<PAGE>   1


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

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

        For the transition period from _______________ to _______________

                         Commission File Number 0-23373

                          LANDMARK SYSTEMS CORPORATION
             (Exact name of Registrant as specified in its charter)

                     VIRGINIA                       54-1221302
                (State or other jurisdiction of      (I.R.S. Employer
               incorporation or organization)        Identification No.)

             12700 Sunrise Valley Drive, Reston, Virginia       20191-5804
               (Address of principal executive offices)       (Zip Code)

        Registrant's telephone number, including area code: 703-464-1300

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                               Title of each class
                               -------------------
                     Common Stock, par value $.01 per share

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

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

The aggregate market value of registrant's voting stock held by non-affiliates
as of March 3, 2000, was $42,533,159 based on a market price of $ 6.375 per
share.

The number of shares of the registrant's Common Stock outstanding as of March 3,
2000 was 12,909,901 shares.

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The following document is hereby incorporated by reference into this Form 10-K:

Portions of the Registrant's 2000 Proxy Statement to be filed with the
Securities and Exchange Commission (Part III).

Some of the statements in this Annual Report on Form 10-K are "forward-looking"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are related to anticipated future operating results. Specifically, the following
may be impeded by events that have not been presently anticipated: the timing of
the release of new products, the sale of unbilled accounts receivable, the
upgrade of the Company's development environments, the Company's ability to sell
or issue equity or debt securities or to enter into credit facilities on
acceptable terms, the Company's ability to make its acquisitions accretive, the
success of the Company's more focused sales approach and the Company's ability
to increase license revenues, maintain the level of maintenance renewal rates
and limit cost of sales, and the ability of existing and planned hardware and
software systems to accommodate transition to the Euro without material effect
on results of operations or financial condition. Forward-looking statements are
based on management's current expectations and assumptions, which may be
affected by a number of factors, including, without limitation, a lengthening of
the sales cycle possibly attributable to Year 2000 issues and/or other timing
issues, competitive product introductions, price competition, the Company's
ability to consummate license transactions as anticipated, any failure or delay
in the Company's ability to develop and introduce new products, seasonal factors
affecting the Company's sales, the Company's ability to attract and retain
qualified technical, sales, managerial and other key personnel, the Company's
ability to manage expenses effectively, the recent introduction and subsequent
fluctuations in value of the Euro currency, the "Year 2000" software and systems
issue, and other factors. Therefore, there can be no assurance that actual
future results will not differ materially from anticipated results.


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                                     PART I

ITEM 1.  BUSINESS.

GENERAL

Landmark Systems Corporation ("Landmark" or the "Company") is a leading provider
of performance management software products which measure, analyze, report and
predict performance for both mainframe and client/server computing environments.
Landmark's PerformanceWorks(R) product family is distinct in its ability to
monitor the key components of a computing environment, provide early warning of
potential system problems and enable effective planning for changes in the
computing environment. The Company believes these capabilities improve user
productivity, reduce computing costs, increase system availability and optimize
use of system resources. Landmark's products provide performance management
capabilities for many leading hardware platforms; certain operating systems from
DEC, Hewlett-Packard, IBM, Microsoft, NCR and Sun; certain databases consisting
of DB2, Oracle, SQL Server and Sybase products; and certain vendor applications
such as IBM's CICS and MQSeries, as well as proprietary customer applications.
Each of Landmark's products has been developed to work with different
configurations of system components from multiple vendors while providing
comparable functionality across each platform. As of December 31, 1999, Landmark
had licensed over 21,200 copies of its products and has approximately 3,600
active customers worldwide.

Performance management software can provide early warning and facilitate
resolution of system problems by monitoring a system's key components, including
the central processing unit ("CPU"), memory and storage, input/output ("I/O"),
disk space, workload, operating system and network subsystems application.
Identifying and addressing system problems allows businesses to increase system
availability, improve user productivity, reduce computing costs and limit the
adverse business effects of system degradation. Performance management tools
also enable organizations to model or predict system and application performance
which improves the acquisition, development and implementation of new or changed
applications and hardware.

Landmark's PerformanceWorks product family enables businesses to optimize system
performance and resource utilization while maintaining a high and consistent
level of user productivity. Landmark's products provide the ability to transform
raw data into useful information through an intelligent aggregation and
automatic summarization process, which collects data on a continuous basis and
generates summary information at prescribed intervals. This data can be measured
against a variety of performance thresholds and easily formatted into
understandable reports to facilitate the quick identification and resolution of
performance problems. In addition, Landmark's products self-manage the
collection, summarization and distribution of performance data, and consequently
require minimal computing and personnel resources. As a result of this efficient
gathering, storage and presentation of performance data, Landmark's products are
scalable to accommodate system growth.

Landmark's solutions are based on its "lifecycle" view of performance management
and are designed to allow customers to address each stage of the application
lifecycle: planning, development and production. Landmark views performance
management as a continuous process in which each stage of the application
lifecycle provides input and feedback for the next.

     PLANNING STAGE. Landmark's products are used to identify resource
     requirements and to establish appropriate service levels through modeling,
     trend analysis and load simulation (simulating use of computing resources
     at different percentage levels of total capacity).

     DEVELOPMENT STAGE. Landmark's products perform application tuning
     (adjusting applications to optimize performance), assist in stress testing
     (simulation of maximum workloads on computing resources) and conduct
     resource impact analysis to assess application performance prior to
     deployment.


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PRODUCTION STAGE. Landmark's products provide data collection, real-time
monitoring and troubleshooting to provide optimal system operation.

After the initial deployment is completed, the application lifecycle begins
again with planning for additional deployments or modifications to the
computing environment.

Through its maintenance and support program, Landmark offers its customers
extensive technical support, including telephone consultation, product
maintenance and product upgrades. Landmark also provides its customers with
consulting and training services. Historically, 85 to 90% of Landmark's
customers have renewed their support and maintenance arrangements with the
Company.

TECHNOLOGY AND PRODUCTS

The PerformanceWorks family of products is comprised of PerformanceWorks for
MVS, PerformanceWorks for VSE, PerformanceWorks for UNIX and PerformanceWorks
for Windows NT. PerformanceWorks enables a user to monitor and analyze
performance metrics in three different timeframes: real-time, recent-past and
historical.

     -   REAL-TIME MONITORING. Real-time monitoring allows users to view the
         current status of the computing environment. To do this, performance
         metrics are collected from throughout the system and displayed
         graphically at a single workstation. The real-time monitoring feature
         can be used as an early warning tool by establishing thresholds against
         which critical performance metrics are measured. If a metric or
         combination of metrics exceeds the established threshold, an alarm is
         generated to notify the user of a potential system or application
         problem. The user is then guided through increasingly detailed levels
         of performance data until the cause of the problem is identified. The
         user can then either solve the problem or an automated action can be
         triggered to correct the problem.

     -   RECENT-PAST MONITORING. Recent-past monitoring displays the performance
         metrics collected within the past few minutes or hours. If a system has
         experienced a degradation in performance, recent-past monitoring can be
         used to review the performance metrics leading up to the occurrence of
         the problem to help identify its source and to facilitate a resolution.
         Recent-past monitoring can also be used to identify trends in system
         utilization and performance which may result in system errors. These
         trends can be used to predict and prevent future system problems.

     -   HISTORICAL DATA ANALYSIS. Historical data analysis is used to review
         performance metrics collected over days, weeks and months to understand
         how system resources have been used and whether trends have developed
         which could lead to future performance problems. Landmark's products
         automatically store and aggregate performance data so users can quickly
         retrieve and view information over the desired period of time from
         multiple systems on one report.

Technology

The technology underlying the PerformanceWorks family of products is based on a
multi-tiered architecture which can be represented by a data collection layer, a
core services layer and a user interface and external tools layer.

DATA COLLECTION LAYER. The data collection layer consists of PerformanceWorks
agents, referred to as "SmartAgents," designed to collect performance data
automatically for on-line analysis and historical data storage and to translate
the data into useable information. SmartAgents are installed on each element in
the computing environment for which performance metrics will be monitored and
automatically collect performance data at set intervals. After collection,
SmartAgents compare the collected information against defined thresholds. If any
threshold is exceeded, the SmartAgent will generate a warning or error message.

CORE SERVICES LAYER. The core services layer is comprised of three key
components: data management, data brokering and network services.

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     DATA MANAGEMENT. The data management component manages the storage and
     retention of performance data throughout the system and includes the
     following functionalities:

     -   Data normalization gathers disparate performance data and normalizes it
         into common categories, such as CPU, memory, disk I/O, workload, disk
         space and network. Users can view similar performance data from
         different hardware platforms, operating systems and databases and
         easily make comparisons and draw conclusions.

     -   Data summarization averages performance data into logical intervals of
         minutes, hours, days, weeks, months and years. Without time-consuming
         preparation, users can view data in various formats in order to
         identify trends quickly.

     -   Data administration records all information in a data store, allowing
         users to manage and protect performance data. Data administration also
         provides efficient storage of collected performance data.

     DATA BROKERING. The data brokering component receives all incoming requests
     and routes them either to the appropriate SmartAgent for real-time data or
     to a data store for historical data without requiring that the end-user
     have knowledge of where these components are located.

     NETWORK SERVICES. The network services component provides a registry and
     look-up service that allows transmission of real-time, recent-past and
     historical performance data from where it is collected to where it is used.
     Since the architecture of a distributed computing environment frequently
     changes with the addition or deletion of servers, applications and users,
     the registry is designed to automatically communicate changes in system
     configuration.


Landmark supports third-party applications and access to performance data by
publishing detailed record formats and by providing application programming
interfaces ("APIs") for standard Open Data Base Connectivity ("ODBC")
applications and Simple Network Management Protocol ("SNMP") interface modules
for industry leading systems and network management frameworks.

USER INTERFACE AND EXTERNAL TOOLS LAYER. The user interface for PerformanceWorks
allows users to view and analyze the status of their critical applications.
Performance management data for each application can be viewed statistically and
graphically to show consumption of system resources, proximity to critical
threshold values and alarm situations requiring immediate attention. In
addition, users can generate customized reports incorporating any combination of
real-time, recent-past and historical performance data analyses. The available
user interfaces operate using Motif (UNIX), Windows 95/98/NT (NT), OS/2
(MVS-NaviPlex) and 3270 (MVS and VSE).

In addition to the user interfaces provided directly by Landmark's products,
customers can also gain access to PerformanceWorks data through the use of
external tools provided by third-party vendors. Published record formats are
utilized by third-party vendor products such as Computer Associates MICS,
Merrill Consultants MXG, IBM SNAPSHOT, SAS and BGS Systems Best/1. ODBC
connectivity permits a multitude of applications, including Microsoft Excel and
Lotus 1-2-3, to be used to process, analyze, and report on the performance data.
In addition, SNMP integration modules allow PerformanceWorks products to operate
within leading systems management frameworks including IBM Netview, Tivoli TME,
Hewlett-Packard OpenView, Computer Associates Unicenter, Cabletron Spectrum and
Sun Solstice.

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Products

The ability to monitor performance metrics from each system component in a
complex, heterogeneous computing environment is a key feature of Landmark's
software, particularly because performance problems in these environments can
originate from any one or a combination of components.

If applications running in a distributed environment are experiencing slow
response time, the cause of the problem could be a memory problem on the
distributed application server, a disk contention problem (where two or more
applications are attempting to access the same data simultaneously) on the
mainframe database server, an overloaded network, a poorly written application
or any combination of these conditions. By monitoring performance data from each
of the system components, Landmark's products are able to efficiently identify
the source of the problem so a solution can be implemented quickly or the
potential problem can be anticipated and avoided altogether by taking immediate
corrective actions. The Company believes its users benefit from the ease of use,
depth of metrics and diagnostic tools it provides, as well as the level of
intelligent integration, which allows enhanced manageability in production
environments.

Landmark's products are easily installed and implemented and generally do not
require additional customization before the products can be used by the
customer. The Company's products are also easily tailored so that the
performance metrics, data retention standards and data storage locations are
appropriate for each customer.

                 LANDMARK'S FAMILY OF PERFORMANCEWORKS PRODUCTS

<TABLE>
<CAPTION>

                                                 MVS                        VSE                   UNIX           WINDOWS NT
                                                 ---                  ------------           ------------        -------------
<S>                                             <C>                  <C>                   <C>                  <C>
               Core Performance                  MVS                  VSE                    HP-UX               Windows NT
               Monitor

                                                 CICS/MVS             CICS/VSE               IBM/AIX             SQL Server
                                                 CICS/ESA             VM Contention          SUN/OS
                                                 VTAM                 Monitor                NCR
                                                 DB2                                         Sun Solaris
                                                 SQL/Capture                                 Oracle
                                                 MQSeries                                    Sybase
                                                 IMS/DBCTL

               Applications Response             SmartWatch           SmartWatch             SmartWatch          SmartWatch
               Monitor
                                                 MQControl            MQControl              MQControl           MQControl
                                                                                             WebWatcher          WebWatcher

               Capacity Planning                 Interface            Interface to           Predictor           Predictor
                                                 to                   third-party
                                                 third-party          software
                                                 software

               User Interface                    NaviGraph            NaviGraph              SmartStation        SmartStation
                                                 3270                 3270
                                                 NaviPlex

               Integrated Interfaces             SNMP                                        SNMP                SNMP
                                                 NMVT                                        ODBC                ODBC
                                                 Vendor
                                                 API's

               Disk Space Management             RTD

</TABLE>



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The Company derived 82.2%, 85.0% and 87.0% of its total revenues from mainframe
products and services in 1999, 1998 and 1997, respectively. For additional
information regarding the Company's financial performance by product group, see
Note 7 - Segment Information in the Company's Notes to Consolidated Financial
Statements contained elsewhere in this Form 10-K.

PERFORMANCEWORKS FOR MVS. PerformanceWorks for MVS is Landmark's integrated set
of performance management tools for use in the MVS environment and consists of
The Monitor for CICS, The Monitor for DB2, The Monitor for MVS, The Monitor for
VTAM, The Monitor for MQSeries, The Monitor for IMS/DBCTL, NaviGraph and
NaviPlex. Landmark's family of MVS products provides a complete solution for
optimizing and monitoring environments running the MVS operating system.

     The Monitor products support data collection in the mainframe environment
     for real-time, recent-past and historical performance management
     monitoring. Each of these products incorporates Landmark's Navigate
     technology which provides intelligent transfer of control from one monitor
     to another, facilitating intuitive problem solving.

     NaviGraph provides users with a graphical display of the performance of key
     applications and system resources. NaviGraph is an easy-to-use,
     Windows-based display providing a single point of access and control for
     monitoring and analysis of the data collected by The Monitor products.

     NaviPlex is designed for IBM's Parallel Sysplex technology which introduces
     to mainframe environments performance complexities similar to those of a
     distributed processing environment. NaviPlex consolidates performance
     information from all MVS system environments into a single workstation for
     managing performance issues, handling exception conditions and trending
     information.

PERFORMANCEWORKS FOR VSE. PerformanceWorks for VSE is similar to
PerformanceWorks for MVS in terms of the performance management functionality.
PerformanceWorks for VSE includes The Monitor for VSE, The Monitor for CICS,
NaviGraph and VM Contention Monitor.

PERFORMANCEWORKS FOR UNIX. PerformanceWorks for UNIX is Landmark's integrated
set of performance management tools for use in the UNIX environment and consists
of SmartAgent for UNIX, SmartAgent for Oracle, SmartAgent for Sybase,
SmartStation and Predictor.

     SmartAgent for UNIX, SmartAgent for Oracle and SmartAgent for Sybase
     provide collection of performance metrics for each UNIX operating system
     and database supported. Specific metrics collected vary with the individual
     platforms. SmartAgents employ the Core Services features of the
     PerformanceWorks architecture to manage, analyze and present performance
     data across tens or hundreds of locations operating with hundreds or
     thousands of servers.

