================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549


                                   FORM 10-K/A


                          AMENDMENT NO. 1 TO FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
                                     OF THE
                         SECURITIES EXCHANGE ACT OF 1934


For the year ended December 31, 2000              Commission file number 0-26376


                            ON TECHNOLOGY CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


     Delaware                                                  04-3162846
    ---------                                                 -------------
    (State or                                                 (IRS Employer
  incorporation)                                          Identification Number)


                          880 Winter Street, Building 4
                          Waltham, Massachusetts 02451
                                 (781) 487-3300
             ------------------------------------------------------
             (Address and telephone of principal executive offices)


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

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

Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
par value $0.01 per share

Indicate by check mark whether 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/A or any amendment to
this Form 10-K/A. [X]

The aggregate market value of voting stock held by nonaffiliates of the
registrant was $12,112,188, as of March 8, 2001.

The number of shares of Common Stock, $0.01 par value, outstanding as of March
8, 2001 was 15,333,334.


                       DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Annual Report on Form 10-K/A, to
the extent not set forth herein, is incorporated by reference from specified
portions of the Registrant's definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders scheduled for April 27, 2001.
<PAGE>


                               TEXT OF AMENDMENTS

EXPLANATORY NOTE: The annual report on Form 10-K for the year ended December 31,
2000 of ON Technology Corporation that was filed on March 27, 2001 (the
"Original Filing") is hereby amended by deleting Items, 6, 7 and 14 in their
entirely and replacing them with the Items included herein.

Any items in the Original Filing not expressly changed hereby shall be as set
forth in the Original Filing. All information contained in this amendment and
the Original Filing is subject to updating and supplementing as provided in the
Company's periodic reports filed with the SEC subsequent to the date of such
reports.



                                     PART II
                                     -------


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected financial data derived from the
Consolidated Financial Statements of the Company. The Consolidated Financial
Statements have been audited by Arthur Andersen LLP, independent public
accountants. The data should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto and with Management's Discussion and
Analysis of Financial Condition and Results of Operations.

Revenue information in the selected consolidated financial data shown below has
been reclassified to emphasize the Company's current operations. The Company's
core business products, acquired in 1997, are shown by category for the
indicated periods. Revenue - MMI related to groupware revenues on the Company's
Meeting Maker product prior to its license to MMI on June 30, 2000. Revenues
from product lines in the network management, security and scheduling areas that
were either sold to Elron Software Inc. in 1998 (the "Elron Transaction") or
discontinued for Y2K concerns, have been grouped in other along with MMI license
revenue received by the Company in 2000.

No attempt has been made to allocate operating expenses in the same manner, as
revenue because the Company's personnel worked on multiple projects across
project lines and the Company believes any such allocation of expenditures would
not be meaningful.














                                        2
<PAGE>
The selected consolidated financial data below may not be comparable for all of
the periods presented due to the facts discussed above.
<TABLE><CAPTION>
                                                                    Years Ended December 31,
                                                ------------------------------------------------------------
                                                  1996         1997         1998         1999         2000
                                                ------------------------------------------------------------
                                                               (In thousands, except per share data)
<S>                                             <C>          <C>          <C>          <C>          <C>
Consolidated Statement of Operations Data:
Revenue:
  Net CCM and related products                  $   --       $  6,378     $  8,176     $ 17,993     $ 16,073
  CCM and related service and maintenance           --          2,253        3,124        5,524        6,633
  Meeting Maker, Inc. (MMI)                       12,987        9,934        7,530        7,360        3,405
  Other                                           38,805       22,717        1,180         --            236
                                                ------------------------------------------------------------
     Total revenue                                51,792       41,282       20,010       30,877       26,347
                                                ------------------------------------------------------------

Operating expenses:
  Cost of product and service revenue             11,951        9,315        3,890        5,431        4,431
  Sales and marketing                             24,176       22,172       10,715       13,396       13,390
  Research and development                         9,456       12,461        9,044        9,952       10,691
  General and administrative                       4,407        5,501        3,412        4,466        6,894
  Charge for purchased incomplete research
     and development                              13,285       15,898         --           --           --
 Charge for restructuring                          5,415       10,940         --           --           --
 Gain on sale of assets                             --           --         (6,518)        --           --
                                                ------------------------------------------------------------
Loss from operations                             (16,898)     (35,005)        (533)      (2,368)      (9,059)
Interest income, net                               1,134          233          325          153          498
Other income                                        --           --             20          216          716
                                                ------------------------------------------------------------
Loss before allocation to Meeting Maker, Inc
  and provision for taxes                        (15,764)     (34,772)        (188)      (1,999)      (7,845)
Allocation to Meeting Maker, Inc.                   --           --           --           --         (1,171)
Provision for income taxes                           (97)        --            (27)        --           (420)
                                                ------------------------------------------------------------
Net loss                                        $(15,861)    $(34,772)    $   (215)    $ (1,999)    $ (9,436)
                                                ============================================================
Basic loss per share                            $  (1.46)    $  (2.88)    $  (0.02)    $  (0.16)    $  (0.67)
                                                ============================================================
Diluted loss per share                          $  (1.46)    $  (2.88)    $  (0.02)    $  (0.16)    $  (0.67)
                                                ============================================================
Basic weighted average shares outstanding         10,854       12,079       12,281       12,526       14,141
                                                ============================================================
Diluted weighted average shares outstanding       10,854       12,079       12,281       12,526       14,141
                                                ============================================================


                                                                          DECEMBER 31,
                                                ------------------------------------------------------------
                                                  1996         1997         1998         1999         2000
                                                ------------------------------------------------------------
                                                                   (Dollars in thousands)
CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents                     $ 20,774     $  6,679     $  8,001     $ 16,941     $  9,437
  Restricted cash                                   --           --           --           --          1,069
  Working capital                                 25,347        3,803        4,686       15,144        6,434
  Total assets                                    44,142       17,382       14,669       26,788       18,371
  Long-term obligations                              510           10         --           --          1,222
  Total stockholders' equity                      33,493        6,996        7,141       16,970        6,902
</TABLE>
                                        3
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

OVERVIEW

ON Technology Corporation and its subsidiaries ("ON" or the "Company") provide
remote software management solutions for desktops, mobile PCs, handhelds and
servers. The Company's principal product, ON Command CCM(TM), or CCM, is used by
enterprise IT organizations and service providers to rapidly deliver
business-critical software over corporate networks. Our products are designed to
reduce operational costs while enhancing both IT productivity and end-user
satisfaction.

As described in Item 5 of this 10-K/A under the caption "Sales of Unregistered
Securities", on December 30, 1999, the Company closed a $12 million private
placement of common stock and warrants to two institutional investors, and on
December 18, 2000, the Company and such investors entered into exchange
agreements relating to the exchange of certain of the warrants issued to such
investors in 1999 for new warrants and promissory notes.

On January 3, 2000, the Company signed an asset purchase agreement with a newly
organized privately-held company named Meeting Maker, Inc. (MMI) to sell the
Company's Groupware business (Meeting Maker) subject to the approval of the
Company's stockholders. In connection with the asset purchase agreement, the
Company entered into a management agreement, also dated January 3, 2000, in
which the Company transferred operating control of the Groupware business
(Meeting Maker) to MMI. ON had no risk of ownership related to the operating
results from the Groupware business since January 3, 2000 and has allocated 100%
of the net income (loss) to MMI for the period January 3, 2000 to June 30, 2000.
The Company did not receive the required number of shareholder votes to approve
the Meeting Maker transaction.

As a result, the Company entered into a license agreement with MMI effective as
of June 30, 2000 which, among other things, terminated the previously negotiated
sale arrangement and provided for the grant of an exclusive worldwide license to
market and distribute the Meeting Maker product (including a license to the
underlying source code and object code). The Company receives quarterly royalty
payments, subject to certain minimums, from MMI in connection with the exclusive
license. At any time during the license period, MMI has the ability to exercise
a buyout option for the remaining minimum payments plus an additional fee. The
Company is recognizing the royalty fees as earned ($236,000 during the year
ended December 31, 2000) in other revenue.

Additionally, the license agreement provided for the sale of certain assets and
the assumption of certain liabilities related to the Meeting Maker business. As
a result, the Company recognized a gain of $458,000, net of related transaction
costs, in the quarter ended September 30, 2000, which is reported in other
income.

The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' (AICPA) Statement of Position (SOP) No. 97-2,
SOFTWARE REVENUE RECOGNITION. Software licenses consists principally of revenue
earned under perpetual software license agreements and is generally recognized
upon shipment of the software if collection of the resulting receivable is
probable, the fee is fixed or determinable, and vendor-specific objective
evidence exists for all undelivered elements to allow allocation of the total
fee to all delivered and undelivered elements of the arrangement. Revenues under
such arrangements, which may include multiple software products and services
sold together, are allocated to each element based on the residual method in
accordance with SOP 98-9, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN
TRANSACTIONS. Under the residual method, the fair value of the undelivered
elements is deferred and subsequently recognized when earned. The Company has
established sufficient vendor specific objective evidence for professional
services, training and maintenance and support services, based on the price
charged when these elements were sold separately. Accordingly, software license
revenue is recognized under the residual method in arrangements in which
software is licensed with professional services, training and maintenance and
support services.

The Company also sells products to resellers. The Company typically does not
ship products to resellers until an end user is identified, at which point the
Company recognizes revenue under the arrangement. The Company provides for
returns based on historical experience.

Service revenues from time and expense contracts and consulting and training
revenue are recognized as the related services are performed.

                                        4
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth, for the years indicated, certain financial data
as percentages of the Company's total revenue:
<TABLE><CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                   ------------------------------------
                                                     1998          1999          2000
                                                   ------------------------------------
<S>                                                <C>           <C>           <C>
Revenue:
  Net CCM and related products                         40.9%         58.3%         61.0%
     CCM related service and maintenance               15.6          17.9          25.2
     Meeting Maker, Inc. (MMI)                         37.6          23.8          12.9
     Other                                              5.9          --             0.9
                                                   ------------------------------------
       Total revenue                                  100.0         100.0         100.0
                                                   ------------------------------------
Operating expenses:
     Cost of CCM and related products revenue          16.2          12.5          13.1
     Cost of CCM and related service and
     maintenance revenue                                1.8           3.0           3.4
     Cost of MMI revenue                                2.7           2.1           0.3
     Sales and marketing                               46.6          38.7          46.8
     Research and development                          36.0          28.2          37.2
     General and administrative                        17.2          14.5          25.4
     MMI operating expenses                            14.8           8.7           8.2
     Gain on sale of assets                           (32.6)         --            --
                                                   ------------------------------------
Loss from operations                                   (2.7)         (7.7)        (34.4)
                                                   ------------------------------------
Interest income, net                                    1.7           0.5           1.9
Other income, net                                      --             0.7           2.7
                                                   ------------------------------------
Net loss before allocation to MMI and
  provision for income taxes                           (1.0)         (6.5)        (29.8)
                                                   ------------------------------------
Allocation to MMI                                      --            --            (4.4)
                                                   ------------------------------------
Loss before provision for income taxes                 (1.0)         (6.5)        (25.4)
Provision for income taxes                             (0.1)         --            (1.6)
                                                   ------------------------------------
Net loss                                               (1.1)%        (6.5)%       (35.8)%
                                                   ====================================
</TABLE>

NET CCM AND RELATED PRODUCTS. The Company's net CCM and related products revenue
is derived primarily from the licensing of software products. This revenue
increased $9.8 million or 120% from 1998 to 1999, due to growth in the
Comprehensive Client Management (CCM) business. Net CCM and related products
revenue decreased $1.9 million or 11% from 1999 to 2000, due to a decrease in
the CCM related business during the first six months of 2000.

CCM RELATED SERVICE AND MAINTENANCE. The Company's CCM related service and
maintenance revenue consists of maintenance revenue, training and professional
services. This revenue increased by $2.4 million or 77% from 1998 to 1999 and
$1.1 million or 20% from 1999 to 2000. For 1999, the increase was attributable
to an 88% increase in professional services and training revenues, or $1.55
million, and an increase of 62% in maintenance revenues, or $850 thousand. For
2000, the increase was primarily due to the $1.1 million increase in maintenance
fees related to the growth in the number of maintenance agreements.

MEETING MAKER, INC. (MMI). The Company's MMI revenue consists of product,
maintenance, training and professional services revenue associated with the
Meeting Maker product. MMI revenue decreased by $170 thousand or 2% from 1998 to
1999 and $4.0 million or 54% from 1999 to 2000. The slight decrease from 1998 to
1999 was primarily attributable to the product line being scaled back through
reduced sales, marketing and development efforts. The large revenue decrease
from 1999 to 2000 is a direct result of the license of the Meeting Maker
business to MMI. Revenue - MMI for 2000 consisted of revenue achieved during the
first six months of the year under a management agreement entered into between
the Company and MMI. The Company does not anticipate any additional MMI revenue
due to the exclusive license of the Meeting Maker product to MMI.

                                        5
<PAGE>
OTHER. For 1998, other revenue consisted of other groupware product lines that
were discontinued by the Company, as they were not Y2K compliant. In 2000, the
Company's other revenue consists of a royalty associated with the licensing of
the Company's Meeting Maker technology to Meeting Maker, Inc. (MMI). Total
revenue earned for the year ended December 31, 2000 was $236 thousand covering
the last six months of 2000.

