our
  e-business capabilities are developed and supported by Fourth Shift;
  FOURTH
  SHIFT includes over 40 application modules integrated with third party
  products that have expanded from the broad, deep functionality we have always
  provided in our e-ERP applications to include leading functionality in
  Business Relationship Management and Human Resources Management;
  Our
  professional services provide an extended level of reliability for our
  customers, unlike some competitors who outsource services and support;
  We are
  focused on rapid and easy implementation and have developed extensive
  training aids, both interactive CD-ROM and classroom;
  FOURTH
  SHIFT is easy to use and offers seamless integration with off-the-shelf word
  processing, electronic mail, spreadsheet and other applications;
  FOURTH
  SHIFT is offered with a comprehensive support program with local, national
  and international support organizations;
  FOURTH
  SHIFT supports multiple currencies and is available in most major languages;
  and
  FOURTH
  SHIFT is designed to encourage business process reengineering and efficiency
  in our customers manufacturing processes.The Fourth ShiftâSoftware
System we market as Complete Care, is an enterprise-wide software solution for
business entities.  Functioning in the
Windows/Windows NT/NetWare open system environments, it provides an integrated
approach to the industrial planning and control processes, financial management
and reporting, sales order processing, customer relationship management and
human resources functions.  A customer
can combine any number of software modules from our base product line to
provide on-line access to real-time information for MRP, bills of material,
capacity requirements planning, master production scheduling, financial
management, and sales order processing. 
Information is communicated consistently among the various functional
modules of FOURTH SHIFT through a common database, facilitating the automatic
updating of common information used by all applications.  Using this system, a customer can manage
inventory to significantly reduce carrying costs, manage material ordering to
limit manufacturing shortages, manage manufacturing to reduce finished goods
surpluses or shortages, immediately access information necessary to communicate
customer order scheduling on-line, monitor overall manufacturing and problem
areas to maximize efficiency and quickly produce financial reports that are
consistent with manufacturing records.

Our
FOURTH SHIFT product family includes more than 40 integrated and internet
enabled manufacturing, accounting, sales, human resources management, business
relationships management and information management applications.  Our products are sold in standardized
modules with extensive documentation and training aids, but can also be
customized.  FOURTH SHIFT is modular, so
users can begin with fundamental applications and add more specialized
functionality as their requirements evolve and grow.

In the
year 2000, Fourth Shift made major advances in the area of e-Business
products.  These products are focused on
providing web access to both internal and external users of the back-office
system.    The internally faced product
is My Fourth Shift Workplaceâ, which
provides web access to the transactional aspects of the system delivered into a
series of Roles Based Portals.  In
addition, users can add their own web content alongside the transactional
content of Fourth Shift integrated with context.  The externally facing web product is Customer Centerâ. This
product is focused on facilitating supply chain integration between our
customers and their customers.

The
following is a list of current FOURTH SHIFT product line offerings:



Manufacturing ModulesInventory Management
           -Inventory Control
           -Shipping
           -Lot Trace/Serialization
  Manufacturing Operations
           -Manufacturing Order
  Management
           -Repetitive Manufacturing
  Product Definition
           -Bill of Material
           -Product Costing
  Planning and Scheduling
           -Materials Requirements Planning
  Vendor Operations
           -Purchasing
           -Approved Vendor Sourcing
  Custom Products Manufacturing
  Co-Products Manufacturing
  Material Management/Analysis
  Operations Performance
  Shop Floor Tracking and Reporting
  Engineering Module
  VisiBar, barcode data collection system
  Financial ModulesFinancial Management
            -Accounts Payable
            -Accounts Receivable &
  Invoicing
            -General Ledger
  Payroll  Connection
  General Ledger Restructuring Package
  Multi-Currency Management
  Cash ManagementSystem-Wide Modules
  System Administration
            -Configuration
            -System Control
            -CIM Data Import
            -CIM Data Export
            -Management Reports
            -Framework for Windows
  Executive Information System (EIS)
  CIM Customizer
  Screen Customizer
  VisiWatch, event notification agent
  Third-Party ProductsIntegrated
  EDI System
  Rules-Based Configurator
  Cash Collection & Management
  Cycle Counting/Inventory
        Management
  Manufacturing Variance Analysis
  Message Analysis & Reporting
  Remote Communications
  Paperless Document Management
  Electronic Business Forms
  Automated Timekeeping
  Quote Management
  Forecast Management System
  Bill of Material Analysis
  Store Front Cash Collections Systeme-Business Products
  My Fourth Shift Workplace
  Customer Center

Sales Activity ModulesCustomer
  Operations
          -Order Entry
          -Advanced Price Book
  Sales Analysis
  Rules Based Pricing
  Sales Order Processing
  OEM Product LinesBusiness Relationship Management (BRM)
            -Powered by Pivotal
  Advance Planning and Scheduling
            -Powered by Systems Modeling
  Human Resource Management (HRMS)
            -Powered by UltimateThe Manufacturing Modulesprovide on-line
information enabling users to solve material shortage, excess inventory and
manufacturing efficiency problems.  The
Inventory Management Module, which maintains and provides inventory status
information, is the basic building block for all other manufacturing
applications.  It works with the Planning
and Scheduling Module, which calculates the optimum manufacturing plan based on
continual updates from other modules; with the Product Definition Module, which
maintains information relating to the materials, resources, costs, and tools
necessary to manufacture each product; and with the Manufacturing Operations
Module, which verifies component availability, picks materials and calculates
material usage variances.

The
function of these modules can be further enhanced for use in specific
manufacturing environments with the Visibar BarCode Data Collection Module,
Shop Floor Tracking and Reporting Module, the Co-Products Manufacturing Module
and the Custom Products Module.  In
addition, the Vendor Operations Module helps buyers manage vendor relationships
and the Material Management/Analysis Module allows for simulations and
engineering-change control.  The
Engineering Module permits engineering information to be integrated with bill
of material information.

The Sales Activity Modulesaddress customer service
issues.  The Sales Order Processing
Module gives customer service representatives on-line support for entering and
tracking orders. Representatives can act on credit problems and reschedule
orders to meet changing delivery dates. 
The Rules Based Pricing Module further extends order entry functionality
to allow the user to create pricing models for individual customers or buying
groups.  Sales Analysis tracks detailed
and summarized sales information by item, customer, and order.  Sales commissions are also captured and
tracked with the Sales Analysis Module.

The Financial Modulesare tightly integrated
with the manufacturing and sales activity modules so that financial
transactions are automatically created as a result of business activity.  The Financial Management Module provides
comprehensive management of a companys financial position and generates
financial reports through the modules general ledger function. This module
also controls the processing of supplier invoices from invoice entry to check
printing and reconciliation.  
Similarly, customer invoicing, cash application, and accounts receivable
management is supported by the Financial Management Module. The Multi-Currency
Management Module offers exchange rate tracking and allows transactions to be
stated in the trading partners' currency. 
The Cash Management Module allows customers to track cash transactions
and banking activity while providing period-end reconciliations of cash
activity.  The Payroll Connection
permits outside payroll services to download payroll information into the
general ledger portion of the Financial Management Module.

TheSystem-Wide Modulesextend and enhance the manufacturing,
sales activity and financial modules. 
The System Administration Module is used to tailor the FOURTH SHIFT
modules to each customer's needs, and contains key features such as audit
trails, multi-language support, VAT tax, system-wide security and Novell or
Windows NT support.  The System
Administration Module also provides CIM connectivity to either commercial or
user-developed third-party applications. 
Open Database Connectivity (ODBC) is also provided under the System
Administration Module: this provides access to the FOURTH SHIFT database via
ODBC enabled applications, e.g., Microsoft CorporationsOffice Suiteof products.  Additional system-wide modules such as
Executive Information Systems (EIS), CIM Customizer, and Screen Customizer
complement the System Administration Module by providing broader functionality.  The EIS Module provides decision-makers a
key performance measurement tool that displays a quick overview of the state of
the entire business.  The CIM Customizer
Module allows the user to extend the FOURTH SHIFT applications by embedding
other application software into the processing flow of the FOURTH SHIFT
system.  The Screen Customizer permits
the customers to configure certain screens to fit their business
application.  The VisiWatch Module watches
transaction data generated by FOURTH SHIFT taking specified data as a trigger
to perform actions such as sending an email, synchronizing multiple databases
and generating reports.

In 1999,
the Company added three OEM Product Lines
to its product offerings.  The Company
licenses, implements and supports these OEM software and hardware products,
which are integrated to function with the FOURTH SHIFT software.  These products extend the functionality of
FOURTH SHIFT and provide a better solution to the Companys clients.  At December 31, 2000, the Company had three
agreements, which allow the Company to re-brand the OEM products and license
them as Fourth Shift products.

The
typical customer licenses between $50,000 and $150,000 of FOURTH SHIFT
software.  FOURTH SHIFT license revenue
totaled $15,000,000 for the year ended December 31, 2000 or approximately 25%
of the overall revenue of the Company.

Third-Party Products.The Company
also licenses, implements and supports third-party software and hardware
products, which are integrated to function with the FOURTH SHIFT software.  These products extend the functionality of
Fourth Shift's software and provide a broader solution to Fourth Shift
clients.  At December 31, 2000, the
Company had nine agreements with various third-party software and hardware
vendors to license third-party products. 
Third-party products revenue totaled $2,271,000 during the year ended
December 31, 2000.

Services

The
Company offers a broad range of services for its FOURTH SHIFT product line,
including a comprehensive customer support program, business consulting, network-related
technical consulting, custom software development and extensive training
programs.  Such services constituted
72%, 66% and 56% of the Companys revenue during 2000, 1999 and 1998,
respectively.

Customer Support Program.The Company
offers a standardized customer support program (CSP) for FOURTH SHIFT.  CSP is a comprehensive, fee-based program
designed to help customers obtain the maximum benefit from their business
management software.  CSP subscribers
pay an annual fee of 15-18% of the current list price of the modules
licensed.  Approximately 74% of the
currently active users of FOURTH SHIFT products subscribe to CSP.  The Company believes CSP is a stable and
reliable source of revenue, which the Company intends to continue to emphasize to
its new and existing customer base.

Included
among the materials and services furnished through CSP are new product
upgrades, telephone technical and application support, an electronic bulletin
board, and newsletter and application notes. 
Updated and enhanced versions of the Companys software products are
provided to CSP subscribers as part of the annual subscription fee.  Telephone support calls are handled by
manufacturing, financial and technical experts located in the Companys offices
in the United States, Mexico, United Kingdom, Peoples Republic of China, and
Singapore.  Additionally, certain
distributors handle support calls in Eastern Europe and the Middle East.

Professional Services.  The Company offers business consulting and
training for use of its FOURTH SHIFT products, as well as custom software
development services.  Implementation
consulting services, available on a fee basis, include project management,
implementation consulting and specialized custom training.  As part of the Implementation tool set the
Company has developed the Implementation Workshop Series designed to ease the
FOURTH SHIFT implementation process. Included in the Series is a Readiness
Review to identify problems prior to using the system. Additionally, the
company provides Business System Reviews to maximize the utility of the system
once installed and several benchmarking tests to measure performance against
competitors.

The
Companys Integrated Solutions Consulting Group provides tailored solutions for
customers who desire to capitalize on the advantages of e-commerce, Electronic
Data Interchange (EDI), Business Relationship Management (BRM) and Sales Force
Automation (SFA) customization.

The Company offers a
series of classroom and individual on-site training options.  Training includes classroom instruction at
the Companys offices in the United States, Mexico, United Kingdom, Peoples
Republic of China and Singapore as well as at customer sites.  Customers may also purchase Mentorâ, the
self-paced interactive CD-ROM training module, to supplement standard training
classes while serving as an update class for the occasional user. During 2000,
the Company also introduced a web-based training option, which among its other
benefits allows customers to participate in the traditional classroom curricula
on a half-day schedule.

The
Company also offers, on a limited basis, custom software development services
to meet specific customer requirements, and to integrate FOURTH SHIFT with a
customers existing computer systems and/or third-party software providers.

Markets

The
Company targets midmarket manufacturing companies  (revenues less than $150 million) and remote manufacturing
facilities of Fortune 1000 companies. 
FOURTH SHIFT is licensed primarily to mid-sized manufacturing companies,
or business units of larger manufacturing companies, that generate more than $5
million of revenue annually and require up to approximately 100 concurrent
users.  FOURTH SHIFT is used by discrete
manufacturers (which assemble or machine parts into finished products) and by
process manufacturers (which mix, separate and otherwise combine or control
ingredients to create finished products). 
It has broad application and use in the computer and electronics,
machinery, consumer goods, automotive and fabricated products industries.

The
Company also participates in the e-business marketplace with software and
services that enable companies to conduct e-business.   The target market for FOURTH SHIFT e-business initiatives is the
same as its software products, midmarket manufacturers; however, FOURTH SHIFT's
e-business capabilities are taking the Company into other new markets,
including dot com companies.