     SmartStation provides a central control point to access performance
     information collected by SmartAgents. Information is presented in
     easy-to-understand charts, graphs, reports and gauges. Alarms alert users
     to potential system problems before they become serious. SmartStation
     provides a complete set of pre-configured reports and graphics, which can
     be tailored to users' specific needs. Users can also define exception
     conditions, and SmartStation will provide an alarm when performance
     thresholds are exceeded. The alarms provide the user with an explanation of
     the error, sending notifications through email systems, alphanumeric pagers
     and management platforms. In addition, the alarms can be configured to take
     corrective actions automatically. Whether the user sits in front of a
     UNIX/Motif workstation or a Windows 95/98/NT workstation, the Java-based
     SmartStation can be used to manage all of PerformanceWorks for UNIX and
     PerformanceWorks for NT from one desktop.


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     Predictor is a capacity planning tool designed to help planners in
     determining the types and quantities of new equipment and software required
     to handle increased system utilization and performance requirements. Based
     on the performance metrics stored for historical data analysis, Predictor
     can predict the impact of adding new applications, modifying an existing
     application, removing an application, adding users, changing the server
     hardware configuration or changing the server entirely. Predictor can be
     used to predict future behavior of UNIX and Windows NT servers.

PERFORMANCEWORKS FOR WINDOWS NT. PerformanceWorks for Windows NT is similar to
PerformanceWorks for UNIX in terms of the performance management functionality
of products currently available in the Windows NT environment. PerformanceWorks
for Windows NT includes SmartAgent for NT, SmartAgent for SQL Server, SmartAgent
for Sybase, SmartAgent for Oracle and SmartStation.

PerformanceWorks 3.0 for UNIX and Windows NT environments advances the Company's
UNIX and NT performance management capabilities and offers a scalable,
integrated end-to-end view of client/server performance management, including
"what if " analyses.

SmartWatch is a product that allows the measurement of application availability
and end-to-end response time on a user's Windows 95/98/NT desktop. Measurement
takes place, regardless of whether the application is developed in-house or
purchased off-the-shelf. The U.S. Patent and Trademark office issued a patent
for Landmark's SmartWatch technology in 1999.

PERFORMANCEWORKS WEBWATCHER. In the fourth quarter of 1999, in response to the
growing demand for management of the entire e-business enterprise, the Company
announced a new e-business initiative. PerformanceWorks WebWatcher manages
end-user experiences, Web servers and databases. WebWatcher is a
customer-centric performance management solution that provides visibility and
control of critical e-business applications. Using patent-pending technology,
WebWatcher monitors the performance of Web-based users and Web servers to give
an integrated view of Web application performance.

WebWatcher provides the detailed information required to determine the general
health of Web-based applications. What makes WebWatcher unique is that it
monitors end-user performance, not the performance of synthetic transactions
(which can place an undue burden on Web sites and skew results). WebWatcher
collects data about the performance of standard and user-defined transactions
including times for Web pages to load, where users go and response times for
specific transactions.

REAL TIME DEFRAG. In June of 1999 the Company announced a marketing partnership
with INTERCHIP Unternehmensberatung GmbH in which the Company licensed and
resells INTERCHIP's Real-Time Defrag (RTD) product through many of its worldwide
sales channels. RTD allows IT managers to optimize system disk space 24
hours-a-day without affecting production applications and online operations. RTD
maximizes disk space automatically and continuously, requiring no human
intervention, while preventing system and application downtime, rendering faster
data processing, and assuring the best system conditions for accessing files.

CUSTOMERS AND SERVICES

The Company's customers consist of organizations across a wide variety of
industries that are developing or have deployed business-critical applications
in complex, multi-user environments.

Landmark offers its customers a maintenance and support program which provides
telephone consultation, product maintenance and product upgrades. Customers can
communicate with Landmark technical support representatives 24 hours-per-day, 7
days-per-week. In addition, Landmark provides its customers and distributors
access to on-line maintenance information through an Internet-based application.
Landmark's maintenance and support program entitles participants to product
enhancements, support for new releases and upgrades as well as maintenance
information. Historically, 85 to 90% of Landmark's customers have renewed their
maintenance and support arrangements with the Company.

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Landmark's Professional Services organization offers consulting services to
users of its products. These consulting services are designed to support the
effective deployment and implementation of Landmark's products by assisting in
the location of appropriate components on which to run Landmark's software,
identifying which performance metrics to monitor, establishing rules concerning
how to aggregate, retain and store data, and customizing the presentation of
reports generated from the collected information. The demand for these
consulting services has grown as business-critical applications are increasingly
deployed in complex, heterogeneous computing environments. The Professional
Services organization offers a variety of training programs to assist customers
in implementing Landmark's performance management tools, including a number of
standard programs and custom presentations to fulfill specific requests.
Training courses are held at Landmark's Reston, Virginia training center as well
as on-site at customers' facilities.

SALES AND MARKETING

Landmark markets its products and services through its North American and
international sales organizations. The North American direct sales force, which
covers the United States and Canada, consists of field sales representatives,
mainframe and client/server system engineers and telesales personnel.
Additionally, a telesales force increases the productivity of the field sales
representatives by undertaking a variety of support activities. These include
generating and following up on leads, handling and closing smaller transactions,
maintaining a current database of existing and potential customers and providing
general assistance and account management. Each telesales representative
supports the efforts of two direct sales representatives. The Company believes
that the telesales force permits the field sales force to focus on account
opportunities with major businesses involving larger dollar transactions, and on
establishing and maintaining relationships with these organizations.

Landmark has historically relied primarily on third-party distributors to market
and sell the Company's products internationally. In 1999, the Company further
expanded its international operations by reaquiring exclusive distribution for
its products through the creation of several new wholly-owned subsidiaries.
Landmark Systems France, SARL now serves France and French-speaking Switzerland
while Landmark Systems Nordic AB serves the Nordic region. Revenues from
international sales accounted for 31.6%, 33.1% and 33.6% of total revenues in
1999, 1998 and 1997, respectively. Of those amounts, 9.5%, 13.4% and 18.0%,
respectively, were attributable to third-party distributors. Landmark has
established subsidiaries in certain strategic markets to increase sales levels
and gross margins on products sold in such markets. To date, Landmark's
international direct sales efforts consist of eleven sales offices located in
suburbs of Paris, Stockholm, London, Dusseldorf and Utrecht (Netherlands), and
in Rugby (United Kingdom), Madrid, Bornem (Belgium), Melbourne, Sydney and Hong
Kong. For additional information regarding the Company's revenues and long-lived
assets by geographic region, see Note 7 - Segment Information in the Company's
Notes to Consolidated Financial Statements contained elsewhere in this Form
10-K.

The Company also maintains relationships with leading vendors including
Hewlett-Packard, IBM, Microsoft, Oracle, Sun, Sybase and Tivoli. These
relationships afford the Company opportunities to participate in joint marketing
programs with the vendors such as sales seminars, trade shows and other
promotional activities.

Revenues received from individual customers of the Company vary significantly
based on the size of the product installation. The sales cycle for Landmark's
products is lengthy and unpredictable and may range from a few months to over a
year, depending upon the interest of the prospective customer in the Company's
products, the size of the order (which may involve a significant commitment of
capital by the customer), the decision-making and acceptance procedures within
the customer's organization and other factors.

PRODUCT DEVELOPMENT

Since its inception in 1983, Landmark has made substantial investments in
performance management software development. The Company has recently gone
through a transformation to focus on the e-commerce area. In 1999, 1998 and
1997, Landmark's product development expenditures, including amounts
capitalized, totaled



                                      -9-
<PAGE>   10


$17.0 million, $15.5 million and $13.5 million, respectively. The Company
anticipates that, in the future, it will continue to commit substantial
resources to research and development. Landmark maintains mainframe, UNIX and
Windows NT development labs, which it uses to develop, enhance and test its
products. In addition, Landmark made significant investments in 1999 to enter
the e-commerce market. This effort produced a key product, Web Watcher, based on
patent-pending technology, that allows website management of performance from
the client side as well as the server side for key e-business applications.
Landmark believes that its future success will depend in large part on its
ability to rapidly introduce new products in the e-commerce area, in addition to
extending its product line to support additional hardware and software
platforms, respond to changing customer requirements and develop and introduce
in a timely manner new products that keep pace with technological developments
and emerging industry standards.

As of December 31, 1999, the Company had 102 employees engaged in product
development. Landmark intends to increase the size and depth of its product
development operation. However, competition for highly qualified technical
employees is intense and there can be no assurance that the Company will be
successful in recruiting or retaining product development employees.

INTELLECTUAL PROPERTY

Landmark and its subsidiaries rely on a combination of copyright, trademark,
patent and trade secret laws, confidentiality procedures and licensing
arrangements to establish and protect its proprietary rights. To effectively
protect Landmark's intellectual property while allowing for the distribution of
its products in the most flexible and efficient manner, Landmark formed a new
subsidiary in February 1999, Landmark Technology Holdings Corporation. This
Delaware corporation holds, manages, protects and defends the intellectual
properties of Landmark. Additionally, the Delaware corporation licenses
to Landmark and/or present and future affiliates and/or third parties the use
of such properties.

As part of its confidentiality procedures, Landmark and its subsidiaries
generally enter into non-disclosure agreements with its employees, distributors
and corporate partners, and license agreements with its customers, distributors
and corporate partners with respect to its software, product documentation and
other proprietary information. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. Policing unauthorized use of the Company's products is difficult,
and Landmark is unable to determine the extent to which piracy of its software
products and misappropriations of its technology occur. Software piracy and
misappropriation may adversely affect the Company's results of operations.
Landmark and its subsidiaries currently rely on signed license agreements, but
may in the future rely on "shrink wrap" licenses that are not signed by
licensees and, therefore, may be unenforceable under the laws of certain
jurisdictions. In addition, effective protection of intellectual property rights
is unavailable or limited in certain foreign countries. There can be no
assurance that the Company's protection of its proprietary rights, including any
patent that may be issued, will be adequate or that the Company's competitors
will not independently develop similar technology, duplicate the Company's
products or design around any patents issued to the Company or other
intellectual property rights.

Landmark and its subsidiaries are not aware that any of its products infringe
the proprietary rights of third parties. There can be no assurance, however,
that third parties will not claim such infringement by the Company with respect
to current or future products. The Company expects that software product
developers will increasingly be subject to such claims as the number of products
and competitors in the Company's industry segment grows and the functionality of
products in the industry segment overlaps. Any such claims, with or without
merit, could result in costly litigation that could absorb significant
management time, which could have a material adverse effect on Landmark's
business, financial condition and results of operations. Such claims might
require the Company to enter into royalty or license agreements. Such royalty or
license agreements, if required, may not be available on terms acceptable to
Landmark or at all, which could have a material adverse effect upon the
Company's business, financial condition and results of operations.

COMPETITION

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The market for performance management software is intensely competitive,
fragmented and characterized by increasingly rapid technological developments,
evolving standards and rapid changes in customer requirements. To maintain and
improve its position in this market, Landmark is enhancing current products and
the inter-operability of its products with one another and developing new
products. Landmark competes primarily with vendors that provide mainframe and/or
client/server performance management software. The Company believes that
principal competitors with respect to mainframe performance management software
products include Candle Corporation and BMC Software, Inc. In the client/server
market, Landmark believes that its principal competitors include BMC Software,
Inc., Compuware Corporation and Computer Associates International, Inc.

Some of the Company's competitors have longer operating histories and
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base, than
those of the Company. The Company's current and future competitors could
introduce products with more features, greater scalability, increased
functionality and lower prices than the Company's products. These competitors
could also bundle existing or new products with other, more established products
in order to compete with the Company. The Company's focus on performance
management software may be a disadvantage competing with vendors that offer a
broader range of products. Moreover, as the client/server performance management
software market develops, a number of companies with significantly greater
resources than those of the Company could increase their presence in this market
by acquiring or forming strategic alliances with competitors or business
partners of the Company. In addition, due to potentially lower barriers to entry
for platform-specific niche products in the performance management software
market, the Company believes that emerging companies may enter this market,
particularly in the client/server environment. Increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any of which could materially and adversely affect the Company's business,
financial condition and results of operations. Any material reduction in the
price of the Company's products would negatively affect gross margins and would
require the Company to increase software unit sales in order to maintain gross
profits. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would have a material adverse effect upon the Company's business, financial
condition and results of operation.

The principal competitive factors affecting the market for Landmark's products
are functionality and features (including breadth of data collection, data
management, integration and modeling), product quality, platform coverage,
product architecture, price, customer support and name recognition. Based on
these factors, the Company believes that it has competed effectively to date. In
the future, Landmark will be required to respond promptly and effectively to the
challenges of technological change, its competitors' innovations and customer
requirements. There can be no assurance that Landmark will be able to provide
products that compare favorably with the products of the Company's competitors
or that competitive pressures will not require the Company to reduce its prices.

EMPLOYEES

As of December 31, 1999, the Company employed 308 full time personnel, including
102 in product development, 32 in technical support, 121 in sales and marketing,
and 53 in finance and administration. The Company's employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage. The Company believes its success will depend in
part on its continued ability to attract and retain highly qualified personnel
in an intensely competitive market for experienced and talented software
engineers and sales and marketing personnel. The Company believes that its
relationship with its employees is satisfactory.

ITEM 2.  PROPERTIES.

Landmark relocated its corporate headquarters to a facility in Reston, Virginia
in June 1999. Landmark entered into a lease agreement whereby it will lease the
entire 4 story office building, approximately 100,000 square feet situated on a
5 acre development site, for a term of twelve years, with two renewal options
each for an additional five years. Landmark executed a coterminous sublease of
its previous office space in Vienna, Virginia, which


                                      -11-
<PAGE>   12



took effect upon the commencement of the new lease, under a lease expiring in
June 2003, with a renewal option for an additional five years.

The Company also leases approximately 4,000 square feet of office space in
Oakbrook, Illinois under a lease expiring in April 2002, and 2,000 square feet
in Irvine, California under a lease expiring in April 2002. Landmark leases
office space in London and Rugby, UK; Nieuwegein, the Netherlands;
Sevres Cedex, France; Kaarst, Germany; Central Hong Kong; Bagvaerd, Denmark;
Helsinki, Finland; Jarfalla, Sweden; Melbourne and Sydney, Australia; and
Madrid, Spain.

ITEM 3.  LEGAL PROCEEDINGS.

The Company is not currently engaged in any material legal proceedings.

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

There were no matters submitted to stockholders for vote during the fourth
quarter of 1999.

EXECUTIVE OFFICERS OF THE COMPANY

The following table lists the executive officers of the Company.

<TABLE>
<CAPTION>
NAME                                     AGE           POSITION
----                                     ---           --------

<S>                                      <C>           <C>
Katherine K. Clark                        42           President, Chief Executive Officer and Director
James R. Bowerman                         44           Vice President, Research and Development
Daniel C. Carayiannis                     43           Vice President, Worldwide Sales
John D. Hunter                            53           Vice President, Business Development
Robert H. Johnson                         58           Vice President, Customer Operations
Bruce E. Lovett                           42           Vice President, Marketing
Frederick S. Rolandi, III                 48           Secretary, Vice President and Chief Financial Officer
</TABLE>

KATHERINE K. CLARK, a co-founder of Landmark, has beaded product development,
technical support, finance and human resources at various times over Landmarks
history, has been a director of Landmark since 1983 and from November 1993 to
September 1997 was President of the Company. In 1994, Ms. Clark assumed her
current role as Chief Executive Officer of the Company and is responsible for
the long-term strategic direction of the Company. In November 1999, Ms. Clark
reassumed the role of President of the Company.

JAMES R. BOWERMAN is Landmark's Vice President, Research and Development and is
responsible for strategy, development maintenance and planning for Landmark's
product lines. Mr. Bowerman joined Landmark in March 2000 after eight years as
the Vice President of Engineering of AXENT Technologies.

DANIEL C. CARAYIANNIS is Landmark's Vice President, Worldwide Sales and is
responsible for sales and sales support throughout the world. Mr. Carayiannis
was Landmark's Vice President, North American Sales from October 1998 until
January 2000. Prior to joining Landmark, Mr. Carayiannis served from July 1994
to October 3998 as Vice President of SPOT Image Corporation, a satellite
imagery and information data products firm. From

                                      - 12-


<PAGE>   13

April 1993 to July 1994, Mr. Carayiannis served as Vice President of Sales for
Falcon Microsystems, a federal, computer technology value-added reseller.