COST OF CCM AND RELATED PRODUCT REVENUE. Cost of CCM and related product revenue
consists primarily of expenses associated with product documentation, production
and fulfillment costs, and royalty and license fees associated with products
that are licensed from third party developers. In addition, cost of CCM and
related product revenue included the amortization of purchased intangibles. Cost
of CCM and related product revenue as a percentage of like revenues decreased
from approximately 39.6% in 1998 to 21.4% in 1999 to 21.5%% in 2000. The large
percentage decrease from 1998 is the result of the Company growing its CCM and
related product revenue by 120% over 1998 (with higher margin CCM software
increasing 187%) thus leveraging some of its fixed distribution costs.
Additionally, the Company outsourced its distribution and fulfillment operations
in 1998, but since 1999, due to a reduced product line, the Company has brought
these operations in-house at a savings of approximately $150 thousand. In 2000
cost of CCM and related product revenue decreased by $387 thousand, principally
due to decreased amortization costs of $424 thousand.

COST OF CCM AND RELATED SERVICE AND MAINTENANCE REVENUE. Cost of CCM and related
service and maintenance revenue consists primarily of expenses associated direct
consulting and training costs as well as costs of the Company's help desk. Cost
of CCM and related service and maintenance revenues as a percentage of like
revenues increased from approximately 12% in 1998 to 17% in 1999 to 14% 2000.
The increase from 1998 was due to hirings and infrastructure put in place to
support the increased utilization in both Europe and North America due to the
revenue growth discussed above. These costs were better brought in line with
revenue expectations in 2000 resulting in improved margins.

COST OF MMI REVENUE. Cost of MMI revenue consists primarily of expenses
associated with product documentation, production and fulfillment costs
associated with the Meeting Maker product. Cost of MMI revenue remained
relatively flat as a percentage of Revenue - MMI from 7% in 1998 to 9% in 1999.
Cost of MMI revenue decreased as a percentage of Revenue - MMI from 9% in 1999
to 2% in 2000. The significant decrease from 1999 to 2000 was due to the
management and exclusive license agreements entered into between the Company and
MMI. The Company does not anticipate any additional cost of MMI revenue in the
future as the technology has been exclusively licensed to MMI.

SALES AND MARKETING EXPENSE. Sales and marketing expense primarily consists of
compensation paid to sales and marketing personnel, the costs of direct mail and
telemarketing campaigns, the costs of product trials requested by potential
customers. Sales and marketing expense also includes the costs of public
relations, trade shows, conferences, travel, and the telephone and information
technology costs associated with sales activities. Sales and marketing expense
increased $2.7 million and declined as a percentage of total revenues (exclusive
of MMI revenues) from 75% in 1998 to 51% in 1999. This was due to the growth of
the CCM and related product revenue of $12 million or 108% in 1999 over 1998. In
2000, sales and marketing expense increased $348 thousand over 1999, and
increased slightly as a percentage of total revenue (exclusive of MMI revenues),
from 51% in 1999 to 54% in 2000. Marketing expenditures remained flat in 2000
while sales expenses increased $388 thousand primarily due to the hiring of 15
additional sales people during the year, both in the US and abroad.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense includes
costs associated with the development of new products, the enhancement of
existing products, and costs associated with providing indirect technical
support, training and consulting. Related expenses also include certain
information technology costs. Research and development expenses increased $1.2
million from 1998 to 1999. This resulted from an incremental headcount of six
employees and other related costs of growing the CCM business. Research and
development expenses increased $1.1 million from 1999 to 2000. This increase was
a primarily a result of increased consulting costs of $745 thousand and an
incremental headcount of two employees, all of whose efforts were to enhance the
CCM business.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense includes
executive compensation and the continued administrative expense associated with
the Company's foreign operations, executive support costs, accounting
operations, planning, investor relations, and business development operations.
General and administrative expense increased approximately $1.0 million from
1998 to 1999. The increase was primarily the result of increased professional
fees and corporation filing fees of approximately $850 thousand. General and
administrative expense increased by $2.2 million from 1999 to 2000. The increase
was primarily due to a $1.8 million increase in the Company's bad debt reserves
primarily related to one major customer who was experiencing financial
difficulties.

                                        6
<PAGE>
GAIN ON SALE OF ASSETS. In connection with the sale of certain assets of the
Company to Elron Software Inc. in 1998 (the "Elron Transaction"), the Company
received net proceeds of $8.8 million and incurred $550 thousand of direct
transaction costs. Pursuant to the Elron Transaction, the Company sold assets
that had a carrying value of $1.8 million, and recorded a gain of $6.5 million
during the first quarter of 1998.

INTEREST INCOME, NET. Interest income, net decreased approximately $192 thousand
from 1998 to 1999. This decrease was due to an overall decreased average cash
balance resulting from negative operating cash flows (private placement funds
were not received until late December 1999). Interest income, net increased
approximately $345 thousand from 1999 to 2000. This increase was due to higher
cash balances resulting from the aforementioned private placement of $12 million
in December 1999.

OTHER INCOME. Other income in 1999 resulted from an insurance claim. Other
income in 2000 consisted primarily of a non-cash gain resulting from net impact
of valuation adjustments from the warrants and promissory notes issued to the
aforementioned two private institutional investors of $473 thousand, as well as,
the net gain resulting from the MMI transaction of $458.

INCOME TAXES. The provision for 1998 represents additional minimum taxes owed.
In 1999, the Company incurred a significant operating loss for both book and tax
purposes and gave benefit to refundable income taxes, which offset certain
foreign tax provisions, and as a result no tax provision was recorded. During
1999, the Company recorded a book gain on the Elron Transaction; however, for
tax purposes the Company recognized an ordinary loss on this transaction. The
provision for 2000 primarily represents income taxes from operating income
resulting in the Company's international operations.




























                                        7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations to date primarily through private and
public placements of capital stock and the net proceeds received from the Elron
transaction. At December 31, 1998, 1999, and 2000 the Company had available cash
and cash equivalents of $8.0 million, $16.9 million, and $9.4 million,
respectively, and working capital of $4.7 million, $15.1 million, and $6.4
million, respectively. As of December 31, 2000, the Company had restricted cash
of $1.1 million securing the Company's Waltham, Massachusetts facility lease.

Net cash used in operating activities for the years ended December 31, 1998,
1999 and 2000 was $5.6 million, $2.0 million, and $7.2 million, respectively. In
1998, net cash used in operating activities consisted mainly of a net loss of
$215 thousand combined with the gain on sale of assets of $6.5 million, which is
offset by $1.6 million in depreciation and amortization, and changes in assets
and liabilities of $652 thousand. In 1999, net cash used in operating activities
consisted mainly of a net loss of $2.0 million and an increase in accounts
receivable of $3.9 million, which is offset by $1.7 million in depreciation and
amortization, and an increase of $2.2 million in deferred revenue. In 2000, net
cash used in operating activities consisted mainly of a combined net increase in
the Company's operating assets and liabilities of $1.8 million and a net loss of
$9.4 million. This loss was reduced by $720 thousand in depreciation and
amortization as well as deferred compensation expense of $614 thousand and
increased by the non-cash gains of $458 and $548 resulting from the MMI
transaction and the revaluation of the Company's warrant liability in accordance
with EITF 00-19, respectively.

Net cash provided by (used in) investing activities for the years ended December
31, 1998, 1999 and 2000 was $7.4 million, $(1.1) million, and $(1,828) thousand,
respectively. The purchase of property and equipment in 1998 was offset by $8.3
million in proceeds from assets held for sale, net of transaction costs
pertaining to the Elron Transaction. The purchase of property and equipment in
1999 was $1.1 million. In 2000, this use was primarily a result of the $1.1
million restricted cash agreement securing the Company's Waltham, Massachusetts
facility lease and the purchase of property and equipment of $803 thousand,
which was then slightly offset by a reduction in deposits.

Net cash (used in) provided by financing activities for the years ended December
31, 1998, 1999 and 2000 was ($226) thousand, $11.7 million, and $808 thousand,
respectively. In 1998, this was a result of the exercise of stock options of $64
thousand, the sale of stock under the Employee Stock Purchase Plan of $66
thousand and offset by the principal payments on obligations under capital
leases of $356 thousand. In 1999, this was a result of the $11.0 million of net
proceeds from the sale of common stock and warrants, the exercise of stock
options of $631 thousand and the sale of stock under the Employee Stock Purchase
Plan of $143 thousand. In 2000, this was the result of the exercise of stock
options of $678 thousand and the sale of stock under the Employee Stock Purchase
Plan of $130 thousand.

The Company believes that its existing cash balances and expected funds
generated from operations will be sufficient to finance the Company's operations
through December 31, 2001.






                                        8
<PAGE>
                 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

This Annual Report on Form 10-K/A contains forward-looking statements within the
meaning of the Federal Securities Laws. In addition, from time to time,
management may make forward-looking statements in press releases, in other
public discussions and in other documents that we file with the Securities and
Exchange Commission (including those documents incorporated by reference into
this Form 10-K/A). The Private Securities Litigation Reform Act of 1995 provides
a "safe harbor" for these statements. For this purpose, a forward-looking
statement is any statement that is not a statement of historical fact. You can
identify forward-looking statements by the words "may," "believes,"
"anticipates," "plans," "expects," "estimates" and similar expressions. Our
forward-looking statements are based on currently available information and
management's expectations of future results but necessarily involve certain
assumptions. We caution readers that our assumptions involve substantial risks
and uncertainties. Consequently, any forward-looking statement could turn out to
be wrong. Many factors could cause actual results to differ materially from our
expectations. Below we describe some of the important factors that could affect
our revenues or results of operations.

THE COMPANY IS CURRENTLY EXPERIENCING CASH FLOW DEFICITS AND MAY CONTINUE TO
EXPERIENCE CASH FLOW DEFICITS IN THE FORESEEABLE FUTURE.

For the fiscal year ended December 31, 2000, ON had operating losses of
approximately $9.0 million, producing significant negative cash flow.
Management's 2001 operating plan forecasts that the Company will continue to
experience operating losses and negative cash flows at least through the later
half of 2001. Based on these assumptions, Management believes its has sufficient
cash to fund its operations for 2001. If the Company is unable to attain
forecasted revenue levels and Management is further unable to curtail expenses,
the Company would have to seek external equity or debt financing to continue its
operations. There can be no assurance that we will be able to secure such
external financing.

OUR MARKETING REQUIRES SIGNIFICANT INVESTMENTS

Sales of products require significant up-front investments in marketing,
technical and financial resources. We have adopted a marketing strategy using a
direct sales force and in-field service organization. This strategy requires
significant investments in marketing and technical personnel, retraining of
existing personnel, ongoing product development and creation of an in-field
service organization. We have developed valuable marketing and service
experience and expertise in Europe and, recently, in the United States. However,
there can be no assurance that we will be able to continue to expand and apply
such experience and expertise to our target market.

A SIGNIFICANT PORTION OF OUR REVENUES DERIVES FROM A RELATIVELY SMALL NUMBER OF
CUSTOMERS

For the twelve months ended December 31, 1998, one customer accounted for $3.5
million, or 17.5% of total revenue from ON's current products. For the twelve
months ended December 31, 1999, two customers accounted for $7.4 million, or
24.0% of total revenue. For the twelve months ended December 31, 2000, two
customers accounted for $6.3 million, or 24.0% of total revenue. It is possible
that in the future other customers will account for more than 10% of ON's total
revenues.

WE WILL NEED TO EXPAND OUR DISTRIBUTION CHANNELS IN ORDER TO DEVELOP OUR
BUSINESS AND INCREASE REVENUE

We sell our products through our direct sales force and a number of
distributors, and we provide maintenance and support services through our
technical and customer support staff. We plan to continue to invest large
amounts of resources in our direct sales force, particularly in North America.
In addition, we are developing additional sales and marketing channels through
value added resellers, system integrators, original equipment manufacturers and
other channel partners. We may not be able to attract channel partners that will
be able to market our products effectively, or that will be qualified to provide
timely and cost-effective customer support and service. If we establish
distribution through such indirect channels, our agreements with channel
partners may not be exclusive. As a result, such channel partners may also carry
competing product lines. If we do not establish and maintain such distribution
relationships, this could materially adversely affect our business, operating
results, and financial condition.

                                        9
<PAGE>
IF THE MARKET FOR OUR ENTERPRISE DESKTOP MANAGEMENT SOFTWARE SOLUTIONS DOES NOT
CONTINUE TO DEVELOP AS WE ANTICIPATE, OUR ABILITY TO GROW OUR BUSINESS AND SELL
OUR PRODUCTS WILL BE ADVERSELY AFFECTED

In recent years, the market for enterprise software solutions has been
characterized by rapid technological change, frequent new product announcements
and introductions, and evolving industry standards. In response to advances in
technology, customer requirements have become increasingly complex, resulting in
industry consolidation of product lines offering similar or related
functionality. In particular, we believe that a market exists for integrated
enterprise-wide infrastructure management solutions. However, the existence of
such a market is unproven. If such a market does not fully develop, this could
have a materially adverse effect on our business, results of operations, and
financial condition. Regardless of the development of a market for integrated
infrastructure management solutions, factors adversely affecting the pricing of,
demand for, or market acceptance of our enterprise desktop management
applications could have a material adverse effect on our business, results of
operations, and financial condition.

IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY STANDARDS,
OR DO NOT CONTINUE TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS, SALES OF
OUR PRODUCTS MAY DECLINE

As a result of rapid technological change in our industry, our position in
existing markets or other markets that we may enter can be eroded rapidly by
product advances. The life cycles of our products are difficult to estimate. Our
growth and future financial performance depend in part upon our ability to
improve existing products and develop and introduce new products that keep pace
with technological advances, meet changing customer needs, and respond to
competitive products. Our product development efforts will continue to require
substantial investments. We may not have sufficient resources to make the
necessary investments.