Sales and Marketing

The
Company distributes its products and services through a direct sales force and
value-added resellers in major markets, and through sales agents in secondary
markets.  The Company maintains regional
sales offices located in San Diego and San Ramon, California; Atlanta, Georgia;
Boston, Massachusetts; Chicago, Illinois; Cleveland, Ohio; Dallas, Texas; and
Phoenix, Arizona; in addition to its headquarters located in Minneapolis,
Minnesota.  The Company sells directly
through wholly owned subsidiaries in the United Kingdom, Mexico, the People's
Republic of China, South Africa, Australia, Malaysia, and Singapore, and
through distributors in the Americas, Europe, Africa, the Middle-East, and
Asia.  During 2000, approximately 95% of
the Companys software license revenue was generated through direct sales
personnel and 5% was generated through resellers and agents.  Of the license revenue generated through
resellers and agents, approximately 40% of software license revenue was
generated in The Americas and 60% was generated abroad (see Note 13 to the
Consolidated Financial Statements).

The Companys direct sales personnel are compensated on a salary plus
commission basis with commissions paid monthly.  This monthly commission plan assists the Company in managing the
level of its sales activity throughout the quarter.  The Companys reseller agreements generally provide that sales
will be made by authorized resellers on a nonexclusive basis from offices
within a designated territory.  The
agreements obligate the Company to license to the end-user through a value
added reseller (VAR) at specified prices and to provide training to each
reseller.  The Company also maintains a
staff of systems consultants who offer pre- and post-sales support to the sales
force and to customers.

The
Company markets its products through advertising campaigns in national trade
periodicals, direct mail and telemarketing. 
These efforts are supplemented by listings in relevant directories and
trade show and conference appearances. 
The Company also receives leads from its hardware and services vendors,
customers and various accounting and consulting firms.

Sales
cycles for the Companys products vary substantially based on the degree of
integration, consulting and training required and also on the status of the
customer's implementation of a hardware system.  The product sales cycle is usually four to six months from the
time an initial sales presentation is made to a customer until the software is
delivered and licensed.  The Companys
products are typically shipped within 48 hours of receipt of order.  Generally 30-50% of the price is paid when
the order is made and the balance is due 30 to 60 days after delivery of the
product.

Strategic Arrangements

Part of
the Companys sales and marketing strategy is to build and develop
relationships with companies that will play an important role in the successful
marketing of the Companys products. 
These companies include system software suppliers (such as Microsoft
Corporation), database companies (such as Micro Data Base Systems, Inc. and
Microsoft Corporation), and business application developers (such as Pivotal
Software, Inc. and The Ultimate Software Group).  The Company uses products from system software suppliers to
develop the Companys application software products.  The suppliers also serve as technical references for future
prospects.  Arrangements with database
companies allow the Company to sublicense database management systems with its
products and to provide fee-based support for licensees.  The Companys arrangements with other
software developers allows the Company to extend the functionality of FOURTH
SHIFT and seamlessly integrate these other products into the FOURTH SHIFT
system, greatly enhancing the Companys offerings in the marketplace while
reducing the Companys development cost burden.

Product Development

Historically,
the Company has invested heavily in research and development.  During the years ended December 31, 2000,
1999 and 1998, the Company recorded research and development expenses from
continuing operations of $9,989,000, 
$9,008,000 and $7,571,000, respectively.  In addition, the Company capitalized $2,833,000, $2,238,000 and
$1,023,000 of development costs in 2000, 1999 and 1998, respectively, of
development costs related to the development of FOURTH SHIFT functionality and
related modules that had reached technological feasibility.  The Company begins amortization of
previously capitalized costs upon general distribution of the product and uses
a three to five year economic life of the framework and modules.  Amortization expense for 2000, 1999, and
1998 totaled $1,617,000, $1,371,000, and $625,000, respectively.

In 1998,
the Companys product strategy was focused on providing solutions for the
Companys primary customer base. Releases incorporated much of the OBJECTS
technology including support for both Micro Data Base Systems Inc. and
Microsoft SQL Server databases, and multi-company, multi-plant application
functionality.  Releases in 1998
provided an Internet ready application software release targeted for small to
mid-size manufacturers.

In 1999,
the Company released Fourth Shift 7.0â.  This release was built with several
Microsoft tools, including Visual Studio C++ and Windows Help.  Fourth Shift 7.0 includes numerous advances
over previous versions such as 32-bit architecture,  an enhanced engineering module and full European Monetary Unit
(EMU) and ODBC compliance.  In addition,
this release supports Microsoft SQL 7.0.

In 2000,
the focus of the Companys development efforts was e-Business.  The first of the Companys e-Centers was
released, Customer Centerâ, as well as
the Roles Based Portal interface, My Fourth Shift Workplaceâ.

The computer industry is characterized by rapid technological advances,
changes in customer requirements and frequent new product introductions and
enhancements.  The Companys future
success will depend upon its ability to enhance its current products and to
develop and introduce new products that keep pace with technological
developments, respond to evolving customer requirements and achieve market
acceptance.  In particular, the Company
believes it must continue to respond quickly to users' needs for broad
functionality and multiplatform support and to advances in hardware and
operating systems.  Failure to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could result in a loss of competitiveness and revenues.  In the past, the Company has experienced
delays in the introduction of new products and product enhancements.  These development efforts are dependent upon
the availability of adequate cash to fund them.  See Item 7.  Managements
Discussion and Analysis of Financial Condition and Results of Operations.  There can be no assurance that the Company
will be successful in developing and marketing new products or product
enhancements on a timely basis or that the Company will not experience
significant delays in the future, which could have a material adverse effect on
the Companys results of operations.  In
addition, there can be no assurance that new products or product enhancements
developed by the Company will achieve market 
acceptance.

Competition

The
software industry is intensely competitive and rapidly changing.  Due to the flexibility of the Companys
products, the Companys competitors range from providers of high-end industrial
application software for use on mainframes and minicomputers to providers of
low-end application software for use on PCs and LANs.  Because of the wide functionality of the Companys product line,
competitors include providers of financial and business application software as
well as industrial and manufacturing resource planning software.  The Company competes generally on the basis
of product features and functions, product architecture, the ability to run on
a variety of industry standard platforms, technical support and other related
services, ease of product integration with third-party application software and
price/performance.  The ability to
address thoroughly the requirements for various forms of manufacturing
(discrete, process, etc.), efficiency of the user interfaces and commands,
computational speed and responsiveness, ease of implementation, support for
application integration, extensive training materials, and established local
support and training are key competitive factors with respect to FOURTH SHIFT.

FOURTH
SHIFT currently competes primarily in the market for PC-based ERP
software.  The Companys primary
competitors in this market include MAPICS, Inc., Epicor Software Corporation,
Kewill ERP, Inc., Lilly Software Associates, Macola, Inc., Made2Manage Systems,
Inc., QAD, Inc. and Frontstep, Inc.  In
addition, there are a number of smaller, regional companies that produce MRP II
software for PCs.  The Company believes
that purchases in this market are based primarily on hardware platform and
operating system (Windows/Windows NT/NetWare for LANs versus UNIX systems),
functionality, ease of implementation, application integration and industry
reviews.  The Company believes that the
FOURTH SHIFT product line competes favorably in the portion of this market
intended for Windows/Windows NT/NetWare operating systems and LANs.

The
Companys products compete indirectly with providers of financial and
accounting software for PCs and other specialized applications in the markets
it serves.  Competition from this market
arises primarily when a customer is seeking only a very narrow solution and the
Company believes its products compete favorably with such products on the basis
of broad functionality and complete vertical integration.

Many of
the Companys competitors have greater financial, marketing and technological
resources than the Company.  There can
be no assurance that other companies have not developed or marketed or will not
develop or market software products that are superior to those of the Company,
that are offered at substantially lower prices than those of the Company or
that have achieved or will achieve greater market acceptance than those of the
Company.

Intellectual Property

The
Company has registered its trademarks for software services and products with
the United States Patent and Trademark Office and with the equivalent offices
of most foreign countries in which it does business.  The Company also registers the copyright on its FOURTH SHIFT
software products.

The
Company regards its software as proprietary in that title to and ownership of
the software reside exclusively with the Company.  The Company attempts to protect its rights with a combination of
trademark, copyright, employee and third-party nondisclosure agreements.  Despite these precautions, it may be
possible for unauthorized parties to copy or reverse-engineer portions of the
Companys products.  While the Companys
competitive position could conceivably be threatened by its inability to
protect its proprietary information, the Company believes that copyright and
trademark protection are less important to the Companys success than other
factors such as the knowledge, ability and experience of the Companys
personnel, name recognition and ongoing product development and support.

The
Companys software products are licensed to end users under a perpetual,
nontransferable, nonexclusive license that stipulates which modules can be used
and how many concurrent users may use them. 
The Company relies primarily on shrink wrap licenses for the
protection of FOURTH SHIFT.  A shrink
wrap license agreement is a printed license agreement included in the packaged
FOURTH SHIFT software that sets forth the terms and conditions under which the
licensee can use the product, and binds the licensee by its acceptance and
license of FOURTH SHIFT to such terms and conditions.  Shrink wrap licenses typically are not signed by the licensee and
therefore may be unenforceable under the laws of certain jurisdictions.

As the number of
software products in the industry increases and the functionality of these
products further overlaps, the Company believes that software programs could
become increasingly the subjectof infringement claims.  Although the Companys products have never
been the subject of an infringement claim, there can be no assurance that third
parties will not assert infringement claims against the Company in the future
or that any such assertion will not require the Company to enter into royalty
arrangements or result in costly litigation.

Production

The
principal materials and components used in the Companys software products
include computer media, user manuals and training guides.  The Company prepares master software disks,
user manuals and packaging.  In some
cases, the Company uses third-party vendors to duplicate disks containing its
software and to print the Companys user manuals, packaging and related
materials.  To date, the Company has not
experienced any material difficulties or delays in the manufacture and assembly
of its products, or material returns due to product defects.

Employees

As of December 31, 2000, the Company had 496 full-time employees,
including 90 in sales and marketing, 100 in software programming and
documentation, 238 in customer support services and 68 in finance and
administration.  The Companys employees
are not represented by any collective bargaining organization and the Company
has never experienced a work stoppage. 
The Company believes that its relations with its employees are good.

ITEM 2.  PROPERTIES

The Companys corporate headquarters are located in Minneapolis,
Minnesota, in a leased facility consisting of approximately 61,000 square
feet.  The Company leases additional
facilities for domestic operations in San Ramon,  California; Atlanta, Georgia; Boston, Massachusetts; Chicago,
Illinois; Cleveland, Ohio; Dallas, Texas; Denver, Colorado; Nashua, New
Hampshire; Phoenix, Arizona and Roseville, Minnesota. The Company also leases
facilities and offices for its international operations in London, Paris,
Mexico City, Johannesburg, Melbourne, Singapore, Tokyo and in Beijing, Tianjin,
Guangzhou, and Shanghai of the Peoples Republic of China.  The Company believes that its existing
facilities are adequate to meet its current needs and that suitable additional
or alternative space will be available as needed to accommodate expansion of
corporate operations and for additional sales offices.  See Note 10 of Notes to Consolidated
Financial Statements for information regarding the Companys lease obligations.

ITEM 3.  LEGAL PROCEEDINGS

From
time to time the Company is involved in litigation relating to claims arising
from its operations in the normal course of business.  As of the date of this filing, neither the Company nor any of its
subsidiaries is a party to any legal proceedings, the adverse outcome of which,
in management's opinion, would have a material adverse effect on the Companys
results of operations or financial position.

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

None.

EXECUTIVE
OFFICERS

Marion
Melvin Stuckey, age 62, is the founder of the Company and has been the Chief
Executive Officer and Chairman of the Company since 1982.  Prior to forming the Company, Mr. Stuckey
was an executive officer of Control Data Corporation (CDC), a multinational
computer hardware, peripherals and services company, from 1975 to 1982.  Prior to that Mr. Stuckey served in various
sales, marketing and management positions at IBM from 1960 to 1975.

Jimmie
H. Caldwell, age 61, has been President, Chief Operating Officer and a Director
of the Company since 1984.  Prior to
that time, Mr. Caldwell served in various positions at CDC from 1964 to 1984
and held the position of Vice President of Operations for CDC's Peripheral
Products Company when he left to join the Company.

Randy
Tofteland, age 41, was appointed Chief Operating Officer in January 2001.
Previously, he served as Vice President and General Manager of the Americas,
since August 1999, having joined Fourth Shift as Vice President of Sales in
June 1997.  In 1994, Mr. Tofteland
founded and was President of MedVision, a software company for the medical
industry.  From 1982 to 1994,  Mr. Tofteland served in various positions at
GE Medical Systems.

David G.
Latzke, age 41, has been Vice President and Chief Financial Officer since April
1994.  Mr. Latzke joined the Company as
director of special projects in April 1993. 
From 1982 until April 1993, Mr. Latzke was a manager with the Audit and
Business Advisory Division of Arthur Andersen LLP.

PART II

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

NASDAQ SymbolThe Company's common stock trades on the
NASDAQ National Market tier of The NASDAQ Stock Market under the symbol FSFT.Price Range of Common StockThe following table sets forth the high and
low closing sales price of the Common Stock as quoted by the NASDAQ National
Market System for the periods indicated. 
Such prices include inter-dealer prices, and may not include retail
markup, markdown or commissions.High
  LowFISCAL 1999:First Quarter
  $7 1/16
  $4 1/4Second Quarter
  5 1/2
  3 5/16Third Quarter
  4 5/8
  2 15/16Fourth Quarter
  6 15/16
  2 7/8FISCAL 2000:First Quarter
  $8 5/16
  $5Second Quarter
  6 3/4
  3Third Quarter
  3 7/16
  2 1/8Fourth Quarter
  2 3/32
  1As of
December 31, 2000, there were 262 shareholders of record and, based on the best
available information, approximately 2,100 beneficial holders of the Company's
Common Stock.  The Company has never
paid cash dividends on its Common Stock and currently intends to retain
earnings for use in operations.