JOHN D. HUNTER is Landmark's Vice President, Business Development and is
responsible for identifying and evaluation of strategic business opportunities.
Prior to his appointment to this position in January 2000, Mr. Hunter served as
Landmark's Vice President, Mainframe Products, since June 1994. Mr. Hunter
joined Landmark in August 1992 as Vice President, Development and Technology
after 24 years with IBM, during which time he held management roles in various
IBM development labs and was responsible for IBM's worldwide standards
participation as director of architecture and telecommunications.

ROBERT H. JOHNSON is Landmark's Vice President Customer Operations and is
responsible for customer service, quality assurance, product packaging and
documentation at Landmark. Prior to his appointment to this position in January
2000, Mr. Johnson served as a director of technical communications since he
joined Landmark in 1990.

BRUCE E. LOVETT is Landmark's Vice President, Marketing and is responsible for
the strategic planning and implementation of Landmark's marketing programs for
all software product lines. Prior to joining Landmark in May 1999, Mr. Lovett
served as Vice President, Worldwide Marketing at TenFour, a company that
specializes in e-mail and Web security and connectivity software and services
from 1998 to 1999. From 1996 to 1998, Mr. Lovett was employed with Versatility,
a provider of call center and customer care software and services, where he
served as Vice President of Marketing and Customer Programs. Mr. Lovett served
as the Director of Marketing for GRCI, a network design software and consulting
services firm during 1996, and he served as the Marketing Programs Manager for
LEGENT from 1993 to 1995.

FREDERICK S. ROLANDI, III has served as Landmark's Vice President and Chief
Financial Officer since November 1998. In September 1999, Mr. Rolandi was
elected to serve as Secretary of the Company. Prior to his employment with
Landmark, Mr. Rolandi served as Vice President, Controller of Intersolv, Inc.,
a software tools company, from November 1997 to October 1998. From 1991 to
October 1997 Mr. Rolandi was employed with Honeywell Measurex DMC where he
served as Vice President and Chief Financial Officer from May 1991 to December
1995 and as Vice President and General Manager from January 1996 to October
1997.

                                     - 13 -




<PAGE>   14





                                     PART II

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

Landmark's common stock (the "Common Stock") has been traded on the Nasdaq
National Market since the Company's initial public offering on November 18, 1997
under the symbol "LDMK." The following table sets forth the high and low sale
price, as reported on the Nasdaq National Market:

<TABLE>
<CAPTION>
                                                        High             Low
                                                        ----             ---
<S>                                                  <C>              <C>
           1999
               Fourth Quarter                          $11.188         $3.50
               Third Quarter                             11.25          6.75
               Second Quarter                            13.25          8.75
               First Quarter                             14.25          8.50

           1998
               Fourth Quarter                           $12.25         $6.00
               Third Quarter                             10.75         7.375
               Second Quarter                             9.75         6.375
               First Quarter                             10.25          8.00

           1997
               Fourth Quarter (from November 18, 1997)  $9.125         $7.00
</TABLE>


On March 3, 2000, there were 178 holders of record of the Company's Common
Stock.

Landmark has never paid or declared any cash dividends and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. The Company
currently intends to retain its future earnings, if any, to fund the development
and finance the growth of its business. The amount and timing of any future
dividends will depend on general business conditions encountered by the Company,
as well as the financial condition, earnings and capital requirements of the
Company and such other factors as the Board may deem relevant.

ITEM 6.  SELECTED FINANCIAL DATA.

The following selected financial data of the Company are qualified by reference
to and should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and Management's Discussion and Analysis of Results of
Operations and Financial Condition included elsewhere in this Form 10-K. The
consolidated statements of operations data for the years ended December 31,
1997, 1998 and 1999, and the consolidated balance sheet data at December 31,
1998 and 1999 were derived, and are qualified by reference to, Consolidated
Financial Statements of the Company which were audited by PricewaterhouseCoopers
LLP and are included elsewhere in this Form 10-K. The consolidated statements of
operations data for the years ended December 31, 1995 and 1996 and the
consolidated balance sheet data at December 31, 1995, 1996 and 1997 are derived
from the Company's audited financial statements not included in this Form 10-K.


                                      -14-
<PAGE>   15


<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                                -----------------------
                                                          1995            1996           1997           1998            1999
                                                          ----            ----           ----           ----            ----
                                                                        (in thousands, except per-share amounts)
<S>                                                 <C>               <C>            <C>           <C>              <C>
STATEMENTS OF OPERATIONS DATA
Total revenues                                         $34,460         $36,556        $43,362        $49,832         $55,202

Gross profit                                            26,797          27,643         37,478         44,359          47,306

Operating expenses
    Sales and marketing                                 13,092          11,671         14,310         17,125          20,881
    Product research and development                    12,490          13,924         13,478         15,247          16,129
    General and administrative                           6,872           4,776          5,258          5,561           5,995
                                                       -------           -----          -----          -----           -----

        Total operating expenses                        32,454          30,371         33,046         37,933          43,005
                                                        ------          ------         ------         ------          ------

Operating (loss) income                                 (5,657)         (2,728)         4,432          6,426           4,301

Net (loss) income                                      $(4,169)        $(1,202)        $3,006         $5,122          $4,077

(Loss) earnings per share (1)
    Basic                                               $(0.65)         $(0.18)         $0.19          $0.45           $0.33
    Diluted                                             $(0.65)         $(0.18)         $0.17          $0.41           $0.31
</TABLE>



<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                                     ------------
                                                          1995            1996           1997           1998            1999
                                                          ----            ----           ----           ----            ----
                                                                                (in thousands)
<S>                                                   <C>            <C>            <C>            <C>              <C>
BALANCE SHEET DATA
Cash and cash equivalents                                 $316            $339        $17,243        $28,322         $32,136
Working capital (deficit)                               (5,985)         (4,138)        11,218         24,198          29,246
Total assets                                            31,479          25,076         44,508         59,307          76,507
Deferred revenue                                        18,548          18,705         20,392         26,625          33,396
Long-term debt (less current portion)                    1,084             592             51              -               -
Redeemable common stock instruments                      1,049             704              -              -               -
Mandatorily redeemable preferred stock                   5,865           5,865              -              -               -
Stockholders' equity (deficit)                          (4,915)         (6,290)        18,378         26,829          37,942
</TABLE>

(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute basic and
diluted earnings per share.

                                      -15-
<PAGE>   16





ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.

RESULTS OF OPERATIONS FOR 1999, 1998 AND 1997

The following table sets forth the Company's Consolidated Statements of
Operations expressed as percentages of total revenues for the periods indicated.
The Company's revenues are derived from licensing mainframe and client/server
computer software, and providing related maintenance and other services.


<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                              1999          1998        1997
                                                                              ----          ----        ----
<S>                                                                        <C>          <C>          <C>
                Revenues
                    License revenues                                          45.9%        44.3%        38.7%
                    Maintenance revenues                                      54.1         55.7         61.3
                                                                             -----        -----        -----
                        Total revenues                                       100.0        100.0        100.0
                                                                             -----        -----        -----

                Cost of revenues
                    Cost of license revenues                                   2.4          2.3          4.6
                    Cost of maintenance revenues                               8.3          7.4          7.6
                    Cost to acquire distribution rights                        3.6          1.3          1.4
                                                                               ---          ---          ---
                        Total cost of revenues                                14.3         11.0         13.6
                                                                             -----       ------        -----

                    Gross profit                                              85.7         89.0         86.4
                                                                             -----       ------        -----

                Operating expenses
                    Sales and marketing                                       37.8         34.4         33.0
                    Product research and development                          29.2         30.6         31.1
                    General and administrative                                10.9         11.1         12.1
                                                                             -----       ------        -----
                        Total operating expenses                              77.9         76.1         76.2
                                                                             -----       ------        -----

                Operating income                                               7.8         12.9         10.2
                Net interest and other income                                  3.8          3.6          1.1
                                                                             -----       ------        -----

                Income before income taxes                                    11.6         16.5         11.3
                Provision for income taxes                                     4.2          6.2          4.4
                                                                             -----       ------        -----

                Net income                                                     7.4%        10.3%         6.9%
                                                                              ====         ====         ====
</TABLE>

Total revenues. Total revenues in 1999 were $55.2 million, an increase of 10.8%
from the prior year. Total revenues in 1998 were $49.8 million, an increase of
14.9% from 1997. Revenues in 1999 from mainframe

                                      -16-
<PAGE>   17


products and services were $45.4 million, an increase of 7.2% from the prior
year, and revenues in 1999 from client/server products and services were $9.8
million, an increase of 30.9% from the prior year. The increase in revenues from
mainframe products and services was primarily due to an increase in customer
conversions as discussed below. The increase in client/server revenues was
primarily due to increased acceptance of the client/server products in
international markets. Although revenues continued to increase, the Company
experienced a slowdown in sales growth due to the lengthening of the sales cycle
(this lengthening of the sales cycle may be attributable to certain Year 2000
issues, as described below, and to the greater time required to consummate more
complex and higher dollar transactions). In an effort to shorten the sales cycle
and improve its order close rate, the Company introduced a more focused direct
sales approach in October 1999. The Company intends to monitor the results of
this sales approach to determine its impact on the sales cycle and order close
rate; however, the lengthening of the sales cycle due to Year 2000 issues may
continue through at least the first quarter of 2000.

License revenues. License revenues in 1999 were $25.3 million, an increase of
14.7% from the prior year. During 1998, license revenues were $22.1 million, an
increase of 31.6% from 1997. The increases in 1999 and 1998 were primarily due
to an increase in the number of new customers, large dollar transactions
(transactions greater than $100,000) and customer conversions to new license
agreements. A conversion of a license agreement is, in effect, a migration from
either a site or CPU license to a MIPS (millions of instructions per second) or
MSU (measured service units) license. A site or CPU license allows the customer
to use the licensed software only in one designated location. A MIPS or MSU
license, however, allows the customer to use the licensed software in a
multi-site environment (these licenses are often selected by customers who can
reasonably anticipate their computing capacity needs, and this license is priced
in proportion to the computing capacity of the machine). If a customer elects to
convert to a MIPS or MSU license, the customer is required to pay the Company an
additional fee whenever the customer increases the size of their computing
environment. The list price of the new license and the associated maintenance
may be lower than that of the original license and maintenance because of
changes in fair values over time. During 1999 and 1998, the Company entered into
approximately 60 and 40 license agreements, respectively, which were greater
than $0.1 million.

Maintenance revenues. Maintenance revenues in 1999 were $29.9 million, an
increase of 7.6% from the prior year. During 1998, maintenance revenues were
$27.7 million, an increase of 4.4% from 1997. In 1999 and 1998, maintenance
revenues were favorably impacted by the volume of prior year's license sales and
the effects of increases in the Company's maintenance prices, partially offset
by an increase in conversions of license agreements, which often may result in
lower maintenance fees. As discussed above, due to changes in fair values over
time, the new license and associated maintenance may be lower than that of the
original (pre-conversion) license and maintenance. Maintenance renewal rates
have historically been 85 to 90%, and management believes future maintenance
renewal rates will continue at this level.

Cost of license revenues. Cost of license revenues includes amortization of
capitalized software costs, product royalties and materials and packaging
expenses. Costs of license revenues in 1999, 1998 and 1997 were $1.3 million,
$1.2 million and $2.0 million, respectively, representing 5.2%, 5.2% and 11.7%
of license revenues. The slight increase from 1998 to 1999 is the result of an
increase in product royalties partially offset by a decrease in amortization of
capitalized software costs. The $0.8 million reduction from 1997 to 1998 is
primarily due to a decrease in amortization of capitalized software costs.

Cost of maintenance revenues. Cost of maintenance revenues consists of personnel
and related costs for customer support, training and consulting services. Costs
of maintenance revenues in 1999, 1998 and 1997 were $4.6 million, $3.7 million
and $3.3 million, respectively, representing 15.3%, 13.3% and 12.4% of
maintenance revenues. The $0.9 million increase from 1998 to 1999 is primarily
the result of increased professional service personnel for client/server
products and additional support personnel in the Company's European
subsidiaries. The $0.4 million increase from 1997 to 1998 is primarily due to an
increase in the number of customer service employees.

Cost to acquire distribution rights. Cost to acquire distribution rights
includes royalties paid related to the acquisition of distribution rights as
well as the straight-line amortization of international distribution rights that


                                      -17-
<PAGE>   18



have been reacquired from third party resellers. Cost to acquire distribution
rights in 1999, 1998, and 1997 were $2.0 million, $0.6 million and $0.6 million,
respectively. The increase in 1999 is primarily due to the amortization of
distribution rights acquired in January and October 1999 from the Company's
former distributors in the United Kingdom and France, respectively, and
royalties of $0.2 million paid to the Company's former distributor in the Nordic
region.

Sales and marketing. Sales and marketing expenses include personnel and related
costs for the Company's direct sales organization, marketing staff and
promotional expenses. Sales and marketing expenses were $20.9 million, $17.1
million and $14.3 million in 1999, 1998 and 1997, respectively, representing
37.8%, 34.4% and 33.0% of total revenues. The $3.8 million increase from 1998 to
1999 is primarily due to an increase in personnel in the international direct
sales organization, the increase in marketing activities, and an increase in
commission expenses to the Company's direct sales forces as a result of
increased sales. The $2.8 million increase from 1997 to 1998 is primarily due to
growth of the North American direct sale force and an increase in marketing
personnel and programs.

Product research and development. Product research and development expenses
include personnel and related costs for the Company's development staff. Product
research and development expenses were $16.1 million, $15.2 million and $13.5
million in 1999, 1998 and 1997, respectively, representing 29.2%, 30.6% and
31.1% of total revenues. The $1.7 million increase from 1997 to 1998 is due to
the Company's continued investment in both mainframe and client/server products.
The Company capitalized software development costs of $0.9 million and $0.3
million in 1999 and 1998, respectively, and did not capitalize any software
development costs in 1997 as any amounts eligible for capitalization were not
material. Amounts capitalized in 1999 were related to the development of
WebWatcher which is scheduled to be released in the second quarter of 2000;
amounts capitalized in 1998 were related to the development of PerformanceWorks
3.0.

General and administrative. General and administrative expenses include salaries
and related costs of administration, finance and management personnel, as well
as legal and accounting fees. General and administrative expenses were $6.0
million, $5.6 million and $5.3 million in 1999, 1998 and 1997, respectively,
representing 10.9%, 11.1% and 12.1% of total revenues. The increase from 1998 to
1999 is due to a continued increase in personnel in the Company's information
systems department and costs associated with the relocation of the Company's
headquarters which occurred in June 1999. The increase from 1997 to 1998
includes increased expenses for information systems personnel and bad debt
reserves, partially offset by a decrease in stock compensation expense. Bad debt
reserves are calculated based on historical experience of bad debt write-offs,
aging of receivables, and specific exposures. During 1998, two of the Company's
international distributors, with receivables totaling $0.5 million, became
significantly delinquent in their payments. Accordingly, the Company increased
its reserves to cover these specific exposures. During 1999, one of the
international distributors paid its delinquent balance, at which time the
reserve was adjusted. The Company wrote off the entire receivable balance from
the second delinquent international distributor and reduced the reserve
accordingly.

Net interest and other income. Net interest and other income includes interest
income earned on cash balances, interest income recorded on installment
receivables, interest expense incurred on term and revolving credit facilities,
bank fees and exchange gains (losses) incurred by the Company on transactions
denominated in foreign currencies. Net interest and other income were $2.1
million, $1.8 million and $0.5 million for 1999, 1998 and 1997, respectively. Of
these amounts, $1.2 million, $0.9 million and $0.2 million represent interest
earned on the Company's bank balances in 1999, 1998 and 1997, respectively. The
increases from 1998 to


                                      -18-
<PAGE>   19




1999 and from 1997 to 1998 reflect higher levels of interest income earned by
the Company on its cash balances and the reduction of interest expense due to
the repayment of the Company's debt obligations during 1998.