THE TECHNOLOGICAL REQUIREMENTS OF OUR PRODUCTS MAY PRESENT CHALLENGES IN PRODUCT
DEVELOPMENT WHICH, IF WE CANNOT MEET, MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS

The technological demands of our current products require a commitment of
significant ongoing financial, technical and personnel resources to product
development, training of service technicians and customer training. Because our
historical products were not as technologically sophisticated as our current
products, we have not to date made all of the required investment and have not
proven that we can develop and maintain the organization required to support
such products. We believe that our experience to date will provide a valuable
base on which to build the necessary financial, technical and personnel
resources to continue to sell, market, develop and support our products.
However, there can be no assurance that we will be able to expand and develop
our resources to support our products.

Our current products are typically larger and more complex than the products
that we have previously developed. Our ability to continue to enhance our
current products to meet customer and market requirements will depend
substantially on our ability to effectively manage this development effort, to
attract and retain the required development personnel in Waltham, Massachusetts
and Starnberg, Germany and to coordinate and manage geographically remote
development efforts.

We have experienced product development delays in the past and may experience
delays in the future. Difficulties in product development could delay or prevent
the successful introduction or marketing of new or improved products. Any such
new or improved products may not achieve market acceptance. Our current or
future products may not conform to industry requirements. If, for technological
or other reasons, we are unable to develop and introduce new and improved
products in a timely manner, our business, operating results, and financial
condition could be adversely affected.

                                       10
<PAGE>
ERRORS IN OUR PRODUCTS COULD RESULT IN SIGNIFICANT COSTS TO US AND COULD IMPAIR
OUR ABILITY TO SELL OUR PRODUCTS

Because our software products are complex, these products may contain errors
that could be detected at any point in a product's life cycle. In the past, we
have discovered software errors in certain of our products and have experienced
delays in shipment of our products during the period required to correct these
errors. Despite testing by ON and by current and potential customers, errors in
our products may be found in the future. Detection of such errors may result in,
among other things, loss of, or delay in, market acceptance and sales of our
products, diversion of development resources, injury to our reputation, or
increased service and warranty costs. If any of these results were to occur, our
business, operating results and financial condition could be materially
adversely affected.

IN THE FUTURE, INCLUSION OF FUNCTIONS PROVIDED BY OUR PRODUCTS IN SYSTEM
SOFTWARE AND APPLICATION SUITES MAY AFFECT OUR COMPETITIVE POSITION

In the future, vendors of operating system software and applications sold for a
single price (generally referred to as application suites) may continue to
enhance their products to include functions that are currently provided by our
products. In addition, some vendors may bundle these products in their existing
application suites at no additional charge. The widespread inclusion of the
functions provided by our products as standard features of operating system
software could render our products obsolete and unmarketable particularly if the
quality of such functions were comparable to the functions offered by our
products. Furthermore, even if the software functions provided as standard
features by operating systems are more limited than those of our products, there
is no assurance that a significant number of customers would not elect to accept
such functions instead of purchasing additional software. If we were unable to
develop new software products to further enhance operating systems and to
successfully replace any obsolete products, our business, financial condition,
prospects and results of operations would be materially and adversely affected.

NEW PRODUCT INTRODUCTIONS AND THE ENHANCEMENT OF EXISTING PRODUCTS BY OUR
COMPETITORS COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS

The market for the Company's products is highly competitive, and the Company
expects competition to continue to increase in the future. The Company believes
that the principal competitive factors affecting the market for its products
include brand name recognition, company reputation, performance, functionality,
ease-of-use, breadth of product line, quality, customer support, adherence to
industry standards, integration with third-party solutions and price.

As is the case in many segments of the software industry, the Company may
encounter increasing price competition in the future. This could reduce average
selling prices and, therefore, profit margins. Competitive pressures could
result not only in sustained price reductions but also in a decline in sales
volume, which could adversely affect the Company's business, condition
(financial or otherwise), prospects and results of operations. There can be no
assurance that the Company will continue to compete effectively against existing
and potential competitors in its markets, many of whom have substantially
greater financial, technical, marketing and support resources and name
recognition than the Company.

The widespread inclusion of the functionality of the Company's products as
standard features of Microsoft operating systems software could render the
Company's products obsolete and unmarketable, particularly if the quality of
such functionality were comparable to that of the Company's products. If the
Company were unable to develop new functionality or unique applications for its
technology to replace successfully any obsolete products, the Company's
business, condition (financial or otherwise), prospects and results of
operations would be materially and adversely affected.

The market for our products is highly competitive and diverse. The technology
for remote software management products can change rapidly. New products are
frequently introduced and existing products are continually enhanced.
Competitors vary in size and in the scope and breadth of the products and
services offered.

                                       11
<PAGE>
The Company has faced competition from a number of sources, including:

o    Large and established companies such as Microsoft, Computer Associates
     International and IBM/Tivoli which offer remote software delivery and
     management capabilities as part of their systems management, or network
     management frameworks.

o    Software companies and others who provide software management utilities and
     suites such as Symantec, Intel, and Altiris.

o    Hardware suppliers such as IBM, Hewlett-Packard, and Compaq that offer or
     bundle software management capabilities in conjunction with their hardware
     offerings.

o    The internal information technology departments of those companies with
     infrastructure management needs.

In addition, Microsoft has bundled new management capabilities in its Windows
2000 operating system that, in conjunction with its Systems Management Server
(SMS) framework, directly compete with capabilities provided by ON Command CCM.
Even if the functionality provided with Microsoft's operating system software
were more limited than that of our software management products, customers or
potential customers might elect to accept more limited functionality in lieu of
purchasing additional software. Competition resulting from this type of bundling
could lead to price reductions for our products, which would reduce our margins
and correspondingly affect our business, quarterly and annual operating results
and financial condition.

Some of our current and many of our potential competitors have much greater
financial, technical, marketing, and other resources than the Company has. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer needs. They may also be able to devote greater resources
to the development, promotion, and sale of their products than the Company can.
The Company may not be able to compete successfully against current and future
competitors. In addition, competitive pressures faced by the Company may
materially adversely affect the Company's business, operating results, and
financial condition.

NEW COMPETITORS AND ALLIANCES AMONG EXISTING COMPETITORS COULD IMPAIR OUR
ABILITY TO RETAIN AND EXPAND OUR MARKET SHARE

Because competitors can easily penetrate the software market, we anticipate
additional competition from other established and new companies as the market
for enterprise desktop management applications develops. In addition, current
and potential competitors have established or may in the future establish
cooperative relationships among themselves or with third parties. Large software
companies may acquire or establish alliances with our smaller competitors. We
expect that the software industry will continue to consolidate. It is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share.

DUE TO THE TECHNOLOGICAL CHALLENGES ASSOCIATED WITH OUR CURRENT PRODUCTS, WE MAY
NOT HAVE THE FINANCIAL RESOURCES NECESSARY TO CONDUCT THE BUSINESS AS PRESENTLY
CONTEMPLATED

Based on 2001 forecasts, our product development, marketing and sales costs for
our current products are approximately $1,750,000 to $2,000,000 per month. Based
on our existing cash and forecasted revenue, we believe that we have enough cash
to fund these costs through 2001. There can be no assurance that our estimate of
the marketing, sales and product development costs of the CCM products is
correct, or that these costs will not exceed our available financial resources,
or that we will be locate additional sources of financing, if and when needed.

                                       12
<PAGE>
OUR INCREASING RELIANCE ON INTERNATIONAL REVENUE COULD ADVERSELY AFFECT OUR
OPERATING RESULTS

In fiscal 1998 and fiscal 1999, total revenue from international licenses
(license revenue from outside the United States) represented approximately 54%
of our total revenue. For the fiscal year 2000, total revenue from international
licenses represented approximately 32% of our total revenue and 53% of our net
CCM and related products revenue. We expect that international revenue will
constitute a significant portion of our total revenue in the future.
Accordingly, a significant percentage of our total revenue may be subject to the
risks inherent in international sales, including the impact of fluctuating
exchange rates on demand for our products, longer payment cycles, greater
difficulty in protecting intellectual property, greater difficulty in accounts
receivable collection, unexpected changes in legal and regulatory requirements,
seasonality due to the slowdown of European business activity in the third
quarter and tariffs and other trade barriers. There can be no assurance that
these factors will not have a materially adverse effect on our future
international license revenue.

Our continued growth and profitability will require continued expansion of our
international operations, particularly in Europe, Latin America, and the Pacific
Rim. Accordingly, we intend to expand our current international operations and
enter additional international markets. Such expansion will require significant
management attention and financial resources. We have only limited experience in
developing local-language versions of our products and marketing and
distributing our products internationally. We may not be able to successfully
translate, market, sell and deliver our products internationally. If we are
unable to expand our international operations successfully and in a timely
manner, our business, operating results, and financial condition could be
adversely affected.

AS OUR EXPANDING INTERNATIONAL OPERATIONS IN EUROPE AND ELSEWHERE ARE
INCREASINGLY CONDUCTED IN CURRENCIES OTHER THAN THE U.S. DOLLAR, FLUCTUATIONS IN
THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY EXCHANGE LOSSES

A large portion of our business is conducted in foreign currencies. Fluctuations
in the value of foreign currencies relative to the U.S. dollar have caused and
will continue to cause currency transaction gains and losses. We cannot predict
the effect of exchange rate fluctuations upon future operating results. We may
experience currency losses in the future. We may implement a foreign exchange
hedging program, consisting principally of purchases of one-month forward-rate
currency contracts. However, our hedging activities may not adequately protect
us against the risks associated with foreign currency fluctuations.

On January 1, 1999, certain member states of the European Economic Community
(the "EEC") fixed their respective currencies to a new currency, the euro. On
that date, the euro became a functional legal currency within these countries.
During the three years beginning on January 1, 1999, business in these EEC
member states will be conducted in both the existing national currencies, such
as the French franc or deutsche mark, and the euro. Issues related to the
introduction of the euro may materially adversely affect our business, operating
results, and financial condition.

FUTURE FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS DUE TO A NUMBER OF
FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL, COULD ADVERSELY AFFECT OUR STOCK
PRICE

Our quarterly operating results have varied significantly in the past and may
vary significantly in the future depending upon a number of factors, many of
which are beyond our control. These factors include, among others:

o    our ability to develop, introduce and market new and enhanced versions of
     our software on a timely basis;

o    market demand for our software;

o    the size, timing and contractual terms of significant orders;

o    the timing and significance of new software product announcements or
     releases by ON or our competitors; changes in our pricing policies or our
     competitors;

                                       13
<PAGE>
o    changes in our business strategies;

o    budgeting cycles of our potential customers;

o    changes in the mix of software products and services sold;

o    reliance on indirect sales forces like systems integrators and channels;

o    changes in the mix of revenues attributable to domestic and international
     sales;

o    the impact of acquisitions of competitors;

o    seasonal trends;

o    the cancellations of licenses or maintenance agreements;

o    product life cycles, software defects and other product quality problems;
     and

o    personnel changes.

We have often recognized a substantial portion of our revenues in the last month
or weeks of a quarter. As a result, license revenues in any quarter are
substantially dependent on orders booked and shipped in the last month or weeks
of that quarter. Due to the foregoing factors, quarterly revenues and operating
results are not predictable with any significant degree of accuracy. In
particular, the timing of revenue recognition can be affected by many factors,
including the timing of contract execution and delivery. The timing between
initial customer contact and fulfillment of criteria for revenue recognition can
be lengthy and unpredictable, and revenues in any given quarter can be adversely
affected as a result of such unpredictability. In the event of any downturn in
potential customers' businesses or the economy in general, planned purchases of
our products may be deferred or canceled, which could have a material adverse
effect on our business, operating results and financial condition.

OUR SALES CYCLE IS LONG AND UNPREDICTABLE, AND POTENTIAL DELAYS IN THE CYCLE
MAKE OUR REVENUES SUSCEPTIBLE TO FLUCTUATIONS

The licensing of our software generally requires us to engage in a sales cycle
that typically takes approximately four to nine months to complete. The length
of the sales cycle may vary depending on a number of factors over which we may
have little or no control, including the size of the transaction and the level
of competition that we encounter in our selling activities. During the sales
cycle, we typically provide a significant level of education to prospective
customers regarding the use and benefits of our products. Any delay in the sales
cycle of a large license or a number of smaller licenses could have a material
adverse effect on our business, operating results and financial condition.

SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY AFFECT OUR QUARTERLY
OPERATING RESULTS

Our business has experienced and is expected to continue to experience
seasonality. Our revenues and operating results in our December quarter
typically benefit from purchase decisions made by the large concentration of
customers with calendar year-end budgeting requirements, and from the efforts of
our sales force to meet fiscal year-end sales quotas. In addition, we are
currently attempting to expand our presence in international markets, including
Europe. International revenues comprise a significant percentage of our total
revenues, and we may experience additional variability in demand associated with
seasonal buying patterns in such foreign markets.