ITEM 6. 
SELECTED FINANCIAL DATA Selected Consolidated Financial Data(In Thousands, Except Per Share Data)STATEMENT
  OF OPERATIONS DATA-
  2000
  1999
  1998
  1997
  1996REVENUE:Software license
  $15,000
  $20,440
  $26,284
  $21,883
  $22,947Service
  43,888
  45,754
  37,963
  27,137
  23,822Third-party software and other
  2,271
  3,055
  3,957
  3,298
  2,541Total revenue
  61,159
  69,249
  68,204
  52,318
  49,310OPERATING EXPENSES:Cost of licenses
  4,603
  3,979
  4,577
  2,767
  2,601Cost of services
  21,482
  22,004
  18,274
  13,209
  11,747Cost of third-party software and
  other
  1,655
  2,253
  3,021
  2,341
  2,008Selling, general and
  administrative
  26,788
  29,614
  31,508
  27,505
  23,046Product development
  9,989
  9,008
  7,571
  9,271
  8,674Restructuring charge
  1,147
  -
  -
  2,566
  -Total operating expenses
  65,664
  66,858
  64,951
  57,659
  48,076Operating profit (loss)
  (4,505)
  2,391
  3,253
  (5,341)
  1,234Other expense, net
  386
  188
  545
  432
  36Income (loss) from continuing
  operations before provision for income taxes
  (4,891)
  2,203
  2,708
  (5,773)
  1,198Provision for income taxes
  328
  324
  465
  328
  189Income (loss) from continuing
  operations
  (5,219)
  1,879
  2,243
  (6,101)
  1,009Discontinued operations:Net gain on sale of discontinued
  operations
  -
  236
  281
  2,311
  761Total discontinued operations
  -
  236
  281
  2,311
  761Net income (loss)
  $(5,219)
  $2,115
  $2,524
  $(3,790)
  $1,770Basic income (loss) per common share
  (1):Continuing operations
  $(.50)
  $.19
  $.22
  $(.63)
  $.11Discontinued operations
  -
  .02
  .03
  .24
  .08Basic income (loss) per share
  $(.50)
  $.21
  $.25
  $(.39)
  $.19Diluted income (loss) per common share
  (1):Continuing operations
  $(.50)
  $.18
  $.22
  $(.63)
  $.10Discontinued operations
  -
  .02
  .03
  .24
  .08Diluted income (loss) per share
  $(.50)
  $.20
  $.25
  $(.39)
  $.18BALANCE SHEET DATA -Working capital (deficit)
  $(5,827)
  $286
  $(364)
  $(4,161)
  $847Total assets
  30,595
  40,482
  33,401
  31,429
  31,172Long-term obligations
  1,846
  2,834
  835
  1,299
  2,304Shareholders equity
  5,993
  10,619
  7,079
  4,047
  7,087  (1)
  See Note 2 of Notes to the Companys Consolidated Financial
  Statements for an explanation of the determination of shares used in the per
  common share  computation.


ITEM 7. 
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 2000 Managements Discussion and Analysis of Financial Condition and
Results of Operations The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Companys consolidated results of operations and financial condition and should
be read in conjunction with the consolidated financial statements and notes
thereto. Cautionary statement for purposes of the  Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995.The following
Managements Discussion and Analysis contains various forward looking
statements within the meaning of federal securities laws which represent
managements expectations or beliefs concerning future events, including
statements regarding anticipated sales, marketing and research and development
expenditures, growth in revenue, capital requirements and the sufficiency of
cash to meet operating expenses.  These
and other forward looking statements made by the Company, must be evaluated in
the context of a number of factors that may affect the Companys financial
condition and results of operations, including the following: 
  The
  ability of the Company to continually enhance the Fourth Shift® Software
  System (FOURTH SHIFT, formerly known as MSS for OBJECTS) product to meet
  ever changing market demands for both functionality and new technology;
  The
  ability of the Company to effectively integrate newly acquired or licensed
  products with FOURTH SHIFT and to train and motivate its sales and marketing
  staff to sell such products;
  Fluctuations
  in quarterly operating results caused by changes in the computer industry,
  buying patterns and general economic conditions;
  The
  ability of the Company to successfully develop its FOURTH SHIFT product to
  continue to meet European Monetary Union requirements;
  The
  dependence of the Company on revenue from licensing of its FOURTH SHIFT
  product;
  The
  effects of changes in technology and standards in the computer industry;
  The
  significant competition among developers and marketers of industrial
  software;
  The
  ability of the Company to retain key employees;
  The
  ability of the Company to continue to integrate complementary applications
  with its FOURTH SHIFT product to meet functionality demands;
  The
  Companys international operations;
  The
  ability of the Company to manage expansion of international distribution
  channels;
  The
  dependence of the FOURTH SHIFT product line on a third-party database
  management system; and
  Evolving
  standards regarding intellectual property protection for software products in
  general. RESULTS OF OPERATIONS

Revenue:

Total revenuefor the year ended
December 31, 2000 decreased 12% to $61,159,000 from $69,249,000.  In 1999 total revenue increased 2% from
$68,204,000 in 1998, as outlined below. 
At the regional level, total revenue in the Americas decreased 11% from
1999 to 2000 and increased 1% from 1998 to 1999.  Total revenue from the Companys subsidiary in Asia decreased 9%
from 1999 to 2000 and 8% from 1998 to 1999. 
Total revenue from the Companys European subsidiary decreased by 17%
from 1999 to 2000 and grew 8% from 1998 to 1999.  As a percentage of total revenue, sales outside of the Americas
accounted for 27% in 2000, 1999 and 1998.

Software license revenueare fees paid by customers for the right to use the Companys software
system. Software license revenue decreased 27% to $15,000,000 in 2000 from
$20,440,000 in 1999 and 22% to $20,440,000 in 1999 from $26,284,000 in
1998.  In the Americas, license revenues
decreased 26% from 1999 to 2000, license revenue in Europe declined by 30%, and
license revenue in Asia declined by 26%. The Company believes that confusion
from market information has softened the demand for enterprise software
solutions as customers delay buying decisions in order to formulate their
e-business strategies.

Service revenueincludes customer support fees, training, consulting, installation and
project management. Service revenue decreased 4% to $43,888,000 in 2000 and
increased 21% to $45,754,000 in 1999 from $37,963,000 in 1998. The decline in
license revenue over the last two years has had a negative impact on service
revenues, as a major portion of professional services are purchased in the
three to six months following the licensing of the software.  This has been somewhat offset by the
Companys ongoing efforts to expand, standardize and promote its professional
services offerings, and the stability of its base of customer support revenue.

Third-party software and other revenueare derived principally from the resale of third-party software licenses
(complementary applications) along with limited hardware sales. These
complementary applications have been integrated to function with the FOURTH
SHIFT software and extend the functionality of the FOURTH SHIFT system.
Third-party software and other revenue decreased 26% to $2,271,000 in 2000 from
$3,055,000 in 1999 and decreased 23% in 1999 from $3,957,000 in 1998. The
decrease in third-party software revenue over the two-year period since 1998 is
directly related to the decrease in FOURTH SHIFT license revenue, since
third-party software is often licensed in conjunction with the licensing of the
FOURTH SHIFT product.

Operating Expenses:

Cost of licensesIncreased to $4,603,000 in 2000 from $3,979,000 in 1999 and decreased in
1999 from $4,577,000 in 1998.  These
amounts are, in percentage terms, 31%, 19%, and 17% of 2000, 1999, and 1998
total license revenue respectively.  
The increase in the cost of licenses as a percentage of license revenue
in 2000 and 1999 is primarily due to the fixed royalty costs paid to
third-party software suppliers whose products are embedded in and distributed
with the FOURTH SHIFT product. Additionally, in the second half of 1999 the
Company entered into agreements to expand its product breadth, which increased
the fixed cost of licenses for future periods. 
These costs were not incurred during the first half of 1999.

Cost of servicesDecreased to $21,482,000 in 2000 from $22,004,000 in 1999 and increased
in 1999 from $18,274,000 in 1998. As a percentage of service revenue, cost of services
increased 1% to 49% in 2000 from 48% in 1999 and 1998.  Cost of services in percentage terms was
negatively impacted by resources being planned for greater growth in the first
half of 2000 than the Company experienced. This was partially offset by improved
productivity in the latter half of 2000.

Cost of third-party software and otherexpenses as a percentage of third-party software and other revenue was
73% in 2000, 74% in 1999, and 76% in 1998. 
The change in the cost of third-party software and other expenses as a
percentage of related revenues is primarily due to the mix of products sold.

Selling, general and administrative expensedecreased to $26,788,000 in 2000 from $29,614,000 in 1999, which was a
decrease from $31,508,000 in 1998.   As
a percentage of total revenue, selling, general and administrative expense was
44% in 2000, 43% in 1999, and 46% in 1998. The decrease in absolute dollars
reflects the Companys continuing efforts to manage its expense base in line
with revenue expectations.

Product development expenseincreased to $9,989,000 or 16% of total revenue in 2000, compared to
$9,008,000 or 13% of total revenue in 1999, and $7,571,000 or 11% of total
revenue during 1998.  The increases
since 1998 relate to increased development efforts in both the depth and
breadth of the FOURTH SHIFT software system.

The Company capitalized $2,833,000, $2,238,000 and $1,023,000 of
development costs in 2000, 1999 and 1998, respectively.  Amortization expense for 2000, 1999, and
1998 totaled $1,617,000, $1,371,000 and $625,000, respectively, and is included
as a component of product development expense. 
In 2000, 1999 and 1998, the Company wrote off $363,000, $795,000 and
$458,000, respectively, of previously capitalized technology that was no longer
aligned with the Companys current product strategy.

The Companys research and development activities are conducted
internally and consist primarily of software developmentthe writing of code.
The Company does not have any material fixed commitments for capital
expenditures in research and development. 
The Company believes that product development spending is critical to
the continuing success of the Companys products and intends to continue to
invest heavily in research and development.

The Company accounts for capitalized development costs and related
amortization under Statement of Financial Accounting Standards No. 86 (SFAS
No. 86), Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed,  whereby
capitalization of computer software development costs is to begin upon the
establishment of technological feasibility, limited to the net realizable value
of the software product, and cease when the software is available for general
release to customers.

Nonrecurring chargesare the result of the Companys efforts to better align its
expense base with current market conditions. The Company responded to these
market conditions on two separate occasions in 2000 by initiating expense
reduction plans.  These expense
reduction plans included headcount reductions in management and staff, and
reduction in facilities and associated overhead (see Note 6, Nonrecurring
Charges).

Other expense,net is
comprised principally of interest expense on line-of-credit borrowings,
equipment leases, and the effect of currency fluctuations, net of interest
income.

Provision for income taxestotaled $328,000 in 2000 compared to $324,000 in 1999 and
$465,000 in 1998. The tax provision for 1999 and 1998 is comprised of U.S.
federal, state and foreign income taxes. 
The Companys tax provision primarily consisted of foreign taxes in
2000.  The Companys U.S. federal taxes
are limited to alternative minimum taxes due to utilization of net operating
loss carryforwards in 1999 and 1998. The Company has not recognized any
benefits related to deferred taxes or net operating loss carryforwards relating
to losses in 2000 or prior years, since their utilization is uncertain.

Operating Profit (Loss):

The Company reported an operating loss of $4,505,000 for 2000, compared
to an operating profit of $2,391,000 for 1999, and  $3,253,000 for 1998.  The
operating loss in 2000 is a result of a pause in the market for enterprise
software solutions, due in part to market confusion regarding e-Business, and
the Companys planning for greater growth in the first half of 2000 than was
experienced. The operating income in 1999 and 1998 was a result of increased
selling and marketing efforts, and the Companys focused efforts to control
expenses as revenues grew.

The Company has historically experienced higher revenue and gross
margin in its fourth quarter compared to the other quarters.  The Company attributes this primarily to
customers increased spending at the end of their calendar year budgetary
periods. The Company believes this pattern will continue.

Discontinued Operations:

Net Gain on Sale of Discontinued Operationsrelates to the Companys 1995 sale of Just In Time Enterprise Systems,
Inc. (JIT), a wholly owned subsidiary. 
In connection with the sale, the Company received a note receivable
based on revenues generated from the JIT Enterprise System.  The Company recognized gains associated with
this note as such amounts were deemed collectible.  This note was satisfied completely as of December 31, 1999 and
accordingly no gains from discontinued operations were recorded in 2000.  In 1999, the Company recognized gains of
$236,000, compared to $281,000 in 1998. 
All income taxes related to these transactions have been offset by
utilization of net operating losses previously generated by JIT.