Provision for income taxes. The Company's effective rates were 36.3%, 37.7% and
39.1% for 1999, 1998 and 1997, respectively. The effective tax rates differ from
the federal and state statutory income tax rate primarily as a result of the
adjustments of valuation allowances to reflect management's judgment as to
whether certain tax credit carryforwards would expire before utilization by the
Company, and as to the relative likelihood that foreign subsidiary net operating
losses would not be recovered. In 1999, the Company reduced its valuation
allowance by $0.1 million primarily due to the release of its liability for
competent authority. See Note 8 to the Consolidated Financial Statements-Income
Taxes.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999, the Company had cash and cash equivalents of $32.1
million, an increase of 13.5% from the prior year, and working capital of $29.2
million. During 1999, net cash provided by operating and financing activities
was $9.6 million and $3.8 million, respectively, while net cash used in
investing activities was $9.6 million. The Company invests its cash in a money
market fund. The Company had no debt as of December 31, 1999, other than normal
trade payables and accrued liabilities. Stockholders' equity at December 31,
1999 was $37.9 million.

The Company continues to finance its growth through funds generated from
operations. During 1999, 1998 and 1997, cash flow from operations was $9.6
million, $12.3 million and $6.6 million, respectively. Net cash flow from
operating activities is primarily composed of net income, depreciation and
amortization, the sale of unbilled receivables, and increases in deferred
revenue, partially offset by increases in accounts receivable and unbilled
accounts receivable, and a decrease in income taxes payable. During 1999 and
1998, the Company augmented operating cash flows with the sale of $8.8 million
and $7.8 million, respectively, of unbilled accounts receivable. The sale of the
unbilled receivables resulted in immaterial gains and losses for the Company. In
the future, the Company may sell additional unbilled accounts receivable from
time to time depending on the Company's cash flow requirements and whether the
terms are financially favorable for the Company.

The Company's investing activities include expenditures for fixed assets in
support of the Company's product development activities and infrastructure, and
for capitalized software development costs. During 1999, 1998 and 1997, the
Company invested $2.9 million, $2.3 million and $1.6 million, respectively, in
fixed assets, consisting primarily of computer equipment to expand and upgrade
the Company's development activities and, in 1999, for leasehold improvements
associated with the Company's new headquarters. The Company expects to upgrade,
on an ongoing basis, its development environments to meet changing customer and
market requirements. In 1999, the Company also entered into operating leases
with an aggregate value of $2.1 million to partially finance its move to its new
headquarters. In 2000, the Company expects to make additional investments in its
IT infrastructure of approximately $2.0 million.

The Company's investing activities also include amounts recorded as capitalized
software development costs. Of the total research and development expenditures
of $17.0 million, $15.5 million and $13.5 million during 1999, 1998 and 1997,
the Company capitalized costs of $0.9 million and $0.3 million in 1999 and 1998,
respectively. The Company did not capitalize any software development costs in
1997 as any amounts eligible for capitalization were not material.

During 1999, the Company acquired distribution rights from its former
international distributors in the United Kingdom and France. As partial
consideration for these acquisitions, the Company paid the former distributor in
the United Kingdom $4.0 million in cash and paid the former distributor in
France $1.2 million in cash. For additional discussion of the Company's
acquisition of distribution rights, see Note 2 to the Consolidated Financial
Statements - Summary of Significant Accounting Policies, Intangible Assets.

The Company believes that cash and cash equivalents at December 31, 1999 and
cash flow generated from operations will provide sufficient liquidity to meet
its needs for at least the next twelve months. To the extent the


                                      -19-
<PAGE>   20




Company makes acquisitions of other companies, products or technologies, the
Company may use working capital, sell or issue additional equity or debt
securities or use credit facilities.

INTRODUCTION OF THE EURO CURRENCY

The Euro became the single currency for most European countries on January 1,
1999, and the transition from national currencies to the Euro will be phased in
over several years. The Company has assessed Euro issues related to its treasury
operations, product pricing, contracts and accounting systems. Although the
evaluation of these issues is still in process, management continues to believe
that the Company's existing or planned hardware and software systems will
accommodate the transition to the Euro and any required operating changes will
not have a material effect on future results of operations or financial
condition.

NEW ACCOUNTING PRONOUNCEMENTS

In December 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position (SOP) 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions." SOP 98-9
modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions are met. The Company adopted SOP 98-9 on January
1, 2000 and believes the adoption will not have a material effect on the
Company's financial condition or results of operations.

In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The Company adopted SOP 98-1
on January 1, 1999. The adoption of SOP 98-1 did not have a material impact on
the Company's results of operations or financial condition.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." The Company is required to adopt SFAS
133 for all fiscal quarters of all fiscal years beginning after June 15, 2000.
SFAS 133 establishes methods of accounting for derivative financial instruments
and hedging activities. Because the Company currently holds no derivative
financial instruments as defined by SFAS 133 and does not currently engage in
hedging activities, adoption of SFAS 133 is expected to have no material effect
on the Company's financial condition and results of operations.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101") to
provide guidance regarding the recognition, presentation and disclosure of
revenue in financial statements. The Company is currently evaluating the impact
of the provisions of SAB 101.

YEAR 2000 COMPLIANCE

Through the first two months of 2000, Landmark's operations are fully
functioning with no material Year 2000 issues to report anywhere in the world.
At Landmark corporate headquarters and at its subsidiary sites worldwide there
have not been any significant Year 2000-related issue that would affect the
Company's ability to manufacture, ship, sell or service its products.

In preparation for the Year 2000 date rollover, the Company conducted periodic
evaluations of its computer systems and products in an effort to determine the
actions, if any, necessary to make them Year 2000 compliant. The term "Year 2000
compliant" (or similar terms) generally means that information technology
hardware and software are able to correctly interpret and manipulate dates up to
and through the year 2000, without interruption as the result of the change to
this date.

These evaluations involved both testing the Company's computer systems and
either requesting certifications from its vendors or consulting vendor websites.
The Company completed testing and received vendor certification of all of its
business critical information technology systems, including internal
communication systems, accounting and finance systems, customer service systems
and sales and marketing tracking systems, and does not anticipate

                                      -20-
<PAGE>   21


any Year 2000 compliance issues with these systems. At the conclusion of testing
these systems, the Company determined that all critical information technology
systems are Year 2000 compliant. The Company upgraded, replaced and tested these
applications, and this process was completed prior to the Year 2000 date
rollover.

The Company also recognized that there are risks with respect to embedded
systems that are not necessarily a part of the Company's information technology
systems but contain microprocessor chips, which may not function properly with
the change of date to the year 2000. The majority of the embedded systems on
which the Company relies in its day-to-day operations are owned and managed by
the lessors of the buildings in which the Company's offices are located, or by
agents of such lessors. During the second quarter of 1999, the Company moved its
headquarters to a new facility, containing new mechanical systems, in Reston,
Virginia. The Company believed that the new mechanical systems will be Year 2000
compliant, based on its building construction manager's experience with other
such systems, and certain representations made by the manufacturers of such
systems. The Company received assurance, through the representations in the
equipment manufacturers' Operation and Maintenance (O & M) manuals or written
letters of certification, that these systems are Year 2000 compliant.
Additionally, the Company installed a new telephone switch in the new facility,
and a Year 2000 compliancy certificate has been received from the switch's
manufacturer.

Because the Company believed that its information technology and embedded
systems would be substantially Year 2000 compliant in advance of the year 2000
date change, the Company had no contingency plan to address non-compliance. The
Company, however, constantly monitors its Year 2000 status and is prepared to
develop contingency plans if it is determined that any business critical systems
may not be Year 2000 compliant.

Disruptions with respect to the computer systems of vendors or customers, which
are outside the control of the Company, could impair the ability of the Company
to obtain services from or conduct business with its customers. The Company
believes that its primary exposure is with respect to public utilities and
telecommunications service providers. The Company completed the process of
either consulting vendor websites or requesting certifications from these public
utilities and telecommunications service providers of their Year 2000
compliance. Although the public utility companies and telecommunications service
providers consulted have determined to the best of their knowledge and belief
that interruptions to services will be unlikely, unforeseen disruptions of the
Company's utilities or telecommunications systems could have a material adverse
effect upon the Company's financial condition and results of operations. The
Company believes that no other providers are material to its business.
Disruptions of customers' computer systems could interfere with payments to the
Company by such customers, and therefore with the Company's ability to make
timely payments on its accounts, and could otherwise cause disruptions to the
Company's operations. None of the Company's customers, however, is individually
material to the Company's business and the Company did not seek certifications
from its customers that their internal computer systems are Year 2000 compliant.

With respect to the products sold by the Company, the Company had determined
that, with certain exceptions described below, to the extent that underlying
hardware platforms, operating systems applications and databases will
accommodate the year 2000 date change, the Company's performance management
software products are Year 2000 compliant. The Company is specifically aware
that CICS Version 2, Release 1.2, an operating system developed and marketed by
the IBM Corporation is not presently Year 2000 compliant, according to IBM, and
that the Company's The Monitor for CICS/MVS Version 8.3 product, since it
operates with such non-compliant IBM product, is therefore also non-compliant.
IBM has decided not to make their product compliant. Accordingly, the Company
has been communicating this non-compliancy situation to its customers by
written, oral and electronic (e-mail and the Company's web site) communications
since 1997. The expected reduced sales of this product are not expected to have
a material adverse effect on the Company's results of operations or financial
condition.

The other exceptions to the Company's general condition of Year 2000 product
compliance are: (1) some Company product customers may be operating older,
non-compliant versions of certain of the Company's products, and also may not be
active participants in product maintenance programs that periodically provide in
the normal course of business (at no additional charge beyond the on-going costs
of program participation) newer product versions or product modifications that
address Year 2000 non-compliancy issues and specifically make


                                      -21-
<PAGE>   22



such products Year 2000 compliant (the "Older Product Scenario"); (2) the
Company discovered in the first quarter of 1999 that its NaviGraph product,
version 1.3 required a product addition to make it Year 2000 compliant (the
"NaviGraph 1.3 Scenario"); (3) the Company discovered in the second quarter of
1999 that its SmartAgent for Oracle product required a product addition to make
it Year 2000 compliant (the "SmartAgent for Oracle Scenario"); and (4) the
Company discovered in third quarter of 1999 that two products, Navigraph version
2.0 (the "Navigraph 2.0 Scenario") and the Monitor for VTAM version 2.1 (the
"Monitor for VTAM 2.1 Scenario") have Year 2000 data reporting and display
defects which do not affect the overall operation of the product.

With respect to the Older Product Scenario, the majority (on an absolute basis)
of the Company's products were made Year 2000 compliant during 1997. Certain
other Company products, specifically The Monitor for DB Control, The Monitor for
MQ Series and NaviPlex products, were made Year 2000 compliant during 1998.
Additionally, those customers on active product maintenance programs (and
approximately 85% to 90% of the Company's customers participate in such
programs) receive regular product upgrades or modifications that include
software that addresses Year 2000 compliancy issues. The Company encourages all
its customers to participate in active maintenance programs. The Company has
completed its attempts to communicate this Older Product Scenario issue to
customers through written, oral and electronic (e-mail and the Company's web
site) communications.

With respect to the NaviGraph 1.3 Scenario, the product addition required to
make this product Year 2000 compliant was made generally available to all
NaviGraph customers participating in active maintenance programs during late
April 1999. The Company had previously communicated to its customers and to
third parties, beginning in 1997, that NaviGraph 1.3 was Year 2000 compliant.
The Company has completed its efforts to contact all NaviGraph 1.3 product
customers to alert them that Year 2000 compliancy issues may be present and to
inform them of their options.

With respect to the SmartAgent for Oracle Scenario, the product addition
required to make this product Year 2000 compliant was made generally available
to all SmartAgent for Oracle customers participating in active maintenance
programs during early August 1999. The Company had previously communicated to
its customers and to third parties, beginning in 1997, that SmartAgent for
Oracle was Year 2000 compliant. Year 2000 product additions have been made
available for all versions (1.x, 2.x, and 3.0) of SmartAgent for Oracle.
SmartAgent for Oracle 3.0 becomes Year 2000 compliant when used in conjunction
with Service Pack 2, which was made available in early August 1999. Year 2000
product additions (replacement binaries) for all previous versions (1.x, 2.x)
have been made available to SmartAgent for Oracle customers that are on, or wish
to join, active maintenance programs. The Company has completed its efforts to
contact all SmartAgent for Oracle product customers to alert them that Year 2000
compliancy issues may be present and to inform them of their options.

With respect to the NaviGraph 2.0 Scenario, the product addition required to
correct the reporting and display function defect and make this product fully
Year 2000 compliant was made generally available to all NaviGraph customers
participating in active maintenance programs through the November 1999
PerformanceWorks for MVS and OS/390 version 3 Cumulative Service tape in
November 1999. The Company had communicated to its customers and to third
parties through the second quarter of 1999 that NaviGraph 2.0 was Year 2000
compliant. All NaviGraph version 2.0 domestic customers participate in the
maintenance program for the product. Approximately three-quarters of
international NaviGraph customers (version 2.0 and previous versions)
participate in the maintenance program for the products. The Company does not
know how many of those international NaviGraph product customers not
participating in an active maintenance program are no longer using the product.
Accordingly, the majority of domestic and international NaviGraph 2.0 customers
who have elected to participate in active maintenance programs are, or will be
made, Year 2000 compliant with respect to such products in the normal course of
business, assuming they accept and implement the November Cumulative Service
tape as such normal product maintenance. The Company has completed its efforts
to contact all NaviGraph 2.0 product customers to alert them that Year 2000
compliancy issues may be present and to inform them of their options.

With respect to the Monitor for VTAM 2.1 Scenario, the product addition required
to make this product Year


                                      -22-
<PAGE>   23



2000 compliant was made generally available to all Monitor for VTAM customers
participating in active maintenance programs during November 1999. The Company
had previously communicated to its customers and to third parties that the
Monitor for VTAM version 2.1 was Year 2000 compliant. Of the approximately 149
domestic Monitor for VTAM 2.1 customers, 117 of such customers participate in
the maintenance program for the product. The Company does not know how many of
those domestic Monitor for VTAM customers not participating in an active
maintenance program are no longer using the product. Of the approximately 102
international Monitor for VTAM (version 2.1 and previous versions) customers,
approximately 74 of such customers participate in the maintenance program for
the products. The Company does not know how many of those international Monitor
for VTAM (version 2.1 and previous versions) customers not participating in an
active maintenance program are no longer using the product. Accordingly, the
majority of domestic and international Monitor for VTAM (version 2.1) customers
who have elected to participate in active maintenance programs are, or will be
made, Year 2000 compliant with respect to such products, assuming they accept
and implement the fix. The Company has completed is efforts to contact all
Monitor for VTAM product customers to alert them that Year 2000 compliancy
issues may be present and to inform them of their options.

Although the Company did not anticipate that customers would require additional
product support during the Year 2000 date change, Landmark had expanded support
supplemented by additional on-site staffing to assist customers on product
maintenance with either Year 2000- or non-Year 2000 related-problems from
Thursday, December 30, 1999 through Friday January 7, 2000. The number of Year
2000-related calls from customers into the Company's product support center has
been much lower than anticipated. Customer support operations continue to report
that customers have no significant Year 2000 incidents.

Notwithstanding its efforts to attempt to ensure that its products are Year 2000
compliant and although the Company to date has not experienced any significant
problems associated with Year 2000, the Company may experience future
uncertainties and problems relating to the Year 2000 date change issue,
including but not limited to possible technical problems and/or customer claims.
If circumstances warrant, the Company may conduct additional tests for its
mainframe and client/server products, and is also aware that certain of its
customers have been and will continue to conduct additional Year 2000 Company
product compliancy tests. It is possible that additional Company product Year
2000 compliancy issues could be discovered in the future during the course of
such tests.