                                       14
<PAGE>
FUTURE ACQUISITIONS PRESENT RISKS WHICH COULD ADVERSELY AFFECT OUR BUSINESS

In the future, ON may make acquisitions of, or large investments in, other
businesses that offer products, services, and technologies that further our goal
of providing enterprise desktop management software solutions to businesses or
which complement our current business. Any future acquisitions or investments
that we may complete present risks commonly encountered with these types of
transactions. The following are examples of such risks:

o    difficulty in combining the technology, operations, or work force of the
     acquired business;

o    disruption of on-going businesses;

o    difficulty in realizing the potential financial and strategic position of
     ON through the successful integration of the acquired business;

o    difficulty in maintaining uniform standards, controls, procedures, and
     policies;

o    possible impairment of relationships with employees and clients as a result
     of any integration of new businesses and management personnel;

o    difficulty in adding significant numbers of new employees, including
     training, evaluation, and coordination of effort of all employees towards
     our corporate mission;

o    diversion of management attention;

o    difficulty in obtaining preferred acquisition accounting treatment for
     these types of transactions; likelihood that future acquisitions will
     require purchase accounting resulting in increased intangible assets and
     goodwill, substantial amortization of such assets and goodwill, and a
     negative impact on reported earnings; and

o    potential dilutive effect on earnings.

The risks described above, either individually or in the aggregate, could
materially adversely affect our business, operating results, and financial
condition. Future acquisitions, if any, could provide for consideration to be
paid in cash, shares of ON common stock, or a combination of cash and ON common
stock.

OUR ABILITY TO MANAGE GROWTH WILL AFFECT OUR ABILITY TO ACHIEVE AND MAINTAIN
PROFITABILITY

Total CCM and related products revenues grew significantly from 1998 to 1999,
increasing from $11.3 million to $23.5 million, respectively. In fiscal 2000
total CCM and related products revenues decreased slightly from 1999 levels, to
$22.9 million. If we achieve our growth plans, such growth may burden our
operating and financial systems. This burden will require large amounts of
senior management attention and will require the use of other ON resources. Our
ability to compete effectively and to manage future growth (and our future
operating results) will depend in part on our ability to implement and expand
operational, customer support, and financial control systems and to expand,
train, and manage our employees. In particular, in connection with acquisitions,
we will be required to integrate additional personnel and to augment or replace
existing financial and management systems. Such integration could disrupt our
operations and could adversely affect our financial results. We may not be able
to augment or improve existing systems and controls or implement new systems and
controls in response to future growth, if any. Any failure to do so could
materially adversely affect our business, operating results, and financial
condition.

OUR BUSINESS DEPENDS IN LARGE PART UPON THE PROTECTION OF OUR PROPRIETARY
TECHNOLOGY THE LOSS OF WHICH WOULD HAVE A MATERIAL ADVERSE AFFECT ON OUR
BUSINESS

Our success is heavily dependent upon our proprietary software technology. We
rely on a combination of contractual rights, trademarks, trade secrets and
copyright to establish and protect our proprietary rights in software.

                                       15
<PAGE>
We use a printed "shrink-wrap" license for users of our products distributed
through traditional distribution channels in order to protect our copyrights and
trade secrets in those products. Since the licensee does not sign these
shrink-wrap licenses, many authorities believe that they may not be enforceable
under many state laws and the laws of many foreign jurisdictions. If such
licenses are not enforceable, the user would not be bound by the license terms,
including the terms that seek to protect our proprietary technology. If the
printed shrink-wrap licenses prove to be unenforceable, this may have a material
adverse effect on our business, financial condition, prospects and results of
operations.

The laws of some foreign countries either do not protect our proprietary rights
or offer only limited protection for those rights. Furthermore, in countries
with a high incidence of software piracy, we may experience a higher rate of
piracy of our products.

We have obtained registrations in the United States for the following
trademarks: ON Technology, Meeting Maker, CCM, ON Command CCM, Notework, DaVinci
Systems, ON Technology & Design, ON Location and Instant Update. We have filed
for the trademark "ON Command CCM" in the European Community, Canada and
Australia. As a result, we may not be able to prevent a third party from using
our trademarks in many foreign jurisdictions. We have not to date registered any
of our copyrights.

There can be no assurance that the steps taken by ON to protect our proprietary
software technology will be adequate. Lesser sensitivity by corporate,
government or institutional users to avoiding infringement of propriety rights
could have a material adverse effect on our business, financial condition,
prospects and results of operations.

There has been substantial litigation in the software industry involving
intellectual property rights of technology companies. We have not been involved
in any such litigation. Although we do not believe that we are infringing the
intellectual property rights of others, any involvement in this type of
litigation may have a material adverse effect on our business, financial
condition, prospects and results of operations. In addition, since we may
acquire or license a portion of the software included in our future products
from third parties, our exposure to infringement actions may increase because we
must rely upon these third parties for information as to the origin and
ownership of any software being acquired. We generally obtain representations as
to the origin and ownership of such acquired or licensed software and we
generally obtain indemnification to cover any breach of such representations.
However, there can be no assurance that these representations are accurate or
that such indemnification will provide us with adequate compensation for a
breach of these representations. In the future, we may need to initiate
litigation to enforce and protect trade secrets and other intellectual property
rights owned by us. We may also be subject to litigation to defend against
claimed infringement of the rights of others or to determine the scope and
validity of the proprietary rights of others. This litigation could be costly
and cause diversion of management's attention, either of which could have a
material adverse effect on our business, financial condition, prospects and
results of operations. Adverse rulings or findings in such litigation could
result in the loss of our proprietary rights, subject us to significant
liabilities, require us to seek licenses from third parties or prevent us from
manufacturing or selling our products. Any one of these items could have a
material adverse effect on our business, condition, prospects and results of
operations. Furthermore, there can be no assurance that any necessary licenses
will be available to us on reasonable terms, or at all.

IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS MAY BE ABLE
TO USE OUR TECHNOLOGY OR TRADEMARKS AND THIS COULD WEAKEN OUR COMPETITIVE
POSITION, REDUCE OUR REVENUE AND INCREASE COSTS

We rely primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. Such laws provide only limited protection. Despite
precautions that we take, it may be possible for unauthorized third parties to
copy aspects of our current or future products or to obtain and use information
that we regard as proprietary. In particular, we may provide our licensees with
access to our data model and other proprietary information underlying our
licensed applications. Such means of protecting our proprietary rights may not
be adequate. Additionally, our competitors may independently develop similar or
superior technology. Policing unauthorized use of software is difficult and,
while we do not expect software piracy to be a persistent problem, some foreign
laws do not protect our proprietary rights to the same extent as United States
laws. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, or to determine the validity and
scope of the proprietary rights of others. Litigation could result in
substantial costs and diversion of resources, and could materially adversely
affect our business, operating results, and financial condition.

                                       16
<PAGE>
THIRD PARTIES COULD ASSERT, FOR COMPETITIVE OR OTHER REASONS, THAT OUR PRODUCTS
INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS, AND SUCH CLAIMS COULD INJURE OUR
REPUTATION, CONSUME TIME AND MONEY, AND ADVERSELY AFFECT OUR ABILITY TO SELL OUR
PRODUCTS

While we are not aware that any of our software product offerings infringe the
proprietary rights of third parties, third parties may claim infringement with
respect to our current or future products. We expect that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in the software industry grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time consuming, result in costly litigation, cause
product shipment delays, or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements may not be available on acceptable
terms or at all. As a result, infringement claims could have a material adverse
effect on our business, operating results, and financial condition.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US

Our license agreements with our customers typically contain provisions designed
to limit exposure to potential product liability claims. Such limitation of
liability provisions may, however, not be effective under the laws of certain
jurisdictions. Although we have not experienced any product liability claims to
date, the sale and support of our products entails the risk of such claims. We
may be subject to such claims in the future. A product liability claim could
materially adversely affect our business, operating results, and financial
condition.

OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND
IF THEY CHOOSE TO LEAVE ON, IT COULD HARM OUR BUSINESS

Our success will depend to a significant extent on the continued service of our
senior management and certain other key employees, including selected sales,
consulting, technical and marketing personnel. While our employees are required
to sign standard agreements concerning confidentiality and ownership of
inventions, few of our employees are bound by an employment or noncompetition
agreement. In addition, we do not generally maintain key man life insurance on
any employee. The loss of the services of one or more of our executive officers
or key employees or the decision of one or more such officers or employees to
join a competitor or otherwise compete directly or indirectly with us could have
a material adverse effect on our business, operating results and financial
condition.

WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL TO
SUCCESSFULLY GROW OUR BUSINESS

Our future success will likely depend in large part on our ability to attract
and retain additional highly skilled technical, sales, management, and marketing
personnel. Competition for such personnel in the computer software industry is
intense, and in the past we have experienced difficulty in recruiting qualified
personnel. New employees generally require substantial training in the use of
our products. We may not succeed in attracting and retaining such personnel. If
we do not, our business, operating results, and financial condition could be
materially adversely affected.

FUTURE CHANGES IN THE FEDERAL IMMIGRATION LAWS COULD LIMIT OUR ABILITY TO
RECRUIT AND EMPLOY SKILLED TECHNICAL PROFESSIONALS FROM OTHER COUNTRIES, AND
THIS COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS

To achieve our business objectives, we must be able to recruit and employ
skilled technical professionals from other countries. Any future shortage of
qualified technical personnel who are either United States citizens or otherwise
eligible to work in the United States could increase our reliance on foreign
professionals. Many technology companies have already begun to experience
shortages of such personnel. Any failure to attract and retain qualified
personnel as necessary could materially adversely affect our business and
operating results. Foreign computer professionals such as those employed by us
typically become eligible for employment in the United States by obtaining a
nonimmigrant visa. The number of nonimmigrant visas is limited by federal
immigration law. Currently, Congress is considering approving an increase in the
number of visas available. We cannot predict whether such legislation will
ultimately become law. We also cannot predict what effect any future changes in
the federal immigration laws will have on our business, operating results, or
financial condition.

                                       17
<PAGE>
PROVISIONS IN OUR CHARTER DOCUMENTS AND IN DELAWARE LAW MAY DISCOURAGE POTENTIAL
ACQUISITION BIDS FOR ON AND PREVENT CHANGES IN OUR MANAGEMENT WHICH OUR
STOCKHOLDERS FAVOR

Certain provisions of ON's charter documents eliminate the right of stockholders
to act by written consent without a meeting and specify certain procedures for
nominating directors and submitting proposals for consideration at stockholder
meetings. Such provisions are intended to increase the likelihood of continuity
and stability in the composition of the ON board of directors and in the
policies set by the board. These provisions also discourage certain types of
transactions, which may involve an actual or threatened change of control
transaction. These provisions are designed to reduce the vulnerability of ON to
an unsolicited acquisition proposal. As a result, these provisions could
discourage potential acquisition proposals and could delay or prevent a change
in control transaction. These provisions are also intended to discourage certain
tactics that may be used in proxy fights. However, they could have the effect of
discouraging others from making tender offers for ON's shares. As a result,
these provisions may prevent the market price of ON common stock from reflecting
the effects of actual or rumored takeover attempts. These provisions may also
prevent changes in the management of ON.

ON's board of directors has the authority to issue up to 2,000,000 shares of
preferred stock in one or more series. The board of directors can fix the price,
rights, preferences, privileges, and restrictions of such preferred stock
without any further vote or action by ON's stockholders. The issuance of
preferred stock allows ON to have flexibility in connection with possible
acquisitions and other corporate purposes. However, the issuance of shares of
preferred stock may delay or prevent a change in control transaction without
further action by the ON stockholders. As a result, the market price of the ON
common stock and the voting and other rights of the holders of ON common stock
may be adversely affected. The issuance of preferred stock may result in the
loss of voting control to others. ON has no current plans to issue any shares of
preferred stock.

ON is subject to the antitakeover provisions of the Delaware General Corporation
Law, which regulates corporate acquisitions. The Delaware law prevents certain
Delaware corporations, including ON, from engaging, under certain circumstances,
in a "business combination" with any "interested stockholder" for three years
following the date that such stockholder became an interested stockholder. For
purposes of Delaware law, a "business combination" includes, among other things,
a merger or consolidation involving ON and the interested stockholder and the
sale of more than 10% of ON's assets. In general, Delaware law defines an
"interested stockholder" as any entity or person beneficially owning 15% or more
of the outstanding voting stock of a company and any entity or person affiliated
with or controlling or controlled by such entity or person. Under Delaware law,
a Delaware corporation may "opt out" of the antitakeover provisions. ON has not
"opted out" of the antitakeover provisions of Delaware law.

OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
WHICH MAY PREVENT STOCKHOLDERS FROM RESELLING THEIR SHARES AT OR ABOVE THE PRICE
AT WHICH THEY PURCHASED THEIR SHARES

In the past, the market price of our common stock has varied greatly and the
volume of our common stock traded has fluctuated greatly as well. We expect such
fluctuation to continue. The fluctuation results from a number of factors
including:

o    any shortfall in revenues or net income from revenues or net income
     expected by securities analysts;

o    announcements of new products by ON or our competitors;

o    quarterly fluctuations in our financial results or the results of other
     software companies, including those of our direct competitors;

o    changes in analysts' estimates of our financial performance, the financial
     performance of our competitors, or the financial performance of software
     companies in general;

o    general conditions in the software industry;

o    changes in prices for our products or the products of our competitors;

                                       18
<PAGE>
o    changes in our revenue growth rates or the growth rates of our competitors;

o    sales of large blocks of ON common stock; and

o    conditions in the financial markets in general.

In addition, the stock market may from time to time experience extreme price and
volume fluctuations. Many technology companies, in particular, have experienced
such fluctuations. Often, such fluctuations have been unrelated to the operating
performance of the specific companies. The market price of our common stock may
experience significant fluctuations in the future.

THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE OF CERTAIN WARRANTS WILL HAVE A
DILUTIVE EFFECT

On December 18, 2000, the Company entered into exchange agreements with Castle
Creek Technology Partners, LLC and Marshall Capital Management, Inc. (the
"Investors") pursuant to which each Investor has exchanged certain existing
warrants (the "Initial 1999 Warrants") for a new warrant exercisable for
1,400,000 shares of common stock (each a "New Warrant" and, collectively, the
"New Warrants") and a promissory note in the principal amount of $500,000. The
number of shares of ON's common stock issued or issuable upon exercise of the
new warrants (the "Warrant Shares") is fixed at 2,800,000 in the aggregate
(subject to adjustment for stock splits, stock dividends and similar events and
to weighted average antidilution adjustments in the case of certain below-market
securities issuances by ON); however, because the exercise price is $0.01 per
share (subject to adjustment for stock splits, stock dividends and similar
events and to weighted average antidilution adjustments in the case of certain
below-market securities issuances by ON), the issuance of the Warrant Shares has
(in the case of Warrant Shares already issued) or will have a dilutive effect on
the stockholders of ON. This effect is significantly less dilutive than the
dilution that would have resulted from the exercise of the Initial 1999
Warrants.

RISK OF DELISTING BY NASDAQ STOCK MARKET

Under rules adopted by the Nasdaq Stock Market, ON's common stock is subject to
possible delisting if the minimum bid price for ON common stock falls below
$1.00 for a period of 30 consecutive business days. Once notified of this
deficiency by the Nasdaq Stock Market, ON would have 90 days from the date of
the notification to achieve compliance with the minimum bid price standard.
Compliance can be achieved during this 90-day period if the minimum bid price
exceeds $1.00 for at least 10 consecutive business days. Delisting could have a
material adverse effect on the price of our common stock and on the level of
liquidity currently available to our shareholders.

WE WILL BE SUBJECT TO FINANCIAL PENALTIES IF THE SHARES ISSUED OR ISSUABLE UPON
EXERCISE OF THE NEW WARRANTS CANNOT BE RESOLD UNDER A REGISTRATION STATEMENT ON
FORM S-3

ON filed a registration statement on Form S-3 covering the resale of the Warrant
Shares, which registration statement has been declared effective by the
Securities and Exchange Commission. If such registration statement is not
available for resales of the Warrant Shares during the two-year period
commencing with its effective date for any reason outside of the control of the
Investors, ON must pay each of the Investors a penalty in an amount equal to
$7,500 for each day such registration statement is not effective.

                                       19
<PAGE>
                                     PART IV


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

          (a)(1) Financial Statements:                                     Page
                                                                          Number
                                                                          ------
                 Report of Independent Public Accountants                   21

                 Consolidated Balance Sheets:
                     December 31, 2000 and 1999                             22

                 Consolidated Statements of Operations:
                     Years ended December 31, 2000, 1999 and 1998           23

                 Consolidated Statements of Stockholders' Equity:
                     Years ended December 31, 2000, 1999 and 1998           24

                 Consolidated Statements of Cash Flows:
                     Years ended December 31, 2000, 1999 and 1998           25

                 Notes to the Consolidated Financial Statements             27


Other schedules are omitted because the conditions required for filing do not
exist or the required information is included in the financial statements or
notes thereto.

          (a)(3) Exhibits: See Index to Exhibits on page 45. The Exhibits listed
in the accompanying Index of Exhibits are filed or incorporated by reference as
part of this report.

          (b)    Reports on Form 8-K: Report on Form 8-K filed by the Company on
December 21, 2000 regarding the Exchange Agreements with the Investors.





















                                       20
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Board of Directors and Stockholders of
ON Technology Corporation and Subsidiaries:

     We have audited the accompanying consolidated balance sheets of ON
Technology Corporation (a Delaware corporation) and Subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of operations,
stockholders' 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 ON Technology Corporation'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 ON Technology 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

Boston, Massachusetts
January 26, 2001




















                                       21
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE><CAPTION>
                                                                                     December 31,
                                                                                 ---------------------
                                                                                   2000         1999
                                                                                 --------     --------
<S>                                                                              <C>          <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                                        $  9,437     $ 16,941
Restricted cash                                                                     1,069         --
Accounts receivable, net of allowance of $2,177 and $666, respectively              5,561        7,347
Due from Meeting Maker, Inc. (MMI) (Note 2)                                           103         --
Prepaid expenses and other current assets                                             511          674
                                                                                 --------     --------
     Total current assets                                                          16,681       24,962
                                                                                 --------     --------

PROPERTY AND EQUIPMENT, AT COST:
Computers and equipment                                                             4,935        4,561
Furniture and fixtures                                                                335          239
Leasehold improvements                                                                528          284
                                                                                 --------     --------
Less-Accumulated depreciation and amortization                                      4,213        3,442
                                                                                 --------     --------
                                                                                    1,585        1,642
                                                                                 --------     --------
Other assets and deposits                                                             105          184
                                                                                 --------     --------
                                                                                 $ 18,371     $ 26,788
                                                                                 ========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:
Accounts payable                                                                 $  2,705     $  3,235
Accrued expenses                                                                    2,890        2,532
Notes payable (Note 6)                                                                875         --
Reserve for distributor inventories                                                  --            120
Deferred revenue - short term                                                       3,777        3,931
                                                                                 --------     --------
     Total current liabilities                                                     10,247        9,818

Warrant liability (Note 6)                                                            987         --
Deferred revenue - long term                                                          235         --
                                                                                 --------     --------
     Total liabilities                                                             11,469        9,818
                                                                                 --------     --------
Commitments (Note 5)

STOCKHOLDERS' EQUITY:
Preferred stock, Authorized - 2,000,000 shares Issued - none                         --           --
Common stock, $0.01 par value - Authorized - 30,000,000 shares Issued and
   outstanding - 15,300,951 shares and 13,848,164 shares, respectively                153          138
Additional paid-in capital                                                         73,843       74,596
Deferred stock-based compensation                                                     (97)        --
Accumulated deficit                                                               (67,130)     (57,694)
Accumulated other comprehensive income (loss)                                         180          (23)
Treasury stock  (15,000 shares at cost)                                               (47)         (47)
                                                                                 --------     --------
     Total stockholders' equity                                                     6,902       16,970
                                                                                 --------     --------
                                                                                 $ 18,371     $ 26,788
                                                                                 ========     ========
</TABLE>
                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                       22
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE><CAPTION>
                                                           For the Years Ended December 31,
                                                                Year ended December 31,
                                                    ----------------------------------------------
                                                        2000             1999             1998
                                                    ------------     ------------     ------------
<S>                                                 <C>              <C>              <C>
REVENUE:
Net CCM and related products                        $     16,073     $     17,993     $      8,176
CCM and related service and maintenance                    6,633            5,524            3,124
Meeting Maker, Inc. (MMI)                                  3,405            7,360            7,530
Other                                                        236             --              1,180
                                                    ------------     ------------     ------------
         TOTAL REVENUE                                    26,347           30,877           20,010
                                                    ------------     ------------     ------------
OPERATING EXPENSES:
Cost of CCM and related product revenue                    3,462            3,849            3,240
Cost of CCM and related service and maintenance
revenue                                                      894              937              369
Cost of MMI revenue                                           75              645              543
Sales and marketing                                       12,324           11,976            9,318
Research and development                                   9,811            8,697            7,193
General and administrative                                 6,681            4,465            3,436
MMI operating expenses                                     2,159            2,676            2,962
Gain on sale of assets                                      --               --             (6,518)
                                                    ------------     ------------     ------------
         LOSS FROM OPERATIONS                             (9,059)          (2,368)            (533)
Interest expense                                              (7)             (16)             (71)
Interest income                                              505              169              416
Other income, net                                            716              216             --
                                                    ------------     ------------     ------------
         LOSS BEFORE ALLOCATION TO MMI  AND
         PROVISION FOR INCOME TAXES                       (7,845)          (1,999)            (188)
Allocation to MMI (Note 2)                                (1,171)            --               --
                                                    ------------     ------------     ------------
         LOSS BEFORE PROVISION FOR INCOME TAXES           (9,016)          (1,999)            (188)
                                                    ------------     ------------     ------------
Provision for income taxes                                  (420)            --                (27)
                                                    ------------     ------------     ------------
         NET LOSS                                   $     (9,436)    $     (1,999)    $       (215)
                                                    ============     ============     ============
         Basic loss per share                       $      (0.67)    $      (0.16)    $      (0.02)
                                                    ============     ============     ============
         Diluted loss per share                     $      (0.67)    $      (0.16)    $      (0.02)
                                                    ============     ============     ============
         Basic number of common weighted average
         shares outstanding                           14,140,742       12,526,398       12,280,953
                                                    ============     ============     ============
         Diluted number of common weighted
         average shares outstanding                   14,140,742       12,526,398       12,280,953
                                                    ============     ============     ============
</TABLE>
                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS.



                                       23
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)
<TABLE><CAPTION>
                                                                 Stockholder's Equity
                       -----------------------------------------------------------------------------------------------------------
                           Common Stock                                                    Treasury Stock
                       -------------------                                               -------------------
                                                        Deferred             Accumulated
                        Number      $0.01   Additional   Stock-                 Other     Number
                          of         Par     Paid-in     Based   Accumulated Comprehensive of                         Comprehensive
                        shares      value    Capital  Compensation  Deficit Income(Loss)  shares      Cost       Total      Loss
                       --------   --------   --------   --------   --------   --------   --------   --------   --------   --------
<S>                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Balance,
   December 31, 1997     12,223        122     62,665       (229)   (55,480)       (35)       (15)       (47)     6,996
Sale of common stock
   under the employee
   Stock Purchase Plan       58          1         65        --         --         --         --         --          66
Exercise of common
   stock options             95          1         63        --         --         --         --         --          64
Amortization of deferred
   compensation related
   to grants of common
   stock options            --         --         --         229        --         --         --         --         229
Cumulative translation
   adjustment               --         --         --         --         --           1        --         --           1          1
Net loss                    --         --         --         --        (215)       --         --         --        (215)      (215)
Comprehensive loss          --         --         --         --         --         --         --         --         --        (214)
                       --------   --------   --------   --------   --------   --------   --------   --------   --------   ========
Balance,
   December 31, 1998     12,376        124     62,793        --     (55,695)       (34)       (15)       (47)     7,141

Sale of common stock
   and warrants, net of
   $1,039 of issuance
   costs                  1,030         10     10,951        --         --         --         --         --      10,961
Sale of common stock
   under the employee
   Stock Purchase Plan      122          1        142        --         --         --         --         --         143
Exercise of common
   stock options            320          3        628        --         --         --         --         --         631
Deferred compensation
   related to grants
   of common stock options  --         --          82        (82)       --         --         --         --         --
Amortization of deferred
   compensation related
   to grants of common
   stock options            --         --         --          82        --         --         --         --          82
Cumulative translation
   adjustment               --         --         --         --         --          11        --         --          11         11
Net loss                    --         --         --         --      (1,999)       --         --         --      (1,999)    (1,999)
Comprehensive loss          --         --         --         --         --         --         --         --         --    $ (1,988)
                       --------   --------   --------   --------   --------   --------   --------   --------   --------   ========
Balance,
   December 31, 1999     13,848        138     74,596        --     (57,694)       (23)       (15)       (47)    16,970

Sale of common stock
   under the Employee
   Stock Purchase Plan      144          1        129        --         --         --         --         --         130
Exercise of common
   stock options            648          7        671        --         --         --         --         --         678
Conversion of warrants
   into note payable
   (Note 5)                 --         --        (800)       --         --         --         --         --        (800)
Issuance of common stock
   warrants (Note 5)        --         --      (1,910)       --         --         --         --         --      (1,910)
Reclassification of
   warrants to permanent
   equity upon exercise     --         --         375        --         --         --         --         --         375
Exercise of warrants
   (Note 5)                 661          7         (7)       --         --         --         --         --         --
Deferred compensation
   related to grants
   of common stock options  --         --         789       (789)       --         --         --         --         --
Amortization of deferred
   compensation related
   to grants of common
   stock options            --         --         --         692        --         --         --         --         692
Cumulative translation
   adjustment               --         --         --         --         --         203        --         --         203        203
Net loss                    --         --         --         --      (9,436)       --         --         --      (9,436)    (9,436)
Comprehensive loss          --         --         --         --         --         --         --         --         --    $ (9,233)
                       --------   --------   --------   --------   --------   --------   --------   --------   --------   ========
Balance,
   December 31, 2000     15,301   $    153   $ 73,843   $    (97)  $(67,130)  $    180        (15)  $    (47)  $  6,902
                       --------   --------   --------   --------   --------   --------   --------   --------   --------
</TABLE>
                                       24
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
<TABLE><CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                             ----------------------------------
                                                               2000         1999         1998
                                                             --------     --------     --------
<S>                                                          <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                   $ (9,436)    $ (1,999)    $   (215)
Adjustments to reconcile net loss
to net cash used in operating activities
  Gain on sale of assets                                         (458)        --         (6,518)
  Depreciation and amortization                                   720        1,726        1,580
  Amortization of deferred stock-based compensation               614           82          229
  Revaluation of notes payable                                     75         --           --
  Warrant liability revaluation                                  (548)        --           --
  Changes in assets and liabilities:
      Accounts receivable                                       1,525       (3,946)        (443)
      Prepaid expenses and other current assets                   180          163        1,935
      Accounts payable                                         (1,048)        (812)        (323)
      Accrued expenses                                            399          578       (2,460)
      Reserve for distributor inventories                        (120)        --            (96)
      Due from MMI                                               (103)        --           --
      Deferred revenue                                            970        2,189          735
                                                             --------     --------     --------
      NET CASH USED IN OPERATING ACTIVITIES                    (7,230)      (2,019)      (5,576)
                                                             --------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Decrease (increase) in other assets and deposits                 44          (24)           1
  Purchase of property and equipment, net                        (803)      (1,072)        (878)
  Restricted cash to secure facility lease                     (1,069)        --           --
  Proceeds from assets held for sale, net of
      transaction costs                                          --           --          8,273
                                                             --------     --------     --------
      NET CASH (USED IN) PROVIDED BY
      INVESTING ACTIVITIES                                     (1,828)      (1,096)       7,396
                                                             --------     --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from sale of common stock and
      warrants to purchase common stock                          --         10,961         --
  Exercise of stock options                                       678          631           64
  Sale of stock under the Employee Stock Purchase Plan            130          143           66
  Principal repayments on obligations under capital lease        --            (10)        (356)
                                                             --------     --------     --------
      NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES         808       11,725         (226)
                                                             --------     --------     --------
  Effect of exchange rates on cash and cash equivalents           746          330         (272)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS           (7,504)       8,940        1,322