FOREIGN CURRENCY EXCHANGE

The Company denominates the majority of its sales in U.S. dollars.  Sales in the United States, which accounts
for 70% of total revenues, are denominated and paid in U.S. dollars.  Sales in Asia, which accounts for 9% of
total revenues, are denominated in U.S. dollars and payment is generally
received in the local currency based on the exchange rate on the date of
payment.  Sales in Europe and other
countries in the Americas account for 21% of total revenues.  Of those sales, approximately 32% of sales
are denominated in U.S. dollars, the remainder are denominated in the local
currency.  Payment for these contracts
is generally received in local currency based on the contract or based on the
exchange rate at the date of payment. 
The effect of foreign currency exchange rate fluctuations versus the
U.S. dollar on these revenues is largely offset to the extent expenses of the
foreign subsidiary are incurred and paid for in that same currency. None of
these foreign operations have significant receivables, obligations or
commitments denominated in currencies other than these operations functional
currencies.

LIQUIDITY AND CAPITAL RESOURCES

Cash used by continuing operations was $2,364,000 in 2000, compared to
cash provided by operations of $7,465,000 in 1999 and $8,509,000 in 1998.  In 2000, the net loss adjusted for noncash
items resulted in a cash use of $825,000. 
Additional cash sources, net of acquired assets and liabilities, were
decreases in accounts receivable and prepaid expenses of $3,329,000 and
$383,000, respectively.  Decreases in
accrued expenses, deferred revenue and accounts payable of $2,376,000,
$1,983,000 and $892,000, respectively offset these sources.  The decrease in accounts receivable is the
result of both increased collection efforts and the decrease in total revenue.
The decrease in deferred revenue also results from the decline in total
revenue.  The decrease in accrued
expenses results from decreased accrued commissions and bonuses associated with
the decreased software license revenue.

Cash used for investing activities was $3,902,000 in 2000 compared to
$6,431,000 in 1999 and $986,000 in 1998. Specifically, 2000 cash used for
investing activities includes $2,833,000 of capitalized software development
costs, $701,000 for purchases of furniture, fixtures and equipment, and
$413,000 of payments for acquisitions and joint ventures.  This is offset by  $45,000 released from restrictions.

Cash used in financing activities was $588,000 in 2000 compared to a
source of cash of $677,000 in 1999 and a use of cash of $3,178,000 in
1998.  The Companys financing
activities in 2000 is comprised of cash-neutral line-of-credit transactions,
payment of long-term obligations of $1,238,000, and proceeds from the issuance
of common stock of $650,000.

The Company has a line-of-credit agreement with a bank.  Borrowings under this agreement shall not
exceed the lesser of $10,000,000 or a percentage of eligible accounts
receivable ($4,500,000 at December 31, 2000). 
Borrowings are collateralized by accounts receivable and other assets of
the Company and bear interest at the banks base rate plus 1⁄2%.  The agreement expires March 2002.  The Company has outstanding borrowings on
the line-of-credit of $1,200,000 at December 31, 2000.

On July 1, 1998, the Company entered into a four year $12,000,000
commitment with a third-party database supplier whose product is embedded in
and distributed with the FOURTH SHIFT product. 
The agreement also includes three three-year renewal options.  Payments are made monthly.  At December 31, 2000, $4,500,000 remained of
this commitment.

In June 1999, the Company entered into an OEM licensing agreement with
a business relationship management software vendor.  As part of the agreement, the Company has agreed to pay a
percentage of licensing and customer support revenues, which is included in the
cost of licenses. Minimum license royalty payments are $250,000 for each of the
remaining three contract years ending June 30.

In
August 1999, the Company entered into an OEM licensing agreement with a human
resources management system software vendor. 
As part of the agreement, the Company had an initial commitment of $1,500,000.  This amount was paid over one year in equal quarterly
installments beginning September 30, 1999. 
The initial commitment has been capitalized as acquired licensing rights
and is being amortized over a five-year useful life. The Company recognized
$270,000 and $113,000 of expense under this agreement in 2000 and 1999,
respectively.  In addition, the Company
pays variable rate royalties to the vendor based on sales, which are included
in the cost of licenses.

The Company believes that the $4,930,000 of cash and cash equivalents
on hand at December 31, 2000 together with anticipated cash flows from
operations and the Companys available line-of-credit will be sufficient to
fund operating cash needs for 2001. Beyond 2001, the Company plans to return to
consistent generation of positive cash flows from operations; however, if this does
not occur, then the Company may need to seek additional funds through equity or
debt financing.

The Company has available net operating loss carryforwards of
approximately $15,969,000 and tax credit carryforwards of approximately
$2,067,000 at December 31, 2000.  The
Company has not recognized any of these benefits in the related financial
statements.

NEW ACCOUNTING PRONOUNCEMENTS

The Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities on January 1, 2001. The Company currently
does not engage in or plan to engage in derivative or hedging activities,
therefore the adoption of SFAS No. 133 did not have an impact on the Companys
results of operations, financial position or cash flows.

The Company adopted the provisions of the Securities and Exchange
Commissions (SEC) Staff Accounting Bulletin (SAB) no. 101, Revenue
Recognition in Financial Statements during the fourth quarter of 2000.  SAB 101 provides the SEC staffs views in
applying generally accepted accounting principles to selected revenue
recognition issues.  The adoption
of  SAB No. 101 did not have any impact
upon the Companys revenue recognition policies.

ITEM 7a. 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not enter into financial instruments for trading or
speculative purposes and does not currently utilize derivative financial
instruments.  Certain sales made through
certain foreign subsidiaries are denominated in the subsidiaries  functional currencies. The effect of foreign
currency exchange rate fluctuations versus the U.S. Dollar on these revenues is
largely offset to the extent expenses of the foreign subsidiary are incurred
and paid for in that same currency. None of these foreign operations have
significant receivables, obligations or commitments denominated in currencies
other than these operations functional currencies.  The Company does not have any foreign currency swaps or
derivatives and is not subject to material foreign currency exchange risk.  The Company had $1,556,000 of RMB on
December 31, 2000 in its China operations. 
The Chinese government controls the currency in the Peoples Republic of
China.  Although no major fluctuations
have significantly impacted the Company, the risk does exist that the Chinese
government may devalue the currency, which would impact the financial position
of the Companys subsidiary in China.

ITEM 8.  FINANCIAL
STATEMENTS AND
SUPPLEMENTARY DATA

FOURTH
SHIFT CORPORATION AND SUBSIDIARIES

Consolidated Balance
Sheets

As of December 31

(In Thousands, Except Share Data)



ASSETS
  2000
  1999CURRENT ASSETS:Cash and cash
  equivalents
  $4,930
  $11,784Accounts receivable,
  net
  11,038
  14,187Inventories
  74
  74Prepaid expenses
  887
  1,270Total
  current assets
  16,929
  27,315FURNITURE, FIXTURES AND EQUIPMENT, at
  cost:Furniture and
  fixtures
  2,309
  3,220Computer equipment
  9,467
  8,930Leasehold
  improvements
  1,994
  1,849Assets held under
  capital lease
  5,730
  4,411Less- Accumulated
  depreciation and amortization
  (14,299)
  (13,266)Net
  furniture, fixtures and equipment
  5,201
  5,144RESTRICTED CASH
  445
  490SOFTWARE DEVELOPMENT COSTS, net
  4,155
  3,301OTHER ASSETS, net
  3,865
  4,232Total
  assets
  $30,595
  $40,482The accompanying notes are an integral part of these consolidated
financial statements.

FOURTH SHIFT CORPORATION
AND SUBSIDIARIES

Consolidated Balance
Sheets

As of
December 31

(In Thousands,
Except Share Data)

(Continued)

LIABILITIES
  AND SHAREHOLDERS EQUITY
  2000
  1999CURRENT
  LIABILITIES:Current
  portion of long-term obligations
  $1,847
  $1,031Revolving
  credit facility
  1,200
  1,200Accounts
  payable
  2,020
  2,912Accrued
  expenses
  5,254
  7,468Deferred
  revenue
  12,435
  14,418Total
  current liabilities
  22,756
  27,029LONG-TERM
  OBLIGATIONS
  1,846
  2,834COMMITMENTS
  AND CONTINGENCIES (Notes 8 and 10)SHAREHOLDERS
  EQUITY:Common
  stock, $.01 par value, 20,000,000 shares authorized; 10,753,123 and
  10,532,908 shares issued and outstanding
  107
  105Additional
  paid-in capital
  33,345
  32,697Deferred
  compensation
  (224)
  (329)Accumulated
  other comprehensive losses
  (200)
  (38)Accumulated
  deficit
  (27,035)
  (21,816)Total
  shareholders equity
  5,993
  10,619Total
  liabilities and shareholders equity
  $30,595
  $40,482The accompanying
notes are an integral part of these consolidated financial statements.

FOURTH SHIFT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31

(In Thousands, Except Per Share Data)



2000
  1999
  1998REVENUE:Software license
  $15,000
  $20,440
  $26,284Service
  43,888
  45,754
  37,963Third-party software
  and other
  2,271
  3,055
  3,957Total
  revenue
  61,159
  69,249
  68,204OPERATING EXPENSES:Cost of licenses
  4,603
  3,979
  4,577Cost of services
  21,482
  22,004
  18,274Cost of third-party
  software and other
  1,655
  2,253
  3,021Selling, general and
  administrative
  26,788
  29,614
  31,508Product development
  9,989
  9,008
  7,571Nonrecurring charge
  1,147
  -
  -Total
  operating expenses
  65,664
  66,858
  64,951Operating
  income (loss)
  (4,505)
  2,391
  3,253OTHER EXPENSE, net
  386
  188
  545Income (loss) from
  continuing operations before provision for income taxes
  (4,891)
  2,203
  2,708PROVISION FOR INCOME TAXES
  328
  324
  465INCOME (LOSS) FROM CONTINUING
  OPERATIONS
  (5,219)
  1,879
  2,243DISCONTINUED OPERATIONS:Net gain on sale of
  discontinued operations
  -
  236
  281NET INCOME (LOSS)
  $(5,219)
  $2,115
  $2,524BASIC INCOME (LOSS) PER COMMON SHARE:Continuing operations
  $(.50)
  $.19
  $.22Discontinued operations
  -
  .02
  .03Basic
  income (loss) per common share
  $(.50)
  $.21
  $.25DILUTED INCOME (LOSS) PER COMMON SHARE:Continuing operations
  $(.50)
  $.18
  $.22Discontinued
  operations
  -
  .02
  .03Diluted
  income (loss) per common share
  $(.50)
  $.20
  $.25The accompanying
notes are an integral part of these consolidated financial statements.


FOURTH
SHIFT CORPORATION AND SUBSIDIARIES Consolidated
Statements of Shareholders Equity For the Years Ended
December 31, 2000, 1999 and 1998 (In Thousands) Common
  Stock
  
  
  
  Accumulated OtherNumber 
  of Shares
  Par Value
  Additional 
  Paid-In  Capital
  Deferred Compensation
  Comprehensive Losses
  Accumulated Deficit
  Comprehensive Income (Loss)BALANCE,
  December 31, 1997
  9,828
  98
  30,640
  -
  (236)
  (26,455)Common
  stock issued for stock options and stock purchase plan
  194
  2
  513
  -
  -
  -Issuance
  of restricted shares
  180
  2
  438
  (438)
  -
  -Amortization
  of deferred compensation
  -
  -
  -
  21
  -
  -Net
  income
  -
  -
  -
  -
  -
  2,524
  $2,524Foreign
  currency translation
  -
  -
  -
  -
  (30)
  -
  (30)Comprehensive
  income
  
  
  
  
  
  
  $2,494BALANCE,
  December 31, 1998
  10,202
  102
  31,591
  (417)
  (266)
  (23,931)Common
  stock issued for stock options and stock purchase plan
  201
  2
  628
  -
  -
  -Common
  stock issued for acquisitions
  130
  1
  478
  -
  -
  -Amortization
  of deferred compensation
  -
  -
  -
  88
  -
  -Net
  income
  -
  -
  -
  -
  -
  2,115
  $2,115Foreign
  currency translation
  -
  -
  -
  -
  228
  -
  228Comprehensive
  income
  
  
  
  
  
  
  $2,343BALANCE,
  December 31, 1999
  10,533
  $105
  $32,697
  $(329)
  $(38)
  $(21,816)Common
  stock issued for stock options and stock purchase plan
  220
  2
  648
  -
  -
  -Amortization
  of deferred compensation
  -
  -
  -
  105
  -
  -Net
  income
  -
  -
  -
  -
  -
  (5,219)
  $(5,219)Foreign
  currency translation
  -
  -
  -
  -
  (162)
  -
  (162)Comprehensive
  loss
  
  
  
  
  
  
  $(5,381)BALANCE,
  December 31, 2000
  10,753
  $107
  $33,345
  $(224)
  $(200)
  $(27,035) The accompanying
notes are an integral part of these consolidated financial statements.