Virtually all of the Company's customers and potential customers were required
to evaluate their information technology systems with respect to the Year 2000
date change and the Company believes that some of its customers and potential
customers may have incurred material costs in connection with this evaluation
and any necessary repairs and replacements. Customers and potential customers
may have been required to devote material portions of their information
technology budgets to such evaluations, repairs and replacements, which could
have materially reduced their other information technology purchases in 1999,
including their purchases of the Company's products, particularly as the Year
2000 date change drew closer. The Company has very limited information as to the
degree to which its customers or potential customers have completed Year 2000
remediation efforts or whether or not its customers or potential customers are
Year 2000 compliant. However, during the second, third, and fourth quarters of
1999 the Company experienced a lengthening of the sales cycle


                                      -23-
<PAGE>   24




due to, among other things, possible Year 2000 issues. The Company anticipates
that Year 2000 related sales cycle lengthening may continue at least through the
first quarter of 2000.

The Company has incurred a total of approximately $0.5 million for years 1999,
1998, and 1997 for Year 2000 remediation activities. There can be no assurance
that the actions taken by the Company with respect to its internal information
technology systems, embedded systems or its products will eliminate the numerous
and varied risks associated with the year 2000 date change. Further, there can
be no assurance that the Company will not be adversely affected by any year 2000
related difficulties encountered by vendors or customers or by any downturn in
information technology purchases or in the economy in general as a result of the
Year 2000 date change. Additionally, the effects of any actual Year 2000
non-compliance problem directly or indirectly experienced by the Company could
be exacerbated by the fact that the Company normally experiences its largest
quarterly sales for a given calendar year in the fourth quarter of each year,
and invoices and receives payment for such sales in the first quarter of the
following calendar year. Accordingly, should a Year 2000 non-compliance problem
or problems affect the Company's customers, the potential impact on the
Company's operations could be greater than if the Company received these
payments at the time of sale or some time other than the calendar quarter
immediately after the date switch from 1999 to 2000. Any of these risks could
have a material adverse effect on the Company's financial condition and results
of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company has subsidiaries in the United Kingdom, Germany, France, The
Netherlands, Sweden, Spain, Australia, Hong Kong and Singapore that act as
distributors of its products. Additionally, the Company uses third party
distributors to market and distribute its products in other international
regions. Transactions conducted by the subsidiaries are typically denominated in
the local country currency, while royalty payments from the distributors are
typically denominated in U.S. dollars. As a result, the Company is primarily
exposed to foreign exchange rate fluctuations as the financial results of its
subsidiaries are translated into U.S. dollars in consolidation. As exchange
rates vary, these results, when translated, may vary from expectations and
impact overall expected profitability. Through and as of December 31, 1999, the
Company's exposure was not material to the overall financial statements taken as
a whole. The Company has not entered into any foreign currency hedging
transactions with respect to its foreign currency market risk.

The Company's exposure to market risk for changes in interest rates relates
primarily to unbilled accounts receivable. At December 31, 1999, the Company has
$12.4 million of unbilled accounts receivable; the estimated fair market value
of these receivables is $12.7 million. If market interest rates increase 10%
from the levels at December 31, 1999, the fair market value of the unbilled
accounts receivable would decline by an immaterial amount.

See Note 2 - Summary of Significant Accounting Policies in the Company's Notes
to Consolidated Financial Statements contained elsewhere in this Form 10-K.


                                      -24-
<PAGE>   25




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Landmark Systems Corporation

        In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Landmark Systems Corporation and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

McLean, Virginia
February 29, 2000


                                      -25-
<PAGE>   26



                          LANDMARK SYSTEMS CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                           Year Ended December 31,
                                                                           -----------------------
                                                                 1999                   1998                    1997
                                                                 ----                   ----                    ----
<S>                                                        <C>                     <C>                    <C>
     Revenues
          License revenues                                   $  25,340,034          $  22,083,944           $ 16,781,122
          Maintenance revenues                                  29,862,400             27,748,290             26,581,373
                                                               -----------            -----------            -----------
               Total revenues                                   55,202,434             49,832,234             43,362,495
                                                               -----------            -----------            -----------

     Cost of revenues
          Cost of license revenues..                             1,324,108              1,154,828              1,967,265
          Cost of maintenance revenues                           4,570,971              3,702,575              3,300,851
          Cost to acquire distribution rights                    2,001,518                615,996                616,000
                                                               -----------            -----------            -----------
               Total cost of  revenues                           7,896,597              5,473,399              5,884,116
                                                               -----------            -----------            -----------
          Gross profit                                          47,305,837             44,358,835             37,478,379
                                                               -----------            -----------            -----------

     Operating expenses
          Sales and marketing                                   20,880,796             17,124,823             14,309,460
          Product research and development                      16,129,310             15,247,055             13,478,173
          General and administrative                             5,994,432              5,560,788              5,258,230
                                                               -----------            -----------            -----------
               Total operating expenses                         43,004,538             37,932,666             33,045,863
                                                               -----------            -----------            -----------

     Operating income                                            4,301,299              6,426,169              4,432,516
          Interest and other income                              2,135,516              1,832,310                776,321
          Interest expense                                         (41,442)               (41,668)              (275,741)
                                                               -----------            -----------            -----------

     Income before income taxes                                  6,395,373              8,216,811              4,933,096
          Provision for income taxes                             2,318,321              3,094,698              1,927,444
                                                               -----------            -----------            -----------

     Net income                                                  4,077,052              5,122,113              3,005,652
          Accretion and dividends on preferred stock                     -                      -              1,475,409
                                                               -----------            -----------            -----------

     Net income available to common stockholders               $ 4,077,052            $ 5,122,113             $1,530,243
                                                               ===========            ===========             ==========

     Earnings per share
          Basic                                                    $  0.33                $  0.45                $  0.19
          Diluted                                                  $  0.31                $  0.41                $  0.17

</TABLE>

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


                                      -26-
<PAGE>   27




                          LANDMARK SYSTEMS CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                                    December 31,
                                                                                             1999                 1998
                                                                                             ----                 ----
<S>                                                                                     <C>                 <C>
     ASSETS
     Current assets:
       Cash and cash equivalents                                                           $32,135,952           $28,322,234
       Accounts receivable, net of allowance for doubtful
         accounts of $795,000 and $1,323,000                                                13,987,545            10,902,168
       Unbilled accounts receivable                                                          5,353,362             5,728,250
       Income taxes receivable                                                               2,148,431                     -
       Deferred income taxes, net                                                            1,333,482             1,644,482
       Other current assets                                                                    619,283               854,082
                                                                                            ----------            ----------
              Total current assets                                                          55,578,055            47,451,216

     Unbilled accounts receivable - noncurrent                                               7,063,059             5,486,240
     Fixed assets, net                                                                       5,363,273             4,121,290
     Capitalized software costs, net                                                           866,959               257,722
     Deferred income taxes, net - noncurrent                                                 1,493,397             1,094,397
     Intangible assets, net                                                                  5,854,112               616,000
     Other assets                                                                              287,900               280,030
                                                                                           -----------           -----------
             Total assets                                                                  $76,506,755           $59,306,895
                                                                                           ===========           ===========

     LIABILITIES AND STOCKHOLDERS'  EQUITY
     Current liabilities:
       Accounts payable                                                                  $   1,775,415         $   1,042,701
       Accrued expenses and other current liabilities                                        3,026,871             3,566,715
       Deferred revenue                                                                     21,529,799            17,723,807
       Income taxes payable                                                                          -               920,456
                                                                                            ----------            ----------
              Total current liabilities                                                     26,332,085            23,253,679

     Deferred revenue - noncurrent                                                          11,866,661             8,900,963
     Other liabilities                                                                         366,115               323,212
                                                                                            ----------           -----------
              Total liabilities                                                             38,564,861            32,477,854
                                                                                            ----------           -----------

     Commitments

     Stockholders' equity:
       Common stock, $.01 par value, 30,000,000 shares
         authorized, 12,838,090 and 11,782,585 issued and
         outstanding                                                                           128,381               117,826
       Additional paid-in capital                                                           34,049,244            26,692,818
       Retained earnings (deficit)                                                           3,958,518              (118,534)
       Accumulated other comprehensive income                                                 (194,249)              136,931
                                                                                           -----------           -----------
              Total stockholders' equity                                                    37,941,894            26,829,041
                                                                                           -----------           -----------
              Total liabilities and stockholders' equity                                   $76,506,755           $59,306,895
                                                                                           ===========           ===========

</TABLE>

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


                                      -27-
<PAGE>   28




                          LANDMARK SYSTEMS CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                               Common Shares
                                      --------------------------------
                                                                                                     Accumulated
                                                                      Additional       Retained        Other
                                                                        Paid-in        Earnings/    Comprehensive
                                          Issued        Par Value       Capital         (Deficit)      Income           Total
                                       ------------    -----------    -------------   -----------   ---------      -------------
<S>                                    <C>            <C>             <C>            <C>            <C>           <C>
Balance at December 31, 1996              7,331,895        $73,320         $432,300   $(6,770,890)   $(24,500)       $(6,289,770)
  Comprehensive income:
     Net income                                  --             --               --     3,005,652          --                 --
     Foreign currency translation                --             --               --            --     117,243                 --
  Total comprehensive income                     --             --               --            --          --          3,122,895
  Issuance of warrants                           --             --           48,000            --          --             48,000
  Series B Preferred Stock issuance
     costs                                       --             --          (52,115)           --          --            (52,115)
  Preferred stock redemption value
     adjustment                                  --             --               --    (1,232,579)         --         (1,232,579)
  Common stock issued upon exercise
     of non-qualified stock options         317,177          3,171        1,115,358            --          --          1,118,529
  Tax benefit from  exercise of
     non-qualified stock options                 --             --          265,446            --          --            265,446
  Compensation expense for options
     granted to non-employees                    --             --          169,268            --          --            169,268
  Common stock repurchased                 (136,209)        (1,362)        (871,156)           --          --           (872,518)
  Waiver of rights to require
     repurchase                               8,240             82          237,026            --          --            237,108
  Series A Preferred Stock dividends             --             --               --      (242,830)         --           (242,830)
  Issuance of common stock pursuant
     to the initial public offering       2,000,000         20,000       13,000,000            --          --         13,020,000
  Initial public offering issuance
     costs                                       --             --       (1,000,942)           --          --         (1,000,942)
  Lapse of rights to require
     repurchase                             265,650          2,656        1,612,456            --          --          1,615,112
  Conversion of preferred stock
     to common stock                      1,426,578         14,266        8,458,314            --          --          8,472,580
                                         ----------    -----------      -----------    ----------   ---------        -----------
Balance at December 31, 1997             11,213,331        112,133       23,413,955    (5,240,647)     92,743         18,378,184
  Comprehensive income:
     Net income                                  --             --               --     5,122,113         --                  --
     Foreign currency translation                --             --               --            --      44,188                 --
  Total comprehensive income                     --             --               --            --          --          5,166,301
  Common stock issued upon exercise
     of non-qualified stock options         529,742          5,298        2,099,515            --          --          2,104,813
  Tax benefit from exercise of
     non-qualified stock options                 --             --          904,852            --          --            904,852
  Issuance of common stock pursuant
     to the 1998 SPP                         39,512            395          274,496            --          --            274,891
                                         ----------    -----------      -----------    ----------   ---------        -----------
Balance at December 31, 1998             11,782,585        117,826       26,692,818      (118,534)    136,931         26,829,041
  Comprehensive income:
     Net income                                  --             --               --     4,077,052          --                 --
     Foreign currency translation                --             --               --            --    (331,180)                --
  Total comprehensive income                     --             --               --            --          --          3,745,872
  Common stock issued upon exercise
     of non-qualified stock options         892,385          8,924        3,255,436            --          --          3,264,360
  Common stock and warrants issued
     upon repurchase of distribution
     rights                                  91,586            916        1,722,084            --          --          1,723,000
  Tax benefit from  exercise of
     non-qualified stock options                 --             --        1,833,384            --          --          1,833,384
  Issuance of common stock pursuant
     to the 1998 SPP                         71,534            715          545,522            --          --            546,237
                                         ----------      ---------      -----------    ----------   ---------        -----------
Balance at December 31, 1999             12,838,090       $128,381      $34,049,244    $3,958,518   $(194,249)       $37,941,894
                                         ==========    ===========      ===========    ==========   =========        ===========
</TABLE>

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


                                      -28-
<PAGE>   29




                          LANDMARK SYSTEMS CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                        Year Ended December 31,
                                                                                1999                 1998                1997
                                                                                ----                 ----                ----
<S>                                                                         <C>                <C>                   <C>
             Cash flows from operating activities:
               Net income                                                     $4,077,052           $5,122,113          $3,005,652
               Adjustments to reconcile net income to net cash
                   provided by operating activities:
                 Depreciation and amortization                                 3,689,830            2,396,549           3,066,826
                 Provision for losses on accounts receivable                     727,506              603,015             348,882
                 Stock compensation expense                                            -               99,687             590,917
                 (Benefit from) provision for deferred income taxes              (88,000)            (527,861)            269,370
                 Tax benefit from exercise of stock options                    1,833,384              904,852             265,446
                 Increase in accounts receivable                              (3,968,056)          (1,150,436)         (1,156,315)
                 Change in income taxes receivable/payable                    (3,068,887)              54,410             610,819
                 Sale of unbilled accounts receivable                          8,772,492            7,820,975                   -
                 Increase in unbilled accounts receivable                     (9,979,084)          (9,591,237)         (2,182,813)
                 Increase (decrease) in accounts payable and accrued
                   expenses and other current liabilities                        673,088              750,326            (192,934)
                 Increase in deferred revenue                                  6,642,507            6,232,930           1,377,254
                 Increase (decrease) in other, net                               268,823            (370,450)            574,462
                                                                               ---------          -----------           ---------
                      Net cash provided by operating activities                9,580,655           12,344,873           6,577,566
                                                                               ---------           ----------           ---------

             Cash flows from investing activities:
               Acquisition of distribution rights                             (5,788,418)            (488,082)           (815,076)
               Capital expenditures                                           (2,920,339)          (2,252,225)         (1,553,874)
               Capitalized software costs                                       (856,295)            (257,722)                 -
                                                                              ----------          -----------          ----------
                      Net cash used in investing activities                   (9,565,052)          (2,998,029)         (2,368,950)
                                                                               ---------           ----------          ----------

             Cash flows from financing activities:
               Principal payments on loans                                             -             (591,496)           (494,017)
               Payments on line of  credit                                             -                    -          (1,000,000)
               Issuance of common stock in the initial public offering                 -                    -          12,019,058
               Issuance of common stock pursuant to exercise of
                  stock options                                                3,264,360            2,005,126           1,659,745
               Issuance of common stock pursuant to employee
                  stock purchase plans                                           546,237              274,891             278,791
               Repurchases of common stock                                             -                    -            (965,884)
               Issuance of Series B Preferred Stock                                    -                    -           2,447,885
               Redemptions of Series A Preferred Stock                                 -                    -          (1,124,999)
               Payment of Series A Preferred Stock dividends                           -                    -            (242,830)
                                                                             -----------          -----------          ----------
                      Net cash provided by financing activities                3,810,597            1,688,521          12,577,749
                                                                               ---------          -----------          ----------

             Effect of exchange rate changes on cash                             (12,482)              44,188             117,243
                                                                             -----------          -----------          ----------

             Net increase in cash and cash equivalents                         3,813,718           11,079,553          16,903,608
             Cash and cash equivalents, beginning of period                   28,322,234           17,242,681             339,073
                                                                             -----------          -----------          ----------

             Cash and cash equivalents, end of period                        $32,135,952          $28,322,234         $17,242,681
                                                                             ===========          ===========         ===========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
statements; see cash flow disclosures including non-cash transactions in Notes
                                  2, 6 and 8.


                                      -29-
<PAGE>   30




                          LANDMARK SYSTEMS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND OPERATIONS

      Landmark Systems Corporation (the "Company") was incorporated in the
Commonwealth of Virginia in November 1982 and commenced operations in 1983. The
Company is engaged in the development, marketing and distribution of computer
software products and the provision of related services. The Company is a
supplier of performance management software products which measure, analyze,
report and predict performance for both the mainframe and client/server
computing environments.