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                   16,941        8,001        6,679
                                                             --------     --------     --------
CASH AND CASH EQUIVALENTS, END OF YEAR                       $  9,437     $ 16,941     $  8,001
                                                             ========     ========     ========
</TABLE>
                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
                   OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                       25
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
                             (DOLLARS IN THOUSANDS)


<TABLE><CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                             ----------------------------------
                                                               2000         1999         1998
                                                             --------     --------     --------
<S>                                                          <C>          <C>          <C>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for-
   Interest                                                  $      7     $     16     $     71
                                                             ========     ========     ========
   Income taxes                                              $      8     $   --       $     37
                                                             ========     ========     ========


Non-Cash Investing and Financing Activities:

Exchange of warrants for notes payable                       $    800     $   --       $   --
                                                             ========     ========     ========

Issuance of warrants under Exchange Agreement
   Initial valuation                                         $  1,910     $   --       $   --
   Reclass of warrants to permanent equity
     upon exercise                                               (375)
                                                             --------     --------     --------
                                                             $  1,535     $   --       $   --
                                                             ========     ========     ========
</TABLE>


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



















                                       26
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


(1)  OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

     ON Technology Corporation and Subsidiaries (the Company) was incorporated
in Delaware in 1985.

     The Company provides enterprise desktop management software for
heterogeneous enterprise networks that is open, scalable, and easy to use and
administer. The Company's principal product, ON COMMAND CCM(TM), or CCM, is
designed to address the enterprise desktop management requirements of large
organizations. This product is an advanced system for managing and controlling
PC software across corporate networks and the Internet. It also provides a
single, integrated system for managing desktops, mobile PCs, and handhelds from
one centralized server. CCM can be deployed across most major hardware platforms
and network operating systems and protocols.

     The Company incurred net losses of approximately $9,436, $1,999 and $215
during the years ended December 31, 2000, 1999 and 1998, respectively. The
Company has an accumulated deficit of $67,130 as of December 31, 2000. The
Company is subject to the risks and challenges similar to other technology-based
companies. These risks include, but are not limited to successful development
and marketing of products, the ability to obtain adequate financing to support
growth and future operations and competition from substitute products and larger
companies with greater financial, technical, management and marketing resources.

     The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described below and elsewhere in
the notes to the consolidated financial statements.

PRINCIPLES OF CONSOLIDATION

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

MANAGEMENT ESTIMATES AND UNCERTAINTIES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount 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 expense during the
reporting period. Actual results could differ from those estimates.













                                       27
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


REVENUE RECOGNITION

     The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' (AICPA) Statement of Position (SOP) No. 97-2,
SOFTWARE REVENUE RECOGNITION. Software license revenue consists principally of
revenue earned under perpetual software license agreements and is generally
recognized upon shipment of the software if collection of the resulting
receivable is probable, the fee is fixed or determinable, and vendor-specific
objective evidence exists for all undelivered elements to allow allocation of
the total fee to all delivered and undelivered elements of the arrangement.
Revenues under such arrangements, which may include multiple software products
and services sold together, are allocated to each element based on the residual
method in accordance with SOP No. 98-9, SOFTWARE REVENUE RECOGNITION, WITH
RESPECT TO CERTAIN TRANSACTIONS. Under the residual method, the fair value of
the undelivered elements is deferred and subsequently recognized when earned.
The Company has established sufficient vendor specific objective evidence for
professional services, training and maintenance and support services, based on
the price charged when these elements were sold separately. Accordingly,
software license revenue is recognized under the residual method in arrangements
in which software is licensed with professional services, training and
maintenance and support services.

     The Company also sells products to resellers. The Company typically does
not ship products to resellers until an end user is identified, at which point
the Company recognizes revenue under the arrangement. The Company provides for
returns based on historical experience.

     Service revenues from time and expense contracts and consulting and
training revenue are recognized as the related services are performed.

     Amounts billed in excess of revenue recognized related to services and
maintenance are reflected as deferred revenue in the accompanying consolidated
balance sheets.

Cash and Cash Equivalents and Restricted Cash

     Cash and cash equivalents consist of cash and investments with original
maturities of three months or less. Cash equivalents consist of money market and
mutual fund investments. Restricted cash represents the minimum cash balance
requirement that the Company has with its financial institution related to the
Company's $1,069 outstanding letter of credit guarantee securing the Company's
lease obligations on its Waltham, Massachusetts' facility.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash equivalents,
accounts receivable, accounts payable, letter of credit, notes payable and
warrant liability. The estimated fair value of these financial instruments
approximates their carrying value at December 31, 2000 and 1999. The estimated
fair values have been determined through information obtained from market
sources and management estimates.

                                       28
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


DEPRECIATION AND AMORTIZATION

     The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of the assets over their
estimated useful lives, using the straight-line method, as follows:

                                                     ESTIMATED
        ASSET CLASSIFICATION                        USEFUL LIFE
        --------------------                       -------------
Computers and equipment................              3-7 Years
Furniture and fixtures.................              5-7 Years
Leasehold improvements.................            Life of lease


IMPAIRMENT OF LONG-LIVED ASSETS

     The Company accounts for its long-lived assets in accordance with SFAS No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. At each occurrence of a certain triggering event or
change in circumstances, the Company evaluates the realizability of long-lived
assets based on profitability expectations, using the undiscounted cash flow
method, for each subsidiary having a material long-lived assets balance. If an
impairment is indicated, the related long-lived assets are written down to their
estimated fair value. Factors that management considers in performing this
evaluation include current operating results, trends and prospects, product
demand, competition and other economic factors, both domestic and international.
Based on its most recent analysis, the Company believes that no impairment of
long-lived assets exists at December 31, 2000.

SOFTWARE DEVELOPMENT COSTS

     Costs incurred in the development of computer software to be sold have been
expensed as research and development costs in the accompanying consolidated
statements of operations, in accordance with SFAS No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED. The costs
incurred subsequent to the attainment of technological feasibility in 2000, 1999
and 1998 are insignificant and accordingly have been charged to research and
development.

FOREIGN CURRENCY TRANSLATION

     The Company translates the assets and liabilities of its foreign
subsidiaries at the exchange rates in effect at the reporting date in accordance
with SFAS No. 52, FOREIGN CURRENCY TRANSLATION. Revenues and expenses are
translated using exchange rates in effect during each period. The resultant
translation adjustment is reflected as a separate component of stockholders'
equity.

     During the years ended December 31, 2000, 1999 and 1998, the Company
incurred a net foreign exchange (gain) loss of $190, $16, and $(4),
respectively, primarily resulting from intercompany loans to foreign
subsidiaries and U.S. dollar-denominated debt at a foreign subsidiary. This
amount is included in other income, net in the accompanying consolidated
statements of operations. As of December 31, 2000, the Company had not entered
into any foreign currency contracts to hedge this exposure.

                                       29
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

CONCENTRATION OF CREDIT RISK

     SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. As of December 31, 2000 the Company has no significant
off-balance-sheet or concentrations of credit risk. The Company's financial
instruments that subject the Company to credit risk consist of cash and cash
equivalents and accounts receivable. The Company maintains the majority of cash
balances with two financial institutions. The Company's accounts receivable
credit risk is not concentrated within any geographic area. The Company recorded
revenues of greater than 10% of total revenues for the years ended December 31,
2000, 1999 and 1998 and had significant accounts receivable balances at December
31, 2000 and 1999 from the following customers:

                                               2000
                                     -------------------------
                                                     Accounts
                                     Revenues       Receivable
                                     --------       ----------
                 Customer A           17.7%            12.1%
                 Customer B            **              16.2%


                                               1999
                                     -------------------------
                                                     Accounts
                                     Revenues       Receivable
                                     --------       ----------
                 Customer A           14.2%              *
                 Customer B            **              18.7%


                                        1998
                                     ----------
                                     Revenues
                                     --------
                 Customer A           17.5%
                 Customer B            **



* -  ACCOUNTS RECEIVABLE FROM THIS CUSTOMER WERE LESS THAN 10% OF THE COMPANY'S
TOTAL ACCOUNTS RECEIVABLE AT THE APPLICABLE PERIOD-END.

** - REVENUES DERIVED FROM THIS CUSTOMER WERE LESS THAN 10% OF THE COMPANY'S
TOTAL REVENUE FOR THE APPLICABLE year.






                                       30
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


LOSS PER SHARE

     The Company calculates loss per share in accordance with SFAS 128, EARNINGS
PER SHARE. Basic loss per share is calculated by dividing net loss by the
weighted average number of common shares outstanding for the period. Diluted
loss per share is the same as basic loss per share for all periods presented
since the effect of stock options and warrants would be anti-dilutive.

     Anti-dilutive securities, which consist of stock options and warrants, that
were not included in diluted loss per share, were 1,825,833, 1,093,250 and
1,764,968 for the years ended December 31, 2000, 1999 and 1998, respectively.

COMPREHENSIVE LOSS

     The Company adopted SFAS 130, REPORTING COMPREHENSIVE INCOME, effective
January 1, 1998, and has disclosed comprehensive loss for all periods presented
in the accompanying consolidated statements of stockholder's equity and
comprehensive loss. SFAS 130 establishes standards for reporting and display of
comprehensive income (loss) and its disclosure in the financial statements. The
Company's only item of other comprehensive loss relates to cumulative
translation adjustment, and is presented separately on the balance sheet as
required.

STOCK-BASED COMPENSATION

     SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the
measurement of the fair value of stock options or warrants granted to employees
to be included in the statement of operations or, alternatively, disclosed in
the notes to consolidated financial statements. The Company accounts for
stock-based compensation for employees under Accounting Principles Board Opinion
(APB) No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations and provides additional footnote disclosure as required under
SFAS No. 123. The Company records the fair market value of stock options and
warrants granted to non-employees in exchange for services in accordance with
Emerging Issues Task Force (EITF) Issue No. 96-18, ACCOUNTING FOR EQUITY
INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN
CONJUNCTION WITH SELLING, GOODS OR SERVICES, in the consolidated statement of
operations.

RECLASSIFICATIONS

     Certain prior-year balances have been reclassified to conform to the
current-year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1999, Financial Accounting Standards Board (FASB) issued SFAS No.
137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF
THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, which defers the effective date of
SFAS No. 133 to all fiscal years beginning after June 15, 2000. SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, issued June 1998,
as amended by SFAS No. 138, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company does not
expect adoption of this statement to have significant impact on its consolidated
financial position or results of operations.

      In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS
(SAB 101) as amended by SAB 101A and SAB 101B. SAB 101 summarizes the staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues. The Company adopted SAB 101 in fiscal 2000 without a
significant impact on our financial position or results of operations.

                                       31
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


     In March 2000, the FASB issued FASB Interpretation (FIN) No. 44,
(Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB Opinion No 25." FIN No. 44 clarifies the application of
APB Opinion No. 25 ("APB 25") and, among other issues, clarifies the following:
the definition of an employee for purposes of applying APB 25; the criteria for
determining whether a plan qualifies as a non-compensatory plan; the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN No. 44 is effective July 1, 2000 but
certain conclusions in FIN No. 44 cover specific events that occurred after
either December 15, 1998 or January 12, 2000. The application of FIN No. 44 has
not had a material impact on our financial position or results of operations

(2)  DISPOSITION OF MEETING MAKER BUSINESS

     On January 3, 2000, the Company signed an asset purchase agreement with a
newly organized privately held company named Meeting Maker, Inc. (MMI) to sell
the Company's Groupware business (Meeting Maker) subject to the approval of the
Company's stockholders and certain other conditions. In connection with the
asset purchase agreement, the Company entered into a management agreement, also
dated January 3, 2000, in which the Company transferred operating control of the
Groupware business (Meeting Maker) to MMI. ON had no risk of ownership related
to the operating results from the Groupware business since January 3, 2000 and
has included the results of operations of MMI and allocated 100% of the net
income (loss) to MMI for the period January 3, 2000 to June 30, 2000. The
Company did not receive the required number of shareholder votes to approve the
Meeting Maker transaction at the May 26, 2000 Special Meeting of Shareholders.

     As a result, the Company entered into a license agreement with MMI
effective as of June 30, 2000, which, among other things, terminated the
previously negotiated sale arrangement and provided for the grant of an
exclusive worldwide license to market and distribute the Meeting Maker product
(including a license to the underlying source code and object code). The Company
receives quarterly royalty payments, subject to certain minimums, from MMI in
connection with the exclusive license. At any time during the license period,
MMI has the ability to exercise a buyout option for the remaining minimum
payments plus an additional fee. The Company is recognizing the royalty fees as
earned ($236 during the year ended December 31, 2000) in other revenue in the
accompanying consolidated statements of operations.