FOURTH
SHIFT CORPORATION AND SUBSIDIARIES Consolidated
Statements of Cash Flows For the Years Ended
December 31 (In Thousands) 2000
  1999
  1998OPERATING ACTIVITIES:Net income (loss)
  $(5,219)
  $2,115
  $2,524Adjustments to
  reconcile net income (loss) to net cash provided by continuing operating
  activities-Noncash items:Depreciation and amortization
  3,926
  4,227
  3,165Net gain on sale of discontinued
  operations
  -
  (236)
  (281)Deferred compensation
  105
  88
  21Capitalized software development written
  off
  363
  795
  458Change in current operating items:Accounts receivable, net
  3,329
  431
  188Inventories
  -
  52
  391Prepaid expenses
  383
  (174)
  (65)Accounts payable
  (892)
  257
  (1,463)Accrued expenses
  (2,376)
  (782)
  376Deferred revenue
  (1,983)
  692
  3,195Net cash provided by (used in)
  continuing operating activities
  (2,364)
  7,465
  8,509INVESTING ACTIVITIES:Capitalized software
  development costs
  (2,833)
  (2,238)
  (1,023)Purchases of
  furniture, fixtures and equipment
  (701)
  (1,841)
  (1,094)Payments for acquired
  licensing rights
  -
  (1,350)
  -Payments for
  acquisitions and joint ventures
  (413)
  (1,200)
  -(Increase) decrease
  in restricted cash
  45
  (25)
  250Proceeds from sale of
  discontinued operations
  -
  223
  881Net
  cash used in investing activities
  (3,902)
  (6,431)
  (986) FOURTH SHIFT CORPORATION
AND SUBSIDIARIES

Consolidated
Statements of Cash Flows

For the Years Ended
December 31

(In Thousands)

(Continued)

2000
  1999
  1998FINANCING ACTIVITIES:Payments of long-term
  obligations
  $(1,238)
  $(1,153)
  $(1,693)Proceeds from capital
  leases
  -
  538
  -Repayment of
  equipment facility
  -
  (538)
  -Borrowings on
  line-of-credit
  4,800
  3,600
  500Payments on
  line-of-credit borrowings
  (4,800)
  (2,400)
  (2,500)Proceeds on issuance
  of common stock, net
  650
  630
  515Net
  cash provided by (used in) financing activities
  (588)
  677
  (3,178)EFFECT OF EXCHANGE RATE ON FOREIGN CASH
  BALANCES
  -
  -
  (30)Change
  in cash and cash equivalents
  (6,854)
  1,711
  4,315CASH AND CASH EQUIVALENTS:Beginning of year
  11,784
  10,073
  5,758End of year
  $4,930
  $11,784
  $10,073SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during each
  year for-Interest
  $304
  $531
  $720Income
  taxes
  $59
  $653
  $27Noncash investing and
  financing activityCapital
  leases
  $755
  $1,099
  $527Long-term
  obligations issued as part of acquisition
  -
  $1,984
  -Common
  stock issued as part of acquisition
  -
  $479
  -The accompanying notes are an integral part
of these consolidated financial statements.

FOURTH
SHIFT CORPORATION AND SUBSIDIARIES

Notes to
Consolidated Financial Statements

December 31,
2000 and 1999

1.         Nature
of Business and Company Operations:

Fourth Shift Corporation (a Minnesota corporation) and its subsidiaries
(collectively referred to as the Company) engage principally in the
development, marketing, licensing and support of internet-enabled,
enterprise-wide business software used for industrial planning and management
processes, primarily for use in the manufacturing industry.  The Companys principal product, the Fourth
Shift Software System (FOURTH SHIFT), is a family of integrated manufacturing
and financial management applications for intermediate-sized sites of
manufacturing and distribution enterprises. 
The FOURTH SHIFT system operates in a Windows, Windows NT and Novell
open computing environment.

The consolidated financial statements include the accounts of Fourth
Shift Corporation (Fourth Shift) and all of its subsidiaries.  All significant intercompany balances and
transactions have been eliminated in consolidation.

2.         Summary
of Significant Accounting Policies:

Revenue Recognition

The Company generates revenues from licensing software and providing
postcontract customer support and other professional services.  The Company uses written contracts to
document the elements and obligations of arrangements with its customers.
Arrangements that include the licensing of software typically include customer
support and other professional services. 
Customer support includes the right to unspecified upgrades on a
when-and-if-available basis and ongoing technical support. The other
professional services may include training, installation, consulting and
project management services.

Third-party software and other revenue is derived from the resale of
third-party licenses and hardware. 
Revenue is recognized upon delivery of the product.

The Company recognizes revenue in accordance with American Institute of
Certified Public Accountants Statement of Position (SOP) 97-2, Software
Revenue Recognition.  Revenue under
multiple-element arrangements, which may include several software products or
services sold together, are allocated to each element based upon the residual
method in accordance SOP 98-9, Software Revenue Recognition, With Respect to
Certain Transactions, which amends certain provisions of SOP 97-2.  Under the residual method, the fair value of
the undelivered elements is deferred and subsequently recognized. The Company
has established sufficient vendor specific objective evidence of fair value for
customer support and other professional services based upon the price charged
when these elements are sold separately. Accordingly, software license fees
revenues are recognized under the residual method in arrangements in which the
software is licensed with customer support and/or other professional services,
and the undelivered elements of the arrangements are not essential to the
functionality of the delivered software. The Company recognizes software
license fees upon execution of the signed contract, delivery of the software to
the customer, determination that the software license fees are fixed or
determinable, and determination that the collection of the software license
fees is probable.  Customer support
revenues are recognized ratably over the term of the arrangement, generally one
year, on a straight-line basis. The other professional services elements of a
software arrangement are typically accounted for separately as the services are
performed. In those instances where the services are essential to the
functionality of any other element of the arrangement, contract accounting is
applied.



Software Development Costs

Capitalization of computer software development costs begins upon the
establishment of technological feasibility, limited to the net realizable value
of the software product, and ceases when the software product is available for
general release to customers. 
Amortization is computed on each product based upon the greater of the
amount computed on a units sold basis (ratio of gross product revenue to
anticipated future gross revenue for that product) or straight-line basis over
the remaining estimated economic life of the product.  Costs of maintenance and customer support are to be charged to
expense when related revenue is recognized or when those costs are incurred,
whichever occurs first.

The Company capitalized $2,833,000 and $2,238,000 of development costs
in 2000 and 1999, respectively. These costs are amortized using a two to five
year economic life for the framework and modules.  Amortization expense for 2000, 1999, and 1998 totaled $1,617,000,
$1,371,000, and $625,000, respectively, and is included as a component of
product development expense. In connection with its 2000 restructuring (see
Note 6), the Company wrote off $363,000 of previously capitalized costs
relating to geographical initiatives, net of accumulated amortization, to
nonrecurring charges.  In 1999 and 1998,
the Company wrote off $795,000 and $458,000, respectively, of previously
capitalized technology that was no longer aligned with the Companys current
product strategy.  This charge is
included in product development expense.

Other Assets

Other Assets consists of intangible assets including software,
licensing rights and customer lists acquired as part of business acquisitions,
and goodwill (the excess of cost over net assets acquired).  Also included in Other Assets at December
31, 2000 is the Companys advance to its new Middle East/North Africa joint
venture (see Note 5).  Each of these is
capitalized and amortized by the straight-line method over three to seven years
based on the estimated useful economic life. 
Amortization expense for 2000 and 1999 totaled $712,000 and $248,000
respectively.  No amortization expense
was recorded in 1998.

Cash Equivalents

The Company considers all highly liquid and short-term investments
purchased with a maturity of three months or less to be cash equivalents.  Short-term investments consist principally
of government securities and mutual funds and are stated at cost, which
approximates market.

Accounts Receivable

Accounts Receivable are stated net of allowances for uncollectible
accounts.  At December 31, 2000 and
1999, this allowance was $1,573,000 and $1,310,000  respectively.

Inventories

Inventories consist of third-party software held for resale, computer
software media, instruction material and packaging, and are stated at the lower
of first-in, first-out cost or market.

Prepaid Expenses

Prepaid expenses consist principally of prepaid rents and rental
deposits, prepaid insurance premiums and deposits on capital leases.



Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are recorded at cost and are
depreciated principally under the straight-line method for financial and income
tax reporting purposes over estimated useful lives that range from three to
five years.  Depreciation expense for
2000, 1999 and 1998 was $1,034,000, $2,098,000 and $2,556,000 respectively.

Restricted Cash

Restricted cash is pledged to support certain facilities leases.  These restrictions will decrease over time
ending in 2006.

Foreign Currency
Translation

For the Companys foreign operations, assets and liabilities are
translated at year-end exchange rates, and terms included in the consolidated
statements of operations are translated at average exchange rates prevailing
during the year.  Translation
adjustments are included in accumulated other comprehensive losses in the
accompanying consolidated balance sheets.

Deferred Revenue

Deferred revenue primarily consists of customer support and other
services for which cash has been received or amounts are due but services have
not been provided.  Services that must
be provided relate to normal operations of the Company.

Income Taxes

The Company accounts for income taxes under the liability method of
accounting.  Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using currently enacted tax
rates.

Net Income (Loss)
Per Common Share

Basic earnings per share was computed by dividing net income (loss) by
the number of weighted average common shares outstanding during the year. For
the year ended December 31, 2000, 2,377,000 options were excluded from the
diluted EPS calculation as the effect would be anti-dilutive.  Diluted earnings per share for 1999 and 1998
was computed in the same way as the computation of basic earnings per share,
except that the denominator is increased for the assumed dilutive stock options
and other dilutive securities (including nonvested restricted stock), using the
treasury stock method.

Reconciliation of weighted average shares
used in computing income (loss) per share are as follows (in thousands):

2000
  1999
  1998Weighted average common shares outstanding used in
  computing basic income (loss) per share
  10,518
  10,227
  9,956Dilutive effect of stock options and other
  dilutive securities outstanding, using the treasury stock method
  -
  505
  183Shares
  used in computing diluted income (loss) per share
  10,518
  10,732
  10,139Reclassifications

Certain amounts previously reported in the 1999 financial statements
have been reclassified to conform to the 2000 presentation.  These reclassifications had no effect on
previously reported net income or shareholders equity.

Use of Estimates

The
preparation
of financial statements in conformity with accounting principles generally
accepted in the United States require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  The ultimate results
could differ from those estimates.

New Accounting
Pronouncements

The Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities on January 1, 2001. The Company currently
does not engage in or plan to engage in derivative or hedging activities,
therefore the adoption of SFAS No. 133 did not have an impact on the Companys
results of operations, financial position or cash flows.

The Company adopted the provisions of the Securities and Exchange
Commissions (SEC) Staff Accounting Bulletin (SAB) no. 101, Revenue
Recognition in Financial Statements during the fourth quarter of 2000.  SAB 101 provides the SEC staffs views in
applying accounting principles generally accepted in the United States to
selected revenue recognition issues. 
The adoption of  SAB No. 101 did
not have any impact upon the Companys revenue recognition policy.

3.         Acquisition
of Computer Aided Business Solutions:

Effective June 30, 1999, the Company acquired all of the outstanding
capital stock of Computer Aided Business Solutions, Inc. (CABS), a developer
of software solutions for manufacturing companies, for $1,200,000 in cash;
130,000 shares of common stock which had a market value of approximately
$479,000 at the time of acquisition; and $1,000,000 payable in equal
installments of $250,000 due within 30 days of December 31, 2000, 2001, 2002
and 2003.  The installment payments are
non-interest bearing and the Company has recorded the payments at present
value, in the amount of $769,000.

In addition, the Company is required to make payments totaling
$1,500,000 to the shareholder of CABS since CABS  attained certain operating results as defined, for the year ended
December 31, 1999.  This amount is
payable in equal installments of $375,000 due within 30 days of December 31,
2000, 2001, 2002 and 2003. The installment payments are non-interest bearing
and the Company has recorded the payments at present value, in the amount of
$1,215,000.  These additional payments
have been recorded as an adjustment to the purchase price at December 31, 1999.

This acquisition has been accounted for under the purchase method.  Accordingly, the purchase price has been
allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values.  Goodwill (the excess of cost over net assets
acquired) and other intangibles are being amortized on a straight-line basis
over a period of seven years.  The
consolidated statements of operations reflect the results of operations of the
purchased company beginning July 1, 1999. 
Historical results would not be materially different if the acquisition
would have occurred on January 1, 1998.

4.         Acquisition
of Endurant Business Solutions, Inc:

Effective
November 6, 2000, the company acquired the assets and certain liabilities of
Endurant Business Solutions, Inc. (Endurant), a software
consulting company.  The purchase price
consisted of a $200,000 cash payment, an earn out payment for the collection of
acquired receivables, and an earn out for revenue generated from the acquired
entity. The revenue earn out is effective for 2001 and 2002, and is limited to
$250,000 for the 2002 fiscal period. The revenue and receivable earn out
payments will be recorded as purchase price adjustments and amortized on a
straight-line basis over a period of three years. For the year ended December
31, 2000, $10,000 was recorded as a purchase price adjustment for the revenue
and receivable earn outs.

This acquisition has been accounted for under the purchase method.  Accordingly, the purchase price has been
allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values.  Goodwill (the excess of cost over net assets
acquired) and other intangibles are being amortized on a straight-line basis
over a period of three years.  The
consolidated statements of operations reflect the results of operations of the
purchased company beginning November 6, 2000.

5.         Middle
East/North Africa Joint Venture (MENA):

In December 2000, the Company entered into a joint venture to market
the Companys product in the Middle East and North Africa.  The Company invested $220,000 for a 55%
stake of this venture, which investment is recorded at December 31, 2000 as
part of other assets.  The remaining 45%
of the venture is held by its General Manager, formerly a distributor of the
Companys product in the region.  The
Company will consolidate the results of MENA beginning when the joint venture
registration is effective.