      The Company has established subsidiaries in the United Kingdom, Spain,
Australia, Hong Kong, Germany, The Netherlands, Sweden, France and Singapore to
act as distributors of its products in Europe, the Middle East, Africa,
Australia, New Zealand and Southeast Asia. Additionally, the subsidiaries
provide technical support, marketing and distribution support in their
geographic markets.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

      The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Intercompany transactions and
balances have been eliminated. Certain prior year amounts have been reclassified
to conform with current year presentation.

      The Company completed an initial public offering of its $.01 par value
common stock on November 18, 1997 (the "IPO"). In preparation for the IPO, on
October 22, 1997, the Company increased the number of authorized shares of
common stock from 15 million shares to 30 million shares. A three-for-two stock
split of the common stock took effect on November 17, 1997. All references to
the number of shares authorized, issued and outstanding and per-share
information for all periods presented have been adjusted to reflect the effects
of the stock split and share authorization.

Cash and Cash Equivalents

      For purposes of the consolidated balance sheets and statements of cash
flows, the Company considers all highly liquid investment instruments with an
original maturity of three months or less to be cash equivalents.


                                      -30-
<PAGE>   31





Revenue Recognition

      Revenues are recognized in accordance with Statement of Position (SOP)
97-2, "Software Revenue Recognition," as amended by SOP 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition." Sales
of perpetual software licenses are recorded as revenues when persuasive evidence
of an arrangement exists, delivery has occurred, the fee is fixed and
determinable and collectibility is probable. Maintenance revenues generally are
collected prior to the performance of the related services and are recorded as
deferred revenue and recognized ratably over the period during which the
services are performed. For transactions involving both license and maintenance
revenues, the Company allocates the revenues based upon the relative vendor
specific objective evidence of fair values of the license and the maintenance
services.

      In December 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position (SOP) 98-9, "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions." SOP
98-9 modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions are met. The Company adopted SOP 98-9 on January
1, 2000 and believes the adoption will not have a material effect on the
Company's financial condition or results of operations.

       In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recoginition in Financial Statements" (SAB 101) to provide guidance regarding
the recogonition, presentation and disclosure of revenue in financial
statements. The Company is currently evaluating the impact of the provisions of
SAB 101.

       In certain circumstances, the Company enters into a long-term payment
arrangement with a licensee. Under these types of arrangements, the Company
allows the licensee to pay the license fees plus maintenance fees over a
three-to-five-year period, generally in annual installments. If collectibility
by the Company is probable, the Company records the present value of the
contracted stream of payments as an unbilled account receivable in its financial
statements. Of this amount, the Company recognizes the underlying license fee as
license revenue and defers the underlying maintenance fee. As installments are
invoiced to the licensee in accordance with the payment arrangement, the Company
reflects a reduction in its unbilled accounts receivable and an increase in its
accounts receivable. Historically, the Company has not granted concessions nor
experienced significant bad debts associated with these long-term payment
arrangements. At December 31, 1999 and 1998, unbilled accounts receivable have
been reduced by $1,313,000 and $1,599,000, respectively, to reflect such amounts
at their present values. The Company imputes interest based only on that portion
of the receivable allocated to the license element as (a) the license is
delivered immediately but paid for over an extended period and (b) the license
revenue is the only portion of the fee that is recognized at the time the
license agreement is entered. Imputed interest income on long-term receivables
is reported within "Interest and Other Income" on the Consolidated Statements of
Operations.

      The Company has relationships with a number of third-party distributors to
market and distribute its products internationally. Under such arrangements, the
distributors report to, are invoiced by and remit payments to the Company based
on transactions with the ultimate customer. The Company records license revenues
and service revenues based upon transactions reported to the Company.

      The Company records an accrual for estimated sales returns. Historically,
such amounts have not been material.

Fixed Assets

      Fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives used to compute
depreciation are generally five years for computer equipment, office equipment
and furniture. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the estimated useful lives of the
improvements or the term of the related lease.

Intangible Assets

      In January 1997, the Company signed an agreement to acquire certain rights
and related assets from Infarmedica Holding AG ("Infarmedica"), a former
distributor of the Company's products. Under the terms of the


                                      -31-
<PAGE>   32




agreement governing this relationship, Infarmedica held exclusive rights to
market certain of the Company's products in Austria, the Benelux countries,
Germany and Switzerland. As a result of the 1997 agreement, the Company gained
access to a significant customer base in these European countries (including an
assignment of license and maintenance agreements) and established subsidiaries
in Germany and The Netherlands to support these customers directly. In
consideration for the acquisition of these rights, the Company paid Infarmedica
$1,800,000 in installment payments from 1997 through 1999, of which $497,000 was
paid in 1999, $488,000 was paid in 1998 and $815,000 was paid in 1997. In
addition, in January 1997 the Company granted Infarmedica a warrant to purchase
225,000 shares of the Company's common stock at $4.00 per share, which was fully
vested upon issuance, expires on January 1, 2007 and is transferable only with
the Company's consent. The fair value of the warrant was $48,000, calculated
using an option pricing model. The Company recorded the acquisition of the
customer base as an intangible asset representing the present value of the cash
payments plus the fair value of the warrant issued. The related intangible asset
was amortized over three years.

      In January 1999, the Company signed an agreement to acquire certain rights
and related assets from Software Products Ltd. ("Software Products"), a former
international distributor of the Company's products. Under terms of the
agreement governing the distribution relationship, Software Products held
exclusive rights to market certain of the Company's products in the United
Kingdom. As a result of the 1999 agreement, the Company gained direct access to
its mainframe customers in the United Kingdom. As consideration for the
acquisition of these rights, the Company paid Software Products $4,000,000 in
cash. As further consideration, the Company issued to Software Products 91,586
shares of Company common stock, with a fair value of $850,000 and subject to
certain resale restrictions and registration rights. Additionally, the Company
granted Software Products a warrant to purchase 150,000 shares of the Company's
common stock at the then fair market value of $10.00 per share, which vested
upon issuance and expires in January 2009. The fair value of the warrant was
$540,000, calculated using an option pricing model assuming an expected warrant
life of 2 years, a risk free interest rate of 4.6% and stock volatility of 60%.
The Company recorded the acquisition of the customer base as an intangible asset
representing the cash payment and the fair value of the stock and warrant issued
and is amortizing the intangible asset over a five-year period.

      In April 1999, the Company established a subsidiary, Landmark Systems
Singapore Pte Ltd. to act as a distributor of the Company's products in
Singapore.

      In May 1999, the Company established a subsidiary, Landmark Systems
France, SARL, to act as a distributor of the Company's client/server products in
France. In October 1999, the Company acquired the distribution rights for its
mainframe products from its international distributor in France. Under terms of
the agreement to acquire the distribution rights, the Company paid the former
distributor $1,200,000. Additionally, the Company granted the former distributor
a warrant to purchase 100,000 shares of Company common stock at the then fair
market value of $7.50 per share, which vested upon issuance. The warrant expires
in October 2002 or October 2004 if certain conditions are met. The fair value of
the warrant was $333,000, calculated using an option pricing model assuming an
expected warrant life of three years, a risk free interest rate of 5.9% and
stock volatility of 60%. The Company recorded the acquisition of the customer
base as an intangible asset representing the cash payment and the fair value of
the warrant issued, and is amortizing the intangible asset over a five-year
period.

      In June 1999, the Company acquired the distribution rights from its
international distributor in the Scandinavian countries and established a
subsidiary, Landmark Systems Nordic, AB, to act as a distributor of the
Company's products in the Scandinavian countries. Under terms of the agreement
to acquire the distribution rights, the Company will pay the former distributor
a royalty through June 2003 ranging from 65% to 85% of revenue received from the
licensing of certain products to, and the receipt of maintenance revenue
attributed to those products from, the former distributor's customers. Royalty
expense to the former distributor was $225,000 for the year ended December 31,
1999.

      Amortization expense of costs to acquire distribution rights was
$1,776,000 for the year ended December 31, 1999 and $616,000 for each of the
years ended December 31, 1998 and 1997.

Software Development Costs

                                      -32-
<PAGE>   33

      The Company accounts for its software development activities in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for
the Cost of Computer Software to be Sold, Leased or Otherwise Marketed." The
Company capitalizes costs incurred subsequent to the point of demonstrated
technological feasibility and up to the time the product is available for
release to customers. Amortization is computed on an individual product basis
and is the greater of (i) the ratio of current gross revenues for a product to
the total current and anticipated future gross revenues for the product or (ii)
the straight-line method over the estimated economic life of the product. The
Company amortizes capitalized software costs over an 18 months period.

Impairment of Long-Lived Assets

      The Company has adopted Statement of Financial Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"). SFAS 121 prescribes that an impairment loss is
recognized in the event that facts and circumstances indicate that the carrying
amount of an asset may not be recoverable, and an estimate of future
undiscounted cash flows is less than the carrying amount of the asset.
Impairment is recorded based on an estimate of future discounted cash flows.

Stock-Based Compensation

      The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. Under
APB No. 25, compensation expense is measured as the excess, if any, of the
market price of the Company's stock at the date of grant over the exercise price
of the option granted. Compensation expense for stock options, if any, is
recognized ratably over the vesting period. The Company provides additional pro
forma disclosures as required under SFAS No. 123, "Accounting for Stock-Based
Compensation" (Note 11).

      Transactions for which non-employees are issued equity instruments for
goods or services received are recorded by the Company based upon the fair value
of the equity instruments issued or the fair value of the goods or services
received, whichever is more reliably measured.

Income Taxes

      The Company provides for income taxes using the asset and liability
approach. The asset and liability approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of the assets and
liabilities. A valuation allowance is recorded if, based on the evidence
available, it is more likely than not that some portion or all of the deferred
tax asset will not be realized.

Comprehensive Income

      Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components. The Company's total
comprehensive income is comprised of net income and other comprehensive income,
which consists of foreign currency translation adjustments, and is presented in
the Consolidated Statement of Changes in Stockholders' Equity.

Foreign Currency Translations

      The functional currency for the Company's international subsidiaries is
the applicable local currency. The financial statements of international
subsidiaries are translated into U.S. dollars using exchange rates in effect at
period end for assets and liabilities and average exchange rates during each
reporting period for results of operations. Adjustments resulting from
translation of financial statements are included in stockholders' equity as
other comprehensive income. The Company does not attempt to hedge its foreign
currency exposures. Foreign


                                      -33-
<PAGE>   34



currency transaction losses of $32,000, $6,000 and $253,000 in 1999, 1998 and
1997, respectively, are included in other income.

Fair Value of Financial Instruments

      The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate their
fair value due to the short maturity of those instruments.

      The Company has $12,416,000 and $11,214,000 of unbilled accounts
receivable outstanding at December 31, 1999 and 1998, respectively; the
estimated fair values of these receivables are $12,698,000 and $12,095,000,
respectively, calculated using discounted cash flows.

Concentrations of Credit Risk

      Financial instruments that expose the Company to concentrations of credit
risk consist principally of accounts receivable and unbilled receivables. Credit
risk is limited due to the large number and geographic dispersion of customers
comprising the Company's customer base. No distributor or customer accounted for
more than 10% of the Company's total outstanding receivables.

Use of Estimates

      The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates and assumptions.


                                      -34-
<PAGE>   35





Earnings Per Share

      Basic earnings per share is computed by dividing the net income available
to common stockholders by the weighted-average number of shares of common stock
outstanding. Diluted earnings per share is computed by additionally reflecting
the potential dilution that could occur, using the treasury stock method, if
warrants and options to acquire common stock were exercised or resulted in the
issuance of common stock that then shared in the earnings of the Company. The
following is a reconciliation of the numerators and denominators for basic and
diluted earnings per share for 1999, 1998 and 1997:

<TABLE>
<CAPTION>

                                                                       Income               Shares             Per-Share
                                                                    (Numerator)          (Denominator)           Amount
                                                                     ----------           -----------            ------
<S>                                                                <C>                  <C>                    <C>

For the year ended December 31, 1999
Basic EPS
     Net income available to common stockholders                      $4,077,052           12,407,132             $0.33
  Effect of dilutive securities
     Common stock options and warrants                                         -              736,252
                                                                      ----------           ----------
Diluted EPS                                                           $4,077,052           13,143,384             $0.31
                                                                      ==========           ==========

For the year ended December 31, 1998
Basic EPS
     Net income available to common stockholders                      $5,122,113           11,491,395             $0.45
 Effect of dilutive securities
     Common stock options and warrants                                         -              881,634
                                                                       ---------           ----------
Diluted EPS                                                           $5,122,113           12,373,029             $0.41
                                                                       =========           ==========

For the year ended December 31, 1997
 Net income                                                           $3,005,652
  Less accretion and dividends on
    Preferred stock                                                   (1,475,409)
                                                                      ----------
Basic EPS
    Net income available to common stockholders                        1,530,243            7,876,208             $0.19
  Effect of dilutive securities
     Common stock options and warrants                                        --              889,056
                                                                      ----------            ---------
Diluted EPS                                                           $1,530,243            8,765,264             $0.17
                                                                      ==========            =========
</TABLE>


NOTE 3 -- SALE OF UNBILLED ACCOUNTS RECEIVABLE

      During 1999 and 1998, the Company sold, without recourse, unbilled
accounts receivables with a book value of $8,772,000 and $7,821,000,
respectively, to augment the Company's cash flow. The unbilled receivables sold
were from customers in the U.S. with remaining payments of up to four years. The
transactions were accounted for pursuant to SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
and resulted in immaterial gains and losses for the Company.


                                      -35-
<PAGE>   36





NOTE 4 -- FIXED ASSETS



      Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                     1999                1998
                                                                     ----                ----
<S>                                                            <C>                  <C>
        Computer equipment                                       $ 7,138,539         $  5,782,284
        Office equipment                                           5,731,046            5,409,056
        Furniture and equipment                                    3,410,396            3,197,527
        Leasehold improvements                                     2,575,885            1,572,812
                                                                  ----------          -----------
                                                                  18,855,866           15,961,679
        Less accumulated depreciation                            (13,492,593)         (11,840,389)
                                                                 -----------          -----------
             Fixed assets, net                                    $5,363,273          $ 4,121,290
                                                                  ==========          ===========
</TABLE>

      Depreciation expense was approximately $1,666,000, $1,385,000 and
$1,201,000 in 1999, 1998 and 1997, respectively.

NOTE 5 -- CAPITALIZED SOFTWARE COSTS

      Capitalized software costs consist of the following:

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                    1999                1998
                                                                    ----                ----
<S>                                                             <C>                  <C>
        Capitalized software costs                              $ 21,019,994         $ 20,163,698
        Less accumulated amortization                            (20,153,035)         (19,905,976)
                                                                 -----------          -----------
             Capitalized software, net                          $    866,959         $    257,722
                                                                ============         ============
</TABLE>

      The Company capitalized software development costs of approximately
$856,000 and $258,000 during 1999 and 1998, respectively. The Company did not
capitalize any software development costs in 1997, as any amounts eligible for
capitalization were not material. Amortization expense of capitalized software
costs was approximately $247,000, $400,000 and $1,250,000 in 1999, 1998 and
1997, respectively.

NOTE 6 -- DEBT

     In December 1998, the Company paid the remaining balance of its debt. This
debt consisted of a note payable with an interest rate of 9% which was secured
by fixed assets and was due in monthly installments from February 1996 through
January 1999. The Company did not pay any interest in 1999. The Company paid
interest of approximately $42,000 and $276,000 in 1998 and 1997, respectively.

      In March 1999, the Company obtained a revolving line of credit in the
amount of $10,000,000. The line of credit, which is unsecured, has a floating
interest rate of LIBOR plus 1.35% and expires June 30, 2000. No advances have
been made on the line of credit. This agreement includes administrative fees of
0.25% on the unused balance of the line of credit.