     Additionally, the license agreement provided for the sale of certain assets
and the assumption of certain liabilities related to the Meeting Maker business.
As a result, the Company recognized a gain of $458, net of related transaction
costs, in the quarter ended September 30, 2000. This gain is included in other
income, net in the accompanying consolidated statement of operations

(3)  INCOME TAXES

     The Company provides for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax basis of assets and liabilities, as
measured by the enacted tax rates in effect when these differences are expected
to reverse. In the year ended December 31, 2000, the Company's tax provision
primarily resulted from foreign income. For the year ended December 31, 1999,
the Company incurred a significant U.S. operating loss for both book and

                                       32
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

tax purposes and as a result no tax provision was recorded. The provision for
1998 represents alternative minimum taxes owed.

The components of domestic and foreign income (loss) before the provision for
income taxes are as follows:

                      2000                  1999                  1998
                   ----------            ----------            ----------
Domestic           $  (12,655)           $   (4,161)           $      941
Foreign                 3,639                 2,162                (1,129)
                   ----------            ----------            ----------
                   $   (9,016)           $   (1,999)           $     (188)
                   ==========            ==========            ==========

The components of the provision for income taxes are as follows:

                      2000                  1999                  1998
                   ----------            ----------            ----------
Current
     Federal       $     --              $     --              $       27
     State               --                    --                    --
     Foreign              420                  --                    --
                   ----------            ----------            ----------
                          420                  --                      27
Deferred
     Federal             --                    --                    --
     State               --                    --                    --
     Foreign             --                    --                    --
                   ----------            ----------            ----------
                   $      420            $     --              $       27
                   ==========            ==========            ==========

The Company provides deferred income taxes for temporary differences between
assets and liabilities recognized for financial reporting and income tax
purposes. The income tax effects of these temporary differences are as follows:

                                            2000                  1999
                                         ----------            ----------
Deferred tax asset --
     Temporary differences               $    1,945            $    1,375
     Net operating loss and
     tax credit  carry-forwards              10,413                 9,244
                                         ----------            ----------
                                             12,358                10,619
Valuation allowance                         (12,358)              (10,619)
                                         ----------            ----------
                                         $     --              $     --
                                         ==========            ==========

     The Company has placed a full valuation allowance against its net deferred
tax asset since the Company believes it is "more likely than not" that it will
not be able to utilize its deferred tax asset.

      As of December 31, 2000, the Company has available federal and foreign net
operating loss carry forwards of approximately $21,022 and $2,050, respectively.
These carry forwards expire through 2020 and are subject to review and possible
adjustment by the Internal Revenue Service. The Tax Reform Act of 1997 contains
provisions that may limit the amount of net operating loss and credit carry
forwards that
                                       33
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

the Company may utilize in any one year in the event of certain cumulative
changes in ownership over a three-year period in excess of 50%, as defined.

A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
                                          2000       1999       1998
                                         ------     ------     ------
Federal statutory rate                    (34.0%)    (34.0%)    (34.0%)
State taxes, net of federal benefit        (6.2%)     (6.2%)     (6.2%)
Increase in valuation allowance            35.5%      40.2%      54.6%
                                         ------     ------     ------
Effective tax rate                          4.7%        --       14.4%


(4)  LINE OF CREDIT AND LETTER OF CREDIT

     As of December 31, 2000, the Company has a $1,069 letter of credit
guarantee outstanding securing its Waltham, Massachusetts leased facility. The
Company is required to maintain a cash balance of $1,069 as collateral for this
guarantee. This amount is shown as restricted cash as of December 31, 2000 in
the accompanying consolidated financial statements. At December 31, 2000, the
Company has no line of credit arrangement.

     As of December 31, 1999, the Company had a $700 letter of credit guarantee
outstanding for a subsidiary against a line of credit with a foreign bank and a
$1,069 letter of credit guarantee outstanding securing our new facility lease.
The Company also had an unused and available line of credit of $5,000 with a
commercial bank. The Company was able to borrow under this line of credit up to
the greater of $5,000 or the sum of 80% of qualified domestic accounts
receivable. Advances pursuant to the line of credit were secured by liens
granted on the Company's accounts receivable. At December 31, 1999, the Company
did not have an outstanding balance under the line of credit agreement.

(5)  COMMITMENTS

LEASES

     The Company conducts its operations in leased facilities under operating
leases expiring at various times through 2003. Additionally, in 2000 the Company
acquired certain furniture and fixtures as well as computer equipment under
certain operating leases. These leases also expire at various times through
2003.

     The approximate minimum annual lease payments under the operating leases
are as follows:
                                                             OPERATING
                                                              LEASES
                                                             ---------
2001......................................................   $   1,442
2002......................................................       1,192
2003......................................................          17
                                                             ---------
Total (reduced by minimum sublease rentals of $489)          $   2,651
                                                             =========

                                       34
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

     Total rental expense included in the accompanying consolidated statements
of operations for the years ended December 31, 2000, 1999 and 1998 was $1,415,
$1,290 and $1,547, respectively. The rent expense in 2000 is net of sublease
income of $173. This sublease is coterminous with the Company's Waltham,
Massachusetts' facility lease, expiring in December 2002.

ROYALTIES

     The Company has entered into several software license agreements. These
agreements provide the Company with exclusive licenses to distribute certain
software products in several countries. The Company is required to pay royalties
on all related sales based on a percentage of the sale, subject to a floor. No
minimum royalties are payable unless a product is sold. In 1998, the Company had
exclusive worldwide licenses to distribute additional products, which products
required minimum royalty payments to maintain those distribution rights. As a
result of the software products sold to Elron (Note 11), the Company has no
minimum royalty requirement to maintain exclusive distribution rights as of
December 31, 2000. Total royalty expense included in the accompanying
consolidated statements of operations for the years ended December 31, 2000,
1999 and 1998 was $363, $413 and $252, respectively.

(6)  STOCKHOLDERS' EQUITY

COMMON STOCK
      The Company has 30,000,000 authorized shares of common stock $0.01 par
value, of which 15,300,951 shares were issued at December 31,2000.

PREFERRED STOCK
     The Company has 2,000,000 shares of Preferred Stock, which may be issued
from time to time in one or more series. The Company's Board of Directors has
authority to issue the shares of Preferred Stock in one or more series, to
establish the number of shares to be included in each series and to fix the
designation, powers, preferences and rights of the shares of each series and the
qualifications, limitations or restrictions thereof, without any further vote or
action by the stockholders. The issuance of Preferred Stock could decrease the
amount of earnings and assets available for distribution to holders of Common
Stock, and may have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has not issued any shares of preferred stock
as of December 31, 2000.

PRIVATE PLACEMENT

     On December 30, 1999, the Company closed a $12 million private placement of
common stock and warrants to two institutional investors. In total, the
investors purchased 1,029,674 shares of the Company's common stock at a price of
$11.65 per share and received warrants to purchase 514,838 shares of the
Company's common stock at an exercise price of $15.15 per share, which were
subject to adjustment as described below (the Initial Warrants). Each investor
also received warrants to purchase additional shares of common stock (the
Additional Warrants) exercisable solely upon the occurrence of certain events,
as defined. The Additional Warrants expired under the original terms.

     Under the terms of the Initial Warrant agreements, the shares to be issued
under the warrant were adjusted based on a calculation using the fair market
value of the Company's common stock in December 2000. Based on the market value
of the Company's common stock during December 2000, the warrants would have been
adjusted such that the investors would have had warrants representing in excess
of 80% of the Company's common stock.
                                       35
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

     As a result of this, the Company entered into an Exchange Agreement with
the parties on December 18, 2000, under which the institutional investors agreed
to exchange the Initial Warrants for new warrants to purchase up to a total of
2,800,000 shares of the Company's common stock for $0.01 per share and for
promissory notes from the Company totaling $1.0 million. The warrants to
purchase common stock had a contractual life of approximately four years,
expiring December 31, 2004. The principal of the notes, in addition to interest
(payable at 9%) is due and payable on December 31, 2001. The notes will be
forgiven if the Company has an effective registration statement for twenty days
in the period of November 15, 2001 through December 31, 2001 and the average
closing price for the shares of the Company's common stock on the last 20 days
during such period when the registration statement is effective exceeds $3.00
per share. The Company has recorded the notes payable issued as part of the
exchange for the outstanding warrants at fair value in the accompanying
consolidated financial statements. The Company recognized the corresponding
increase in fair value of $75 as other expense in the Company's consolidated
statements of operations for the year ended December 31, 2000.

     In accordance with EITF Issue No. 00-19, the Company has determined that
these outstanding warrants to purchase 2,800,000 shares of the Company's common
stock should be designated as a liability as a result of warrant holders having
rights that rank higher than common stockholders. Accordingly, the outstanding
warrants were recorded at fair value, as determined by the Black-Scholes pricing
model, at each exercise and reporting period date with any changes in the fair
value included in the results of operations. On December 18, 2000, the Company
calculated the fair value of these warrants, using the Black-Scholes option
pricing model, at $1,910 and recorded a corresponding liability. On December 22,
2000, the warrant holders exercised approximately 672,000 warrants. On December
31, 2000, the warrants were revalued again using the Black-Scholes pricing
methodology. The Company recognized $548 related to a gain in the valuation of
the warrants, which is included in other income in the Company's consolidated
statement of operations for the year ended December 31, 2000.

     The average assumptions used in the above calculations were:

     -----------------------      --------------
     Term                         Approx 4 years
     -----------------------      --------------
     Volatility                   Approx 143%
     -----------------------      --------------
     Dividend Yield               0%
     -----------------------      --------------
     Risk Free Interest Rate      Approx 6.00%
     -----------------------      --------------

     As required by the Exchange Agreements, ON filed a registration statement
on Form S-3 covering the resale of the Warrant Shares, which registration
statement has been declared effective by the Securities and Exchange Commission
(SEC). If such registration statement is not available for resales of the
Warrant Shares during the two-year period commencing with its effective date for
any reason outside of the control of the Investors, ON must pay each of Castle
Creek and Marshall Capital a penalty in an amount equal to $7.5 for each day
such registration statement is not effective

WARRANTS

     On January 31, 2000, the Company granted 25,000 warrants to a consultant as
partial payment for hiring services rendered. These warrants were immediately
vested and had an exercise price of $11.25. The warrants expire on January 31,
2003. As this was for services rendered, the Company recorded $210 thousand of
compensation expense relating to these warrants

                                       36
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(7)  STOCK OPTION PLANS

     In July 1992, the Company adopted the 1992 Employee and Consultant Stock
Option Plan (the Plan). Pursuant to the Plan, as amended, the Company may grant
to employees and consultants of the Company statutory and non-statutory stock
options to purchase up to 5,400,000 shares of common stock as amended. Typically
employee grants are made at market and vest over a four-year term. Options
expire ten years from the date of grant. Consultants may receive options with
shorter vesting periods or below market exercise prices.

     The Company's 1995 Directors Stock Option Plan (the "Director's Plan") was
adopted on May 18, 1995 and provides for the granting of options to purchase up
to 200,000 shares of common stock to directors who are not employees of the
Company.

     As of December 31, 2000, an additional 260,129 shares were available under
the Company's stock option plans for future grants.

     Stock option activity for the option plans was as follows:

                                                                 WEIGHTED
                                                 NUMBER           AVERAGE
                                                   OF         EXERCISE PRICE
                                                 SHARES          PER SHARE
                                               ----------       ----------
     Outstanding, December 31, 1997 .......     1,935,628       $     2.66
         Granted ..........................       971,036             2.19
         Exercised ........................       (95,035)            0.67
         Terminated .......................      (521,399)            3.23
                                               ----------       ----------

     Outstanding, December 31, 1998 .......     2,290,230             2.45
         Granted ..........................       879,000             3.28
         Exercised.........................      (320,373)            1.97
         Terminated .......................      (875,845)            2.71
                                               ----------       ----------

     Outstanding, December 31, 1999 .......     1,973,012             2.78
         Granted...........................     2,276,391             6.02
         Exercised.........................      (647,447)            1.05
         Terminated .......................      (627,801)            3.26
                                               ----------       ----------

     Outstanding, December 31, 2000 .......     2,974,155       $     5.53
                                               ==========       ==========
     Exercisable, December 31, 2000 .......       751,050       $     3.18
                                               ==========       ==========
     Exercisable, December 31, 1999 .......       539,587       $     2.64
                                               ==========       ==========
     Exercisable, December 31, 1998 .......       660,834       $     2.90
                                               ==========       ==========


                                       37
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

     The following table presents weighted average price and remaining
contractual life information about significant option groups outstanding and
exercisable at December 31, 2000.