6.         Nonrecurring
Charges:

During 2000, the Company experienced significant changes in the market
in which it operates.  The Company
responded on two separate occasions by initiating expense reduction plans to
better align its expense base with current market conditions.  These expense reduction plans included
headcount reductions in management and staff, and reduction in facilities and
associated overhead.

On June 30, 2000, the Company terminated 50 employees and contractors
primarily in the sales, consulting and development departments in its Americas
region.  The nonrecurring charges were
$849,000.  This expense consisted of
$465,000 of severance and early retirement costs for employees and contractors,
$363,000 of previously capitalized development costs which related to
geographical initiatives that were scaled back as a result of the expense
reduction plan, and $21,000 from the termination of leased properties.

On December 31, 2000 the Company terminated 29 employees and
contractors, primarily in the sales, consulting and development departments in its
Americas region.  The nonrecurring
charges were $298,000, which consisted of $206,000 of severance and $92,000
from the termination of leased properties.

As of December 31, 2000, the Company had $338,000 of  future cash commitments relating to these charges
that remained to be paid.

7.Revolving
Credit Facility:

The Company has a line-of-credit agreement with a bank.  Borrowings under this agreement are limited
to the lesser of $10,000,000 or a percentage of eligible accounts receivable
($4,500,000 at December 31, 2000). 
Borrowings are collateralized by accounts receivable and other assets of
the Company and bear interest at the banks base rate plus 1/2%.  In 2000, the weighted average interest rate
the Company incurred was approximately 9.6%. 
The agreement expires in March 2002. 
At December 31, 2000, the Company had outstanding borrowings of
$1,200,000 under the line-of-credit.

8.Long-Term Obligations:

Long-term
obligations consisted of the following at December 31 (in thousands):

2000
  1999Capital lease obligations, varying
  interest rates, due in various 
  monthly installments through 2003
  $1,709
  $1,881Notes payable for CABS acquisition
  1,984
  1,984Less current portion
  (1,847)
  (1,031)Long-term obligations
  $1,846
  $2,834Future minimum payments under noncancelable capital leases, net of
amounts representing interest are $994,000 in 2001, $592,000 in 2002 and
$140,000 in 2003.

As part of the CABS acquisition, the Company entered into an agreement
to pay four equal installments of $625,000 due within 30 days of December 31,
2000, 2001, 2002 and 2003.  The Company
has recorded the payments at present value, using a discount rate of 9%, in the
amount of $1,984,000 (see Note 3).

9.         Income
Taxes:

At December 31, 2000, the Company had available net operating loss
carryforwards of approximately $15,969,000 and tax credit carryforwards of
approximately $2,067,000.  These net
operating losses and tax credit carryforwards will expire from 2008 to 2020.

The utilization of a portion of these net
operating loss carryforwards may be subject to Internal Revenue Code section
382 if certain significant investors sell or purchase ownership interests.  If an ownership change does occur, the
Company's ability to utilize its tax net operating loss carryforwards to offset
any future federal taxable income would be limited to a maximum amount in any
one year.

The
provision for income taxes is comprised of the following for the years ended
December 31 (in thousands):

2000
  1999
  1998Current tax provision:Federal
  $-
  $163
  $121State
  15
  127
  83Foreign
  313
  34
  261$328
  $324
  $465The
Company records deferred taxes for the difference between the financial
reporting and income tax bases of certain assets and liabilities, computed in
accordance with tax laws in effect currently. 
The principal differences which give rise to
deferred taxes are as follows (in thousands):

2000
  1999Net
  operating loss and tax credit carryforwards
  $7,480
  $6,288Accruals
  and reserves not currently deductible for tax purposes
  1,149
  1,526Capitalized
  research and development costs
  (1,481)
  (1,254)Other
  (62)
  273Less
  valuation allowance
  (7,086)
  (6,833)Net
  deferred taxes
  $-
  $-The Company has provided a valuation allowance for the net deferred tax
benefit resulting from net operating loss carryforwards and other differences
between the reported book and tax bases of certain assets and liabilities, as
the realizability of this net deferred tax benefit is not reasonably assured.

The Companys effective tax rate differs from the statutory federal
income tax rate of 34% as a result of the utilization of tax operating loss
carryforwards in 1999 and 1998, partially offset by alternative minimum tax,
state and foreign taxes.  In 2000, the
tax provision primarily consisted of foreign taxes.  No benefit for the losses generated was recorded because a full
valuation allowance was recorded against net operating losses generated since
their utilization is not assured.

10.       Commitments
and Contingencies:

Operating Leases

The Company has operating leases for its
corporate headquarters, additional office space and certain office
equipment.  The aggregate future minimum
rental payments under these leases, net of amounts to be received related to
the sublease of certain office space, are as follows (in thousands):

Year
  Amount2001
  $3,0512002
  1,8952003
  1,6222004
  1,4312005
  1,352Thereafter
  3,137$12,488Rent expense, including amounts paid under short-term arrangements, was
approximately $2,763,000, $2,669,000, and $2,423,000 in 2000, 1999 and 1998,
respectively.

Significant
Contracts

On
July 1, 1998, the Company entered into a four-year $12,000,000 commitment with
a third-party database supplier whose product is embedded in and distributed
with the FOURTH SHIFT product.  The
agreement also includes three three-year renewal options.  Payments are made monthly.  In 2000, the Company recognized $3,000,000
of expense under this agreement that is included in the cost of licenses. At
December 31, 2000, $4,500,000 remained of this commitment.

In June 1999, the Company entered into an OEM licensing agreement with
a business relationship management software vendor, which was subsequently
amended in December 2000.  As part of
the agreement, the Company has agreed to pay a percentage of licensing and
customer support revenues, which is included in cost of licenses.  Minimum license royalty payments are
$250,000 for each of the remaining three contract years ending June 30.

In August 1999, the Company entered into an OEM licensing agreement
with a human resources management system software vendor.  As part of the agreement, the Company had an
initial commitment of $1,500,000.  The
initial commitment has been capitalized as acquired licensing rights and is
being amortized over a five-year useful life. The Company recognized $270,000
and $113,000 of expense under this agreement in 2000 and 1999, respectively. In
addition, the Company will pay variable rate royalties to the vendor based on
sales, which will be included in the cost of licenses.

Litigation

The Company is subject to litigation in the normal course of
business.  In the opinion of management,
the resolution of these matters will not have a material adverse effect on the
Companys consolidated results of operations or financial position.

11.       Options
and Compensation Plans:

Stock Options

Under the terms of the Companys 1989 stock option plan (the 1989
Plan), options granted to employees expire no later than ten years after the
date of grant, and the exercise price must be at least 100% of the fair market
value of the shares at the date of grant. 
The 1989 Plan covers both incentive and nonqualified stock options and is
limited to 200,000 total shares.  Incentive
stock options granted to employees, who immediately before such grant owned
stock directly or indirectly representing more than 10% of the voting power of
all classes of the stock of the Company, may not be exercisable more than five
years after the date of grant and the exercise price per share must be at least
110% of the fair market value of the shares at the date of grant.  Options vest over varying periods not to
exceed five years.  This plan remained
in effect until October 17, 1999, after which time no additional options will
be granted under the plan.

The Companys 1993 stock option plan (the 1993 Plan) covers both
incentive and nonqualified stock options and is limited to 3,000,000 shares. No
more than 100,000 shares may be granted to any participant in a single calendar
year, and the exercise price of options granted under this plan must be at
least 100% of the fair market value of the shares at the date of grant.   The 1993 Plan terminates in June 2003.

Stock option plan activity is summarized as follows:

1989
  Plan
  1993
  Plan
  Total
  Option
  Price Per ShareOption shares outstanding at December
  31, 1997
  4,000
  1,202,741
  1,206,741
  $2.63-$8.25Options granted
  -
  1,132,900
  1,132,900
  $2.44-$4.06Options exercised
  -
  (46,125)
  (46,125)
  $2.63-$3.38Options forfeited
  -
  (492,866)
  (492,866)
  $2.56-$8.25Option shares outstanding at December
  31, 1998
  4,000
  1,796,650
  1,800,650
  $2.44-$8.25Options granted
  10,000
  135,500
  145,500
  $3.25-$5.13Options exercised
  -
  (51,125)
  (51,125)
  $2.56-$6.38Options forfeited
  -
  (143,250)
  (143,250)
  $2.44-$7.63Option shares outstanding at December
  31, 1999
  14,000
  1,737,775
  1,751,775
  $2.44-$8.25Options granted
  -
  811,000
  811,000
  $1.25-$5.63Options exercised
  -
  (70,875)
  (70,875)
  $2.56-$5.50Options forfeited
  -
  (277,025)
  (277,025)
  $2.44-$8.25Option shares outstanding at December
  31, 2000
  14,000
  2,200,875
  2,214,875
  $1.25-$6.50

2000
  1999
  1998Options exercisable at year-end
  647,748
  578,724
  409,148Weighted average price of options
  exercisable at year-end
  $4.11
  $4.41
  $5.07Weighted average fair market value of
  options granted
  $2.67
  $4.57
  $2.67Weighted average remaining contractual
  life of options outstanding at year end
  7.7
  7.3
  8.2The
Company has elected to account for these stock option plans under APB Opinion
No. 25, under which no compensation cost has been recognized.  Had compensation cost for these plans been
determined consistent with FASB Statement No. 123, the Company's net income
(loss) and earnings (loss) per share would have been as follows:

2000
  1999
  1998Net income (loss):
  As reported
  $(5,219)
  $2,115
  $2,524Pro forma
  $(5,946)
  $1,057
  $1,408Basic income
  (loss) per common share:
  As reported
  $(.50)
  $.21
  $.25Pro forma
  $(.57)
  $.10
  $.14Diluted income
  (loss) per common share:
  As reported
  $(.50)
  $.20
  $.25Pro forma
  $(.57)
  $.10
  $.14The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 5.5% and expected life of 7.7 years for 2000, 1999
and 1998; expected annualized volatility of .98, .98 and  .99 for 2000, 1999 and 1998, respectively.

Other Employee
Compensation Plans

The Company has a 401(k) plan that covers substantially all domestic
employees over 21 years of age with at least six months of continuous
service.  The Company may make
discretionary matching contributions to the plan based upon employee
contributions.  The Company did not make
any matching contribution to this plan in 2000.  The Company made matching contributions to this plan of
approximately $373,000 in 1999, and $363,000 in 1998.

The Company has an employee stock purchase plan (the Stock Purchase
Plan).  Under the Stock Purchase Plan,
participating full-time employees and directors of the Company are able to
purchase shares of the Companys common stock at 85% of market value, as
defined.  A total of up to 900,000
shares of the Companys common stock has been reserved under the Stock Purchase
Plan.  The Company issued 149,000 shares
in 2000, 150,000 shares in 1999, and 147,000 shares in 1998.  The fair value of shares purchased was
$311,000 in 2000, $530,000 in 1999, and $423,000 in 1998.

Board of Directors
Compensation Plan

The board of directors has approved a compensation plan whereby certain
directors may receive cash compensation for each directors  meeting attended or, in lieu of cash
payment, shares of common stock through the Companys Stock Purchase Plan.  The number of shares issued in lieu of cash
fees is adjusted to reflect the fair market value of the common stock in
accordance with the Companys Stock Purchase Plan.  Total shares of approximately 18,000, 21,000 and, 18,000 were
issued under this plan in 2000, 1999, and 1998, respectively.  The expenses recognized in connection with
shares issued to nonemployee directors was approximately $41,000, $64,000, and
$53,000, in 2000, 1999, and 1998, respectively.  In addition, nonemployee directors are entitled to receive
options to purchase shares of the Companys common stock under this plan.

Restricted Stock

In October 1998, the Company issued to certain employees 180,000 shares
of restricted common stock and options to purchase 540,000 common shares under
the terms of the 1993 Plan.  The
restricted stock vests five years from the date of grant and is subject to
forfeiture upon termination of employment.  
The options vest in lump sum eight years from date of grant, expire ten
years from the date of grant and have an exercise price equal to the fair
market value on the date of grant.  The
vesting of both the restricted stock and the options are accelerated if certain
Company performance criteria are met in any of the three calendar years in the
period ended December 31, 2001.  In
2000, 1999 and 1998, the Company recognized compensation expense of $105,000,
$88,000 and $21,000 related to the restricted stock.  The remaining deferred compensation of $224,000 will be
recognized over the remainder of the five-year service period.

12.       Shareholder
Rights Plan:

In December 1998, the Company adopted a new Shareholder Rights Plan
(Rights Plan).  Under the Rights Plan, a
dividend of one preferred share purchase right (a Right) per share for each
outstanding share of common stock was granted to shareholders of record.  Each Right entitles the holder to purchase
from the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock.  The Rights issued
under the plan will become exercisable by shareholders other than a potential
acquirer only following an acquisition by the acquirer, without prior approval
by the Companys board of directors, of 20% or more of the common stock, or the
announcement of a tender offer for 20% or more of common stock.  The rights will expire in December 2008.