                                      -36-
<PAGE>   37





NOTE 7 -- SEGMENT INFORMATION

      The Company classifies its operations into one industry segment, software
development and related services. The Company categorizes its products and
services into two groups: mainframe and client/server. The Company's revenues by
product group consist of the following:

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                              1999            1998           1997
                                              ----            ----           ----
<S>                                      <C>              <C>            <C>
       Mainframe                          $45,395,464      $42,342,260    $37,741,852
       Client/server                        9,806,970        7,489,974      5,620,643
                                           ----------      -----------    -----------
          Total revenues                  $55,202,434      $49,832,234    $43,362,495
                                          ===========      ===========    ===========
</TABLE>

      The Company sells its products outside the United States through its
subsidiaries and international distributors. Revenues from international
distributors are presented net of royalties paid to the distributors. The
Company's revenues by country or geographic region are as follows:


<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                           1999             1998            1997
                                           ----             ----            ----
<S>                                    <C>              <C>             <C>
     United States                     $37,763,652      $33,316,805     $28,786,077
     Germany                             3,665,206        4,165,628       2,666,617
     United Kingdom                      2,836,637        2,391,301       1,697,749
     Benelux                             1,815,552        2,126,476       1,359,219
     Australia                           1,782,883        1,553,149       1,512,141
     Other                               7,338,504        6,278,875       7,340,692
                                       -----------      -----------     -----------
          Total revenue                $55,202,434      $49,832,234     $43,362,495
                                       ===========      ===========     ===========
</TABLE>

      The Company's long-lived assets, which consist of fixed assets,
capitalized software and intangible assets, by country or geographic region are
as follows:

<TABLE>
<CAPTION>
                                                    December 31,
                                         1999            1998            1997
                                         ----            ----            ----
<S>                                  <C>              <C>             <C>
      United States                  $11,815,246      $4,760,777      $4,630,314
      Europe                             220,807         185,372         193,744
      Other                               48,291          48,863          57,556
                                     -----------      ----------      ----------
           Long-lived assets         $12,084,344      $4,995,012      $4,881,614
                                     ===========      ==========      ==========
</TABLE>



                                      -37-
<PAGE>   38




NOTE 8 -- INCOME TAXES

      Income before income taxes consists of the following:


<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                      1999           1998           1997
                                                                      ----           ----           ----
<S>                                                              <C>            <C>            <C>
           United States                                           $ 6,791,643    $7,848,582     $5,560,340
           International subsidiaries                                 (396,270)      368,229       (627,244)
                                                                    ----------    ----------     ----------
                Income before taxes                                 $6,395,373    $8,216,811     $4,933,096
                                                                    ==========    ==========     ==========

</TABLE>

      The provision for income taxes consists of the following:


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                              1999             1998            1997
                                                              ----             ----            ----
<S>                                                       <C>             <C>               <C>
           Current taxes payable:
             U.S. Federal                                  $ 1,447,293     $ 2,664,377       $ 994,371
             Foreign                                           702,674         762,284         520,103
             State and local                                   256,335         195,898         143,600
                                                             ---------       ---------      ----------
                                                             2,406,302       3,622,559       1,658,074
                                                             ---------       ---------      ----------

           Deferred tax provision (benefit):
             U.S. Federal                                      128,388        (527,255)        333,311
             Foreign                                          (227,373)         44,587         (89,822)
             State and local                                    11,004         (45,193)         25,881
                                                            ----------     -----------    ------------
                                                               (87,981)       (527,861)        269,370
                                                            ----------     -----------    ------------

           Provision for income taxes                       $2,318,321      $3,094,698    $  1,927,444
                                                            ==========      ==========    ============
</TABLE>

      The Company paid income taxes of approximately $3,446,000, $2,795,000 and
$1,334,000 in 1999, 1998 and 1997, respectively. Foreign taxes paid relate
primarily to taxes withheld from revenues remitted by international
distributors.


                                      -38-
<PAGE>   39





      The Company provides deferred taxes for temporary differences between the
bases of assets and liabilities for financial reporting purposes and the bases
of assets and liabilities for tax return purposes. The net deferred tax assets
at December 31, 1999 and 1998 are attributable to the following:



<TABLE>
<CAPTION>
                                                                         December 31,
                                                                   1999                1998
                                                                   ----                ----
<S>                                                                <C>                 <C>
        Deferred tax assets:
           Deferred revenue                                        $ 938,515           $  938,515
           Stock incentive plan                                            -               37,881
           Allowance for doubtful accounts                           278,960              490,107
           Tax credit carryforwards                                  319,491              319,491
           Sublease and general sales tax accrual                    (29,154)              70,290
           Capitalized software development costs                     82,947              306,812
           Losses from subsidiaries not utilized                     606,057              365,235
           Depreciation and amortization                           1,004,499              519,687
           Other                                                     115,824              215,861
           Valuation allowance                                      (333,000)            (449,000)
                                                                  ----------           ----------
                                                                   2,984,139            2,814,879
        Deferred tax liabilities:
           Depreciation and amortization                            (157,260)             (76,000)
                                                                  ----------           ----------
        Net deferred tax assets                                   $2,826,879           $2,738,879
                                                                  ==========           ==========


        Current deferred tax assets                               $1,333,482           $1,644,482
        Non-current deferred tax assets                            1,493,397            1,094,397
                                                                  ----------           ----------
           Net deferred tax assets                                $2,826,879           $2,738,879
                                                                  ==========           ==========
</TABLE>

      As of December 31, 1999 and 1998, the Company had a valuation allowance of
$333,000 and $320,000, respectively, to reflect foreign tax credit carryforwards
that, in the Company's estimation, would more likely than not expire prior to
utilization. The Company recorded an increase to the valuation allowance of
$13,000 in 1999 to reflect the tax effect of estimated international subsidiary
net operating losses.

      Competent authority is a process to resolve unintended results between the
U.S. and foreign taxing jurisdictions. In 1996, the Company established a
provision for competent authority of $129,000 to reflect management's belief
that the outcome of this process would likely result in a liability. In 1999, it
was determined that the issues were resolved and the provision for competent
authority of $129,000 was released.

      At December 31, 1999, the Company had foreign net operating loss
carryforwards of approximately $1,670,000, of which $240,000 expires in the year
2004. The remaining $1,430,000 carries forward indefinitely and is available to
offset future foreign taxable income.


                                      -39-
<PAGE>   40





      The provision for income taxes differs from the amount of taxes determined
by applying the U.S. Federal statutory rate to income before income taxes as a
result of the following:


<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                  1999           1998          1997
                                                                  ----           ----          ----
<S>                                                              <C>            <C>        <C>
           Computation of U.S. Federal income
             taxes at the statutory rate                           34.0%          35.0%      34.0%
           State and local taxes, net of Federal
             income tax benefit                                     2.7            1.6        1.9
           Change in valuation allowance                            0.2           (0.1)       2.8
           Change in provision for competent
             authority                                             (2.0)             -       (1.9)
           Other                                                    1.4            1.2        2.3
                                                                   ----           ----       ----
                Provision for income taxes                         36.3%          37.7%      39.1%
                                                                   ====           ====       ====
</TABLE>

NOTE 9 -- EMPLOYEE BENEFIT PLAN

      The Company has a 401(k) defined contribution plan. During 1999, 1998 and
1997, the Company matched 50% of the first 3% of employees' deferred
contributions. Employees are fully vested in all Company contributions. The
Company recorded expense for its matching contributions of approximately
$273,000, $228,000 and $217,000 during 1999, 1998 and 1997, respectively.

NOTE 10 -- MANDATORILY REDEEMABLE PREFERRED STOCK

      Prior to the IPO, the Company had issued two classes of preferred stock:
Series A Preferred Stock and Series B Preferred Stock. All shares of preferred
stock outstanding were converted to common stock at the time of the IPO.

Mandatorily Redeemable Series A Preferred Stock

      The Company's Series A Preferred Stock paid cumulative dividends effective
May 1, 1992 at an annual rate of $0.15 per share until April 30, 1997, and
thereafter at an annual rate of $0.375 per share.

      The Company was required to redeem $1,500,000 of Series A Preferred Stock
each year ("redemption year") plus accumulated dividends, beginning May 1, 1997,
at a redemption price equal to $5.00 per share plus 75% of the amount, if any,
by which the lesser of (i) 1.5 multiplied by the fair market value per share of
the common stock as determined by the Board of Directors (the "Board") at the
beginning of the redemption year or (ii) $7.4333 per share, exceeds $5.00 per
share.

      The holders of Series A Preferred Stock could convert all, but not less
than all, of the preferred shares into common stock at the time of the IPO based
upon the relationship between the redemption price and the IPO price of the
Company's common stock. At the time of the IPO, the 855,165 shares of Series A
Preferred Stock then outstanding were converted into 833,785 shares of common
stock.


                                      -40-
<PAGE>   41





Mandatorily Redeemable Series B Preferred Stock

      In March 1997, the Company issued 316,156 shares of Series B Preferred
Stock at a price of $6.326 per share and, in April 1997, an additional 79,039
shares of Series B Preferred Stock at a price of $6.326 per share. The Series B
Preferred Stock was convertible, at the option of the holder, into the Company's
common stock based on a ratio of $6.326 to a conversion price. Additionally, the
Series B Preferred Stock was redeemable at the holder's option at the earlier of
December 31, 2000 or six months after an IPO of the Company's common stock.

      Each outstanding share of Series B Preferred Stock was automatically
convertible into 1.5 shares of the Company's common stock immediately upon the
closing of a qualified public offering, as defined. Accordingly, at the time of
the IPO, the 395,195 shares of Series B Preferred Stock then outstanding were
converted into 592,793 shares of common stock.

       The following table summarizes the activity with respect to the Series A
Preferred Stock and Series B Preferred Stock:

<TABLE>
<CAPTION>
                                                   Series A Preferred Stock                 Series B Preferred Stock
                                                   ------------------------                 ------------------------
                                                                   Redemption                               Redemption
                                                  Shares             Value                 Shares             Value
                                                  ------             -----                 ------             -----
<S>                                       <C>                  <C>                      <C>              <C>
  Balance at December 31, 1996                 1,020,000         $  5,865,000                    --                  --
    Issuance of Series B preferred stock              --              --                    395,195       $   2,500,000
    Redemption of Series A preferred
      stock                                     (164,835)          (1,124,999)                   --                  --
    Adjustment to redemption value                    --            1,096,500                    --             136,079
    Conversion to common stock                  (855,165)          (5,836,501)             (395,195)         (2,636,079)
                                               ---------          -----------            ----------        ------------



  Balance at December 31, 1997                        --         $         --                    --       $          --
                                               =========          ===========            ==========        ============
</TABLE>

NOTE 11 -- COMMON STOCK INSTRUMENTS AND STOCKHOLDERS' EQUITY

Stock Purchase Plans

      During 1998, the Company adopted the 1998 Stock Purchase Plan ("1998 SPP")
which replaced the 1991 Employee Stock Purchase Plan ("1991 ESPP"). Under the
1998 SPP, eligible employees may use up to 10 percent of their gross cash
compensation to purchase shares of the Company's common stock at a purchase
price equal to 85 percent (90 percent during 1998 and the first three quarters
of 1999) of the fair value of the stock as of the last day of the previous
quarter or the day before the last day of the current quarter, whichever is
lower. For the plan years ended April 30, 1998 and 1997, the Board made 75,000
shares available for purchase under the 1991 ESPP. Under the 1991 ESPP, eligible
employees could purchase shares valued at up to 10 percent of their gross cash
compensation at fair value as determined by the Board. During 1999, 1998 and
1997, 71,534, 39,512 and 64,716 shares, respectively, were purchased under the
stock purchase plans.

     Prior to the IPO, the shares employees purchased under the 1991 ESPP were
subject to certain transfer restrictions. Without the prior written consent of
the Company, an employee could not sell, assign or transfer any common stock
purchased under this plan to any person or entity other than the Company,
another stockholder or employee. Under certain conditions, the employee could
require the Company to repurchase his shares at fair value. At any time
following the termination of an individual's employment, the Company had the
right to repurchase the employee's shares acquired through the 1991 ESPP at fair
value. These rights and restrictions lapsed at the time of the IPO.

Stock Incentive Plans

                                      -41-
<PAGE>   42

     The Company has three stock incentive plans that provide for the granting
of stock options to employees and executives of the Company: the 1994 Stock
Incentive Plan ("1994 SIP"), the 1989 Stock Incentive Plan ("1989 SIP") and the
1992 Executive Stock Incentive Plan ("1992 ESIP"). Options under these plans are
granted at the fair market value of the Company's common stock at the date of
grant, vest over a four-year period and expire ten years after the grant date.
The 1994 SIP replaced the 1989 SIP and the 1992 ESIP and no additional grants
will be made under the 1989 SIP or the 1992 ESIP. Options outstanding under the
1989 SIP and the 1992 ESIP will remain outstanding until the options terminate
or are exercised.

     Prior to the IPO, while employed by the Company, a holder of options
granted under the 1989 SIP and the 1992 ESIP had the right to require the
Company to repurchase at the fair market value, as established by the Board, all
or any portion of his (i) option shares and (ii) restricted stock provided that
certain of the conditions had been met. The Company also had the right to
repurchase at the fair market value, at any time following the termination of a
grantee's employment with the Company, all or any portion of the option shares
or restricted stock then held by the grantee. These repurchase rights lapsed at
the time of the IPO.

     As of December 31, 1999, a total of 4,500,000 shares of common stock can be
issued under the 1994 SIP through (i) qualified stock options, which qualify as
incentive stock options and have an exercise price equal to or greater than the
fair market value of the common stock at the date of grant, (ii) non-qualified
stock options, which have an exercise price equal to or greater than 85% of the
fair market value of the common stock on the date of grant, (iii) restricted
stock awards for common stock at a price determined by the Board, but not less
than 85% of the fair market value of the stock at the date of grant, which is
non transferable and subject to repurchase at the holder's cost until Board
designated conditions have been met, or (iv) stock bonuses.

1996 Advisory Board and Directors Stock Incentive Plan

     Options granted under the 1996 Advisory Board and Directors Stock Incentive
Plan (the "1996 ABP") are granted at the market value of the Company's common
stock on the date of grant, vest over a four year period and expire ten years
after the grant date. In 1999, 1998, and 1997 the Company granted options
totaling 66,000, 36,000, and 12,000, respectively, to its Board members. In
October 1997, the Company terminated the Advisory Board, accelerated the vesting
of 18,000 options granted pursuant to the 1996 ABP which were scheduled to vest
on December 31, 1997, and canceled 36,000 unvested options granted pursuant to
the 1996 ABP.

Other Stock Options

     In 1997, the Company issued 128,002 options to former employees of the
Company to replace options previously issued under the 1989 SIP, the 1992 ESIP
and the 1994 SIP which expired unexercised concurrent with or subsequent to
separation from the Company. The terms of the options granted were similar to,
but not identical to, the terms of the options they replaced. The Company
recorded compensation expense associated with these options of $60,000 in 1997.


                                      -42-
<PAGE>   43
Options Outstanding and Exercisable

     The following table summarizes information about options outstanding for
all stock option plans:

<TABLE>
<CAPTION>
                                      Shares           Price Per        Weighted- Average
                                    Outstanding          Share           Exercise Price
                                   Under Option       Under Option          Per Share
                                   -------------      ------------          ---------
<S>                                <C>             <C>                    <C>
Balance at December 31, 1996         2,793,632      $ 3.00--$4.00           $   3.67
  Stock options granted                605,452        3.33-- 4.97               3.97
  Stock options exercised             (490,435)       3.00-- 4.00               3.38
  Stock options canceled              (348,821)       3.33-- 4.00               3.88
  Stock options expired                (48,875)       3.59-- 4.00               3.95
                                     ---------

Balance at December 31, 1997         2,510,953        3.00-- 4.97               3.76
  Stock options granted                839,875        6.13--10.75               8.27
  Stock options exercised             (529,742)       3.17-- 8.63               3.79
  Stock options canceled              (344,103)       3.33-- 8.63               5.45
                                     ---------

Balance at  December 31, 1998        2,476,983        3.00--10.75               5.01
  Stock options granted              1,300,402        7.44--13.38              10.55
  Stock options exercised             (892,385)       3.00-- 8.63               3.66
  Stock options canceled              (276,871)       4.00--12.88               9.08
                                     ---------

Balance at  December 31, 1999        2,608,129      $ 3.17--$13.38          $   7.78
                                     =========
</TABLE>


     The following table summarizes information about options outstanding at
December 31, 1999 by plan:

<TABLE>
<CAPTION>

                              Total Options         Total Options              Total Options Available
                               Outstanding            Exercisable                 for Future Grant
                               -----------            -----------                  ----------------
<S>                            <C>                      <C>                       <C>
1994 SIP                         2,304,129                576,946                   1,180,274
1996 ABP                           162,000                 63,000                     126,000
Other stock options                142,000                142,000                           -
                                ----------                -------                  ----------
      Totals                     2,608,129                781,946                   1,306,274
                                 =========                =======                   =========
</TABLE>

     At December 31, 1999, the average exercise price per share of exercisable
options was $5.77. The unvested options vest primarily over a four-year period
and will be fully vested in the year 2003. The remaining average option life is
7.5 years.