                          Options Outstanding           Options Exercisable
                   ----------------------------------  ----------------------
                                  Weighted
                                   Average   Weighted                Weighted
                                  Remaining   Average                 Average
     Range of        Number     Contractual  Exercise    Number      Exercise
 Exercise Prices   Outstanding  Life (years)   Price   Exercisable     Price
-----------------  -----------  -----------   -------  -----------    -------
$ 0.01  -  $ 0.01        4,250         6.58   $  0.01        4,250    $  0.01
  1.25  -    1.94      261,861         7.85      1.62      151,632       1.62
  1.97  -    2.94      995,791         7.50      2.35      362,382       2.28
  3.13  -    4.63      738,569         8.84      3.70      167,749       3.45
  4.75  -    6.31       21,837         8.70      6.27        7,024       6.17
 10.56  -   15.00      951,847         9.03     11.34       58,013      11.93
                   -----------  -----------   -------  -----------    -------
                     2,974,155         8.36   $  5.53      751,050    $  3.18
                   ===========  ===========   =======  ===========    =======

     The following table presents the weighted average fair value of the options
at the date of grant for all options granted during the year and the assumptions
used in the calculation:
                                           2000        1999        1998
                                         --------    --------    --------
Risk-free interest rate................     6.20%       5.78%       5.28%
Expected dividend yield................      --          --          --
Expected lives.........................        7           7           7
Expected volatility....................      145%        131%        128%
Weighted average fair value
per share of grant.....................  $  5.99     $  3.10     $  1.84


     Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net loss and basic and diluted net loss per share would
have been further reduced to the following pro forma amounts:

                                           2000        1999        1998
                                         --------    --------    --------
Net Loss             As Reported         $ (9,436)   $ (1,999)   $   (215)
                     Pro Forma            (13,048)     (3,224)     (1,400)

Basic Net Loss       As Reported            (0.67)      (0.16)      (0.02)
Per Share            Pro Forma              (0.92)      (0.26)      (0.11)

Diluted Net Loss     As Reported            (0.67)      (0.16)      (0.02)
Per Share            Pro Forma              (0.92)      (0.26)      (0.11)

     On December 28, 2000, the Company granted to an officer immediately vested
options to purchase 300,000 shares of the Company's common stock at an exercise
price of $0.10 per share. On December 28, 2000, the Company advanced the officer
$30 to cover the exercise price, which was repaid in February 2001.
Additionally, the officer entered into a stock restriction agreement under which
the officer is subject to the certain restrictions that lapse through February
2004 regarding the resale of the common stock issued upon exercise of the stock
options to the Company, as defined. The advance is included in prepaids and

                                       38
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


other current assets as of December 31, 2000 in the accompanying consolidated
balance sheets. The excess of the fair market value of the Company's common
stock over the exercise price of the options on the date of the grant, totaling
$97, has been classified as deferred stock-based compensation and included as a
component of stockholders' equity in the accompanying consolidated financial
statements.

     On October 21, 1999, the Company granted to three individual consultants
stock options to purchase a total of 100,000 shares of the Company's common
stock. These grants vested ratably on a quarterly basis over a one-year period,
which corresponded to the contractual life of the consulting relationship. In
accordance with SFAS No. 123 and EITF Issue No. 96-18, the Company calculated
the fair value of these options, at the date of grant, and, additionally,
re-measured the compensation expense at each interim reporting period date
during the vesting period, using the Black-Scholes option pricing model, with
average assumptions of approximately 127% for volatility, 0% for the dividend
yield and a risk free interest rate of approximately 5.9%, at the date of grant.
The Company recognized compensation expense of $82 and $156 during the years
ended December 31, 1999 and 2000, respectively.

     On February 1, 2000, the Company granted to a consultant a stock option to
purchase a total of 125,000 shares of the Company's common stock. This option
vested ratably on a monthly basis over a one-year period, which corresponded to
the contractual life of the consulting relationship. In accordance with SFAS No.
123 and EITF Issue No. 96-18, the Company calculated fair value of these
options, at the date of grant, and, additionally, re-measured the compensation
expense at each interim reporting period date during the vesting period, using
the Black-Scholes option pricing model, with average assumptions of
approximately 130% for volatility, 0% for the dividend yield and a risk free
interest rate of approximately 6.2%, at the date of grant. The Company
recognized compensation expense of $284 during the year ended December 31, 2000.

     Additionally, the Company recorded $22 thousand in compensation cost offset
against the Meeting Maker gain as a result of accelerating the vesting period
for employees affected by the licensing of the product line to Meeting Maker,
Inc. The Company also recorded other compensation charges of $20 thousand for
two other employee arrangements during the year.

EMPLOYEE STOCK PURCHASE PLAN

     On May 18, 1995, the Company adopted the 1995 Employee Stock Purchase Plan
pursuant to which up to 1,000,000 shares of common stock may be issued. The plan
consists of semiannual offerings commencing on the first day the Company's
common stock was publicly traded and each subsequent offering commencing on
January 1 and July 1 of each year. The maximum number of shares of common stock
that may be purchased by an employee is determined on the first day of each
offering period, as defined. The price at which the shares are purchased is the
lower of 85% of the closing price on the first or last day of the offering
period. As of December 31, 2000, an additional 644,000 shares were available
under the plan for future purchase. During 2000, 1999, and 1998, the Company
issued 144,000, 122,000, and 58,000 shares, respectively, under the plan.

(8)  401 (K) PLAN

     In 1994, the Company established a plan under Section 401(k) of the
Internal Revenue Code (the 401(k) Plan) covering all eligible employees, as
defined. Participants in the 401(k) Plan may not contribute more than the lesser
of specified statutory amount or 15% of his or her pretax total compensation.
The 401(k) Plan permits, but does not require, additional contributions to the
401(k) Plan by the Company. The Company made no contributions during 2000, 1999
and 1998.
                                       39
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(9)  ACCRUED EXPENSES

     Accrued expenses consisted of the following:

                                           2000        1999
                                         --------    --------
     Payroll and payroll related .....   $  1,251    $  1,289
     Taxes payable....................        837         732
     Other ...........................        802         511
                                         --------    --------
                                         $  2,890    $  2,532
                                         ========    ========

(10) SEGMENT REPORTING

     Prior to June 30, 2000, the Company had two reportable segments: Desktop
Management and Groupware. Management had organized the segments based on
differences in products and services because each segment required different
technology and marketing strategies. The Desktop Management segment included the
ON Command CCM product line, which developed, marketed and supported enterprise
desktop management products. The Groupware segment developed, marketed and
supported real-time group scheduling products. Since June 30, 2000, information
with respect to the Groupware segment is not included in the accompanying
consolidated statements of operations (see Note 2 for a discussion of the
disposition of the Groupware business).

     The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluated segment
performance based on gross margin from operations and did not capture segment
net income (loss) or segment assets.

The following table illustrates segment-operating data:

                                            Desktop
                                          Management    Groupware       Total
                                          ----------    ----------    ----------
2000
Net CCM and related products              $   16,073    $     --      $   16,073
CCM and related service and maintenance        6,633          --           6,633
Other                                            236          --             236
Revenue - MMI                                   --           3,405         3,405
                                          ----------    ----------    ----------
Total revenue                                 22,942         3,405        26,347
Cost of revenue                                4,356            75         4,431
                                          ----------    ----------    ----------
Gross margin                                  18,586         3,330        21,916

1999
Net CCM and related products              $   17,993    $     --      $   17,993
CCM and related service and maintenance        5,524          --           5,524
Other                                           --            --            --
Revenue - MMI                                   --           7,360         7,360
                                          ----------    ----------    ----------
Total revenue                                 23,517         7,360        30,877
Cost of revenue                                4,786           645         5,431
                                          ----------    ----------    ----------
Gross margin                                  18,731         6,715        25,446

                                       40
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1998
Net CCM and related products              $    8,176    $     --      $    8,176
CCM and related service and maintenance        3,124          --           3,124
Other                                           --           1,180         1,180
Revenue - MMI                                   --           7,530         7,530
                                          ----------    ----------    ----------
Total revenue                                 11,300         8,710        20,010
Cost of revenue                                3,347           543         3,890
                                          ----------    ----------    ----------
Gross margin                                   7,953         8,167        16,120


The following table represents geographic information:
<TABLE><CAPTION>
                                          North
                                         America       Europe         Other      Elimination      Total
                                       -------------------------------------------------------------------
<S>                                    <C>           <C>           <C>           <C>           <C>
                               2000
Revenue from unaffiliated customers    $     9,286   $    17,061   $      --     $      --     $    26,347
 Transfers between geographic areas           --             612                        (612)         --
                                       -------------------------------------------------------------------
                      Total Revenue          9,286        17,673          --            (612)       26,347
                Identifiable assets         23,361        13,751             2       (18,743)       18,371


                               1999
Revenue from unaffiliated customers    $    14,036   $    16,834   $         7   $      --     $    30,877
 Transfers between geographic areas          1,110          --            --          (1,110)         --
                                       -------------------------------------------------------------------
                      Total Revenue         15,146        16,834             7        (1,110)       30,877
                Identifiable assets         56,685         9,153             2       (39,052)       26,788


                               1998
Revenue from unaffiliated customers    $    10,335   $     9,670   $         5   $      --     $    20,010
 Transfers between geographic areas             20          --            --             (20)         --
                                       -------------------------------------------------------------------
                      Total Revenue         10,355         9,670             5           (20)       20,010
                Identifiable assets         32,662         6,005             2       (24,000)       14,669
</TABLE>

Transfers between geographic areas are accounted for equivalent to an
arm's-length basis.

(11) ELRON TRANSACTION

     On February 11, 1998, the Company received shareholder approval to sell and
sold certain to Elron Software, Inc. Upon sale the Company received $8,273 of
proceeds, net of transaction costs, and recorded a gain on sale of $6,518.

                                       41
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(12) SCHEDULES OF VALUATION RESERVES

A summary of the reserve for doubtful accounts is as follows:
<TABLE><CAPTION>
                                   BALANCE,                                            BALANCE,
                                  BEGINNING    CHARGED TO                                END
                                   OF YEAR      EXPENSE     WRITE-OFFS     OTHER       OF YEAR
                                   --------     --------     --------     --------     --------
<S>                                <C>          <C>          <C>          <C>          <C>
Year ended December 31, 1998       $  2,975     $     85     $  2,106(1)               $    954

Year ended December 31, 1999       $    954     $     38     $  1,026                  $    666

Year ended December 31, 2000       $    666     $  1,788     $    397     $    120(2)  $  2,177
</TABLE>

(1) Includes $1,500 of restructuring related write-offs.
(2) Relates to the reclassification of reserve for distributor inventories from
    current liabilities.





A summary of accrued restructuring is as follows:
<TABLE><CAPTION>
                                   BALANCE,                                            BALANCE,
                                  BEGINNING    CHARGED TO    NON-CASH       CASH         END
                                   OF YEAR      EXPENSE     WRITE-OFFS  EXPENDITURES   OF YEAR
                                   --------     --------     --------     --------     --------
<S>                                <C>          <C>          <C>          <C>          <C>
Year ended December 31, 1998       $  2,225     $   --       $   --       $ (2,080)    $    145

Year ended December 31, 1999       $    145     $   --       $   --       $    (49)    $     96

Year ended December 31, 2000       $     96     $   --       $   --       $    (51)    $     45
</TABLE>

















                                       42
<PAGE>
                   ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(13) SELECTED QUARTERLY INFORMATION (UNAUDITED)
<TABLE><CAPTION>
2000                                              1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
----                                               -------------------------------------------------------
<S>                                                <C>            <C>            <C>            <C>
Net CCM and related product revenue                $    2,669     $    3,057     $    5,320     $    5,027
CCM and related service and maintenance revenue         1,440          1,641          1,652          1,900
Revenue--MMI                                            1,609          1,796           --             --
Other revenue                                            --             --              118            118
Cost of CCM and related product revenue                   678            649          1,092          1,043
Cost of CCM and related service and
  maintenance revenue                                     184            237            216            257
Cost of revenue--MMI                                       34             41           --             --
Gross Profit                                            4,822          5,567          5,782          5,745
MMI operating expenses                                    935          1,224           --             --
Loss from operations                                   (2,665)        (2,689)        (1,314)        (2,391)
Allocation to MMI                                        (640)          (531)          --             --
Net loss                                               (3,125)        (3,094)          (755)        (2,462)
Loss per share--Basic                              $    (0.22)    $    (0.22)    $    (0.05)    $    (0.17)
Loss per share--Diluted                            $    (0.22)    $    (0.22)    $    (0.05)    $    (0.17)



1999                                              1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
----                                               -------------------------------------------------------
Net CCM and related product revenue                $    4,518     $    3,908     $    4,475     $    5,092
CCM and related service and maintenance
  revenue                                                 858          1,441          1,628          1,597
Revenue--MMI                                            1,474          2,050          2,181          1,655
Other revenue                                            --             --             --             --
Cost of CCM and related product revenue                   766            919          1,668            496
Cost of CCM and related service and
  maintenance revenue                                     124            214            267            332
Cost of revenue--MMI                                      200            151            143            151
Gross Profit                                            5,760          6,115          6,206          7,365
MMI operating expenses                                    789            672            564            651
(Loss) income from operations                            (979)        (1,217)          (300)           128
Allocation to MMI                                        --             --             --             --
Net (loss) income                                        (741)        (1,132)          (281)           155
(Loss) income per share--Basic                     $    (0.06)    $    (0.09)    $    (0.02)    $     0.01
(Loss) income per share--Diluted                   $    (0.06)    $    (0.09)    $    (0.02)    $     0.01
</TABLE>










                                       43
<PAGE>


                                   SIGNATURES

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



                                              ON TECHNOLOGY CORPORATION


                                              /s/ Steven R. Wasserman
                                              ---------------------------------
Date: January 17, 2002                        Name:  Steven R. Wasserman
                                              Title: Vice President of Finance
                                                     and Chief Financial Officer


































                                       44
<PAGE>

                                INDEX TO EXHIBITS



Exhibit No.       Exhibit Title
-----------       -------------

                  Form 8-K as filed on January 3, 2000.


  23.1.           Consent of Arthur Andersen LLP.










































                                       45