The Company has authorized 200,000 shares of Series A Junior
Participating Preferred Stock (Preferred Stock), par value $.01.  In preference to the holders of common
stock, the holders of the Preferred Stock are entitled to receive quarterly
dividends equal to the greater of $1.00 or 100 times the per share amount of
all cash and noncash dividends declared on common stock since the preceding
quarter.  At December 31, 2000, there were
no shares of Preferred Stock outstanding.

13.       Segment
Reporting:

The Company discloses segments in accordance
with SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which established standards for disclosure of financial
information related to operating segments of the Company as well as disclosure
requirements for customer and geographic information.  SFAS No. 131 defines an operating segment as a component of a
company for which operating results are reviewed regularly by the chief
operating decision-maker to determine resource allocation and assess
performance.  The Company has three
operating segments under the guidelines of SFAS No. 131: the Americas, Asia and
Europe.   Each operating segment derives
its revenues from licensing its proprietary software system, providing customer
support, training, consulting and installation services related to its
software, and through the resale of complementary third-party software licenses
and hardware.

The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies (see Note 2). 
Financial information by geographical segment is as follows (in
thousands):

Americas
  Europe
  Asia
  Eliminations
  Consolidated2000:Revenue
  $44,845
  10,504
  $5,810
  $-
  $61,159Depreciation and
  amortization
  3,165
  151
  298
  -
  3,614Interest income
  (expense) (1)
  (273)
  64
  -
  -
  (209)Income tax expense
  16
  14
  298
  -
  328Net loss
  (4,405)
  (805)
  (9)
  -
  (5,219)Segment assets
  30,077
  1,556
  1,743
  (2,781)
  30,595Capital expenditures
  1,250
  201
  288
  -
  1,7391999:Revenue
  $50,252
  $12,607
  $6,390
  $-
  $69,249Depreciation and
  amortization
  3,396
  303
  528
  -
  4,227Interest income
  (expense) (1)
  (137)
  42
  -
  -
  (95)Income tax expense
  290
  34
  -
  -
  324Net income (loss)
  2,529
  (248)
  (166)
  -
  2,115Segment assets
  37,138
  3,831
  2,294
  (2,781)
  40,482Capital expenditures
  1,438
  81
  322
  -
  1,8411998:Revenue
  $49,635
  $11,657
  $6,912
  $-
  $68,204Depreciation and
  amortization
  2,356
  390
  419
  -
  3,165Interest income
  (expense) (1)
  (538)
  50
  -
  -
  (488)Income tax expense
  (benefit)
  204
  278
  (17)
  -
  465Net income (loss)
  2,841
  112
  (429)
  -
  2,524Segment assets
  28,340
  4,841
  3,001
  (2,781)
  33,401Capital expenditures
  553
  458
  83
  -
  1,094

(1)
  In the
  consolidated statements of operations, interest income (expense) is reported
  net of other expense of $177,000, $93,000 and  $58,000 in 2000, 1999 and 1998, respectively.The Company had no customers from whom it generated 10% or more of
consolidated revenues.  The United
States and United Kingdom were the only two countries from which the Company
generated revenues exceeding 10% of consolidated revenues.  Following is information regarding
operations in the United States and United Kingdom (in thousands):

2000
  1999
  1998Revenue
  Long-lived
  Assets
  Revenue
  Long-lived
  Assets
  Revenue
  Long-lived
  AssetsUnited
  States
  $42,855
  $11,756
  $49,504
  $11,062
  $47,638
  $5,823United
  Kingdom
  $6,674
  $760
  $7,760
  $983
  $7,163
  $1,19214.Quarterly Financial Data (Unaudited):

The
following is a condensed summary of actual quarterly results of operations for
2000 and 1999 (in thousands, except per share data):

2000First
  Second
  Third
  Fourth
  TotalRevenue
  $16,265
  $15,098
  $14,892
  $14,904
  $61,159Operating profit (loss)
  (268)
  (3,649)
  115
  (703)
  (4,505)Loss from continuing operations
  (356)
  (3,875)
  (153)
  (835)
  (5,219)Net loss
  $(356)
  $(3,875)
  $(153)
  $(835)
  $(5,219)Basic and diluted
  income per common share
  $(.03)
  $(.37)
  $(.01)
  $(.08)
  $(.50)1999First
  Second
  Third
  Fourth
  TotalRevenue
  $16,977
  $17,753
  $16,525
  $17,994
  $69,249Operating income
  756
  682
  469
  484
  2,391Income from continuing operations
  503
  537
  392
  447
  1,879Results of discontinued operations
  30
  50
  86
  70
  236Net income
  $533
  $587
  $478
  $517
  $2,115Basic income per common share:Continuing operations
  $.05
  $.06
  $.04
  $.04
  $.19Discontinued
  operations
  $.00
  $.00
  $.01
  $.01
  $.02Basic income per
  common share
  $.05
  $.06
  $.05
  $.05
  $.21Diluted income per common share:Continuing operations
  $.05
  $.06
  $.03
  $.04
  $.18Discontinued operations
  $.00
  $.00
  $.01
  $.01
  $.02Diluted income per
  common share
  $.05
  $.06
  $.04
  $.05
  $.2015.Subsequent
Event  Definitive Agreement Signed with AremisSoft to Acquire Fourth Shift:

On February  26, 2001 the
Company announced a definitive agreement to be acquired by AremisSoft
Corporation, an international supplier of enterprise-wide software and
Internet-enabled solutions for the manufacturing, hospitality, healthcare and
construction industries. Under terms of the agreement, AremisSoft will acquire
all of the outstanding common stock of Fourth Shift for $3.70 per share for a
total consideration of approximately $40 million. The Board of Directors of
both companies unanimously approved the transaction. Closing of the transaction
is subject to approval by Fourth Shift shareholders at a meeting scheduled for
April 27, 2001.

Report of Independent Public Accountants



To Fourth Shift Corporation:

We have audited the accompanying consolidated balance sheets of Fourth
Shift Corporation  (a Minnesota
corporation) and Subsidiaries as of December 31, 2000 and 1999, and the
related  consolidated statements of
operations, shareholders equity and cash flows for each of the three
years  in the period ended December 31,
2000.  These financial statements are
the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial
position of Fourth Shift Corporation and Subsidiaries as of December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.

/s/  Arthur Andersen LLP

Minneapolis, Minnesota,
January 16, 2001, (except with respect to
Note 15, as to which the date is February 26, 2001)

Report of Independent Public Accountants on
Schedules

To Fourth Shift Corporation:

We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in this annual report
on form 10-K, and have issued our report thereon dated January 16, 2001.  Our audit was made for the purposes of
forming an opinion on those financial statements taken as a whole.  The schedule II is the responsibility of the
Companys management and is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
financial statements.  This schedule has
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.



/s/  Arthur Andersen LLP

Minneapolis, Minnesota,
January 16, 2001

FOURTH SHIFT CORPORATION AND SUBSIDIARIES

Schedule II -
Valuation and Qualifying Accounts

(In Thousands)

Description
  Balance
  Beginning of Period
  Additions
  Charged to Costs and Expenses
  Deductions
  Balance
  End of PeriodAllowances
  deducted from related balance sheet accounts:Year
  Ended December 31, 1998:Allowance
  for doubtful accounts
  $773
  $1,503
  $1,019
  $1,257Year
  Ended December 31, 1999:Allowance
  for doubtful accounts
  $1,257
  $1,423
  $1,370
  $1,310Year
  Ended December 31, 2000:Allowance
  for doubtful accounts
  $1,310
  $1,043
  $780
  $1,573Reserves
  related to nonrecurring charges
  -
  1,147
  809
  338ITEM 9. 
CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

Not applicable.

PART
III

ITEM 10. 
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 with respect to executive officers
is included under a separate caption entitled Executive Officers  in Part I of the Form 10-K.



Principal occupation and businessName
  Age
  experience for past five yearsClass C - Term Expiring 2003Steve
  J. Lair
  54
  Mr.
  Lair has been a director of the Company since April 1997. He has been Senior
  Vice President of Sales and Marketing and Service of NEC Computer Corporation
  since March 1998.  He was Senior Vice
  President Marketing and Sales of Acer America Corporation from March 1997
  until March 1998; Vice President, Worldwide Marketing and Sales, Personal
  Productivity Products, of Texas Instruments, Inc. from April 1995 to March
  1997; Vice President of Marketing, Toshiba America Information Systems from
  April 1992 to April 1995; and Vice President, Dataquest Microcomputer Systems
  Group from April 1988 to April 1992.Robert
  M. Price
  70
  Mr.
  Price has been a director of the Company since 1990. He has been President of
  PSV, Inc., a technology consulting business located in Burnsville, Minnesota,
  since 1990. From 1961 until 1990 he served in various executive positions,
  including Chairman and Chief Executive Officer, with Control Data Corporation
  (CDC).  Mr. Price also serves on the
  Board of Directors of International Multifoods Corporation, Tupperware
  Incorporated, Affinity Technology, Inc., Data Link, Inc., and Public Service
  Company of New Mexico.Class B - Term expiring 2002Jimmie
  H. Caldwell
  61
  Mr.
  Caldwell has been President, Chief Operating Officer and a Director of the
  Company since 1984.  Prior to that
  time, Mr. Caldwell served in various positions at CDC, a multinational
  computer hardware, peripherals and services company, from 1964 to 1984 and
  held the position of Vice President of Operations for CDCs Peripheral
  Products Company when he left to join the Company.Mark
  W. Sheffert
  53
  Mr.
  Sheffert has been a director of the Company since April 1998.  He is the founder, Chairman and Chief
  Executive Officer, of Manchester Companies, Inc., a Minneapolis-based private
  investment banking and management advisory firm, since January 1994.  Mr. Sheffert also serves on the Board of
  Directors of Telident Inc., Medical Graphics Corporation, and LifeRate
  Systems, Inc.

Class A - Term Expiring 2001Marion
  Melvin Stuckey
  62
  Mr.
  Stuckey is the founder of the Company and has been the Chief Executive
  Officer and Chairman of the Company since 1982.  Prior to forming the Company, Mr. Stuckey was an executive
  officer of CDC from 1975 to 1982. 
  Prior to that Mr. Stuckey served in various sales, marketing and
  management positions at IBM from 1960 to 1975.Michael
  J. Adams
  55
  Mr.
  Adams has been a Director of the Company since 1984.  He has been a senior partner of Adams
  & Cesario, P.A., a law firm engaged in a general business practice in
  Minneapolis, for more than five years.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE

Under
federal securities laws, the Companys directors and officers, and any
beneficial owner of more than 10% of a class of equity securities of the
Company, are required to report their ownership of the Companys equity
securities and any changes in such ownership to the Securities and Exchange
Commission (the Commission) and the securities exchange on which the equity
securities are registered.  Specific due
dates for these reports have been established by the Commission, and the
Company is required to disclose in this Annual Report on Form 10K any
delinquent filing of such reports and any failure to file such reports during
the fiscal year ended December 31, 2000. 
Based on information contained in their Forms 3, 4 and 5, all directors,
officers and beneficial holders of 10% of the Companys securities timely filed
such reports during 2000.

ITEM 11. 
EXECUTIVE COMPENSATION

Summary Compensation Table

The
following table sets forth the cash and noncash compensation for the last three
fiscal years awarded to or earned by the Chief Executive Officer of the Company
and the Companys two other executive officers for services rendered.