                                      -43-
<PAGE>   44




    For stock options granted prior to the IPO, the Company estimated the fair
value of each employee option grant on the date of grant using a minimum value
model. The weighted-average assumptions included in the Company's fair value
calculations are as follows:

<TABLE>
<CAPTION>

                                               1999           1998         1997
                                               -----          -----        -----
<S>                                          <C>             <C>          <C>
Expected life (years)                            5               5            5
Risk-free interest rate                        4-6%            4-6%         5-6%
Volatility                                      70%             60%           0%
Dividend yield                                   0%              0%           0%
</TABLE>

     The weighted-average fair value of stock options granted under the employee
stock option plans during 1999, 1998 and 1997 was $6.57, $4.64 and $1.05,
respectively. Had the Company determined compensation costs for these option
plans and the stock purchase plans in accordance with SFAS No. 123 (Note 2), the
Company's net income for 1999 would have been approximately $2,076,000 or $0.17
per basic share and $0.16 per diluted share. The Company's net income for 1998
would have been approximately $4,418,000, or $0.38 per basic share and $0.36 per
diluted share. The Company's net income for 1997 would have been approximately
$2,645,000, or $0.15 per basic and $0.13 per diluted share. The SFAS No. 123
method of accounting does not apply to options granted prior to January 1, 1995
and, accordingly, the resulting pro forma compensation cost may not be
representative of future amounts.

Stock Compensation Expense

     The Company records stock compensation expense for the amount, if any, by
which the fair market value of the Company's common stock exceeds the option
exercise price at the date of the option grant. Prior to the IPO, the Company
also recorded stock compensation expense for shares and options outstanding
under the 1989 SIP, the 1992 ESIP and the 1991 ESPP to reflect any increase in
the amount at which the holders could require the Company to repurchase such
shares. The Company records stock compensation benefit to reflect any
forfeitures of unvested stock options. The Company recorded stock compensation
expense of approximately $0, $100,000 and $591,000 in 1999, 1998 and 1997,
respectively. Prior to the IPO, the Board determined the fair value of the
Company's common stock. The fair value of the Company's common stock effective
May 1, 1997 was $4.97.

Redeemable Common Stock Instruments

     The redeemable common stock instruments represent the shares of common
stock and stock options issued by the Company to certain employees pursuant to
the 1989 SIP, the 1992 ESIP, the 1991 ESPP and other agreements whereby the
holder had the right to require the Company to repurchase such shares at their
current fair market value. The rights of holders of redeemable common stock
instruments to require the Company to repurchase such shares automatically
lapsed at the time of the IPO.


                                      -44-
<PAGE>   45





           The following table summarizes the activity with respect to the
redeemable common stock instruments:

<TABLE>
<CAPTION>


                                                                        Shares of
                                                                      Common Stock                                  Redemption
                                                                        Underlying           Shares of               Value of
                                                                        Redeemable           Redeemable             Common Stock
                                                                      Stock Options        Common Stock              Instruments
                                                                      -------------        ------------             ------------
<S>                                                                 <C>                  <C>                   <C>
Balance at December 31, 1996                                                572,010              50,360            $   703,930
     Adjustment to redemption value                                              --                  --                425,834
     Redeemable common stock issued                                        (173,265)            242,963                820,007
     Redeemable common stock repurchased by the
     Company                                                                     --             (19,433)               (93,366)
     Cancellation of redeemable stock options                               (20,967)                 --                 (4,185)
     Waiver of rights to require repurchase                                (213,750)             (8,240)              (237,108)
     Lapse of rights to require repurchase                                 (164,028)           (265,650)            (1,615,112)
                                                                           --------            --------              ---------
Balance at December 31, 1997                                                     --                  --            $        --
                                                                           ========            ========              =========
</TABLE>

NOTE 12 -- COMMITMENTS

     During 1988, the Company entered into a ten-year lease for office space
which included a rent abatement for one and one half years. Rental expense has
been calculated as total rental payments spread ratably over the life of the
lease. An accrued rent expense is created in years when rent expense exceeds
cash payments. In 1996, the Company extended the lease commitment by five years.
The current and long-term portions of the deferred rent abatement at December
31, 1999 are approximately $87,000 and $218,000, respectively, and have been
included in accrued expenses or other liabilities, as appropriate.

     During 1998, the Company entered into a lease for office space for the
Company's new headquarters facility, and concurrently subleased the Company's
existing headquarters facility at terms which are comparable to those contained
within the Company's existing lease. The Company moved into the new facility in
June 1999 and turned its existing premises over to the subleasee at that time.
The lease for the new facility has a twelve-year term.

     The Company is committed for the payment of minimum rentals, exclusive of
escalation charges and renewal options and net of sublease income, under office
space, computer and other equipment operating lease agreements through 2004 for
the following amounts:

<TABLE>
<CAPTION>
                Year ending December 31,
                -------------------------
          <S>                               <C>
                2000                              $  3,200,000
                2001                                 2,700,000
                2002                                 1,800,000
                2003                                 1,700,000
                2004                                 1,800,000
                Thereafter                          11,900,000
                                                   -----------
                 Total                             $23,100,000
                                                   ===========
</TABLE>

     Additionally, the Company leases certain equipment under cancelable
operating leases. The total rental expense under all equipment and office space
operating leases was approximately $3,800,000, $3,200,000 and $2,700,000 in
1999, 1998 and 1997, respectively.


                                      -45-
<PAGE>   46
NOTE 13 - UNAUDITED QUARTERLY RESULTS

     The following table sets forth unaudited quarterly consolidated statements
of operations data for the years ended December 31, 1999, 1998 and 1997 (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                 Mar 31,           Jun 30,           Sep 30,           Dec 31,
                                                                 ------            ------            ------            ------
<S>                                                           <C>                <C>               <C>               <C>
           1999
                Total revenues                                   $13,798           $14,325           $13,001           $14,078
                Gross profit                                      11,900            12,382            11,052            11,972
                Net Income                                         1,452             1,439               300               886
                Earnings per share
                     Basic                                          0.12              0.12              0.02              0.07
                     Diluted                                        0.11              0.11              0.02              0.07

           1998
                Total revenues                                    10,300            12,144            12,369            15,019
                Gross profit                                       8,893            10,642            11,225            13,599
                Net income                                           692               954             1,423             2,053
                Earnings per share
                     Basic                                          0.06              0.08              0.12              0.18
                     Diluted                                        0.06              0.08              0.11              0.16

           1997
                Total revenues                                     9,995             9,960            10,422            12,985
                Gross profit                                       8,573             8,475             8,997            11,433
                Net income                                           357               170               695             1,783
                Earnings per share
                     Basic                                          0.04             (0.14)             0.07              0.19
                     Diluted                                        0.04             (0.14)             0.07              0.16
</TABLE>







                                      -46-
<PAGE>   47





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

None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information with respect to directors required by this item is incorporated
by reference from the Company's 2000 Proxy Statement to be filed with the
Securities and Exchange Commission by May 1, 2000.

The information with respect to officers required by this item is included at
the end of Part I of this document under the heading "Executive Officers of the
Company."

ITEM 11.  EXECUTIVE COMPENSATION.

The information required by this item is incorporated by reference from the
Company's 2000 Proxy Statement to be filed with the Securities and Exchange
Commission by May 1, 2000.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this item is incorporated by reference from the
Company's 2000 Proxy Statement to be filed with the Securities and Exchange
Commission by May 1, 2000.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item is incorporated by reference from the
Company's 2000 Proxy Statement to be filed with the Securities and Exchange
Commission by May 1, 2000.


                                      -47-
<PAGE>   48




                                     PART IV

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

        (a) Listed below are the documents filed as a part of this report:

        1.    Financial Statements and the Independent Accountants Report:

                  Report of Independent Accountants
                  Consolidated Statements of Operations
                  Consolidated Balance Sheets
                  Consolidated Statements of Changes in Stockholders' Equity
                  Consolidated Statements of Cash Flows
                  Notes to Consolidated Financial Statements

        2.    Financial Statement Schedules:


                  Report of Independent Accountants on Financial Statement
                  Schedule


                  Schedule II -- Valuation and Qualifying Accounts

        3.    Exhibits:
<TABLE>

                  <S>            <C>
                       3.1         Articles of Incorporation (incorporated by
                                   reference to Exhibit 3.1 forming a part of
                                   the Company's registration statement on Form
                                   S-1 (File No. 333-35629) filed with the
                                   Securities and Exchange Commission under the
                                   Securities Act of 1933, as amended.)

                       3.2         Amended and Restated Bylaws (incorporated by
                                   reference to Exhibit 3.2 forming a part of
                                   the Company's registration statement on Form
                                   S-1 (File No. 333-35629) filed with the
                                   Securities and Exchange Commission under the
                                   Securities Act of 1933, as amended.)

                       4.1         Reference is made to Exhibits 3.1 and 3.2

                       4.2         Specimen certificate of Common Stock
                                   (incorporated by reference to Exhibit 4.2
                                   forming a part of the Company's registration
                                   statement on Form S-1 (File No. 333-35629)
                                   filed with the Securities and Exchange
                                   Commission under the Securities Act of 1933,
                                   as amended.)

                       10.1*       Employment agreement between the Company and
                                   Ralph E. Alexander dated April 9, 1997
                                   (incorporated by reference to Exhibit 10.1
                                   forming a part of the Company's registration
                                   statement on Form S-1 (File No. 333-35629)
                                   filed with the Securities and Exchange
                                   Commission under the Securities Act of 1933,
                                   as amended.)

                       10.2*       1989 Stock Incentive Plan (incorporated by
                                   reference to Exhibit 10.2 forming a part of
                                   the Company's registration statement on Form
                                   S-1 (File No. 333-35629) filed with the
                                   Securities and Exchange Commission under the
                                   Securities Act of 1933, as amended.)
</TABLE>

                                      -48-
<PAGE>   49

<TABLE>
                    <S>          <C>
                       10.3*       1991 Employee Stock Purchase Plan
                                   (incorporated by reference to Exhibit 10.3
                                   forming a part of the Company's registration
                                   statement on Form S-1 (File No. 333-35629)
                                   filed with the Securities and Exchange
                                   Commission under the Securities Act of 1933,
                                   as amended.)

                       10.4*       1992 Executive Stock Incentive Plan
                                   (incorporated by reference to Exhibit 10.4
                                   forming a part of the Company's registration
                                   statement on Form S-1 (File No. 333-35629)
                                   filed with the Securities and Exchange
                                   Commission under the Securities Act of 1933,
                                   as amended.)

                       10.5*       1994 Stock Incentive Plan (incorporated by
                                   reference to Exhibit 10.5 forming a part of
                                   the Company's registration statement on Form
                                   S-1 (File No. 333-35629) filed with the
                                   Securities and Exchange Commission under the
                                   Securities Act of 1933, as amended.)

                       10.6*       1996 Advisory Board and directors Stock
                                   Incentive Plan (incorporated by reference to
                                   Exhibit 10.6 forming a part of the Company's
                                   registration statement on Form S-1 (File No.
                                   333-35629) filed with the Securities and
                                   Exchange Commission under the Securities Act
                                   of 1933, as amended.)

                       10.7*       1998 Employee Stock Purchase Plan
                                   (incorporated by reference to Exhibit 99
                                   forming a part of the Company's registration
                                   statement on Form S-8 (File No. 333-61161)
                                   filed with the Securities and Exchange
                                   Commission under the Securities Act of 1933,
                                   as amended.)

                      10.8/\       Deed of Lease between Boston Properties
                                   Limited Partnership and Landmark Systems
                                   Corporation dated January 30, 1998

                      22.1/\       Subsidiaries of the Company

                      23.1/\       Consent of PricewaterhouseCoopers LLP

                      27.1/\       Financial Data Schedule
</TABLE>

                      *    Reflects management contract or other compensatory
                           arrangement required to be filed as an exhibit
                           pursuant to Item 14(c) of this Form 10-K.

                      /\   Filed herewith.

        (b) Reports on Form 8-K:

        None.


                                      -49-
<PAGE>   50





                                   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.

                                       LANDMARK SYSTEMS CORPORATION
<TABLE>

<S>                                   <C>
Date:     March 30, 2000               By:  /s/  Katherine K. Clark
          --------------                    -----------------------
                                            Katherine K. Clark
                                            Chief Executive Officer and Director
                                            (Duly Authorized Officer)
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 30, 2000.


<TABLE>
<CAPTION>
Signature                                         Title
---------                                         -----
<S>                                           <C>
/s/  Patrick H. McGettigan                        Chairman of the Board
----------------------------------
Patrick H. McGettigan

/s/  Katherine K. Clark                           President, Chief Executive Officer and Director
---------------------------
Katherine K. Clark                                (Principal Executive Officer)

/s/  Jeffrey H. Bergman                           Director
----------------------------------
Jeffrey H. Bergman

/s/  T. Eugene Blanchard                          Director
----------------------------------
T. Eugene Blanchard

/s/  Dennis J. Bowman                             Director
----------------------------------
Dennis J. Bowman

/s/  Patrick W. Gross                             Director
----------------------------------
Patrick W. Gross

/s/  Sudhakar V. Shenoy                           Director
----------------------------------
Sudhakar V. Shenoy

/s/  Frederick S. Rolandi, III                    Vice President and Chief Financial Officer
----------------------------------
Frederick S. Rolandi, III                         (Principal Accounting Officer)

</TABLE>

                                      -50-
<PAGE>   51
                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and Stockholders of Landmark Systems Corporation

Our audits of the consolidated financial statements referred to in our report
dated February 29, 2000, relating to the consolidated financial statements,
appearing in Landmark Systems Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999 also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.


/s/ PricewaterhouseCoopers LLP

McLean, Virginia
February 29, 2000

<PAGE>   52





                          LANDMARK SYSTEMS CORPORATION
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999


<TABLE>
<CAPTION>
                       COL. A                       COL. B              COL. C              COL. D                   COL. E
                       ------                       ------              ------              ------                   ------

                                                  BALANCE AT
                                                BEGINNING OF          CHARGED TO                                   BALANCE AT
DESCRIPTION                                         PERIOD            OPERATIONS          DEDUCTIONS              END OF PERIOD
                                                    ------            ----------          ----------              -------------
<S>                                                 <C>                 <C>                <C>                        <C>
Year Ended December 31, 1997
Allowance for uncollectible accounts                $382,044            $775,623           $(536,968)        (A)      $620,699
Deferred tax asset valuation allowance               410,000              44,000                 --                    454,000

Year Ended December 31, 1998
Allowance for uncollectible accounts                 620,699           1,315,193            (612,673)        (A)     1,323,219
Deferred tax asset valuation allowance               454,000             (5,000)                 --                    449,000

Year Ended December 31,1999
Allowance for uncollectible accounts               1,323,219            727,506           (1,255,405)        (A)      795,320
Deferred tax asset valuation allowance               449,000                 --             (116,000)        (B)      333,000
</TABLE>


(A)        Uncollectible accounts written off and sales returns

(B)        Reduction of tax valuation allowance


                                      -51-
<PAGE>   53




                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                                  EXHIBITS
                                                        --------

<S>           <C>
22.1           Subsidiaries of the Company

23.1           Consent of PricewaterhouseCoopers LLP

27.1           Financial Data Schedule
</TABLE>


                                      -52-