Annual Compensation
  Long-Term CompensationName
  
  
  
  Other
  Awards
  Payouts
  Alland
  
  
  
  Annual
  Restricted
  
  
  OtherPrincipal
  
  
  
  Compen-
  Stock
  
  LTIP
  Compen-Position
  Year
  Salary
  Bonus
  sation
  Awards(1)
  Options
  Payouts
  sation(2)Marion
  Melvin Stuckey
  2000
  $325,000
  
  
  
  75,000
  
  $15,000Chairman
  and Chief
  1999
  305,000
  
  
  
  
  
  18,333Executive
  Officer
  1998
  286,000
  $304,000
  
  $78,125
  143,750
  
  18,333Jimmie
  H. Caldwell
  2000
  245,000
  
  
  
  55,000
  
  15,000President
  and Chief
  1999
  230,000
  
  
  
  
  
  18,333Operating
  Officer
  1998
  216,000
  225,000
  
  60,938
  125,000
  
  18,333David
  G. Latzke
  2000
  195,000
  
  
  
  50,000Vice
  President, Secretary
  1999
  165,000
  
  
  
  
  
  3,333Chief
  Financial Officer
  1998
  151,000
  140,000
  
  45,703
  71,250
  
  3,333and
  Treasurer


(1)
  The
  value of each restricted stock award was determined by multiplying the
  closing market price of the Companys Common Stock on the date of grant by
  the number of shares awarded.  This
  represents a grant of 31,250 shares, 25,000 shares and 18,750 shares of
  restricted stock to Messrs. Stuckey, Caldwell and Latzke, respectively, that
  vests five years from the date of grant but accelerates upon achievement of
  certain performance targets.  As of
  December 31, 2000, the number and value (based on the closing market price of
  the Companys Common Stock on December 29, 2000) of the aggregate restricted
  stock holdings of each executive officer were as follows: 31,250 shares
  ($39,063) by Mr. Stuckey, 25,000 shares ($31,250) by Mr. Caldwell, and 18,750
  shares ($23,438) by Mr. Latzke.(2)
  The
  amounts reported in this column include Company contributions to the
  Companys 401(k) Plan of $3,333 in 1999 and 1998 for each of Messrs. Stuckey,
  Caldwell and Latzke. The amounts reported for each of Messrs. Stuckey and
  Caldwell for each of the three years also include $15,000 in benefits from
  split-dollar life insurance policies. Stock Options The Company
maintains a 1989 Stock Option Plan and a 1993 Stock Incentive Plan.  The Company may grant stock options, and
other stock-based awards, to executive officers and other employees and
consultants of the Company under the 1993 Stock Incentive Plan.  The following table presents information
about options granted to named executive officers during 2000. Option
Grants in 2000 Name
  
  Options Granted (#)
  
  % of Total Options Granted to Employees in
  2000
  
  Exercise Price  ($/Sh)
  
  Expiration Date
  
  Potential Realizable Value at Assumed
  Annual Rates of Stock Price Appreciation for Option Term (1)5% ($)
  
  10% ($)Mr. Stuckey
  
  45,000
  
  6.0
  %
  
  5.63
  
  
  1/17/2010
  
  159,189
  
  
  403,41630,000
  
  4.0
  %
  
  1.25
  
  
  12/29/2010
  
  23,583
  
  
  59,765Mr. Caldwell
  
  25,000
  
  3.3
  %
  
  5.63
  
  
  1/17/2010
  
  88,438
  
  
  224,12030,000
  
  4.0
  %
  
  1.25
  
  
  12/29/2010
  
  23,583
  
  
  59,765Mr. Latzke
  
  20,000
  
  2.6
  %
  
  5.63
  
  
  1/17/2010
  
  70,751
  
  
  179,29630,000
  
  3.0
  %
  
  1.25
  
  
  12/29/2010
  
  23,583
  
  
  59,765  (1)
  These
  amounts represent the realizable value of the subject options from the date
  of grant until termination, without discounting to present value, assuming
  appreciation in the market value of the Common Stock from the market price on
  the date of grant at the rates indicated. 
  Actual gains, if any, on stock option exercises are dependent on the
  future performance of the Common Stock, and overall stock market conditions.
  The amounts reflected in this table may not necessarily be achieved.


The following table sets forth
information with respect to the exercise of options and the value of options
held by executive officers as of December 31, 2000: Aggregated Option Exercises in Fiscal Year 2000 and Fiscal Year End
Option Values Shares Acquired on Exercise
  Value
  Number of Unexercised
  Options at End of 2000(1)
  Value of Unexercised
  In-the-Money Options (2)Name
  of Options
  Realized
  Exercisable
  Unexercisable
  Exercisable
  UnexercisableMr.
  Stuckey
  0
  $0
  145,000
  193,750
  $0
  $0Mr.
  Caldwell
  0
  0
  90,250
  158,750
  0
  0Mr.
  Latzke
  0
  0
  38,000
  116,250
  0
  0   (1)
  All of
  such options are exercisable at a price equal to the fair market value of the
  Common Stock on the date of grant, except those issued to Mr. Stuckey in 1995
  for 100,000 shares, which were granted with an exercise price of $6.50, which
  was in excess of fair market value.(2)
  Represents
  the difference between the closing price of the Companys Common Stock as
  reported on the NASDAQ National Market on December 29, 2000 ($1.25 per share)
  and the exercise price of the options. Long-Term Incentive Plan Awards Other than
its 1993 Stock Incentive Plan, the Company does not maintain any long-term
incentive plans. Severance Agreements The Company
has severance agreements with Messrs. Stuckey, Caldwell and Latzke that provide
for the payment to such executive officers of severance benefits in the event
such officers are terminated, or resign for good reason,  within two years after a change of control
of the Company.  Such severance benefits
range from one and one-half to three times annual compensation received by such
executives averaged over the five years prior to termination.  Such agreements define change of control as
the acquisition by any person or persons acting in concert of 30% or more of
the Companys voting stock, a change of control required to be reported under
the Securities Exchange Act of 1934, or certain changes in the Board
composition in connection with a hostile contest for control.  Mr. Stuckeys severance agreement was
amended during 2000 to extend his right to exercise stock options beyond his
termination, subject to the original grant expiration date, and to provide for
funding of long term benefits upon a change of 
control.  The Company does not
have any other employment agreement with any of the executive officers named in
the Summary Compensation Table. Director Compensation For the
fiscal year ended December 31, 2000, directors who were not also officers or
employees of the Company were entitled to receive an annual fee of $4,000,
payable in equal quarterly installments, plus $1,200 per Board meeting and $500
per committee meeting attended.  All
directors are entitled to participate in the Companys 1994 Employee Stock
Purchase Plan and to contribute all (subject to limitations in such plan), or
any portion, of the directors fees they receive to that plan.  During 2000, Messrs. Adams, Lair, Price and
Sheffert elected to participate in the Employee Stock Purchase Plan and
received 4,861, 4,130, 4,861 and 4,296 shares, respectively, for directors fees
contributed to such plan. Directors
who are not also officers or employees of the Company also receive stock
options to purchase 3,500 shares of Common Stock under the Companys 1993 Stock
Incentive Plan at the time of the annual meeting of shareholders.  New directors receive an option to purchase
5,000 shares at the first annual meeting after they are elected.  In accordance with such plan, each of
Messrs. Adams,  Lair, Price and Sheffert
received options to purchase 3,500 shares of Common Stock at an exercise price
of $4.75 per share on May 9, 2000. ITEM 12. 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 1, 2001, information
regarding the ownership of Common Stock by (i) each director, (ii) each
executive officer, (iii) all directors and executive officers (including the
named individuals) as a group, and (iv) any other shareholder who is known by
the Company to own beneficially more than 5% of the outstanding Common Stock of
the Company.  Except as otherwise
indicated, the shareholders listed in the table have sole voting and investment
powers with respect to the shares indicated.



Shares
  Beneficially OwnedName
  and Address of Beneficial Owner
  Number(1)
  PercentAustin W. Marxe
  and David M. Greenhouse (2) 
  153 East 53 Street 
  New York, NY  10022
  920,640
  8.5%Marion Melvin
  Stuckey (3) 
  Two Meridian Crossings 
  Minneapolis, MN 55423
  871,984
  8.1%Michael
  J. Adams (4)
  468,666
  4.3%Jimmie
  H. Caldwell (5)
  393,056
  3.6%Randy
  R. Tofteland
  107,700
  1.0%David
  G. Latzke (6)
  81,593
  *Steve
  J. Lair
  19,891
  *Robert
  M. Price
  39,937
  *Mark
  W. Sheffert
  13,948
  *All executive
  officers and directors  as a group (8
  individuals)
  1,996,775
  19.1%* Less
than 1%

(1)
  Includes
  8,750 shares for each of Messrs. Adams and Price, 5,250 shares for Mr. Lair,
  168,750 shares for Mr. Stuckey, 113,500 shares for Mr. Caldwell, 56,750
  shares for Mr. Latzke, 68,750 shares for Mr. Tofteland, 3,750 shares for Mr.
  Sheffert and 434,250 shares for all executive officers and directors as a
  group of Fourth Shift common stock issuable upon the exercise of stock
  options which are either currently exercisable or become exercisable within
  60 days.(2)
  Based
  upon a Schedule 13G dated February 14, 2001; includes 703,840 shares held by
  Special Situations Fund, III, L.P., and MGP Advisers Limited Partnership, and
  216,800 shares held by Special Situations Cayman Fund, L.P., and AWM
  Investment Company, Inc., investment funds managed by investment advisers for
  which Mr. Marxe and Mr. Greenhouse serve as officers, directors and members
  or principal shareholders.(3)
  Includes
  168,863 shares held by a corporation for which Mr. Stuckey is the
  President, sole director and sole shareholder.(4)
  Includes
  27,000 shares owned by Mr. Adams minor children, 9,600 shares owned by Mr.
  Adams spouse and 325,703 shares representing Mr. Adams pro rata interest in
  a limited partnership in which he is a limited partner.  Mr. Adams disclaims beneficial ownership
  of the shares held by his spouse and such limited partnership.(5)
  Includes
  10,386 shares and options to purchase shares owned by Mr. Caldwells
  wife.  Mr. Caldwell disclaims
  beneficial ownership of these shares.(6)
  Includes
  200 shares owned by Mr. Latzkes minor children.ITEM 13. 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART
IV

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

a.         Financial Statements

1. See the
Financial Statement information contained in Item 8 of this Form 10-K

2.  Financial Statement Schedules

No
Financial
Statement Schedules are required

b.         Reports on Form 8-K:

No reports
on Form 8-K were filed during the year ended December 31, 2000.c.         Exhibits

Exhibit
  No.
  Description2.1
  
  Merger
  Agreement dated as of February 26, 2001 between AremisSoft Corporation,
  AremisSoft Manufacturing (US), Inc. and the Company.3.1
  
  Restated Articles
  of Incorporation of the Company, as amended (incorporated by reference to
  Exhibit 4.1 of the Companys 10-Q for the quarter ended March 31, 1994).3.2
  
  Bylaws of the Company,
  as amended (incorporated by reference to Exhibit 3.2 to the Companys annual
  report on Form 10-Q for the quarter ended September 30, 1998).4.1
  
  Form of
  Certificate for Common Stock (incorporated by reference to Exhibit 4.1 of
  Amendment No. 1 to the Companys Registration Statement on Form S-1 filed
  June 28, 1993 (File No. 33-63012)).4.2
  
  Shareholder Rights
  Plan dated as of December 16, 1998 
  (incorporated by reference to Exhibit 4 to the Companys Current
  Report on Form 8-K filed December 17, 1998).10.1
  
  1989 Stock Option
  Plan (incorporated by reference to Exhibit 10.4 of the Companys Registration
  Statement of Form S-1 filed May 19, 1993 (File No. 33-63012)).10.2
  
  Fourth Shift
  Corporation 1994 Employee Stock Purchase Plan, as amended (incorporated by
  reference to Exhibit 10.5 to the Company's 10-K for the year ended December
  31, 1994).10.3
  
  Fourth Shift
  Corporation 1993 Stock Incentive Plan, as amended (incorporated by reference
  to Exhibit 10.6 to the Company's 10-K for the year ended December 31, 1994).*10.4
  
  Severance Pay
  Agreement dated October 21, 1997 between the Company and Marion Melvin
  Stuckey (incorporated by reference to Exhibit 10.8 to the Companys Form 10-K
  for the year ended December 31, 1997).*10.5
  
  Amendment
  dated April 20, 1999 to Severance Pay Agreement between the Company and
  Marion Melvin Stuckey(incorporated by reference to Exhibit
  10.5 to the Companys Form 10-K for the year ended December 31, 1999).*10.6
  
  Severance Pay
  Agreement dated October 21, 1997 between the Company and Jimmie H.
  Caldwell  (incorporated by reference
  to Exhibit 10.9 to the Companys Form 10-K for the year ended December 31,
  1997).*10.7
  
  Severance Pay
  Agreement dated October 21, 1997 between the Company and David Latzke  (incorporated by reference to Exhibit
  10.10 to the Companys Form 10-K for the year ended December 31, 1997).10.8
  
  Credit
  and Security Agreement dated March 31, 1999 between Fourth Shift Corporation
  and Norwest Business Credit, Inc. (incorporated by reference to Exhibit 10.1
  to the Companys quarterly report on Form 10-Q for the quarter ended March
  31, 1999).10.9
  
  Stock
  purchase agreement between Fourth Shift Corporation and shareholder of
  Computer Aided Business Solutions, Inc. (incorporated by reference to Exhibit
  2.1 to the current report on Form 8-K dated July 8, 1999 (file no. 0-21992)).*10.10
  
  Amendment
  dated November 28, 2000 to Severance Pay Agreement between the Company and
  Marion Melvin Stuckey.21.0
  
  List
  of subsidiaries.23.1
  
  Consent
  of Arthur Andersen LLP.*Management
contract or compensatory plan.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 29, 2001.



Fourth
  Shift CorporationBy:
  /s/
  MARION MELVIN STUCKEYMarion
  Melvin StuckeyChairman
  and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.

Name
  Position
  Date/s/
  MARION MELVIN STUCKEY
  Chairman,
  Chief Executive Officer, (principal executive officer) and Director
  March
  29, 2001Marion
  Melvin Stuckey/s/
  JIMMIE H. CALDWELL
  President,
  Chief Operating Officer and Director
  March
  29, 2001Jimmie
  H. Caldwell/s/
  DAVID G. LATZKE
  Vice
  President and Chief Financial Officer, Treasurer and Secretary (principal
  financial officer)
  March
  29, 2001David
  G. Latzke/s/
  CRAIG A. THOMPSON
  Corporate
  Controller (principal accounting officer)
  March
  29, 2001Craig
  A. Thompson/s/
  MICHAEL J. ADAMS
  Director
  March
  29, 2001Michael
  J. Adams/s/
  STEVE J. LAIR
  Director
  March
  29, 2001Steve
  J. Lair/s/
  ROBERT M. PRICE
  Director
  March
  29, 2001Robert
  M. Price/s/
  MARK W. SHEFFERT
  Director
  March
  29, 2001Mark
  W. Sheffert